Magic Delivers Record-Breaking Revenues of $65 Million for the Second Quarter With 38% Year-Over-Year Growth and Raises Guidance on Continued Business Momentum

OR YEHUDA, Israel, Aug 9, 2017 /PRNewswire/ -- Magic Software Enterprises Ltd. (NASDAQ: MGIC) (TASE: MGIC), a global provider of mobile and cloud-enabled application and business integration platforms, announced today its financial results for the six months and second quarter ended June 30, 2017.

Financial Highlights for the Second Quarter Ended June 30, 2017

    --  Revenues for the second quarter increased 38% to $65.5 million compared
        to $47.4 million in the same period last year.
    --  Operating income for the second quarter increased 19% to $6.3 million
        compared to $5.3 million in the same period last year. Non-GAAP
        operating income for the second quarter increased 37% to $9.0 million
        compared to $6.5 million in the same period last year.
    --  Net income attributable to Magic's shareholders for the second quarter
        decreased 12% to $3.6 million, or $0.08 per fully diluted share,
        compared to $4.1 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 second quarter increased 11% to $5.7 million, or
        $0.13 per fully diluted share, compared to $5.2 million, or $0.12 per
        fully diluted share, in the same period last year.

Financial Highlights for the Six-Month Period Ended June 30, 2017

    --  Revenues for the first half of 2017 increased 37% to $126.2 million
        compared to $92.0 million in the same period last year.
    --  Operating income for the first half increased 20% to $12.7 million
        compared to $10.6 million in the same period last year. Non-GAAP
        operating income for the first half of 2017 increased 31% to $17.4
        million compared to $13.2 million in the same period last year.
    --  Net income attributable to Magic's shareholders for the first half
        remained constant at $7.8 million, or $0.18 per fully diluted share,
        compared to $7.8 million, or $0.17 per fully diluted share in the same
        period last year. Non-GAAP net income attributable to Magic's
        shareholders for the first half increased 15% to $11.5 million, or $0.26
        per fully diluted share, compared to $10.0 million, or $0.23 per fully
        diluted share, in the same period last year.
    --  Cash flow from operating activities for the first half of 2017 amounted
        to $15.1 million compared to $15.6 million in the same period last year.
    --  As of June 30, 2017, our net cash, cash equivalents, short-term bank
        deposits and available-for-sale marketable securities, offset by
        financial liabilities, amounted to $56.9 million.
    --  Magic is raising its guidance for the 2017 fiscal year revenues to
        between $245 million and $255 million on a constant currency basis, up
        from prior guidance of $225 to $230 million, reflecting a revised annual
        growth rate of 22%-26%.

Guy Bernstein, Chief Executive Officer of Magic Software Enterprises, said:

"We are pleased to report another quarter with double-digit growth driven by a mix of organic growth and M&A, which is evidence that our continued efforts to create consistent growth and increased profits are paying off."

"Our strong implementation expertise combined with our product technology enables us to expand our knowledge and successfully deliver complex solutions to our long-term customers."

Conference Call Details

Magic's management will host a conference call today, August 9, at 10:00 am Eastern Daylight Time (7:00 am Pacific Daylight Time, 17:00 Israel Daylight 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.

Press Contact:
Einav Greenboim, IR Representative
Magic Software Enterprises
einavg@magicsoftware.com



    MAGIC SOFTWARE ENTERPRISES LTD. AND ITS
     SUBSIDIARIES

    CONDENSED CONSOLIDATED STATEMENTS OF INCOME

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




                                                Three months ended         Six months ended

                                                    June 30,                 June 30,
                                                    --------                 --------

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

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

    Revenues                                     $65,479           $47,362              $126,240  $92,030

    Cost of Revenues                              44,718            31,150                85,779   60,378
                                                  ------            ------                ------   ------

    Gross profit                                  20,761            16,212                40,461   31,652
                                                  ------            ------                ------   ------

    Research and
     development, net                              1,907             1,212                 3,523    2,475

    Selling, marketing and general and

        administrative
         expenses                                 12,514             9,677                24,259   18,593

    Total operating costs
     and expenses                                 14,421            10,889                27,782   21,068
                                                  ------            ------                ------   ------

    Operating income                               6,340             5,323                12,679   10,584
                                                   -----             -----                ------   ------

    Financial income
     (expenses), net                               (595)              156                 (822)     237

    Income before taxes
     on income                                     5,745             5,479                11,857   10,821

    Taxes on income                                1,584               987                 2,834    2,256
                                                   -----               ---                 -----    -----

    Net income                                    $4,161            $4,492                $9,023   $8,565

    Net income
     attributable to
     redeemable non-
     controlling
     interests                                     (414)            (322)                (872)   (637)

    Net income
     attributable to non-
     controlling
     interests                                     (163)             (82)                (304)   (152)

    Net income
     attributable to
     Magic's shareholders                         $3,584            $4,088                $7,847   $7,776


    Net earnings per share

    Basic                                          $0.08             $0.09                 $0.18    $0.17

    Diluted                                        $0.08             $0.09                 $0.18    $0.17


    Weighted average number of shares used in

         computing net earnings per share


            Basic                                 44,432            44,344                44,410   44,341
                                                  ======            ======                ======   ======

                                                           .

            Diluted                               44,593            44,511                44,576   44,502
                                                  ======            ======                ======   ======



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

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



                                                             Three months ended                   Six months ended

                                                                June 30,                         June 30,
                                                                --------                        --------

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

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


     Revenues                                                          $65,479             100%                   $47,362             100%  $126,240  100% $92,030  100%

     Gross profit                                                       22,250            34.0%                    17,479            36.9%    43,635 34.6%  34,158 37.1%

     Operating income                                                    8,978            13.7%                     6,536            13.8%    17,359 13.8%  13,206 14.3%

     Net income attributable to

        Magic's shareholders                                             5,749             8.8%                     5,178            10.9%    11,478  9.1%  10,005 10.9%


     Basic earnings per share                                            $0.13                                      $0.12                      $0.26         $0.23

     Diluted earnings per share                                          $0.13                                      $0.12                      $0.26         $0.23




    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   Six months ended

                                                              June 30,            June 30,
                                                              --------            --------

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

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


    GAAP gross profit                                               $20,761             $16,212      $40,461       $31,652

    Amortization of capitalized software
     and acquired technology                                        1,334               1,086        2,835         2,108

    Amortization of other
     intangible assets                                                 153                 177          334           389

    Stock-based compensation                                             2                   4            5             9

    Non-GAAP gross profit                                          $22,250             $17,479      $43,635       $34,158
                                                                   =======             =======      =======       =======



    GAAP operating income                                           $6,340              $5,323      $12,679       $10,584

    Gross profit adjustments                                         1,489               1,267        3,174         2,506

    Amortization of other
     intangible assets                                               1,584               1,101        3,178         2,225

    Increase in valuation of contingent
     consideration related to acquisitions                            444                   -         444             -

    Capitalization of software
     development                                                     (890)            (1,179)     (2,140)      (2,208)

    Stock-based compensation                                            11                  24           24            99

    Non-GAAP operating income                                       $8,978              $6,536      $17,359       $13,206
                                                                    ======              ======      =======       =======



    GAAP net income attributable to
     Magic's shareholders                                          $3,584              $4,088       $7,847        $7,776

    Operating income adjustments                                     2,638               1,213        4,680         2,622

    Amortization expenses attributed to
     redeemable non-controlling interests                           (367)              (128)       (765)        (258)

    Deferred taxes on the above
     items                                                           (106)                  5        (284)        (135)
                                                                      ----                 ---         ----          ----

    Non-GAAP net income attributable to
     Magic's shareholders                                          $5,749              $5,178      $11,478       $10,005
                                                                   ======              ======      =======       =======



    Non-GAAP basic net earnings
     per share                                                       $0.13               $0.12        $0.26         $0.23
                                                                     =====               =====        =====         =====

    Weighted average number of
     shares used in

       computing basic net earnings
        per share                                                   44,432              44,344       44,410        44,341
                                                                    ------              ------       ------        ------


    Non-GAAP diluted net
     earnings per share                                              $0.13               $0.12        $0.26         $0.23
                                                                     =====               =====        =====         =====

    Weighted average number of
     shares used in

       computing diluted net
        earnings per share                                          44,595              44,514       44,578        44,504
                                                                    ------              ------       ------        ------



    MAGIC SOFTWARE
     ENTERPRISES LTD. AND
     ITS SUBSIDIARIES

    CONDENSED CONSOLIDATED
     BALANCE SHEETS

    U.S. Dollars in
     thousands


                                  June 30,          December 31,
                                  --------          ------------

                                               2017                  2016
                                               ----                  ----

                                 Unaudited
                                 ---------


    ASSETS

    CURRENT ASSETS:

        Cash and cash
         equivalents                        $87,294               $75,314

        Short-term bank
         deposits                                 -                    2

         Available-for-sale
          marketable securities              12,781                12,506

         Trade receivables, net              74,183                62,047

         Other accounts
          receivable and prepaid
          expenses                            8,323                 8,487

    Total current assets                    182,581               158,356
    --------------------                    -------               -------


    LONG-TERM RECEIVABLES:

        Severance pay fund                    2,864                 2,568

        Long-term deferred tax
         assets                               3,893                 3,548

        Other long-term
         receivables                          1,989                 1,680
                                              -----                 -----

    Total long-term
     receivables                              8,746                 7,796
    ---------------


    PROPERTY AND EQUIPMENT,
     NET                                      3,479                 3,065

    IDENTIFIABLE INTANGIBLE
     ASSETS AND

        GOODWILL, NET                       149,773               147,182
                                            -------               -------


    TOTAL ASSETS                           $344,579              $316,399
                                           ========              ========


    LIABILITIES AND EQUITY


    CURRENT LIABILITIES:

         Short-term debt                     $9,373                $5,645

         Trade payables                       8,631                 8,393

         Accrued expenses and
          other accounts payable             22,679                20,290

         Liabilities due to
          acquisition activities              2,279                 6,478

         Deferred revenues                    8,487                 3,882

    Total current
     liabilities                             51,449                44,688
    -------------                            ------                ------


    NON-CURRENT
     LIABILITIES:

         Long-term debt                      36,654                29,756

         Long-term deferred tax
          liability                          12,918                12,494

         Liabilities due to
          acquisition activities              3,460                 3,379

         Accrued severance pay                3,827                 3,443
                                              -----                 -----

    Total non-current
     liabilities                             56,859                49,072
    -----------------                        ------                ------


    REDEEMABLE NON-
     CONTROLLING INTERESTS                   29,223                25,998


    EQUITY:

       Magic Software
        Enterprises equity                  206,548               196,218

       Non-controlling
        interests                               500                   423
                                                ---                   ---

    Total equity                            207,048               196,641


    TOTAL LIABILITIES,
     REDEEMABLE NON-
     CONTROLLING INTERESTS
     AND EQUITY                            $344,579              $316,399
                                           ========              ========



    MAGIC SOFTWARE ENTERPRISES LTD. AND ITS
     SUBSIDIARIES

    CONDENSED CONSOLIDATED STATEMENT OF CASH
     FLOWS

    U.S. Dollars in thousands

                                             For the Six months
                                                    ended

                                                  June 30,
                                                  --------

                                                            2017     2016
                                                            ----     ----

                                                 Unaudited
                                                 ---------


    Cash flows from operating activities:


    Net income                                            $9,023   $8,565

    Adjustments to reconcile net income from
     operations to

     net cash provided by operating
      activities:

    Depreciation and amortization                          6,891    5,205

    Stock-based compensation                                  30      108

    Amortization of marketable securities
     premium and accretion of discount                       134      120

    Gains reclassified into earnings from
     marketable securities                                 (106)       -

    Decrease (increase) in trade
     receivables, net                                    (8,557)      36

    Increase in other long-term and short-
     term accounts                                       (1,376) (1,987)

    Increase (decrease) in trade payables                     64    (127)

    Change in value of loans and deposits,
     net                                                   3,143        -

    Increase (decrease) in accrued expenses
     and other accounts payable                            1,495  (1,300)

    Increase in deferred revenues                          4,199    4,572

    Change in deferred taxes, net                            197      450

    Net cash provided by operating
     activities                                           15,137   15,642
                                                          ======   ======


    Cash flows from investing activities:


    Capitalized software development costs               (2,140) (2,208)

    Purchase of property and equipment                     (872)   (397)

    Cash paid in conjunction with
     acquisitions, net of acquired cash                  (3,808) (4,436)

    Proceeds from maturity of marketable
     securities                                            2,225      800

    Investment in marketable securities                  (2,589) (1,623)

    Proceeds from short-term bank deposits                     -   5,404

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

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

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

    Net cash used in investing activities                (6,001) (8,311)
                                                          ======   ======


    Cash flows from financing activities:


    Proceeds from exercise of options by
     employees                                               332       16

    Dividend paid                                        (3,697) (3,991)

    Dividend paid to non-controlling
     interests in subsidiaries                             (175)   (225)

    Dividend paid to redeemable non-
     controlling interests in subsidiaries               (1,251)       -

    Short-term credit, net                                   497    1,141

    Purchase of non-controlling interest                       -   (352)

    Receipt of long-term loan from banks,
     net                                                   6,235        -

    Net cash provided by (used in) financing
     activities                                            1,941  (3,411)
                                                           =====   ======


    Effect of exchange rate changes on cash
     and cash equivalents                                    903    (281)


    Increase in cash and cash equivalents                 11,980    3,639

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

    Cash and cash equivalents at the end of
     the period                                          $87,294  $65,827
                                                         -------  -------

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