EX-99.1 2 tv487346_ex1-1.htm EXHIBIT 1.1

 

Exhibit 1.1

 

PRESS RELEASE

 

Magic Delivers Record-Breaking Revenues of $258 Million for 2017 with 28% Year over Year Growth

 

Operating income for the year increased 23% year over year to $26.0 million; Non-GAAP operating income for the year increased 24% year over year to a record-breaking $35.1 million

 

 

Or Yehuda, Israel, February 28, 2018 Magic Software Enterprises Ltd. (NASDAQ and TASE: MGIC), a global provider of end-to-end integration and application development solutions and IT consulting services, announced today its financial results for the fourth quarter and full year ended December 31, 2017.

 

Financial Highlights for the Fourth Quarter Ended December 31, 2017

 

·Revenues for the fourth quarter increased 20% to $66.1 million compared to $55.1 million in the same period last year.

 

·Operating income for the fourth quarter increased 36% to $6.2 million compared to $4.5 million in the same period last year.

 

·Non-GAAP operating income for the fourth quarter increased 19% to $8.7 million compared to $7.3 million in the same period last year.

 

·Net income attributable to Magic's shareholders for the fourth quarter increased to $3.8 million, or $0.09 per fully diluted share, compared to $0.1 million, or $0 per fully diluted share in the same period last year. Net income attributable to Magic's shareholders for the fourth quarter of 2016 was negatively impacted from acquired operations outperforming their targets, resulting in an increase in value of put options of redeemable non-controlling interests amounting to $2.3 million [1] and in an increase in valuation of contingent considerations related to acquisitions amounting to $0.8 million.

 

·Non-GAAP net income attributable to Magic's shareholders for the fourth quarter increased 10% to $4.8 million, or $0.11 per fully diluted share, compared to $4.3 million, or $0.10 per fully diluted share, in the same period last year.

 

Financial Highlights for the Full Year Ended December 31, 2017

 

·Revenues for the year increased 28% to $258.0 million compared to $201.6 million in the same period last year.

 

·Operating income for the year increased 23% to $26.0 million compared to $21.1 million in the same period last year.

 

·Non-GAAP operating income for the year increased 24% to $35.1 million compared to $28.2 million in the same period last year.

 

·Net income attributable to Magic's shareholders for the year increased 30% to $15.4 million, or $0.35 per fully diluted share, compared to $11.9 million, or $0.27 per fully diluted share in the same period last year.

 

·Non-GAAP net income attributable to Magic's shareholders for the year increased 9% to $21.5 million, or $0.48 per fully diluted share, compared to $19.6 million, or $0.44 per fully diluted share, in the same period last year.

 

·Cash flow from operating activities for the year ended December 31, 2017 amounted to $26.5 million.

 

·As of December 31, 2017, our net cash, cash equivalents, short-term bank deposits and available-for-sale marketable securities, offset by financial liabilities, amounted to $53.1 million.

 

·Magic is providing revenues guidance for 2018 of between $283 million to $293 million, reflecting annual growth of 10% to 14%.

 

Guy Bernstein, Chief Executive Officer of Magic Software Enterprises, said: “We are pleased to report that 2017 was Magic Software's most successful year ever with exceptional year-over-year revenue growth, powered by strong demand across our entire portfolio and throughout all of our regions. 

 

“Our robust portfolio continues to provide state-of-the-art services and products for our customers in the areas of integration, software application development, mobile, big data and cloud. As a result, we continue to be recognized throughout the industry for our quality and innovation.

 

“We expect that our strong financial position, coupled with our 2017 activities in promoting and growing our markets, will continue the company's momentum into 2018,” added Bernstein.

 

Conference Call Details

 

Magic’s management will host a conference call on Wednesday, February 28, at 10:00 am Eastern Standard Time (7:00 am Pacific Standard Time, 17:00 Israel Standard 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: +1-888-407-2553

UK: 0-800-917-5108

ISRAEL: 03-918-0644

ALL OTHERS: +972-3-918-0644

 

For those unable to join the live call, a replay of the call will be available for at least three months, 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 attributed 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," "expects," "believes" 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, 2016 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.

 

[1] When a founder (minority shareholder) of an acquired operation is granted a put option to sell part or all of their remaining share interests during a certain period, the non-controlling interests are classified as redeemable non-controlling interests. Magic remeasures and accordingly adjusts the fair value of its redeemable non-controlling interests at the end of each reporting period based on the estimated present value of the consideration to be transferred upon the exercise of the put option.

 

 

Press Contact:

Debbie Sarig, PR & Content Manager

Magic Software Enterprises

ir@magicsoftware.com

 

   

 

 

MAGIC SOFTWARE ENTERPRISES LTD. AND ITS SUBSIDIARIES             
CONDENSED CONSOLIDATED STATEMENTS OF INCOME             
U.S. Dollars in thousands (except per share amounts)                
                 
   Three months ended   Twelve months ended 
   December 31,   December 31, 
   2017   2016   2017   2016 
   Unaudited   Unaudited     
Revenues  $66,089   $55,141   $257,990   $201,646 
Cost of Revenues   45,055    37,278    175,161    133,382 
Gross profit   21,034    17,863    82,829    68,264 
Research and development, net   1,750    1,793    6,942    5,839 
Selling, marketing and general and                    
    administrative expenses   12,823    11,033    49,587    40,839 
Increase in valuation of contingent consideration related to acquisitions   280    499    344    499 
Total operating costs and expenses   14,853    13,325    56,873    47,177 
Operating income   6,181    4,538    25,956    21,087 
Financial expenses, net   (546)   (531)   (1,711)   (430)
Income before taxes on income   5,635    4,007    24,245    20,657 
Taxes on income   1,364    649    6,331    3,949 
Net income  $4,271   $3,358   $17,914   $16,708 
Net loss (income) attributable to redeemable non-controlling interests   108    (915)   (1,536)   (2,258)
Net income attributable to non-controlling interests   (583)   (55)   (936)   (281)
Increase in value of put options of redeemable non-controlling interests   -    (2,262)   -    (2,262)
Net income attributable to Magic's shareholders  $3,796   $126   $15,442   $11,907 
                     
Net earnings per share                    
Basic  $0.09   $-   $0.35   $0.27 
Diluted  $0.09   $-   $0.35   $0.27 
                     
Weighted average number of shares used in                    
     computing net earnings per share                    
                     
        Basic   44,473    44,356    44,436    44,347 
         .           
        Diluted   44,637    44,530    44,600    44,516 

 

   

 

 

Summary of Non-GAAP Financial Information                    
U.S. Dollars in thousands (except per share amounts)                    
                                 
                                 
   Three months ended   Twelve months ended 
   December 31,   December 31, 
   2017   2016   2017   2016 
   Unaudited   Unaudited   Unaudited   Unaudited 
                                 
Revenues  $66,089    100%  $55,141    100%  $257,990    100%  $201,646    100%
Gross profit   22,432    33.9%   19,331    35.1%   88,861    34.4%   73,588    36.5%
Operating income   8,699    13.2%   7,301    13.2%   35,127    13.6%   28,242    14.0%
Net income attributable to                                        
Magic's shareholders   4,759    7.2%   4,309    7.8%   21,464    8.3%   19,646    9.7%
                                         
Basic earnings per share  $0.11        $0.10        $0.48        $0.44      
Diluted earnings per share  $0.11        $0.10        $0.48        $0.44      

 

   

 

 

MAGIC SOFTWARE ENTERPRISES LTD. AND ITS SUBSIDIARIES             
RECONCILIATION OF GAAP AND NON-GAAP RESULTS             
U.S. Dollars in thousands (except per share amounts)                
                 
                 
                 
                 
   Three months ended   Twelve months ended 
   December 31,   December 31, 
   2017   2016   2017   2016 
   Unaudited   Unaudited 
                 
GAAP gross profit  $21,034   $17,863   $82,829   $68,264 
Amortization of capitalized software and acquired technology   1,255    1,187    5,397    4,464 
Amortization of other intangible assets   142    178    628    745 
Increase in valuation of contingent consideration related to acquisitions   -    100    -    100 
Stock-based compensation   1    3    7    15 
Non-GAAP gross profit  $22,432   $19,331   $88,861   $73,588 
                     
                     
GAAP operating income  $6,181   $4,538   $25,956   $21,087 
Gross profit adjustments   1,398    1,468    6,032    5,324 
Amortization of other intangible assets   1,622    1,646    6,497    5,421 
Increase in valuation of contingent consideration related to acquisitions   280    499    344    499 
Capitalization of software development   (819)   (867)   (3,771)   (4,224)
Stock-based compensation   37    17    69    135 
Non-GAAP operating income  $8,699   $7,301   $35,127   $28,242 
                     
                     
GAAP net income attributable to Magic's shareholders  $3,796   $126   $15,442   $11,907 
Operating income adjustments   2,518    2,763    9,171    7,155 
Amortization expenses attributed to redeemable non-controlling interests   (975)   (149)   (2,367)   (732)
Increase in value of put options of redeemable non-controlling interests   -    2,262    -    2,262 
Increase in valuation of contingent consideration related to acquisitions   -    229    -    229 
Deferred taxes on the above items   (580)   (922)   (782)   (1,175)
Non-GAAP net income attributable to Magic's shareholders  $4,759   $4,309   $21,464   $19,646 
                     
                     
Non-GAAP basic net earnings per share  $0.11   $0.10   $0.48   $0.44 
Weighted average number of shares used in                    
   computing basic net earnings per share   44,473    44,356    44,436    44,347 
                     
Non-GAAP diluted net earnings per share  $0.11   $0.10   $0.48   $0.44 
Weighted average number of shares used in                    
   computing diluted net earnings per share   44,638    44,534    44,602    44,519 

 

   

 

 

MAGIC SOFTWARE ENTERPRISES LTD. AND ITS SUBSIDIARIES        
CONDENSED CONSOLIDATED BALANCE SHEETS        
U.S. Dollars in thousands        
         
   December 31,   December 31, 
   2017   2016 
   Unaudited     
         
ASSETS          
CURRENT ASSETS:          
    Cash and cash equivalents  $75,896   $75,314 
    Short-term bank deposits   732    2 
    Available-for-sale marketable securities   14,138    12,506 
    Trade receivables, net   82,141    62,047 
    Other accounts receivable and prepaid expenses   8,643    8,487 
Total current assets   181,550    158,356 
           
LONG-TERM RECEIVABLES:          
    Severance pay fund   3,226    2,568 
    Long-term deferred tax assets   2,990    3,548 
    Other long-term receivables   2,015    1,680 
Total long-term receivables   8,231    7,796 
           
PROPERTY AND EQUIPMENT, NET   3,468    3,065 
IDENTIFIABLE INTANGIBLE ASSETS AND          
    GOODWILL, NET   149,200    147,182 
           
TOTAL ASSETS  $342,449   $316,399 
           
LIABILITIES AND EQUITY          
           
CURRENT LIABILITIES:          
     Short-term debt  $9,919   $5,645 
     Trade payables   12,095    8,393 
     Accrued expenses and other accounts payable   27,874    20,290 
     Liabilities due to acquisition activities   3,696    6,478 
     Deferred revenues   5,586    3,882 
Total current liabilities   59,170    44,688 
           
NON-CURRENT LIABILITIES:          
     Long-term debt   27,791    29,756 
     Long-term deferred tax liability   11,331    12,494 
     Liabilities due to acquisition activities   581    3,379 
     Accrued severance pay   4,174    3,443 
Total non-current liabilities   43,877    49,072 
           
REDEEMABLE NON-CONTROLLING INTERESTS   25,839    25,998 
           
EQUITY:          
   Magic Software Enterprises equity   210,281    196,218 
   Non-controlling interests   3,282    423 
Total equity   213,563    196,641 
           
TOTAL LIABILITIES, REDEEMABLE NON-CONTROLLING INTERESTS AND EQUITY  $342,449   $316,399 

 

   

 

 

MAGIC SOFTWARE ENTERPRISES LTD. AND ITS SUBSIDIARIES        
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS        
U.S. Dollars in thousands        
   For the Twelve months ended 
   December 31, 
   2017   2016 
   Unaudited     
         
Cash flows from operating activities:          
           
Net income  $17,914   $16,708 
Adjustments to reconcile net income from operations to          
 net cash provided by operating activities:          
Depreciation and amortization   13,611    11,608 
Stock-based compensation   78    152 
Amortization of marketable securities premium and accretion of discount   218    257 
Gains reclassified into earnings from marketable securities   428    - 
Increase in trade receivables, net   (15,842)   (2,571)
Increase in other long-term and short-term accounts receivable and prepaid expenses   (1,773)   (40)
Increase in trade payables   3,514    1,426 
Change in value of loans and deposits, net   3,325    - 
Increase in accrued expenses and other accounts payable   4,310    1,553 
Increase (decrease) in deferred revenues   1,175    (180)
Change in deferred taxes, net   (489)   (958)
Net cash provided by operating activities   26,469    27,955 
           
Cash flows from investing activities:          
           
Capitalized software development costs   (3,771)   (4,224)
Purchase of property and equipment   (1,400)   (799)
Cash paid in conjunction with acquisitions, net of acquired cash   (6,890)   (31,436)
Proceeds from maturity of marketable securities   4,225    2,643 
Investment in marketable securities and short-term bank deposits   (5,766)   (9,401)
Proceeds from short-term bank deposits   -    8,467 
Short-term loan to a related-party   1,183    (1,183)
Change in loans to employees and other deposits, net   -    (49)
Net cash used in investing activities   (12,419)   (35,982)
           
Cash flows from financing activities:          
           
Proceeds from exercise of options by employees   585    41 
Dividend paid   (9,360)   (7,761)
Dividend paid to non-controlling interests in subsidiaries   (536)   (456)
Dividend paid to redeemable non-controlling interests in subsidiaries   (2,886)   (1,574)
Purchase of non-controlling interest   -    (352)
Change in Short-term and long-term loan from banks, net   (2,175)   32,292 
Net cash used in financing activities   (14,372)   22,190 
           
Effect of exchange rate changes on cash and cash equivalents   904    (1,037)
           
Increase (decrease) in cash and cash equivalents   582    13,126 
Cash and cash equivalents at the beginning of the year   75,314    62,188 
Cash and cash equivalents at the end of the period  $75,896   $75,314