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BluePhoenix Reports Record Quarter, Expands Collaboration with Microsoft

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BluePhoenix Solutions, a leader in legacy modernization, has announced it has significantly expanded its collaboration with Microsoft on legacy modernization projects and also reported record financial results for the first quarter.

The collaboration with Microsoft provides customers moving their applications or databases to .NET-based environments the best in both modernization services and technical support, according to the company. BluePhoenix enables organizations to modernize their legacy data stores such as ADABAS, IDMS, IMS and VSAM to SQL Server, and from application languages such as COBOL, Natural, RPG and PowerBuilder to .NET.

"BluePhoenix brings to the table its market leading automated migration tools and services, and Microsoft provides deep technical support to enable organizations to benefit from modernizing to the .NET platform," said David Leichner, CMO of BluePhoenix Solutions. "By collaborating with Microsoft we are able to bring even more resources and skills to every customer."

"More and more companies are recognizing the value of modernizing and expanding systems to the .NET Framework," said Brian Goldfarb, group product manager, Developer Division, Microsoft Corp. "We are excited to expand our relationship with BluePhoenix. BluePhoenix brings a wealth of technology, experience, and success in modernizing legacy applications onto .NET. Working together brings tremendous value to our customers."

Record Financial Results for Q1 2008

The company announced record financial results for the first quarter ending March 31. For the quarter, the company reported record revenue from continued operations of $24 million, up 32 percent compared to $18.2 million for the first quarter last year (excluding Mainsoft, which has been classified as a discontinued operation through the financial figures for the quarter and for the year-ago period). Non-GAAP net income was $4.5 million, or 21 cents per diluted share compared to $2.1 million or 14 cents per diluted share in the year-ago period.

"This was a record start to what we believe will be another strong year," said Arik Kilman, CEO of BluePhoenix Solutions. "We delivered record quarterly revenue, expanded our gross and operating margins, and continued to build the backlog and all key metrics in our business. We look forward to building on these results consistently throughout 2008, and taking advantage of the market opportunity that we see in front of us."

Financial Highlights

·        Revenue Increased 32 percent to $24 million from $18.2 million one year ago

·        Company recorded a 50 percent increase in non-GAAP earnings per share to $0.21

·        Devaluation of the U.S Dollar, against the Israeli Shekel increased the company's expenses and reduced EPS for the quarter, by approximately 2 cents

·        Company generated $2.1 million in cash from operating activities during the first quarter of 2008

·        The Company's Board of Directors authorized the execution of a stock buyback program, subject to market conditions. Under the plans, the Company may acquire approximately 800,000 additional shares.

Kilman, continued, "We are seeing continued strength in the market for the legacy information technology modernization solutions that we provide. Especially during periods of economic uncertainty, organizations seek to reduce license, maintenance and support costs of legacy systems while ensuring that they have the resources and manpower going forward to support their mission critical systems.

The analyst group Gartner reported this quarter that based on their research, organizations should not be surprised to find that 25 to 30 percent of their employees with legacy skills will be eligible to retire in the next three years. As such, it is becoming increasingly important for companies to rapidly and efficiently respond to the legacy knowledge and skills that are becoming increasingly scarce. Blue Phoenix modernization tools and services play a key role in tackling this growing challenge," he said.

Operational Highlights

·        BluePhoenix secured a legacy modernization and re-hosting project valued at around $12 million with a large UK financial institution

·        BluePhoenix won two new first quarter contracts valued at approximately $3 million with two companies in the Middle East

·           The Company also won a major contract valued at around $4 million with a UK Government Department. The contract was signed with one of the leading global system integrators

·        BluePhoenix closed its first modernization project in South Korea, with Industrial Bank of Korea (IBK). The initial value of this project is $400,000 and it is expected to take six months to implement.

·        BluePhoenix will include Cicero's desktop modernization tool as part of a complete modernization solution addressing back-end systems and desktop productivity. Under the partnering agreement, BluePhoenix will include Cicero as part of its legacy modernization toolset.

ASNA, a BluePhoenix company, announced that ALTech Software has successfully completed the migration of its Vision NPD solution from System i to .NET. Vision NPD is part of Vision for Food, the first integrated business system designed for Food Technology and Development Departments that complies with standards set by the United Nations for international food manufacturing.

Alan Zwiren, a seasoned partner executive, joined BluePhoenix as its new vice president of partners and strategic alliance sales. Alan has more than 20 years experience in the enterprise software industry, including seven years with IBM where he was a channel executive responsible for worldwide information management channel sales.

Operating Results

GAAP operating income was $1.2 million in the quarter just ended. During the quarter, the Company recorded certain non-cash expenses for amortization and stock based compensation, which totaled $3.1 million. In the year-ago period, GAAP operating income was $2.3 million. During the year-ago period, the non-cash expenses for amortization and stock-based compensation, as well as capitalization of software development costs, totaled $442,000.

Non-GAAP operating income for the quarter was $4.3 million as compared with non-GAAP operating income of $2.8 million during the year-ago period.

Net Income

GAAP net income for the quarter ending March 31 was $1.2 million or 6 cents and 5 cents per basic and fully diluted share, respectively, based on 20.8 and 22 million common shares outstanding, respectively. This compares to net income of $125,000 or one cent per basic and fully diluted share based on 14.9 million basic and 15.6 million fully diluted common shares outstanding in the year-ago period.

"We are pleased with the progress we have made thus far in the year and remain on track to achieve our stated goals for top- and bottom-line growth at the operating line in our core business," Kilman continued. "However, the U.S. dollar's weakness against the Israeli shekel continues to impact our net profitability, and thus, it is appropriate that we adjust our guidance for the year to reflect this change in currency rates. Based on current dollar/shekel exchange rates, we expect revenues to grow and to be in the range of $101 million to $107 million with profitability of $1 to $1.05 earnings per share on a non-GAAP basis."

Kilman added, "Looking ahead, based on the growing interest in the market for our modernization solutions, new and increasingly significant partnerships and alliances and significant new orders that we received in recent months, we believe that BluePhoenix will continue to deliver top and bottom line growth."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.

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