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Magic Software Reports Third Quarter 2021 Financial Results with Record-Breaking Revenues of $120.9 million - a 27.4% Year Over Year Increase

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Operating income for the third quarter increased 9% year over year to $12.0 million; Non-GAAP operating income for the third quarter increased 14% year over year to a record-breaking $16.2 million

Or Yehuda, Israel, Nov. 15, 2021 (GLOBE NEWSWIRE) -- November 15, 2021 – Magic Software Enterprises Ltd. (NASDAQ and TASE: MGIC), a global provider of IT consulting services and end-to-end integration and application development platforms solutions, announced today its financial results for the third quarter and nine months ended September 30, 2021.

Summary Results for Third Quarter 2021 (USD in millions, except per share data)

GAAP

Non-GAAP

Q3 2021

Q3 2020

% Change

Q3 2021

Q3 2020

% Change

Revenues

$

120.9

$

94.9

27.4

%

$

120.9

$

94.9

27.4

%

Gross Profit

$

32.6

$

29.1

12.1

%

$

34.2

$

30.7

11.2

%

Gross Margin

27.0

%

30.7

%

(370

)bps

28.3

%

32.4

%

(410

)bps

Operating Income

$

12.0

$

11.0

9.2

%

$

16.2

$

14.2

14.0

%

Operating Margin

10.0

%

11.6

%

(160

)bps

13.4

%

14.9

%

(150

)bps

Net Income (*)

$

7.5

$

7.1

5.8

%

$

11.8

$

9.5

24.5

%

Diluted EPS

$

0.15

$

0.14

7.1

%

$

0.24

$

0.19

26.3

%


(*)

Attributable to Magic Software’s shareholders.

Financial Highlights for the Third Quarter Ended September 30, 2021

  • Revenues for the third quarter of 2021 increased 27.4% to $120.9 million compared to $94.9 million in the same period last year.

  • Operating income for the third quarter of 2021 increased 9.2% to $12.0 million compared to $11.0 million in the same period last year. The holidays of the Jewish month of Tishrei, which this year have entirely coincided with the third quarter (as opposed to spreading over the third and fourth quarters in the previous year) reduced T&M billable hours in our operations in Israel by approximately 7%, thus reducing our operating margin in the third quarter of 2021 by 1.1% (110 bps).

  • Non-GAAP operating income for the third quarter of 2021 increased 14.0% to $16.2 million compared to $14.2 million in the same period last year. The Holidays of the Jewish month of Tishrei, which this year have entirely coincided with the third quarter (as opposed to spreading over the third and fourth quarters in the previous year) reduced T&M billable hours in our operations in Israel by approximately 7%, thus reducing our operating margin in the third quarter of 2021 by 1.1% (110 bps).

  • Net income attributable to Magic Software’s shareholders for the third quarter of 2021 increased 5.8% to $7.5 million, or $0.15 per fully diluted share, compared to $7.1 million, or $0.14 per fully diluted share in the same period last year.

  • Non-GAAP net income attributable to Magic Software’s shareholders for the third quarter of 2021 increased 24.5% to $11.8 million, or $0.24 per fully diluted share, compared to $9.5 million, or $0.19 per fully diluted share, in the same period last year.

Summary Results for Nine-month Period Ended September 30, 2021 (USD in millions, except per share data)

GAAP

Non-GAAP

Nine months ended September 30,

Nine months ended September 30,

2021

2020

% Change

2021

2020

% Change

Revenues

$

347.3

$

266.6

30.3

%

$

347.3

$

266.6

30.3

%

Gross Profit

$

95.6

$

78.7

21.5

%

$

100.3

$

83.6

20.1

%

Gross Margin

27.5

%

29.5

%

(200

)bps

28.9

%

31.3

%

(240

)bps

Operating Income

$

37.0

$

29.6

24.7

%

$

47.1

$

37.4

25.9

%

Operating Margin

10.6

%

11.1

%

(50

)bps

13.6

%

14.0

%

(40

)bps

Net Income (*)

$

22.8

$

18.7

22.2

%

$

33.4

$

26.9

23.9

%

Diluted EPS

$

0.46

$

0.38

21.1

%

$

0.68

$

0.55

23.6

%


(*)

Attributable to Magic Software’s shareholders.

Financial Highlights for the First Nine-Month Period Ended September 30, 2021

  • Revenues for the first nine months of 2021 increased 30.3% to $347.3 million compared to $266.6 million in the same period last year.

  • Operating income for the first nine months of 2021 increased 24.7% to $37.0 million compared to $29.6 million in the same period last year.

  • Non-GAAP operating income for the first nine months of 2021 increased 25.9% to $47.1 million compared to $37.4 million in the same period last year.

  • Net income attributable to Magic’s shareholders for the first nine months of 2021 increased 22.2% to $22.8 million, or $0.46 per fully diluted share, compared to $18.7 million, or $0.38 per fully diluted share in the same period last year.

  • Non-GAAP net income attributable to Magic’s shareholders for the first nine months of 2021 increased 23.9% to $33.4 million, or $0.68 per fully diluted share, compared to $26.9 million, or $0.55 per fully diluted share, in the same period last year.

  • Cash flow from operating activities for the first nine months of 2021 amounted to $34.2 million compared to $41.3 million in the same period last year.

  • Magic Software has increased its 2021 revenue guidance for the full year of 2021 to between $470 million to $475 million on a constant currency basis, reflecting annual growth of 26.6% to 28.0%, as compared to its prior range of $450 million to $460 million.

Guy Bernstein, Chief Executive Officer of Magic Software, said: “I am very pleased to report another record quarter which further adds to our strong 2021 momentum and allows us to enter into the fourth quarter with increased confidence.

During the first nine months of 2021 we reported double digit growth and all-time highs across all of our key indices (revenues, gross profit, operating income, EBITDA and net income) demonstrating our continued focus on the execution of our growth strategy as our customers increasingly engage us as a preferred partner for implementing fastest-growing technologies, such as digital, cloud, data and AI, creating significant value in managing, streamlining, accelerating and making their businesses thrive.”

Conference Call Details

Magic Software’s management will host a conference call on Monday, November 15, at 10:00 am Eastern Daylight Time (7:00 am Pacific Daylight Time, 17:00 Israel Daylight Time) to review and discuss Magic Software’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: +1-888-642-5032

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 Software’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 Software’s shareholders and non-GAAP basic and diluted earnings per share.

Magic Software 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 Software’s financial condition and results of operations. Magic Software’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 Software 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;

  • Costs related to acquisition of new businesses;

  • The related tax, non-controlling interests and redeemable non-controlling interest’s effects of the above items;

  • Change in valuation of contingent consideration related to acquisitions;

  • Change in value of put options of redeemable non-controlling interests; and

  • Change in deferred tax assets on carry forward tax losses.

Reconciliation 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 end-to-end integration and application development platforms solutions and IT consulting services.

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, 2020 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:

Asaf Berenstin | Chief Financial Officer
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,

2021

2020

2021

2020

Unaudited

Unaudited

Revenues

$

120,870

$

94,892

$

347,323

$

266,621

Cost of Revenues

88,244

65,794

251,704

187,914

Gross profit

32,626

29,098

95,619

78,707

Research and development, net

2,313

2,316

6,872

6,479

Selling, marketing and general and administrative expenses

18,264

15,749

51,796

42,607

Total operating costs and expenses

20,577

18,065

58,668

49,086

Operating income

12,049

11,033

36,951

29,621

Financial expenses (income), net

1,075

(589

)

3,525

(1,207

)

Income before taxes on income

10,974

10,444

33,426

28,414

Taxes on income

2,212

2,039

6,786

6,108

Net income

$

8,762

$

8,405

$

26,640

$

22,306

Net income attributable to redeemable non-controlling interests

(771

)

(500

)

(2,332

)

(1,061

)

Net income attributable to non-controlling interests

(494

)

(820

)

(1,488

)

(2,570

)

Net income attributable to Magic’s shareholders

$

7,497

$

7,085

$

22,820

$

18,675

Net earnings per share attributable to Magic’s shareholders:

Basic

$

0.15

$

0.15

$

0.47

$

0.38

Diluted

$

0.15

$

0.14

$

0.46

$

0.38

Weighted average number of shares used in computing net earnings per share

Basic

49,060

49,031

48,997

48,997

Diluted

49,107

49,049

49,046

49,046

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,

2021

2020

2021

2020

Unaudited

Unaudited

GAAP gross profit

$

32,626

$

29,098

$

95,619

$

78,707

Amortization of capitalized software and acquired technology

1,394

1,284

4,244

3,965

Amortization of other intangible assets

156

353

466

889

Non-GAAP gross profit

$

34,176

$

30,735

$

100,329

$

83,561

GAAP operating income

$

12,049

$

11,033

$

36,951

$

29,621

Gross profit adjustments

1,550

1,637

4,710

4,854

Amortization of other intangible assets

1,737

1,757

5,040

4,335

Capitalization of software development

(723

)

(784

)

(2,345

)

(2,474

)

Acquisition related costs

745

538

1,232

1,039

Increase in valuation of contingent consideration related to acquisitions

660

678

Stock-based compensation

155

-

802

-

Non-GAAP operating income

$

16,173

$

14,181

$

47,068

$

37,375

GAAP net income attributable to Magic’s shareholders

$

7,497

$

7,085

$

22,820

$

18,675

Operating income adjustments

4,124

3,148

10,117

7,754

Amortization expenses attributed to non-controlling interests and redeemable non-controlling interests

(225

)

(232

)

(558

)

(407

)

Changes in unsettled fair value of contingent consideration related to acquisitions

505

454

1,673

1,602

Deferred taxes on the above items

(130

)

(1,001

)

(687

)

(695

)

Non-GAAP net income attributable to Magic’s shareholders

$

11,771

$

9,454

$

33,365

$

26,929

Non-GAAP basic net earnings per share

$

0.24

$

0.19

$

0.68

$

0.55

Weighted average number of shares used in computing basic net earnings per share

49,060

49,031

49,049

48,997

Non-GAAP diluted net earnings per share

$

0.24

$

0.19

$

0.68

$

0.55

Weighted average number of shares used in computing diluted net earnings per share

49,136

49,049

49,135

49,046

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,

2021

2020

2021

2020

Unaudited

Unaudited

Unaudited

Unaudited

Revenues

$

120,870

100

%

$

94,892

100

%

$

347,323

100

%

$

266,621

100

%

Gross profit

34,176

28.3

%

30,735

32.4

%

100,329

28.9

%

83,561

31.3

%

Operating income

16,173

13.4

%

14,181

14.9

%

47,068

13.6

%

37,375

14.0

%

Net income attributable to Magic’s shareholders

11,771

9.7

%

9,454

10.0

%

33,365

9.6

%

26,929

10.1

%

Basic earnings per share

$

0.24

$

0.19

$

0.68

$

0.55

Diluted earnings per share

$

0.24

$

0.19

$

0.68

$

0.55

MAGIC SOFTWARE ENTERPRISES LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
U.S. Dollars in thousands

September 30,

December 31,

2021

2020

Unaudited

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

$

97,164

$

88,127

Short-term bank deposits

289

289

Marketable securities

1,168

1,238

Trade receivables, net

123,169

111,059

Other accounts receivable and prepaid expenses

11,021

10,513

Total current assets

232,811

211,226

LONG-TERM RECEIVABLES:

Severance pay fund

4,623

4,673

Deferred tax assets

4,182

6,397

Operating lease right-of-use assets

22,318

24,509

Other long-term receivables

3,112

3,211

Other long-term deposits

1,785

2,296

Total long-term receivables

36,020

41,086

PROPERTY AND EQUIPMENT, NET

5,725

5,988

IDENTIFIABLE INTANGIBLE ASSETS AND GOODWILL, NET

196,506

189,086

TOTAL ASSETS

$

471,062

$

447,386

LIABILITIES AND EQUITY

CURRENT LIABILITIES:

Short-term debt

$

15,347

$

11,529

Trade payables

18,870

14,250

Accrued expenses and other accounts payable

43,494

41,846

Current maturities of operating lease liabilities

3,231

3,413

Liabilities due to acquisition activities

4,877

4,998

Deferred revenues and customer advances

9,820

8,793

Total current liabilities

95,639

84,829

NON-CURRENT LIABILITIES:

Long-term debt

27,741

13,352

Deferred tax liability

14,306

17,639

Long-term operating lease liabilities

19,680

21,109

Long-term liabilities due to acquisition activities

13,683

10,926

Accrued severance pay

5,493

5,545

Total non-current liabilities

80,903

68,571

REDEEMABLE NON-CONTROLLING INTERESTS

24,952

24,980

EQUITY:

Magic Software Enterprises equity

259,866

260,432

Non-controlling interests

9,702

8,574

Total equity

269,568

269,006

TOTAL LIABILITIES, REDEEMABLE NON-CONTROLLING INTERESTS AND EQUITY

$

471,062

$

447,386

MAGIC SOFTWARE ENTERPRISES LTD.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
U.S. Dollars in thousands

For the Nine months ended

September 30,

2021

2020

Unaudited

Unaudited

Cash flows from operating activities:

Net income

$

26,640

$

22,306

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

10,946

10,096

Stock-based compensation

802

-

Amortization of marketable securities premium and accretion of discount

70

57

Change in deferred taxes, net

(2,429

)

(382

)

Net change in operating assets and liabilities:

Decrease (increase) in trade receivables, net

(9,523

)

5,919

Other long-term and short-term accounts receivable and prepaid expenses, net

775

158

Increase (decrease) in trade payables

3,074

(179

)

Exchange rate of loans

(21

)

(44

)

Accrued expenses and other accounts payable, net

2,974

3,803

Increase (decrease) in deferred revenues

843

(401

)

Net cash provided by operating activities

34,151

41,333

Cash flows from investing activities:

Capitalized software development costs

(2,345

)

(2,474

)

Purchase of property and equipment

(921

)

(2,448

)

Cash paid in conjunction with acquisitions, net of acquired cash

(8,685

)

(16,534

)

Proceeds from maturity and sale of marketable securities

-

5,429

Proceeds from short-term bank deposits

-

5,075

Investment in long-term bank deposits

(17

)

-

Net cash used in investing activities

(11,968

)

(10,952

)

Cash flows from financing activities:

Proceeds from exercise of options by employees

41

229

Payments of deferred and contingent consideration related to acquistions

(4,694

)

-

Dividend paid

(21,780

)

(12,502

)

Dividend paid to non-controlling interests

(871

)

(6,408

)

Dividend paid to redeemable non-controlling interests

(2,783

)

(2,013

)

Purchase of non-controlling interest

-

(18,016

)

Short-term and long-term loans received

22,492

9,090

Repayment of short-term and long-term loans

(4,414

)

(2,811

)

Net cash used in financing activities

(12,009

)

(32,431

)

Effect of exchange rate changes on cash and cash equivalents

(1,137

)

(470

)

Increase (decrease) in cash and cash equivalents

9,037

(2,520

)

Cash and cash equivalents at the beginning of the period

88,127

81,915

Cash and cash equivalents at end of the period

$

97,164

$

79,395