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  
     

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