Magic Software Reports Third Quarter 2021 Financial Results with Record-Breaking Revenues of $120.9 million - a 27.4% Year Over Year Increase


Operating income for the third quarter increased 9% year over year to $12.0 million; Non-GAAP operating income for the third quarter increased 14% year over year to a record-breaking $16.2 million

Or Yehuda, Israel, Nov. 15, 2021 (GLOBE NEWSWIRE) -- November 15, 2021 – 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 third quarter and nine months ended September 30, 2021.

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

  GAAP  Non-GAAP 
  Q3 2021  Q3 2020  % Change  Q3 2021  Q3 2020  %  Change 
Revenues $120.9  $94.9   27.4% $120.9  $94.9   27.4%
Gross Profit $32.6  $29.1   12.1% $34.2  $30.7   11.2%
Gross Margin  27.0%  30.7%  (370)bps  28.3%  32.4%  (410)bps
Operating Income $12.0  $11.0   9.2% $16.2  $14.2   14.0%
Operating Margin  10.0%  11.6%  (160)bps  13.4%  14.9%  (150)bps
Net Income (*) $7.5  $7.1   5.8% $11.8  $9.5   24.5%
Diluted EPS $0.15  $0.14   7.1% $0.24  $0.19   26.3%


 (*)Attributable to Magic Software’s shareholders.

Financial Highlights for the Third Quarter Ended September 30, 2021

  • Revenues for the third quarter of 2021 increased 27.4% to $120.9 million compared to $94.9 million in the same period last year.
  • Operating income for the third quarter of 2021 increased 9.2% to $12.0 million compared to $11.0 million in the same period last year. The holidays of the Jewish month of Tishrei, which this year have entirely coincided with the third quarter (as opposed to spreading over the third and fourth quarters in the previous year) reduced T&M billable hours in our operations in Israel by approximately 7%, thus reducing our operating margin in the third quarter of 2021 by 1.1% (110 bps).
  • Non-GAAP operating income for the third quarter of 2021 increased 14.0% to $16.2 million compared to $14.2 million in the same period last year. The Holidays of the Jewish month of Tishrei, which this year have entirely coincided with the third quarter (as opposed to spreading over the third and fourth quarters in the previous year) reduced T&M billable hours in our operations in Israel by approximately 7%, thus reducing our operating margin in the third quarter of 2021 by 1.1% (110 bps). 
  • Net income attributable to Magic Software’s shareholders for the third quarter of 2021 increased 5.8% to $7.5 million, or $0.15 per fully diluted share, compared to $7.1 million, or $0.14 per fully diluted share in the same period last year.
  • Non-GAAP net income attributable to Magic Software’s shareholders for the third quarter of 2021 increased 24.5% to $11.8 million, or $0.24 per fully diluted share, compared to $9.5 million, or $0.19 per fully diluted share, in the same period last year.

Summary Results for Nine-month Period Ended September 30, 2021 (USD in millions, except per share data)

  GAAP  Non-GAAP 
  Nine months ended September 30,     Nine months ended September 30,    
  2021  2020  %  Change  2021  2020  %  Change 
Revenues $347.3  $266.6   30.3% $347.3  $266.6   30.3%
Gross Profit $95.6  $78.7   21.5% $100.3  $83.6   20.1%
Gross Margin  27.5%  29.5%  (200)bps  28.9%  31.3%  (240)bps
Operating Income $37.0  $29.6   24.7% $47.1  $37.4   25.9%
Operating Margin  10.6%  11.1%  (50)bps  13.6%  14.0%  (40)bps
Net Income (*) $22.8  $18.7   22.2% $33.4  $26.9   23.9%
Diluted EPS $0.46  $0.38   21.1% $0.68  $0.55   23.6%


 (*)Attributable to Magic Software’s shareholders.

Financial Highlights for the First Nine-Month Period Ended September 30, 2021

  • Revenues for the first nine months of 2021 increased 30.3% to $347.3 million compared to $266.6 million in the same period last year.
  • Operating income for the first nine months of 2021 increased 24.7% to $37.0 million compared to $29.6 million in the same period last year.
  • Non-GAAP operating income for the first nine months of 2021 increased 25.9% to $47.1 million compared to $37.4 million in the same period last year.
  • Net income attributable to Magic’s shareholders for the first nine months of 2021 increased 22.2% to $22.8 million, or $0.46 per fully diluted share, compared to $18.7 million, or $0.38 per fully diluted share in the same period last year.
  • Non-GAAP net income attributable to Magic’s shareholders for the first nine months of 2021 increased 23.9% to $33.4 million, or $0.68 per fully diluted share, compared to $26.9 million, or $0.55 per fully diluted share, in the same period last year.
  • Cash flow from operating activities for the first nine months of 2021 amounted to $34.2 million compared to $41.3 million in the same period last year.
  • Magic Software has increased its 2021 revenue guidance for the full year of 2021 to between $470 million to $475 million on a constant currency basis, reflecting annual growth of 26.6% to 28.0%, as compared to its prior range of $450 million to $460 million. 

Guy Bernstein, Chief Executive Officer of Magic Software, said: “I am very pleased to report another record quarter which further adds to our strong 2021 momentum and allows us to enter into the fourth quarter with increased confidence.

During the first nine months of 2021 we reported double digit growth and all-time highs across all of our key indices (revenues, gross profit, operating income, EBITDA and net income) demonstrating our continued focus on the execution of our growth strategy as our customers increasingly engage us as a preferred partner for implementing fastest-growing technologies, such as digital, cloud, data and AI, creating significant value in managing, streamlining, accelerating and making their businesses thrive.”

Conference Call Details

Magic Software’s management will host a conference call on Monday, November 15, 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 related 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  Nine months ended 
  September 30,  September 30, 
  2021  2020  2021  2020 
  Unaudited  Unaudited 
       
Revenues $120,870  $94,892  $347,323  $266,621 
Cost of Revenues  88,244   65,794   251,704   187,914 
Gross profit  32,626   29,098   95,619   78,707 
Research and development, net  2,313   2,316   6,872   6,479 
Selling, marketing and general and administrative expenses  18,264   15,749   51,796   42,607 
Total operating costs and expenses  20,577   18,065   58,668   49,086 
Operating income  12,049   11,033   36,951   29,621 
Financial expenses (income), net  1,075   (589)  3,525   (1,207)
Income before taxes on income  10,974   10,444   33,426   28,414 
Taxes on income  2,212   2,039   6,786   6,108 
Net income $8,762  $8,405  $26,640  $22,306 
Net income attributable to redeemable non-controlling interests  (771)  (500)  (2,332)  (1,061)
Net income attributable to non-controlling interests  (494)  (820)  (1,488)  (2,570)
Net income attributable to Magic’s shareholders $7,497  $7,085  $22,820  $18,675 
                 
Net earnings per share attributable to Magic’s shareholders:                
Basic $0.15  $0.15  $0.47  $0.38 
Diluted $0.15  $0.14  $0.46  $0.38 
                 
Weighted average number of shares used in computing net earnings per share                
Basic  49,060   49,031   48,997   48,997 
Diluted  49,107   49,049   49,046   49,046 

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

  Three months ended  Nine months ended 
  September 30,  September 30, 
  2021  2020  2021  2020 
  Unaudited  Unaudited 
             
GAAP gross profit     $32,626  $29,098  $95,619  $78,707 
Amortization of capitalized software and acquired technology  1,394   1,284   4,244   3,965 
Amortization of other intangible assets    156   353   466   889 
Non-GAAP gross profit   $34,176  $30,735  $100,329  $83,561 
                 
GAAP operating income   $12,049  $11,033  $36,951  $29,621 
Gross profit adjustments    1,550   1,637   4,710   4,854 
Amortization of other intangible assets    1,737   1,757   5,040   4,335 
Capitalization of software development    (723)  (784)  (2,345)  (2,474)
Acquisition related costs    745   538   1,232   1,039 
Increase in valuation of contingent consideration related to acquisitions    660       678     
Stock-based compensation    155   -   802   - 
Non-GAAP operating income   $16,173  $14,181  $47,068  $37,375 
                 
GAAP net income attributable to Magic’s shareholders $7,497  $7,085  $22,820  $18,675 
Operating income adjustments    4,124   3,148   10,117   7,754 
Amortization expenses attributed to non-controlling interests and redeemable non-controlling interests    (225)  (232)  (558)  (407)
Changes in unsettled fair value of contingent consideration related to acquisitions  505   454   1,673   1,602 
Deferred taxes on the above items    (130)  (1,001)  (687)  (695)
Non-GAAP net income attributable to Magic’s shareholders $11,771  $9,454  $33,365  $26,929 
                 
Non-GAAP basic net earnings per share   $0.24  $0.19  $0.68  $0.55 
Weighted average number of shares used in computing basic net earnings per share    49,060   49,031   49,049   48,997 
                 
Non-GAAP diluted net earnings per share   $0.24  $0.19  $0.68  $0.55 
Weighted average number of shares used in computing diluted net earnings per share    49,136   49,049   49,135   49,046 

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

  Three months ended  Nine months ended 
  September 30,  September 30, 
  2021  2020  2021  2020 
  Unaudited  Unaudited  Unaudited  Unaudited 
                         
Revenues $120,870   100% $94,892   100% $347,323   100% $266,621   100%
Gross profit  34,176   28.3%  30,735   32.4%  100,329   28.9%  83,561   31.3%
Operating income  16,173   13.4%  14,181   14.9%  47,068   13.6%  37,375   14.0%
Net income attributable to Magic’s shareholders  11,771   9.7%  9,454   10.0%  33,365   9.6%  26,929   10.1%
                                 
Basic earnings per share $0.24      $0.19      $0.68      $0.55     
Diluted earnings per share $0.24      $0.19      $0.68      $0.55     

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

  September 30,  December 31, 
  2021  2020 
  Unaudited    
ASSETS      
CURRENT ASSETS:      
Cash and cash equivalents $97,164  $88,127 
Short-term bank deposits  289   289 
Marketable securities  1,168   1,238 
Trade receivables, net  123,169   111,059 
Other accounts receivable and prepaid expenses  11,021   10,513 
Total current assets  232,811   211,226 
         
LONG-TERM RECEIVABLES:        
Severance pay fund  4,623   4,673 
Deferred tax assets  4,182   6,397 
Operating lease right-of-use assets  22,318   24,509 
Other long-term receivables  3,112   3,211 
Other long-term deposits  1,785   2,296 
Total long-term receivables  36,020   41,086 
         
PROPERTY AND EQUIPMENT, NET  5,725   5,988 
IDENTIFIABLE INTANGIBLE ASSETS AND GOODWILL, NET  196,506   189,086 
TOTAL ASSETS $471,062  $447,386 
         
LIABILITIES AND EQUITY        
         
CURRENT LIABILITIES:        
Short-term debt $15,347  $11,529 
Trade payables  18,870   14,250 
Accrued expenses and other accounts payable  43,494   41,846 
Current maturities of operating lease liabilities  3,231   3,413 
Liabilities due to acquisition activities  4,877   4,998 
Deferred revenues and customer advances  9,820   8,793 
Total current liabilities  95,639   84,829 
         
NON-CURRENT LIABILITIES:        
Long-term debt  27,741   13,352 
Deferred tax liability  14,306   17,639 
Long-term operating lease liabilities  19,680   21,109 
Long-term liabilities due to acquisition activities  13,683   10,926 
Accrued severance pay  5,493   5,545 
Total non-current liabilities  80,903   68,571 
         
REDEEMABLE NON-CONTROLLING INTERESTS  24,952   24,980 
         
EQUITY:        
Magic Software Enterprises equity  259,866   260,432 
Non-controlling interests  9,702   8,574 
Total equity  269,568   269,006 
         
TOTAL LIABILITIES, REDEEMABLE NON-CONTROLLING INTERESTS AND EQUITY $471,062  $447,386 

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

  For the Nine months ended 
  September 30, 
  2021  2020 
  Unaudited  Unaudited 
       
Cash flows from operating activities:      
       
Net income $26,640  $22,306 
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation and amortization  10,946   10,096 
Stock-based compensation  802   - 
Amortization of marketable securities premium and accretion of discount  70   57 
Change in deferred taxes, net  (2,429)  (382)
Net change in operating assets and liabilities:        
Decrease (increase) in trade receivables, net  (9,523)  5,919 
Other long-term and short-term accounts receivable and prepaid expenses, net  775   158 
Increase (decrease) in trade payables  3,074   (179)
Exchange rate of loans  (21)  (44)
Accrued expenses and other accounts payable, net  2,974   3,803 
Increase (decrease) in deferred revenues  843   (401)
Net cash provided by operating activities  34,151   41,333 
         
Cash flows from investing activities:        
         
Capitalized software development costs  (2,345)  (2,474)
Purchase of property and equipment  (921)  (2,448)
Cash paid in conjunction with acquisitions, net of acquired cash  (8,685)  (16,534)
Proceeds from maturity and sale of marketable securities  -   5,429 
Proceeds from short-term bank deposits  -   5,075 
Investment in long-term bank deposits  (17)  - 
Net cash used in investing activities  (11,968)  (10,952)
         
Cash flows from financing activities:        
         
Proceeds from exercise of options by employees  41   229 
Payments of deferred and contingent consideration related to acquistions  (4,694)  - 
Dividend paid  (21,780)  (12,502)
Dividend paid to non-controlling interests  (871)  (6,408)
Dividend paid to redeemable non-controlling interests  (2,783)  (2,013)
Purchase of non-controlling interest  -   (18,016)
Short-term and long-term loans received  22,492   9,090 
Repayment of short-term and long-term loans  (4,414)  (2,811)
Net cash used in financing activities  (12,009)  (32,431)
         
Effect of exchange rate changes on cash and cash equivalents  (1,137)  (470)
Increase (decrease) in cash and cash equivalents  9,037   (2,520)
Cash and cash equivalents at the beginning of the period  88,127   81,915 
Cash and cash equivalents at end of the period $97,164  $79,395