OR YEHUDA, Israel, Feb. 28, 2018 /PRNewswire/ -- Magic Software Enterprises Ltd. (NASDAQ: MGIC) (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.

[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.

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.

 

 


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





 

Press Contact:
Debbie Sarig, PR & Content Manager
Magic Software Enterprises  
ir@magicsoftware.com

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SOURCE Magic Software Enterprises Ltd