News & Events 

Second Quarter Revenue Increases 20.1% to $23.0 Million

 Non-GAAP Net Income $2.9 Million, or $0.14 EPS vs. $2.9 million or $0.16 EPS

HERZLIYA, Israel — August 4, 2008 — BluePhoenix Solutions (NASDAQ: BPHX - News), the leader in value-driven legacy modernization, today announced financial results for the second quarter ending June 30, 2008. For the quarter, the Company reported revenue from continuing operations (excluding Mainsoft, which was classified as discontinued operations as of December 31, 2007) of $23.0 million, up 20.1% compared to $19.1 million for the second quarter last year. Adjusted non-GAAP income* (excluding the amortization of acquired technology and stock-based compensation) was $2.9 million, no change compared to the $2.9 million for the second quarter last year. Adjusted non-GAAP income per fully diluted share was $0.14 compared to $0.16 per diluted share in the year-ago period.

“BluePhoenix continues to deliver consistent year-over-year improvements in revenue, demonstrating the strong ongoing demand for our expertise and solutions,” said Arik Kilman, CEO of BluePhoenix Solutions. “We enter the second half of the year with the strongest near-term pipeline in our company’s history, both in terms of the number of deals and the aggregate revenue opportunity, in addition to a backlog that exceeds $100 million. Though our growth in 2008 thus far has been slowed somewhat by sporadic delays in the closing of deals and impacted our short-term visibility, we are benefiting from a 60% recurring revenue base, and this robust and growing pipeline. The demand for data modernizations and migrations is intact and our best-of-breed tools and solutions are well-positioned for sustainable long-term success.”

“The gradual weakening of the dollar in the past 12 months has had substantial impact on our operating expenses and P&L this year,” Mr. Kilman continued. “The shekel’s 20% appreciation against the U.S. dollar from June 30, 2007 to June 30, 2008 has been a partial offset to our bottom-line growth this year.”

Non-GAAP Results*

15,171

GAAP Results*

15,171

*Excluded MainSoft

Financial Highlights

• Revenue increased 20.1% to $23.0 million from $19.1 million one year ago
• Net income on a GAAP basis includes $8.4 million non-cash expenses related to the write-off of the Company’s holdings in Mainsoft.
• The impact of the currency exchange rate, which includes a 20% devaluation of the US Dollar compared to the Israeli Shekel, resulted in approximately $900,000 impact on the company’s operating loss and a $0.04 impact on the non-GAAP earnings per share.
• BluePhoenix completed the quarter with a backlog of $103 million, compared to $109 million as of March 31, 2008 and $105 million as of December 31, 2007.

Operational Highlights

• Significantly expanded its collaboration with Microsoft on legacy modernization projects, providing customers moving their applications or databases to .NET-based environments the very best in both modernization services and technical support.
• Announced the release of a revolutionary version of its Monarch modernization solution, Monarch 4.0, the fastest path available today for organizations who wish to expand or migrate their monolithic AS/400, iSeries, or System i green screen and web-faced RPG applications to the growing Microsoft .NET Framework.
• Signed a partnership agreement with Capita Life & Pension Services, a division of Capita Group, one of the UK's leading providers of integrated professional support service solutions. Under the partnership agreement, BluePhoenix will provide legacy modernization tools and services to one of Capita’s key contracts in support of their business transformation program.
• ASNA, the company’s AS400 mainframe migration business experienced a 183% sequential increase in new bookings compared to the first quarter of 2008.

Subsequent to the Quarter:

• Entered into a non-binding letter of intent to sell its interest in Mainsoft to an undisclosed third party for a cash payment of $1.7 million plus contingent consideration based on certain exit events, such as sale of holdings or qualified initial public offering. Terms will be agreed and disclosed upon execution of the definitive agreement for the sale.
• Won a $1.1 million contract from the U.S. Department of Energy to migrate and modernize several key applications and databases to the Java/Oracle environment. This project will be executed in conjunction with BluePhoenix partner EES (Energy Enterprise Solutions), to whom BluePhoenix is serving as subcontractor.
• Named Yaron Tchwella as President of BluePhoenix Solutions, Ltd., adding a 25 years of public company executive experience in the high technology industry with a proven ability to turn strategy and vision into business results.

Operating Results

GAAP operating loss was $165,000 in the quarter just ended compared to a loss of $518,000 for the second quarter last year. During the quarter, the Company recorded certain non-cash expenses for amortization and stock based compensation, which totaled $2.8 million. During the year-ago period, the non-cash expenses for amortization, stock-based compensation and non-cash compensation, as well as capitalization of software development costs, totaled $3.6 million.

Non-GAAP operating income for the quarter was $2.6 million as compared with non-GAAP operating income of $3.1 million during the year-ago period.

Net Income from continuing operation

GAAP net profit from continuing operation for the quarter ended June 30, 2008 was $90,000 compare to loss from continuing operation on a proforma basis of $1.7 million for the second quarter last year.

Non-GAAP net income from continuing operation for the quarter ended June 30, 2008 was $2.9 million, no change from the second quarter last year.

Earnings per share on a non-GAAP basis were $0.14 based on 20.9 million common shares outstanding. This compares to $0.17 based on 16.4 million shares outstanding in the year-ago period.

Effect of the devaluation of the US Dollar

As mentioned before, the impact of the currency exchange rate, which includes a 20% devaluation of the US Dollar compared to the Israeli Shekel, resulted in about $900,000 impact on the company’s operating and net loss and a $0.04 impact on the non-GAAP earnings per share.

Management Addition

As announced in a separate press release today, Yaron Tchwella has joined the Company as President, effective immediately. Mr. Tchwella brings to this position more than 25 years experience and leadership in the high technology industry. Most recently, he served as president of Comverse Inc., a world leader in providing value added services to more than 500 of the largest global telecommunication companies. In this role he had direct responsibility for defining and executing the company vision and strategy, and managing all financial, operational and organizational aspects.

Outlook

Mr. Kilman concluded, “We believe that our backlog and pipeline for new business will enable us to continue growing our revenues at a rate of approximately 20% per year. Accordingly, we are expecting revenue for 2008 of $92 million to $97 million. Taking into account the effect of the currency exchange rate, the growth in services as part of our revenue mix, and our ability to close deals directly ahead of us, we are forecasting our non-GAAP earnings per share for 2008 to be in a range of $0.55 and $0.70. The wide range in this forecast reflects our more tenuous view as to timings of near term revenue recognition, primarily based on longer sales cycles in our business. Legacy migration tools remain in high demand and our long-term prospects remain excellent.”

Non-GAAP FINANCIAL MEASURES

The release includes non-GAAP diluted earnings per share and other non-GAAP financial measures, non-GAAP cost of revenues, non-GAAP research and development, non-GAAP selling, general and administrative, non-GAAP operating income, non-GAAP net income and non-GAAP net income (loss) per share. These non-GAAP measures exclude the following items: 

• amortization of purchased intangible assets;
• capitalization of research and development costs; and
• equity-based compensation expense. 

The presentation of these non-GAAP financial measures should be considered in addition to BluePhoenix' GAAP results and is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP. BluePhoenix' management believes that these non-GAAP financial measures provide meaningful supplemental information regarding its performance by excluding certain charges, gains and tax effects that may not be indicative of BluePhoenix' core business operating results. BluePhoenix believes that both management and investors benefit from referring to these non-GAAP financial measures in assessing BluePhoenix' performance. These non-GAAP financial measures also facilitate comparisons to BluePhoenix' historical performance and its competitors' operating results. BluePhoenix includes these non-GAAP financial measures because management believes they are useful to investors in allowing for greater transparency with respect to supplemental information used by management in its financial and operational decision-making. Non-GAAP measures are reconciled to comparable GAAP measures in the table entitled "Reconciliation of GAAP to Non-GAAP."

Conference Call:

Management will hold a conference call to discuss its 2008 second quarter financial results at 4:45 p.m. ET today, Monday, August 4, 2008.

Interested parties may access the call by calling 800-762-8973 from within the United States, or 480-248-5085 if calling internationally, approximately five minutes prior to the start of the call. A replay will be available through August 11, 2008 and can be accessed by dialing 800-406-7325 (U.S.), 303-590-3030 (Int'l), passcode 3901944.

This call is being web cast by ViaVid Broadcasting and can be accessed at BluePhoenix's website at http://www.bluephoenixsolutions.com. The web cast may also be accessed at ViaVid's website at http://www.viavid.net. The web cast can be accessed until September 5, 2008 on either site. To access the web cast, you will need to have the Windows Media Player on your desktop.

About BluePhoenix Solutions

BluePhoenix Solutions (NASDAQ: BPHX) is a leading provider of value-driven modernization solutions for legacy information systems. BluePhoenix offerings include a comprehensive suite of tools and services from global IT asset assessment and impact analysis to automated database and application migration, re-hosting, and renewal. Leveraging over 20 years of best-practice domain expertise, BluePhoenix works closely with its customers to ascertain which assets should be migrated, redeveloped, or wrapped for reuse as services or business processes, to protect and increase the value of their business applications and legacy systems with minimized risk and downtime.

BluePhoenix provides modernization solutions to companies from diverse industries and vertical markets such as automotive, banking and financial services, insurance, manufacturing, and retail. Among its prestigious customers are: Aflac, CareFirst, Citigroup, Danish Commerce and Companies Agency, Desjardins, Los Angeles County Employees Retirement Association, Merrill Lynch, Rabobank, Rural Servicios Informáticos, SDC Udvikling, TEMENOS, Toyota and Volvofinans. BluePhoenix has 15 offices in the USA, UK, Denmark, Germany, Italy, France, The Netherlands, Romania, Russia, Cyprus, South Korea, Australia, and Israel.

SAFE HARBOR: Certain statements contained in this release may be deemed forward-looking statements, with respect to plans, projections, or future performance of the Company, the occurrence of which involves certain risks and uncertainties that could cause actual plans to differ materially from these statements. These risks and uncertainties include but are not limited to: market demand for the Company’s tools, successful implementation of the Company’s tools, competitive factors, the ability to manage the Company’s growth, the ability to recruit and retrain additional software personnel, and the ability to develop new business lines. This press release is also available at www.bphx.com. All names and trademarks are their owners’ property. 

Company Contact                                                         Investor Contact
Varda Sagiv                                                                 Peter Seltzberg
BluePhoenix Solutions                                                   Hayden Communications
+97299526100                                                             (646) 415-8972
vsagiv @bphx.com                                                        peter@haydenir.com

                                                                                    Financial Media Contact
                                                                                    Jeffrey Stanlis
                                                                                    Hayden Communications
                                                                                    (602) 476-1821
                                                                                    jeff@haydenir.com