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]

Financial Data and Key Metrics Changes - Revenue in Q3 2020 increased by 11% to $94.9 million compared to $85.8 million in Q3 2019 [15] - Non-GAAP gross profit for Q3 2020 was $30.7 million, up approximately 6% from $28.9 million in Q3 2019 [17] - Non-GAAP net income for Q3 increased 17% to $9.5 million or $0.19 per fully diluted share, compared to $8.1 million or $0.17 per fully diluted share in the same period last year [22] Business Line Data and Key Metrics Changes - Revenue growth was driven by existing customer relationships and new business, with Israel seeing a 23% increase year-over-year, North America 8%, and Europe 7% [7] - The revenue mix for the nine-month period of 2020 was approximately 24% from software solutions and 76% from professional services, compared to 26% and 74% in 2019 [18] Market Data and Key Metrics Changes - North America accounted for 46% of total revenues in Q3 2020, with Israel at 42%, Europe at 8%, and APAC and the rest of the world at 4% [16] - North America contributed 30% of growth in Q3, while Israel accounted for 65% [16] Company Strategy and Development Direction - The company aims to grow organically and through M&A, focusing on enhancing products and services for the SMB market [14] - Management emphasized the importance of digital transformation trends driven by COVID-19, which are expected to create future opportunities for the company [10] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the business model's resilience amid COVID-19, with expectations for continued growth as the global economy recovers [25][14] - The company raised its full-year revenue guidance to a range of $358 million to $365 million, reflecting an annual growth rate of 9.9% to 11.5% year-over-year [26] Other Important Information - The company generated $13.3 million from operating activities in Q3, with a high conversion rate from net profit to cash flow [24] - Cash and cash equivalents as of September 30, 2020, amounted to approximately $86 million, down from $92 million in the previous quarter [23] Q&A Session Summary Question: Guidance for Q4 revenue expectations - Management indicated that guidance reflects a conservative outlook due to seasonal impacts from holidays in Israel and North America [29] Question: Demand sources and budget pushbacks - Management noted strong demand from healthcare, financial, and defense sectors, with minimal impact from COVID-19 on these areas [31][32] Question: M&A activity and valuations - Management confirmed ongoing interest in acquisitions, primarily targeting small companies, while acknowledging high valuations in the market [34] Question: 2021 budget outlook from clients - Management reported optimism from clients in healthcare and financial sectors regarding their budgets for 2021 [40] Question: New client additions and growth sources - Management stated that growth was driven by a mix of new and existing clients, with no significant single client impacting the quarter [42] Question: Telecom sector performance - Management indicated a slight improvement in the telecom sector but noted it remains a smaller business compared to previous years [47][49] Question: SG&A expenses increase explanation - Management attributed the increase in SG&A expenses to a return to normalized business activity and rising legal and insurance costs [50] Question: CVS contribution to revenue - Management confirmed that CVS accounts for around 10% of top-line revenue, with expectations for continued growth [53] Question: Next generation product development timelines - Management provided timelines for the next generation of products, expecting full market availability by mid-2021 [59] Question: Remote work impact on operations - Management confirmed that most employees continue to work from home, with adjustments made to maintain company culture [66]

Magic Software Enterprises Ltd. (NASDAQ:MGIC) Q2 2020 Earnings Conference Call August 13, 2020 10:00 AM ET Company Participants Guy Bernstein - CEO Asaf Berenstin - CFO Yuval Lavi - VP of Technology and Innovation Conference Call Participants Tavy Rosner - Barclays Kevin Dede - H.C. Wainwright Asaf Barel - Oppenheimer Ted Starck-King - William Blair Maggie Nolan - William Blair Operator Welcome to Magic Software Enterprises 2020 Second Quarter Financial Results Conference Call. At this time, all participant ...

Magic Software Enterprises Ltd. (NASDAQ:MGIC) Q1 2020 Earnings Conference Call May 26, 2020 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 Chris Reimer - Barclays Maggie Nolan - William Blair Kevin Dede - H.C. Wainwright Asaf Barel Chandali - Oppenheimer Israel Operator Ladies and gentlemen, thank you for standing by. Welcome to Magic Software Enterprises 202 ...

Company Overview - The company operates as a global provider of proprietary application development and business process integration platforms, with approximately 2,640 employees and a network of over 3,000 independent software vendors[20]. - The company has a diverse portfolio of software solutions, including Magic xpa, AppBuilder, and Magic xpi, which enhance business performance and return on investment[21][22]. - The company is focused on expanding its market presence through a broad channel network, including direct sales representatives and independent distributors[23]. - The company has developed several proprietary software solutions, such as Clicks for healthcare management and Hermes for air cargo management, aimed at improving operational efficiency[26]. - The company emphasizes the importance of continuous evolution of its platforms to incorporate the latest technologies and meet market demands[22]. Financial Performance - Total revenues for 2019 reached $325.63 million, a 14.5% increase from $284.38 million in 2018[44]. - Consulting services generated $266.55 million in revenue, up 16.9% from $227.97 million in 2018[44]. - Gross profit for 2019 was $102.13 million, representing a gross margin of 31.3%[44]. - Net income attributable to Magic's Shareholders was $20.27 million, an increase of 1.9% from $19.88 million in 2018[44]. - Basic earnings per share for 2019 was $0.26, compared to $0.39 in 2018[44]. - Working capital decreased to $138.17 million in 2019 from $158.30 million in 2018[46]. - Total assets increased to $404.61 million in 2019, up from $362.29 million in 2018[46]. - The company has a dividend policy to distribute up to 75% of annual distributable profits, increased from 50%[47]. Growth Strategy - The company is pursuing a growth strategy that includes mergers and acquisitions to enhance its service offerings and market reach[35]. - The company completed over 25 acquisitions in the past decade, with recent acquisitions including NetEffects Inc and Powwow Inc in 2019[54]. - The company has made numerous acquisitions over the past five years, including Datamind, Formula Telecom Solutions, and PowWow Inc., to expand its customer base and service offerings[56]. Market Presence - 49% of revenues in 2019 were generated from North America, 38% from Israel, and 13% from the rest of the world[53]. - A significant portion of the company's revenue is derived from application and integration platforms, vertical software solutions, and related professional services, which are critical for future growth[59]. - The company has experienced significant growth, with employee numbers increasing from 1,181 in 2014 to 2,642 in 2019, which may strain management resources[85]. - 64%, 63%, and 62% of the company's sales in 2017, 2018, and 2019, respectively, were generated outside of Israel, indicating a strong international presence[92]. Risks and Challenges - The company has faced challenges due to the COVID-19 pandemic, which has impacted its operations and financial performance[35]. - The company faces risks associated with mergers and acquisitions, including difficulties in integration and potential disruptions to operations[58]. - Customer satisfaction is crucial, as two customers accounted for 18.2% and 15.8% of revenues in 2018 and 2019, respectively, highlighting the risk of revenue loss if relationships deteriorate[66]. - The company must continuously adapt to rapid technological changes, which may require substantial financial investments and could affect market acceptance of its products[61]. - The lengthy development cycles for new products can take up to two years, potentially delaying revenue generation and impacting financial performance[62]. - The company may face challenges in retaining skilled IT professionals, which could hinder project staffing and affect operational efficiency[65]. - The company faces intense competition in application development platforms, business integration, and BPM tools, which could adversely affect its financial condition[76]. - The company is exposed to economic conditions that impact the telecom industry, which may adversely affect customer demand and revenue generation[81]. Compliance and Security - The company is committed to maintaining high standards of data security and privacy, addressing potential vulnerabilities and regulatory challenges[35]. - Compliance with the European Union General Data Protection Regulation (GDPR) requires significant resources and non-compliance could lead to substantial fines[101]. - The California Consumer Privacy Act (CCPA) imposes new privacy rights and obligations, potentially increasing compliance costs and liability[100]. - Cyber-attacks and breaches of IT security pose risks that could disrupt operations and result in significant expenses or loss of market share[97]. - The company has not experienced material impacts from cyber-attacks to date, but the risk is expected to increase as cloud offerings grow[98]. Technology and Innovation - The company has established strategic partnerships with major firms like Oracle, SAP, and Salesforce to enhance its service offerings[158]. - The low-code development platform market was valued at $5.6 billion in 2018 and is projected to grow at a 45% CAGR to $52.3 billion by 2024[173]. - By 2024, low-code application platforms are expected to account for over 65% of all application development activity[173]. - The demand for mobile and cloud-based applications is driving the need for more complex IT development and integration projects[174]. - The Magic xpa platform allows for rapid development and deployment of applications, significantly reducing time-to-market and project risk[177]. - The company’s technology enables organizations to build powerful applications with little or no coding required, streamlining the development process[186]. Product Development - The company has two major product lines: the Magic xpa Application Platform and the Magic xpi Integration Platform[153]. - The Magic xpi Integration Platform has been enhanced with IMDG architecture to support cloud readiness and high performance[159]. - The AppBuilder platform allows enterprises to build, deploy, and maintain large-scale custom applications without dependency on specific technologies[194]. - Magic xpi Integration Platform, launched in 2003, provides a code-free solution for fast integration and orchestration of business processes, enhancing profitability and customer satisfaction[199]. - In March 2017, Magic xpi version 4.6 was released with new connectors for ServiceMax and OData, improving connectivity and functionality[204].

Financial Data and Key Metrics Changes - The fourth quarter revenue totaled $19.9 million, a decrease from $72.3 million in the same quarter last year and $85.8 million in the previous quarter, reflecting a 26% and 6% decline respectively [12] - Non-GAAP gross profit for the fourth quarter was $29.4 million, up approximately 25% compared to $23.4 million in the fourth quarter of last year [14] - Non-GAAP net income for the fourth quarter increased 10% to $6.4 million or $0.13 per fully diluted share compared to $5.8 million or $0.12 per fully diluted share in the same period last year [19] Business Line Data and Key Metrics Changes - The revenue mix for the 12-month period of 2019 was approximately 26% related to software solutions and 74% related to professional services, compared to 28% and 72% in 2018 [15] - Non-GAAP operating income for the fourth quarter increased 14% to $11.4 million, reflecting an operating margin of 12.6% for this quarter compared to 13.9% in the fourth quarter of 2018 [17] Market Data and Key Metrics Changes - North America accounted for 48% of total revenue in the fourth quarter, with Israel at 38%, Europe at 8%, and APAC and the rest of the world at 6% [13] - Revenues in North America grew 15% year-over-year, while revenues in Israel grew 20% year-over-year for the 12-month period [13] Company Strategy and Development Direction - The company aims to maintain its competitive position as a one-stop shop for digital transformation with enhanced services supported by proprietary software solutions [24] - The acquisition strategy focuses on small to midsize companies with revenues in the range of $20 million to $50 million to expand geographic reach and product offerings [11] Management's Comments on Operating Environment and Future Outlook - The company anticipates revenue in the range of $360 million to $370 million for 2020, reflecting annual growth of 10.6% to 13.6%, although this may be affected by the potential impact of the coronavirus [22] - Management expressed confidence in maintaining a gross margin baseline of 33% for 2020, despite potential disruptions from external factors [28] Other Important Information - The company generated $13.3 million from operating activities in the fourth quarter and $45.9 million during the 12-month period of 2019 [20] - Cash and cash equivalents amounted to approximately $98 million as of December 31, 2019, flat compared to the previous quarter [20] Q&A Session Summary Question: Guidance on margins and outsourcing efforts - Management indicated that margins were flat at 33% in 2018 and 2019, and they expect this to continue into 2020, with potential fluctuations due to external factors like the coronavirus [27][28] Question: Disruptions due to coronavirus - Management is ensuring that key R&D employees can work from home and is equipping those without laptops to mitigate risks [29] Question: Outperformance in 2019 - The company saw increased performance in Israel and Japan, with long-lasting customers utilizing a range of professional services [32][33] Question: Organic growth and guidance for 2020 - Approximately 60% of growth in 2019 came from acquisitions, and the guidance for 2020 includes a mix of M&A and organic growth [34][36] Question: Health of CVS relationship - The relationship with CVS declined from 14% in 2018 to around 10% in 2019, but stability is expected for 2020 following CVS's merger with Aetna [39]