Seagull Software Announces Financial Results for 2nd Quarter and Half-Year Ended 31 October 2005

---

Company Reports Profit, Revenue Up 22%

ALL FINANCIAL DATA INCLUDED IN THIS PRESS RELEASE IS PRESENTED IN US DOLLARS AND HAS BEEN REVIEWED BY KPMG BUT NOT AUDITED

---

DORDRECHT, THE NETHERLANDS – 18 November 2005

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 second quarter (Q2 FY06) and the half-year ended 31 October 2005 (H1 2006).

Total revenue for Q2 FY06 was $7 million, an increase of 23% as compared with the second quarter of the previous financial year (Q2 FY05). Net income for Q2 FY06 was $49K, as compared to a loss of $1.4 million in Q2 FY05.

For the half-year period ended 31 October 2005, total revenue was $13.6 million, an increase of 22% as compared with total revenue of $11.1 million for the first half of the previous financial year (H1 2005). The Company reported a net profit of $101K for H1 2006, as compared with a net loss of $2.9 million in H1 2005.

Net income for H1 2006 was $0.01 per share as compared with a net loss per share of $0.35 in the first half of previous financial year. On a fully diluted basis, the H1 2006 net income per share was $0.01 as compared with a net loss per share of $0.32 in H1 2005.

Total license revenue for Q2 FY06 was $3.2 million, up 30% from $2.4 million in Q2 FY05. Maintenance and service revenues for Q2 FY06 were $3.9 million as compared with $3.3 million in Q2 FY05.

For the half year, license revenue grew 30% to $5.9 million (1H 2005 $4.5 million). Maintenance and service revenues grew 16% from $6.6 million in 1H FY 2005 to $7.7 million in 1H FY 2006.

"We are pleased to report our fourth consecutive quarter of profitability," said Seagull Software CEO and President Don Addington. "In addition to growth in revenue, EBITDA and net income, during the first half of the year we completed two strategic acquisitions that are already contributing revenue to the business."

Geographically, the Americas region contributed 68% of total revenues in 1H FY 2006 with the remaining 32% generated by Europe and Asia Pacific, consistent with results from the previous year.

Total gross margin for 1H FY 2006 was $11 million (81% of revenues), as compared with $8.4 million (75% of revenue) for the previous year. Gross margin on license revenue was $5.8 million (1H FY 2005 $4.5 million). Maintenance and service gross margin for 1H FY 2006 was $5.2 million as compared with $3.9 million in 1H FY 2005.

"Maintenance and service revenues contributed higher gross margin this year. Revenue grew by $1 million as compared to last year, and associated expenses were reduced by $200K," commented Seagull Software Chief Financial Officer Mory Motabar. "We have a track record of more than 10 consecutive years of maintenance revenue growth, and we have seen increased demand for consulting services over the past 3 quarters."

Total operating expenses for 1H FY 2006 were $11.4 million, as compared with $11.2 million for the corresponding period last year. Sales and marketing expenses were $6.5 million (1H FY 2005: $5.6 million) due to increased investment in headcount and marketing programs. Research and development expenses increased from $2.4 million to $2.7 million as a result of an increase in IP amortization charges related to the acquisition of SofTouch Systems and Oak Grove Systems. General and Administrative expenses including the finance, IT, order processing, HR, and administration departments as well as legal and accounting fees were $2.1 million, in line with the corresponding period last year (1H FY 2005: $2.1 million).

The total cash balance increased from $4.8 million at the end of Q1 FY06 to $5.3 million on 31 October 2005. Days Sales Outstanding (DSO) on 31 October 2005 was 34 days, comparing very favorably with industry averages of more than 60 days.

Second Quarter Business Highlights

• During the quarter, Seagull Software closed new and follow-on business with the Dutch Police, Milton Keynes Council, Sandia National Laboratories, SouthWest Gas, Atlanta Gas Light and Digital Fairway.
• Seagull Software announced a new agreement to resell the Kapow Web Integration Platform for customers who want to incorporate business process fragments from Web application into the new composite applications they are developing with LegaSuite.
• Seagull Software was again included in the Software 500, Software Magazine's list of the world's foremost software companies.
• Sales, marketing, product development, customer support, consulting and administration for the Softouch Systems and Oak Grove Systems acquisitions have been integrated into the Company's operations.

"It remains challenging to predict when new license sales will close, so we're pleased with growth in the maintenance and consulting areas which give us more visibility," said Mr. Addington. "We're also very encouraged by customer and industry analyst acceptance of the new CICS integration and BPM products that we added to LegaSuite via acquisition."

Due to the uncertainty of the technology market, the Company is not providing estimates of revenue or earnings for future periods at this time.

Financial Statements - PDF 50Kb

Forward-Looking Information: All statements in this press release which address operating performance, events or developments that we expect or anticipate will occur in the future, including statements expressing general optimism about future operating results and non-historical information, are forward-looking statements. These forward-looking statements are, and will be, based on management's then-current views and assumptions regarding future events and operating performance. Forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially, including, but not necessarily limited to management's ability to manage growth, and hire and retain qualified employees; unpredictable customer demand; intense competition; rapid technological change; unpredictable market acceptance of new products; and market instability and/or reduction in software purchasing caused by exceptional circumstances.

About Seagull Software

Seagull Software specializes in powering legacy-aware application development, helping organizations accelerate the move to service oriented architecture for business agility. Seagull Software's LegaSuite^™ is an integrated software platform for connecting IBM mainframe, ICL, iSeries, UNIX/VT and Windows applications to the Web and to other, newer-generations of applications and service-oriented architectures including XML, J2EE, .NET, HTML and Web Services. For more information, visit www.seagullsoftware.com.

Committed to providing the best customer experience, Seagull Software's technology is in use in more than 8,000 public and private sector enterprises worldwide, and by well over 3 million end users. Seagull Software has direct operations in the United States, the Netherlands, United Kingdom, France, Germany, and Australia, supplemented by distributors serving approximately 30 additional countries.

NOTE TO EDITORS: The correct usage of our company name is Seagull Software.