EX-10.1 2 v359560_ex10-1.htm EXHIBIT 10.1

Exhibit 10.1

PRESS RELEASE

Magic Continues Growth Streak with Record Q3 2013 Non-GAAP Operating Income of $6.0 Million, an Increase of 31% Year over Year; Revenues for Q3 2013 Grew 9% Year over Year to $35.6 Million

Non-GAAP operating income for the first nine months increased 17% to a record $15.9 million; Revenues for the first nine months increased 14% year over year to $103.8 million

Or Yehuda, Israel, November 6, 2013 – Magic 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 third quarter and first nine months of 2013.

Financial Highlights for the Third Quarter Ended September 30, 2013

Revenues for the third quarter increased 9% year over year to $35.6 million from $32.6 million.

Non-GAAP operating income for the third quarter increased 31% to $6.0 million, compared to $4.6 million in the same period last year; Operating income increased 21% to $5.0 million, compared to $4.1 million in the same period last year.

Non-GAAP net income for the third quarter increased 23% to $5.5 million, compared to $4.5 million in the same period last year; Net income increased 2% to $4.2 million (or $0.11 per fully diluted share) compared to $4.1 million (or $0.11 per fully diluted share) in the same period last year. The increase in net income was negatively impacted by tax expenses recorded with respect to utilization of deferred tax assets. In accordance with U.S. generally accepted accounting principles, the Company records deferred tax expenses on utilization of carry-forward tax losses.

Financial Highlights for the Nine-Month Period Ended September 30, 2013

Revenues for the first nine months of 2013 increased 14% to $103.8 million compared to $90.7 million in the same period last year.

Non-GAAP operating income for the first nine months of 2013 increased 17% to $15.9 million compared to $13.6 million in the same period last year; Operating income for the first nine months of 2013 increased 13% to $13.7 million compared to $12.2 million in the same period last year.

Non-GAAP net income for the first nine months of 2013 increased 3% to $13.5 million compared to $13.1 million in the same period last year; Net income for the first nine months of 2013 decreased 6% to $11.2 million (or $0.30 per fully diluted share), compared to $11.9 million (or $0.32 per fully diluted share) in the same period last year. The decrease in net income was mainly attributable to tax expenses recorded with respect to utilization of deferred tax assets.

Operating cash flow for the first nine months of 2013 totaled $13.1 million.

Total cash, cash equivalents and short-term investments as of September 30, 2013, amounted to $39.2 million, with no debt.

Comments of Management

Guy Bernstein, Chief Executive Officer of Magic Software Enterprises, said, “We are pleased to report another record quarter with strong year-over-year growth across all areas of our business and all regions. We are seeing great interest in the recent enhancements we have made to enrich our enterprise mobility, integration and services offerings. We are committed to maximizing our opportunities by continuing to strengthen our positions in these growth markets now and in the years to come.”

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

Unwinding of discount in connection with liabilities due to acquisitions

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.

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Press Contact:

Tania Amar, VP Global Marketing

Magic Software Enterprises

Tel: +972 (0)3 538 9300

tania@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.

MAGIC SOFTWARE ENTERPRISES LTD.

CONSOLIDATED STATEMENTS OF INCOME

U.S. dollars in thousands (except per share data)

	Three months ended						Nine months ended
	September 30,						September 30,
	2013			2012			2013			2012
	Unaudited						Unaudited
Revenues		35,596			32,578			103,766			90,650
Cost of Revenues		20,733			19,583			61,588			52,601
Gross profit		14,863			12,995			42,178			38,049
Research and development, net		979			892			2,781			2,134
Selling, marketing and general and
administrative expenses		8,914			7,981			25,719			23,765
Total operating costs and expenses		9,893			8,873			28,500			25,899
Operating income		4,970			4,122			13,678			12,150
Financial expenses (income), net		(74	)		15			(594	)		(183	)
Other income, net		-			69			-			136
Income before taxes on income		4,896			4,206			13,084			12,103
Taxes on income (benefit), net		357			(25	)		1,134			42
Net income		4,539			4,231			11,950			12,061
Change in redeemable non-controlling interests		(208	)		-			(401	)		-
Net income attributable to non-controlling interests		(142	)		(116	)		(359	)		(131	)
Net income attributable to Magic's shareholders		4,189			4,115			11,190			11,930

Net earnings per share
Basic		0.11			0.11			0.30			0.33
Diluted		0.11			0.11			0.30			0.32

Weighted average number of shares used in
computing net earnings per share

Basic		36,877			36,541			36,753			36,485
					.
Diluted		37,405			37,062			37,240			37,129

MAGIC SOFTWARE ENTERPRISES LTD.

RECONCILIATION BETWEEN GAAP AND NON-GAAP

STATEMENTS OF INCOME FOR COMPARATIVE PURPOSES

U.S. dollars in thousands (except per share data)

	Three months ended						Nine months ended
	September 30,						September 30,
	2013			2012			2013			2012
	Unaudited						Unaudited

GAAP operating income		4,970			4,122			13,678			12,150
Amortization of capitalized software and other intangible assets		1,982			1,418			5,510			4,311
Capitalization of software development		(1,066	)		(1,131	)		(3,566	)		(3,344	)
Stock-based compensation		70			143			255			440
Total adjustments to GAAP		986			430			2,199			1,407
Non-GAAP operating income		5,956			4,552			15,877			13,557


GAAP net income		4,189			4,115			11,190			11,930
Adjustments to GAAP as above		986			430			2,199			1,407
Unwinding of discount in connection with liabilities due to acquisitions		50			-			265			-
Amortization expenses attributed to redeemable non-controlling interests		(55	)		-			(115	)		-
Deferred taxes on the above items		334			(62	)		(3	)		(219	)
Total adjustments to GAAP		1,315			368			2,346			1,188
Non-GAAP net income		5,504			4,483			13,536			13,118


Non-GAAP basic net earnings per share		0.15			0.12			0.37			0.36
Weighted average number of shares used in
computing basic net earnings per share		36,877			36,541			36,753			36,485

Non-GAAP diluted net earnings per share		0.15			0.12			0.36			0.35
Weighted average number of shares used in
computing diluted net earnings per share		37,437			37,129			37,287			37,234

MAGIC SOFTWARE ENTERPRISES LTD.

CONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands

	September 30,		December 31,
	2013		2012
	Unaudited

ASSETS
CURRENT ASSETS:
Cash and cash equivalents		38,300		37,744
Available-for-sale marketable securities		861		890
Trade receivables, net		30,595		28,367
Other accounts receivable and prepaid expenses		6,258		6,696
Total current assets		76,014		73,697

LONG-TERM RECEIVABLES:
Severance pay fund		410		351
Other long-term receivables		3,381		2,287
Total long-term receivables		3,791		2,638

PROPERTY AND EQUIPMENT, NET		1,889		1,898
IDENTIFIABLE INTANGIBLE ASSETS AND
GOODWILL, NET		79,516		74,721

TOTAL ASSETS		161,210		152,954


LIABILITIES AND EQUITY

CURRENT LIABILITIES:
Trade payables		3,597		4,722
Accrued expenses and other accounts payable		17,526		17,188
Deferred tax liabilities		2,857		3,422
Deferred revenues		7,447		4,160
Total current liabilities		31,427		29,492

NON CURRENT LIABILITIES:
Long term liabilities		1,874		750
Liability due to acquisition activities		1,389		1,192
Accrued severance pay		1,271		1,245
Total non-current liabilities		4,534		3,187

Redeemable non- controlling interest		2,344		1,914

EQUITY:
Magic Shareholders' equity		121,971		117,786
Non-controlling interests		934		575
Total equity		122,905		118,361

TOTAL LIABILITIES AND EQUITY		161,210		152,954