Magic Software Reports Second Quarter 2021 Financial Results with Record-Breaking Revenues for The Second Quarter of $119.2 million - a 37.7% Year Over Year Increase


Operating Income for the second quarter increased 29% year over year to $12.7 million; Non-GAAP operating income for the second quarter increased 30% year over year to $15.9 million

Or Yehuda, Israel, Aug. 12, 2021 (GLOBE NEWSWIRE) -- 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 second quarter and first half ended June 30, 2021.

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

  GAAP     Non-GAAP    
  Q2 2021  Q2 2020  % Change  Q2 2021  Q2 2020  % Change 
Revenues $119.2  $86.5   37.7% $119.2  $86.5   37.7%
Gross Profit $32.8  $24.8   32.3% $34.4  $26.5   30.2%
Gross Margin  27.5%  28.7%  (120)bps  28.9%  30.6%  (170)bps
Operating Income $12.7  $9.8   29.0% $15.9  $12.2   30.2%
Operating Margin  10.7%  11.4%  70bps  13.3%  14.1%  80bps
Net Income (*) $7.8  $5.7   35.6% $11.3  $8.1   39.9%
Diluted EPS $0.16  $0.12   33.3% $0.23  $0.17   35.9%


 (*)Attributable to Magic Software’s shareholders.

Financial Highlights for the Second Quarter Ended June 30, 2021 

  • Revenues for the second quarter ended June 302021 , increased 37.7% to $119.2 million compared to $86.5 million in the same period last year.
  • Operating income for the second quarter ended June 302021 , increased 29.0% to $12.7 million compared to $9.8 million in the same period last year.
  • Non-GAAP operating income for the second quarter ended June 302021 , increased 30.2% to $15.9 million compared to $12.2 million in the same period last year.
  • Net income attributable to Magic Software’s shareholders for the second quarter ended June 302021 , increased 35.6% to $7.8 million, or $0.16 per fully diluted share, compared to $5.7 million, or $0.12 per fully diluted share in the same period last year.
  • Non-GAAP net income attributable to Magic Software’s shareholders for the second quarter ended June 30, 2021 increased 39.9% to $11.3 million, or $0.23 per fully diluted share, compared to $8.1 million, or $0.17 per fully diluted share, in the same period last year.

Summary Results for First Half 2021 (USD in millions, except per share data)

  GAAP     Non-GAAP    
  H1 2021  H1 2020  % Change  H1 2021  H1 2020  % Change 
Revenues $226.5  $171.7   31.9% $226.5  $171.7   31.9%
Gross Profit $63.0  $49.6   27.0% $66.2  $52.8   25.2%
Gross Margin  27.8%  28.9%  (110)bps  29.2%  30.8%  (160)bps
Operating Income $24.9  $18.6   34.0% $30.9  $23.2   33.2%
Operating Margin  11.0%  10.8%  20bps  13.6%  13.5%  10bps
Net Income (*) $15.3  $11.6   32.2% $21.6  $17.5   23.6%
Diluted EPS $0.31  $0.24   29.2% $0.44  $0.36   22.2%


 (*)Attributable to Magic Software’s shareholders.

Financial Highlights for the First Half Ended June 30, 2021 

  • Revenues for the first half period ended June 302021 , increased 31.9% to $226.5 million compared to $171.7 million in the same period last year.
  • Operating income for the first half period ended June 302021 , increased 34.0% to $24.9 million compared to $18.6 million in the same period last year.
  • Non-GAAP operating income for the first half period ended June 302021 , increased 33.2% to $30.9 million compared to $23.2 million in the same period last year.
  • Net income attributable to Magic Software’s shareholders for the first half period ended June 302021 , increased 32.2% to $15.3 million, or $0.31 per fully diluted share, compared to $11.6 million, or $0.24 per fully diluted share in the same period last year.
  • Non-GAAP net income attributable to Magic Software’s shareholders for the first half period ended June 30, 2021 increased 23.6% to $21.6 million, or $0.44 per fully diluted share, compared to $17.5 million, or $0.36 per fully diluted share, in the same period last year.
  • Cash flow from operating activities for the first half ended 302021 , amounted to $28.0 million compared to $28.1 million in the same period last year.
  • As of June 30, 2021, Magic Software’s net cash, cash equivalents, short and long-term bank deposits and marketable securities amounted to $106.1 million.
  • Magic Software has increased its 2021 revenue guidance for the second time to a range of $450 to $460 million from its prior range of $425 to $435 million, reflecting annual growth of 22.2% to 23.9%. 

Declaration of Dividend for the First Half of 2021

In accordance with its dividend distribution policy, the Company’s board of directors declared a semi-annual cash dividend in the amount of 23.4 cents per share and in the aggregate amount of approximately $11.5 million, reflecting approximately 75% of its distributable profits for the first half of 2021.

The dividend is payable in U.S. dollars on September 14, 2021 to all of the Company’s shareholders of record at the close of trading on the NASDAQ Global Select Market and the Tel Aviv Stock Exchange on August 30, 2021.

In accordance with Israeli tax law, the dividend is subject to withholding tax at source at the rate of 30% (if the recipient of the dividend is at the time of distribution or was at any time during the preceding 12-month period the holder of 10% or more of the Company’s share capital) or 25% (for all other dividend recipients) of the dividend amount payable to each shareholder of record, subject to applicable exemptions. 

Guy Bernstein, Chief Executive Officer of Magic Software, said: “Our solid execution in the second quarter delivering double-digit growth across all key financial indices (revenues, gross profit, operating income, net income and EBITDA), with record-breaking revenues reaching $119 million and record-breaking operating income, demonstrate the important role Magic Software plays in its customers’ lifecycles and transformative journeys, as well as the success of its strategy to build a broad business portfolio that creates value for our customers in managing, streamlining, accelerating and maximizing their businesses.”

Conference Call Details

Magic Software’s management will host a conference call on Thursday, August 12, 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 relates 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  Six months ended 
  June 30,  June 30, 
  2021  2020  2021  2020 
  Unaudited  Unaudited 
Revenues $119,155  $86,521  $226,453  $171,729 
Cost of Revenues  86,351   61,728   163,460   122,120 
Gross profit  32,804   24,793   62,993   49,609 
Research and development, net  2,363   1,989   4,559   4,163 
Selling, marketing and general and administrative expenses  17,747   12,962   33,532   26,858 
Total operating costs and expenses  20,110   14,951   38,091   31,021 
Operating income  12,694   9,842   24,902   18,588 
Financial expenses, net  1,304   1,135   2,450   618 
Income before taxes on income  11,390   8,707   22,452   17,970 
Taxes on income  2,304   2,081   4,574   4,069 
Net income $9,086  $6,626  $17,878  $13,901 
Net income attributable to redeemable non-controlling interests  (830)  (237)  (1,561)  (561)
Net income attributable to non-controlling interests  (476)  (652)  (994)  (1,750)
Net income attributable to Magic’s shareholders $7,780  $5,737  $15,323  $11,590 
                 
Net earnings per share attributable to Magic’s shareholders :                
Basic $0.16  $0.12  $0.31  $0.24 
Diluted $0.16  $0.12  $0.31  $0.24 
                 
Weighted average number of shares used in computing net earnings per share                
Basic  49,055   49,002   49,045   48,980 
Diluted  49,091   49,042   49,086   49,044 

  
Summary of Non-GAAP Financial Information
U.S. Dollars in thousands (except per share data)

  Three months ended  Six months ended 
  June 30,  June 30, 
  2021  2020  2021  2020 
  Unaudited  Unaudited  Unaudited  Unaudited 
                         
Revenues $119,155   100% $86,521   100% $226,453   100% $171,729   100%
Gross profit  34,440   28.9%  26,454   30.6%  66,153   29.2%  52,826   30.8%
Operating income  15,911   13.4%  12,223   14.1%  30,895   13.6%  23,194   13.5%
Net income attributable to Magic’s shareholders  11,326   9.5%  8,098   9.4%  21,594   9.5%  17,475   10.2%
                                 
Basic earnings per share $0.23      $0.17      $0.44      $0.36     
Diluted earnings per share $0.23      $0.17      $0.44      $0.36     

  
MAGIC SOFTWARE ENTERPRISES LTD.
RECONCILIATION OF GAAP AND NON-GAAP RESULTS
U.S. Dollars in thousands (except per share data)

  Three months ended  Six months ended 
  June 30,  June 30, 
  2021  2020  2021  2020 
  Unaudited  Unaudited 
             
GAAP gross profit $32,804  $24,793  $62,993  $49,609 
Amortization of capitalized software and acquired technology  1,481   1,393   2,850   2,681 
Amortization of other intangible assets  155   268   310   536 
Non-GAAP gross profit $34,440  $26,454  $66,153  $52,826 
                 
GAAP operating income $12,694  $9,842  $24,902  $18,588 
Gross profit adjustments  1,636   1,661   3,160   3,217 
Amortization of other intangible assets  1,723   1,338   3,303   2,578 
Increase in valuation of contingent consideration related to acquisitions  18   -   18   - 
Capitalization of software development  (798)  (846)  (1,622)  (1,690)
Acquisition-related costs  482   228   487   501 
Stock-based compensation  156   -   647   - 
Non-GAAP operating income $15,911  $12,223  $30,895  $23,194 
                 
GAAP net income attributable to Magic Software’s shareholders $7,780  $7,780  $15,323  $11,590 
Operating income adjustments  3,217   2,381   5,993   4,606 
Amortization expenses attributed to non-controlling interests and redeemable non-controlling interests  (168)  (175)  (333)  (175)
Changes in unsettled fair value of contingent consideration related to acquisitions  731   375   1,168   1,148 
Deferred taxes on the above items  (234)  (220)  (557)  306 
Non-GAAP net income attributable to Magic’s shareholders $11,326  $10,141  $21,594  $17,475 
                 
Non-GAAP basic net earnings per share $0.23  $0.17  $0.44  $0.36 
Weighted average number of shares used in computing basic net earnings per share  49,055   49,002   49,045   48,980 
                 
Non-GAAP diluted net earnings per share $0.23  $0.17  $0.44  $0.36 
Weighted average number of shares used in computing diluted net earnings per share  49,135   49,042   49,135   49,044 

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

  June 30,  December 31, 
  2021  2020 
  Unaudited  Unaudited 
       
ASSETS      
CURRENT ASSETS:      
Cash and cash equivalents $102,774  $88,127 
Short-term bank deposits  289   289 
Marketable securities  1,211   1,238 
Trade receivables, net  118,489   111,059 
Other accounts receivable and prepaid expenses  9,928   10,513 
Total current assets  232,691   211,226 
         
LONG-TERM RECEIVABLES:        
Severance pay fund  4,447   4,673 
Deferred tax assets  5,920   6,397 
Operating lease right-of-use assets  23,263   24,509 
Other long-term receivables  3,291   3,211 
Other long-term deposits  1,796   2,296 
Total long-term receivables  38,717   41,086 
         
PROPERTY AND EQUIPMENT, NET  5,900   5,988 
IDENTIFIABLE INTANGIBLE ASSETS AND GOODWILL, NET  198,200   189,086 
         
TOTAL ASSETS $475,508  $447,386 
         
LIABILITIES AND EQUITY        
         
CURRENT LIABILITIES:        
Short-term debt $12,377  $11,529 
Trade payables  19,808   14,250 
Accrued expenses and other accounts payable  43,406   41,846 
Current maturities of operating lease liabilities  3,565   3,413 
Liabilities due to acquisition activities  5,037   4,998 
Deferred revenues and customer advances  12,751   8,793 
Total current liabilities  96,944   84,829 
         
NON-CURRENT LIABILITIES:        
Long-term debt  24,796   13,352 
Deferred tax liability  17,811   17,639 
Long-term operating lease liabilities  19,708   21,109 
Long-term liabilities due to acquisition activities  12,586   10,926 
Accrued severance pay  5,322   5,545 
Total non-current liabilities  80,223   68,571 
         
REDEEMABLE NON-CONTROLLING INTERESTS  25,593   24,980 
         
EQUITY:        
Magic Software Enterprises equity  263,557   260,431 
Non-controlling interests  9,191   8,575 
Total equity  272,748   269,006 
TOTAL LIABILITIES, REDEEMABLE NON-CONTROLLING INTERESTS AND EQUITY $475,508  $447,386 

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

  For the six months ended
June 30,
 
  2021  2020 
  Unaudited  Unaudited 
       
Cash flows from operating activities:      
       
Net income $17,878  $13,901 
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation and amortization  6,995   6,320 
Stock-based compensation  646   - 
Change in deferred taxes, net  (591)  (101)
Amortization of marketable securities premium and accretion of discount  28   44 
Net change in operating assets and liabilities:        
Decrease (Increase) in trade receivables  (6,542)  7,423 
Other long-term and short-term accounts receivable and prepaid expenses  422   290 
Increase (decrease) trade payables  4,189   (815)
Exchange rate of loans  (210)  (123)
Accrued expenses and  other accounts payable  1,364   150 
Deferred revenues  3,861   990 
Net cash provided by operating activities  28,040   28,079 
         
Cash flows from investing activities:        
         
Capitalized software development costs  (1,621)  (1,689)
Purchase of property and equipment  (688)  (1,660)
Cash paid in conjunction with acquisitions, net of acquired cash  (6,831)  (4,832)
Proceeds from maturity and sale of marketable securities  -   4,309 
Investment in short-term bank deposits  (7)  (1,111)
Net cash provided by (used in) investing activities  (9,147)  (4,983)
         
Cash flows from financing activities:        
         
Proceeds from exercise of options by employees  -   229 
Dividend paid  (10,300)  (3,918)
Dividend paid to non-controlling interests  (778)  (5,176)
Dividend paid to redeemable non-controlling interests  (607)  (923)
Purchase of non-controlling interest  -   (18,016)
Payments of deferred and contingent consideration related to acquisitions  (4,694)  - 
Short-term and long-term loans received  15,368   4,905 
Repayment of short-term and long-term loans  (2,985)  (2,105)
Net cash used in financing activities  (3,996)  (25,004)
         
Effect of exchange rate changes on cash and cash equivalents  (250)  (984)
         
Increase (decrease) in cash and cash equivalents  14,647   (2,892)
Cash and cash equivalents at the beginning of the period  88,127   81,915 
Cash and cash equivalents at end of the period $102,774  $79,023