U.S. Markets open in 24 mins

Magic Reports Third Quarter 2019 Financial Results with Record-Breaking Revenues of $85.8 million - a 19% Year Over Year Growth

Net cash provided by operating activities for the first nine months of 2019 amounted to $32.7 million

OR YEHUDA, Israel, Nov. 14, 2019 (GLOBE NEWSWIRE) -- Magic Software Enterprises Ltd. (NASDAQ and TASE: MGIC), a global provider of end-to-end integration and application development platforms solutions and IT consulting services, announced today its financial results for the third quarter and nine-month period ended September 30, 2019.

Financial Highlights for the Third Quarter Ended September 30, 2019

  • Revenues for the third quarter increased 19% to $85.8 million compared to $72.1 million in the same period last year.
  • Operating income for the third quarter increased 10% to $8.5 million compared to $7.7 million in the same period last year.
  • Non-GAAP operating income for the third quarter increased 18% to $11.8 million compared to $10.0 million in the same period last year.
  • Net income attributable to Magic's shareholders for the third quarter remained constant at $5.0 million, or $0.10 per fully diluted share compared to the same period last year. Net income was negatively impacted by an amount of $0.9 million compared to the same period last year resulting from acquisition related expenses of $0.6 million recorded in connection with mainly the acquisition of NetEffects Inc and the devaluation of the US Dollar versus the new Israeli shekel by $0.3 million.
  • Non-GAAP net income attributable to Magic's shareholders for the third quarter increased 19% to $8.1 million, or $0.17 per fully diluted share, compared to $6.8 million, or $0.14 per fully diluted share, in the same period last year.

Financial Highlights for the Nine-Month Period Ended September 30, 2019

  • Revenues for the first nine months of 2019 increased 11% to $234.7 million compared to $212.1 million in the same period last year.
  • Operating income for the first nine months of 2019 increased 7% to $25.0 million compared to $23.3 million in the same period last year.
  • Non-GAAP operating income for the first nine months of 2019 increased 10% to $32.5 million compared to $29.5 million in the same period last year.
  • Net income attributable to Magic's shareholders for the first nine months of 2019 decreased 1% to $15.1 million, or $0.29 per fully diluted share, compared to $15.3 million, or $0.33 per fully diluted share in the same period last year. Net income was negatively impacted by an amount of $2.4 million compared to the same period last year resulting from acquisition related expenses of $1.4 million recorded in connection with mainly the acquisition of Powwow and NetEffects and the devaluation of the US Dollar versus the new Israeli shekel by $1 million.
  • Non-GAAP net income attributable to Magic's shareholders for the first nine months of 2019 increased 9% to $21.8 million, or $0.45 per fully diluted share, compared to $19.9 million, or $0.43 per fully diluted share, in the same period last year. Earnings per share for the first nine months of 2019 were negatively impacted by $0.04 per fully diluted share compared to the same period last year as a consequence of the Company’s private placement of 4.3 million shares in the third quarter of 2018 to Israeli institutional investors.
  • Cash flow from operating activities for the first nine months of 2019 amounted to $32.7 million compared to $20.3 million in the same period last year.
  • As of September 30, 2019, Magic’s net cash, cash equivalents, short and long-term bank deposits and marketable securities, offset by short and long-term financial liabilities amounted to $69.8 million.
  • We are increasing our full-year revenue guidance to a range of $317-$320 million, from the previous revenue guidance of $313-$319 million, reflecting annual growth of 12% to 13%.

Guy Bernstein, Chief Executive Officer of Magic Software Enterprises, said:

“We are pleased to report Magic’s all-time best quarterly results with revenues of $86 million and operational profit of $12 million (on a non-GAAP basis), reflecting a double-digit growth of 19% and 18% year over year, respectively. This quarter’s results demonstrate Magic’s ability to consistently grow by leveraging its continued long engagement cycles with its existing and new customers, along with its fruitful M&A activity.”

“This quarter we welcome NetEffects Inc. to our software services portfolio. NetEffects, a US based company, specializes in IT staffing and recruiting. This acquisition supports our continuing efforts to maintain and upgrade our strong market position as a preferred one-stop-shop software services vendor.”

Conference Call Details

Magic’s management will host a conference call on Thursday, November 14, 2019 at 10:00 am Eastern Daylight Time (5:00 p.m. Israel Daylight Time) to review and discuss Magic’s results.

To participate, please call one of the following teleconferencing numbers. Please begin placing your calls at least 10 minutes before the conference call commences. If you are unable to connect using the toll-free numbers, call the international dial-in number.

NORTH AMERICA: +1-888-668-9141

UK: 0-800-917-5108

ISRAEL: 03-918-0609

ALL OTHERS: +972-3-918-0609

For those unable to join the live call, a replay of the call will be available under the Investor Relations section of Magic’s website, www.magicsoftware.com.

Non-GAAP Financial Measures

This press release contains the following non-GAAP financial measures: Non-GAAP gross profit, Non-GAAP operating income, Non-GAAP net income attributable to Magic’s shareholders and Non-GAAP basic and diluted earnings per share.

Magic believes that these non-GAAP measures of financial results provide useful information to management and investors regarding certain financial and business trends relating to Magic's financial condition and results of operations. Magic's management uses these non-GAAP measures to compare the Company's performance to that of prior periods for trend analyses, for purposes of determining executive and senior management incentive compensation and for budgeting and planning purposes. These measures are used in financial reports prepared for management and in quarterly financial reports presented to the Company's board of directors. The Company believes that the use of these non-GAAP financial measures provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing the Company's financial measures with other software companies, many of which present similar non-GAAP financial measures to investors.

Management of the Company does not consider these non-GAAP measures in isolation or as an alternative to financial measures determined in accordance with GAAP. The principal limitation of these non-GAAP financial measures is that they exclude significant expenses and income that are required by GAAP to be recorded in the Company's financial statements. In addition, they are subject to inherent limitations as they reflect the exercise of judgment by management about which expenses and income are excluded or included in determining these non-GAAP financial measures. In order to compensate for these limitations, management presents non-GAAP financial measures in connection with GAAP results. Magic urges investors to review the reconciliation of its non-GAAP financial measures to the comparable GAAP financial measures, which it includes in press releases announcing quarterly financial results, including this press release, and not to rely on any single financial measure to evaluate the Company's business.

Non-GAAP measures used in this press release are included in the financial tables of this release. These non-GAAP measures exclude the following items:

  • Amortization of purchased intangible assets and other related costs;
  • In-process research and development capitalization and amortization;
  • Equity-based compensation expenses;
  • The related tax, non-controlling interests and redeemable non-controlling interest effects of the above items;
  • Change in valuation of contingent consideration related to acquisitions; and
  • Acquisition-related costs;

Reconciliation tables of the most comparable GAAP financial measures to the non-GAAP financial measures used in this press release are included in the financial tables of this release.

About Magic Software Enterprises

Magic Software Enterprises Ltd. (NASDAQ and TASE: MGIC) is a global provider of mobile and cloud-enabled application and business integration platforms.

For more information, visit www.magicsoftware.com.

Forward Looking Statements

Some of the statements in this press release may constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities and Exchange Act of 1934 and the United States Private Securities Litigation Reform Act of 1995. Words such as "will," “look forward”, "expect," "believe" and similar expressions are used to identify these forward-looking statements (although not all forward-looking statements include such words). These forward-looking statements, which may include, without limitation, projections regarding our future performance and financial condition, are made based on management’s current views and assumptions with respect to future events. Any forward-looking statement is not a guarantee of future performance and actual results could differ materially from those contained in the forward-looking statement. These statements speak only as of the date they were made, and we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. We operate in a changing environment. New risks emerge from time to time and it is not possible for us to predict all risks that may affect us. For more information regarding these risks and uncertainties as well as certain additional risks that we face, you should refer to the Risk Factors detailed in our Annual Report on Form 20-F for the year ended December 31, 2018 and subsequent reports and filings made from time to time with the Securities and Exchange Commission.

Magic® is a registered trademark of Magic Software Enterprises Ltd. All other product and company names mentioned herein are for identification purposes only and are the property of, and might be trademarks of, their respective owners.

Press Contact:
Noam Amir
Magic Software Enterprises
ir@magicsoftware.com

  

MAGIC SOFTWARE ENTERPRISES LTD. 
CONDENSED CONSOLIDATED STATEMENTS OF INCOME 
U.S. Dollars in thousands (except per share data) 
               
  Three months ended   Nine months ended
  September 30,   September 30,
    2019       2018       2019       2018  
  Unaudited   Unaudited
Revenues $ 85,843     $ 72,135     $ 234,703     $ 212,082  
Cost of revenues   58,458       50,626       160,442       145,354  
Gross profit   27,385       21,509       74,261       66,728  
Research and development, net   2,235       1,281       6,277       4,399  
Selling, marketing and general and              
administrative expenses   16,654       12,521       43,062       39,071  
Total operating costs and expenses   18,889       13,802       49,339       43,470  
Operating income   8,496       7,707       24,922       23,258  
Financial income (expenses), net   (622 )     (286 )     (828 )     161  
Income before taxes on income   7,874       7,421       24,094       23,419  
Taxes on income   1,380       1,475       4,897       4,885  
Net income $ 6,494     $ 5,946     $ 19,197     $ 18,534  
Net income attributable to redeemable non-controlling interests   (1,045 )     (588 )     (3,057 )     (2,005 )
Net income attributable to non-controlling interests   (491 )     (313 )     (995 )     (1,186 )
Net income attributable to Magic's shareholders $ 4,958     $ 5,045     $ 15,145     $ 15,343  
               
Net earnings per share attributable to Magic's shareholders :              
Basic $ 0.10     $ 0.10     $ 0.29     $ 0.33  
Diluted $ 0.10     $ 0.10     $ 0.29     $ 0.33  
               
Weighted average number of shares used in              
computing net earnings per share              
               
Basic   48,897       48,799       48,888       45,926  
      .        
Diluted   48,991       48,959       48,985       46,075  
               


Summary of Non-GAAP Financial Information 
U.S. Dollars in thousands (except per share data)
                                         
                                         
    Three months ended    Nine months ended 
    September 30,   September 30,
    2019   2018
  2019
  2018
    Unaudited   Unaudited
  Unaudited
  Unaudited
                                         
Revenues   $ 85,843   100%   $ 72,135   100%   $ 234,703   100%   $ 212,082   100%
Gross profit     28,908   33.7%     22,945   31.8%     78,492   33.4%     70,954   33.5%
Operating income     11,751   13.7%     9,967   13.8%     32,508   13.9%     29,494   13.9%
Net income attributable to                                        
Magic's shareholders     8,079   9.4%     6,791   9.4%     21,822   9.3%     19,942   9.4%
                                         
Basic earnings per share   $ 0.17       $ 0.14       $ 0.45       $ 0.43    
Diluted earnings per share   $ 0.17       $ 0.14       $ 0.45       $ 0.43    


MAGIC SOFTWARE ENTERPRISES LTD.  
RECONCILIATION OF GAAP AND NON-GAAP RESULTS  
U.S. Dollars in thousands (except per share data)  
      Three months ended   Nine months ended  
      September 30,   September 30,  
        2019       2018       2019       2018    
      Unaudited   Unaudited  
                     
GAAP gross profit       $ 27,385     $ 21,509     $ 74,261     $ 66,728    
Amortization of capitalized software and acquired technology   1,246       1,306       3,679       3,834    
Amortization of other intangible assets       277       130       552       390    
Stock-based compensation       -       -       -       2    
Non-GAAP gross profit     $ 28,908     $ 22,945     $ 78,492     $ 70,954    
                     
GAAP operating income     $ 8,496     $ 7,707     $ 24,922     $ 23,258    
Gross profit adjustments       1,523       1,436       4,231       4,226    
Amortization of other intangible assets       2,039       1,441       4,859       4,374    
Increase in valuation of contingent consideration                    
related to acquisitions       255       -       255       140    
Capitalization of software development       (876 )     (809 )     (3,128 )     (2,702 )  
Acquisition-related costs       314       -       1,294       -    
Stock-based compensation       -       192       75       198    
Non-GAAP operating income     $ 11,751     $ 9,967     $ 32,508     $ 29,494    
                     
GAAP net income attributable to Magic's shareholders   $ 4,958     $ 5,045     $ 15,145     $ 15,343    
Operating income adjustments       3,255       2,260       7,586       6,236    
Amortization expenses attributed to non-controlling interests                
and redeemable non-controlling interests       (109 )     (341 )     (728 )     (1,072 )  
Deferred taxes on the above items       (25 )     (173 )     (181 )     (565 )  
Non-GAAP net income attributable to Magic's shareholders $ 8,079     $ 6,791     $ 21,822     $ 19,942    
                     
Non-GAAP basic net earnings per share     $ 0.17     $ 0.14     $ 0.45     $ 0.43    
Weighted average number of shares used in                    
computing basic net earnings per share       48,897       48,799       48,888       45,926    
                     
Non-GAAP diluted net earnings per share     $ 0.17     $ 0.14     $ 0.45     $ 0.43    
Weighted average number of shares used in                    
  computing diluted net earnings per share       48,991       48,971       48,980       46,079    
                     


MAGIC SOFTWARE ENTERPRISES LTD.   
CONDENSED CONSOLIDATED BALANCE SHEETS   
U.S. Dollars in thousands   
  September 30,   December 31,  
   2019    2018  
  Unaudited      
         
ASSETS        
CURRENT ASSETS:        
  Cash and cash equivalents $ 76,889   $ 87,126  
  Short-term bank deposits   11,262     16,881  
  Marketable securities   7,677     9,913  
  Trade receivables, net   96,323     90,274  
  Other accounts receivable and prepaid expenses   11,061     7,029  
Total current assets   203,212     211,223  
         
LONG-TERM RECEIVABLES:        
  Severance pay fund   3,572     3,284  
  Deferred tax assets   1,429     1,858  
  Operating lease right-of-use assets   9,524     -  
  Other long-term receivables   3,525     4,727  
  Other long-term deposits   2,286     1,636  
Total long-term receivables   20,336     11,505  
         
PROPERTY AND EQUIPMENT, NET   3,642     3,072  
IDENTIFIABLE INTANGIBLE ASSETS AND        
  GOODWILL, NET   174,115     136,485  
         
TOTAL ASSETS $ 401,305   $ 362,285  
         
LIABILITIES AND EQUITY        
         
CURRENT LIABILITIES:        
  Short-term debt $ 7,988   $ 8,661  
  Trade payables   10,726     14,036  
  Accrued expenses and other accounts payable   25,895     24,458  
  Current maturities of operating lease liabilities   3,271     -  
  Liabilities due to acquisition activities   5,307     910  
  Deferred revenues and customer advances   10,074     4,857  
Total current liabilities   63,261     52,922  
         
NON-CURRENT LIABILITIES:        
  Long-term debt   20,374     19,388  
  Deferred tax liability   11,864     10,343  
  Long-term operating lease liabilities   6,191     -  
  Long-term liabilities due to acquisition activities   11,201     94  
  Accrued severance pay   4,367     3,934  
Total non-current liabilities   53,997     33,759  
         
REDEEMABLE NON-CONTROLLING INTERESTS   30,296     27,235  
         
EQUITY:        
  Magic Software Enterprises equity   248,016     243,956  
  Non-controlling interests   5,735     4,413  
Total equity   253,751     248,369  
         
TOTAL LIABILITIES, REDEEMABLE NON-CONTROLLING INTERESTS AND EQUITY $ 401,305   $ 362,285  
         


MAGIC SOFTWARE ENTERPRISES LTD.        
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS      
U.S. Dollars in thousands        
         
  For the nine months ended
September 30,
 
    2019       2018    
  Unaudited  
         
Cash flows from operating activities:        
         
Net income $ 19,197     $ 18,534    
Adjustments to reconcile net income to net cash provided        
by operating activities:        
Depreciation and amortization   10,037       9,501    
Stock-based compensation   75       200    
Amortization of marketable securities premium        
and accretion of discount   147       165    
Decrease (increase) in trade receivables, net   6,307       (3,328 )  
Decrease (increase) in other long-term and short-term        
accounts receivable and prepaid expenses   2,761       (5,107 )  
Increase (decrease) in trade payables   (5,540 )     1,822    
Change in value of loans   1,712       (1,274 )  
Decrease in accrued expenses and        
other accounts payable   (5,608 )     (2,226 )  
Increase in deferred revenues   4,365       1,641    
Change in deferred taxes, net   (758 )     349    
Net cash provided by operating activities   32,695       20,277    
         
Cash flows from investing activities:        
         
Capitalized software development costs   (3,128 )     (2,702 )  
Purchase of property and equipment   (1,057 )     (615 )  
Cash paid in conjunction with acquisitions, net of acquired cash   (20,889 )     (3,545 )  
Proceeds from maturity and sale of marketable securities   2,450       2,000    
Investment in marketable securities   (202 )     -    
Proceeds (Investment) from bank deposits, net   5,127       (760 )  
Net cash used in investing activities   (17,699 )     (5,622 )  
         
Cash flows from financing activities:        
         
Proceeds from exercise of options by employees   69       238    
Issuance of ordinary shares, net   (9 )     34,569    
Dividend paid   (14,963 )     (13,541 )  
Dividend paid to non-controlling interests   (400 )     (69 )  
Dividend paid to redeemable non-controlling interests   (2,589 )     (2,074 )  
Purchase of redeemable non-controlling interest   (1,237 )     -    
Short-term and long-term loans received   878       575    
Repayment of short-term and long-term loans   (7,681 )     (2,513 )  
Net cash provided by (used in) financing activities   (25,932 )     17,185    
         
Effect of exchange rate changes on cash and cash equivalents   699       (1,159 )  
         
Change in cash and cash equivalents   (10,237 )     30,681    
Cash and cash equivalents at the beginning of the period   87,126       76,076    
Cash and cash equivalents at end of the period $ 76,889     $ 106,757