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Graphisoft Announces Third Quarter Results Meet Revised Targets

Europe and US lead revenue growth while strong investment continues in R&D, sales and marketing

Budapest - November 12, 1998


Graphisoft (Frankfurt Neuer Markt: GPH) today announced revenues for the three months and six months ended September 30, 1998, of TDM10,710 and TDM30,854 respectively and operating income of TDM2,270 (21.2%) and TDM7,204 (23.3%) for the same periods.

"We are pleased that we met the most recent consensus expectations for the third quarter of 1998 and achieved our growth and profitability goals while investing in future product development, expanding our sales channel and the successful introduction of our new version 6.0 of ARCHICAD," commented Gábor Bojár, president of Graphisoft.

The results are as follows:

  3 months ended
Sept 30, 1998
% to '97
same period
9 months ended
Sept 30, 1998
% to '97
same period
Revenues (1): 10,710 3.8% 30,854 18.1%
Operating Income (1): 2,270 -27.3% 7,204 7.5%
Operating Income per share (2): 0.21 -35.6% 0.71 1.4%
Net Income: 3,450 (3) 9,080 (3)
Net Income per share: 0.32 (3) 0.90 (3)

(1) Figures are in Thousand German Marks.
(2) Per share figures are in German Marks.
(3) Comparison not meaningful. See discussion below.

Sales performance was very good in Germany and throughout most of Europe, achieving 52.7% and 38.7% growth in the three and nine month periods respectively compared to the same periods of 1997. North American revenue continued strong growth as well with gains of 18.3% and 44.6% respectively. These results offset revenue declines of 54.4% and 35.8% in the last three and nine month periods in the troubled Pacific region. Sales in the "Rest of the World" also reflected local economic difficulties where gains in the first two quarters were partially absorbed by lower than expected third quarter sales.

Graphisoft's operating income remains high at more than 21% of third quarter revenues and more than 23% year to date. These figures are lower than the same period last year due largely to some extraordinary investments including:
- relocation of the company headquarters to the new Graphisoft Park,
- additional in human resources, in particular software developers, for upcoming products, and
- introduction costs associated with ARCHICAD 6.o.

The new 6.0 release of ARCHICAD has been well received with more than 11,000 update and new licenses shipped since its debut on June 29. The gradual expansion of ARCHICAD's market from small and medium size architectural offices to larger construction companies and building products manufacturers is progressing. For example, Kajima Corporation of Japan, one of the world's largest construction companies, has selected ARCHICAD to be its core CAD application for a new company-wide integrated building design system.

To support its market expansion, the Company is preparing numerous additional software tools and products. Graphisoft recently released a Software Development Kit (SDK) allowing third party developers to create programs that will work inside ARCHICAD 6.o and add specific functions such as shadow calculation, wood framing and piping. Another product, code named "SalesCAD," based on the Company's unique object technology, will aid distributors and retailers in presenting and configuring building products, equipment and appliances for their customers. A third product, "ARCHICAD for building management," will further broaden the Virtual Building concept by helping building owners manage their buildings. These last two products are expected to be released and start generating revenues in the first and fourth quarters of 1999 respectively.

Operating expenses grew 27.8% and 28.9% compared to the same periods of 1997. Sales and marketing expenses grew most aggressively at 46.9% in the last 3 months and 44.1% in the nine months ended September 30 due largely to expanded investment in the US to grow the sales channel and extraordinary expenses for product localization and update material. R&D expenses were also higher for the period while General and Administrative costs actually decreased slightly.

Operating income remained high at more than 21% of revenues for the last quarter and more than 23% of year-to-date revenues. Third quarter operating income per share remained almost unchanged from the second quarter. Although significant savings were achieved in manufacturing and general and administrative expenses, the Company's future expansion requires continued aggressive investment in R&D as well as sales channel expansion. While these investments are ongoing, the last quarter's revenues resulted in a 27.3% decrease in quarterly operating income compared to the same period last year. But operating income for the first nine months of the year grew 7.5%.

At 32.2% of revenues for the last quarter and 29.4% year-to-date, Graphisoft continues to sustain very high net income thanks to interest income on the Company's temporary cash reserves (expected to be invested in the near future), currency transaction gain from depreciation of the HUF against the DM and a preferential tax environment for the headquarters in Hungary.

"Events in 1998 show that our well-balanced global market position allows us to offset losses in one region with gains in another and maintain double-digit growth," states Gábor Bojár, "Our continuing strong profitability and strong balance sheet allow us to continue our expansion, even during difficult market conditions. Many of our competitors may falter during this period of industry consolidation while we are confident that our determined R&D strategy, consistent sales and marketing and conservative financial control will continue to win market share for the Company."

Graphisoft is a leading provider of computer aided design (CAD) software solutions for the architectural profession and the building industry and ranked by Dataquest among the largest AEC CAD software developers in the world. ARCHICAD is sold in more than 80 countries and 24 languages and used by more than 50,000 architects and building professionals worldwide. More information about Graphisoft and ARCHICAD is available on the Web at www.graphisoft.com.

This press release contains statements that are forward looking. These statements are based on current expectations that are subject to risks and uncertainties. Actual results may vary because of factors such as technological shifts; customer demand; competitive products and pricing; shipping schedules; litigation; and other issues.

Graphisoft and ARCHICAD are registered trademarks of Graphisoft R&D Rt. All other trademarks mentioned are the properties of their respective owners.

Graphisoft Group Statement of Operations and Balance Sheet