OR YEHUDA, Israel, March 13, 2024 (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 fourth quarter and full year ended December 31, 2023.

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

 GAAP  Non-GAAP 
 Q4 2023Q4 2022% Change Q4 2023Q4 2022% Change
Revenues$125.5 $147.1 (14.7%) $125.5 $147.1 (14.7%)
Gross profit$37.0 $41.8 (11.6%) $38.6 $43.2 (10.5%)
Gross margin 29.4% 28.4%100 bps  30.8% 29.3%150 bps
Operating income$13.0 $14.2 (8.4%) $17.7 $18.7 (5.7%)
Operating margin 10.3% 9.6%70 bps  14.1% 12.7%140 bps
Net income (*)$8.5 $9.6 (11.2%) $11.6 $13.4 (13.1%)
Diluted EPS$0.17 $0.19 (10.5%) $0.24 $0.27 (11.1%)

(*) Attributable to Magic Software’s shareholders.

Financial Highlights for the Fourth Quarter Ended December 31, 2023
  
●Revenues for the fourth quarter of 2023 decreased by 14.7% to $125.5 million, compared to $147.1 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 December 31, 2022), revenues for the fourth quarter of 2023 would have decreased by 11.2% to $130.6 million. As described in the pre-announcement of our third quarter results on November 8, 2023, as of 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 resulting in a decrease of close to approximately 600 of our U.S. specialists compared to the respective quarter. This reduced demand had a negative impact on our third and fourth quarter revenues of approximately $16.0 million and $24.8 million, respectively compared to the same periods last year.
  
●Operating income for the fourth quarter of 2023 decreased by 8.4% to $13.0 million, compared to $14.2 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 December 31, 2022), operating income for the fourth quarter of 2023 would have decreased by 4.7% to $13.5 million.
  
●Non-GAAP operating income for the fourth quarter of 2023 decreased by 5.8% to $17.7 million, compared to $18.7 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 December 31, 2022), non-GAAP operating income for the fourth quarter of 2023 would have decreased by 2.8% to $18.2 million.
  
●Net income attributable to Magic Software’s shareholders for the fourth quarter of 2023 decreased by 11.2% to $8.5 million, or $0.17 per fully diluted share, compared to $9.6 million, or $0.19 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 fourth quarter of 2023 decreased by 13.1% to $11.6 million, or $0.24 per fully diluted share, compared to $13.4 million, or $0.27 per fully diluted share, in the same period of the previous year.


Summary Results for the Year Ended December 31, 2023 (USD in millions, except per share data)
      
 GAAP  Non-GAAP 
 12M 202312M 2022 % Change 12M 202312M 2022 % Change
Revenues$535.1 $566.8 (5.6%) $535.1 $566.8 (5.6%)
Gross Profit$153.0 $155.4 (1.5%) $158.4 $160.8 (1.4%)
Gross Margin 28.6% 27.4%120 bps  29.6% 28.4%120 bps
Operating Income$57.1 $61.8 (7.5%) $71.8 $74.5 (3.7%)
Operating Margin 10.7% 10.9%(20) bps  13.4% 13.1%30 bps
Net Income (*)$37.0 $40.5 (8.5%) $48.4 $51.7 (6.5%)
Diluted EPS$0.75 $0.82 (8.5%) $0.99 $1.05 (5.7%)

(*) Attributable to Magic Software’s shareholders.

Financial Highlights for the Year Ended December 31, 2023

●Revenues for the year decreased by 5.6% to $535.1 million compared to $566.8 million last year. On a constant currency basis (calculated based on the average currency exchange rates during the twelve months period ended December 31, 2022), revenues for the year would have decreased by 1.6% to $557.9 million. As described in the pre-announcement of our third quarter results on November 8, 2023, as of the third quarter of 2023, as of 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 resulting in a decrease of close to 600 of our U.S. specialists compared to the respective period. This reduced demand had a negative impact on 2023 revenues of approximately $40.8 million compared to the same period last year. 
   
●
Operating income for the year decreased by 7.5% to $57.1 million compared to $61.8 million last year. On a constant currency basis (calculated based on the average currency exchange rates during the twelve months period ended December 31, 2022), operating income for the year would have decreased by 3.1% to $59.9 million. Operating income for the year ended December 31, 2023, included $3.8 million recorded with respect to cost of share-based payment to employees compared to $2.1 million recorded last year. 
   
●Non-GAAP operating income for the year decreased by 3.7% to $71.8 million compared to $74.5 million last year. On a constant currency basis (calculated based on the average currency exchange rates during the twelve months period ended December 31, 2022), non-GAAP operating income for year would have reached $74.5 million, same as last year. 
   
●Net income attributable to Magic Software’s shareholders for the year decreased by 8.5% to $37.0 million, or $0.75 per fully diluted share, compared to $40.5 million, or $0.82 per fully diluted share, last 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 year decreased by 6.5% to $48.4 million, or $0.99 per fully diluted share, compared to $51.8 million, or $1.05 per fully diluted share, last year. 
   
●Cash flow from operating activities for the year ended December 31, 2023, amounted to $77.9 million compared to $56.6 million last year. Cash flow from operating activities excluding the impact of payments of deferred and contingent consideration related to acquisitions amounted to $78.0 and $60.5 million for the years ended December 31, 2023, and 2022, respectively. 
   
●As of December 31, 2023, Magic’s cash, cash equivalents and short and long-term bank deposits amounted to $107.1 million and total financial debt amounted to $81.2 million. 
   
●Magic is introducing 2024 annual revenue guidance of between $540 million and $550 million (based on current currency exchange rates). Measured against Magic Software’s annualized 2023 fourth quarter revenue on a go-forward basis, the 2024 annual revenue guidance reflects an annual growth of 7.5% to 9.5%. 
   

Guy Bernstein, Chief Executive Officer of Magic Software, said: “Despite the slowdown we faced during the second half of the year resulting from the headwind facing by some of our customers in certain sectors in the U.S., we remain positive that the vast majority of our customers will continue to value our unique proposition and resume to engage us to an increasing degree as a preferred partner for innovative digital transformation initiatives. Fueled by a well-diversified investment portfolio, we persistently pursue both organic and inorganic avenues of expansion across our service lines. Embracing innovation as our guiding principle, 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. We have a well-established track record of growth, profitability, and high cash generation. Across the globe, our dedicated team at Magic is resolutely focused on executing our strategic vision to not only restore but surpass our previous heights, thereby ensuring sustained growth and the continual enhancement of shareholder value.”

Conference Call Details

Magic Software’s management will host a conference call on Wednesday, March 13, 2024, at 11:00 am Eastern Daylight Time (5:00 am Pacific 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, 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  Year ended
 December 31, December 31,
  2023   2022   2023   2022 
 Unaudited Unaudited
Revenues$125,545  $147,146  $535,052  $566,792 
Cost of Revenues 88,585   105,325   382,065   411,437 
Gross profit  36,960   41,821   152,987   155,355 
Research and development, net 2,703   2,714   10,328   10,090 
Selling, marketing and general and administrative expenses 19,449   23,684   81,513   82,330 
Cost of share-based payment 1,967   1,869   3,798   2,079 
Increase (decrease) in valuation of contingent consideration related to acquisitions (142)  (623)  240   (906)
Total operating expenses 23,977   27,644   95,879   93,593 
Operating income  12,983   14,177   57,108   61,762 
Financial expenses, net (1,865)  (1,396)  (4,326)  (3,601)
Decrease (increase) in valuation of consideration related to acquisitions (34)  89   (290)  (744)
Income before taxes on income 11,084   12,870   52,492   57,417 
Taxes on income 1,724   1,865   9,934   11,138 
Net income$ 9,360  $ 11,005  $ 42,558  $ 46,279 
Share of losst of a company accounted for at equity, net (56)  -   (56)  - 
Net income attributable to non-controlling interests (821)  (1,447)  (5,471)  (5,809)
Net income attributable to Magic's shareholders $ 8,483  $ 9,558  $ 37,031  $ 40,470 
        
Weighted average number of shares used in       
     computing net earnings per share       
        
        Basic 49,099   49,096   49,096   49,089 
        
        Diluted 49,099   49,115   49,098   49,131 
        
Basic and diluted earnings per share attributable       
   to Magic's shareholders$0.17  $0.19  $0.75  $0.82 
        



MAGIC SOFTWARE ENTERPRISES LTD.       
RECONCILIATION OF GAAP AND NON-GAAP RESULTS       
U.S. Dollars in thousands (except per share data)       
          
   Three months ended  Year ended
   December 31, December 31,
    2023   2022   2023   2022 
   Unaudited Unaudited
          
GAAP gross profit $ 36,960  $ 41,821  $ 152,987  $ 155,355 
Amortization of capitalized software and acquired technology 1,222   1,124   4,288   4,431 
Amortization of other intangible assets 447   229   1,173   974 
Non-GAAP gross profit$ 38,629  $ 43,174  $ 158,448  $ 160,760 
          
          
GAAP operating income$ 12,983  $ 14,177  $ 57,108  $ 61,762 
Gross profit adjustments 1,669   1,353   5,461   5,405 
Amortization of other intangible assets 1,888   1,731   7,988   7,889 
Increase (decrease) in valuation of contingent       
   consideration related to acquisitions (142)  (623)  240   (906)
Capitalization of software development (842)  (730)  (3,183)  (3,059)
Costs related to acquisitions 152   959   372   1,335 
Cost of share-based payment 1,967   1,869   3,798   2,079 
Non-GAAP operating income$ 17,675  $ 18,736  $ 71,784  $ 74,505 
          
          
GAAP net income attributable to Magic's shareholders$ 8,483  $ 9,559  $ 37,031  $ 40,470 
Operating income adjustments 4,692   4,559   14,676   12,743 
Expenses attributed to non-controlling interests       
  and redeemable non-controlling interests (709)  (197)  (1,713)  (641)
Increase in valuation of consideration       
   related to acquisitions 34   (90)  290   744 
Deferred taxes on the above items (899)  (477)  (1,879)  (1,570)
Non-GAAP net income attributable to Magic's shareholders$ 11,601  $ 13,354  $ 48,405  $ 51,746 
          
          
Non-GAAP basic and diluted net earnings per share$0.24  $0.27  $0.99  $1.05 
          
Weighted average number of shares used in computing basic       
    net earnings per share 49,099   49,093   49,096   49,089 
          
Weighted average number of shares used in computing diluted       
    net earnings per share 49,099   49,138   49,098   49,150 


                
Summary of Non-GAAP Financial Information               
U.S. Dollars in thousands (except per share data)               
                
                
 Three months ended  Year ended
 December 31, December 31,
  2023   2022   2023   2022 
 Unaudited Unaudited Unaudited Unaudited
                
Revenues$125,545 100% $147,146 100% $535,052 100% $566,792 100%
Gross profit 38,629 30.8%  43,174 29.3%  158,448 29.6%  160,760 28.4%
Operating income 17,675 14.1%  18,736 12.7%  71,784 13.4%  74,505 13.1%
Net income attributable to               
   Magic's shareholders 11,601 9.2%  13,354 9.1%  48,405 9.0%  51,746 9.1%
                
Basic and diluted earnings per share$0.24   $0.27   $0.99   $1.05  
                


MAGIC SOFTWARE ENTERPRISES LTD.   
CONDENSED CONSOLIDATED BALANCE SHEETS  
U.S. Dollars in thousands   
 December 31, December 31,
  2023  2022
 Unaudited Unaudited
    
ASSETS   
CURRENT ASSETS:   
    Cash and cash equivalents$106,354 $83,062
    Short-term bank deposits 751  3,904
    Trade receivables, net 131,409  148,480
    Other accounts receivable and prepaid expenses 18,813  13,652
Total current assets 257,327  249,098
    
LONG-TERM ASSETS:   
    Deferred tax assets 8,432  3,618
    Right-of-use assets 25,718  27,536
    Other long-term receivables and Investments in companies accounted for at equity 8,232  5,795
    Property and equipment, net 7,988  8,338
    Intangible assets and goodwill, net 216,723  210,756
Total long term assets 267,093  256,043
    
TOTAL ASSETS$524,420 $505,141
    
LIABILITIES AND EQUITY   
    
CURRENT LIABILITIES:   
     Short-term debt$28,914 $20,755
     Trade payables 28,415  27,598
     Accrued expenses and other accounts payable 41,492  46,842
     Current maturities of lease liabilities 4,406  4,591
     Liability in respect of business combinations 6,656  19,287
     Put options of non-controlling interests 18,252  27,172
     Deferred revenues and customer advances 13,848  9,808
Total current liabilities 141,983  156,053
    
LONG TERM LIABILITIES:   
     Long-term debt 52,294  30,412
     Deferred tax liability 13,313  10,686
     Long-term lease liabilities 23,101  24,282
     Long-term liability in respect of business combinations 1,049  5,376
     Put options of non-controlling interests 620  1,120
     Accrued severance pay, net 1,116  901
Total long term liabilities 91,493  72,777
    
    
EQUITY:   
   Magic Software Enterprises shareholders' equity 265,981  262,927
   Non-controlling interests 24,963  13,384
Total equity 290,944  276,311
    
TOTAL LIABILITIES AND EQUITY$524,420 $505,141
    


MAGIC SOFTWARE ENTERPRISES LTD.   
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS   
U.S. Dollars in thousands   
    
 Year ended December 31,
  2023   2022 
 Unaudited Unaudited
Cash flows from operating activities:   
    
Net income$ 42,558  $ 46,279 
Adjustments to reconcile net income to net cash provided   
  by operating activities:   
Depreciation and amortization 19,774   19,795 
Cost of share-based payment 3,798   2,079 
Change in deferred taxes, net (3,238)  (3,904)
Payments of deferred and contingent consideration related to acquisitions (43)  (3,919)
Capital gain on sale of fixed assets 19   - 
Amortization of premium and accrued interest on debt instruments   
   at fair value through other comprehensive income (114)  76 
Effect of exchange rate on of cash and cash equivalents held   
   in currencies other than the functional currency -   3,747 
Changes in value of short-term and long-term loans from banks   
   and others and deposits, net 1,533   (1,686)
Working capital adjustments:   
Trade receivables 18,119   (2,569)
Other current and long-term accounts receivable (2,262)  (1,934)
Trade payables 858   139 
Accrued expenses and other accounts payable (7,147)  (975)
Deferred revenues 4,085   (513)
Net cash provided by operating activities  77,940   56,615 
    
Cash flows from investing activities:   
    
Capitalized software development costs (3,183)  (3,059)
Purchase of property and equipment (1,595)  (4,381)
Cash paid in conjunction with deferred payments and contingent   
   liabilities related to business combinations (14,244)  (4,870)
Payments for business acquisitions, net of cash acquired (17,892)  (21,670)
Loan extended to related party (1,341)  (2,250)
Proceeds from sale of property and equipment 31   - 
Purchase of financial assets at fair value through profit or loss (1,243)  - 
Redemption of marketable securities -   309 
Investment in long-term deposits (139)  - 
Acquisition of a company accounted for at equity (498)  - 
Purchase of intangible asset -   (219)
Investment in short-term bank deposits (233)  - 
Proceeds from short-term bank deposits 4,482   1,682 
Net cash used in investing activities  (35,855)  (34,458)
    
Cash flows from financing activities:   
    
Exercise of employees’ stock options -   1 
Dividend to Magic's shareholders (30,798)  (24,841)
Dividend paid to non-controlling interests (4,638)  (4,170)
Repayment of lease liabilities (5,690)  (4,792)
Purchase of redeemable non-controlling interest (5,243)  (854)
Receipt of short-term and long-term loans from banks and others 49,465   30,703 
Repayment of short-term and long-term loans (20,994)  (14,323)
Net cash used in financing activities  (17,898)  (18,276)
    
Effect of exchange rate changes on cash and cash equivalents (895)  (8,909)
    
Increase (decrease) in cash and cash equivalents 23,292   (5,028)
Cash and cash equivalents at the beginning of the period 83,062   88,090 
Cash and cash equivalents at end of the period$ 106,354  $ 83,062 
    

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Source: Magic Software Enterprises Ltd.

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