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Magic Reports Second Quarter and First Half 2020 Financial Results with Record-Breaking Operating Income of $9.8 million, reflecting a 22% Year Over Year Growth, and Announces Distribution of Semi-Annual Cash Dividend of $8.6 Million for the First Half…

Non-GAAP operating income reached a record-breaking $12.2 million, reflecting a 14% year over year growth

/EIN News/ -- OR YEHUDA, Israel, Aug. 13, 2020 (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 second quarter and first half ended June 30, 2020.

Financial Highlights for the Second Quarter Ended June 30, 2020

  • Revenues for the second quarter increased 12% to $86.5 million compared to $77.1 million in the same period last year.
  • Operating income for the second quarter increased 22% to $9.8 million compared to $8.0 million in the same period last year.
  • Non-GAAP operating income for the second quarter increased 14% to $12.2 million compared to $10.7 million in the same period last year.
  • Net income attributable to Magic's shareholders for the second quarter increased 19% to $5.7 million, or $0.12 per fully diluted share, compared to $4.8 million, or $0.08 per fully diluted share in the same period last year.
  • Non-GAAP net income attributable to Magic's shareholders for the second quarter increased 14% to $8.1 million, or $0.17 per fully diluted share, compared to $7.1 million, or $0.14 per fully diluted share, in the same period last year.

Financial Highlights for the Six-Month Period Ended June 30, 2020

  • Revenues for the first half of 2020 increased 15% to $171.7 million compared to $148.9 million in the same period last year.
  • Operating income for the first half of 2020 increased 13% to $18.6 million compared to $16.4 million in the same period last year.
  • Non-GAAP operating income for the first half of 2020 increased 12% to $23.2 million compared to $20.8 million in the same period last year.
  • Net income attributable to Magic's shareholders for the first half of 2020 increased 14% to $11.6 million, or $0.24 per fully diluted share, compared to $10.2 million, or $0.19 per fully diluted share in the same period last year.
  • Non-GAAP net income attributable to Magic's shareholders for the first half of 2020 increased 27% to $17.5 million, or $0.36 per fully diluted share, compared to $13.7 million, or $0.28 per fully diluted share, in the same period last year.
  • Cash flow from operating activities for the first half of 2020 amounted to $28.1 million compared to $26.6 million in the same period last year.
  • As of June 30, 2020, Magic’s net cash, cash equivalents, short and long-term bank deposits and marketable securities amounted to $91.7 million.
  • Magic is reiterating its May 2020 guidance for full year revenues of between $350 million to $360 million on a constant currency basis, reflecting annual growth of 7.5% to 10.6%.

Declaration of Dividend for the First Half of 2020

In accordance with its dividend distribution policy, the Company’s board of directors declared a semi-annual cash dividend in the amount of 17.5 cents per share and in the aggregate amount of approximately $8.6 million, reflecting approximately 75% of its distributable profits for the first half of 2020.

The dividend is payable on September 10, 2020 to all of the Company’s shareholders of record at the close of the NASDAQ Global Select Market on August 27, 2020.

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 Enterprises, said:

“In spite of the COVID-19 pandemic outbreak in March 2020, our outlook for 2020 has improved due to an increased demand, from existing and new customers, for digital transformation projects, as COVID-19 forced organizations and their employees to adapt to the new forced reality and work environment.”   

“We are pleased to witness that our strong and stable financial position, coupled with our constant efforts to become a trusted advisor of the digital transformation market, are paying off, and we will continue to make our best efforts to enhance our portfolio, both organically and through acquisitions in order to offer the best one-stop-shop for digital transformation.” 

Conference Call Details

Magic’s management will host a conference call on Thursday, August 13, 2020 at 10:00 am Eastern Daylight Time (5:00 p.m. 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;
  • 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;
  • Acquisition-related costs;

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," “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 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, 2019 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:

Noam Amir
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,
        2020       2019       2020       2019  
                                   
      Unaudited   Unaudited
  Revenues   $ 86,521     $ 77,060     $ 171,729     $ 148,860  
  Cost of Revenues     61,728       52,476       122,120       101,984  
  Gross profit     24,793       24,584       49,609       46,876  
  Research and development, net     1,989       2,496       4,163       4,042  
  Selling, marketing and general and                
    administrative expenses     12,962       14,050       26,858       26,408  
  Total operating costs and expenses     14,951       16,546       31,021       30,450  
  Operating income     9,842       8,038       18,588       16,426  
  Financial income (expenses), net     (1,135 )     35       (618 )     (206 )
  Income before taxes on income     8,707       8,073       17,970       16,220  
  Taxes on income     2,081       1,897       4,069       3,517  
  Net income   $ 6,626     $ 6,176     $ 13,901     $ 12,703  
  Net income attributable to redeemable non-controlling
interests
  (237 )     (1,130 )     (561 )     (2,012 )
  Net income attributable to non-controlling interests     (652 )     (211 )     (1,750 )     (504 )
  Net income attributable to Magic's shareholders   $ 5,737     $ 4,835     $ 11,590     $ 10,187  
                   
  Net earnings per share attributable to Magic's shareholders :                
  Basic   $ 0.12     $ 0.08     $ 0.24     $ 0.19  
  Diluted   $ 0.12     $ 0.08     $ 0.24     $ 0.19  
                   
  Weighted average number of shares used in                
    computing net earnings per share                
                   
    Basic     49,002       48,891       48,980       48,876  
    Diluted     49,042       48,985       49,044       48,982  
                   


 
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,  
      2020       2019       2020       2019    
    Unaudited   Unaudited   Unaudited   Unaudited  
                                   
Revenues   $ 86,521   100 %   $ 77,060   100 %   $ 171,729   100 %   $ 148,860   100 %  
Gross profit     26,454   30.6 %     25,940   33.7 %     52,826   30.8 %     49,584   33.3 %  
Operating income     12,223   14.1 %     10,695   13.9 %     23,194   13.5 %     20,757   13.9 %  
Net income attributable to                                  
  Magic's shareholders     8,100   9.4 %     7,091   9.2 %     17,475   10.2 %     13,743   9.2 %  
                                   
Basic earnings per
share
  $ 0.17       $ 0.14       $ 0.36       $ 0.28      
Diluted earnings per
share
  $ 0.17       $ 0.14       $ 0.36       $ 0.28      
 


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,  
            2020       2019       2020       2019    
                                         
          Unaudited   Unaudited  
                         
GAAP gross profit       $ 24,793     $ 24,584     $ 49,609     $ 46,876    
Amortization of capitalized software and acquired technology   1,393       1,218       2,681       2,433    
Amortization of other intangible assets       268       138       536       275    
Non-GAAP gross profit     $ 26,454     $ 25,940     $ 52,826     $ 49,584    
                         
                         
GAAP operating income     $ 9,842     $ 8,038     $ 18,588     $ 16,426    
Gross profit adjustments       1,661       1,356       3,217       2,708    
Amortization of other intangible assets       1,338       1,619       2,578       2,820    
Capitalization of software development       (846 )     (1,298 )     (1,690 )     (2,252 )  
Costs related to acquisitions       228       980       501       980    
Stock-based compensation       -       -       -       75    
Non-GAAP operating income     $ 12,223     $ 10,695     $ 23,194     $ 20,757    
                         
                         
GAAP net income attributable to Magic's shareholders   $ 5,737     $ 4,835     $ 11,590     $ 10,187    
Operating income adjustments       2,381       2,657       4,606       4,331    
Expenses attributed to non-controlling interests                    
  and redeemable non-controlling interests       (175 )     (311 )     (175 )     (619 )  
Changes in unsettled fair value of contingent consideration                  
  related to acquisitions       375       -       1,148       -    
Deferred taxes on the above items       (218 )     (90 )     306       (156 )  
Non-GAAP net income attributable to Magic's shareholders $ 8,100     $ 7,091     $ 17,475     $ 13,743    
                         
                         
Non-GAAP basic net earnings per share     $ 0.17     $ 0.14     $ 0.36     $ 0.28    
Weighted average number of shares used in computing basic                
  net earnings per share       49,002       48,891       48,980       48,876    
                         
Non-GAAP diluted net earnings per share     $ 0.17     $ 0.14     $ 0.36     $ 0.28    
Weighted average number of shares used in computing diluted                
  net earnings per share       49,042       48,985       49,044       48,975    
                         


MAGIC SOFTWARE ENTERPRISES LTD.        
CONDENSED CONSOLIDATED BALANCE SHEETS        
U.S. Dollars in thousands        
         
  June 30,   December 31,  
    2020     2019  
  Unaudited      
ASSETS        
CURRENT ASSETS:        
  Cash and cash equivalents $ 79,023   $ 81,915  
  Short-term bank deposits   8,107     6,996  
  Marketable securities   2,265     6,600  
  Trade receivables, net   92,913     96,694  
  Other accounts receivable and prepaid expenses   11,448     12,845  
Total current assets   193,756     205,050  
         
LONG-TERM RECEIVABLES:        
  Severance pay fund   4,065     4,013  
  Deferred tax assets   2,601     2,188  
  Operating lease right-of-use assets   23,469     14,956  
  Other long-term receivables   2,603     3,594  
  Other long-term deposits   2,285     2,285  
Total long-term receivables   35,023     27,036  
         
  PROPERTY AND EQUIPMENT, NET   5,032     3,649  
  INTANGIBLE ASSETS AND GOODWILL, NET   171,142     168,871  
         
TOTAL ASSETS $ 404,953   $ 404,606  
         
LIABILITIES AND EQUITY        
         
CURRENT LIABILITIES:        
  Short-term debt $ 6,577   $ 7,079  
  Trade payables   11,035     10,990  
  Accrued expenses and other accounts payable   31,961     32,619  
  Current maturities of operating lease liabilities   3,103     3,833  
  Liabilities due to acquisition activities   4,687     3,638  
  Deferred revenues and customer advances   9,629     8,724  
Total current liabilities   66,992     66,883  
         
NON-CURRENT LIABILITIES:        
  Long-term debt   18,673     15,540  
  Deferred tax liability   12,881     11,069  
  Long-term operating lease liabilities   20,368     11,119  
  Long-term liabilities due to acquisition activities   7,181     8,613  
  Accrued severance pay   4,866     4,770  
Total non-current liabilities   63,969     51,111  
         
REDEEMABLE NON-CONTROLLING INTERESTS   12,419     21,915  
         
EQUITY:        
  Magic Software Enterprises equity   248,133     247,838  
  Non-controlling interests   13,440     16,859  
Total equity   261,573     264,697  
         
TOTAL LIABILITIES, REDEEMABLE NON-CONTROLLING INTERESTS
AND EQUITY
$ 404,953   $ 404,606  
         


         
MAGIC SOFTWARE ENTERPRISES LTD.        
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS      
U.S. Dollars in thousands        
         
  For the six months ended June 30,  
    2020       2019    
  Unaudited   Unaudited  
         
Cash flows from operating activities:        
         
Net income $ 13,901     $ 12,703    
Adjustments to reconcile net income to net cash provided        
  by operating activities:        
Depreciation and amortization   6,320       6,138    
Stock-based compensation   -       75    
Change in deferred taxes, net   (101 )     (392 )  
Amortization of marketable securities premium        
  and accretion of discount   44       64    
Net change in operating assets and liabilities:        
Trade receivables, net   7,423       7,470    
Other long-term and short-term accounts        
  receivable and prepaid expenses   290       1,446    
Trade payables   (815 )     (4,101 )  
Exchange rate of loans   (123 )     1,109    
Accrued expenses and other accounts payable   150       (2,241 )  
Deferred revenues   990       4,314    
Net cash provided by operating activities   28,079       26,585    
         
Cash flows from investing activities:        
         
Capitalized software development costs   (1,689 )     (2,252 )  
Purchase of property and equipment   (1,660 )     (670 )  
Cash paid in conjunction with acquisitions, net of acquired cash   (4,832 )     (8,183 )  
Proceeds from maturity and sale of marketable securities   4,309       2,450    
Proceeds from (Investment in) short-term bank deposits   (1,111 )     6,844    
Net cash used in investing activities   (4,983 )     (1,811 )  
         
Cash flows from financing activities:        
         
Proceeds from exercise of options by employees   229       (12 )  
Issuance of ordinary shares, net   -       (9 )  
Dividend paid   (3,918 )     (7,335 )  
Dividend paid to non-controlling interests   (5,176 )     (56 )  
Dividend paid to redeemable non-controlling interests   (923 )     (1,900 )  
Purchase of redeemable non-controlling interest   -       (209 )  
Purchase of non-controlling interest   (18,016 )     -    
Short-term and long-term loans received   4,905       878    
Repayment of short-term and long-term loans   (2,105 )     (6,594 )  
Net cash used in financing activities   (25,004 )     (15,237 )  
         
Effect of exchange rate changes on cash and cash equivalents   (984 )     685    
         
Increase (decrease) in cash and cash equivalents   (2,892 )     10,222    
Cash and cash equivalents at the beginning of the year   81,915       87,126    
Cash and cash equivalents at end of the period $ 79,023     $ 97,348    
         
         

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