PRESS RELEASE


 


Magic Reports First Quarter 2013 Results
with Double-digit Year over Year Growth in Revenues and Operating Income


 


Revenues for the first quarter increased
11% year over year to $33.4 million; Non-GAAP operating income increased 12% to $5.2 million


 


Or Yehuda, Israel, May 7, 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 quarter ended March 31, 2013.


 


Financial Highlights
for the First Quarter, 2013:


 


		·	Revenues for the first quarter increased 11% year over year to $33.4 million from $30.0 million.



 


		·	Non-GAAP operating income for the first quarter increased 12% to $5.2 million, compared to
$4.7 million in the same period last year; Operating income increased 10% to $4.6 million, compared to $4.2 million
in the same period last year.



 


		·	Non-GAAP net income for the first quarter decreased 7% to $4.2 million, compared to $4.6 million
in the same period last year; Net income decreased 16% to $3.5 million compared to $4.2 million in the same period last
year. Decrease in net income was mainly attributable to tax expenses recorded with respect to utilization of deferred tax assets;
in accordance with U.S. accounting principles, the Company records deferred tax expenses on utilization of carry-forward tax losses.



 


		·	Operating cash flow for the quarter amounted to $6.0 million.



 


		·	Total cash, cash equivalents and short-term investments as of March 31, 2013, amounted to
$37.6 million.



 


Results


 


		·	For the first quarter ended March 31, 2013, total revenues were $33.4 million, with net
income of $3.5 million, or $0.10 per fully diluted share. This compares with revenues of $30.0 million and net income
of $4.2 million, or $0.11 per fully diluted share for the same period last year.



 


		·	For the first quarter of 2013, operating income was $4.6 million. This compares to operating
income of $4.2 million for the same period a year ago.



 






    	 



    	 



    

 


Comments of Management


 


Guy Bernstein, Chief Executive Officer
of Magic Software Enterprises, said, “I am pleased to report that after an excellent 2012, Magic is continuing its solid
growth track in 2013, with double-digit growth in our operations. We continue to experience positive sales momentum for our software
and professional services offerings, led by improvements in European markets, increasing demand for migration services and a growing
number of large-scale projects.”


 


“Looking ahead we expect to continue
to execute our growth strategy by enhancing our application development and integration platforms and expanding our professional
services offerings to better serve increasing business needs for enterprise mobility and cloud computing,” 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



 


		·	Unwinding of discount in connection with liabilities due to acquisitions



 


		·	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:


 


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	 
	 	 	March 31,	 
	 	 	2013	 	 	2012	 
	 	 	Unaudited	 
	Revenues	 	 	33,414	 	 	 	30,042	 
	Cost of Revenues	 	 	19,890	 	 	 	16,917	 
	Gross profit	 	 	13,524	 	 	 	13,125	 
	Research and development, net	 	 	883	 	 	 	906	 
	Selling, marketing and general and	 	 	 	 	 	 	 	 
	    administrative expenses	 	 	8,000	 	 	 	7,994	 
	Total operating costs and expenses	 	 	8,883	 	 	 	8,900	 
	Operating income	 	 	4,641	 	 	 	4,225	 
	Financial income (expenses), net	 	 	(398	)	 	 	36	 
	Income before taxes on income	 	 	4,243	 	 	 	4,261	 
	Taxes on income	 	 	495	 	 	 	44	 
	Net income	 	 	3,748	 	 	 	4,217	 
	Change in redeemable non-controlling interests	 	 	(95	)	 	 	-	 
	Net income attributable to non-controlling interests	 	 	(133	)	 	 	(6	)
	Net income attributable to Magic's shareholders	 	 	3,520	 	 	 	4,211	 
	 	 	 	 	 	 	 	 	 
	Net earnings per share	 	 	 	 	 	 	 	 
	Basic	 	 	0.10	 	 	 	0.12	 
	Diluted	 	 	0.10	 	 	 	0.11	 
	 	 	 	 	 	 	 	 	 
	Weighted average number of shares used in	 	 	 	 	 	 	 	 
	     computing net earnings per share	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 
	        Basic	 	 	36,594	 	 	 	36,413	 
	 	 	 	 	 	 	 	.	 
	        Diluted	 	 	37,096	 	 	 	37,170	 








 






    	 



    	 



    

 





	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	 
	 	 	March 31,	 
	 	 	2013	 	 	2012	 
	 	 	Unaudited	 
	 	 	 	 	 	 	 
	GAAP operating income	 	 	4,641	 	 	 	4,225	 
	Amortization of capitalized software and other intangible assets	 	 	1,707	 	 	 	1,422	 
	Capitalization of software development	 	 	(1,210	)	 	 	(1,122	)
	Stock-based compensation	 	 	93	 	 	 	154	 
	Total adjustments to GAAP	 	 	590	 	 	 	454	 
	Non-GAAP operating income	 	 	5,231	 	 	 	4,679	 
	 	 	 	 	 	 	 	 	 
	GAAP net income	 	 	3,520	 	 	 	4,211	 
	Amortization of capitalized software and other intangible assets	 	 	1,707	 	 	 	1,422	 
	Capitalization of software development	 	 	(1,210	)	 	 	(1,122	)
	Stock-based compensation	 	 	93	 	 	 	154	 
	Unwinding of discount in connection with liabilities due to acquisitions	 	 	207	 	 	 	-	 
	Amortization expenses attributed to redeemable non-controlling interests	 	 	(30	)	 	 	-	 
	Deferred taxes on the above items	 	 	(47	)	 	 	(94	)
	Total adjustments to GAAP	 	 	720	 	 	 	360	 
	Non-GAAP net income	 	 	4,240	 	 	 	4,571	 
	 	 	 	 	 	 	 	 	 
	Non-GAAP basic net earnings per share	 	 	0.12	 	 	 	0.13	 
	Weighted average number of shares used in	 	 	 	 	 	 	 	 
	   computing basic net earnings per share	 	 	36,594	 	 	 	36,413	 
	 	 	 	 	 	 	 	 	 
	Non-GAAP diluted net earnings per share	 	 	0.11	 	 	 	0.12	 
	Weighted average number of shares used in	 	 	 	 	 	 	 	 
	   computing diluted net earnings per share	 	 	37,148	 	 	 	37,301	 








 






    	 



    	 



    

 





	MAGIC SOFTWARE ENTERPRISES LTD.	 	 	 	 	 	 
	CONSOLIDATED BALANCE SHEETS	 	 	 	 	 	 
	U.S. dollars in thousands	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 	 	March 31,	 	 	December 31,	 
	 	 	2013	 	 	2012	 
	 	 	Unaudited	 	 	 	 
	 	 	 	 	 	 	 
	ASSETS	 	 	 	 	 	 
	CURRENT ASSETS:	 	 	 	 	 	 
	     Cash and cash equivalents	 	 	36,741	 	 	 	37,744	 
	     Available-for-sale marketable securities	 	 	880	 	 	 	890	 
	     Trade receivables, net	 	 	29,461	 	 	 	28,367	 
	     Other accounts receivable and  prepaid expenses	 	 	5,864	 	 	 	6,696	 
	Total current assets	 	 	72,946	 	 	 	73,697	 
	 	 	 	 	 	 	 	 	 
	LONG-TERM RECEIVABLES:	 	 	 	 	 	 	 	 
	    Severance pay fund	 	 	352	 	 	 	351	 
	    Other long-term receivables	 	 	2,819	 	 	 	2,287	 
	Total other long-term receivables	 	 	3,171	 	 	 	2,638	 
	 	 	 	 	 	 	 	 	 
	PROPERTY AND EQUIPMENT, NET	 	 	1,898	 	 	 	1,898	 
	IDENTIFIABLE INTANGIBLE ASSETS AND	 	 	 	 	 	 	 	 
	    GOODWILL, NET	 	 	75,008	 	 	 	74,005	 
	 	 	 	 	 	 	 	 	 
	TOTAL ASSETS	 	 	153,023	 	 	 	152,238	 
	 	 	 	 	 	 	 	 	 
	LIABILITIES AND EQUITY	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 
	CURRENT LIABILITIES:	 	 	 	 	 	 	 	 
	     Trade payables	 	 	4,720	 	 	 	4,722	 
	     Accrued expenses and other accounts payable	 	 	13,659	 	 	 	17,537	 
	     Deferred tax liabilities	 	 	2,351	 	 	 	2,355	 
	     Deferred revenues	 	 	9,082	 	 	 	4,160	 
	Total current liabilities	 	 	29,812	 	 	 	28,774	 
	 	 	 	 	 	 	 	 	 
	NON CURRENT LIABILITIES:	 	 	 	 	 	 	 	 
	     Long term liabilities	 	 	1,831	 	 	 	750	 
	     Liability due to acquisition activities	 	 	1,418	 	 	 	1,192	 
	     Accrued severance pay	 	 	1,253	 	 	 	1,245	 
	Total non-current liabilities	 	 	4,502	 	 	 	3,187	 
	 	 	 	 	 	 	 	 	 
	Redeemable non-controlling interest	 	 	2,179	 	 	 	2,160	 
	 	 	 	 	 	 	 	 	 
	EQUITY:	 	 	 	 	 	 	 	 
	   Magic Shareholders' equity	 	 	115,982	 	 	 	117,786	 
	   Non-controlling interests	 	 	548	 	 	 	331	 
	Total equity	 	 	116,530	 	 	 	118,117	 
	 	 	 	 	 	 	 	 	 
	TOTAL LIABILITIES AND EQUITY	 	 	153,023	 	 	 	152,238