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Magic Software Reports First Quarter 2025 Financial Results

1. Q1 2025 revenues rose by 12.7% to $147.3 million. 2. Net income for Q1 2025 increased by 7.7% to $9.5 million. 3. Operating margin slightly decreased to 10.7% from 11.0% year-on-year. 4. Magic reinforces 2025 annual revenue guidance of $593-$603 million. 5. Improving U.S. market conditions indicate strong future sales potential.

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FAQ

Why Bullish?

MGIC's strong revenue growth and guidance reaffirm confidence in its future, resembling previous solid quarterly performances that led to stock appreciation.

How important is it?

The positive financial performance and future guidance significantly influence investor perception and stock value for MGIC.

Why Short Term?

Immediate market response is likely due to Q1 results and guidance, similar to past quarters where results led to prompt price adjustments.

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May 21, 2025 07:04 ET  | Source: Magic Software Enterprises Ltd. OR YEHUDA, Israel, May 21, 2025 (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 first quarter ended March 31, 2025. Summary Results for the First Quarter 2025 (USD in millions, except per share data)  GAAP  Non-GAAP  Q1 2025Q1 2024% Change Q1 2025Q1 2024% ChangeRevenues$147.3$130.712.7% $147.3$130.712.7%Gross profit$40.6$36.710.7% $41.9$38.39.5%Gross margin 27.6% 28.1%(50) bps  28.5% 29.3%(80) bpsOperating income$15.7$14.49.1% $18.5$18.11.9%Operating margin 10.7% 11.0%(30) bps  12.6% 13.9%(130) bpsNet income (*)$9.5$8.87.7% $12.2$11.38.3%Diluted EPS$0.19$0.185.6% $0.25$0.238.7%            (*) Attributable to Magic Software’s shareholders.  Financial Highlights for the first Quarter Ended March 31, 2025 Revenues for the first quarter of 2025 increased by 12.7% to $147.3 million, compared to $130.7 million in the same period of the previous year.Operating income for the first quarter of 2025 increased by 9.1% to $15.7 million, compared to $14.4 million in the same period of the previous year.Non-GAAP operating income for the first quarter of 2025 increased by 1.9% to $18.5 million, compared to $18.1 million in the same period of the previous year.Net income attributable to Magic Software’s shareholders for the first quarter of 2025 increased by 7.7% to $9.5 million, or $0.19 per fully diluted share, compared to $8.8 million, or $0.18 per fully diluted share, in the same period of the previous year.Non-GAAP net income attributable to Magic Software’s shareholders for the first quarter of 2025 increased by 8.3% to $12.2 million, or $0.25 per fully diluted share, compared to $11.3 million, or $0.23 per fully diluted share, in the same period of the previous year.Cash flow from operating activities for the first quarter ended March 31, 2025, amounted to $14.9 million compared to $27.7 million in the same period last year. Cash flow from operating activities for the last twelve months amounted to $62.1 million.As of March 31, 2025, Magic’s cash, cash equivalents and short and long-term bank deposits amounted to $105.0 million.Magic is reiterating its 2025 annual revenue guidance of between $593 million and $603 million (based on current currency exchange rates) reflecting an annual growth of 7.3% to 9.1% compared to prior year. Guy Bernstein, Chief Executive Officer of Magic Software, said: “We commenced 2025 with strong momentum, successfully advancing our strategic growth initiatives and executing agreements with both new and existing customers. Our financial performance reflects continued expansion in the Israeli market, alongside early indications of recovery in the United States. Demand for our innovative digital, artificial intelligence and cloud transformation solutions remains robust, along with continued strong demand for our services in the defense sector, underscoring the effectiveness of our strategic direction and the dedication of our team in delivering measurable results. Given the strength of our current sales pipeline and improving market conditions in the U.S., we remain confident in our ability to generate sustainable long-term value for both our customers and shareholders.” Conference Call Details Magic Software’s management will host a conference call on Wednesday, May 21, 2025, at 10:00 am Eastern Daylight Time (17:00 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: +1-888-281-1167 UK: 0-800-917-5108 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 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 end-to-end integration and application development platforms solutions and IT consulting services. 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, 2024, which filed on May 14, 2025, 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 PlatkevitzMagic Software Enterprisesir@magicsoftware.com  MAGIC SOFTWARE ENTERPRISES LTD.CONDENSED CONSOLIDATED STATEMENTS OF INCOMEU.S. Dollars in thousands (except per share data)     Three months ended  March 31,  2025 2024  UnauditedRevenues $147,336 $130,720Cost of Revenues  106,705  94,021Gross profit   40,631  36,699Research and development, net  3,247  2,793Selling, marketing and general and administrative expenses  21,641  19,480Total operating expenses  24,888  22,273Operating income  15,743  14,426Financial expenses, net  (1,065)  (1,644)Income before taxes on income  14,678  12,782Taxes on income  2,912  2,729Net income $11,766 $10,053Share of loss of companies accounted for at equity, net  (126)  (64)Net income attributable to non-controlling interests  (2,162)  (1,192)Net income attributable to Magic's shareholders $9,478 $8,797     Weighted average number of shares used in  computing net earnings per share         Basic  49,099  49,099     Diluted  49,099  49,099     Basic and diluted earnings per share attributable to Magic's shareholders  0.19  0.18        MAGIC SOFTWARE ENTERPRISES LTD.RECONCILIATION OF GAAP AND NON-GAAP RESULTSU.S. Dollars in thousands (except per share data)   Three months ended March 31, 2025 2024 UnauditedGAAP gross profit$ 40,631 $36,699Amortization of capitalized software and acquired technology984  1,107Amortization of other intangible assets323  503Non-GAAP gross profit$ 41,938 $38,309GAAP operating income$ 15,743 $14,426Gross profit adjustments1,307  1,610Amortization of other intangible assets1,977  1,514Increase in valuation of contingent   consideration related to acquisitions-  306Capitalization of software development(496)  (748)Costs related to acquisitions26  144Cost of share-based payment(65)  891Non-GAAP operating income$ 18,492 $18,143GAAP net income attributable to Magic's shareholders$ 9,478 $8,797Operating income adjustments2,749  3,717Expenses attributed to non-controlling interests and redeemable non-controlling interests(224)  (452)Increase in valuation of consideration related to acquisitions505  114Deferred taxes on the above items(296)  (899)Non-GAAP net income attributable to Magic's shareholders$ 12,212 $11,277Non-GAAP basic and diluted net earnings per share$ 0.25 $0.23Weighted average number of shares used in computing basic net earnings per share49,099  49,099Non-GAAP diluted net earnings per share$ 0.25 $0.23Weighted average number of shares used in computing diluted net earnings per share49,099  49,099      Summary of Non-GAAP Financial InformationU.S. Dollars in thousands (except per share data)   Three months ended March 31, 2025 2024 Unaudited Unaudited        Revenues$147,336 100% $130,720 100%Gross profit 41,938 28.5%  38,309 29.3%Operating income 18,492 12.6%  18,143 13.9%Net income attributable to       Magic's shareholders 12,212 8.3%  11,277 8.6%        Basic and diluted earnings per share$0.25   $0.23             MAGIC SOFTWARE ENTERPRISES LTD.CONDENSED CONSOLIDATED BALANCE SHEETSU.S. Dollars in thousands     March 31, December 31, 2025 2024 Unaudited  ASSETS   CURRENT ASSETS:   Cash and cash equivalents$104,584 $112,779Short-term bank deposits 431  51Trade receivables, net 144,102  139,816Other accounts receivable and prepaid expenses 21,094  23,553Total current assets 270,211  276,199LONG-TERM ASSETS:   Deferred tax assets 5,300  4,895Right-of-use assets 23,648  24,707Other long-term receivables and Investments in  companies accounted for at equity 8,820  9,261Property and equipment, net 8,034  7,467Intangible assets and goodwill, net 218,097  217,802Total long term assets 263,899  264,132TOTAL ASSETS$534,110 $540,331LIABILITIES AND EQUITY   CURRENT LIABILITIES:   Short-term debt$23,941 $23,187Trade payables 30,060  28,753Dividend payable to Magic Software shareholders 16,055  11,587Accrued expenses and other accounts payable 53,411  58,209Current maturities of lease liabilities 4,763  4,818Liability in respect of business combinations 5,944  2,654Put options for non-controlling interests 20,695  20,066Deferred revenues and customer advances 23,645  21,031Total current liabilities 178,514  170,305LONG TERM LIABILITIES:   Long-term debt 32,368  36,107Deferred tax liability 7,936  7,848Long-term lease liabilities 21,049  22,040Long-term liability in respect of business combinations -  1,781Emolyee benefit liabilities 1,202  1,181Total long term liabilities 62,555  68,957EQUITY:   Magic Software Enterprises shareholders' equity 269,412  277,190Non-controlling interests 23,629  23,879Total equity 293,041  301,069TOTAL LIABILITIES AND EQUITY$534,110 $540,331       MAGIC SOFTWARE ENTERPRISES LTD.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSU.S. Dollars in thousands   Three months ended March 31, 2025 2024 Unaudited UnauditedCash flows from operating activities:       Net income$11,640 $9,989Adjustments to reconcile net income to net cash provided by operating activities:   Depreciation and amortization 5,277  4,889Cost of share-based payment (65)  584Change in deferred taxes, net (900)  (754)Capital gain on sale of fixed assets (1)  13Change in value of financial assets measured at fair value through profit or loss (9)  -Effect of exchange rate on of cash and cash equivalents held in currencies other than the functional currency 70  170Changes in value of short-term and long-term loans from banks and others and deposits, net (685)  (819)Working capital adjustments:   Trade receivables (4,727)  3,709Other current and long-term accounts receivable 2,598  (1,333)Trade payables 1,408  (983)Accrued expenses and other accounts payable (2,426)  3,704Deferred revenues 2,719  8,508Net cash (used) provided by operating activities  14,899  27,677    Cash flows from investing activities:       Capitalized software development costs (496)  (748)Purchase of property and equipment (524)  (280)Cash paid in conjunction with deferred payments and contingent liabilities related to business combinations (3,635)  -Payments for business acquisitions, net of cash acquired -  (249)Proceeds from sale of property and equipment 47  15Proceeds from sale (purchase) of financial assets, net 595  (1,000)Change in short-term and long-term deposits (649)  997Net cash used in investing activities  (4,662)  (1,265)    Cash flows from financing activities:       Dividend paid to Magic's shareholders (11,587)  Dividend paid to non-controlling interests (3,546)  (2,086)Repayment of lease liabilities (1,553)  (1,460)Purchase of non-controlling interest -  (314)Receipt of short-term and long-term loans from banks and others 9,453  5,006Repayment of short-term and long-term loans (11,242)  (6,574)Net cash used in financing activities  (18,475)  (5,428)    Effect of exchange rate changes on cash and cash equivalents 43  (1,124)    Increase (decrease) in cash and cash equivalents (8,195)  19,860Cash and cash equivalents at the beginning of the period 112,779  105,943Cash and cash equivalents at end of the period$104,584 $125,803      

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