Q2 Revenues of $21 Million, Non-GAAP Net Income $2.8 Million, EPS $0.16 H1 Revenues of $41 Million, Non-GAAP Net Income $4.8 Million, EPS $0.29 HERZLIA, Israel, July 31 /PRNewswire-FirstCall/ -- BluePhoenixSolutions Ltd. (NASDAQ: BPHX), a leading provider of value drivenmodernization solutions for legacy information systems, today reportedrecord financial results for the second quarter and first half ending June30, 2007. For the second quarter of 2007, BluePhoenix reported record sales of$21.0 million, up 27% from $16.6 million in the second quarter of 2006, andup 5% as compared to $20.1 million in the prior quarter. This was the tenthconsecutive quarter of sequential growth. Operating income on a Non-GAAP basis for the second quarter was arecord $3.1 million, up 31% from $2.4 million in the second quarter of 2006and up 25% from $2.5 million in the prior quarter. As a percentage ofrevenues, the Non-GAAP operating income for the second quarter was 15%. Net income on a Non-GAAP basis for the second quarter, excludingnon-cash financial expenses, was a record high of $2.8 million, or $0.16per share, as compared to $1.8 million, or $0.13 per share, in the secondquarter of 2006, and $2.0 million, or $0.13 per share, in the priorquarter. Non-GAAP Results Q2/2007 Q1/2007 Q2/2006 Sales 20,984 20,065 16,574 Operating profit 3,113 2,485 2,372 Net Income 2,830 1,995 1,841 GAAP Results Q2/2007 Q1/2007 Q2/2006 Sales 20,984 20,065 16,574 Operating profit (594) 2,398 1,864 Net Income (1,765) 125 1,103 The GAAP based net loss was $1.8 million, or $(0.11) per share, ascompared to a net income of $1.1 million, or $0.08 per share, in the secondquarter of 2006. The second quarter GAAP based net loss was materiallyaffected by one-time non-cash executive compensation of $1.8 millionrelated to the Formula sale of shareholdings in BluePhoenix. Non-GAAPresults also exclude restructuring, acquisition related and integrationcharges, amortization and capitalization of intangible assets, the effectof stock-based compensation and non-cash financial expenses. Reconciliationbetween GAAP operating and net income is provided below. "BluePhoenix's tenth quarter of sequential growth in revenues and netprofit and the strong execution delivered across the Company is verygratifying," said Arik Kilman, CEO of BluePhoenix Solutions. "The firsthalf of this year has been an exciting period of strong growth, integrationand great progress as we push forward towards the next stage of ourstrategic plan." "We have successfully completed key projects with major clients inNorth America and Europe, attained advanced partnership status with IBM andOracle and created the infrastructure critical for expected operationalexpansion," continued Kilman. "We have also witnessed our investor basetransformed to include a multitude of institutional investors across thefinancial and geographic spectrums." Kilman concluded, "The Company's ability to deliver the right tools andservices for today's modernization market coupled with our ability toreduce the cost of project implementation, positions us to further driveBluePhoenix forward through both organic and acquisitive growth. As such,we are upgrading our previously announced guidance for the year 2007, forNon-GAAP earnings, to $0.67 per share. Our revenue for the year will be$85.5 million." Other Financial Highlights Cash and cash equivalents increased to $19.0 million in June 2007 from$15.3 million in March 2007 and $11.6 million in December 2006; Company financial debt decreased to $30.8 million in June 2007 from$36.3 million in March 2007 and $39.2 million in December 2006; DSOs decreased to 110 in the second quarter of 2007 from 118 in thefirst quarter of 2007 and 130 in the forth quarter of 2006; Company cash flow from operating activities excluding capitalization ofsoftware development costs was positive for the second sequential quarter; Shareholder's equity increased by $17.3 million since December 31,2006. Business Highlights The following business highlights were announced during the quarter: Successful completion of a strategic modernization project for ToyotaMotor Sales (TMS), U.S.A., Inc.'s vehicle distribution system; Successful migration of billing system as part of multi-million dollarmodernization project for Israel Local Authorities Association; Completion of a strategic database and application migration projectfor a major North American retail chain with an expected payback period ofone year and significant reduction in operational costs and maintenancefees; Key strategic acquisition of an off shore facility in St. Petersburg,Russia, which is expected to save more than $3 million per year, whilereducing costs and increasing profits; Partnership signed with Oracle to join the Oracle ModernizationAlliance and to provide modernization solutions that help customers quicklyand cost-effectively migrate to Oracle from legacy databases; Achieved IBM advanced PartnerWorld designation after demonstrating thatcustomers were extending and enhancing their existing Mainframe systemswith BluePhoenix products and technology; Formula Systems sold their shareholdings in BluePhoenix tointernational institutional investors. Conference Call Arik Kilman, CEO, Varda Sagiv, CFO and David Leichner, CMO will host aconference call to discuss the results and business outlook today at 10:00A.M.EST (17:00 Israel Time). Interested parties are invited to call thefollowing telephone numbers, five to ten minutes prior to the start of theconference call: In the US call: +1-800-288-8961; Outside the US call:+1-612-332-0342. Callers should reference "Second Quarter Results on July31st, 2007" to the AT&T conference call operator. An automated replay ofthe conference call will be available from July 31st 01:30 P.M. untilAugust 2nd at 11:59 P.M. (EST). The replay will be available from August2nd onward at http://www.bphx.com. To access the replay please call (USA)+1-800-475-6701 (International) +1-320-365-3844 and enter BluePhoenixSolution's access code of 881657. Non-GAAP To supplement BluePhoenix's consolidated financial statements presentedin accordance with GAAP, BluePhoenix provides Non-GAAP operating income(loss), Non-GAAP net income (loss) and Non-GAAP net income (loss) per sharedata. The presentation of these Non-GAAP financial measures should beconsidered in addition to BluePhoenix's GAAP results and is not intended tobe considered in isolation or as a substitute for the financial informationprepared and presented in accordance with GAAP. BluePhoenix's managementbelieves that these Non-GAAP financial measures provide meaningfulsupplemental information regarding its performance by excluding certaincharges, gains and tax effects that may not be indicative of BluePhoenix'score business operating results. BluePhoenix believes that both managementand investors benefit from referring to these Non-GAAP financial measuresin assessing BluePhoenix's performance. These Non-GAAP financial measuresalso facilitate comparisons to BluePhoenix's historical performance and itscompetitors' operating results. BluePhoenix includes these Non-GAAPfinancial measures because management believes they are useful to investorsin allowing for greater transparency with respect to supplementalinformation used by management in its financial and operational decisionmaking. Non-GAAP measures are reconciled to comparable GAAP measures in thetable entitled "Reconciliation of GAAP to Non-GAAP." About BluePhoenix Solutions (http://www.bphx.com) BluePhoenix Solutions (NASDAQ: BPHX) is a leading provider ofvalue-driven modernization solutions for legacy information systems.BluePhoenix offerings include a comprehensive suite of tools and servicesfrom global IT asset assessment and impact analysis to automated databaseand application migration, rehosting, and renewal. Leveraging over 20 yearsof best-practice domain expertise, BluePhoenix works closely with itscustomers to ascertain which assets should be migrated, redeveloped, orwrapped for reuse as services or business processes, to protect andincrease the value of their business applications and legacy systems withminimized risk and downtime. BluePhoenix provides modernization solutions to companies from diverseindustries and vertical markets such as automotive, banking and financialservices, insurance, manufacturing, and retail. Among its prestigiouscustomers are: Aflac, DaimlerChrysler, Danish Commerce and CompaniesAgency, Europe Assistance, Lawson Products, Los Angeles County EmployeesRetirement Association, Merrill Lynch, SDC Udvikling, and TEMENOS.BluePhoenix has 15 offices in the USA, UK, Denmark, Germany, Italy, France,The Netherlands, Romania, Russia, Cyprus, South Korea, Australia, andIsrael. SAFE HARBOR: Certain statements contained in this release may be deemedforward-looking statements, with respect to plans, projections, or futureperformance of the Company, the occurrence of which involves certain risksand uncertainties that could cause actual plans to differ materially fromthese statements. These risks and uncertainties include but are not limitedto: market demand for the Company's tools, successful implementation of theCompany's tools, competitive factors, the ability to manage the Company'sgrowth, the ability to recruit and retrain additional software personnel,and the ability to develop new business lines. This press release is alsoavailable at http://www.bphx.com. All names and trademarks are theirowners' property. BluePhoenix Solutions Ltd. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) Three months ended Six months ended June 30, June 30, _______ _______ _______ _______ 2007 2006 2007 2006 _______ _______ _______ _______ Unaudited Unaudited Revenues $20,984 $16,574 $41,049 $32,603 Cost of revenues 8,827 6,909 17,402 13,592 _______ _______ _______ _______ Gross profit 12,157 9,665 23,647 19,011 Software development costs, net 3,157 2,289 5,884 4,486 Selling, general and administrative expenses 9,105 5,512 15,470 10,952 Restructuring 489 -- 489 -- _______ _______ _______ _______ Operating income (loss) (594) 1,864 1,804 3,573 Financial expenses, net (1,209) (842) (3,215) (1,615) Other income, net -- 268 -- 282 _______ _______ _______ _______ Income (loss) before taxes (1,803) 1,290 (1,411) 2,240 Taxes on income 48 9 166 54 _______ _______ _______ _______ (1,851) 1,281 (1,577) 2,186 Minority interest 86 (178) (63) (134) _______ _______ _______ _______ Net income (loss) ($1,765) $1,103 ($1,640) $2,052 ======= ======= ======= ======= Basic earnings per share ($0.11) $0.08 ($0.10) $0.15 ______ ______ ______ ______ Diluted earnings per share ($0.11) $0.08 ($0.10) $0.14 ======= ======= ______ ======= Common shares outstanding 16,381 14,134 15,631 13,776 ======= ======= ======= ======= Common shares assuming dilution 16,381 14,696 15,631 14,276 ======= ======= ======= ======= RECONCILIATION OF GAAP TO NON-GAAP (In thousands, except per share data) Three months ended Six months ended June 30, June 30, _______ _______ _______ _______ 2007 2006 2007 2006 _______ _______ _______ _______ Unaudited Unaudited GAAP operating income (loss) ($594) $1,864 $1,804 $3,573 Restructuring 489 -- 489 -- Acquisition related and integration charges 876 -- 876 -- Amortization of intangible assets 2,214 2,051 4,267 3,592 Capitalization of software development (1,653) (1,759) (3,855) (3,334) Depreciation of fixed assets (*) -- 206 199 400 Stock-based compensation 12 10 49 20 One time non-cash executive compensation related to the Formula sale of shareholdings in BluePhoenix, offset against paid-in capital. 1,769 -- 1,769 -- _______ _______ _______ _______ Total adjustments to GAAP operating income 3,707 508 3,794 678 Non-GAAP Operating income $3,113 $2,372 $5,598 $4,251 ======= ======= ======= ======= GAAP net income (loss) ($1,765) $1,103 ($1,640) $2,052 Restructuring 489 -- 489 -- Acquisition related and integration charges 876 -- 876 -- Amortization of intangible assets 2,214 2,051 4,267 3,592 Capitalization of software development (1,653) (1,759) (3,855) (3,334) Depreciation of fixed assets (*) -- 206 199 400 Stock-based compensation 12 10 49 20 One time non-cash executive compensation related to the Formula sale of shareholdings in BluePhoenix, offset against paid-in capital. 1,769 -- 1,769 -- Non-cash financial expenses 914 322 2,549 602 Minority interest (26) (92) 122 (85) _______ _______ _______ _______ Total adjustments to GAAP net income 4,595 738 6,465 1,195 Non-GAAP net income $2,830 $1,841 $4,825 $3,247 ======= ======= ======= ======= Non - GAAP Diluted Earning per share $0.16 $0.13 $0.29 $0.23 ======= ======= ======= ======= Shares used in diluted Earning per share calculation- GAAP 16,381 14,696 15,631 14,276 Effect of employee stock option plans 1,187 -- 952 -- Shares used in diluted Earning per share calculation- Non-GAAP 17,568 14,696 16,583 14,276 ======= ======= ======= ======= (*) Was reconciled until March 31,2007 BluePhoenix Solutions Ltd. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) June 30, December 31, ______ _____ 2007 2006 ______ _____ ASSETS Current Assets: Cash and cash equivalents $19,036 $11,627 Marketable securities 44 1,053 Trade accounts receivable 25,746 26,489 Other current assets 3,330 3,096 _________ ________ Total Current Assets 48,156 42,265 Non-Current Assets: Long-term trade receivable 854 1,390 Property, net 2,192 2,147 Other assets, net 84,399 81,664 _________ ________ Total Non-Current Assets 87,445 85,201 _________ ________ TOTAL ASSETS $135,601 $127,466 ========= ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Short-term credit from banks $8,396 $609 Current portion of long term convertible debentures 1,338 4,482 Trade accounts payable 4,473 4,594 Deferred revenues 4,338 7,790 Other current liabilities 9,143 6,929 _________ ________ Total Current Liabilities 27,688 24,404 Non-Current Liabilities Convertible debentures 4,014 14,049 Accrued severance pay, net 2,218 1,718 Provision for losses in formerly-consolidated subsidiary 1,971 1,971 Loans from banks and others 17,098 20,027 Minority interests 5,411 5,348 _________ ________ Total Non-Current Liabilities 30,712 43,113 _________ ________ Shareholders' Equity 77,201 59,949 _________ ________ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $135,601 $127,466 ========= ======== BluePhoenix Solutions Ltd. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Six months Three months ended ended June 30, ______ _____ 2007 2007 ______ _____ CASH FLOWS FROM OPERATING ACTIVITIES: Net income ($1,640) ($1,765) Adjustments to reconcile net income to net cash provided by operating activities: Minority interests in profits of subsidiaries 63 (86) Depreciation and amortization 4,674 2,328 Increase (decrease) in accrued severance pay, net 315 (3) Loss on sale of property 8 11 Change in value of long term-loans and convertible debentures 1,639 416 Stock - based and non cash compensations 1,819 1,782 Changes in operating assets and liabilities: Marketable securities 1,009 563 Decrease in trade receivables 1,787 1,207 Increase (decrease) in other current assets (220) 511 Decrease in trade payables (348) (826) Decrease in other current liabilities and deferred revenues (1,724) (2,146) _______ ______ Net cash provided by operating activities 7,382 1,992 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property (346) (145) Proceeds from sale of property 8 - Capitalization of software development costs (3,855) (1,655) Purchase of minority interest in subsidiaries and purchase of activity (579) (273) Investment in newly-consolidated subsidiaries and purchase of new-activity (2,040) (2,040) _______ ______ Net cash used in investing activities (6,812) (4,113) CASH FLOWS FROM FINANCING ACTIVITIES: Short-term bank credit, net 4,399 4,551 Repayment of long-term loans (6,034) - Receipts of long-term loans 6,000 - Exercise of employee share options and warrants 2,477 1,288 _______ ______ Net cash provided by financing activities 6,842 5,839 NET INCREASE IN CASH AND CASH EQUIVALENTS 7,412 3,718 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 11,627 15,321 _______ _______ _______ _______ CASH AND CASH EQUIVALENTS AT END OF PERIOD $19,039 $19,039 ======= ======= Company Contact: David Leichner Investor Relations BluePhoenix Solutions +972-9-9526-105 dleichner@bphx.com Investor Contact: Paul Holm H.L. Lanzet +1-212-888-4570 paulmholm@gmail.com
