Magic Reports Fourth Quarter and Full Year 2018 Financial Results with Record-Breaking Annual Revenue of $284 Million and Announces a $0.15 Per Share Cash Dividend for the Second Half of 2018


Operating income for the year increased 22% year over year to $31.7 million; Non-GAAP operating income for the year increased 12% year over year to a record-breaking $39.5 million

Or Yehuda, Israel, March 04, 2019 (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 fourth quarter and full year ended December 31, 2018.

Financial Highlights for the Fourth Quarter Ended December 31, 2018

  • Revenues for the fourth quarter increased 9% to $72.3 million compared to $66.2 million in the same period last year.
  • Operating income for the fourth quarter increased 37% to $8.4 million compared to $6.2 million in the same period last year.
  • Non-GAAP operating income for the fourth quarter increased 15% to $10.0 million compared to $8.7 million in the same period last year.
  • Net income attributable to Magic's shareholders for the fourth quarter increased 20% to $4.5 million, or $0.06 per fully diluted share, compared to $3.8 million, or $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 21% to $5.8 million, or $0.12 per fully diluted share, compared to $4.8 million, or $0.11 per fully diluted share, in the same period last year.

Financial Highlights for the Full Year Ended December 31, 2018

  • Revenues for the year increased 10% to $284.4 million compared to $258.1 million in the same period last year.
  • Operating income for the year increased 22% to $31.7 million compared to $26.0 million in the same period last year.
  • Non-GAAP operating income for the year increased 12% to $39.5 million compared to $35.1 million in the same period last year.
  • Net income attributable to Magic's shareholders for the year increased 29% to $19.9 million, or $0.39 per fully diluted share, compared to $15.4 million, or $0.35 per fully diluted share in the same period last year.
  • Non-GAAP net income attributable to Magic's shareholders for the year increased 20% to $25.7 million, or $0.55 per fully diluted share, compared to $21.5 million, or $0.48 per fully diluted share, in the same period last year.
  • Cash flow from operating activities for the year ended December 31, 2018 amounted to $24.1 million compared to $25.5 million in the same period last year.
  • As of December 31, 2018, Magic’s net cash, cash equivalents, short and long-term bank deposits and marketable securities, offset by financial liabilities, amounted to $87.5 million.
  • Magic is providing revenue guidance for 2019 of between $313 million to $319 million, reflecting annual growth of 10% to 12%.

Declaration of Cash Dividend for the Second Half of 2018

In accordance with its dividend distribution policy, the Company’s board of directors declared a semi-annual cash dividend in the amount of $0.15 per share and in the aggregate amount of approximately $7.3 million, which together with the dividend distributed for the first half of 2018, reflects 75% of the company’s distributable profits for the year.

The dividend is payable on March 27, 2019 to all of the Company’s shareholders of record at the close of the NASDAQ Global Select Market on March 14, 2019.

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 twelve-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.

The dividend will be paid in US dollars on the ordinary shares of Magic Software Enterprises that are traded both on the Tel Aviv Stock Exchange and the NASDAQ Global Select Market.

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

“We are pleased to report a strong finish to 2018 with double-digit growth for the full year of 2018, powered by strong demand across our entire portfolio and throughout all of our regions. We enjoyed nine year consecutive all-time high annual revenues of $284 million and non-GAAP operating income of $39.5 million for the year, up 10% and 12% respectively year over year, driven primarily by organic growth. We expect our strong financial position, coupled with our actions in 2018 to promote and grow our markets, to continue our momentum into 2019”, added Bernstein

Conference Call Details

Magic’s management will host a conference call on Monday, March 4, 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 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;
  • 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," “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, 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.

Press Contact:

Amit Birk | VP M&A and General Counsel
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, 
  2018  2017  2018  2017 
  Unaudited  Unaudited    
Revenues $72,293  $66,239  $284,375  $258,140 
Cost of Revenues  50,203   45,055   195,557   175,161 
Gross profit  22,090   21,184   88,818   82,979 
Research and development, net  1,297   1,750   5,696   6,942 
Selling, marketing and general and administrative expenses  12,353   13,253   51,424   50,081 
Total operating costs and expenses  13,650   15,003   57,120   57,023 
Operating income  8,440   6,181   31,698   25,956 
Financial income (expenses), net  (12)  (546)  149   (1,711)
Income before taxes on income  8,428   5,635   31,847   24,245 
Taxes on income  2,186   1,364   7,071   6,331 
Net income $6,242  $4,271  $24,776  $17,914 
Net income attributable to redeemable non-controlling interests  (1,378)  108   (3,383)  (1,536)
Net income attributable to non-controlling interests  (324)  (583)  (1,510)  (936)
Net income attributable to Magic’s shareholders $4,540  $3,796  $19,883  $15,442 
                 
Net earnings per share attributable to Magic’s shareholders :                
Basic $0.06  $0.09  $0.39  $0.35 
Diluted $0.06  $0.09  $0.39  $0.35 
                 
Weighted average number of shares used in computing net earnings per share                
                 
Basic  48,841   44,473   46,665   44,436 
Diluted  48,961   44,637   46,797   44,597 

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, 
  2018  2017  2018  2017 
  Unaudited  Unaudited 
             
GAAP gross profit $22,090  $21,184  $88,818  $82,979 
Amortization of capitalized software and acquired technology  1,212   1,255   5,046   5,397 
Amortization of other intangible assets  135   142   525   628 
Stock-based compensation  -   1   2   7 
Non-GAAP gross profit $23,437  $22,582  $94,391  $89,011 
                 
GAAP operating income $8,440  $6,181  $31,698  $25,956 
Gross profit adjustments  1,347   1,398   5,573   6,032 
Amortization of other intangible assets  1,380   1,622   5,754   6,497 
Increase in valuation of contingent consideration related to acquisitions  (177)  280   (37)  344 
Capitalization of software development  (964)  (819)  (3,666)  (3,771)
Stock-based compensation  (6)  37   192   69 
Non-GAAP operating income $10,020  $8,699  $39,514  $35,127 
                 
GAAP net income attributable to Magic’s shareholders $4,540  $3,796  $19,883  $15,442 
Operating income adjustments  1,580   2,518   7,816   9,171 
Amortization expenses attributed to non-controlling interests and redeemable non-controlling interests  (440)  (975)  (1,513)  (2,367)
Deferred taxes on the above items  93   (580)  (472)  (782)
Non-GAAP net income attributable to Magic’s shareholders $5,773  $4,759  $25,714  $21,464 
                 
Non-GAAP basic net earnings per share $0.12  $0.11  $0.55  $0.48 
Weighted average number of shares used in computing basic net earnings per share  48,841   44,473   46,665   44,436 
                 
Non-GAAP diluted net earnings per share $0.12  $0.11  $0.55  $0.48 
Weighted average number of shares used in computing diluted net earnings per share  48,961   44,638   46,800   44,602 

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

  December 31,  December 31, 
  2018  2017 
  Unaudited    
       
ASSETS      
CURRENT ASSETS:      
Cash and cash equivalents $87,126  $76,076 
Short-term bank deposits  16,881   732 
Marketable securities  9,913   14,138 
Trade receivables, net  90,315   82,051 
Other accounts receivable and prepaid expenses  7,029   8,643 
Total current assets  211,264   181,640 
         
LONG-TERM RECEIVABLES:        
Severance pay fund  3,284   3,226 
Deferred tax assets  1,858   2,990 
Other long-term receivables  6,363   2,015 
Total long-term receivables  11,505   8,231 
         
PROPERTY AND EQUIPMENT, NET  3,072   3,468 
IDENTIFIABLE INTANGIBLE ASSETS AND GOODWILL, NET  136,485   149,200 
         
TOTAL ASSETS $362,326  $342,539 
         
LIABILITIES AND EQUITY        
         
CURRENT LIABILITIES:        
Short-term debt $8,661  $9,771 
Trade payables  14,036   12,185 
Accrued expenses and other accounts payable  24,860   27,789 
Liabilities due to acquisition activities  910   3,906 
Deferred revenues and customer advances  4,496   5,586 
Total current liabilities  52,963   59,237 
         
NON-CURRENT LIABILITIES:        
Long-term debt  19,388   27,814 
Deferred tax liability  10,343   11,331 
Long-term liabilities due to acquisition activities  94   581 
Accrued severance pay  3,934   4,174 
Total non-current liabilities  33,759   43,900 
         
REDEEMABLE NON-CONTROLLING INTERESTS  27,235   25,839 
         
EQUITY:        
Magic Software Enterprises equity  243,956   210,281 
Non-controlling interests  4,413   3,282 
Total equity  248,369   213,563 
         
TOTAL LIABILITIES, REDEEMABLE NON-CONTROLLING INTERESTS AND EQUITY $362,326  $342,539 

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

  Year ended December 31, 
  2018  2017 
  Unaudited    
       
Cash flows from operating activities:      
       
Net income $24,776  $17,914 
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation and amortization  12,564   13,611 
Stock-based compensation  194   78 
Amortization of marketable securities premium and accretion of discount  189   218 
Loss reclassified into earnings from marketable securities  -   (94)
Increase in trade receivables, net  (11,408)  (15,752)
Increase in other long-term and short-term accounts receivable and prepaid expenses  (4,364)  (1,773)
Increase in trade payables  2,203   3,604 
Change in value of loans  (2,099)  3,200 
Increase in accrued expenses and other accounts payable  2,204   4,435 
Increase (decrease) in deferred revenues  (735)  1,175 
Change in deferred taxes, net  526   (1,108)
Net cash provided by operating activities  24,050   25,508 
         
Cash flows from investing activities:        
         
Capitalized software development costs  (3,666)  (3,771)
Purchase of property and equipment  (863)  (1,400)
Cash paid in conjunction with acquisitions, net of acquired cash  (4,344)  (6,890)
Proceeds from maturity and sale of marketable securities  4,000   4,225 
Investment in marketable securities and short-term bank deposits  (16,875)  (5,766)
Investment in long-term bank deposits  (932)  - 
Short-term loan to a related-party  -   1,183 
Net cash used in investing activities  (22,680)  (12,419)
         
Cash flows from financing activities:        
         
Proceeds from exercise of options by employees  311   585 
Issuance of ordinary shares, net  34,569   - 
Dividend paid  (13,543)  (9,359)
Dividend paid to non-controlling interests  (69)  (571)
Dividend paid to redeemable non-controlling interests  (2,671)  (5,312)
Short-term and long-term loans received  546   8,535 
Repayment of short-term and long-term loans  (7,591)  (8,190)
Net cash provided by (used in) financing activities  11,552   (14,312)
         
Effect of exchange rate changes on cash and cash equivalents  (1,872)  1,985 
         
Increase in cash and cash equivalents  11,050   762 
Cash and cash equivalents at the beginning of the year  76,076   75,314 
Cash and cash equivalents at end of the year $87,126  $76,076