[Introduction](index=4&type=section&id=Introduction) Magic Software Enterprises Ltd. offers global software services, IT outsourcing, and proprietary low-code platforms for application development and integration across various industries [Company Overview](index=4&type=section&id=Company%20Overview) Magic Software Enterprises Ltd. offers global software services, IT outsourcing, and proprietary low-code platforms for application development and integration across various industries - The company operates in four main business areas: (i) software and IT outsourcing services, (ii) application development and integration platforms, (iii) vertical software solutions, and (iv) cloud-based digital transformation services[21](index=21&type=chunk) - Key proprietary platforms include **Magic xpa** and **AppBuilder** for low-code application development, and **Magic xpi** for application integration[26](index=26&type=chunk) - The company offers specialized vertical software solutions such as **Clicks™** for healthcare, **Leap™** for telecom billing, and **Hermes** for air cargo management[24](index=24&type=chunk)[28](index=28&type=chunk) - As of the report date, the company has approximately **3,677 employees** and operates through a network of over **3,000 independent software vendors (ISVs) and partners** in about **50 countries**[25](index=25&type=chunk) [Forward-Looking Statements](index=7&type=section&id=Forward-Looking%20Statements) This section highlights that the annual report contains forward-looking statements subject to various risks, including M&A integration, competition, cybersecurity, and geopolitical instability in Israel - Key risks highlighted include challenges in integrating acquired companies, lengthy and complex sales cycles, competition, cybersecurity breaches, the impact of the COVID-19 pandemic, and risks associated with global operations and the company's location in Israel[37](index=37&type=chunk) [Key Information](index=10&type=section&id=ITEM%203.%20KEY%20INFORMATION) The company identifies significant risks across its business, industry, operations, and location [Risk Factors](index=10&type=section&id=D.%20Risk%20Factors) The company faces significant risks across its business, industry, and operations, including M&A integration, product dependence, intense competition, and geopolitical instability in Israel [Risks Related to Our Business and Our Industry](index=10&type=section&id=Risks%20Related%20to%20Our%20Business%20and%20Our%20Industry) The company faces business and industry risks from M&A integration, product dependence, intense competition, customer concentration, and geopolitical conflicts - The company's M&A growth strategy involves significant risks related to integrating acquired businesses, operations, and employees[56](index=56&type=chunk) - A significant portion of revenues comes from a limited number of core product families (e.g., Magic xpa, Magic xpi, AppBuilder) and vertical solutions (e.g., Clicks, Leap, Hermes)[66](index=66&type=chunk)[67](index=67&type=chunk) - The company faces intense competition from multinational IT providers, offshore firms, and in-house IT departments[83](index=83&type=chunk) - The two largest clients accounted for **21.2% of revenues in 2021**, and the five largest accounted for **27.5%**, indicating significant customer concentration risk[77](index=77&type=chunk) - The ongoing military conflict between Russia and Ukraine poses geopolitical and economic risks, as the company employs approximately **220 people in Russia** and **104 in Ukraine**[89](index=89&type=chunk) - The company relies on a combination of contractual provisions and intellectual property law, rather than patents, to protect its proprietary technology[122](index=122&type=chunk) [Risks Related to Our Ordinary Shares](index=30&type=section&id=Risks%20Related%20to%20Our%20Ordinary%20Shares) Risks related to ordinary shares include dual listing price variations, limited liquidity, foreign private issuer status, and significant influence from a controlling shareholder - The company's ordinary shares are dual-listed on NASDAQ (MGIC) and the Tel Aviv Stock Exchange, which may result in price variations due to different currencies, time zones, and trading days[134](index=134&type=chunk) - As a foreign private issuer, the company is exempt from certain SEC rules, including proxy solicitations and Section 16 "short-swing" profit recovery provisions, resulting in less public disclosure compared to U.S. domestic companies[137](index=137&type=chunk) - As of April 1, 2022, controlling shareholder Formula Systems (1985) Ltd. beneficially owns approximately **45.58% of outstanding ordinary shares**, giving it controlling influence over matters requiring shareholder approval[139](index=139&type=chunk) [Risks Related to Our Location in Israel](index=33&type=section&id=Risks%20Related%20to%20Our%20Location%20in%20Israel) The company's Israeli location exposes it to regional political and military instability, potential operational disruptions, and specific legal provisions affecting acquisitions - The company's principal executive offices and R&D facilities are located in Israel, making it susceptible to political, economic, and military instability in the region[145](index=145&type=chunk) - Many Israeli employees are obligated to perform annual military reserve duty, and their absence during a military conflict could disrupt operations[148](index=148&type=chunk) - Provisions of Israeli corporate law regarding mergers and tender offers may delay, prevent, or complicate a potential acquisition of the company[151](index=151&type=chunk) [Information on the Company](index=35&type=section&id=ITEM%204.%20INFORMATION%20ON%20THE%20COMPANY) This section provides an overview of the company's history, business operations, organizational structure, and property, plants, and equipment [History and Development of the Company](index=35&type=section&id=A.%20History%20and%20Development%20of%20the%20Company) Founded in 1983, the company's shares are dual-listed, and it pursues growth through strategic acquisitions, with recent capital expenditures noted - The company's shares are dual-listed on the NASDAQ Global Select Market (since 2011) and the Tel Aviv Stock Exchange (since 2000)[153](index=153&type=chunk) - Recent acquisitions as part of its M&A strategy include **EnableIT**, **Menarva**, and **Soft IT** in 2021, and **Aptonet** and **Stockell** in 2020[159](index=159&type=chunk)[160](index=160&type=chunk)[161](index=161&type=chunk)[162](index=162&type=chunk)[163](index=163&type=chunk) Capital Expenditures | Year | Capital Expenditures (in millions) | | :--- | :--- | | 2019 | $1.4 | | 2020 | $2.8 | | 2021 | $1.4 | [Business Overview](index=36&type=section&id=B.%20Business%20Overview) The company offers software platforms, vertical solutions, and IT services, leveraging strategic partnerships and industry trends like low-code and cloud for growth - The business model is based on three pillars: software technology platforms, vertical software packages, and professional software/IT services[166](index=166&type=chunk)[173](index=173&type=chunk)[175](index=175&type=chunk) - The company's low-code platforms (Magic xpa, AppBuilder, SmartUX) and integration platform (Magic xpi) are designed to reduce development time and cost for enterprise applications[171](index=171&type=chunk)[172](index=172&type=chunk) - Strategic partnerships include **Oracle** (Platinum Partner), **SAP** (Gold Partner), **Salesforce** (Premier ISV Partner), and **Microsoft** (Gold Competency)[179](index=179&type=chunk)[180](index=180&type=chunk)[181](index=181&type=chunk)[182](index=182&type=chunk) - The company's growth strategy includes expanding within its existing customer base, capitalizing on trends like mobile and cloud, attracting new customers with new offerings, and pursuing complementary acquisitions[254](index=254&type=chunk) Revenue by Type (2019-2021) | Revenue Type | 2021 (in thousands) | 2020 (in thousands) | 2019 (in thousands) | | :--- | :--- | :--- | :--- | | Software sales | $30,934 | $24,272 | $28,084 | | Maintenance and technical support | $36,149 | $33,181 | $30,996 | | Consulting services | $413,242 | $313,741 | $266,550 | | **Total revenues** | **$480,325** | **$371,194** | **$325,630** | Revenue by Geography (2019-2021) | Geography | 2021 (in thousands) | 2020 (in thousands) | 2019 (in thousands) | | :--- | :--- | :--- | :--- | | United States | $254,342 | $177,882 | $158,095 | | Israel | $180,462 | $149,094 | $124,523 | | Europe | $30,085 | $26,947 | $25,788 | | Japan | $11,443 | $12,643 | $12,499 | | Other | $3,993 | $4,628 | $4,725 | | **Total revenues** | **$480,325** | **$371,194** | **$325,630** | [Organizational Structure](index=62&type=section&id=C.%20Organizational%20Structure) This section details the company's global organizational structure, listing numerous wholly-owned and majority-owned subsidiaries across key regions - The company operates through a complex structure of numerous subsidiaries across the globe, with significant operations in the US, Israel, Japan, and Europe[297](index=297&type=chunk)[299](index=299&type=chunk) [Property, Plants and Equipment](index=64&type=section&id=D.%20Property,%20Plants%20and%20Equipment) The company's headquarters and global subsidiaries operate from leased facilities, with total annual rent for all locations reaching $5.4 million in 2021 - The company's principal executive office is a leased facility in Or Yehuda, Israel. The lease expires in June 2033 with options to extend[300](index=300&type=chunk) - The aggregate annual rent for all leased office facilities worldwide was **$5.4 million** for the year ended December 31, 2021[301](index=301&type=chunk) [Operating and Financial Review and Prospects](index=64&type=section&id=ITEM%205.%20OPERATING%20AND%20FINANCIAL%20REVIEW%20AND%20PROSPECTS) This section provides a comprehensive analysis of the company's financial performance, liquidity, capital resources, research and development efforts, and critical accounting policies [Operating Results](index=64&type=section&id=A.%20Operating%20Results) In 2021, total revenues grew 29% to $480.3 million, driven by professional services, though gross margin declined due to revenue mix shift, while operating and net income increased Financial Performance Summary (2020 vs. 2021) | Metric | 2021 (in millions) | 2020 (in millions) | Change | | :--- | :--- | :--- | :--- | | Total Revenues | $480.3 | $371.2 | +29% | | Gross Profit | $133.0 | $109.6 | +21% | | Gross Margin | 27.7% | 29.5% | -1.8 p.p. | | Operating Income | $51.2 | $40.6 | +26% | | Net Income (to Shareholders) | $29.3 | $25.2 | +16% | - The revenue mix shifted in 2021, with professional services accounting for **81% of total revenue**, up from 77% in 2020. This shift contributed to the decline in overall gross margin[319](index=319&type=chunk) - Despite the revenue mix shift, the gross profit mix remained relatively stable, with software solutions contributing **45% of gross profit** in 2021 (vs. 47% in 2020) and professional services contributing **55%** (vs. 53% in 2020)[320](index=320&type=chunk) Research & Development Costs (Net) | Year | Gross R&D Costs (in thousands) | Capitalized Costs (in thousands) | Net R&D Expenses (in thousands) | | :--- | :--- | :--- | :--- | | 2021 | $12,188 | $(3,193) | $8,995 | | 2020 | $12,091 | $(3,302) | $8,789 | | 2019 | $12,382 | $(4,143) | $8,239 | [Liquidity and Capital Resources](index=73&type=section&id=B.%20Liquidity%20and%20Capital%20Resources) The company maintains strong liquidity with $94.8 million in cash and $138.6 million in net working capital, financing operations through cash flow, investments, and debt, while adhering to a dividend policy Liquidity Position (as of Dec 31) | Metric | 2021 (in millions) | 2020 (in millions) | | :--- | :--- | :--- | | Cash, cash equivalents & marketable securities | $94.8 | $89.7 | | Net working capital | $138.6 | $126.4 | | Long-term debt | $20.2 | $13.4 | Cash Flow Summary (2019-2021) | Cash Flow Activity | 2021 (in thousands) | 2020 (in thousands) | 2019 (in thousands) | | :--- | :--- | :--- | :--- | | Net cash from operating activities | $37,810 | $52,296 | $45,948 | | Net cash used in investing activities | $(16,854) | $(9,604) | $(15,440) | | Net cash used in financing activities | $(20,735) | $(39,647) | $(36,980) | - The decrease in operating cash flow in 2021 was primarily driven by a **$27.4 million increase in trade receivables**[364](index=364&type=chunk) - The company has a dividend policy to distribute up to **75% of its annual net income** attributable to shareholders, distributed on a semi-annual basis[374](index=374&type=chunk) [Research and Development](index=77&type=section&id=C.%20Research%20and%20Development) The company prioritizes R&D, investing $12.2 million in 2021, with a team of 228 employees primarily based in Israel, India, and Russia R&D Investment (Gross) | Year | R&D Investment (in millions) | | :--- | :--- | | 2019 | $12.4 | | 2020 | $12.1 | | 2021 | $12.2 | - As of December 31, 2021, the R&D team consisted of **228 employees**, with the majority located in Israel (87), India (114), and Russia (21)[379](index=379&type=chunk) [Critical Accounting Policies and Estimations](index=77&type=section&id=E.%20Critical%20Accounting%20Policies%20and%20Estimations) This section details critical accounting policies, including revenue recognition, business combinations, goodwill impairment testing, and the capitalization and amortization of research and development costs - Revenue Recognition (ASC 606): The company recognizes revenue when control of goods or services is transferred. Software licenses are typically recognized at a point in time, while services and customized solutions are recognized over time[382](index=382&type=chunk)[385](index=385&type=chunk) - Business Combinations (ASC 805): The company allocates the purchase price of acquisitions to the fair value of assets and liabilities, requiring significant estimates for intangible assets like customer relationships and technology[398](index=398&type=chunk)[399](index=399&type=chunk) - Goodwill: Goodwill is tested for impairment annually at the reporting unit level using a discounted cash flow model. No impairment losses were identified in 2019, 2020, or 2021[402](index=402&type=chunk)[405](index=405&type=chunk)[406](index=406&type=chunk) - Research and Development Costs: R&D costs are expensed until technological feasibility is established. Subsequent costs are capitalized and amortized over the product's estimated useful life (typically 5 years)[392](index=392&type=chunk)[395](index=395&type=chunk) [Directors, Senior Management and Employees](index=84&type=section&id=ITEM%206.%20DIRECTORS,%20SENIOR%20MANAGEMENT%20AND%20EMPLOYEES) This section outlines the company's leadership, compensation practices, board structure, employee demographics, and share ownership [Directors and Senior Management](index=84&type=section&id=A.%20Directors%20and%20Senior%20Management) This section lists the company's directors and executive officers, including key figures like CEO Guy Bernstein and CFO Asaf Berenstin, noting the board's composition with external directors - Guy Bernstein is the Chief Executive Officer and a Director. He also serves as the CEO of the parent company, Formula Systems[430](index=430&type=chunk)[433](index=433&type=chunk) - Asaf Berenstin serves as the Chief Financial Officer for both Magic Software and Formula Systems[430](index=430&type=chunk)[438](index=438&type=chunk) [Compensation](index=86&type=section&id=B.%20Compensation) Total compensation for directors and executive officers was approximately $3.45 million in 2021, with a detailed breakdown provided for the five most highly compensated officers - Total compensation for all 13 directors and executive officers as a group was **$3,361,141 in salaries/bonuses** and **$87,971 in pension/benefits** for the year ended December 31, 2021[447](index=447&type=chunk) 2021 Summary Compensation Table (Top 5 Officers) | Name and Position | Salary (in USD) | Bonus (in USD) | Equity Based Compensation (in USD) | All Other Compensation (in USD) | Total (in USD) | | :--- | :--- | :--- | :--- | :--- | :--- | | Arik Kilman, Chairman, Software Group | $278,620 | $416,720 | $956,000 | - | $1,651,340 | | Yakov Tsaroya, President, Coretech | $400,000 | $1,189,000 | - | $54,000 | $1,643,000 | | Arik Faingold, President, Integration Solutions | $669,000 | $196,820 | - | - | $865,820 | | Yuval Baruch, CEO of Hermes Logistics | $275,525 | $176,300 | - | - | $323,925 | | Hanan Shahaf, CEO of Roshtov Software | $317,520 | - | - | $8,100 | $325,620 | [Board Practices](index=88&type=section&id=C.%20Board%20Practices) The company's board, comprising five directors including two external directors, operates with Audit and Compensation Committees, adhering to Israeli law for governance and related-party transaction approvals - The board of directors is currently composed of **five members**, including two external directors as required by Israeli Companies Law[456](index=456&type=chunk)[459](index=459&type=chunk) - The company has an Audit Committee and a Compensation Committee, both comprised of independent directors, to oversee financial reporting, internal controls, and executive compensation[470](index=470&type=chunk)[472](index=472&type=chunk) - Transactions with controlling shareholders or office holders require a stringent approval process involving the audit/compensation committee, the board of directors, and often a special majority of non-interested shareholders[479](index=479&type=chunk)[480](index=480&type=chunk) [Employees](index=98&type=section&id=D.%20Employees) The company's workforce grew to 3,677 employees in 2021, primarily in North America and Israel, with most in technical support and consulting roles, emphasizing retention strategies Employees by Geographic Location | Region | 2021 (Number of Employees) | 2020 (Number of Employees) | 2019 (Number of Employees) | | :--- | :--- | :--- | :--- | | Israel | 1,268 | 1,184 | 1,133 | | Asia | 190 | 204 | 186 | | North America | 1,709 | 1,513 | 1,194 | | South Africa | 12 | 12 | 14 | | Europe | 498 | 126 | 115 | | **Total** | **3,677** | **3,039** | **2,642** | Employees by Activity | Activity | 2021 (Number of Employees) | 2020 (Number of Employees) | 2019 (Number of Employees) | | :--- | :--- | :--- | :--- | | Technical support and consulting | 3,137 | 2,506 | 2,126 | | Research and development | 228 | 233 | 212 | | Marketing and sales | 166 | 161 | 158 | | Operations and administrations | 146 | 139 | 146 | | **Total** | **3,677** | **3,039** | **2,642** | [Share Ownership](index=100&type=section&id=E.%20Share%20Ownership) As of April 1, 2022, directors and executive officers held 260,775 ordinary shares, with equity awards granted under the 2007 Incentive Compensation Plan, extended to 2027 - As of April 1, 2022, directors and executive officers as a group (13 persons) beneficially owned **260,775 Ordinary Shares**[505](index=505&type=chunk)[514](index=514&type=chunk) - The company's 2007 Incentive Compensation Plan allows for equity grants to employees, directors, and consultants and is set to terminate in August 2027[506](index=506&type=chunk)[508](index=508&type=chunk) [Major Shareholders and Related Party Transactions](index=103&type=section&id=ITEM%207.%20MAJOR%20SHAREHOLDERS%20AND%20RELATED%20PARTY%20TRANSACTIONS) This section details the company's major shareholders and outlines its policies and procedures for related party transactions [Major Shareholders](index=103&type=section&id=A.%20Major%20Shareholders) Formula Systems (1985) Ltd. is the controlling shareholder with 45.58% ownership, alongside other major institutional shareholders, all possessing equal voting rights - Formula Systems (1985) Ltd. is the controlling shareholder, holding **45.58% of outstanding shares** as of April 1, 2022. Formula Systems is controlled by Asseco Poland S.A[516](index=516&type=chunk) Major Shareholders (as of Dec 31, 2021) | Shareholder | Percentage of Ownership | | :--- | :--- | | Formula Systems (1985) Ltd. | 45.59% | | Harel Insurance | 9.37% | | Clal Insurance Enterprises Holdings Ltd. | 7.51% | [Financial Information](index=106&type=section&id=ITEM%208.%20FINANCIAL%20INFORMATION) This section provides an overview of the company's consolidated financial statements, legal proceedings, and dividend policy [Consolidated Statements and Other Financial Information](index=106&type=section&id=A.%20Consolidated%20Statements%20and%20Other%20Financial%20Information) This section details a $1.6 million arbitration ruling against the company in 2021 and outlines its dividend policy to distribute up to 75% of annual net income - In July 2021, an arbitrator ruled that the company must pay **$1.6 million in damages** related to a lawsuit filed in 2016 by an Israeli software company concerning alleged copyright infringement warnings[528](index=528&type=chunk) - The company's dividend policy is to distribute up to **75% of its annual net income** attributable to shareholders, subject to board discretion and applicable law[529](index=529&type=chunk) [The Offer and Listing](index=107&type=section&id=ITEM%209.%20THE%20OFFER%20AND%20LISTING) This section describes the markets where the company's ordinary shares are traded [Markets](index=107&type=section&id=C.%20Markets) The company's ordinary shares are dual-listed and traded on the NASDAQ Global Select Market and the Tel Aviv Stock Exchange - The company's ordinary shares are listed on the **NASDAQ Global Select Market (MGIC)** and the **Tel Aviv Stock Exchange (TASE)**[533](index=533&type=chunk)[535](index=535&type=chunk) [Additional Information](index=108&type=section&id=ITEM%2010.%20ADDITIONAL%20INFORMATION) This section provides additional details, including the company's taxation policies and their implications for shareholders [Taxation](index=109&type=section&id=E.%20Taxation) This section outlines Israeli and U.S. tax implications for shareholders, including corporate tax rates, dividend withholding, capital gains, and the company's non-PFIC status for 2021 - The general corporate tax rate in Israel is **23%**, but the company benefits from reduced rates under the Law for the Encouragement of Capital Investments, with some income qualifying for rates as low as **12% or 6%**[552](index=552&type=chunk)[564](index=564&type=chunk)[567](index=567&type=chunk) - For non-Israeli resident shareholders, dividends are generally subject to a **25% withholding tax**, which may be reduced by an applicable tax treaty. Dividends from income under preferred tax regimes may be subject to lower rates (e.g., 15% or 20%)[581](index=581&type=chunk) - For U.S. Holders, dividends are generally taxable as ordinary income but may qualify for lower long-term capital gain rates if the company is considered a "qualified foreign corporation"[588](index=588&type=chunk)[591](index=591&type=chunk) - The company believes it was not a Passive Foreign Investment Company (PFIC) for the 2021 taxable year, but its status is determined annually and cannot be guaranteed for future years[595](index=595&type=chunk) [Quantitative and Qualitative Disclosures about Market Risks](index=120&type=section&id=ITEM%2011.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISKS) This section details the company's exposure to market risks, primarily from interest rate and foreign currency fluctuations, and its strategies for mitigation [Market Risk Analysis](index=120&type=section&id=Market%20Risk%20Analysis) The company faces market risks primarily from interest rate fluctuations and significant foreign currency exposure, particularly to the NIS, Euro, JPY, and GBP, which it mitigates with hedging - The company's main market risks are interest rate fluctuations affecting its investment portfolio and foreign currency exchange risk[612](index=612&type=chunk) - The company's earnings are predominantly affected by fluctuations of the U.S. dollar against the **New Israeli Shekel (NIS)**, **Euro**, **Japanese Yen**, and **British Pound**[616](index=616&type=chunk) - A hypothetical **10% increase** in the value of the NIS relative to the U.S. dollar in 2021 would have increased operating income by **$2.7 million**, while a **10% decrease** would have reduced it by **$2.2 million**[618](index=618&type=chunk) [Controls and Procedures](index=121&type=section&id=ITEM%2015.%20CONTROLS%20AND%20PROCEDURES) This section details management's assessment of the company's disclosure controls and internal control over financial reporting [Management's Assessment](index=121&type=section&id=Management%20Assessment) Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2021, excluding recently acquired businesses - Management concluded that as of December 31, 2021, the company's disclosure controls and procedures, as well as its internal control over financial reporting, were effective[624](index=624&type=chunk)[626](index=626&type=chunk) - The assessment of internal controls did not include companies acquired in 2021 (Menarva, Soft IT, and Enable IT), which represented **6% of revenues** for the year[627](index=627&type=chunk) [Corporate Governance and Other Information](index=122&type=section&id=ITEM%2016.%20Corporate%20Governance%20and%20Other%20Information) This section covers principal accountant fees and the company's corporate governance practices as a foreign private issuer [Principal Accountant Fees and Services](index=122&type=section&id=ITEM%2016C.%20PRINCIPAL%20ACCOUNTANT%20FEES%20AND%20SERVICES) This section details the fees paid to the principal independent accounting firm, Kost Forer Gabbay & Kasierer, totaling $468,000 in 2021, with all services pre-approved Accountant Fees (2020-2021) | Services Rendered | 2021 (in USD) | 2020 (in USD) | | :--- | :--- | :--- | | Audit | $376,000 | $365,000 | | Tax and other | $92,000 | $92,000 | | **Total** | **$468,000** | **$457,000** | [Corporate Governance](index=123&type=section&id=ITEM%2016G.%20CORPORATE%20GOVERNANCE) As a foreign private issuer, the company adheres to Israeli home country corporate governance practices, diverging from certain NASDAQ rules regarding independent directors and shareholder approvals - The company follows Israeli home country practices in lieu of certain NASDAQ rules, such as not requiring a majority of independent directors on the board and not requiring regularly scheduled meetings of only independent directors[639](index=639&type=chunk)[642](index=642&type=chunk) [Financial Statements](index=124&type=section&id=ITEM%2018.%20FINANCIAL%20STATEMENTS) This section includes the independent auditor's report and the company's consolidated financial statements [Report of Independent Registered Public Accounting Firm](index=127&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) The independent auditor issued unqualified opinions on financial statements and internal controls, identifying goodwill valuation as a Critical Audit Matter due to complex estimations - The independent auditor issued an **unqualified opinion** on both the consolidated financial statements and the effectiveness of internal control over financial reporting[653](index=653&type=chunk)[664](index=664&type=chunk) - A Critical Audit Matter (CAM) was identified related to the **Valuation of Goodwill**. The audit of this area was considered complex and highly judgmental due to the significant estimations required for the discounted cash flow analysis, including projections of future revenues, operating margins, and discount rates[659](index=659&type=chunk)[661](index=661&type=chunk) [Consolidated Financial Statements](index=131&type=section&id=Consolidated%20Financial%20Statements) This section presents the company's detailed consolidated financial statements for 2021, prepared under U.S. GAAP, including balance sheets, income statements, and cash flow statements Consolidated Balance Sheet Highlights (As of Dec 31, 2021) | Account | Amount (in thousands) | | :--- | :--- | | **Total Assets** | **$492,045** | | Cash and cash equivalents | $88,090 | | Goodwill | $146,803 | | **Total Liabilities** | **$185,945** | | **Total Equity** | **$275,668** | Consolidated Statement of Income Highlights (Year Ended Dec 31, 2021) | Account | Amount (in thousands) | | :--- | :--- | | Total Revenues | $480,325 | | Gross Profit | $132,994 | | Operating Income | $51,235 | | Net Income | $34,904 | | Net Income (to Magic Shareholders) | $29,332 | | Basic and Diluted EPS | $0.52 |

Magic Software Enterprises Ltd. (NASDAQ:MGIC) Q1 2022 Earnings Conference Call May 12, 2022 10:00 AM ET Company Participants Guy Bernstein - Chief Executive Officer Asaf Berenstin - Chief Financial Officer Yuval Lavi - Vice President, Technology and Innovation Conference Call Participants Tavy Rosner - Barclays Operator Welcome to Magic Software Enterprises 2022 First Quarter Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. With us on the line toda ...

[Financial Performance Overview](index=1&type=section&id=Financial%20Performance%20Overview) This section provides an overview of Magic Software's record-breaking Q1 2022 financial results, highlighting significant revenue and income growth, and management's positive outlook and raised full-year guidance [Q1 2022 Financial Highlights](index=1&type=section&id=Q1%202022%20Financial%20Highlights) Magic Software achieved record Q1 2022 financial results, with revenues growing 29.3% to $138.7 million and strong double-digit increases across GAAP and Non-GAAP income metrics Q1 2022 Financial Performance Summary | | GAAP Q1 2022 | GAAP Q1 2021 | % Change | Non-GAAP Q1 2022 | Non-GAAP Q1 2021 | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | **Revenues** | $138.7M | $107.3M | 29.3% | $138.7M | $107.3M | 29.3% | | **Operating Income** | $15.9M | $12.2M | 30.6% | $18.9M | $15.0M | 26.2% | | **Net Income** | $9.6M | $7.5M | 27.5% | $12.9M | $10.3M | 25.7% | | **Diluted EPS** | $0.20 | $0.15 | 33.3% | $0.26 | $0.21 | 23.8% | - Revenues for Q1 2022 increased by **29.3%** year-over-year to a record **$138.7 million**[1](index=1&type=chunk)[3](index=3&type=chunk) - GAAP net income attributable to shareholders grew **27.5%** to a record **$9.6 million**, or **$0.20** per diluted share[8](index=8&type=chunk) - Cash flow from operating activities for Q1 2022 was **$11.2 million**, compared to **$15.9 million** in the same period last year[8](index=8&type=chunk) [Management Commentary and Outlook](index=2&type=section&id=Management%20Commentary%20and%20Outlook) The CEO attributed the strong Q1 performance to the company's broad business portfolio and healthy market demand for digital transformation services, leading to raised full-year 2022 revenue guidance - Management credits the strong results to a solid execution of their strategy, which involves building a broad business portfolio to meet the healthy demand for digital transformation initiatives[4](index=4&type=chunk) - The company increased its 2022 annual revenue guidance to a range of **$540 to $550 million**, up from the prior range of **$535 to $545 million**, reflecting an anticipated annual growth of **12.4% to 13.5%**[8](index=8&type=chunk) [Detailed Financial Statements](index=5&type=section&id=Detailed%20Financial%20Statements) This section presents the condensed consolidated statements of income, balance sheets, and cash flows, detailing the company's financial position and performance for Q1 2022 [Condensed Consolidated Statements of Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) The company reported Q1 2022 revenues of $138.7 million, with operating income reaching $15.9 million and net income attributable to shareholders at $9.6 million Condensed Consolidated Statements of Income (in thousands USD) | Income Statement (in thousands USD) | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | **Revenues** | $138,705 | $107,298 | | Gross Profit | $37,578 | $30,189 | | Operating Income | $15,942 | $12,208 | | Net Income Attributable to Magic's Shareholders | $9,618 | $7,543 | | Diluted Earnings Per Share | $0.20 | $0.15 | [Condensed Consolidated Balance Sheets](index=8&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of March 31, 2022, total assets increased to $541.2 million, with cash and cash equivalents rising to $110.6 million, while total equity slightly decreased Condensed Consolidated Balance Sheets (in thousands USD) | Balance Sheet (in thousands USD) | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | **Total Current Assets** | $273,977 | $246,779 | | Cash and cash equivalents | $110,647 | $88,090 | | **Total Assets** | **$541,156** | **$492,045** | | Total Current Liabilities | $138,977 | $108,265 | | Total Liabilities | $239,321 | $185,945 | | **Total Equity** | **$272,707** | **$275,668** | | **Total Liabilities and Equity** | **$541,156** | **$492,045** | [Condensed Consolidated Statement of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statement%20of%20Cash%20Flows) Net cash provided by operating activities was $11.2 million in Q1 2022, with significant cash generation from financing activities leading to a $22.6 million increase in cash and equivalents Condensed Consolidated Statement of Cash Flows (in thousands USD) | Cash Flows (in thousands USD) | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $11,169 | $15,866 | | Net cash used in investing activities | ($7,361) | ($1,333) | | Net cash provided by (used in) financing activities | $19,494 | ($3,915) | | **Increase in cash and cash equivalents** | **$22,557** | **$9,435** | [Non-GAAP Financial Measures and Reconciliation](index=2&type=section&id=Non-GAAP%20Financial%20Measures%20and%20Reconciliation) This section explains the company's use of non-GAAP financial measures to provide clearer operational insights and reconciles these measures to their GAAP equivalents [Explanation of Non-GAAP Measures](index=2&type=section&id=Explanation%20of%20Non-GAAP%20Measures) Magic Software uses non-GAAP financial measures to provide management and investors with a clearer view of its core operational performance and business trends, excluding specific items for better comparability - Management believes non-GAAP measures provide useful information for assessing financial and business trends related to the company's operations[8](index=8&type=chunk) - Key exclusions from GAAP figures to arrive at non-GAAP measures include amortization of intangible assets, equity-based compensation, acquisition-related costs, and the related tax effects[15](index=15&type=chunk) [Reconciliation of GAAP to Non-GAAP Results](index=6&type=section&id=Reconciliation%20of%20GAAP%20to%20Non-GAAP%20Results) Non-GAAP operating income for Q1 2022 was $18.9 million, and Non-GAAP net income was $12.9 million, with adjustments primarily for amortization and acquisition-related costs Reconciliation of GAAP to Non-GAAP Results (in thousands USD) | Reconciliation (in thousands USD) | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | **GAAP operating income** | **$15,942** | **$12,208** | | Adjustments | $2,968 | $2,776 | | **Non-GAAP operating income** | **$18,910** | **$14,984** | | **GAAP net income** | **$9,618** | **$7,543** | | Adjustments | $3,290 | $2,725 | | **Non-GAAP net income** | **$12,908** | **$10,268** | - The largest adjustments to reconcile GAAP to Non-GAAP operating income in Q1 2022 were amortization of other intangible assets (**$2.1 million**) and amortization of capitalized software/acquired technology (**$1.3 million**)[19](index=19&type=chunk)

Magic Software Enterprises Ltd. (NASDAQ:MGIC) Q4 2021 Earnings Conference Call March 2, 2022 10:00 AM ET Company Participants Guy Bernstein - Chief Executive Officer Asaf Berenstin - Chief Financial Officer Yuval Lavi - Chief Technology Officer Conference Call Participants Chris Reimer - Barclays Ted Starck-King - William Blair Operator Welcome to Magic Software Enterprises 2021 Fourth Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-a ...

Exhibit 99.1 PRESS RELEASE Magic Software Reports Fourth Quarter and Full Year 2021 Financial Results with Record-Breaking Annual Revenues of $480.3 Million Reflecting 29.4% Year Over Year Growth Operating income for the year increased 26.2% year over year to a record breaking $51.2 million; Non-GAAP operating income for the year increased 27% year over year to a record-breaking $66.8 million Or Yehuda, Israel, March 2, 2022 – Magic Software Enterprises Ltd. (NASDAQ and TASE: MGIC), a global provider of IT ...

Magic Software Enterprises Ltd. (NASDAQ:MGIC) Q3 2021 Earnings Conference Call November 15, 2021 10:00 AM ET Company Participants Guy Bernstein - Chief Executive Officer Asaf Berenstin - Chief Financial Officer Yuval Lavi - Vice President, of Technology and Innovation Conference Call Participants Maggie Nolan - William Blair Operator Welcome to Magic Software Enterprises 2021 Third Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answe ...

Magic Software Enterprises Ltd. (NASDAQ:MGIC) Q2 2021 Results Conference Call August 12, 2021 10:00 AM ET Company Participants Asaf Berenstin - CFO Guy Bernstein - CEO Yuval Lavi - VP, Technology & Innovation Conference Call Participants Tavy Rosner - Barclays Maggie Nolan - William Blair Spencer Kirschman - H.C. Wainwright Operator Welcome to Magic Software Enterprises 2021 Second Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answe ...

SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549 FORM 20-F OR ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________to ___________ OR ☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of event requiring this shell company report Commission fil ...

Financial Data and Key Metrics Changes - The first quarter revenue totaled $107.3 million, reflecting a year-over-year growth of 26% compared to $85.2 million in the first quarter of 2020 [8] - Organic revenue growth was 15.8%, with an additional 10.1% from the consolidation of acquired entities [8] - Operating income increased by 37%, with an operating margin reaching 14%, up from 12.9% last year [9][18] - Non-GAAP net income for the first quarter increased 9.5% to $10.3 million or $0.21 per fully diluted share compared to $9.4 million or $0.19 per fully diluted share in the same period last year [20] Business Line Data and Key Metrics Changes - Revenue mix for the first quarter was approximately 21% from software solutions and 79% from professional services, compared to 22% and 78% respectively in the same period last year [16] - Non-GAAP gross profit for the first quarter was $31.7 million, up approximately 19% from $26.7 million in the first quarter of last year [14] - Non-GAAP gross margin decreased by 180 basis points to 29.6% due to the impact of the Jewish holiday season and Israeli Election Day [15] Market Data and Key Metrics Changes - North America accounted for 50% of total revenue, Israel 38%, Europe 7%, and APAC and the rest of the world accounted for 5% of first quarter revenue [13] - North America contributed 62% of the growth in the first quarter, while Israel accounted for 28% [14] Company Strategy and Development Direction - The company focuses on supporting existing customers and closing new deals, with a strategy to balance growth, resources, investment, and risk across regions and markets [10] - The company is increasing resources to support existing transformation projects and new business opportunities in the second half of the year [10] - The company is dedicated to business continuity and mitigating the pandemic's impact while maintaining growth momentum [11] Management's Comments on Operating Environment and Future Outlook - Management expressed a conservative outlook for the second quarter, noting strong demand but acknowledging ongoing struggles in the U.S. market [28] - The company expects to update revenue guidance in the next quarter, indicating confidence in achieving the upper part of the guidance range [44] - Management highlighted the ongoing digital transformation trend among SMBs as a driver for growth [12] Other Important Information - Cash and cash equivalents amounted to approximately $100.8 million as of March 31, 2021, compared to $92 million in the previous quarter [21] - The company revised its 2021 revenue guidance to a range of $425 million to $435 million, reflecting an annual growth rate of 13.5% to 17.2% [23] Q&A Session Summary Question: Update on hiring plans and wage inflation - Management acknowledged the competitive hiring environment and the need to increase resources to support growth, exploring options for talent overseas [26] Question: Revenue cadence for the rest of 2021 - Management indicated a conservative approach but noted strong demand and the potential for an updated revenue guidance in the next quarter [28][29] Question: Medium and long-term sustainable organic growth rates - Management suggested that organic growth rates could be maintained at around 10% to 12% [30] Question: Operating expenses and sustainability - Management stated that current expense levels are sustainable for the near future, benefiting from a hybrid work model [36] Question: Demand from verticals and customer budgets - Management observed a general increase in demand across sectors, with some recovery in startup companies [38] Question: M&A pipeline and dynamics - Management noted ongoing interest in small acquisitions, with no significant changes in valuation or competition [39] Question: Currency impact on revenue growth - Management indicated that currency exchange impacts were minimal and not material to the overall results [45] Question: Insights on end markets and competitive front - Management reported stability and growth in various sectors, with a focus on expanding services within existing client accounts [48] Question: Update on PowWow integration and XPI version release - Management confirmed that the integration is on track despite challenges in India due to COVID-19 [60] Question: Debt management and cash generation - Management explained that the debt is manageable and provides flexibility for acquisitions, with a fixed rate of 2.6% [65] Question: Future M&A plans - Management expects to close one or two small acquisitions by the end of the second quarter [68]

Financial Data and Key Metrics Changes - In Q4 2020, the company achieved a record revenue of $105 million, a 15% increase compared to the same quarter last year [7] - For the full year 2020, revenue increased by 14% to $371 million, with an operating margin of 14.2% compared to 13.5% in 2019 [8] - Non-GAAP net income for Q4 increased 63% to $10.3 million, or $0.21 per fully diluted share, compared to $6.3 million, or $0.13 per share in the same period last year [23] Business Line Data and Key Metrics Changes - The revenue mix for 2020 was approximately 22% from software solutions and 78% from professional services, compared to 26% and 74% in 2019 [18] - Non-GAAP gross profit for Q4 2020 was $32.5 million, up 11% from $29.4 million in Q4 2019 [16] - Non-GAAP operating income for Q4 increased 34% to $15 million, reflecting an operating margin of 14.6% [20] Market Data and Key Metrics Changes - North America accounted for 49% of total revenues in Q4, while Israel accounted for 39% [14] - For the 12-month period, North America contributed 46% of growth, and Israel contributed 52% [15] - Revenues in North America grew 13% year-over-year, while revenues in Israel grew 16% on a constant currency basis [15] Company Strategy and Development Direction - The company is focusing on strategic execution and has signed over 200 new logos across all business lines in 2020, with one-third related to software solutions [8] - The acquisition strategy aims to expand offerings and increase global footprint, with recent acquisitions of Stockell and Optimate to enhance professional services [10][11] - The company anticipates revenue growth in 2021 to be between $420 million to $430 million, reflecting annual growth of 13% to 16% [25] Management's Comments on Operating Environment and Future Outlook - Management noted strong demand from healthcare, defense, and banking sectors, particularly in Q4 [30] - The effective tax rate for 2021 is expected to be in the range of 19% to 20% [22] - Management expressed confidence in maintaining and potentially improving operating margins in 2021 [39] Other Important Information - The company declared a semi-annual cash dividend of $0.21 per share, reflecting approximately 75% of net income for the second half of 2020 [25] - The company has a strong cash position with approximately $92 million in cash and cash equivalents as of December 31, 2020 [24] Q&A Session Summary Question: What contributed to the strong revenue performance in Q4? - Management highlighted strong demand from the healthcare and defense sectors as key contributors to growth in Q4 [30] Question: What are the expectations for the revenue mix in 2021? - Management expects a slight decline in the percentage of revenue from software solutions, with continued growth in professional services [33] Question: Can you discuss headcount additions and expectations for 2021? - The company grew around 400 people in 2020, with expectations for continued organic growth supported by headcount increases [34] Question: What are the margin expectations for 2021? - Management anticipates maintaining current margin levels with potential improvements in operating margins [39] Question: What verticals were interested in the company's products? - The company maintains a consistent distribution of business across finance, defense, and healthcare sectors [42] Question: How does the company view its strategy regarding acquisitions? - The focus remains on professional services, with a need to invest more in software businesses due to rising acquisition prices [50] Question: How is the integration of recent acquisitions progressing? - Integration is on schedule, with positive customer feedback and excitement about new functionalities [51] Question: Will the company change its marketing approach for new software capabilities? - The company plans to start with its existing customer base before expanding to new clients [56]