HERZLIYA, Israel--November 11, 2008--BluePhoenix Solutions (NASDAQ:
BPHX - News), the leader in value-driven legacy modernization, today announced financial results for the third quarter ending September 30, 2008. For the quarter, the Company reported revenue from continuing operations of $22.0 million, up 4.5% compared to $21.1 million for the third quarter last year. Adjusted non-GAAP loss was $1.4 million compared to a gain of $3.2 million for the third quarter last year. Adjusted non-GAAP loss per diluted share was $0.06 compared to $0.17 income per diluted share in the year-ago period. On a GAAP basis, GAAP loss was $6.8 million compared to a gain of $742,000 in the year-ago period. GAAP loss per diluted share was $0.32 compared to $0.04 income per diluted share in the year-ago period.
"This was a disappointing quarter for us, yet, during the quarter we made significant steps to build our future success" commented Arik Kilman, CEO of BluePhoenix Solutions. "This quarter was influenced by several factors primarily by rapid currency fluctuations which mostly worked against us. This situation had a significant negative impact of $1.8 million or $0.09 EPS to our bottom line. In addition, we faced a challenging environment which delayed deal closure and experienced slower than expected progress in some of projects which required us to allocate additional resources. These contributing factors resulted in lower revenues, lower gross margins and higher operating and financial expenses which led to a minor negative cash flow from operations. In addition, on a GAAP basis in this quarter we incurred $2.3 million for one time expenses related to cost reduction plan, including changes to our management structure and resource deployment. As a result of an operational review that was conducted during the quarter, we have implemented a cost saving plan which we expect will reduce operating expenses by approximately $3 million on annual basis, beginning in 2009."
Mr. Kilman continued, "We believe that the following set of actions will start showing positive results beginning next year:
- As announced today we have strengthened our senior management team by
strong and talented executives in sales and marketing
- We closed significant deals with several customers including financial
institutions.
- Our pipeline reached a record level of about $220 million, up from $193
million. Although our backlog decreased from $103 million in the
previous quarter to $95 million today, on the same exchange rates as of
the previous quarter the backlog is up by $1 million and would have
been $104 million.
- We raised cash of $16 million from Israeli banks, mainly in long-term
loans.
- The Israeli Court has approved our buy-back request.
- We implemented a partial hedging program using external advisors.
To summarize, this quarter is breaking a series of 19 consecutive quarters of positive non-GAAP EPS," Mr. Kilman added. "I believe that this event is a short term event in nature and expect that we will return to the positive non-GAAP profit already in Q4."
Non-GAAP Results* (in thousands US$) Q3/2008 Q2/2008 Q3/2007
Sales 22,029 23,029 21,087
Operating profit (loss) (170) 2,641 3,903
Net Income (loss) (1,354) 2,896 3,231
GAAP Results* (in thousands US$) Q3/2008 Q2/2008 Q3/2007
Sales 22,029 23,029 21,087
Operating profit (loss) (5,206) (165) 1,525
Net Income (loss) from continued (6,390) 90 781
operations
Net Income (loss) (6,839) (8,262) 742
* Excluding Mainsoft which was classified as discontinued operation.
Financial Highlights
- Revenue increased 4.5% to $22.0 million from $21.1 million one year ago
but decreased from $23.0 million in the previous quarter mainly as a
result of the strengthening of the USD against the European currencies
which comprise 60% of the company's revenues.
- Gross Margin on a GAAP basis was 44%, a decrease from 56% one year ago,
and from 49% in the previous quarter. Gross Margin on a non-GAAP basis
was 54%, a decrease from 67% one year ago, and from 59% in the previous
quarter. The decrease in the GAAP and non-GGAP gross margin
compared to year-ago period is attributed to currency impact,
to
change in our revenue mix which was more services-driven than last
year, and to slower than expected progress in some
projects, which required us to allocate additional resources increasing
the cost of sales in the quarter.
- Selling, marketing and general expenses on a GAAP basis was $10.4
million, an increase from $6.9 million in the year-ago period and $6.8
million in the previous quarter. The increase of $3.6 million from
previous quarter and from the year ago period is attributed to one-time
expenses related to our cost saving plan of $2.3 million, provision for
bad debts of $0.6 million, and additional expenses, most of which
are one time expenses.
Selling, marketing and general expenses on a non-GAAP basis was $7.5
million compared to $6.0 million in the year-ago period and $6.1
million in the previous quarter. The increase of $1.4 million from
previous quarter is attributed to bad debt of $0.6 million and
additional expenses, most of which are one time expenses.
- Net loss on a GAAP basis from continuing operations was $6.4 million
compared to a profit of $781,000 in the year ago period and compared to
profit of $90,000 in the previous quarter. The decrease in
profitability from the year ago quarter is attributed to: $2.3 million
expenses related to saving plan, $1.8 million currency impact, $0.9
million related to capitalization of research and development costs
that took place in the year ago period, $0.6 million related to bad
debts and the remaining amount is attributed to decrease in gross
margin as a result of revenue mix and additional costs related to
projects.
Net loss on a non-GAAP basis from continuing operations was $1.4
Million compared to a profit of $3.2 million in the year ago period and
compared to profit of $2.9 million in the previous quarter.
- The impact of the currency exchange rate, which includes a 9%
devaluation of the GBP against the US Dollar during the quarter, and an
8% devaluation of the Euro against the US Dollar, resulted in
approximately $1.8 million impact on the company's net loss and a $0.09
impact on the non-GAAP earnings per share.
- The company has $32.5 million in cash compared to $22.6 million as of
December 31, 2007. The Company's working capital was $40.8 million as
of September 30, 2008 compared to $32 million as of December 31, 2007.
- During the quarter, BluePhoenix used an existing credit facility,
raising total cash of $16 million. The lines of credit bear an
average interest rate of LIBOR plus 2.65% with repayment terms of up
to 5 years.
- All numbers exclude Mainsoft which is presented as discontinued
operations.
Stock Repurchase:
BluePhoenix has received authorization from the Israeli courts, clearing the way to resume a stock repurchase initiative and can begin this process 48 hours after its quarterly report is filed with the SEC.
Cost Savings Plan
During the quarter BluePheonix management completed its review of the Company's operations, personnel, processes and business segments. As a result of this review, the Company has augmented senior sales leadership, and completed a reallocation of personnel, resulting in a net reduction of about 3% of its employees worldwide. More than half of these changes have already been implemented, and the Company anticipates incurring additional severance charges during the fourth quarter. In addition, management has decided to close two offices increasing the Company's efficiency. The net benefit of this cost saving plan is expected to result in about $3 million in reduced expenses during 2009.
Operational Highlights
- Signed a major new multi-million dollar modernization project to
migrate 4GL and COBOL applications to Java for one of the leading
financial institutions in the United States. As part of this project,
the organization will migrate from DB2 to Oracle and downsize off the
mainframe (z/OS) to HP UNIX and LINUX.
- Signed over $5 Million in Modernization deals with two large European
banks.
- Announced a two-year, $6 million renewal of a partnership agreement
with a global supplier of banking solutions.
- Closed the previously announced sale of its interest in its subsidiary
Mainsoft Corporation to Catalyst Private Equity Partners (Israel) II
LP, and received a cash payment of $1.7 million at closing and
additional contingent consideration based on the potential occurrence
of either a sale of such holdings or a qualified initial public
offering within a specified time period as agreed by the parties.
- As also announced today, the Company has named new sales executives:
Javier Jimenez joined BluePhoenix as Vice President of
Sales, Americas and Oren Gil-Or was named Vice President, Sales EMEA
and APAC.
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
- Restructuring expenses
- One time expenses related to cost saving plan
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 third quarter financial results at 4:30 p.m. ET on Tuesday, November 11, 2008. Interested parties may access the call by calling 800-762-8795 from within the United States, or 480-248-5081 if calling internationally, approximately five minutes prior to the start of the call. A replay will be available through November 18, 2008 and can be accessed by dialing 800-406-7325 (U.S.), 303-590-3030 (Int'l), passcode 3934924. 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 December 11, 2008 on either site. To access the web cast, you will need to have the Windows Media Player on your desktop. For the free download of the Media Player please visit: http://www.microsoft.com/windows/windowsmedia/en/download/default.asp.
About BluePhoenix Solutions
BluePhoenix Solutions (NASDAQ: BPHX - News) 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 Informaticos, 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 http://www.bphx.com. All names and trademarks are their owners'
property.