Magic Reports Its Fifth Consecutive Year of Record-Breaking Revenue and Operating Results

2015-01-30

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Annual revenues for 2014 increased 13% year over year to a record-breaking result of $164.3 million; Non-GAAP operating income for the year increased 14% to a record-breaking result of $25.9 million

Or Yehuda, Israel, January 30, 2015Magic Software Enterprises Ltd. (NASDAQ and TASE: MGIC), a global provider of mobile and cloud-enabled application and business integration platforms, announced today its financial results for the fourth quarter and full year ended December 31, 2014.

Financial Highlights for the Fourth Quarter, 2014

  • Revenues for the fourth quarter increased 3% year over year to $42.5 million from $41.2 million in the corresponding quarter in 2013. Revenues for the quarter were negatively impacted by an approximately $1.5 million devaluation of foreign currencies versus the US Dollar (mainly the Euro and Japanese Yen) and the appreciation of the New Israeli Shekel versus the US Dollar.
  • In August 2009, a software company and one of its owners filed an arbitration proceeding against us and one of our subsidiaries, claiming an alleged breach of a non-disclosure agreement between the parties. The arbitrator determined that both we and our subsidiary breached the non-disclosure agreement. In January 2015 the arbitrator rendered his ruling and determined the damages that we (and one of our subsidiaries) should pay the plaintiffs. Therefore, our financial results of operations for the fourth quarter include a net impact of $1.6 million resulting from the arbitration. We are considering our options following this ruling.
  • Non-GAAP operating income increased 3% to $7.0 million, compared to $6.8 million in the same period last year. Operating income for the fourth quarter excluding the impact of the aforementioned arbitration award increased 3% to $5.6 million, compared to $5.4 million in the same period last year.
  • Non-GAAP net income decreased 6% to $5.6 million, compared to $6.0 million in the same period last year. Net income for the fourth quarter, excluding the aforementioned impact of the arbitration decreased 16% to $4.0 million, compared to $4.7 million in the same period last year. Net income for the quarter was also negatively impacted by approximately $0.7 million due to the devaluation of cash balances denominated mainly in Euros, Japanese Yen and New Israeli Shekels following the devaluation of foreign currencies against the US Dollar.  

 Financial Highlights for the Full Year Ended December 31, 2014

  • Revenues for the year ended December 31, 2014 reached $164.3 million, an increase of 13%, compared to $145.0 million in 2013.
  • Non-GAAP operating income for 2014 increased 14% to $25.9 million, compared to $22.7 million in 2013. Operating income for the year ended December 31, 2014, excluding the aforementioned impact of the arbitration increased 16% to $22.3 million compared to $19.1 million in the prior year. 
  • Non-GAAP net income for 2014 increased 4% to $20.3 million, compared to $19.5 million in 2013. Net income for the year ended December 31, 2014, excluding the aforementioned impact of the arbitration award increased 5% to $16.6 million, compared to $15.9 million in the prior year. Net income for 2014 was also negatively impacted by $1.6 million in financial expenses recorded as a result of unfavorable foreign currency exchange rates.
  • Total cash, cash equivalents and short-term investments as of December 31, 2014, amounted to $84.4 million.
  • Operating cash flow for the year ended December 31, 2014 totaled $12.4 million.

Results

  • For the fourth quarter ended December 31, 2014, total revenues were $42.5 million, with net income of $4.0 million, or $0.09 per fully diluted share excluding the aforementioned impact of the arbitration award. This compares with revenues of $41.2 million and net income of $4.7 million, or $0.13 per fully diluted share for the same period in 2013. Net income for the quarter was also negatively impacted by approximately $0.7 million due to the devaluation of cash balances denominated mainly in Euros, Japanese Yen and New Israeli Shekels following devaluation of foreign currencies against the US Dollar
  • For the fourth quarter of 2014, operating income was $5.6 million, excluding the aforementioned impact of the arbitration. This compares to operating income of $5.4 million for the same period in 2013.
  • For the year ended December 31, 2014, total revenues were $164.3 million, with net income of $16.6 million, or $0.38 per fully diluted share, excluding the aforementioned impact of the arbitration. This compares with revenues of $145.0 million and net income of $15.9 million, or $0.43 per fully diluted share, for the same period in 2013.
  • Operating income for the year ended December 31, 2014 was $22.3 million, excluding the aforementioned impact of the arbitration. This compares to operating income of $19.1 million for the same period in 2013.

Comments of Management

Guy Bernstein, Chief Executive Officer of Magic Software Enterprises, said, “I’m pleased with our strong growth performance during 2014 with annual revenues coming in at the top end of our revenue guidance. We experienced growth across all our revenue streams, including software and licenses, maintenance and professional services, enabling us to attain and keep operational margins in the range of 16%.”

“While I’m certainly pleased with these operating results, they could have been better had we not been hit by foreign currency devaluations. However, I’m even more excited by what’s ahead. I believe we are well-positioned to capitalize on opportunities to accelerate our growth both organically and through new business acquisitions that will enable us to help enterprises continue to leverage their business-critical legacy systems as they transition to enterprise mobility and cloud-based operations,” added Bernstein.

Non-GAAP Financial Measures

This release includes non-GAAP operating income, net income, basic and diluted earnings per share and other non-GAAP financial measures. These non-GAAP measures exclude the following items:

  • Amortization of purchased intangible assets;
  • In-process research and development capitalization and amortization;
  • Equity-based compensation expense;
  • Change in valuation of contingent consideration;
  • Litigation costs; and
  • The related tax effects of the above items.

Magic Software’s management believes that the presentation of non-GAAP measures provides useful information to investors and management regarding financial and business trends relating to the Company’s financial condition and results of operations as well as the net amount of cash generated by its business operations after taking into account capital spending required to maintain or expand the business.

These non-GAAP financial measures are not in accordance with, or an alternative for, generally accepted accounting principles and may be different from non-GAAP financial measures used by other companies. In addition, these non-GAAP financial measures are not based on any comprehensive set of accounting rules or principles. Magic Software believes that non-GAAP financial measures have limitations in that they do not reflect all of the amounts associated with Magic Software’s results of operations as determined in accordance with GAAP and that these measures should only be used to evaluate Magic Software’s results of operations in conjunction with the corresponding GAAP measures.

Refer to the Reconciliation of Selected Financial Metrics from GAAP to Non-GAAP tables below.

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.

Press Contact:

Stephanie Myara, PR Manager

Magic Software Enterprises

smyara@magicsoftware.com

Except for the historical information contained herein, the matters discussed in this news release include forward-looking statements that may involve a number of risks and uncertainties. Actual results may vary significantly based upon a number of factors including, but not limited to, risks in product and technology development, market acceptance of new products and continuing product conditions, both here and abroad, release and sales of new products by strategic resellers and customers, and other risk factors detailed in the Company's most recent annual report and other filings with the Securities and Exchange Commission. These forward-looking statements are made only as of the date hereof, and the Company undertakes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.

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.