Revenues for the second quarter of 2023 increased by approximately 0.4% to a record-breaking second quarter 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 second quarter 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)
| GAAP | Non-GAAP | ||||||||||||||||
| Q2 2023 | Q2 2022 | % Change | Q2 2023 | Q2 2022 | % Change | ||||||||||||
| Revenues | $ | 137.6 | $ | 137.0 | 0.4% | $ | 137.6 | $ | 137.0 | 0.4% | |||||||
| Gross Profit | $ | 40.3 | $ | 36.6 | 10.1% | $ | 41.6 | $ | 38.2 | 9.1% | |||||||
| Gross Margin | 29.3% | 26.7% | 260 bps | 30.3% | 27.9% | 240 bps | |||||||||||
| Operating Income | $ | 15.4 | $ | 15.0 | 3.2% | $ | 18.4 | $ | 17.8 | 3.7% | |||||||
| Operating Margin | 11.2% | 10.9% | 30 bps | 13.4% | 13.0% | 40 bps | |||||||||||
| Net Income (*) | $ | 11.3 | $ | 9.6 | 18.2% | $ | 13.5 | $ | 11.7 | 15.6% | |||||||
| Diluted EPS | $ | 0.23 | $ | 0.19 | 21.1% | $ | 0.28 | $ | 0.24 | 16.7% | |||||||
| (*) Attributable to Magic Software’s shareholders. | |||||||||||||||||
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)
| GAAP | Non-GAAP | ||||||||||||||||
| H1 2023 | H1 2022 | % Change | H1 2023 | H1 2022 | % Change | ||||||||||||
| Revenues | $ | 280.0 | $ | 275.7 | 1.6% | $ | 280.0 | $ | 275.7 | 1.6% | |||||||
| Gross Profit | $ | 79.2 | $ | 74.2 | 6.8% | $ | 81.8 | $ | 77.1 | 6.0% | |||||||
| Gross Margin | 28.3% | 26.9% | 140 bps | 29.2% | 28.0% | 120 bps | |||||||||||
| Operating Income | $ | 30.8 | $ | 31.1 | -1.0 | $ | 36.9 | $ | 36.9 | - | |||||||
| Operating Margin | 11.0% | 11.3% | (30) bps | 13.2% | 13.4% | (20) bps | |||||||||||
| Net Income (*) | $ | 21.4 | $ | 19.3 | 11.1% | $ | 26.4 | $ | 24.7 | 6.8% | |||||||
| Diluted EPS | $ | 0.44 | $ | 0.39 | 12.8% | $ | 0.54 | $ | 0.50 | 8.0% | |||||||
| (*) Attributable to Magic Software’s shareholders. | |||||||||||||||||
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 202
3In 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
[email protected]
U.S. Dollars in thousands (except per share data) Three months ended Six months ended June 30, June 30, 2023 2022 2023 2022 Unaudited Unaudited GAAP gross profit $ 40,305 $ 36,593 $ 79,190 $ 74,171 Amortization of capitalized software and acquired technology 1,096 1,118 2,071 2,256 Amortization of other intangible assets 244 464 489 666 Non-GAAP gross profit $ 41,645 $ 38,175 $ 81,750 $ 77,093 GAAP operating income $ 15,449 $ 14,973 $ 30,796 $ 31,097 Gross profit adjustments 1,340 1,582 2,560 2,922 Amortization of other intangible assets 1,666 2,280 3,730 4,382 Decrease in valuation of contingent consideration related to acquisitions - (423) (165) (106)Capitalization of software development (723) (734) (1,434) (1,605)Costs related to acquisitions 107 49 181 59 Stock-based compensation 609 70 1,231 140 Non-GAAP operating income $ 18,448 $ 17,797 $ 36,899 $ 36,889 GAAP net income attributable to Magic's shareholders $ 11,294 $ 9,552 $ 21,402 $ 19,267 Operating income adjustments 2,999 2,824 6,103 5,792 Expenses attributed to non-controlling interests and redeemable non-controlling interests (377) (168) (524) (320)Changes in unsettled fair value of contingent consideration related to acquisitions 68 (122) 203 722 Deferred taxes on the above items (444) (372) (791) (743)Non-GAAP net income attributable to Magic's shareholders$ 13,540 $ 11,714 $ 26,393 $ 24,718 Non-GAAP basic and diluted net earnings per share $0.28 $0.24 $0.54 $0.50 Weighted average number of shares used in computing basic net earnings per share 49,093 49,093 49,093 49,085 Weighted average number of shares used in computing diluted net earnings per share 49,137 49,138 49,137 49,146
2022
Unaudited ASSETS CURRENT ASSETS: Cash and cash equivalents$104,619 $83,062 Short-term bank deposits 1,405 3,904 Trade receivables, net 134,252 148,480 Other accounts receivable and prepaid expenses 18,769 13,652 Total current assets 259,045 249,098 LONG-TERM ASSETS: Deferred tax assets 5,111 3,618 Right-of-use assets 24,690 27,536 Other long-term receivables 6,409 5,795 Property and equipment, net 7,854 8,338 Intangible assets and goodwill, net 226,648 210,756 Total long-term assets 270,712 256,043 TOTAL ASSETS$529,757 $505,141 LIABILITIES AND EQUITY CURRENT LIABILITIES: Short-term debt$30,933 $20,755 Trade payables 25,740 27,598 Accrued expenses and other accounts payable 44,412 46,842 Current maturities of lease liabilities 4,311 4,591 Liability in respect of business combinations 6,685 19,287 Put options of non-controlling interests 21,700 27,172 Deferred revenues and customer advances 14,145 9,808 Total current liabilities 147,926 156,053 LONG-TERM LIABILITIES: Long-term debt 58,662 30,412 Deferred tax liability 10,658 10,686 Long-term lease liabilities 21,799 24,282 Long-term liability in respect of business combinations 991 5,376 Put options of non-controlling interests 1,066 1,120 Accrued severance pay, net 1,045 901 Total long-term liabilities 94,221 72,777 EQUITY: Magic Software Enterprises shareholders' equity 262,427 262,927 Non-controlling interests 25,183 13,384 Total equity 287,610 276,311 TOTAL LIABILITIES AND EQUITY$529,757 $505,141
