EX-99.1 CHARTER 2 ea174896ex99-1_magicsoftware.htm MAGIC SOFTWARE REPORTS FOURTH QUARTER AND FULL YEAR 2022 FINANCIAL RESULTS

Exhibit 99.1

 

PRESS RELEASE

 

Magic Software Reports Fourth Quarter and Full Year 2022 Financial Results with Record-Breaking Full Year 2022 Results Recorded Across All Key Financial Indices (Revenues, Gross Profit, Operating Income and Net Income)

 

Net income for the year increased by 38.6% year over year to a record-breaking result of $40.7 million; non-GAAP net income for the year increased by 13% year over year to a record-breaking result of $52.0 million

 

Or Yehuda, Israel, March 9, 2023 – Magic Software Enterprises Ltd. (NASDAQ and TASE: MGIC) (“the Company”), a global provider of IT consulting services and end-to-end integration and application development platforms solutions, announced today its financial results for the fourth quarter and full year ended December 31, 2022.

 

Summary Results for the Fourth Quarter 2022 (USD in millions, except per share data)

 

   GAAP       Non-GAAP     
   Q4 2022   Q4 2021   % Change   Q4 2022   Q4 2021    % Change 
Revenues  $147.1   $133.0    10.6%  $147.1   $133.0    10.6%
Gross profit  $41.8   $37.4    11.9%  $43.2   $38.7    11.5%
Gross margin   28.4%   28.1%   30 bps    29.3%   29.1%   20 bps 
Operating income  $14.6   $14.3    2.2%  $19.2   $19.8    -2.9%
Operating margin   9.9%   10.7%   (80) bps    13.0%   14.9%   (190) bps 
Net income (*)  $10.1   $6.5    54.6%  $13.9   $12.6    9.9%
Diluted EPS  $0.20   $0.13    53.8%  $0.28   $0.26    7.7%

 

(*) Attributable to Magic Software’s shareholders.

 

Financial Highlights for the Fourth Quarter Ended December 31, 2022

 

  ● Revenues for the fourth quarter of 2022 increased by 10.6% to a record-breaking result of $147.1 million, compared to $133.0 million in the same period of the previous year. On a constant currency basis (calculated based on average currency exchange rates for the three months ended December 31, 2021), revenues for the fourth quarter of 2022 would have increased by 16.5% to a record breaking $155.0 million, with 69.6% of such revenues resulting from organic growth.

 

  ● Operating income for the fourth quarter of 2022 increased by 2.2% to a fourth quarter record-breaking $14.6 million, compared to $14.3 million in the same period of the previous year. Operating income for the fourth quarter of 2022, was negatively impacted by $1.9 million expense recorded with respect to share based payment to employees.  

 

  ● Non-GAAP operating income for the fourth quarter of 2022 decreased by 2.9% to $19.2 million, compared to $19.8 million in the same period of the previous year. On a constant currency basis (calculated based on average currency exchange rates for the three months ended December 31, 2021), non-GAAP operating income for the fourth quarter of 2022 would have increased by 3.1% to a record-breaking result of $20.4 million.

  

  ● Net income attributable to Magic Software’s shareholders for the fourth quarter of 2022 increased by 54.6% to a fourth quarter record-breaking result of $10.1 million, or $0.20 per fully diluted share, compared to $6.5 million, or $0.13 per fully diluted share, in the same period of the previous year.

 

  ● Non-GAAP net income attributable to Magic Software’s shareholders for the fourth quarter of 2022 increased by 9.9% to $13.9 million, or $0.28 per fully diluted share, compared to $12.6 million, or $0.26 per fully diluted share, in the same period of the previous year.

 

 

 

Summary Results for the Year Ended December 31, 2022 (USD in millions, except per share data)

 

   GAAP       Non-GAAP     
   12M 2022   12M 2021   % Change   12M 2022   12M 2021   % Change 
 Revenues  $566.8   $480.3    18.0%  $566.8   $480.3    18.0%
 Gross Profit  $155.4   $133.0    16.8%  $160.8   $139.1    15.6%
 Gross Margin   27.4%   27.7%   (30) bps    28.4%   29.0%   (60) bps 
 Operating Income  $61.4   $51.2    19.8%  $74.1   $66.8    11.0%
 Operating Margin   10.8%   10.7%   10 bps    13.1%   13.9%   (80) bps 
 Net Income (*)  $40.7   $29.3    38.6%  $52.0   $46.0    13.0%
 Diluted EPS  $0.79   $0.60    31.7%  $1.06   $0.94    12.8%

 

(*) Attributable to Magic Software’s shareholders.

 

Financial Highlights for the Year Ended December 31, 2022

 

  ● Revenues for the year increased by 18.0% to a record-breaking $566.8 million compared to $480.3 million last year. On a constant currency basis (calculated based on the average currency exchange rates during the twelve months period ended December 31, 2021), revenues for the year would have increased by 21.1% to $581.9 million, with 88.7% accounting for organic growth.

 

  ● Operating income for the year increased by 19.8% to a record-breaking $61.4 million compared to $51.2 million last year. On a constant currency basis (calculated based on the average currency exchange rates during the twelve months period ended December 31, 2021), operating income for the year would have increased by 25.2% to $64.2 million.

 

  ● Non-GAAP operating income for the year increased by 11.0% to a record-breaking $74.1 million compared to $66.8 million last year. On a constant currency basis (calculated based on the average currency exchange rates during the twelve months period ended December 31, 2021), non-GAAP operating income for year would have increased by 15.1% to $76.9 million, with 88.7% of such revenues resulting from organic growth.

 

  ● Net income attributable to Magic Software’s shareholders for the year increased by 38.6% to a record-breaking $40.7 million, or $0.79 per fully diluted share, compared to $29.3 million, or $0.60 per fully diluted share, last year.

 

  ● Non-GAAP net income attributable to Magic Software’s shareholders for the year increased by 13.0% to a record-breaking $52.0 million, or $1.06 per fully diluted share, compared to $46.0 million, or $0.94 per fully diluted share, last year.

 

  ● Cash flow from operating activities for the year, amounted to $49.5 million compared to $37.8 million last year. Cash flow from operating activities excluding the impact of payments of deferred and contingent consideration related to acquisitions amounted to $53.6 and $38.4 million for the years ended December 31, 2022, and 2021, respectively.

 

  ● As of December 31, 2022, Magic’s net cash, cash equivalents and short and long-term bank deposits amounted to $87.0 million and total financial debt amounted to $51.1 million.

 

  ●

Magic is introducing 2023 annual revenue guidance of between $585 million and $593 million, reflecting annual growth of 3.2% to 4.6% (based on current currency exchange rates). Based on 2022 average currency exchange rates Magic’s 2023 annual revenue guidance would have been between $600 million and $608 million, reflecting annual growth of 5.9% to 7.3%. 

 

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Declaration of Dividend for the Second Half of 2022

 

●In accordance with its dividend distribution policy, the Company’s board of directors declared a semi-annual cash dividend in an amount of 30.0 cents per share and in an aggregate amount of approximately $14.7 million, which together with the dividend distributed for the first half of 2022 in an amount of approximately $14.2 million, reflects 71% of the Company’s net income attributable to its shareholders for the year.

 

●The dividend is payable on April 20, 2023, to all of the Company’s shareholders of record at the close of trading on the NASDAQ Global Select Market on April 10, 2023.

 

●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, said: “I am very proud of our fourth quarter and full year achievements. During the year, we continued to make big strides across multiple fronts of our business, which is reflected by record breaking results as well as double digit growth in all our key financial indices for the year (revenues, gross profit, operating income, and net income). Our strong results demonstrate the growing investment made by enterprises and organizations worldwide to leverage their digital technologies and cloud-based platforms creating high demand for our innovative software solutions and services which together with the outstanding execution by our teams led to another year of strong performance recorded across our business. With our investment portfolio well diversified, we continue to invest organically and inorganically in our service lines and are excited about the innovative capabilities we are building to drive continued long term profitable growth and shareholder value.”

 

First time adoption of International Financial Reporting Standards for the Company’s consolidated financial statements for the year ended December 31, 2022

 

We have resolved to voluntarily adopt International Financial Reporting Standards as issued by the International Accounting Standards Board, or IFRS, for the Company’s consolidated financial statements for the year ending December 31, 2022 to be included in our annual report on Form 20-F. We believe that this change will enhance efficiency of our financial reporting, improve the comparability of our financial information across international capital markets as well as standardize our financial information. Accordingly, the Company is preparing financial statements that comply with IFRS applicable as of December 31, 2022, together with the comparative periodic data for the year ended December 31, 2021. An explanation of the principal adjustments made in presenting the Company’s U.S. GAAP financial statements, including the statement of financial position as of January 1, 2021, the Company’s date of transition to IFRS and the financial statements for the year ended December 31, 2021, in order to comply with IFRS, will be provided in our consolidated financial statements to be included in our 2022 annual report on Form 20-F. The transition to IFRS is not expected to have a material impact on the Company’s revenues, net income, or shareholders’ equity. The transition to IFRS will not have an impact on the Company’s revenue guidance for 2023.

 

Conference Call Details

 

Magic Software’s management will host a conference call on Thursday, March 9, 2023, 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.

 

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To participate, please call one of the following teleconferencing numbers. Please begin placing your calls at least 5 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: +1-866-652-8972

 

UK: 0-800-917-9141

 

ISRAEL: 03-918-0650

 

ALL OTHERS: +972-3-918-0650

 

For those unable to join the live call, a replay of the call will be available in 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 together 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;

 

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  ● 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,” “guidance” 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, 2021, which we filed on May 12, 2022, 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

 

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MAGIC SOFTWARE ENTERPRISES LTD.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

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

 

   Three months ended
December 31,		   Year ended
December 31,		 
   2022   2021   2022   2021 
   Unaudited   Unaudited 
Revenues  $147,146   $133,002   $566,792   $480,325 
Cost of Revenues   105,325    95,627    411,437    347,331 
Gross profit   41,821    37,375    155,355    132,994 
Research and development, net   2,714    2,123    10,090    8,995 
Selling, marketing and general and administrative expenses   24,294    19,139    83,949    70,257 
Increase (decrease) in valuation of contingent consideration related to acquisitions   220    1,829    (63)   2,507 
Total operating expenses   27,228    23,091    93,976    81,759 
Operating income   14,593    14,284    61,379    51,235 
Financial expenses, net   (1,059)   (2,447)   (3,662)   (5,972)
Income before taxes on income   13,534    11,837    57,717    45,263 
Taxes on income   1,974    3,573    11,197    10,359 
Net income  $11,560   $8,264   $46,520   $34,904 
Net income attributable to redeemable non-controlling interests   (844)   (1,185)   (3,420)   (3,517)
Net income attributable to non-controlling interests   (647)   (567)   (2,433)   (2,055)
Net income attributable to Magic’s shareholders  $10,069   $6,512   $40,667   $29,332 
                     
Net earnings per share attributable to Magic’s shareholders :                    
Net Income attributable to Magic Shareholder’s   10,069    6,512    40,667    29,332 
Accretion of redeemable non-controlling interests   (429)   (4,026)   (1,892)   (4,026)
                    
Net Income attributable to Magic Shareholder’s after accretion of redeemable non-controlling interests  $9,640   $2,486   $38,775   $25,306 
                     
Weighted average number of shares used in computing net earnings per share                    
                     
Basic   49,093    49,073    49,089    49,055 
Diluted   49,131    49,120    49,138    49,100 
                     
Basic and diluted earnings per share attributable to Magic’s shareholders  $0.23   $0.05   $0.79   $0.52 
                     
Net earnings per share attributable to Magic’s shareholders : excluding of accretion of redeemable non-controlling interest                    
Basic  $0.20   $0.13   $0.79   $0.60 
Diluted  $0.20   $0.13   $0.79   $0.60 

 

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MAGIC SOFTWARE ENTERPRISES LTD.

RECONCILIATION OF GAAP AND NON-GAAP RESULTS

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

 

   Three months ended
December 31,		   Year ended
December 31,		 
   2022   2021   2022   2021 
   Unaudited   Unaudited 
                 
GAAP gross profit     $41,821   $37,375   $155,355   $132,994 
Amortization of capitalized software and acquired technology   1,124    1,200    4,431    5,444 
Amortization of other intangible assets    229    158    974    624 
Non-GAAP gross profit   $43,174   $38,733   $160,760   $139,062 
                     
GAAP operating income   $14,593   $14,284   $61,379   $51,235 
Gross profit adjustments    1,353    1,358    5,405    6,068 
Amortization of other intangible assets    1,731    2,006    7,889    7,046 
Increase in valuation of contingent consideration related to acquisitions   220    1,829    (63)   2,507 
Capitalization of software development    (730)   (848)   (3,059)   (3,193)
Costs related to acquisitions    116    971    492    2,203 
Cost of share-based payment    1,893    155    2,103    956 
Non-GAAP operating income   $19,176   $19,755   $74,146   $66,822 
                     
GAAP net income attributable to Magic’s shareholders  $10,069   $6,512   $40,667   $29,332 
Operating income adjustments    4,583    5,471    12,767    15,587 
Expenses attributed to non-controlling interests and redeemable non-controlling interests      (197)   (206)   (641)   (764)
Changes in unsettled fair value of contingent consideration related to acquisitions   (89)   1,144    744    2,817 
Deferred taxes on the above items    (477)   (288)   (1,570)   (974)
Non-GAAP net income attributable to Magic’s shareholders  $13,889   $12,633   $51,967   $45,998 
Non-GAAP basic net earnings per share   $0.28   $0.26   $1.06   $0.94 
                    
Weighted average number of shares used in computing basic net earnings per share    49,093    49,073    49,089    49,055 
                     
Non-GAAP diluted net earnings per share   $0.28   $0.26   $1.06   $0.94 
Weighted average number of shares used in computing diluted net earnings per share    49,138    49,138    49,150    49,136 

 

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Summary of Non-GAAP Financial Information

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

 

   Three months ended December 31,   Year ended December 31, 
   2022   2021   2022   2021 
   Unaudited   Unaudited   Unaudited   Unaudited 
Revenues  $147,146    100%  $133,002    100%  $566,792    100%  $480,325    100%
Gross profit   43,174    29.3%   38,733    29.1%   160,760    28.4%   139,062    29.0%
Operating income   19,176    13.0%   19,755    14.9%   74,146    13.1%   66,822    13.9%
Net income attributable to Magic’s shareholders   13,889    9.4%   12,633    9.5%   51,967    9.2%   45,998    9.6%
                                         
Basic earnings per share  $0.28        $0.26        $1.06        $0.94      
Diluted earnings per share  $0.28        $0.26        $1.06        $0.94      

 

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MAGIC SOFTWARE ENTERPRISES LTD.

CONDENSED CONSOLIDATED BALANCE SHEETS

U.S. Dollars in thousands

 

   December 31,   December 31, 
   2022   2021 
   Unaudited     
         
ASSETS        
CURRENT ASSETS:        
Cash and cash equivalents  $83,062   $88,090 
Short-term bank deposits   3,904    5,586 
Marketable securities   -    1,142 
Trade receivables, net   150,814    142,071 
Other accounts receivable and prepaid expenses   13,203    9,890 
Total current assets   250,983    246,779 
           
LONG-TERM ASSETS:          
Severance pay fund   1,575    3,646 
Deferred tax assets   5,162    8,091 
Operating lease right-of-use assets   28,193    24,299 
Other long-term receivables   6,258    3,384 
Other long-term deposits   306    1,781 
Property and equipment, net   8,338    5,872 
Identifiable intangible assets and goodwill, net   210,155    198,193 
Total long term assets   259,987    245,266 
           
TOTAL ASSETS  $510,970   $492,045 
           
LIABILITIES AND EQUITY          
           
CURRENT LIABILITIES:          
Short-term debt  $20,667   $17,032 
Trade payables   27,646    24,711 
Accrued expenses and other accounts payable   49,585    45,173 
Current maturities of operating lease liabilities   4,558    3,943 
Liabilities due to acquisition activities   19,287    6,635 
Deferred revenues and customer advances   10,898    10,771 
Total current liabilities   132,641    108,265 
           
LONG TERM LIABILITIES:          
Long-term debt   30,412    20,155 
Deferred tax liability   10,335    18,112 
Long-term operating lease liabilities   24,155    20,970 
Long-term liabilities due to acquisition activities   5,683    13,892 
Accrued severance pay   2,476    4,551 
Total long term liabilities   73,061    77,680 
           
REDEEMABLE NON-CONTROLLING INTERESTS   28,188    30,432 
           
SHAREHOLDERS EQUITY:          
Magic Software Enterprises equity   263,652    265,248 
Non-controlling interests   13,428    10,420 
Total shareholders equity   277,080    275,668 
           
TOTAL LIABILITIES, REDEEMABLE NON-CONTROLLING INTERESTS AND EQUITY  $510,970   $492,045 

 

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MAGIC SOFTWARE ENTERPRISES LTD.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

U.S. Dollars in thousands

 

   Year ended
December 31,		 
   2022   2021 
   Unaudited     
         
Cash flows from operating activities:        
         
Net income  $46,520   $34,904 
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation and amortization   15,474    14,852 
Cost of share-based payment   2,103    956 
Change in deferred taxes, net   (5,858)   (2,999)
Amortization of marketable securities premium and accretion of discount   76    96 
Net change in operating assets and liabilities:          
Trade receivables, net   (4,993)   (27,539)
Other long-term and short-term accounts receivable and prepaid expenses   (1,130)   263 
Trade payables   169    8,771 
Exchange rate of loans   (1,794)   71 
Accrued expenses and other accounts payable   (1,517)   6,951 
Payments of deferred and contingent consideration related to acquisitions   (3,919)   (556)
Effect of exchange rate on cash and cash equivalents held in currencies other than the functional currency   3,747    - 
Deferred revenues   643    2,040 
Net cash provided by operating activities   49,521    37,810 
           
Cash flows from investing activities:          
           
Capitalized software development costs   (3,059)   (3,193)
Purchase of property and equipment   (4,381)   (1,439)
Cash paid in conjunction with acquisitions, net of acquired cash   (21,670)   (6,832)
Purchase of intangible asset   (219)   - 
Investment in long-term bank deposits   -    (93)
Redemption of marketable securities   309    - 
Proceeds from (Investment in) short-term bank deposits   1,682    (5,297)
Net cash used in investing activities   (27,338)   (16,854)
           
Cash flows from financing activities:          
           
Proceeds from exercise of options by employees   -    41 
Payments of deferred and contingent consideration related to acquisitions   (4,870)   (5,343)
Dividend paid   (24,841)   (21,780)
Dividend paid to non-controlling interests   (298)   (569)
Dividend paid to redeemable non-controlling interests   (3,872)   (3,664)
Purchase of redeemable non-controlling interest   (853)   (511)
Short-term and long-term loans received   30,704    25,558 
Repayment of short-term and long-term loans   (14,323)   (14,467)
Net cash used in financing activities   (18,353)   (20,735)
           
Effect of exchange rate changes on cash and cash equivalents   (8,858)   (258)
           
Decrease in cash and cash equivalents   (5,028)   (37)
Cash and cash equivalents at the beginning of the period   88,090    88,127 
Cash and cash equivalents at end of the period  $83,062   $88,090 

 

10

 

 

Reconciliation of condensed consolidated statements of financial position as of December 31, 2021:

 

MAGIC SOFTWARE ENTERPRISES LTD.

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

U.S. Dollars in thousands

 

   December 31, 2021 
   U.S. GAAP   GAAP
Adjustments and
reclassifications		   IFRS 
       Unaudited 
             
ASSETS            
CURRENT ASSETS:            
Cash and cash equivalents  $88,090   $-   $88,090 
Short-term bank deposits   5,586    -    5,586 
Marketable securities   1,142    -    1,142 
Trade receivables, net   142,071    -    142,071 
Other accounts receivable and prepaid expenses   9,890    (5)   9,885 
Total current assets   246,779    (5)   246,774 
                
LONG-TERM ASSETS:               
Severance pay fund   3,646    (3,646)   - 
Deferred tax assets   8,091    (98)   7,993 
Operating lease right-of-use assets   24,299    (1,019)   23,280 
Other long-term receivables   3,384    -    3,384 
Other long-term deposits   1,781    -    1,781 
Property and equipment, net   5,872    -    5,872 
Identifiable intangible assets and goodwill, net   198,193    -    198,193 
Total long term assets   245,266    (4,763)   240,503 
                
TOTAL ASSETS  $492,045   $(4,768)  $487,277 
                
LIABILITIES AND EQUITY               
                
CURRENT LIABILITIES:               
Short-term debt  $17,032   $76    17,108 
Trade payables   24,711    -    24,711 
Accrued expenses and other accounts payable   45,173    (82)   45,091 
Current maturities of operating lease liabilities   3,943    (676)   3,267 
Liabilities due to acquisition activities   6,635    -    6,635 
Redeemable non-controlling interests   -    23,197    23,197 
Deferred revenues and customer advances   10,771    -    10,771 
Total current liabilities   108,265    22,515    130,780 
                
LONG TERM LIABILITIES:               
Long-term debt   20,155    -    20,155 
Deferred tax liability   18,112    (167)   17,945 
Long-term operating lease liabilities   20,970    937    21,907 
Long-term liabilities due to acquisition activities   13,892    -    13,892 
Redeemable non-controlling interests   -    6,137    6,137 
Accrued severance pay, net   4,551    (3,646)   905 
Total long term liabilities   77,680    3,261    80,941 
                
REDEEMABLE NON-CONTROLLING INTERESTS   30,432    (30,432)   - 
                
SHAREHOLDERS EQUITY:               
Magic Software Enterprises equity   265,248    (130)   265,118 
Non-controlling interests   10,420    18    10,438 
Total shareholders equity   275,668    (112)   275,556 
                
TOTAL LIABILITIES, REDEEMABLE NON-CONTROLLING INTERESTS AND EQUITY  $492,045   $(4,768)  $487,277 

 

11

 

 

Reconciliation of condensed consolidated statements of financial position as of December 31, 2022:

 

MAGIC SOFTWARE ENTERPRISES LTD.

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

U.S. Dollars in thousands

 

   December 31, 2022 
   U.S. GAAP   GAAP
Adjustments and
reclassifications		   IFRS 
   Unaudited 
             
ASSETS            
CURRENT ASSETS:            
Cash and cash equivalents  $83,062   $-   $83,062 
Short-term bank deposits   3,904    -    3,904 
Trade receivables, net   150,814    -    150,814 
Other accounts receivable and prepaid expenses   13,203    -    13,203 
Total current assets   250,983    -    250,983 
                
LONG-TERM ASSETS:               
Severance pay fund   1,575    (1,575)   - 
Deferred tax assets   5,162    243    5,405 
Operating lease right-of-use assets   28,193    (156)   28,037 
Other long-term receivables   6,258    -    6,258 
Other long-term deposits   306    -    306 
Property and equipment, net   8,338    -    8,338 
Identifiable intangible assets and goodwill, net   210,155    -    210,155 
Total long term assets   259,987    (1,488)   258,499 
                
TOTAL ASSETS  $510,970   $(1,488)  $509,482 
                
LIABILITIES AND EQUITY               
                
CURRENT LIABILITIES:               
Short-term debt  $20,667   $-   $20,667 
Trade payables   27,646    -    27,646 
Accrued expenses and other accounts payable   49,585    -    49,585 
Current maturities of operating lease liabilities   4,558    -    4,558 
Liabilities due to acquisition activities   19,287    -    19,287 
Redeemable non-controlling interests   -    27,172    27,172 
Deferred revenues and customer advances   10,898    -    10,898 
Total current liabilities   132,641    27,172    159,813 
                
LONG TERM LIABILITIES:               
Long-term debt   30,412    -    30,412 
Deferred tax liability   10,335    89    10,424 
Long-term operating lease liabilities   24,155    661    24,816 
Long-term liabilities due to acquisition activities   5,683    -    5,683 
Redeemable non-controlling interests   -    1,120    1,120 
Accrued severance pay, net   2,476    (1,575)   901 
Total long term liabilities   73,061    295    73,356 
                
REDEEMABLE NON-CONTROLLING INTERESTS   28,188    (28,188)   - 
                
SHAREHOLDERS EQUITY:               
Magic Software Enterprises equity   263,652    (723)   262,929 
Non-controlling interests   13,428    (44)   13,384 
Total shareholders equity   277,080    (767)   276,313 
                
TOTAL LIABILITIES, REDEEMABLE NON-CONTROLLING INTERESTS AND EQUITY  $510,970   $(1,488)  $509,482 

  

12

 

 

Reconciliation of condensed consolidated statements of profit or loss for the year ended December 31, 2021:

 

MAGIC SOFTWARE ENTERPRISES LTD.

CONDENSED CONSOLIDATED STATEMENTS OF PROFIT OR LOSS

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

 

   December 31, 2021 
   U.S. GAAP   GAAP
Adjustments and
reclassifications		   IFRS 
   Unaudited 
Revenues  $480,325   $-   $480,325 
Cost of Revenues   347,331    -    347,331 
Gross profit   132,994    -    132,994 
Research and development, net   8,995    -    8,995 
Selling, marketing and general and administrative expenses   70,257    (888)   69,369 
Increase (decrease) in valuation of contingent consideration related to acquisitions   2,507    -    2,507 
Total operating expenses   81,759    (888)   80,871 
Operating income   51,235    888    52,123 
Financial expenses, net   (3,155)   (534)   (3,689)
Increase in valuation of consideration related to acquisitions   (2,817)   -    (2,817)
Income before taxes on income   45,263    354    45,617 
Taxes on income   10,359    (81)   10,278 
Net income  $34,904   $435   $35,339 
Net income attributable to redeemable non-controlling interests   (3,517)   3,517    - 
Net income attributable to non-controlling interests   (2,055)   (3,517)   (5,572)
Net income attributable to Magic’s shareholders  $29,332   $435   $29,767 
                
Net earnings per share attributable to Magic’s shareholders :               
Net Income attributable to Magic Shareholder’s   29,332    435    29,767 
Accretion of redeemable non-controlling interests   (4,026)   (247)   (4,273)
Net Income attributable to Magic Shareholder’s after accretion of redeemable non-controlling interests  $25,306   $188   $25,494 
                
Weighted average number of shares used in computing net earnings per share               
                
Basic   49,055    -    49,055 
                
Diluted   49,100    -    49,100 
                
Basic and diluted earnings per share attributable to Magic’s shareholders  $0.52    -   $0.52 
                
Net earnings per share attributable to Magic’s shareholders : excluding of accretion of redeemable non-controlling interest               
Basic  $0.60   $0.01   $0.61 
Diluted  $0.60   $0.01   $0.61 

 

13

 

 

Reconciliation of condensed consolidated statements of profit or loss for the year ended December 31, 2022:

 

MAGIC SOFTWARE ENTERPRISES LTD.

CONDENSED CONSOLIDATED STATEMENTS OF PROFIT OR LOSS

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

 

   Year ended
December 31, 2022		 
   U.S. GAAP   GAAP Adjustments
and reclassifications		   IFRS 
       Unaudited 
Revenues  $566,792   $                  -   $566,792 
Cost of Revenues   411,437    -    411,437 
Gross profit   155,355    -    155,355 
Research and development, net   10,090    -    10,090 
Selling, marketing and general and administrative expenses   83,949    (383)   83,566 
Increase (decrease) in valuation of contingent consideration related to acquisitions   (63)   -    (63)
Total operating expenses   93,976    (383)   93,593 
Operating income   61,379    383    61,762 
Financial expenses, net   (2,918)   (683)   (3,601)
Increase in valuation of consideration related to acquisitions   (744)   -    (744)
Income before taxes on income   57,717    (300)   57,417 
Taxes on income   11,197    (59)   11,138 
Net income  $46,520   $(241)  $46,279 
Net income attributable to redeemable non-controlling interests   (3,420)   3,420    - 
Net income attributable to non-controlling interests   (2,433)   (3,376)   (5,809)
Net income attributable to Magic’s shareholders  $40,667   $(197)  $40,470 
                
Net earnings per share attributable to Magic’s shareholders :               
Net Income attributable to Magic Shareholder’s   40,667    (197)   40,470 
Accretion of redeemable non-controlling interests   (1,892)   303    (1,589)
Net Income attributable to Magic Shareholder’s after accretion of redeemable non-controlling interests  $38,775   $106   $38,881 
                
Weighted average number of shares used in computing net earnings per share               
                
Basic   49,089    -    49,089 
                
Diluted   49,138    -    49,138 
                
Basic and diluted earnings per share attributable to Magic’s shareholders  $0.79    -   $            0.79 
                
Net earnings per share attributable to Magic’s shareholders : excluding of accretion of redeemable non-controlling interest               
Basic  $0.79    -   $0.79 
Diluted  $0.79    -   $0.79 

 

14

 

 

Condensed consolidated statements of cash flows for the years ended December 31, 2022 and 2021 based on IFRS:

 

MAGIC SOFTWARE ENTERPRISES LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

U.S. Dollars in thousands

 

   Year ended
December 31,		 
   2022   2021 
   Unaudited 
         
Cash flows from operating activities:        
         
Net income  $46,279   $35,339 
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation and amortization   19,533    19,837 
Cost of share-based payment   2,103    956 
Change in deferred taxes, net   (5,924)   (3,080)
Amortization of marketable securities premium and accretion of discount   76    96 
Net change in operating assets and liabilities:          
Trade receivables, net   (4,993)   (27,539)
accounts receivable and prepaid expenses   (4,413)   263 
Trade payables   169    8,792 
Exchange rate of loans   (1,794)   71 
Accrued expenses and other accounts payable   2,646    5,415 
Payments of deferred and contingent consideration related to acquisitions   (3,919)   (556)
Effect of exchange rate on cash and cash equivalents held in currencies other than the functional currency   3,747    - 
Deferred revenues   643    4,080 
Net cash provided by operating activities   54,153    43,674 
           
Cash flows from investing activities:          
           
Capitalized software development costs   (3,059)   (3,193)
Purchase of property and equipment   (4,381)   (1,439)
Cash paid in conjunction with acquisitions, net of acquired cash   (21,670)   (6,832)
Payments of deferred and contingent consideration related to acquisitions   (4,870)   (5,343)
Purchase of intangible asset   (219)   - 
Investment in long-term bank deposits   -    (93)
Redemption of marketable securities   309    - 
Proceeds from (Investment in) short-term bank deposits   1,682    (5,297)
Net cash used in investing activities   (32,208)   (22,197)
           
Cash flows from financing activities:          
           
Proceeds from exercise of options by employees   -    41 
Dividend paid subsidiaries   (24,841)   (21,780)
Dividend paid to non-controlling interests   (298)   (569)
Repayment of lease liabilities   (4,792)   (5,874)
Dividend paid to redeemable non-controlling interests   (3,872)   (3,664)
Purchase of redeemable non-controlling interest   (853)   (511)
Short-term and long-term loans received   30,704    25,558 
Repayment of short-term and long-term loans   (14,323)   (14,467)
Net cash used in financing activities   (18,275)   (21,266)
           
Effect of exchange rate changes on cash and cash equivalents   (8,698)   (248)
           
Decrease in cash and cash equivalents   (5,028)   (37)
Cash and cash equivalents at the beginning of the period   88,090    88,127 
Cash and cash equivalents at end of the period  $83,062   $88,090 

 

 

15