Seagull Software (AEX: SEAGULL), a leading provider of software products for transforming legacy applications into Web services for service-oriented architecture, today reported financial results for the first half of Financial Year 2007 (H1 FY2007).

For the half-year period ended 31 October 2006, total revenue was $15.7 million, an increase of 16% as compared with total revenue of $13.6 million for the first half of the previous financial year (H1 FY2006).

Operating results continued to be positive with the Company reporting an operating profit excluding amortization, depreciation and stock option expenses amounting to $7K; as compared with an operating profit of $381K in the corresponding period last year.

“We are pleased to report that the pace of growth from last year continues into this year with a 16% increase in top line revenues, in combination with continued positive operating results,” said Seagull Software CEO and President Don Addington. “During the first half of this year we closed business with some notable new enterprise customers, and also expanded our footprint in several strategic accounts that we have been working with for over a year.”

Under IFRS including depreciation and amortization expense of $740K and stock option expense of $276K, the company reported a net loss of $1.1 million for H1 FY2007, as compared with net income of $101K in H1 FY2006.

The net loss for H1 FY2007 was $0.12 per share as compared with net income per share of $0.01 in the first half of the previous financial year. On a fully diluted basis, the H1 FY2007 net loss per share was $0.11 as compared with net income per share of $0.01 in H1 FY2006.

For the half year, license revenue grew 15% to $6.8 million (H1 FY2006: $5.9 million). Maintenance and service revenues grew 17% to $9 million (H1 FY2006: $7.7 million).

The Americas region contributed 61% of total revenues (H1 FY2006: 69%) with the remaining 39% generated by Europe (H1 FY 2006: 31%).

Total gross margin for H1 FY2007 grew 13% to $12.2 million (77% of revenues), as compared with $10.7 million (79% of revenues) for the corresponding period in previous year. Gross margin on license revenue grew 10% to $6.1 million (H1 FY2006: $5.3 million). Maintenance and services gross margin for H1 FY2007 increased 17% to $6.1 million as compared with $5.2 million in H1 FY2006.

“Maintenance and service revenues grew by $1.3 million year-over-year, and associated gross margin by 17%,” commented Seagull Software Chief Financial Officer Mory Motabar. “We have a track record of more than 10 consecutive years of growth in maintenance revenues, and continue to experience stronger demand for our consulting services as the Service-Oriented Architecture trend drives Seagull Software integration projects throughout Europe and the Americas.”

Total operating expenses for H1 FY2007 were $13.2 million, as compared with $11.1 million for the corresponding period last year, with the increase largely attributable to costs associated with headcount growth in the sales, R&D and consulting services departments. Sales and marketing expenses were $8 million (H1 FY2006: $6.5 million) due to increased investment in sales headcount and marketing programs. Research and development expenses increased from $2.4 million to $2.7 million as a result of headcount growth relating to acquisitions made last year. General and Administrative expenses including the finance, IT, order processing, HR, and administration departments as well as third-party professional fees were $2.4 million (H1 FY2006: $2.1 million), with the increase due primarily to higher legal and accounting fees during the period.

“We continue to believe that it is important to invest in our sales channels and in our product portfolio to drive future growth,” commented Don Addington.

Total cash and trade receivables on 31 October 2006 were $10.7 million (comprising $2 million net cash and $8.7 million trade receivables) as compared with $10.4 million on 30 April 2006. Days Sales Outstanding (DSO) on 31 October 2006 was 39 days, continuing a long track record of comparing favorably with industry averages of more than 60 days.

First Half Business Highlights

Global Expansion of Enterprise Account Customer Base
During the first half of FY 2007, Seagull Software continued to expand its customer base in its target market of enterprise accounts across a variety of vertical segments including government, financial services, media and transportation. Seagull Software closed new and follow-on business with the Dutch Police, Computer Software Group, LiquidLogic, Solpac and several large banking institutions.

Other Accomplishments
 In August 2006, Seagull Software announced LegaSuite® 5.0, a major new release of its leading platform of solutions for transforming legacy applications into assets that readily support and drive business change. LegaSuite 5.0 includes a new Eclipse-based developer toolkit, the industry’s most flexible runtime architecture, enhanced security features and support for bi-directional Web services.
 In October 2006, the Company announced BlueZone® 4.0, a major new release of its terminal emulator solution. New features include internationalization supporting German, French, Dutch and Japanese language versions of the product, and various “wizards” to make it easier for customers to switch from older emulators to faster, thinner, more cost-effective BlueZone.
 The Company joined the Integration Consortium to collaborate among end users, software vendors and academics to promote standards-based best practices for the integration industry. This relationship is one of several such groups in which Seagull Software participates in order to impact industry direction and gain early visibility into trends.
 Seagull Software was again included in the Software 500, Software Magazine’s list of the world’s foremost software companies; moving up in the ranking from 337 in 2005 to 299 in 2006.

Use of Adjusted IFRS Financial Information
In order to enhance overall understanding of the company's current financial performance Seagull Software provides IFRS financial information as well as adjusted financial information that excludes depreciation, amortization, non-cash stock-based compensation expenses and amortization of acquired intangible assets related to acquisitions. The presentation of this adjusted financial information is not intended to be considered in isolation or as a substitute for results prepared in accordance with IFRS.

“Our target market is definitely embracing Service-Oriented Architecture as a practical way to simplify and speed application development. Seagull Software has many excellent reference customers who have LegaSuite in production for business-critical SOA projects, and we are encouraged by the growing number of enterprise accounts that our sales teams are talking to who want to move in this direction,” commented Don Addington. “IT procurement governance, especially in the larger accounts, continues to make it challenging to predict when our transactions will close, but we are encouraged by the number of dialogues we’re engaged in with customers for whom LegaSuite is an ideal fit.”
Due to the uncertainty of the technology market, the Company is not providing estimates of revenue or earnings for future periods at this time.