Magic Software Enterprises Ltd. (NASDAQ and TASE: MGIC), a global provider of end-to-end integration and application development platform solutions and IT consulting services, announced today its financial results for the fourth quarter and full year ended December 31, 2019.

Financial Highlights for the Fourth Quarter Ended December 31, 2019

  • Revenues for the fourth quarter increased 26% to $90.9 million compared to $72.3 million in the same period last year.
  • Operating income for the fourth quarter increased 3% to $8.7 million compared to $8.4 million in the same period last year.
  • Non-GAAP operating income for the fourth quarter increased 14% to $11.4 million compared to $10.0 million in the same period last year.
  • Net income attributable to Magic's shareholders for the fourth quarter increased by 13% to $5.1 million, or loss of $0.03 per fully diluted share, compared to $4.5 million, or $0.06 per fully diluted share in the same period last year. Earnings per share for the fourth quarter of 2019 and 2018 were negatively impacted by accretion charges of $6.4 million and $1.5 million, respectively, with respect to change in the value of outstanding put options of redeemable non-controlling interests.The Company classifies redeemable non-controlling interests as mezzanine equity, separate from permanent equity on the consolidated balance sheets and measures it at each reporting period at the higher of its redemption amount or the non-controlling interest book value. The changes in the redemption value measured on each reporting period is reported as part of the retained earnings and allocated to earnings for the purpose of calculating the company’s net income attributable to Magic’s shareholders per share.Excluding the negative impact in the amount of charge with respect to the value of outstanding put options of redeemable non-controlling interests, earnings per share for the fourth quarter was $0.10 per fully diluted share compared to $0.09 per fully diluted share in the same period last year.
  • Non-GAAP net income attributable to Magic's shareholders for the fourth quarter increased 10% to $6.3 million, or $0.13 per fully diluted share, compared to $5.7 million, or $0.12 per fully diluted share, in the same period last year.

Financial Highlights for the year Ended December 31, 2019

  • Revenues for the year increased 15% to $325.6 million compared to $284.4 million in the same period last year.
  • Operating income for the year increased 6% to $33.7 million compared to $31.7 million in the same period last year.
  • Non-GAAP net income for the year increased 10% to $28.2 million compared to $25.7 million in the same period last year.
  • Net income attributable to Magic's shareholders for the year increased by 2% to $20.3 million, or $0.26 per fully diluted share, compared to $19.9 million, or $0.39 per fully diluted share in the same period last year. Earnings per share for the year was negatively impacted by an accretion of a $7.5 million charge relating to the value of outstanding put options of redeemable non-controlling interests. The earnings per share for the year ended December 31, 2018 was negatively impacted by an accretion of a $1.7 million charge in the value of outstanding put options of redeemable non-controlling interests.Excluding the negative impact in the value of outstanding put options of redeemable non-controlling interests, earnings per share for the year was $0.41 per fully diluted share compared to $0.43 per fully diluted share in the same period last year.
  • Non-GAAP net income attributable to Magic's shareholders for the year increased 10% to $28.2 million, or $0.58 per fully diluted share, compared to $25.7 million, or $0.55 per fully diluted share, in the same period last year. Earnings per share for the year 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 year amounted to $45.9 million compared to $24.0 million in the same period last year.
  • As of December 31, 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 $97.8 million.
  • Magic is providing revenue guidance for 2020 of between $360 million to $370 million, reflecting annual growth of 10.6% to 13.6%; such guidance may be affected by the potential impact of the Coronavirus on the Company and its customers

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

“Magic finished 2019 on a very strong note with fourth quarter revenue reaching a record high of $90.9 million, and non-GAAP operating income of $11.4 million. For the full year, it was a strong year of execution on many fronts as we advanced our business globally, growing revenue by 14.5% year over year to $325.6 million above the high end of the annual guidance range,” stated Guy Bernstein. CEO, Magic.

Conference Call Details

Magic’s management will host a conference call on Monday, March 9, 2020 at 11:00 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  Year ended 
 December 31, December 31, 
  2019   2018   2019   2018  
                 
 Unaudited Unaudited   
Revenues$90,927  $72,293  $325,630  $284,375  
Cost of revenues 63,059   50,203   223,501   195,557  
Gross profit  27,868   22,090   102,129   88,818  
Research and development, net 1,962   1,297   8,239   5,696  
Selling, marketing and general   and administrative expenses 17,176   12,353   60,238   51,424  
Total operating costs and expenses 19,138   13,650   68,477   57,120  
Operating income  8,730   8,440   33,652   31,698  
Financial income (expenses), net (352)  (12)  (1,180)  149  
Income before taxes on income 8,378   8,428   32,472   31,847  
Taxes on income 1,977   2,186   6,874   7,071  
Net income$ 6,401  $ 6,242  $ 25,598  $ 24,776  
Net income attributable to redeemable non-controlling interests (54)  (1,378)  (3,111)  (3,383) 
Net income attributable to non-controlling interests (1,226)  (324)  (2,221)  (1,510) 
Net income attributable to Magic's shareholders $ 5,121  $ 4,540  $ 20,266  $ 19,883  
         
         
         
Net earnings (loss) per share attributable to Magic's shareholders :       
Net Income attributable to Magic Shareholder's 5,121   4,540   20,266   19,883  
Accretion of redeemable non-controlling interests (6,441)  (1,489)  (7,441)  (1,724) 
Net Income (loss) attributable to Magic Shareholder's after        
  accretion of redeemable non-controlling interests$ (1,320) $ 3,051  $ 12,825  $ 18,159  
         
Weighted average number of shares used in        
  computing net earnings per share        
         
Basic 48,921   48,841   48,896   46,665  
Diluted 49,021   48,961   48,994   46,797  
         
Basic and diluted earnings (loss) per share attributable   to Magic's shareholders$(0.03) $0.06  $0.26  $0.39  
         
Basic excluding the impact of accretion of redeemable   non-controlling interest$0.11  $0.09  $0.41  $0.43  
         
Diluted excluding the impact of accretion of redeemable   non-controlling interest$0.10  $0.09  $0.41  $0.43  
         

Summary of Non-GAAP Financial Information            
U.S. Dollars in thousands (except per share data)            
                 
  Three months ended  Year ended
  December 31, December 31,
  2019 2018 2019 2018
  Unaudited Unaudited Unaudited Unaudited
                 
Revenues $90,927 100% $72,293 100% $325,630 100% $284,375 100%
Gross profit 29,394 32.3% 23,437 32.4% 107,886 33.1% 94,391 33.2%
Operating income 11,437 12.6% 10,020 13.9% 43,945 13.5% 39,514 13.9%
Net income attributable to   Magic's shareholders 6,331 7.0% 5,773 8.0% 28,153 8.6% 25,714 9.0%
                 
Basic earnings per share $0.13   $0.12   $0.58   $0.55  
Diluted earnings per share $0.13   $0.12   $0.58   $0.55  
                 

             
MAGIC SOFTWARE ENTERPRISES LTD.          
RECONCILIATION OF GAAP AND NON-GAAP RESULTS        
U.S. Dollars in thousands (except per share data)         
     Three months ended  Year ended 
     December 31, December 31, 
      2019   2018   2019   2018  
                     
     Unaudited Unaudited 
             
GAAP gross profit   $ 27,868  $ 22,090  $ 102,129  $ 88,818  
Amortization of capitalized software and acquired technology 1,293   1,212   4,972   5,046  
Amortization of other intangible assets   233   135   785   525  
Stock-based compensation   -   -   -   2  
Non-GAAP gross profit  $ 29,394  $ 23,437  $ 107,886  $ 94,391  
             
GAAP operating income  $ 8,730  $ 8,440  $ 33,652  $ 31,698  
Gross profit adjustments   1,526   1,347   5,757   5,573  
Amortization of other intangible assets   2,129   1,380   6,988   5,754  
Change in valuation of contingent consideration          
  related to acquisitions   -   (177)  255   (37) 
Capitalization of software development   (955)  (964)  (4,083)  (3,666) 
Acquisition-related costs   7   -   1,301   -  
Stock-based compensation   -   (6)  75   192  
Non-GAAP operating income  $ 11,437  $ 10,020  $ 43,945  $ 39,514  
             
GAAP net income attributable to Magic's shareholders $ 5,121  $ 4,540  $ 20,266  $ 19,883  
Operating income adjustments   2,707   1,580   10,293   7,816  
Amortization expenses attributed to non-controlling interests        
  and redeemable non-controlling interests   (540)  (440)  (1,268)  (1,513) 
Deferred taxes on the above items   (957)  93   (1,138)  (472) 
Non-GAAP net income attributable to Magic's shareholders$ 6,331  $ 5,773  $ 28,153  $ 25,714  
             
Non-GAAP basic net earnings per share  $0.13  $0.12  $0.58  $0.55  
Weighted average number of shares used in          
  computing basic net earnings per share   48,921   48,841   48,896   46,665  
             
Non-GAAP diluted net earnings per share  $0.13  $0.12  $0.58  $0.55  
Weighted average number of shares used in          
  computing diluted net earnings per share   49,021   48,961   48,990   46,800  
             

MAGIC SOFTWARE ENTERPRISES LTD.    
CONDENSED CONSOLIDATED BALANCE SHEETS    
U.S. Dollars in thousands    
 December 31, December 31, 
  2019  2018 
 Unaudited   
     
ASSETS    
CURRENT ASSETS:    
Cash and cash equivalents$81,915 $87,126 
Short-term bank deposits 6,996  16,881 
Marketable securities 6,600  9,913 
Trade receivables, net 96,694  90,274 
Other accounts receivable and prepaid expenses 12,845  7,029 
Total current assets 205,050  211,223 
     
LONG-TERM RECEIVABLES:    
Severance pay fund 4,013  3,284 
Deferred tax assets 2,188  1,858 
Operating lease right-of-use assets 14,956  - 
Other long-term receivables 3,587  4,727 
Other long-term deposits 2,285  1,636 
Total long-term receivables 27,029  11,505 
     
PROPERTY AND EQUIPMENT, NET 3,649  3,072 
IDENTIFIABLE INTANGIBLE ASSETS AND    
GOODWILL, NET 171,747  136,485 
     
TOTAL ASSETS$407,475 $362,285 
     
LIABILITIES AND EQUITY    
     
CURRENT LIABILITIES:    
Short-term debt$7,079 $8,661 
Trade payables 10,990  14,036 
Accrued expenses and other accounts payable 32,619  24,458 
Current maturities of operating lease liabilities 3,833  0 
Liabilities due to acquisition activities 3,638  910 
Deferred revenues and customer advances 8,724  4,857 
Total current liabilities 66,883  52,922 
     
NON-CURRENT LIABILITIES:    
Long-term debt 15,540  19,388 
Deferred tax liability 11,512  10,343 
Long-term operating lease liabilities 11,119  0 
Long-term liabilities due to acquisition activities 11,039  94 
Accrued severance pay 4,770  3,934 
Total non-current liabilities 53,980  33,759 
REDEEMABLE NON-CONTROLLING INTERESTS 21,915  27,235 
     
EQUITY:    
Magic Software Enterprises equity 247,838  243,956 
Non-controlling interests 16,859  4,413 
Total equity 264,697  248,369 
TOTAL LIABILITIES, REDEEMABLE NON-CONTROLLING INTERESTS AND EQUITY$407,475 $362,285 
     

MAGIC SOFTWARE ENTERPRISES LTD.    
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS   
U.S. Dollars in thousands    
     
 For the Year ended December 31, 
  2019   2018  
 Unaudited   
     
Cash flows from operating activities:    
     
Net income$ 25,598  $ 24,776  
Adjustments to reconcile net income to net cash provided    
  by operating activities:    
Depreciation and amortization 14,025   12,564  
Stock-based compensation 75   194  
Amortization of marketable securities premium    
  and accretion of discount 117   189  
Decrease (increase) in trade receivables, net 6,549   (11,367) 
Decrease (increase) in other long-term and short-term    
  accounts receivable and prepaid expenses 9,594   (4,364) 
Increase (decrease) in trade payables (5,273)  2,203  
Change in exchange rate of loans 1,895   (2,099) 
Decrease (Increase) in accrued expenses and    
  other accounts payable (7,673)  1,802  
Increase (decrease) in deferred revenues 2,934   (374) 
Change in deferred taxes, net (1,893)  526  
Net cash provided by operating activities 45,948   24,050  
     
Cash flows from investing activities:    
     
Capitalized software development costs (4,143)  (3,666) 
Purchase of property and equipment (1,379)  (863) 
Cash paid in conjunction with acquisitions, net of acquired cash (22,603)  (1,218) 
Proceeds from maturity and sale of marketable securities 3,356   4,000  
(Proceeds) Investment in marketable securities and    
  short-term bank deposits 10,043   (16,875) 
Investment in long-term bank deposits (714)  (932) 
Net cash used in investing activities (15,440)  (19,554) 
     
Cash flows from financing activities:    
     
Proceeds from exercise of options by employees 69   311  
Issuance of ordinary shares, net 104   34,569  
Dividend paid (14,963)  (13,543) 
Dividend paid to non-controlling interests (457)  (69) 
Dividend paid to redeemable non-controlling interests (3,395)  (2,671) 
Short-term credit, net   (437) 
Purchase of redeemable non-controlling interest (5,592)  -  
Cash paid in conjunction with acquisitions, net of acquired cash   (3,126) 
Short term and long-term loans received 878   26  
Repayment of short-term and long-term loans (13,624)  (6,634) 
Net cash provided by (used in) financing activities (36,980)  8,426  
     
Effect of exchange rate changes on cash and cash equivalents 1,261   (1,872) 
     
Change in cash and cash equivalents (5,211)  11,050  
Cash and cash equivalents at the beginning of the period 87,126   76,076  
Cash and cash equivalents at end of the period$ 81,915  $ 87,126  
     

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