Magic Reports Third Quarter 2020 Financial Results with Both Record-Breaking Revenues of $95 million, reflecting a 11% Year Over Year Growth and Record-Breaking Operating Income of $11 million, reflecting a 30% Year Over Year Growth

Non-GAAP operating income for the third quarter increased 21% year over year to a record breaking $14.2 million

OR YEHUDA, Israel, Nov. 16, 2020 (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-months ended September 30, 2020.

Financial Highlights for the Third Quarter Ended September 30, 2020

  • Revenues for the third quarter increased 11% to a record breaking $94.9 million compared to $85.8 million in the same period last year.
  • Operating income for the third quarter increased 30% to a record breaking $11.0 million compared to $8.5 million in the same period last year.
  • Non-GAAP operating income for the third quarter increased 21% to a record breaking $14.2 million compared to $11.8 million in the same period last year.
  • Net income attributable to Magic’s shareholders for the third quarter increased 43% to a record breaking $7.1 million, or $0.14 per fully diluted share, compared to $5.0 million, or $0.10 per fully diluted share in the same period last year.
  • Non-GAAP net income attributable to Magic’s shareholders for the third quarter increased 17% to a record breaking $9.5 million, or $0.19 per fully diluted share, compared to $8.1 million, or $0.17 per fully diluted share, in the same period last year.

Financial Highlights for the Nine-month Period Ended September 30, 2020

  • Revenues for the nine-months of 2020 increased 14% to $266.6 million compared to $234.7 million in the same period last year.
  • Operating income for the nine-months of 2020 increased 19% to $29.6 million compared to $24.9 million in the same period last year.
  • Non-GAAP operating income for the nine-months of 2020 increased 15% to $37.4 million compared to $32.5 million in the same period last year.
  • Net income attributable to Magic’s shareholders for the nine-months of 2020 increased 23% to $18.7 million, or $0.38 per fully diluted share, compared to $15.1 million, or $0.29 per fully diluted share in the same period last year.
  • Non-GAAP net income attributable to Magic’s shareholders for the nine-months of 2020 increased 23% to $26.9 million, or $0.55 per fully diluted share, compared to $21.8 million, or $0.45 per fully diluted share, in the same period last year.
  • Cash flow from operating activities for the nine-months of 2020 amounted to $41.3 million compared to $32.7 million in the same period last year.
  • As of September 30, 2020, Magic’s net cash, cash equivalents, short and long-term bank deposits and marketable securities amounted to $85.6 million.
  • With the outlook for 2020 improving despite COVID-19 Magic is raising its May 2020 guidance for full year 2020 revenues of between $358 million to $365 million on a constant currency basis, reflecting annual growth of 9.9% to 11.5%, as compared to its prior range of $350 million to $360 million, overall increasing the midpoint of its guidance 1.8%.

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

“Magic delivered strong execution during the quarter on all its fronts as we advance our business globally, signing new business and increasing our revenue from existing customers. Fueled by outstanding strategic performance in Israel and North America we will continue with our proven strategy to enhance our portfolio, organically and through acquisitions in order to offer the best one-stop-shop for digital transformation.”

Conference Call Details

Magic’s management will host a conference call on Monday, November 16, 2020 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 interests effects of the above items;
  • Change in valuation of contingent consideration related to acquisitions;
  • 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 on the basis of 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, 2019 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
[email protected]

MAGIC SOFTWARE ENTERPRISES LTD.

CONDENSED CONSOLIDATED BALANCE SHEETS

U.S. Dollars in thousands

    September 30,     December 31,  
    2020     2019  
    Unaudited        
ASSETS            
CURRENT ASSETS:            
Cash and cash equivalents   $ 79,395     $ 81,915  
Short-term bank deposits     2,784       6,996  
Marketable securities     1,181       6,600  
Trade receivables, net     99,798       96,694  
Other accounts receivable and prepaid expenses     11,484       12,845  

Total current assets
    194,642       205,050  
                 
LONG-TERM RECEIVABLES:                
Severance pay fund     4,248       4,013  
Deferred tax assets     2,280       2,188  
Operating lease right-of-use assets     23,115       14,956  
Other long-term receivables     2,910       3,594  
Other long-term deposits     2,285       2,285  

Total long-term receivables
    34,838       27,036  
                 
PROPERTY AND EQUIPMENT, NET     5,910       3,649  
INTANGIBLE ASSETS AND GOODWILL, NET     187,108       168,871  
                 
TOTAL ASSETS   $ 422,498     $ 404,606  
                 
LIABILITIES AND EQUITY                
                 
CURRENT LIABILITIES:                
Short-term debt   $ 10,748     $ 7,079  
Trade payables     11,871       10,990  
Accrued expenses and other accounts payable     37,541       32,619  
Current maturities of operating lease liabilities     2,898       3,833  
Liabilities due to acquisition activities     5,510       3,638  
Deferred revenues and customer advances     8,958       8,724  

Total current liabilities
    77,526       66,883  
                 
NON-CURRENT LIABILITIES:                
Long-term debt     18,070       15,540  
Deferred tax liability     14,845       11,069  
Long-term operating lease liabilities     20,220       11,119  
Long-term liabilities due to acquisition activities     9,325       8,613  
Accrued severance pay     5,062       4,770  

Total non-current liabilities
    67,522       51,111  
                 
REDEEMABLE NON-CONTROLLING INTERESTS     16,588       21,915  
                 
EQUITY:                
Magic Software Enterprises equity     247,284       247,838  
Non-controlling interests     13,578       16,859  

Total equity
    260,862       264,697  
                 
TOTAL LIABILITIES, REDEEMABLE NON-CONTROLLING INTERESTS AND EQUITY   $ 422,498     $ 404,606  

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,  
    2020     2019     2020     2019  
             
    Unaudited     Unaudited  
Revenues   $ 94,892     $ 85,843     $ 266,621     $ 234,703  
Cost of Revenues     65,794       58,458       187,914       160,442  
Gross profit     29,098       27,385       78,707       74,261  
Research and development, net     2,316       2,235       6,479       6,277  
Selling, marketing and general and administrative expenses     15,749       16,654       42,607       43,062  
Total operating costs and expenses     18,065       18,889       49,086       49,339  
Operating income     11,033       8,496       29,621       24,922  
Financial expenses, net     (589 )     (622 )     (1,207 )     (828 )
Income before taxes on income     10,444       7,874       28,414       24,094  
Taxes on income     2,039       1,380       6,108       4,897  
Net income   $ 8,405     $ 6,494     $ 22,306     $ 19,197  
Net income attributable to redeemable non-controlling interests     (500 )     (1,045 )     (1,061 )     (3,057 )
Net income attributable to non-controlling interests     (820 )     (491 )     (2,570 )     (995 )
Net income attributable to Magic’s shareholders   $ 7,085     $ 4,958     $ 18,675     $ 15,145  
                                 
Net earnings per share attributable to Magic’s shareholders :                                
Basic   $ 0.15     $ 0.10     $ 0.38     $ 0.29  
Diluted   $ 0.14     $ 0.10     $ 0.38     $ 0.29  
                                 
Weighted average number of shares used in computing net earnings per share                                
Basic     49,031       48,897       48,997       48,888  
Diluted     49,049       48,991       49,046       48,985  

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,  
    2020     2019     2020     2019  
             
    Unaudited     Unaudited  
                         
GAAP gross profit   $ 29,098     $ 27,385     $ 78,707     $ 74,261  
Amortization of capitalized software and acquired technology     1,284       1,246       3,965       3,679  
Amortization of other intangible assets     353       277       889       552  
Non-GAAP gross profit   $ 30,735     $ 28,908     $ 83,561     $ 78,492  
                                 
                                 
GAAP operating income   $ 11,033     $ 8,496     $ 29,621     $ 24,922  
Gross profit adjustments     1,637       1,523       4,854       4,231  
Amortization of other intangible assets     1,757       2,039       4,335       4,859  
Capitalization of software development     (784 )     (876 )     (2,474 )     (3,128 )
Costs related to acquisitions     538       314       1,039       1,294  
Increase in valuation of contingent consideration related to acquisitions             255               255  
Stock-based compensation                       75  
Non-GAAP operating income   $ 14,181     $ 11,751     $ 37,375     $ 32,508  
                                 
                                 
GAAP net income attributable to Magic’s shareholders   $ 7,085     $ 4,958     $ 18,675     $ 15,145  
Operating income adjustments     3,148       3,255       7,754       7,586  
Expenses attributed to non-controlling interests and redeemable non-controlling interests     (232 )     (109 )     (407 )     (728 )
Changes in unsettled fair value of contingent consideration related to acquisitions     454             1,602        
Deferred taxes on the above items     (1,001 )     (25 )     (695 )     (181 )
Non-GAAP net income attributable to Magic’s shareholders   $ 9,454     $ 8,079     $ 26,929     $ 21,822  
                                 
Non-GAAP basic net earnings per share   $ 0.19     $ 0.17     $ 0.55     $ 0.45  
Weighted average number of shares used in computing basic net earnings per share     49,031       48,897       48,997       48,888  
                                 
Non-GAAP diluted net earnings per share   $ 0.19     $ 0.17     $ 0.55     $ 0.45  
Weighted average number of shares used in computing diluted net earnings per share     49,049       48,991       49,046       48,980  


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,  
    2020     2019     2020     2019  
    Unaudited     Unaudited     Unaudited     Unaudited  
                                         
Revenues   $ 94,892   100 %   $ 85,843   100 %   $ 266,621   100 %   $ 234,703   100 %
Gross profit     30,735   32.4 %     28,908   33.7 %     83,561   31.3 %     78,492   33.4 %
Operating income     14,181   14.9 %     11,751   13.7 %     37,375   14.0 %     32,508   13.9 %
Net income attributable to Magic’s shareholders     9,454   10.0 %     8,079   9.4 %     26,929   10.1 %     21,822   9.3 %
                                                 
Basic earnings per share   $ 0.19         $ 0.17         $ 0.55         $ 0.45      
Diluted earnings per share   $ 0.19         $ 0.17         $ 0.55         $ 0.45      

MAGIC SOFTWARE ENTERPRISES LTD.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

U.S. Dollars in thousands

    For the Nine months ended September 30,  
    2020     2019  
    Unaudited     Unaudited  
             

Cash flows from operating activities:
           
             
Net income   $ 22,306     $ 19,197  
Adjustments to reconcile net income to net cash provided   by operating activities:                
Depreciation and amortization     10,096       10,037  
Stock-based compensation           75  
Change in deferred taxes, net     (382 )     (758 )
Amortization of marketable securities premium and accretion of discount     57       147  
Net change in operating assets and liabilities:                
Trade receivables, net     5,919       6,307  
Other long-term and short-term accounts receivable and prepaid expenses     158       2,761  
Trade payables     (179 )     (5,540 )
Exchange rate of loans     (44 )     1,712  
Accrued expenses and other accounts payable     3,803       (5,608 )
Deferred revenues     (401 )     4,365  
Net cash provided by operating activities     41,333       32,695  
                 

Cash flows from investing activities:
               
                 
Capitalized software development costs     (2,474 )     (3,128 )
Purchase of property and equipment     (2,448 )     (1,057 )
Cash paid in conjunction with acquisitions, net of acquired cash     (16,534 )     (20,889 )
Proceeds from maturity and sale of marketable securities     5,429       2,450  
Proceeds from short-term bank deposits     5,075       5,127  
Investment in marketable securities           (202 )
Net cash used in investing activities     (10,952 )     (17,699 )
                 

Cash flows from financing activities:
               
                 
Proceeds from exercise of options by employees     229       69  
Issuance of ordinary shares, net           (9 )
Dividend paid     (12,502 )     (14,963 )
Dividend paid to non-controlling interests     (6,408 )     (400 )
Dividend paid to redeemable non-controlling interests     (2,013 )     (2,589 )
Purchase of redeemable non-controlling interest           (1,237 )
Purchase of non-controlling interest     (18,016 )      
Short-term and long-term loans received     9,090       878  
Repayment of short-term and long-term loans     (2,811 )     (7,681 )
Net cash used in financing activities     (32,431 )     (25,932 )
                 
Effect of exchange rate changes on cash and cash equivalents     (470 )     699  
                 
Change in cash and cash equivalents     (2,520 )     (10,237 )
Cash and cash equivalents at the beginning of the year     81,915       87,126  
Cash and cash equivalents at end of the period   $ 79,395     $ 76,889