BluePhoenix Solutions Reports Record Results for the First Quarter of 2006

May 11, 2006

Q1 Record Revenues; Sequentially Growing Revenues

Operating Income Doubled vs. Q1 '05

Net Income Tripled vs. Q1 '05. Pro-Forma Net EPS $0.09

HERZLIA, Israel, May 11 /PRNewswire-FirstCall/ -- BluePhoenix Solutions Ltd. (NASDAQ: BPHX - News), the leader in Enterprise IT Modernization, today reported record financial results for the first quarter ending March 31, 2006.

For the first quarter of 2006, BluePhoenix reported record sales of $16 million, up 14% from $14.1 million in the first quarter of 2005, and up 4% as compared to $15.4 million in the prior quarter. This was the fifth quarter of sequential growth. Operating income for the first quarter was a record $1.7 million, up 110% from $815,000 in the first quarter of 2005 and up 10% from $1.5 million in the prior quarter. As a percentage of revenues, the operating income for the first quarter climbed to a record 11% as compared to 6% in the first quarter in 2005 and 10% in the previous quarter.

First quarter adjusted net income, excluding non-cash financial expenses mainly related to the convertible debentures, was $ 1.2 million or $0.09 per share, as compared to $516,000, or $0.05 per share in the first quarter of 2005. Net income for the first quarter grew three fold and reached $949,000, or $0.07 per share, as compared to $309,000, or $0.02 per share, in the first quarter of 2005, and increased by 17% from $809,000, or $0.06 per share, in the prior quarter.

Highlights for the first quarter 2006 include:
- In the first quarter of 2006, TEMENOS, a strategic partner of BluePhoenix, selected the company to participate in a multi-million dollar deal for a leading international bank. This large contract will be delivered over five quarters. BluePhoenix will offer specialized banking services to provide significantly increased capacity for TEMENOS CoreBanking applications.

- In January 2006, BluePhoenix signed a $30 million master frame agreement with T-Systems. Under the terms of the agreement, T-Systems will manage and implement the project segments ordered by their client while BluePhoenix will provide its unique line of IT modernization tools for the understanding and migration of the IDMS systems. Based on discussions with T-Systems and the timeline for their client to sign purchase orders, the expected total scope for these project segments is estimated at $30 million over the five year master agreement.

"We are proud of our sequentially growing revenues and earnings. During the first quarter of 2006, BluePhoenix closed numerous agreements and received purchase orders that increased its backlog for the next 12 months running to $70 million. We attribute the revenue growth to two key factors. The first factor is the growing realization by major enterprises, that are dependent on legacy core systems, of the inevitability of IT modernization for staying effective, competitive and efficient. In addition, there is a steadily growing awareness of BluePhoenix as a key leader in IT modernization with a significant installed base. Our operating margin and bottom line improvements have largely been the result of increasing efficiency due to our R&D program, offshore operations, and strict cost controls." Said Arik Kilman, Chief Executive Officer.
"The unique advantage of our technology has always been its 'generic' capabilities. Our solutions can be adopted and used by any industry, since we modernize the application, regardless of the industry our customer operates in. In addition, we are currently expanding our offering model by providing ongoing post-migration support to our customers, thereby generating recurring revenues from our installed base. Our studies of this market have shown that our cross-industry skills such as expertise in financial institutions, traditional manufacturing and retail are highly regarded in the market, and actually generate an additional appeal to our customers and partners. We strongly believe this will become a source of significant revenue. "
BluePhoenix has scheduled a conference call Conference Call on Thursday, May 11th, 2006.

at 10:00 A.M. EDT (17:00 Israel Time)

Arik Kilman, Chief Executive Officer, and Iris Yahal, Chief Financial Officer will discuss the First Quarter of FY 2006 and will be available to answer questions.

Interested parties are welcome to call the telephone numbers listed below, five to ten minutes prior to the start of the conference call:

In the US call: (800)-762-6067

Outside the US call: +1-(480)-629-9566

Callers should reference "BluePhoenix Solutions First Quarter 2006" to the AT&T conference call operator.
An automated replay of the conference call will be available from May 11th 02:00 P.M. until May 15th at 11:59 P.M. (EDT)

    To access the replay please call:

    (USA) (800)-475-6701

    (International) +1-(320)-365-3844

    and enter BluePhoenix Solution's access code of 828152.

The automated replay can also be accessed at any time through our Web site, under the investor relations section.

Click here to download BPHX Q1 06 Results

About BluePhoenix Solutions
BluePhoenix Solutions leads the IT Modernization market by developing unique solutions that enable companies to automate the process of modernizing and upgrading their mainframe and distributed IT infrastructure, thus quickly and cost-effectively extending the ROI of their existing IT systems. The company's comprehensive suite of tools and services (including technology for Understanding, Migration, Remediation, and Redevelopment) reduces the cost of renovation and speeds up the renewal process. BluePhoenix has 12 offices throughout the world, including locations in the USA, UK, Denmark, Germany, Italy, The Netherlands, Australia, and Israel.

For more information, please visit our Web site at www.bphx.com

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 www.bphx.com. All names and trademarks are their owners' property.

Company Contact:
Iris Yahal
+972-9-9526110

Investor Contact:
Paul Holm
+1-212-4967238