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Magic Software Reports Second Quarter 2023 Financial Results

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Magic Software Enterprises Ltd. (NASDAQ and TASE: MGIC) announced its financial results for the second quarter ended June 30, 2023. Revenues increased by 0.4% to a record-breaking $137.6 million. Operating income increased by 3.2% to $15.4 million. The company's 2023 annual revenue guidance range was lowered due to exchange rate headwinds and IT spending slowdown.
Positive
  • Revenues for the second quarter of 2023 increased by 0.4% to a record-breaking $137.6 million.
  • Operating income for the second quarter of 2023 increased by 3.2% to $15.4 million.
  • Net income attributable to Magic Software’s shareholders for the second quarter of 2023 increased by 18.2% to $11.3 million.
  • Cash flow from operating activities for the first half period ended June 30, 2023 amounted to $42.6 million, a substantial increase from the same period last year.
  • The Company’s board of directors declared a semi-annual cash dividend in an amount of 32.7 cents per share and in an aggregate amount of approximately $16.1 million.
Negative
  • Magic is lowering its 2023 annual revenue guidance range from $585 - $593 million to $570 - $580 million due to exchange rate headwinds and IT spending slowdown.
  • Operating income for the first half ended June 30, 2023 decreased by 1.0% to $30.8 million.

Revenues for the second quarter of 2023 increased by approximately 0.4% to a record-breaking second quarter result of $137.6 million and 4.4% on a constant currency basis, compared to $137.0 million in the same period of the previous year.

Operating income for the second quarter of 2023 increased by approximately 3.2% to a record-breaking second quarter result of $15.4 million and 7.3% on a constant currency basis, compared to $15.0 million in the same period of the previous year.

OR YEHUDA, Israel, Aug. 14, 2023 (GLOBE NEWSWIRE) -- 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 second quarter ended June 30, 2023.

Summary Results for the Second Quarter 2023 (USD in millions, except per share data)

 

 GAAP  Non-GAAP 
 Q2 2023Q2 2022% Change Q2 2023Q2 2022% Change
Revenues$137.6 $137.0 0.4%  $137.6 $137.0 0.4% 
Gross Profit$40.3 $36.6 10.1%  $41.6 $38.2 9.1% 
Gross Margin 29.3%  26.7% 260 bps   30.3%  27.9% 240 bps 
Operating Income$15.4 $15.0 3.2%  $18.4 $17.8 3.7% 
Operating Margin 11.2%  10.9% 30 bps   13.4%  13.0% 40 bps 
Net Income (*)$11.3 $9.6 18.2%  $13.5 $11.7 15.6% 
Diluted EPS$0.23 $0.19 21.1%  $0.28 $0.24 16.7% 
        
(*) Attributable to Magic Software’s shareholders.     
        

Financial Highlights for the Second Quarter Ended June 30, 2023

  • Revenues for the Second quarter of 2023 increased by 0.4% to a record-breaking second quarter result of $137.6 million, compared to $137.0 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 June 30, 2022), revenues for the second quarter of 2023 would have increased by 4.4% to a record breaking second quarter result of $143.0 million.
  • Operating income for the second quarter of 2023 increased by 3.2% to $15.4 million, compared to $15.0 million in the same period of the previous year. On constant currency basis, (calculated based on average currency exchange rates for the three months ended June 30, 2022), operating income for the second quarter of 2023 would have increased by 7.3% to a record breaking second quarter result of $16.1 million. Operating income for the second quarter of 2023 included $0.6 million recorded with respect to cost of share-based payment to employees compared to $0.1 million recorded in the same period of the previous year.
  • Non-GAAP operating income for the second quarter of 2023 increased by 3.7% to $18.4 million, compared to $17.8 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 June 30, 2022), non-GAAP operating income for the second quarter of 2023 would have increased by 7.1% to a second quarter record-breaking result of $19.1 million.
  • Net income attributable to Magic Software’s shareholders for the second quarter of 2023 increase by 18.2% to $11.3 million, or $0.23 per fully diluted share, compared to $9.6 million, or $0.19 per fully diluted share, in the same period of the previous year.
  • Non-GAAP net income attributable to Magic Software’s shareholders for the second quarter of 2023 increased by 15.6% to $13.5 million, or $0.28 per fully diluted share, compared to $11.7 million, or $0.24 per fully diluted share, in the same period of the previous year.
  • Magic is lowering its 2023 annual revenue guidance range from $585 - $593 million to $570 - $580 million. This revenue change is primarily due to exchange rate headwind of NIS versus the US Dollar, as well as the continuous slowdown in IT spending which we are currently experiencing versus 2022 across our operations in North-America impacted by macro environment uncertainty. Based on a constant currency basis of the year 2022, our revenue growth rate for the year 2023 would have been 4.5%-6.2% with revenues at the range of $592 - $602 million.

Summary Results for First Half 2023 (USD in millions, except per share data)

 GAAP  Non-GAAP 
 H1 2023H1 2022% Change
 H1 2023H1 2022% Change
Revenues$280.0 $275.7 1.6%  $280.0 $275.7 1.6% 
Gross Profit$79.2 $74.2 6.8%  $81.8 $77.1 6.0% 
Gross Margin 28.3%  26.9% 140 bps   29.2%  28.0% 120 bps 
Operating Income$30.8 $31.1 -1.0  $36.9 $36.9 - 
Operating Margin 11.0%  11.3% (30) bps   13.2%  13.4% (20) bps 
Net Income (*)$21.4 $19.3 11.1%  $26.4 $24.7 6.8% 
Diluted EPS$0.44 $0.39 12.8%  $0.54 $0.50 8.0% 
          
(*) Attributable to Magic Software’s shareholders.       
          

Financial Highlights for the First Half Ended June 30, 2023

  • Revenues for the first half period ended June 30, 2023 increased by 1.6% to $280.0 million compared to $275.7 million in the same period last year. On a constant currency basis, revenues for the first half period ended June 30, 2023, increased by 6.2% compared to the same period of the previous year.
  • Operating income for the first half ended June 30, 2023 decreased by 1.0% to $30.8 million compared to $31.1 million in the same period last year. On constant currency basis, (calculated based on average currency exchange rates for the three months ended June 30, 2022), operating income for the first half period ended June 30, 2023 would have increased by 4.8% to a record breaking first half result of $32.6 million.
  • Non-GAAP operating income for the first half ended June 30, 2023, remained constant at $36.9 million compared to the same period last year. On constant currency basis, (calculated based on average currency exchange rates for the three months ended June 30, 2022), Non-GAAP operating income for the first half period ended June 30, 2023 would have increased by 4.9% to a record breaking result of $38.7 million.
  • Net income attributable to Magic Software’s shareholders for the first half period ended June 30, 2023 increased by 11.1% to $21.4 million, or $0.44 per fully diluted share, compared to $19.3 million, or $0.39 per fully diluted share, in the same period last year.
  • Non-GAAP net income attributable to Magic Software’s shareholders for the first half period ended June 30, 2023 increased by 6.8% to $26.4 million, or $0.54 per fully diluted share, compared to $24.7 million, or $0.50 per fully diluted share, in the same period last year.
  • Cash flow from operating activities for the first half period ended June 30, 2023 amounted to $42.6 million compared to $18.4 million in the same period last year. Cash flow from operating activities for the first half period ended June 30, 2022 included $3.7 million for payments of deferred and contingent consideration related to acquisitions.
  • As of June 30, 2023, Magic’s net cash and cash equivalents and short-term bank deposits amounted to $106.0 million.

Declaration of Dividend for the First Half of 2023

  • In accordance with its dividend distribution policy, the Company’s board of directors declared a semi-annual cash dividend in an amount of 32.7 cents per share and in an aggregate amount of approximately $16.1 million, reflecting approximately 75% of its distributable profits for the first half of 2023.
  • The dividend is payable on September 13, 2023, to all of the Company’s shareholders of record at the close of trading on the NASDAQ Global Select Market on August 30, 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: “Revenue in the second quarter of 2023 amounted to $137.6 million, up 0.4% from the second quarter of 2022. On a constant currency basis, our top line growth rate compared to the second quarter of 2022 was 4.4% with non-GAAP operating income growing by 7.1%. Magic Software’s unique and diversified business model is proven to be strong as we continue to present increasing levels of profit even during turbulent times of economic challenges,” stated Guy Berenstein, CEO of Magic. “We continue to operate in Israel and the US in all areas of technology, and especially in areas that are in high demand: digital, data, cyber, cloud, and core operational systems and to lead complex and strategic projects that are critical for our clients, across multiple sectors while remaining cautious about the macro-economic environment. As we move forward, we remain committed to executing our strategy to build a broad portfolio of software products and services that creates value for our customers in managing, streamlining, accelerating and maximizing their businesses.”

Conference Call Details

Magic Software’s management will host a conference call on Monday, August 14, 2023, at 9:00 am Eastern Daylight Time (16:00 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.

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;
  • Cost of share-based payment;
  • Costs related to acquisition of new businesses;
  • The related tax, non-controlling interests’ effects of the above items;
  • Change in valuation of contingent consideration related to acquisitions;
  • 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 IT consulting services and end-to-end integration and application development platforms solutions.

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, 2022, which filed on May 11, 2023, 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:

Ronen Platkevitz
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  Six months ended
  June 30, June 30,
   2023   2022   2023   2022 
  Unaudited Unaudited
Revenues $137,583  $136,978  $280,023  $275,683 
Cost of Revenues  97,278   100,385   200,833   201,512 
Gross profit   40,305   36,593   79,190   74,171 
Research and development, net  2,425   2,596   4,964   4,935 
Selling, marketing and general and administrative expenses  22,431   19,447   43,595   38,245 
Decrease in valuation of contingent consideration related to acquisitions  -   (423)  (165)  (106)
Total operating costs and expenses  24,856   21,620   48,394   43,074 
Operating income   15,449   14,973   30,796   31,097 
Financial expenses, net  (248)  (531)  (812)  (1,345)
(Increase) decrease in valuation of consideration related to acquisitions  (68)  122   (203)  (722)
Income before taxes on income  15,133   14,564   29,781   29,030 
Taxes on income  2,455   3,610   5,268   6,815 
Net income $ 12,678  $ 10,954  $ 24,513  $ 22,215 
Net income attributable to non-controlling interests  (1,384)  (1,402)  (3,111)  (2,948)
Net income attributable to Magic's shareholders  $ 11,294  $ 9,552  $ 21,402  $ 19,267 
         
         
Weighted average number of shares used in computing net earnings per share        
         
Basic  49,093   49,093   49,093   49,085 
         
Diluted  49,133   49,123   49,133   49,130 
         
Basic and diluted earnings per share attributable to Magic's shareholders $0.23  $0.19  $0.44  $0.39 
         


MAGIC SOFTWARE ENTERPRISES LTD.    
RECONCILIATION OF GAAP AND NON-GAAP RESULTS
    
U.S. Dollars in thousands (except per share data)    
         
  Three months ended  Six months ended
  June 30, June 30,
   2023   2022   2023   2022 
  Unaudited Unaudited
         
GAAP gross profit $ 40,305  $ 36,593  $ 79,190  $ 74,171 
Amortization of capitalized software and acquired technology 1,096   1,118   2,071   2,256 
Amortization of other intangible assets  244   464   489   666 
Non-GAAP gross profit $ 41,645  $ 38,175  $ 81,750  $ 77,093 
         
         
GAAP operating income $ 15,449  $ 14,973  $ 30,796  $ 31,097 
Gross profit adjustments  1,340   1,582   2,560   2,922 
Amortization of other intangible assets  1,666   2,280   3,730   4,382 
Decrease in valuation of contingent consideration related to acquisitions  -   (423)  (165)  (106)
Capitalization of software development  (723)  (734)  (1,434)  (1,605)
Costs related to acquisitions  107   49   181   59 
Stock-based compensation  609   70   1,231   140 
Non-GAAP operating income $ 18,448  $ 17,797  $ 36,899  $ 36,889 
         
         
GAAP net income attributable to Magic's shareholders $ 11,294  $ 9,552  $ 21,402  $ 19,267 
Operating income adjustments  2,999   2,824   6,103   5,792 
Expenses attributed to non-controlling interests and redeemable non-controlling interests  (377)  (168)  (524)  (320)
Changes in unsettled fair value of contingent consideration related to acquisitions  68   (122)  203   722 
Deferred taxes on the above items  (444)  (372)  (791)  (743)
Non-GAAP net income attributable to Magic's shareholders$ 13,540  $ 11,714  $ 26,393  $ 24,718 
         
         
Non-GAAP basic and diluted net earnings per share $0.28  $0.24  $0.54  $0.50 
         
Weighted average number of shares used in computing basic net earnings per share  49,093   49,093   49,093   49,085 
         
Weighted average number of shares used in computing diluted net earnings per share  49,137   49,138   49,137   49,146 
         


Summary of Non-GAAP Financial Information        
U.S. Dollars in thousands (except per share data)        
                 
                 
  Three months ended  Six months ended
  June 30, June 30,
   2023   2022   2023   2022 
  Unaudited Unaudited Unaudited Unaudited
                 
Revenues $137,583 100% $136,978 100% $280,023 100% $275,683 100%
Gross profit  41,645 30.3%  38,175 27.9%  81,750 29.2%  77,093 28.0%
Operating income  18,448 13.4%  17,797 13.0%  36,899 13.2%  36,889 13.4%
Net income attributable to Magic's shareholders  13,540 9.8%  11,714 8.6%  26,393 9.4%  24,718 9.0%
                 
Basic and diluted earnings per share $0.28   $0.24   $0.54   $0.50  
                 


MAGIC SOFTWARE ENTERPRISES LTD.   
CONDENSED CONSOLIDATED BALANCE SHEETS  
U.S. Dollars in thousands   
    
 June 30, December 31,
 2023
 2022
 Unaudited  
ASSETS   
CURRENT ASSETS:   
Cash and cash equivalents$104,619  $83,062 
Short-term bank deposits 1,405   3,904 
Trade receivables, net 134,252   148,480 
Other accounts receivable and prepaid expenses 18,769   13,652 
Total current assets 259,045   249,098 
    
LONG-TERM ASSETS:   
Deferred tax assets 5,111   3,618 
Right-of-use assets 24,690   27,536 
Other long-term receivables 6,409   5,795 
Property and equipment, net 7,854   8,338 
Intangible assets and goodwill, net 226,648   210,756 
Total long-term assets 270,712   256,043 
    
TOTAL ASSETS$529,757  $505,141 
    
LIABILITIES AND EQUITY   
    
CURRENT LIABILITIES:   
Short-term debt$30,933  $20,755 
Trade payables 25,740   27,598 
Accrued expenses and other accounts payable 44,412   46,842 
Current maturities of lease liabilities 4,311   4,591 
Liability in respect of business combinations 6,685   19,287 
Put options of non-controlling interests 21,700   27,172 
Deferred revenues and customer advances 14,145   9,808 
Total current liabilities 147,926   156,053 
    
LONG-TERM LIABILITIES:   
Long-term debt 58,662   30,412 
Deferred tax liability 10,658   10,686 
Long-term lease liabilities 21,799   24,282 
Long-term liability in respect of business combinations 991   5,376 
Put options of non-controlling interests 1,066   1,120 
Accrued severance pay, net 1,045   901 
Total long-term liabilities 94,221   72,777 
    
EQUITY:   
Magic Software Enterprises shareholders' equity 262,427   262,927 
Non-controlling interests 25,183   13,384 
Total equity 287,610   276,311 
    
    
TOTAL LIABILITIES AND EQUITY$529,757  $505,141 
    



MAGIC SOFTWARE ENTERPRISES LTD.   
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS  
U.S. Dollars in thousands   
 Six months ended June 30,
 2023 2022
 Unaudited Unaudited
    
Cash flows from operating activities:   
    
Net income$ 24,513  $ 22,215 
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation and amortization 9,917   10,334 
Cost of share-based payment 1,231   140 
Change in deferred taxes, net (2,257)  (1,163)
Payments of deferred and contingent consideration related to acquisitions (40)  (3,748)
Capital gain on sale of fixed assets (5)  - 
Amortization of marketable securities premium and accretion of discount (49)  93 
Effect of exchange rate on of cash and cash equivalents held in currencies other than the functional currency 906   1,662 
Changes in value of short-term and long-term loans from banks and others and deposits, net 499   (1,210)
Working capital adjustments:   
Trade receivables 17,315   (5,011)
Other current and long-term accounts receivable (8,423)  (1,875)
Trade payables (1,333)  (4,164)
Accrued expenses and other accounts payable (4,072)  (1,991)
Deferred revenues 4,439   3,075 
Net cash provided by operating activities  42,641   18,357 
    
Cash flows from investing activities:   
    
Capitalized software development costs (1,434)  (1,605)
Purchase of property and equipment (625)  (2,206)
Cash paid in conjunction with acquisitions, net of acquired cash (15,585)  (12,289)
Payments of deferred and contingent consideration related to acquisitions (17,330)  (4,616)
Proceeds from sale of property and equipment 10   - 
Proceeds from repayment of loan receivables 541   - 
Investment in long-term bank deposit (528)  - 
Purchase of intangible asset -   (219)
Proceeds from short-term bank deposits 3,532   2,565 
Net cash used in investing activities  (31,419)  (18,370)
    
Cash flows from financing activities:   
    
Dividend to Magic's shareholders (14,739)  (10,604)
Dividend paid to non-controlling interests (2,733)  (2,088)
Repayment of lease liabilities (2,720)  (2,511)
Short-term and long-term loans received 49,463   26,501 
Purchase of redeemable non-controlling interest (5,073)  - 
Repayment of short-term and long-term loans (10,742)  (4,841)
Net cash provided by financing activities  13,456   6,457 
    
Effect of exchange rate changes on cash and cash equivalents (3,121)  (6,282)
    
Increase in cash and cash equivalents 21,557   163 
Cash and cash equivalents at the beginning of the period 83,062   88,090 
Cash and cash equivalents at end of the period$ 104,619  $ 88,253 
    

FAQ

What is Magic Software Enterprises Ltd.'s ticker symbol?

The ticker symbol for Magic Software Enterprises Ltd. is MGIC, traded on NASDAQ and TASE.

What was the increase in revenues for the second quarter of 2023?

Revenues for the second quarter of 2023 increased by 0.4% to a record-breaking $137.6 million.

What was the increase in operating income for the second quarter of 2023?

Operating income for the second quarter of 2023 increased by 3.2% to $15.4 million.

What was the change in Magic Software Enterprises Ltd.'s 2023 annual revenue guidance range?

Magic is lowering its 2023 annual revenue guidance range from $585 - $593 million to $570 - $580 million due to exchange rate headwinds and IT spending slowdown.

Magic Software Enterprises Ltd

NASDAQ:MGIC

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