OR YEHUDA, Israel, Aug. 13, 2020 (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 second quarter and first half ended June 30, 2020.

Financial Highlights for the Second Quarter Ended June 30, 2020

  • Revenues for the second quarter increased 12% to $86.5 million compared to $77.1 million in the same period last year.
  • Operating income for the second quarter increased 22% to $9.8 million compared to $8.0 million in the same period last year.
  • Non-GAAP operating income for the second quarter increased 14% to $12.2 million compared to $10.7 million in the same period last year.
  • Net income attributable to Magic's shareholders for the second quarter increased 19% to $5.7 million, or $0.12 per fully diluted share, compared to $4.8 million, or $0.08 per fully diluted share in the same period last year.
  • Non-GAAP net income attributable to Magic's shareholders for the second quarter increased 14% to $8.1 million, or $0.17 per fully diluted share, compared to $7.1 million, or $0.14 per fully diluted share, in the same period last year.

Financial Highlights for the Six-Month Period Ended June 30, 2020

  • Revenues for the first half of 2020 increased 15% to $171.7 million compared to $148.9 million in the same period last year.
  • Operating income for the first half of 2020 increased 13% to $18.6 million compared to $16.4 million in the same period last year.
  • Non-GAAP operating income for the first half of 2020 increased 12% to $23.2 million compared to $20.8 million in the same period last year.
  • Net income attributable to Magic's shareholders for the first half of 2020 increased 14% to $11.6 million, or $0.24 per fully diluted share, compared to $10.2 million, or $0.19 per fully diluted share in the same period last year.
  • Non-GAAP net income attributable to Magic's shareholders for the first half of 2020 increased 27% to $17.5 million, or $0.36 per fully diluted share, compared to $13.7 million, or $0.28 per fully diluted share, in the same period last year.
  • Cash flow from operating activities for the first half of 2020 amounted to $28.1 million compared to $26.6 million in the same period last year.
  • As of June 30, 2020, Magic’s net cash, cash equivalents, short and long-term bank deposits and marketable securities amounted to $91.7 million.
  • Magic is reiterating its May 2020 guidance for full year revenues of between $350 million to $360 million on a constant currency basis, reflecting annual growth of 7.5% to 10.6%.

Declaration of Dividend for the First Half of 2020

In accordance with its dividend distribution policy, the Company’s board of directors declared a semi-annual cash dividend in the amount of 17.5 cents per share and in the aggregate amount of approximately $8.6 million, reflecting approximately 75% of its distributable profits for the first half of 2020.

The dividend is payable on September 10, 2020 to all of the Company’s shareholders of record at the close of the NASDAQ Global Select Market on August 27, 2020.

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.

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:

“In spite of the COVID-19 pandemic outbreak in March 2020, our outlook for 2020 has improved due to an increased demand, from existing and new customers, for digital transformation projects, as COVID-19 forced organizations and their employees to adapt to the new forced reality and work environment.”   

“We are pleased to witness that our strong and stable financial position, coupled with our constant efforts to become a trusted advisor of the digital transformation market, are paying off, and we will continue to make our best efforts to enhance our portfolio, both organically and through acquisitions in order to offer the best one-stop-shop for digital transformation.” 

Conference Call Details

Magic’s management will host a conference call on Thursday, August 13, 2020 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 interests effects of the above items;
  • Change in valuation of contingent consideration related to acquisitions;
  • 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 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, 2019 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  Six months ended
   June 30, June 30,
    2020   2019   2020   2019 
                  
   Unaudited Unaudited
 Revenues $86,521  $77,060  $171,729  $148,860 
 Cost of Revenues  61,728   52,476   122,120   101,984 
 Gross profit   24,793   24,584   49,609   46,876 
 Research and development, net  1,989   2,496   4,163   4,042 
 Selling, marketing and general and        
   administrative expenses  12,962   14,050   26,858   26,408 
 Total operating costs and expenses  14,951   16,546   31,021   30,450 
 Operating income   9,842   8,038   18,588   16,426 
 Financial income (expenses), net  (1,135)  35   (618)  (206)
 Income before taxes on income  8,707   8,073   17,970   16,220 
 Taxes on income  2,081   1,897   4,069   3,517 
 Net income $ 6,626  $ 6,176  $ 13,901  $ 12,703 
 Net income attributable to redeemable non-controlling
interests
 (237)  (1,130)  (561)  (2,012)
 Net income attributable to non-controlling interests  (652)  (211)  (1,750)  (504)
 Net income attributable to Magic's shareholders  $ 5,737  $ 4,835  $ 11,590  $ 10,187 
          
 Net earnings per share attributable to Magic's shareholders :        
 Basic $0.12  $0.08  $0.24  $0.19 
 Diluted $0.12  $0.08  $0.24  $0.19 
          
 Weighted average number of shares used in        
   computing net earnings per share        
          
   Basic  49,002   48,891   48,980   48,876 
   Diluted  49,042   48,985   49,044   48,982 
          


 
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, 
   2020   2019   2020   2019  
  Unaudited Unaudited Unaudited Unaudited 
                  
Revenues $86,521 100% $77,060 100% $171,729 100% $148,860 100% 
Gross profit  26,454 30.6%  25,940 33.7%  52,826 30.8%  49,584 33.3% 
Operating income  12,223 14.1%  10,695 13.9%  23,194 13.5%  20,757 13.9% 
Net income attributable to                 
  Magic's shareholders  8,100 9.4%  7,091 9.2%  17,475 10.2%  13,743 9.2% 
                  
Basic earnings per
share
 $0.17   $0.14   $0.36   $0.28   
Diluted earnings per
share
 $0.17   $0.14   $0.36   $0.28   
 


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, 
      2020   2019   2020   2019  
                     
     Unaudited Unaudited 
             
GAAP gross profit   $ 24,793  $ 24,584  $ 49,609  $ 46,876  
Amortization of capitalized software and acquired technology 1,393   1,218   2,681   2,433  
Amortization of other intangible assets   268   138   536   275  
Non-GAAP gross profit  $ 26,454  $ 25,940  $ 52,826  $ 49,584  
             
             
GAAP operating income  $ 9,842  $ 8,038  $ 18,588  $ 16,426  
Gross profit adjustments   1,661   1,356   3,217   2,708  
Amortization of other intangible assets   1,338   1,619   2,578   2,820  
Capitalization of software development   (846)  (1,298)  (1,690)  (2,252) 
Costs related to acquisitions   228   980   501   980  
Stock-based compensation   -   -   -   75  
Non-GAAP operating income  $ 12,223  $ 10,695  $ 23,194  $ 20,757  
             
             
GAAP net income attributable to Magic's shareholders $ 5,737  $ 4,835  $ 11,590  $ 10,187  
Operating income adjustments   2,381   2,657   4,606   4,331  
Expenses attributed to non-controlling interests          
  and redeemable non-controlling interests   (175)  (311)  (175)  (619) 
Changes in unsettled fair value of contingent consideration         
  related to acquisitions   375   -   1,148   -  
Deferred taxes on the above items   (218)  (90)  306   (156) 
Non-GAAP net income attributable to Magic's shareholders$ 8,100  $ 7,091  $ 17,475  $ 13,743  
             
             
Non-GAAP basic net earnings per share  $0.17  $0.14  $0.36  $0.28  
Weighted average number of shares used in computing basic        
  net earnings per share   49,002   48,891   48,980   48,876  
             
Non-GAAP diluted net earnings per share  $0.17  $0.14  $0.36  $0.28  
Weighted average number of shares used in computing diluted        
  net earnings per share   49,042   48,985   49,044   48,975  
             


MAGIC SOFTWARE ENTERPRISES LTD.    
CONDENSED CONSOLIDATED BALANCE SHEETS    
U.S. Dollars in thousands    
     
 June 30, December 31, 
  2020  2019 
 Unaudited   
ASSETS    
CURRENT ASSETS:    
  Cash and cash equivalents$79,023 $81,915 
  Short-term bank deposits 8,107  6,996 
  Marketable securities 2,265  6,600 
  Trade receivables, net 92,913  96,694 
  Other accounts receivable and prepaid expenses 11,448  12,845 
Total current assets 193,756  205,050 
     
LONG-TERM RECEIVABLES:    
  Severance pay fund 4,065  4,013 
  Deferred tax assets 2,601  2,188 
  Operating lease right-of-use assets 23,469  14,956 
  Other long-term receivables 2,603  3,594 
  Other long-term deposits 2,285  2,285 
Total long-term receivables 35,023  27,036 
     
  PROPERTY AND EQUIPMENT, NET 5,032  3,649 
  INTANGIBLE ASSETS AND GOODWILL, NET 171,142  168,871 
     
TOTAL ASSETS$404,953 $404,606 
     
LIABILITIES AND EQUITY    
     
CURRENT LIABILITIES:    
  Short-term debt$6,577 $7,079 
  Trade payables 11,035  10,990 
  Accrued expenses and other accounts payable 31,961  32,619 
  Current maturities of operating lease liabilities 3,103  3,833 
  Liabilities due to acquisition activities 4,687  3,638 
  Deferred revenues and customer advances 9,629  8,724 
Total current liabilities 66,992  66,883 
     
NON-CURRENT LIABILITIES:    
  Long-term debt 18,673  15,540 
  Deferred tax liability 12,881  11,069 
  Long-term operating lease liabilities 20,368  11,119 
  Long-term liabilities due to acquisition activities 7,181  8,613 
  Accrued severance pay 4,866  4,770 
Total non-current liabilities 63,969  51,111 
     
REDEEMABLE NON-CONTROLLING INTERESTS 12,419  21,915 
     
EQUITY:    
  Magic Software Enterprises equity 248,133  247,838 
  Non-controlling interests 13,440  16,859 
Total equity 261,573  264,697 
     
TOTAL LIABILITIES, REDEEMABLE NON-CONTROLLING INTERESTS
AND EQUITY
$404,953 $404,606 
     


     
MAGIC SOFTWARE ENTERPRISES LTD.    
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS   
U.S. Dollars in thousands    
     
 For the six months ended June 30, 
  2020   2019  
 Unaudited Unaudited 
     
Cash flows from operating activities:    
     
Net income$ 13,901  $ 12,703  
Adjustments to reconcile net income to net cash provided    
  by operating activities:    
Depreciation and amortization 6,320   6,138  
Stock-based compensation -   75  
Change in deferred taxes, net (101)  (392) 
Amortization of marketable securities premium    
  and accretion of discount 44   64  
Net change in operating assets and liabilities:    
Trade receivables, net 7,423   7,470  
Other long-term and short-term accounts    
  receivable and prepaid expenses 290   1,446  
Trade payables (815)  (4,101) 
Exchange rate of loans (123)  1,109  
Accrued expenses and other accounts payable 150   (2,241) 
Deferred revenues 990   4,314  
Net cash provided by operating activities 28,079   26,585  
     
Cash flows from investing activities:    
     
Capitalized software development costs (1,689)  (2,252) 
Purchase of property and equipment (1,660)  (670) 
Cash paid in conjunction with acquisitions, net of acquired cash (4,832)  (8,183) 
Proceeds from maturity and sale of marketable securities 4,309   2,450  
Proceeds from (Investment in) short-term bank deposits (1,111)  6,844  
Net cash used in investing activities (4,983)  (1,811) 
     
Cash flows from financing activities:    
     
Proceeds from exercise of options by employees 229   (12) 
Issuance of ordinary shares, net -   (9) 
Dividend paid (3,918)  (7,335) 
Dividend paid to non-controlling interests (5,176)  (56) 
Dividend paid to redeemable non-controlling interests (923)  (1,900) 
Purchase of redeemable non-controlling interest -   (209) 
Purchase of non-controlling interest (18,016)  -  
Short-term and long-term loans received 4,905   878  
Repayment of short-term and long-term loans (2,105)  (6,594) 
Net cash used in financing activities (25,004)  (15,237) 
     
Effect of exchange rate changes on cash and cash equivalents (984)  685  
     
Increase (decrease) in cash and cash equivalents (2,892)  10,222  
Cash and cash equivalents at the beginning of the year 81,915   87,126  
Cash and cash equivalents at end of the period$ 79,023  $ 97,348