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Magic Delivers Strongest Quarter Ever With Double-Digit Increases in Revenues and Operating Income
[May 16, 2018]

Magic Delivers Strongest Quarter Ever With Double-Digit Increases in Revenues and Operating Income


OR YEHUDA, Israel, May 16, 2018 /PRNewswire/ -- Magic Software Enterprises Ltd. (NASDAQ: MGIC) (TASE: MGIC), a global provider of end-to-end integration and application development solutions and IT consulting services, announced today its financial results for the first quarter ended March 31, 2018.

Financial Highlights for the First Quarter Ended March 31, 2018

  • Revenues for the first quarter increased 15% to $69.7 million compared to $60.8 million in the same period last year.
  • Operating income for the first quarter increased 19% to $7.6 million compared to $6.3 million in the same period last year.
  • Non-GAAP operating income for the first quarter increased 16% to $9.7 million compared to $8.4 million in the same period last year.
  • Net income attributable to Magic's shareholders for the first quarter increased 7% to $4.6 million, or $0.10 per fully diluted share, compared to $4.3 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 first quarter increased 7% to $6.2 million, or $0.14 per fully diluted share, compared to $5.7 million, or $0.13 per fully diluted share, in the same period last year.
  • Cash flow from operating activities for the first quarter amounted to $7.3 million compared to $10.5 million in the same period last year.
  • As of March 31, 2018, Magic's net cash, cash equivalents, short-term bank deposits and marketable securities, offset by financial liabilities, amounted to $50.5 million.
  • Magic is reiterating its fiscal year 2018 guidance issued in February for full year revenues of between $283 million to $293 million on a constant currency basis, reflecting annual growth of 10% to 14%.

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

"Our record-breaking results speak for themselves, demonstrating that Magic has continued the forward momentum of a very strong 2017. Our fiscal year 2018 is off to an excellent start driven by the continued high demand for our products and professional services across all of our regions and markets.

"In keeping with our successful strategic direction, we remain focused on expanding our customer base as we continue to evolve our portfolio with powerful and innovative technologies in the fields of software application development, mobile, cloud, big data, and especially in integration, which I believe will account for the majority of an organization's digital transformation efforts," added Bernstein. 

Conference Call Details

Magic's management will host a conference call on Wednesday, May 16, at 10:00 am Eastern Daylight Time (7:00 am Pacific Daylight Time, 17:00 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 for at least three months, 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 attributed 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;
  • Change in value of put options of redeemable non-controlling interests.
  • Change in deferred tax assets on carry forward tax losses.

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," "expects," "believes" 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, 2017 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.

 

 










MAGIC SOFTWARE ENTERPRISES LTD.




CONDENSED CONSOLIDATED STATEMENTS OF INCOME




U.S. Dollars in thousands (except per share data)






























Three months ended 






March 31,






2018


2017






Unaudited




Revenues


$       69,726


$    60,761




Cost of Revenues


46,512


41,061




Gross profit 


23,214


19,700




Research and development, net


1,521


1,616




Selling, marketing and general and








    administrative expenses


14,023


11,745




Increase in valuation of contingent consideration related to acquisitions


104


-




Total operating costs and expenses


15,648


13,361




Operating income 


7,566


6,339




Financial income (expenses), net


198


(227)




Income before taxes on income


7,764


6,112




Taxes on income


1,976


1,250




Net income


$        5,788


$      4,862




Net income attributable to redeemable non-controlling interests


(733)


(458)




Net income attributable to non-controlling interests 


(476)


(141)




Net income attributable to Magic's shareholders 


$        4,579


$      4,263












Net earnings per share








Basic 


$          0.10


$        0.10




Diluted


$          0.10


$        0.10












Weighted average number of shares used in 








     computing net earnings per share
















        Basic


44,489


44,388












        Diluted


44,635


44,554




























 

 





 Summary of Non-GAAP Financial Information 



 U.S. Dollars in thousands (except per share data) 











 Three months ended  





 March 31, 





2018


2017





 Unaudited 


 Unaudited 














 Revenues 


$    69,726


100%


$    60,761


100%



 Gross profit 


24,565


35.2%


21,385


35.2%



 Operating income 


9,707


13.9%


8,381


13.8%



 Net income attributable to  











    Magic's shareholders 


6,151


8.8%


5,729


9.4%














 Basic earnings per share 


$       0.14




$       0.13





 Diluted earnings per share 


$       0.14




$       0.13















 

 





MAGIC SOFTWARE ENTERPRISES LTD.



RECONCILIATION OF GAAP AND NON-GAAP RESULTS



U.S. Dollars in thousands (except per share data)























Three months ended 






March 31,






2018


2017






Unaudited











GAAP gross profit



$       23,214


$     19,700



Amortization of capitalized software and acquired technology



1,220


1,501



Amortization of other intangible assets



130


181



Stock-based compensation



1


3



Non-GAAP gross profit



$       24,565


$     21,385



















GAAP operating income



$         7,566


$       6,339



Gross profit adjustments



1,351


1,685



Amortization of other intangible assets



1,480


1,594



Increase in valuation of contingent consideration related to acquisitions



104


-



Capitalization of software development



(798)


(1,250)



Stock-based compensation



4


13



Non-GAAP operating income



$         9,707


$       8,381



















GAAP net income attributable to Magic's shareholders



$         4,579


$       4,263



Operating income adjustments



2,141


2,042



Amortization expenses attributed to non-controlling interests 








  and redeemable non-controlling interests



(383)


(398)



Deferred taxes on the above items



(186)


(178)



Non-GAAP net income attributable to Magic's shareholders



$         6,151


$       5,729



















Non-GAAP basic net earnings per share 



$           0.14


$         0.13



Weighted average number of shares used in








   computing basic net earnings per share 



44,489


44,388











Non-GAAP diluted net earnings per share 



$           0.14


$         0.13



Weighted average number of shares used in








   computing diluted net earnings per share



44,635


44,558


















 

 




















MAGIC SOFTWARE ENTERPRISES LTD.



CONDENSED CONSOLIDATED BALANCE SHEETS



U.S. Dollars in thousands










March 31,


December 31,




2018


2017




Unaudited











ASSETS






CURRENT ASSETS:






    Cash and cash equivalents 

$               72,741


$               76,076



    Short-term bank deposits

849


732



    Marketable securities

14,043


14,138



    Trade receivables, net

82,872


82,051



    Other accounts receivable and prepaid expenses

9,183


8,643



Total current assets

179,688


181,640









LONG-TERM RECEIVABLES:






    Severance pay fund

3,136


3,226



    Deferred tax assets

2,985


2,990



    Other long-term receivables

4,694


2,015



Total long-term receivables

10,815


8,231









PROPERTY AND EQUIPMENT, NET 

3,398


3,468



IDENTIFIABLE INTANGIBLE ASSETS AND 






    GOODWILL, NET

146,510


149,200









TOTAL ASSETS

$             340,411


$             342,539









LIABILITIES AND EQUITY












CURRENT LIABILITIES:






     Short-term debt

$               10,135


$                 9,771



     Trade payables 

13,862


12,185



     Accrued expenses and other accounts payable  

24,131


27,789



     Liabilities due to acquisition activities

1,098


3,906



     Deferred revenues and customer advances

9,814


5,586



Total current liabilities

59,040


59,237









NON-CURRENT LIABILITIES:






     Long-term debt

26,962


27,814



     Long-term deferred tax liability

11,031


11,331



     Long-term liabilities due to acquisition activities

575


581



     Accrued severance pay     

3,928


4,174



Total non-current liabilities

42,496


43,900









REDEEMABLE NON-CONTROLLING INTERESTS

26,249


25,839









EQUITY:






   Magic Software Enterprises equity

208,918


210,281



   Non-controlling interests

3,708


3,282



Total equity

212,626


213,563









TOTAL LIABILITIES, REDEEMABLE NON-CONTROLLING INTERESTS AND EQUITY

$             340,411


$             342,539








 

 





MAGIC SOFTWARE ENTERPRISES LTD.



CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS



U.S. Dollars in thousands










For the Three months
ended March 31,




2018


2017




Unaudited









Cash flows from operating activities:












Net income

$     5,788


$  4,862



Adjustments to reconcile net income to  net cash provided






   by operating activities:






Depreciation and amortization

3,163


3,540



Stock-based compensation

5


16



Amortization of marketable securities premium and accretion






    of discount

3


66



Gains reclassified into earnings from marketable securities

-


(106)



Increase in trade receivables, net

(3,622)


(4,313)



Increase in other long-term and short-term accounts receivable






    and prepaid expenses

(525)


(300)



Increase (decrease) in trade payables

1,713


(1,906)



Change in value of loans

(375)


1,827



Increase (decrease) in accrued expenses and






   other accounts payable

(2,842)


705



Increase in deferred revenues

4,193


6,151



Change in deferred taxes, net

(228)


(48)



Net cash provided by operating activities 

7,273


10,494









Cash flows from investing activities:












Capitalized software development costs

(798)


(1,250)



Purchase of property and equipment

(257)


(285)



Cash paid in conjunction with acquisitions, net of acquired cash

(2,980)


(3,127)



Proceeds from maturity of marketable securities

-


2,225



Investment in marketable securities and short-term bank deposits

(117)


-



Short-term loan to a related-party

-


1,183



Net cash used in investing activities 

(4,152)


(1,254)









Cash flows from financing activities:












Proceeds from exercise of options by employees

2


254



Dividend paid

(5,956)


-



Dividend paid to non-controlling interests

-


(103)



Dividend paid to redeemable non-controlling interests

(706)


(956)



Short-term credit, net

-


(55)



Change in Short-term and long-term loan from banks, net

12


5,479



Net cash provided by (used in) financing activities 

(6,648)


4,619









Effect of exchange rate changes on cash and cash equivalents 

192


353









Increase (decrease) in cash and cash equivalents

(3,335)


14,212



Cash and cash equivalents at the beginning of the year

76,076


75,314



Cash and cash equivalents at the end of the period

$   72,741


$89,526








 

 

Press Contact:

Debbie Sarig, PR & Content Manager
Magic Software Enterprises
ir@magicsoftware.com

Cision View original content:http://www.prnewswire.com/news-releases/magic-delivers-strongest-quarter-ever-with-double-digit-increases-in-revenues-and-operating-income-300649378.html

SOURCE Magic Software Enterprises Ltd


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