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Magic Software Reports First Quarter 2021 Financial Results

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Magic Software Enterprises Ltd. (NASDAQ: MGIC) reported strong first-quarter results for 2021, with revenue increasing by 25.9% to $107.3 million from $85.2 million year-over-year. Gross profit rose 19.8% to $30.2 million, while net income grew 28.9% to $7.5 million, or $0.15 per share. Operating income jumped 39.6% to $12.2 million, reflecting improved margins. Magic Software has raised its 2021 revenue guidance to $425-$435 million, indicating anticipated growth of 13.5%-17.2%.

Positive
  • Revenue increased by 25.9% year-over-year to $107.3 million.
  • Operating income grew by 39.6% to $12.2 million.
  • Net income attributable to shareholders increased by 28.9% to $7.5 million.
  • Raised 2021 revenue guidance to $425-$435 million, indicating 13.5%-17.2% growth.
Negative
  • Gross margin decreased from 29.6% to 28.1%, a decline of 150bps.

OR YEHUDA, Israel, May 10, 2021 (GLOBE NEWSWIRE) -- Magic Software Enterprises Ltd. (NASDAQ and TASE: MGIC), a global provider of end-to-end integration and application development platforms solutions and IT consulting services, announced today its financial results for the first quarter ended March 31, 2021.

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

  GAAP     Non-GAAP    
  Q1 2021  Q1 2020  %
Change
  Q1 2021  Q1 2020  %
Change
 
Revenue $107.3  $85.2   25.9% $107.3  $85.2   25.9%
Gross Profit $30.2  $25.2   19.8% $31.7  $26.7   18.6%
Gross Margin  28.1%  29.6%  (150)bps  29.6%  31.4%  (180)bps
Operating Income $12.2  $8.7   39.6% $15.0  $11.0   36.6%
Operating Margin  11.4%  10.3%  110bps  14.0%  12.9%  110bps
Net Income (*) $7.5  $5.9   28.9% $10.3  $9.4   9.5%
Diluted EPS $0.15  $0.12   25.0% $0.21  $0.19   10.5%


(*)Attributable to Magic Software’s shareholders.

Financial Highlights for the First Quarter Ended March 31, 2021

  • Revenues for the first quarter ended March 31, 2021 increased 25.9% to $107.3 million compared to $85.2 million in the same period last year.

  • Operating income for the first quarter ended March 31, 2021 increased 39.6% to $12.2 million compared to $8.7 million in the same period last year.

  • Non-GAAP operating income for the first quarter ended March 31, 2021 increased 36.6% to $15.0 million compared to $11.0 million in the same period last year.

  • Net income attributable to Magic’s shareholders for the first quarter ended March 31, 2021 increased 28.9% to $7.5 million, or $0.15 per fully diluted share, compared to $5.9 million, or $0.12 per fully diluted share in the same period last year.

  • Non-GAAP net income attributable to Magic’s shareholders for the first quarter ended March 31, 2021 increased 9.5% to $10.3 million, or $0.21 per fully diluted share, compared to $9.4 million, or $0.19 per fully diluted share, in the same period last year.

  • Cash flow from operating activities for the first quarter ended March 31, 2021 amounted to $15.9 million compared to $13.1 million in the same period last year.

  • As of March 31, 2021, Magic’s net cash, cash equivalents, short and long-term bank deposits and marketable securities amounted to $100.8 million.

  • Magic Software increases its 2021 revenue guidance to a range of $425 to $435 million from its prior range of $420 to $430 million, reflecting annual growth of 13.5% to 17.2%.

Guy Bernstein, Chief Executive Officer of Magic Software Enterprises, said: “Our Solid execution in the first quarter delivered 26% revenue growth, and our non-GAAP operating margin increased to 14.0% from 12.9% in the same period last year. Our revenue growth in the first quarter validates our strategy of building a broad business portfolio, which provides the foundation for our continued solid performance and growth. With a strategic focus, increasing global market demand for digital transformations and the steps we have taken over the past year to streamline our business activity, Magic Software is well positioned for continued strong financial performance.”

Conference Call Details

Magic’s management will host a conference call on Monday, May 10, at 10:00 am Eastern Daylight Time (7:00 am Pacific Daylight Time, 17:00 Israel Daylight 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: +1-888-668-9141

UK: 0-800-917-5108

ISRAEL: 03-918-0609

ALL OTHERS: +972-3-918-0609

For those unable to join the live call, a replay of the call will be available under the Investor Relations section of Magic’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’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;

  • Costs relates to acquisition of new businesses;

  • 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 end-to-end integration and application development platforms solutions and IT consulting services.

For more information, visit www.magicsoftware.com.

Forward Looking Statements

Some of the statements in this press release may constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities and Exchange Act of 1934 and the United States Private Securities Litigation Reform Act of 1995. Words such as “will,” “look forward”, “expect,” “believe” and similar expressions are used to identify these forward-looking statements (although not all forward-looking statements include such words). These forward-looking statements, which may include, without limitation, projections regarding our future performance and financial condition, are made based on management’s current views and assumptions with respect to future events. Any forward-looking statement is not a guarantee of future performance and actual results could differ materially from those contained in the forward-looking statement. These statements speak only as of the date they were made, and we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. We operate in a changing environment. New risks emerge from time to time and it is not possible for us to predict all risks that may affect us. For more information regarding these risks and uncertainties as well as certain additional risks that we face, you should refer to the Risk Factors detailed in our Annual Report on Form 20-F for the year ended December 31, 2020 and subsequent reports and filings made from time to time with the Securities and Exchange Commission.

Magic® is a registered trademark of Magic Software Enterprises Ltd. All other product and company names mentioned herein are for identification purposes only and are the property of, and might be trademarks of, their respective owners.

Press Contact:

Asaf Berenstin | Chief Financial Officer
Magic Software Enterprises
ir@magicsoftware.com


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

  Three months ended 
  March 31, 
  2021  2020 
  Unaudited 
Revenues $107,298  $85,208 
Cost of revenues  77,109   60,016 
Gross profit  30,189   25,192 
Research and development, net  2,196   2,174 
Selling, marketing and general and administrative expenses  15,785   14,272 
Total operating costs and expenses  17,981   16,446 
Operating income  12,208   8,746 
Financial expenses (income), net  1,146   (517)
Income before taxes on income  11,062   9,263 
Taxes on income  2,270   1,988 
Net income $8,792  $7,275 
Net income attributable to redeemable non-controlling interests  (731)  (324)
Net income attributable to non-controlling interests  (518)  (1,098)
Net income attributable to Magic’s shareholders $7,543  $5,853 
         
Net earnings per share attributable to Magic’s shareholders :        
Basic $0.15  $0.12 
Diluted $0.15  $0.12 
         
Weighted average number of shares used in computing net earnings per share        
Basic  49,035   48,958 
Diluted  49,082   49,046 
 


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

  Three months ended 
  March 31, 
  2021  2020 
  Unaudited 
             
Revenues $107,298   100% $85,208   100%
Gross profit  31,713   29.6%  26,748   31.4%
Operating income  14,984   14.0%  10,971   12.9%
Net income attributable to Magic’s shareholders  10,268   9.6%  9,377   11.0%
                 
Basic earnings per share $0.21      $0.19     
Diluted earnings per share $0.21      $0.19     
                 


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

  Three months ended 
  March 31, 
  2021  2020 
  Unaudited 
GAAP gross profit $30,189  $25,192 
Amortization of capitalized software and acquired technology  1,369   1,288 
Amortization of other intangible assets  155   268 
Non-GAAP gross profit $31,713  $26,748 
         
GAAP operating income $12,208  $8,746 
Gross profit adjustments  1,524   1,556 
Amortization of other intangible assets  1,580   1,240 
Capitalization of software development  (824)  (844)
Acquisition-related costs  5   273 
Stock-based compensation  491   - 
Non-GAAP operating income $14,984  $10,971 
         
GAAP net income attributable to Magic’s shareholders $7,543  $5,853 
Operating income adjustments  2,776   2,225 
Amortization expenses attributed to non-controlling interests and redeemable non-controlling interests  (165)  - 
Changes in unsettled fair value of contingent consideration related to acquisitions  437   773 
Deferred taxes on the above items  (323)  526 
Non-GAAP net income attributable to Magic’s shareholders $10,268  $9,377 
         
Non-GAAP basic net earnings per share $0.21  $0.19 
Weighted average number of shares used in computing basic net earnings per share  49,035   48,958 
         
Non-GAAP diluted net earnings per share $0.21  $0.19 
Weighted average number of shares used in computing diluted net earnings per share  49,135   49,046 
 


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

  March 31,  December 31, 
  2021  2020 
  Unaudited  Unaudited 
       
ASSETS      
CURRENT ASSETS:      
Cash and cash equivalents $97,562  $88,127 
Short-term bank deposits  289   289 
Marketable securities  1,185   1,238 
Trade receivables, net  113,867   111,059 
Other accounts receivable and prepaid expenses  11,423   10,513 
Total current assets  224,326   211,226 
         
LONG-TERM RECEIVABLES:        
Severance pay fund  4,449   4,673 
Deferred tax assets  6,048   6,397 
Operating lease right-of-use assets  24,059   24,509 
Other long-term receivables  2,982   3,211 
Other long-term deposits  1,796   2,296 
Total long-term receivables  39,334   41,086 
         
PROPERTY AND EQUIPMENT, NET  6,043   5,988 
IDENTIFIABLE INTANGIBLE ASSETS AND GOODWILL, NET  185,307   189,086 
         
TOTAL ASSETS $455,010  $447,386 
         
LIABILITIES AND EQUITY        
         
CURRENT LIABILITIES:        
Short-term debt $11,103  $11,529 
Trade payables  14,855   14,250 
Accrued expenses and other accounts payable  55,152   41,846 
Current maturities of operating lease liabilities  3,869   3,413 
Liabilities due to acquisition activities  4,925   4,998 
Deferred revenues and customer advances  13,667   8,793 
Total current liabilities  103,571   84,829 
         
NON-CURRENT LIABILITIES:        
Long-term debt  11,910   13,352 
Deferred tax liability  16,876   17,639 
Long-term operating lease liabilities  20,201   21,109 
Long-term liabilities due to acquisition activities  9,549   10,926 
Accrued severance pay  5,299   5,545 
Total non-current liabilities  63,835   68,571 
         
REDEEMABLE NON-CONTROLLING INTERESTS  24,805   24,980 
         
EQUITY:        
Magic Software Enterprises equity  254,239   260,431 
Non-controlling interests  8,560   8,575 
Total equity  262,799   269,006 
         
TOTAL LIABILITIES, REDEEMABLE NON-CONTROLLING INTERESTS AND EQUITY $455,010  $447,386 
 


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

  For the three months ended
March 31,
 
  2021  2020 
  Unaudited  Unaudited 
       
Cash flows from operating activities:      
       
Net income $8,792  $7,275 
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation and amortization  3,505   3,011 
Stock-based compensation  491   - 
Change in deferred taxes, net  (290)  97 
Amortization of marketable securities premium and accretion of discount  54   43 
Net change in operating assets and liabilities:        
Trade receivables, net  (5,007)  1,871 
Other long-term and short-term accounts receivable and prepaid expenses  (319)  143 
Trade payables  824   152 
Exchange rate of loans  (564)  (688)
Accrued expenses and other accounts payable  3,218   33 
Deferred revenues  5,162   1,190 
Net cash provided by operating activities  15,866   13,127 
         
Cash flows from investing activities:        
         
Capitalized software development costs  (823)  (844)
Purchase of property and equipment  (510)  (488)
Cash paid in conjunction with acquisitions, net of acquired cash  -   (727)
Proceeds from maturity and sale of marketable securities  -   3,159 
Investment in short-term bank deposits  -   (30)
Net cash provided by (used in) investing activities  (1,333)  1,070 
         
Cash flows from financing activities:        
         
Proceeds from exercise of options by employees  -   61 
Dividend paid  -   (55)
Dividend paid to non-controlling interests  (207)  - 
Dividend paid to redeemable non-controlling interests  -   (923)
Purchase of redeemable non-controlling interest  -   (15,046)
Payments of deferred and contingent consideration related to acquisitions  (2,752)  - 
Short-term and long-term loans received  210   - 
Repayment of short-term and long-term loans  (1,166)  (1,971)
Net cash used in financing activities  (3,915)  (17,934)
         
Effect of exchange rate changes on cash and cash equivalents  (1,183)  (1,542)
         
Increase (decrease) in cash and cash equivalents  9,435   (5,279)
Cash and cash equivalents at the beginning of the period  88,127   81,915 
Cash and cash equivalents at end of the period $97,562  $76,636 


FAQ

What were Magic Software's Q1 2021 earnings results?

Magic Software reported Q1 2021 revenues of $107.3 million, a 25.9% increase, with net income reaching $7.5 million.

How did Magic Software's revenue guidance change for 2021?

The company raised its 2021 revenue guidance to a range of $425-$435 million from a previous range of $420-$430 million.

What is the significance of Magic Software's operating income growth in Q1 2021?

Magic Software's operating income increased by 39.6% in Q1 2021, reflecting strong operational performance.

What was the diluted EPS for Magic Software in the first quarter of 2021?

The diluted EPS for Q1 2021 was $0.15, up from $0.12 in Q1 2020.

Magic Software Enterprises Ltd

NASDAQ:MGIC

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Information Technology Services
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Or Yehuda