Magic Software Triples Operating Profits for Third Quarter of 2010

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Magic Software Enterprises Ltd. (NASDAQ: MGIC), a global provider of application platforms and business and process integration solutions, today announced its financial results for the third quarter ended September 30, 2010. All dollar amounts are quoted in US Dollars.

Financial Highlights for the Third Quarter and Nine-Month periods ended September 30, 2010

• Third quarter revenues increased 66% year-over-year from $13.5 million to $22.4 million , and 4% from the second quarter of 2010;

• Operating income for the third quarter tripled to $2.5 million compared to $0.8 million in the same period last year;

• Operating and net income for the nine-month period of 2010 more than doubled to $6.3 million, compared to $2.5 million and $2.7 million respectively in the same period last year;

•Operating cash flow for the first nine-months of 2010 increased 106% to $8.9 million compared to $ $4.3 million in the same period last year. 
Results

For the third quarter ended September 30, 2010, total revenues were $22.4 million, with net income of $2.5 million, or $0.08 per fully diluted share. This compares with revenues of $13.5 million and net income of $0.9 million, or $0.03 per fully diluted share, for the same period last year.

Operating income was $2.5 million, or $0.08 per fully diluted share, for the third quarter of 2010. This compares to operating income of $0.8 million, or $0.03 per fully diluted share, for the same period a year ago.

For the nine-month period ended September 30, 2010, total revenues were $63.6 million, with net income of $6.3 million, or $0.19 per fully diluted share. This compares with revenues of $40.9 million and net income of $2.7 million, or $0.08 per fully diluted share, for the same period last year.

Operating income was $6.3 million, or $0.19 per fully diluted share, for the nine-month period of 2010. This compares to operating income of $2.5 million, or $0.08 per fully diluted share, for the same period a year ago.

Total cash, cash equivalents and short-term investments net of short term bank credit as of September 30, 2010 was $25.7 million.

Management Commentary
Commenting on the results, Guy Bernstein, acting chief executive officer of Magic Software, said: “I am very pleased to report robust growth and continued improvement in all our operations for the third quarter. This has been driven by greater demand for our professional services and improved license sales of our uniPaaS RIA application platform that among enterprises and independent software vendors worldwide.”

Summary of the Quarter

• New customers and license sales for uniPaaS and iBOLT, particularly in Japan, Netherlands and U.S have increased; 
• The number of new partners continued to increase.  New partners signed on in the quarter include: Pallas Athena in Netherlands, Admiral Technology, Nexus 451, Forza Consulting and SMB Group in UK, and Relational SA In Greece. 
• The Company’s Japanese branch reports improved revenues and profitability, which was attributed to migration projects to our flagship uniPaaS RIA application platform.
• The Company executed global customer events in Hungary and Germany and for the first time in Poland.

Non-GAAP Financial Measures

This release includes non-GAAP operating income, net income, basic and diluted earnings per share and other non-GAAP financial measures. These non-GAAP measures exclude the following items:

*  Amortization of purchased intangible asset

*  In-process research and development capitalization and amortization and;

*  Equity-based compensation expense.

Magic Software’s management believes that the presentation of non-GAAP measures provide useful information to investors and management regarding financial and business trends relating to the Company’s financial condition and results of operations as well as the net amount of cash generated by its business operations after taking into account capital spending required to maintain or expand the business.

These non-GAAP financial measures are not in accordance with, or an alternative for, generally accepted accounting principles and may be different from non-GAAP financial measures used by other companies. In addition, these non-GAAP financial measures are not based on any comprehensive set of accounting rules or principles. Magic Software believes that non-GAAP financial measures have limitations in that they do not reflect all of the amounts associated with Magic Software’s results of operations as determined in accordance with GAAP and that these measures should only be used to evaluate Magic Software’s results of operations in conjunction with the corresponding GAAP measures.

Please refer to the Reconciliation of Selected Financial Metrics from GAAP to Non-GAAP tables below.

About Magic Software

Magic Software Enterprises Ltd. (NASDAQ: MGIC) is a global provider of cloud and on-premise application platform solutions – including full client, rich internet applications (RIA), mobile and Software-as-a-Service (SaaS) modes – and business and process integration solutions. Magic Software has 13 offices worldwide and a presence in over 50 countries with a global network of ISVs, system integrators, value-added distributors and resellers, as well as consulting and OEM partners. The company’s award-winning, code-free solutions give partners and customers the power to leverage existing IT resources, enhance business agility and focus on core business priorities. Magic Software’s technological approach, product roadmap and corporate strategy are recognized by leading industry analysts. Magic Software has partnerships with global IT leaders including SAP AG, salesforce.com, IBM and Oracle.

For more information about Magic Software and its products and services, visit www.magicsoftware.com, and for more about Magic Softwarwe industry-related news, business issues and trends, read the Magic Software Blog.