Magic Software Reports Second Quarter 2023 Financial Results

Revenues for the secondquarter of 2023 increased by approximately 0.4% to a record-breaking secondquarter 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 secondquarter 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)

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)

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