Magic Delivers Record-Breaking Revenues of $66 Million for the Third Quarter of 2017 with 21% Year Over Year Growth

OR YEHUDA, Israel, Nov. 14, 2017 /PRNewswire/ -- Magic Software Enterprises Ltd. (NASDAQ and TASE: MGIC), a global provider of end-to-end integration and application development solutions and IT consulting services, announced today its financial results for the third quarter and first nine months of 2017.

Financial Highlights for the Third Quarter Ended September 30, 2017

    --  Revenues for the third quarter increased 21% to $65.7 million compared
        to $54.5 million in the same period last year.
    --  Operating income for the third quarter increased 19% to $7.1 million
        compared to $6.0 million in the same period last year. Non-GAAP
        operating income for the third quarter increased 17% to $9.1 million
        compared to $7.7 million in the same period last year.
    --  Net income attributable to Magic's shareholders for the third quarter
        decreased 5% to $3.8 million, or $0.09 per fully diluted share, compared
        to $4.0 million, or $0.09 per fully diluted share in the same period
        last year. Non-GAAP net income attributable to Magic's shareholders for
        the third quarter decreased 2% to $5.2 million, or $0.12 per fully
        diluted share, compared to $5.3 million, or $0.12 per fully diluted
        share, in the same period last year.

Financial Highlights for the Nine-Month Period Ended September 30, 2017

    --  Revenues for the first nine months of 2017 increased 31% to $191.9
        million compared to $146.5 million in the same period last year.
    --  Operating income for the first nine months increased 19% to $19.8
        million compared to $16.5 million in the same period last year. Non-GAAP
        operating income for the first nine months of 2017 increased 26% to
        $26.4 million compared to $20.9 million in the same period last year.
    --  Net income attributable to Magic's shareholders for the first nine
        months of 2017 decreased 1% to $11.6 million, or $0.26 per fully diluted
        share, compared to $11.8 million, or $0.27 per fully diluted share in
        the same period last year. Non-GAAP net income attributable to Magic's
        shareholders for the first nine months of 2017 increased 9% to $16.7
        million, or $0.38 per fully diluted share, compared to $15.3 million, or
        $0.34 per fully diluted share, in the same period last year.
    --  Cash flow from operating activities for the first nine months of 2017
        amounted to $17.8 million.
    --  As of September 30, 2017, our net cash, cash equivalents, short-term
        bank deposits and available-for-sale marketable securities, offset by
        financial liabilities, amounted to $46.5 million.
    --  Due to better visibility, the Company is narrowing the expected range of
        its revenue guidance for 2017. Full year 2017 revenue is expected to be
        in the range of $250 million to $255 million, up from prior guidance of
        $245 million to $255 million, reflecting a revised annual growth rate of
        24%-26%.

Guy Bernstein, Chief Executive Officer of Magic Software Enterprises, said: "We are pleased to report another quarter with solid year-over-year growth and profitability powered by strong demand across our entire portfolio."

"As we continue to invest in our products and services to enable customers to benefit from the latest technologies, we are confident that our ever-evolving portfolio, now including our new Magic xpc iPaaS platform, provides both the solutions and services needed by enterprises to succeed in today's digital marketplace. As we see our growth trend successfully moving forward, we remain excited about our market opportunity."

Conference Call Details

Magic's management will host a conference call on Tuesday, November 14, at 10:00 am Eastern Standard Time (7:00 am Pacific Standard Time, 17:00 Israel Standard Time) to review and discuss Magic's results.

To participate, please call one of the following teleconferencing numbers. Please begin placing your calls at least 10 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: +1-888-281-1167

UK: 0-800-917-9141

ISRAEL: 03-918-0644

ALL OTHERS: +972-3-918-0644

For those unable to join the live call, a replay of the call will be available for at least three months, under the Investor Relations section of Magic'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 attributed to Magic's shareholders and Non-GAAP basic and diluted earnings per share.

Magic 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's financial condition and results of operations. Magic'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 in connection with GAAP results. Magic 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;
    --  Equity-based compensation expenses;
    --  The related tax, non-controlling interests and redeemable
        non-controlling interests effects of the above items;
    --  Increase in valuation of contingent consideration related to
        acquisitions;
    --  Increase in value of put options of redeemable non-controlling
        interests.

Reconciliation tables 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 mobile and cloud-enabled application and business integration platforms.

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," "expects," "believes" 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 on the basis of 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, 2016 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.


    MAGIC SOFTWARE ENTERPRISES
     LTD. AND ITS SUBSIDIARIES

    CONDENSED CONSOLIDATED
     STATEMENTS OF INCOME

    U.S. Dollars in thousands
     (except per share
     amounts)


                                    Three months ended      Nine months ended

                                      September 30,           September 30,
                                      -------------           -------------

                                                     2017                     2016      2017       2016
                                                     ----                     ----      ----       ----

                                        Unaudited               Unaudited
                                        ---------               ---------

    Revenues                                      $65,661                  $54,475  $191,901   $146,505

    Cost of Revenues                               44,327                   35,726   130,106     96,104
                                                   ------                   ------   -------     ------

    Gross profit                                   21,334                   18,749    61,795     50,401
                                                   ------                   ------    ------     ------

    Research and development,
     net                                            1,669                    1,571     5,192      4,046

    Selling, marketing and
     general and

        administrative expenses                    12,569                   11,213    36,828     29,806

    Total operating costs and
     expenses                                      14,238                   12,784    42,020     33,852
                                                   ------                   ------    ------     ------

    Operating income                                7,096                    5,965    19,775     16,549
                                                    -----                    -----    ------     ------

    Financial income
     (expenses), net                                (343)                   (136)  (1,165)       101

    Income before taxes on
     income                                         6,753                    5,829    18,610     16,650

    Taxes on income                                 2,133                    1,044     4,967      3,300
                                                    -----                    -----     -----      -----

    Net income                                     $4,620                   $4,785   $13,643    $13,350

    Net income attributable to
     redeemable non-
     controlling interests                          (772)                   (706)  (1,644)   (1,343)

    Net income attributable to
     non-controlling
     interests                                       (49)                    (74)    (353)     (226)

    Net income attributable to
     Magic's shareholders                          $3,799                   $4,005   $11,646    $11,781


    Net earnings per share

    Basic                                           $0.09                    $0.09     $0.26      $0.27

    Diluted                                         $0.09                    $0.09     $0.26      $0.27


    Weighted average number of
     shares used in

         computing net earnings per
          share


            Basic                                  44,450                   44,350    44,423     44,344
                                                   ======                   ======    ======     ======

                                                          .

            Diluted                                44,609                   44,530    44,587     44,511
                                                   ------                   ------    ------     ------


     Summary of Non-GAAP Financial Information
     -----------------------------------------

     U.S. Dollars in thousands (except per share amounts)


                                                              Three months ended                 Nine months ended

                                                                September 30,                      September 30,
                                                                -------------                     -------------

                                                                        2017                2016                   2017              2016
                                                                        ----                ----                   ----              ----

                                                           Unaudited              Unaudited         Unaudited            Unaudited
                                                          ---------              ---------         ---------            ---------


     Revenues                                                        $65,661                100%               $54,475              100%  $191,901  100% $146,505  100%

     Gross profit                                                     22,794               34.7%                20,099             36.9%    66,429 34.6%   54,257 37.0%

     Operating income                                                  9,069               13.8%                 7,735             14.2%    26,428 13.8%   20,941 14.3%

     Net income attributable to

        Magic's shareholders                                           5,227                8.0%                 5,332              9.8%    16,705  8.7%   15,337 10.5%


     Basic earnings per share                                          $0.12                                     $0.12                       $0.38          $0.35

     Diluted earnings per share                                        $0.12                                     $0.12                       $0.38          $0.34


    MAGIC SOFTWARE ENTERPRISES LTD. AND
     ITS SUBSIDIARIES

    RECONCILIATION OF GAAP AND NON-GAAP
     RESULTS

    U.S. Dollars in thousands (except per
     share amounts)



                                          Three months ended    Nine months ended

                                            September 30,         September 30,
                                            -------------         -------------

                                                           2017                   2016          2017          2016
                                                           ----                   ----          ----          ----

                                              Unaudited             Unaudited
                                              ---------             ---------


    GAAP gross profit                                 $21,334                $18,749       $61,795       $50,401

    Amortization of capitalized software
     and acquired technology                          1,307                  1,169         4,142         3,277

    Amortization of other
     intangible assets                                   152                    178           486           567

    Stock-based compensation                               1                      3             6            12

    Non-GAAP gross profit                            $22,794                $20,099       $66,429       $54,257
                                                     =======                =======       =======       =======



    GAAP operating income                             $7,096                 $5,965       $19,775       $16,549

    Gross profit adjustments                           1,460                  1,350         4,634         3,856

    Amortization of other
     intangible assets                                 1,698                  1,570         4,876         3,795

    Increase (decrease) in valuation of
     contingent consideration related to
     acquisitions                                     (380)                     -           64             -

    Capitalization of software
     development                                       (813)               (1,169)      (2,953)      (3,377)

    Stock-based compensation                               8                     19            32           118

    Non-GAAP operating income                         $9,069                 $7,735       $26,428       $20,941
                                                      ======                 ======       =======       =======



    GAAP net income attributable to
     Magic's shareholders                            $3,799                 $4,005       $11,646       $11,781

    Operating income adjustments                       1,973                  1,770         6,653         4,392

    Amortization expenses attributed to
     redeemable non-controlling
     interests                                        (627)                 (325)      (1,392)        (583)

    Deferred taxes on the above
     items                                                82                  (118)        (202)        (253)
                                                         ---                   ----          ----          ----

    Non-GAAP net income attributable to
     Magic's shareholders                            $5,227                 $5,332       $16,705       $15,337
                                                     ======                 ======       =======       =======



    Non-GAAP basic net earnings
     per share                                         $0.12                  $0.12         $0.38         $0.35
                                                       =====                  =====         =====         =====

    Weighted average number of
     shares used in

       computing basic net earnings
        per share                                     44,450                 44,350        44,423        44,344
                                                      ------                 ------        ------        ------


    Non-GAAP diluted net
     earnings per share                                $0.12                  $0.12         $0.38         $0.34
                                                       =====                  =====         =====         =====

    Weighted average number of
     shares used in

       computing diluted net
        earnings per share                            44,610                 44,535        44,589        44,514
                                                      ------                 ------        ------        ------


    MAGIC SOFTWARE
     ENTERPRISES LTD.
     AND ITS
     SUBSIDIARIES

    CONDENSED
     CONSOLIDATED
     BALANCE SHEETS

    U.S. Dollars in
     thousands


                             September 30,          December 31,
                             -------------          ------------

                                               2017                  2016
                                               ----                  ----

                               Unaudited
                               ---------


    ASSETS

    CURRENT ASSETS:

        Cash and cash
         equivalents                        $77,174               $75,314

        Short-term bank
         deposits                                26                     2

         Available-for-
          sale marketable
          securities                         11,766                12,506

         Trade receivables,
          net                                77,176                62,047

         Other accounts
          receivable and
          prepaid expenses                    7,984                 8,487

    Total current
     assets                                 174,126               158,356
    -------------                           -------               -------


    LONG-TERM
     RECEIVABLES:

        Severance pay fund                    2,837                 2,568

        Long-term deferred
         tax assets                           3,755                 3,548

        Other long-term
         receivables                          3,156                 1,680
                                              -----                 -----

    Total long-term
     receivables                              9,748                 7,796
    ---------------


    PROPERTY AND
     EQUIPMENT, NET                           3,506                 3,065

    IDENTIFIABLE
     INTANGIBLE ASSETS
     AND

        GOODWILL, NET                       147,204               147,182
                                            -------               -------


    TOTAL ASSETS                           $334,584              $316,399
                                           ========              ========


    LIABILITIES AND
     EQUITY


    CURRENT
     LIABILITIES:

         Short-term debt                     $9,734                $5,645

         Trade payables                       8,020                 8,393

         Accrued expenses
          and other accounts
          payable                            22,605                20,290

         Liabilities due to
          acquisition
          activities                          3,040                 6,478

         Deferred revenues                    7,019                 3,882

    Total current
     liabilities                             50,418                44,688
    -------------                            ------                ------


    NON-CURRENT
     LIABILITIES:

         Long-term debt                      32,697                29,756

         Long-term deferred
          tax liability                      12,388                12,494

         Liabilities due to
          acquisition
          activities                            978                 3,379

         Accrued severance
          pay                                 3,752                 3,443
                                              -----                 -----

    Total non-current
     liabilities                             49,815                49,072
    -----------------                        ------                ------


    REDEEMABLE NON-
     CONTROLLING
     INTERESTS                               28,981                25,998


    EQUITY:

       Magic Software
        Enterprises equity                  205,114               196,218

       Non-controlling
        interests                               256                   423
                                                ---                   ---

    Total equity                            205,370               196,641
    ------------


    TOTAL LIABILITIES,
     REDEEMABLE NON-
     CONTROLLING
     INTERESTS AND
     EQUITY                                $334,584              $316,399
                                           --------              --------


    MAGIC SOFTWARE ENTERPRISES LTD. AND
     ITS SUBSIDIARIES

    CONDENSED CONSOLIDATED STATEMENT OF
     CASH FLOWS

    U.S. Dollars in thousands

                                          For the Nine months
                                                 ended

                                            September 30,
                                            -------------

                                                           2017      2016
                                                           ----      ----

                                              Unaudited
                                              ---------


    Cash flows from operating activities:


    Net income                                          $13,643   $13,350

    Adjustments to reconcile net income
     from operations to

     net cash provided by operating
      activities:

    Depreciation and amortization                        10,308     8,456

    Stock-based compensation                                 39       131

    Amortization of marketable securities
     premium and accretion of discount                      154       173

    Gains reclassified into earnings from
     marketable securities                                  416         -

    Increase in trade receivables, net                 (11,568)  (1,542)

    Increase in other long-term and
     short-term accounts receivable and
     prepaid expenses                                   (1,279)    (306)

    Decrease in trade payables                            (535)    (676)

    Change in value of loans and
     deposits, net                                        3,068         -

    Increase (decrease) in accrued
     expenses and other accounts payable                  1,083     (875)

    Increase in deferred revenues                         2,658     2,897

    Change in deferred taxes, net                         (198)      225

    Net cash provided by operating
     activities                                          17,789    21,833
                                                         ======    ======


    Cash flows from investing activities:


    Capitalized software development
     costs                                              (2,953)  (3,377)

    Purchase of property and equipment                  (1,177)    (734)

    Cash paid in conjunction with
     acquisitions, net of acquired cash                 (5,819) (25,719)

    Proceeds from maturity of marketable
     securities                                           3,225     1,643

    Investment in marketable securities                 (2,589)  (2,234)

    Proceeds from short-term bank
     deposits                                                 -    5,904

    Repayment of short-term loan granted
     to a related-party                                   1,183         -

    Change in loans to employees and
     other deposits, net                                      -     (49)

    Investment in short-term bank deposit                  (26)  (5,802)

    Net cash used in investing activities               (8,156) (30,368)
                                                         ======   =======


    Cash flows from financing activities:


    Proceeds from exercise of options by
     employees                                              427        40

    Dividend paid                                       (9,360)  (7,747)

    Dividend paid to non-controlling
     interests in subsidiaries                            (536)    (358)

    Dividend paid to redeemable non-
     controlling interests in
     subsidiaries                                       (2,886)        -

    Purchase of non-controlling interest                      -    (352)

    Change in Short-term and long-term
     loan from banks, net                                 3,419     1,003

    Net cash used in financing activities               (8,936)  (7,414)
                                                         ======    ======


    Effect of exchange rate changes on
     cash and cash equivalents                            1,163     (306)


    Increase (decrease) in cash and cash
     equivalents                                          1,860  (16,255)

    Cash and cash equivalents at the
     beginning of the year                               75,314    62,188
                                                         ------    ------

    Cash and cash equivalents at the end
     of the period                                      $77,174   $45,933
                                                        -------   -------

Press Contact:

Shefi Yemini, IR Representative
Magic Software Enterprises
syemini@magicsoftware.com

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