Magic Software Enterprises Ltd. reported third‑quarter 2025 revenue of $161.7 million, a 13.1% year‑over‑year increase that beat the consensus estimate of $154.8 million by $6.9 million. Operating income rose to $17.1 million, while non‑GAAP operating income climbed to $19.9 million, reflecting stronger profitability in the company’s core services. The company declared a quarterly cash dividend of 15.1 cents per share, payable on December 30 2025, representing roughly 75% of the distributable profit for the quarter.
The revenue growth was driven primarily by robust demand in the Israeli and North American segments, where digital, AI, and cloud‑transformation solutions continued to gain traction. However, gross margin contracted by 50–70 basis points year‑over‑year, a result of higher input costs and pricing pressure in certain service lines. The slight margin compression offset some of the top‑line upside, contributing to the company’s earnings miss relative to expectations.
GAAP diluted earnings per share were $0.20, falling short of the consensus estimate of $0.29 by $0.09, while non‑GAAP diluted EPS was $0.25, missing the same estimate by $0.04. The miss can be attributed to the margin contraction and the impact of cost inflation, which eroded profitability even as revenue expanded. The company’s operating cash flow for the nine‑month period also declined from $49.1 million in 2024 to $40.6 million in 2025, underscoring the pressure on cash generation.
Management raised its full‑year 2025 revenue guidance to $610 million–$620 million, an increase from the prior $600 million–$610 million range. The upward revision signals confidence in sustained demand for the company’s digital‑transformation portfolio and a belief that the recent margin improvements will continue. The company also reiterated its focus on cost discipline and strategic investments in high‑return verticals, indicating a balanced approach to growth and profitability.
The company also highlighted the definitive agreement and plan of merger with Matrix I.T., signed on November 3 2025. The deal, valued at approximately NIS 7.7 billion ($2.1 billion), is expected to create one of the largest IT companies in Israel and expand Magic Software’s global footprint. CEO comments emphasized continued strength in key markets, particularly in the United States, noting robust momentum and the strategic advantage the merger will bring.
The combination of a record‑breaking revenue run, a modest earnings miss, a raised revenue outlook, and a significant merger agreement positions Magic Software to capitalize on growing demand for AI‑driven digital solutions while navigating margin pressures and cash flow challenges. The company’s guidance and strategic moves suggest a focus on long‑term value creation amid a competitive and cost‑inflated environment.
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