EX-99.1 2 ea168551ex99-1_magicsoftware.htm PRESS RELEASE TITLED "MAGIC SOFTWARE REPORTS THIRD QUARTER 2022 FINANCIAL RESULTS WITH RECORD BREAKING REVENUES OF $144 MILLION, REFLECTING A 19% YEAR-OVER-YEAR GROWTH; NET INCOME REACHED $11.5 MILLION, REFLECTING 53% YEAR-OVER-YEAR GROWTH"

Exhibit 99.1

 

 

 

Magic Software Reports Third Quarter 2022 Financial Results with Record Breaking Revenues of $144 Million, Reflecting a 19% Year-Over-Year Growth. Net income reached a record-breaking $11.5 Million, Reflecting 53% Year-Over-Year Growth

 

Operating income for the third quarter increased by 34% year-over-year to a record-breaking result of $16.1 million; Non-GAAP operating income for the third quarter increased by 14% year-over-year to a third quarter record-breaking result of $18.5 million

 

OR YEHUDA, Israel, Nov. 14, 2022 (GLOBE NEWSWIRE) -- 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 ended September 30, 2022.

 

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

 

   GAAP       Non-GAAP     
   Q3 2022   Q3 2021   % Change   Q3 2022   Q3 2021   % Change 
Revenues  $144.0   $120.9    19.1%  $144.0   $120.9    19.1%
Gross Profit  $39.4   $32.6    20.6%  $40.5   $34.2    18.5%
Gross Margin   27.3%   27.0%   30bps   28.1%   28.3%   (20)bps
Operating Income  $16.1   $12.0    33.7%  $18.5   $16.2    14.4%
Operating Margin   11.2%   10.0%   120bps   12.9%   13.4%   (50)bps
Net Income (*)  $11.5   $7.5    53.3%  $13.5   $11.8    14.9%
Diluted EPS  $0.23   $0.15    53.3%  $0.28   $0.24    16.7%

 

(*) Attributable to Magic Software’s shareholders.

 

Financial Highlights for the Third Quarter Ended September 30, 2022

 

·Revenues for the third quarter of 2022 increased by 19.1% to a record-breaking result of $144.0 million, compared to $120.9 million in the same period of the previous year. On a constant currency basis, revenues for the third quarter of 2022 would have increased by 23% to a record breaking $148.8 million, with 19.1% reflecting organic growth.

 

·Operating income for the third quarter of 2022 increased by 33.7% to a record-breaking result of $16.1 million, compared to $12.0 million in the same period of the previous year. On a constant currency basis, operating income for the third quarter of 2022 would have increased by 40.6% to $16.9 million, with 37.7% reflecting organic growth.

 

·Non-GAAP operating income for the third quarter of 2022 increased by 14.4% to a third quarter record-breaking result of $18.5 million, compared to $16.2 million in the same period of the previous year. On a constant currency basis, Non-GAAP operating income for the third quarter of 2022 would have increased by 19.2% to a third quarter record-breaking result of $19.3 million, with 15.4% reflecting organic growth.

 

·Net income attributable to Magic Software’s shareholders for the third quarter of 2022 increased by 53.3% to a record-breaking result of $11.5 million, or $0.23 per fully diluted share, compared to $7.5 million, or $0.15 per fully diluted share, in the same period of the previous year.

 

·Non-GAAP net income attributable to Magic Software’s shareholders for the third quarter of 2022 increased by 14.9% to $13.5 million, or $0.28 per fully diluted share, compared to $11.8 million, or $0.24 per fully diluted share, in the same period of the previous year.

 

 

 

 

Summary Results for Nine-Months Period Ended September 30, 2022 (USD in millions, except per share data)

 

   GAAP       Non-GAAP     
   Nine months ended
September 30,		       Nine months ended
September 30,		     
   2022   2021   % Change   2022   2021   % Change 
Revenues  $419.6   $347.3    20.8%  $419.6   $347.3    20.8%
Gross Profit  $113.5   $95.6    18.7%  $117.6   $100.3    17.2%
Gross Margin   27.1%   27.5%   (40)bps   28.0%   28.9%   (90)bps
Operating Income  $46.8   $37.0    26.6%  $55.0   $47.1    16.8%
Operating Margin   11.1%   10.6%   50bps   13.1%   13.6%   (50)bps
Net Income (*)  $30.6   $22.8    34.1%  $38.1   $33.4    14.1%
Diluted EPS  $0.59   $0.46    28.3%  $0.77   $0.68    13.2%

 

(*) Attributable to Magic Software’s shareholders.

 

Financial Highlights for the Nine-Month Period Ended September 30, 2022

 

·Revenues for the first nine months of 2022 increased by 20.8% to a record-breaking $419.6 million compared to $347.3 million in the same period last year. On a constant currency basis, revenues for the first nine months of 2022 would have increased by 22.9% to $426.9 million, with 21.5% reflecting organic growth.

 

·Operating income for the first nine months of 2022 increased by 26.6% to a record-breaking $46.8 million compared to $37.0 million in the same period last year. On a constant currency basis, operating income for the first nine months of 2022 would have increased by 30.9% to $48.3 million, with 30% reflecting organic growth.

 

·Non-GAAP operating income for the first nine months of 2022 increased by 16.8% to a record-breaking $55.0 million compared to $47.1 million in the same period last year. On a constant currency basis, Non-GAAP operating income for the first nine months of 2022 would have increased by 20.1% to $56.5 million, with 18.8% reflecting organic growth.

 

·Net income attributable to Magic Software’s shareholders for the first nine months of 2022 increased by 34.1% to $30.6 million, or $0.59 per fully diluted share, compared to $22.8 million, or $0.46 per fully diluted share, in the same period last year.

 

·Non-GAAP net income attributable to Magic Software’s shareholders for the first nine months of 2022 increased by 14.1% to $38.1 million, or $0.77 per fully diluted share, compared to $33.4 million, or $0.68 per fully diluted share, in the same period last year.

 

·Cash flows from operating activities for the first nine months of 2022 amounted to $37.5 million compared to $34.2 million in the same period last year. Cash flow from operating activities excluding the impact of payments of deferred and contingent consideration related to acquisitions amounting to $41.3 million for the first nine months ended September 30, 2022.

 

·As of September 30, 2022, Magic Software’s net cash, cash equivalents, short and long-term bank deposits and marketable securities amounted to $88.8 million and total financial debt of $59.1 million.

 

·Magic Software has increased its 2022 annual revenue guidance for the third time this year to a range of $555 to $565 million, up from its prior range of $550 to $560 million, which now reflects an annual growth of 15.6% to 17.6%.

 

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Guy Bernstein, Chief Executive Officer of Magic Software, said: “I am very proud of our third quarter achievements. During the quarter, 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 (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 quarter 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.”

 

Conference Call Details

 

Magic Software’s management will host a conference call on Monday, November 14, 2022 at 10:00 am Eastern Daylight Time (5:00 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 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.

 

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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,” “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 BALANCE SHEETS
U.S. Dollars in thousands

 

   September 30,   December 31, 
   2022   2021 
   Unaudited     
         
ASSETS        
CURRENT ASSETS:        
Cash and cash equivalents  $82,762   $88,090 
Short-term bank deposits   3,935    5,586 
Marketable securities   993    1,142 
Trade receivables, net   143,776    142,071 
Other accounts receivable and prepaid expenses   11,662    9,890 
Total current assets   243,128    246,779 
           
LONG-TERM ASSETS:          
Severance pay fund   1,609    3,646 
Deferred tax assets   1,825    8,091 
Operating lease right-of-use assets   24,489    24,299 
Other long-term receivables   4,802    3,384 
Other long-term deposits   1,086    1,781 
Property and equipment, net   7,603    5,872 
Identifiable intangible assets and goodwill, net   211,946    198,193 
Total long term assets   253,360    245,266 
           
TOTAL ASSETS  $496,488   $492,045 
           
LIABILITIES AND SHAREHOLDERS EQUITY          
           
CURRENT LIABILITIES:          
Short-term debt  $21,378   $17,032 
Trade payables   25,236    24,711 
Accrued expenses and other accounts payable   46,082    45,173 
Current maturities of operating lease liabilities   3,679    3,943 
Liabilities due to acquisition activities   15,857    6,635 
Deferred revenues and customer advances   10,998    10,771 
Total current liabilities   123,230    108,265 
           
LONG TERM LIABILITIES:          
Long-term debt   37,727    20,155 
Deferred tax liability   11,269    18,112 
Long-term operating lease liabilities   21,537    20,970 
Long-term liabilities due to acquisition activities   10,548    13,892 
Accrued severance pay   2,473    4,551 
Total long term liabilities   83,554    77,680 
           
REDEEMABLE NON-CONTROLLING INTERESTS   27,265    30,432 
           
SHAREHOLDERS EQUITY:          
Magic Software Enterprises equity   251,845    265,248 
Non-controlling interests   10,594    10,420 
Total shareholders equity   262,439    275,668 
           
TOTAL LIABILITIES, REDEEMABLE NON-CONTROLLING INTERESTS AND EQUITY  $496,488   $492,045 

 

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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   Nine months ended 
   September 30,   September 30, 
   2022   2021   2022   2021 
   Unaudited   Unaudited 
         
Revenues  $143,963   $120,870   $419,646   $347,323 
Cost of Revenues   104,600    88,244    306,112    251,704 
Gross profit   39,363    32,626    113,534    95,619 
Research and development, net   2,441    2,313    7,376    6,872 
Selling, marketing and general and administrative expenses   20,988    17,604    59,655    51,118 
Increase (decrease) in valuation of contingent consideration related to acquisitions   (177)   660    (283)   678 
Total operating expenses   23,252    20,577    66,748    58,668 
Operating income   16,111    12,049    46,786    36,951 
Financial expenses, net   (812)   (1,075)   (2,603)   (3,525)
Income before taxes on income   15,299    10,974    44,183    33,426 
Taxes on income   2,392    2,212    9,223    6,786 
Net income  $12,907   $8,762   $34,960   $26,640 
Net income attributable to redeemable non-controlling interests   (837)   (771)   (2,576)   (2,332)
Net income attributable to non-controlling interests   (577)   (494)   (1,786)   (1,488)
Net income attributable to Magic’s shareholders  $11,493   $7,497   $30,598   $22,820 
                     
Net earnings per share attributable to Magic’s shareholders :                    
Net Income attributable to Magic Shareholder’s   11,493    7,497    30,598    22,820 
Accretion of redeemable non-controlling interests   24    -    (1,463)   - 
Net Income attributable to Magic Shareholder’s after accretion of redeemable non-controlling interests  $11,517   $7,497   $29,135   $22,820 
                     
Weighted average number of shares used in computing net earnings per share                    
                     
Basic   49,093    49,060    49,088    49,049 
                     
Diluted   49,128    49,107    49,135    49,093 
                     
Basic and diluted earnings per share attributable to Magic’s shareholders  $0.23   $0.15   $0.59   $0.46 
                     
Net earnings per share attributable to Magic’s shareholders : excluding of accretion of redeemable non-controlling interest                    
Basic  $0.24   $0.15   $0.59   $0.47 
Diluted  $0.23   $0.15   $0.59   $0.47 

 

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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   Nine months ended 
   September 30,   September 30, 
   2022   2021   2022   2021 
   Unaudited   Unaudited 
                 
GAAP gross profit  $39,363   $32,626   $113,534   $95,619 
Amortization of capitalized software and acquired technology   1,051    1,394    3,307    4,244 
Amortization of other intangible assets   79    156    745    466 
Non-GAAP gross profit  $40,493   $34,176   $117,586   $100,329 
                     
GAAP operating income  $16,111   $12,049   $46,786   $36,951 
Gross profit adjustments   1,130    1,550    4,052    4,710 
Amortization of other intangible assets   1,776    1,737    6,158    5,040 
Increase (decrease) in valuation of contingent consideration related to acquisitions   (177)   660    (283)   678 
Capitalization of software development   (724)   (723)   (2,329)   (2,345)
Costs related to acquisitions   317    745    376    1,232 
Stock-based compensation   70    155    210    802 
Non-GAAP operating income  $18,503   $16,173   $54,970   $47,068 
                     
GAAP net income attributable to Magic’s shareholders  $11,493   $7,497   $30,598   $22,820 
Operating income adjustments   2,392    4,124    8,184    10,117 
Expenses attributed to non-controlling interests and redeemable non-controlling interests   (124)   (225)   (444)   (558)
Changes in unsettled fair value of contingent consideration related to acquisitions   111    505    833    1,673 
Deferred taxes on the above items   (350)   (130)   (1,093)   (687)
Non-GAAP net income attributable to Magic’s shareholders  $13,522   $11,771   $38,078   $33,365 
                     
Non-GAAP basic net earnings per share  $0.28   $0.24   $0.78   $0.68 
Weighted average number of shares used in computing basic net earnings per share   49,093    49,060    49,088    49,049 
                     
Non-GAAP diluted net earnings per share  $0.28   $0.24   $0.77   $0.68 
Weighted average number of shares used in computing diluted net earnings per share   49,138    49,136    49,138    49,135 

 

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

 

   Nine months ended 
   September 30, 
   2022   2021 
   Unaudited 
         
Cash flows from operating activities:        
         
Net income  $34,960   $26,640 
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation and amortization   11,798    10,946 
Stock-based compensation   210    802 
Change in deferred taxes, net   (2,623)   (2,429)
Amortization of marketable securities premium and accretion of discount   149    70 
Net change in operating assets and liabilities:          
Trade receivables, net   (1,325)   (9,523)
Other long-term and short-term accounts receivable and prepaid expenses   (1,198)   775 
Trade payables   (2,251)   3,074 
Exchange rate of loans   (1,916)   (21)
Accrued expenses and other accounts payable   1,201    2,974 
Payments of deferred and contingent consideration related to acquisitions   (3,748)   - 
Effect of exchange rate on cash and cash equivalents held in currencies other than the functional currency   1,328    - 
Deferred revenues   948    843 
Net cash provided by operating activities   37,533    34,151 
           
Cash flows from investing activities:          
           
Capitalized software development costs   (2,329)   (2,345)
Purchase of property and equipment   (3,303)   (921)
Cash paid in conjunction with acquisitions, net of acquired cash   (23,116)   (8,685)
Purchase of intangible asset   (219)   - 
Proceeds from (Investment in) short-term bank deposits   1,651    (17)
Net cash used in investing activities   (27,316)   (11,968)
           
Cash flows from financing activities:          
           
Proceeds from exercise of options by employees   -    41 
Payments of deferred and contingent consideration related to acquisitions   (4,638)   (4,694)
Dividend paid   (24,841)   (21,780)
Dividend paid to non-controlling interests   (240)   (871)
Dividend paid to redeemable non-controlling interests   (3,532)   (2,783)
Short-term and long-term loans received   30,538    22,492 
Repayment of short-term and long-term loans   (5,983)   (4,414)
Net cash used in financing activities   (8,696)   (12,009)
           
Effect of exchange rate changes on cash and cash equivalents   (6,849)   (1,137)
           
Increase (Decrease) in cash and cash equivalents   (5,328)   9,037 
Cash and cash equivalents at the beginning of the period   88,090    88,127 
Cash and cash equivalents at end of the period  $82,762   $97,164 

 

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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, 
   2022   2021   2022   2021 
   Unaudited   Unaudited   Unaudited   Unaudited 
                                 
Revenues  $143,963    100%  $120,870    100%  $419,646    100%  $347,323    100%
Gross profit   40,493    28.1%   34,176    28.3%   117,586    28.0%   100,329    28.9%
Operating income   18,503    12.9%   16,173    13.4%   54,970    13.1%   47,068    13.6%
Net income attributable to                                        
Magic’s shareholders   13,522    9.4%   11,771    9.7%   38,078    9.1%   33,365    9.6%
                                         
Basic earnings per share  $0.28        $0.24        $0.77        $0.68      
Diluted earnings per share  $0.28        $0.24        $0.77        $0.68      

 

 

 

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