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CORRECTION: Magic Software Reports First Quarter 2024 Financial Results

Magic Software Enterprises Ltd.
Magic Software Enterprises Ltd.

OR YEHUDA, Israel, May 16, 2024 (GLOBE NEWSWIRE) -- In a release issued under the same headline earlier today by Magic Software Enterprises Ltd. (NASDAQ and TASE: MGIC), please note that the company has updated the dividend payout date. The dividend payable date has been advanced to July 11, 2024, from July 13, 2024. The corrected release is as follows:

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 first quarter ended March 31, 2024.

Summary Results for the First Quarter 2024 (USD in millions, except per share data)

 

 

 

 

 

 

 

GAAP

 

 

Non-GAAP

 

 

Q1 2024

Q1 2023

% Change

 

Q1 2024

Q1 2023

% Change

Revenues

$

130.7

$

142.4

(8.2%)

 

$

130.7

$

142.4

(8.2%)

Gross profit

$

36.7

$

38.9

(5.6%)

 

$

38.3

$

40.1

(4.5%)

Gross margin

 

28.1%

 

27.3%

80 bps

 

 

29.3%

 

28.2%

110 bps

Operating income

$

14.4

$

15.3

(6.0%)

 

$

18.1

$

18.5

(1.7%)

Operating margin

 

11.0%

 

10.8%

20 bps

 

 

13.9%

 

13.0%

90 bps

Net income (*)

$

8.8

$

10.1

(13.0%)

 

$

11.3

$

12.6

(10.4%)

Diluted EPS

$

0.18

$

0.21

(14.3%)

 

$

0.23

$

0.26

(11.5%)

 

 

 

 

 

 

 

 

(*) Attributable to Magic Software’s shareholders.

 

Financial Highlights for the first Quarter Ended March 31, 2024

  • Revenues for the first quarter of 2024 decreased by 8.2% to $130.7 million, compared to $142.4 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 March 31, 2023), revenues for the first quarter of 2024 would have decreased by 6.4% to $133.3 million. As described in the pre-announcement of our third quarter results on November 8, 2023, in the third quarter of 2023, we experienced a substantial and unexpected decline in demand for our professional services from several of our important U.S.-based blue-chip customers which, without any advance notification, decided to immediately suspend significant parts of their active time-and-materials-based projects. This reduced demand had a negative impact on our first quarter revenues compared to the same period of the previous year of approximately $20.4 million. Compared to the fourth quarter of 2023, revenues for the first quarter increase by 4.1%.

  • Operating income for the first quarter of 2024 decreased by 6.0% to $14.4 million, compared to $15.3 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 March 31, 2023), operating income for the first quarter of 2024 would have decreased by 3.7% to $14.8 million.

  • Non-GAAP operating income for the first quarter of 2024 decreased by 1.7% to $18.1 million, compared to $18.5 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 March 31, 2023), non-GAAP operating income for the first quarter of 2024 would have reach $18.5 million, same as in the same quarter for the previous year.

  • Net income attributable to Magic Software’s shareholders for the first quarter of 2024 decreased by 13.0% to $8.8 million, or $0.18 per fully diluted share, compared to $10.1 million, or $0.21 per fully diluted share, in the same period of the previous year. The decrease in our net income attributable to Magic Software’s shareholders was primarily attributable to the decrease in our operating profit and increase in interest expenses resulting from the increase of bank interest rates and increase in overall financial debt.

  • Non-GAAP net income attributable to Magic Software’s shareholders for the first quarter of 2024 decreased by 10.4% to $11.3 million, or $0.23 per fully diluted share, compared to $12.6 million, or $0.26 per fully diluted share, in the same period of the previous year.

  • Cash flow from operating activities for the first quarter ended March 31, 2024, amounted to $27.7 million compared to $18.8 million in the same period last year.

  • As of March 31, 2024, Magic’s cash, cash equivalents and short and long-term bank deposits amounted to $125.9 million and total financial debt amounted to $78.4 million.

  • Magic is reiterating 2024 annual revenue guidance of between $540 million and $550 million.

ADVERTISEMENT

Declaration of Dividend for the Second 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 20.4 cents per share and in an aggregate amount of approximately $10.0 million, reflecting approximately 70% of its distributable profits for the second half of 2023.

  • The dividend is payable on July 11, 2024, to all of the Company’s shareholders of record at the close of trading on the NASDAQ Global Select Market on June 27, 2024.

  • 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: “Despite the slowdown we faced during the second half of 2023 resulting from the headwind facing by some of our customers in certain sectors in the U.S., we see that the vast majority of our customers continues to value our unique proposition and resume to engage us to an increasing degree as a preferred partner for innovative digital transformation initiatives. We eagerly anticipate the fruition of our ongoing efforts in cultivating cutting-edge capabilities that are poised to propel us toward sustained, long-term profitability, thereby delivering enduring value to our esteemed shareholders.”

Conference Call Details

Magic Software’s management will host a conference call on Thursday, May 16, 2024, at 10:00 am Eastern Daylight Time (17:00 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 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,” “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, 2023, which filed on May 13, 2024, 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

 

 

March 31,

 

 

2024

 

2023

 

 

Unaudited

Revenues

 

$

130,720

 

 

$

142,440

 

Cost of Revenues

 

 

94,021

 

 

 

103,555

 

Gross profit

 

 

36,699

 

 

 

38,885

 

Research and development, net

 

 

2,793

 

 

 

2,539

 

Selling, marketing and general and  administrative expenses

 

 

19,174

 

 

 

21,164

 

Increase (decrease) in valuation of contingent consideration related to acquisitions

 

306

 

 

 

(165

)

Total operating expenses

 

 

22,273

 

 

 

23,538

 

Operating income

 

 

14,426

 

 

 

15,347

 

Financial expenses, net

 

 

(1,758

)

 

 

(564

)

Increase (decrease) in valuation of consideration related to acquisitions

 

 

114

 

 

 

(135

)

Income before taxes on income

 

 

12,782

 

 

 

14,648

 

Taxes on income

 

 

2,729

 

 

 

2,813

 

Net income

 

$

10,053

 

 

$

11,835

 

Share of profit of companies accounted for at equity, net

 

 

(64

)

 

 

-

 

Net income attributable to non-controlling interests

 

 

(1,192

)

 

 

(1,727

)

Net income attributable to Magic's shareholders

 

$

8,797

 

 

$

10,108

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares used in

 

 

 

 

computing net earnings per share

 

 

 

 

 

 

 

 

 

Basic

 

 

49,099

 

 

 

49,093

 

 

 

 

 

 

Diluted

 

 

49,099

 

 

 

49,136

 

 

 

 

 

 

Basic and diluted earnings per share attributable

 

 

 

 

to Magic's shareholders

 

$

0.18

 

 

$

0.21

 

 

 

 

 

 


 

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,

 

2024

 

2023

 

Unaudited

 

 

 

 

GAAP gross profit

$

36,699

 

 

$

38,885

 

Amortization of capitalized software and acquired technology

 

1,107

 

 

 

975

 

Amortization of other intangible assets

 

503

 

 

 

245

 

Non-GAAP gross profit

$

38,309

 

 

$

40,105

 

 

 

 

 

 

 

 

 

GAAP operating income

$

14,426

 

 

$

15,347

 

Gross profit adjustments

 

1,610

 

 

 

1,220

 

Amortization of other intangible assets

 

1,514

 

 

 

2,064

 

Increase (decrease) in valuation of contingent

 

 

 

consideration related to acquisitions

 

306

 

 

 

(165

)

Capitalization of software development

 

(748

)

 

 

(711

)

Costs related to acquisitions

 

144

 

 

 

74

 

Cost of share-based payment

 

891

 

 

 

622

 

Non-GAAP operating income

$

18,143

 

 

$

18,451

 

 

 

 

 

 

 

 

 

GAAP net income attributable to Magic's shareholders

$

8,797

 

 

$

10,108

 

Operating income adjustments

 

3,717

 

 

 

3,104

 

Expenses attributed to non-controlling interests

 

 

 

and redeemable non-controlling interests

 

(452

)

 

 

(147

)

Increase (decrease) in valuation of consideration

 

 

 

related to acquisitions

 

114

 

 

 

(135

)

Deferred taxes on the above items

 

(899

)

 

 

(347

)

Non-GAAP net income attributable to Magic's shareholders

$

11,277

 

 

$

12,583

 

 

 

 

 

 

 

 

 

Non-GAAP basic and diluted net earnings per share

$

0.23

 

 

$

0.26

 

Weighted average number of shares used in computing basic

 

 

 

net earnings per share

 

49,099

 

 

 

49,093

 

 

 

 

 

Non-GAAP diluted net earnings per share

$

0.23

 

 

$

0.26

 

Weighted average number of shares used in computing diluted

 

 

 

net earnings per share

 

49,099

 

 

 

49,158

 

 

 

 

 


 

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

 

 

 

 

 

Three months ended

 

 

March 31,

 

 

2024

 

2023

 

 

Unaudited

 

Unaudited

 

 

 

 

 

 

 

 

 

Revenues

 

$

130,720

 

 

100

%

 

$

142,440

 

 

100

%

Gross profit

 

 

38,309

 

 

29.3

%

 

 

40,105

 

 

28.2

%

Operating income

 

 

18,143

 

 

13.9

%

 

 

18,451

 

 

13.0

%

Net income attributable to

 

 

 

 

 

 

 

 

Magic's shareholders

 

 

11,277

 

 

8.6

%

 

 

12,583

 

 

8.8

%

 

 

 

 

 

 

 

 

 

Basic and diluted earnings per share

 

$

0.23

 

 

 

 

$

0.26

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

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

 

 

 

 

 

March 31,

 

December 31,

 

2024

 

2023

 

Unaudited

 

 

 

 

 

 

ASSETS

 

 

 

CURRENT ASSETS:

 

 

 

Cash and cash equivalents

$

125,803

 

 

$

105,943

 

Short-term bank deposits

 

49

 

 

 

751

 

Trade receivables, net

 

126,329

 

 

 

131,098

 

Other accounts receivable and prepaid expenses

 

21,565

 

 

 

18,833

 

Total current assets

 

273,746

 

 

 

256,625

 

 

 

 

 

LONG-TERM ASSETS:

 

 

 

Deferred tax assets

 

10,784

 

 

 

6,729

 

Right-of-use assets

 

24,228

 

 

 

25,718

 

Other long-term receivables and Investments in companies accounted for at equity

 

7,731

 

 

 

8,623

 

Property and equipment, net

 

7,707

 

 

 

7,988

 

Intangible assets and goodwill, net

 

212,321

 

 

 

216,723

 

Total long term assets

 

262,771

 

 

 

265,781

 

 

 

 

 

TOTAL ASSETS

$

536,517

 

 

$

522,406

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

Short-term debt

$

36,763

 

 

$

28,941

 

Trade payables

 

27,126

 

 

 

28,415

 

Accrued expenses and other accounts payable

 

43,993

 

 

 

41,492

 

Current maturities of lease liabilities

 

5,975

 

 

 

4,406

 

Liability in respect of business combinations

 

7,082

 

 

 

6,656

 

Put options for non-controlling interests

 

18,831

 

 

 

18,252

 

Deferred revenues and customer advances

 

21,813

 

 

 

13,537

 

Total current liabilities

 

161,583

 

 

 

141,699

 

 

 

 

 

LONG TERM LIABILITIES:

 

 

 

Long-term debt

 

41,628

 

 

 

52,267

 

Deferred tax liability

 

14,579

 

 

 

11,610

 

Long-term lease liabilities

 

20,072

 

 

 

23,101

 

Long-term liability in respect of business combinations

 

1,076

 

 

 

1,049

 

Put options of non-controlling interests

 

-

 

 

 

620

 

Employee benefit liabilities

 

1,094

 

 

 

1,116

 

Total long term liabilities

 

78,449

 

 

 

89,763

 

 

 

 

 

 

 

 

 

EQUITY:

 

 

 

Magic Software Enterprises shareholders' equity

 

272,317

 

 

 

265,981

 

Non-controlling interests

 

24,168

 

 

 

24,963

 

Total equity

 

296,485

 

 

 

290,944

 

 

 

 

 

TOTAL LIABILITIES AND EQUITY

$

536,517

 

 

$

522,406

 

 

 

 

 


 

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

 

 

 

Three months ended March 31,

 

2024

 

2023

 

Unaudited

 

Unaudited

Cash flows from operating activities:

 

 

 

 

 

 

 

Net income

$

9,989

 

 

$

11,835

 

Adjustments to reconcile net income to net cash provided

 

 

 

by operating activities:

 

 

 

Depreciation and amortization

 

4,889

 

 

 

5,052

 

Cost of share-based payment

 

584

 

 

 

622

 

Change in deferred taxes, net

 

(754

)

 

 

1,351

 

Capital gain on sale of fixed assets

 

13

 

 

 

-

 

Effect of exchange rate on of cash and cash equivalents held

 

 

 

in currencies other than the functional currency

 

170

 

 

 

731

 

Changes in value of short-term and long-term loans from banks

 

 

 

and others and deposits, net

 

(819

)

 

 

76

 

Working capital adjustments:

 

 

 

Trade receivables

 

3,709

 

 

 

(5,773

)

Other current and long-term accounts receivable

 

(1,333

)

 

 

1,612

 

Trade payables

 

(983

)

 

 

1,354

 

Accrued expenses and  other accounts payable

 

3,704

 

 

 

(5,565

)

Deferred revenues

 

8,508

 

 

 

7,458

 

Net cash provided by operating activities

 

27,677

 

 

 

18,753

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Capitalized software development costs

 

(748

)

 

 

(711

)

Purchase of property and equipment

 

(280

)

 

 

(431

)

liabilities related to business combinations

 

-

 

 

 

(10,151

)

Payments for business acquisitions, net of cash acquired

 

(249

)

 

 

-

 

Proceeds from sale of property and equipment

 

15

 

 

 

-

 

Purchase of financial assets at fair value through profit or loss

 

(1,000

)

 

 

323

 

Investment in long-term deposits

 

296

 

 

 

(269

)

Proceeds from short-term bank deposits

 

701

 

 

 

-

 

Net cash used in investing activities

 

(1,265

)

 

 

(11,239

)

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Exercise of employees’ stock options

 

 

 

Dividend to Magic's shareholders

 

 

 

Dividend paid to non-controlling interests

 

(2,086

)

 

 

(1,526

)

Repayment of lease liabilities

 

(1,460

)

 

 

(1,380

)

Purchase of redeemable non-controlling interest

 

(314

)

 

 

-

 

Receipt of short-term and long-term loans from banks and others

 

5,006

 

 

 

23,749

 

Repayment of short-term and long-term loans

 

(6,574

)

 

 

(7,323

)

Net cash used in financing activities

 

(5,428

)

 

 

13,520

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

(1,124

)

 

 

(1,590

)

 

 

 

 

Increase (decrease) in cash and cash equivalents

 

19,860

 

 

 

19,444

 

Cash and cash equivalents at the beginning of the period

 

105,943

 

 

 

83,062

 

Cash and cash equivalents at end of the period

$

125,803

 

 

$

102,506