EX-10.1 2 v327535_ex10-1.htm EXHIBIT 10.1

Exhibit 10.1

Magic Reports Record Revenue of $33 Million for the Third Quarter of 2012; Non-GAAP Operating Income for the First Nine Months Grew 36% Year Over Year to $14 Million

Company Reports Solid Cash Position with $14 Million Operating Cash Flow for the First Nine Months of 2012

Or Yehuda, Israel, November 07, 2012 – Magic Software Enterprises Ltd. (NASDAQ: MGIC), a global provider of software platforms for enterprise mobility, cloud applications, and business integration, announced today its financial results for the third quarter and first nine months of 2012.

Financial Highlights for the Nine-Month Period Ended September 30, 2012

Revenues for the first nine months of 2012 increased 9% to $90.7 million compared to $82.8 million in the same period last year.

Non-GAAP operating income for the first nine months of 2012 increased 36% to $13.6 million compared to $10.0 million in the same period last year; Operating income for the first nine months of 2012 increased 15% to $12.2 million compared to $10.5 million in the same period last year.

Non-GAAP net income for the first nine months of 2012 increased 30% to $13.1 million compared to $10.1 million in the same period last year; Net income for the first nine months of 2012 increased 12% to $11.9 million, or $0.32 per fully diluted share, compared to $10.7 million, or $0.29 per fully diluted share, in the same period last year.

Operating cash flow for the first nine months of 2012 totaled $14 million.

Total cash, cash equivalents and short-term investments as of September 30, 2012, amounted to $38.5 million, with zero debt.

Financial Highlights for the Third Quarter Ended September 30, 2012

Third quarter revenues increased 9% to $32.6 million compared to $30.0 million in the same period last year.

Non-GAAP operating income for the third quarter increased 15% to $4.6 million, compared to $4.0 million in the same period last year; Operating income for the third quarter increased 3% to $4.1 million, compared to $4.0 million in the same period last year.

Non-GAAP net income for the third quarter increased 13% to $4.5 million compared to $4.0 million in the same period last year; Net income for the third quarter increased 2% to $4.1 million, or $0.11 per fully diluted share, compared to $4.0 million, or $0.11 per fully diluted share, in the same period last year.

Comments of Management

“We are pleased to report record revenues and continued strong performance during the third quarter, especially in light of the challenging economic climate,” said Guy Bernstein, Chief Executive Officer of Magic Software Enterprises. “The strongest levels of growth throughout our global operations came from the US, Japanese and Israeli markets led by strong demand for our professional services.”

“Our strong cash position has allowed us to continue to add value to our shareholders by instituting a dividend policy, following which, we distributed a dividend of approximately $3.7 million (or $0.10 per share) in October for the first half of 2012,” added Mr. Bernstein.

Non-GAAP Financial Measures

This release includes non-GAAP operating income, net income, basic and diluted earnings per share and other non-GAAP financial measures. These non-GAAP measures exclude the following items:

Amortization of purchased intangible assets

In-process research and development capitalization and amortization

Equity-based compensation expense and

Related tax effect

Magic’s management believes that the presentation of non-GAAP measures provides useful information to investors and management regarding financial and business trends relating to the Company’s financial condition and results of operations as well as the net amount of cash generated by its business operations after taking into account capital spending required to maintain or expand the business.

These non-GAAP financial measures are not in accordance with, or an alternative for, generally accepted accounting principles and may be different from non-GAAP financial measures used by other companies. In addition, these non-GAAP financial measures are not based on any comprehensive set of accounting rules or principles. Magic believes that non-GAAP financial measures have limitations in that they do not reflect all of the amounts associated with Magic’s results of operations as determined in accordance with GAAP and that these measures should only be used to evaluate Magic’s results of operations in conjunction with the corresponding GAAP measures. Please refer to the Reconciliation of Selected Financial Metrics from GAAP to Non-GAAP tables below.

About Magic Software Enterprises

Magic Software Enterprises (NASDAQ: MGIC) empowers customers and partners around the globe with smarter technology that provides a multichannel user experience of enterprise logic and data.

For more information, visit www.magicsoftware.com.

Press Contact:

Tania Amar | VP Global Marketing

Magic Software Enterprises

tania@magicsoftware.com

Except for any historical information contained herein, matters discussed in this press release might include forward-looking statements that involve a number of risks and uncertainties. Regarding any financial statements, actual results might vary significantly based upon a number of factors including, but not limited to, risks in product and technology development, market acceptance of new products and continuing product conditions, both locally and abroad, release and sales of new products by strategic resellers and customers, and other risk factors detailed in Magic's most recent annual report and other filings with the Securities and Exchange Commission. These forward-looking statements are made only as of the date hereof, and the Company undertakes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.

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.

MAGIC SOFTWARE ENTERPRISES LTD.
CONSOLIDATED STATEMENTS OF INCOME
U.S. dollars in thousands (except per share data)

	Three months ended						Nine months ended
	September 30,						September 30,
	2012			2011			2012			2011
	Unaudited						Unaudited
Revenues		32,578			29,977			90,650			82,845
Cost of Revenues		19,583			17,816			52,601			49,290
Gross profit		12,995			12,161			38,049			33,555
Research and development, net		892			758			2,134			1,578
Selling, marketing and general and
administrative expenses		7,981			7,396			23,765			21,436
Total operating costs and expenses		8,873			8,154			25,899			23,014
Operating income		4,122			4,007			12,150			10,541
Financial income (expenses), net		15			60			(183	)		311
Other income, net		69			19			136			92
Income before taxes on income		4,206			4,086			12,103			10,944
Taxes on income		(25	)		24			42			67
Net income		4,231			4,062			12,061			10,877
Net income attributable to non-controlling interests		(116	)		(43	)		(131	)		(198	)
Net income attributable to Magic Shareholders		4,115			4,019			11,930			10,679


Earnings per share (basic)		0.11			0.11			0.33			0.29
Earnings per share (diluted)		0.11			0.11			0.32			0.29


Number of shares used in computing earnings per share (basic)		36,541			36,339			36,485			36,241

Number of shares used in computing earnings per share (diluted)		37,062			36,954			37,129			37,058

MAGIC SOFTWARE ENTERPRISES LTD.
RECONCILIATION BETWEEN GAAP AND NON-GAAP
STATEMENTS OF INCOME FOR COMPARATIVE PURPOSES
U.S. dollars in thousands (except per share data)

	Three months ended						Nine months ended
	September 30,						September 30,
	2012			2011			2012			2011
	Unaudited						Unaudited

GAAP operating income		4,122			4,007			12,150			10,541
Amortization of capitalized software and other intangible assets		1,418			1,066			4,311			2,829
Capitalization of software development		(1,131	)		(1,253	)		(3,344	)		(3,846	)
Stock-based compensation		143			139			440			447
Total adjustments to GAAP		430			(48	)		1,407			(570	)
Non-GAAP operating income		4,552			3,959			13,557			9,971


GAAP net income		4,115			4,019			11,930			10,679
Amortization of capitalized software and other intangible assets		1,418			1,066			4,311			2,829
Capitalization of software development		(1,131	)		(1,253	)		(3,344	)		(3,846	)
Stock-based compensation		143			139			440			447
Taxes on the above items		(62	)		-			(219	)		-
Total adjustments to GAAP		368			(48	)		1,188			(570	)
Non-GAAP net income		4,483			3,971			13,118			10,109


Non-GAAP earnings per share (basic)		0.12			0.11			0.36			0.28
Weighted average number of shares used in
computing earnings per share (basic)		36,541			36,339			36,485			36,241

Non-GAAP earnings per share (diluted)		0.12			0.11			0.35			0.27
Weighted average number of shares used in
computing earnings per share (diluted)		37,129			37,046			37,234			37,155

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

	September 30,		December 31,
	2012		2011
	Unaudited
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		37,100		28,711
Short-term bank deposits		521		2,170
Available-for-sale marketable securities		894		1,241
Trade receivables, net		27,405		24,946
Other accounts receivable and prepaid expenses		5,831		6,401
Total current Assets		71,751		63,469

LONG-TERM RECEIVABLES:
Severance pay fund		363		351
Other Long-term receivables		3,110		3,824
Total other long-term receivables		3,473		4,175

PROPERTY AND EQUIPMENT, NET		1,894		2,029
IDENTIFIABLE INTANGIBLE ASSETS AND
GOODWILL, NET		75,244		66,512

TOTAL ASSETS		152,362		136,185


LIABILITIES AND EQUITY

CURRENT LIABILITIES:
Short-term credit and current maturities of long term
loans		-		4
Trade payables		4,403		3,545
Accrued expenses and other accounts payable		20,744		16,797
Deferred tax Liabilities		2,391		2,359
Deferred revenues		6,247		5,092
Total current liabilities		33,785		27,797

NON CURRENT LIABILITIES:
Long-term loans		26		9
Deferred tax Liabilities		659		296
Liability due to acquisition activities		-		1,350
Accrued severance pay		1,260		1,087
Total non-current Liabilities		1,945		2,742

EQUITY:
Magic Shareholders' equity		114,194		105,156
Non-controlling interests		2,438		490
Total equity		116,632		105,646

TOTAL LIABILITIES AND EQUITY		152,362		136,185