Q4 2023 Magic Software Enterprises Ltd Earnings Call

Operator: Ladies and gentlemen, thank you for standing by. The conference will begin shortly. Music Music Music Music Music Music Music Music Music Music Music Music Music Music, Ladies and gentlemen, thank you for standing by. The conference will begin shortly. Thanks for watching!

Ladies and gentlemen, thank you for standing by the conference will begin shortly.

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Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Magic Software Enterprises 2023 fourth quarter and full year financial results conference call. Magic's fourth quarter 2023 earnings release was issued before the market opened this morning, and it has been posted on the company's website at www.magicsoftware.com. At this time, all participants are in a listen-only mode.

Okay.

Okay.

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Operator: A brief question and answer session will follow the formal presentation. With us on the line today are Magic CEO, Mr. Guy Bernstein, Magic CFO, Mr. Asaf Berenstin, and Magic CTO, Mr. Yuval Lavi. Before we start, I would like to remind everyone that projections or other forward-looking statements may be provided during this conference call. The safe harbor provision provided in the press release issued today also applies to the content of this call. Magic expressly disclaims any obligation to update or revise any of these forward-looking statements, whether because of future events, new information, a change in its views, or expectations, or otherwise. Also, during the course of today's call, management will refer to non-GAAP financial measures. A reconciliation schedule showing GAAP versus non-GAAP results was provided in the press release issued before the market opened this morning.

Ladies and gentlemen, thank you for standing by the conference will begin shortly.

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Operator: A replay of this call will be available after the call on the Investor Relations section of the company's website. I will now turn the call over to Mr. Asaf Berenstein, CFO of Magic Software. Please go ahead.

Asaf Berenstin: Thank you, Operator, and thank you, everyone, for joining us today as we report our fourth quarter 2023 financial... During the call today, I will review highlights from our fourth quarter results and provide an overview of our outcomes. Revenue in the fourth quarter of 2023 decreased to $125.5 million, down approximately 14.7% from the fourth quarter of 2022. As we have already mentioned in previous calls during the year, the effect of the currency fluctuations on our revenues over the course of the year was, and still is, significant compared to the corresponding quarters of last year. On a constant currency basis, calculated based on the average currency exchange rates for the three months ended December 31, 2022, revenues for the fourth quarter of 2023 would have decreased by approximately 11.2% compared to the fourth quarter of 2022, to $13 As we described in the third quarter results conference call on November 14, the reduction in our third and fourth quarter revenues was caused primarily by two factors.

Okay.

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Ladies and gentlemen, thank you for standing by and welcome to the Magic software Enterprises, 2023 fourth quarter and full year financial results Conference call Magic fourth quarter 2023 earnings release was issued before the market opened.

This morning, and it has been posted on the company's website at Www Dot Magic software Dot com at this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation.

With us on the line today are magic's CEO, Mr. Guy Bernstein, Magic's CFO, Mr. Asaf Bernstein and Magic CTO, Mr. <unk> before we start I would like to remind everyone. The projections or other forward looking statements may be provided on this conference call.

The safe Harbor provision provided in the press release issued today also applies to the content of this call magic expressly disclaims any obligation to update or revise any of these forward looking statements, whether because of future events, new information a change in its views or expectations.

Asaf Berenstin: The currency headwind caused by the significant devaluation of the new Israeli shekel relative to the U.S. dollar in 2023, reaching 9.7% for the year and 9.3% for the fourth quarter, which has hurt our Israeli shekel-denominated operations by 5.7% for the fourth quarter and 22.9 million for the year. And second, a substantial and unexpected decline in demand for our professional services from several of our important U.S.-based blue-chip customers, which, without any advance notification and due to internal reasons unrelated to our software services, decided during the second half of the third quarter and going forward to immediately suspend significant parts of their active time- and materials-based projects. Behind the results also lies the ongoing challenging macroeconomic climate, which did not help our ability to overcome the primary adverse factors that weigh against us.

Or otherwise also during the course of today's call management will refer to non-GAAP financial measures a reconciliation schedule showing GAAP versus non-GAAP results has been provided in the press release issued before the market opened this morning.

Replay of this call will be available after the call on the Investor Relations section of the company's website.

I will now turn the call over to Mr. Asaf Bernstein CFO of Magic software. Please go ahead.

Thank you operator, and thank you everyone for joining us today.

Fourth quarter 2023.

Financial results.

Joining the call today.

Highlights from our fourth quarter results and provide an overview of our outlook.

Revenue in the fourth quarter of 2023 to $125 $5 million down.

Approximately 447%.

The fourth quarter of 2022.

As we already mentioned in the past quarters during the year the effect of the course, you fluctuations on our revenues over the course over to you.

Asaf Berenstin: We also noted a significant post-third-quarter event, the outbreak of the Israeli war against the terrorist organization Hamas, which among other things has currently led to the drafting into active military service of approximately 200 out of our 1,700 Israeli employees. Keep on standing with Israel in its fight, and we shall employ it while fighting and the entire Israeli Armed Forces, continued success at eliminating the terrorist organization that planned and conducted the brutal murder of 1,400 Israeli civilians and continues to hold 134 Israeli hospitals.

Interesting.

Compared to the corresponding quarter of last year on a constant currency basis calculated based on the average currency exchange rates for the three months ended December 31, 2022 revenue for the fourth quarter of 2023 would have decreased by approximately 11, 2% compared to the fourth quarter of 2022.

Other than $40 6 million 5 million more higher than our reported revenue figure for the quarter.

How should we be starting in the third quarter results conference call on November 14, the reduction you no offense.

Asaf Berenstin: The absence of our Israeli employees who have been drafted into active military service since the beginning of the war on October 7, together with the decline in demand for our software services from several of our important U.S.-based blue-chip customers and the continued challenging macroeconomic environment of high interest rates, persistent inflation, and reduced capital spending, has caused us to report significantly lower revenues for the fourth quarter and for the second half compared to the same periods last year. Having said that, I would like to highlight that our fourth quarter revenues have reached the higher end of our fourth quarter revenue guidance target. Despite all of those difficulties working against us, we continue to plow forward with our worldwide dedication and confidence that we can continue to execute on sales of a world-class suite of products and related services. Our AI, low-code, no-code, and services offerings are critical as customers continue to automate and digitize their systems and products. And while some of our customers are facing macro and company-specific challenges, we believe we have the right set of offerings to address our clients' needs.

Fourth quarter revenues was caused primarily by two factors one because the headwind caused by the significant devaluation of the shekel relative to the U S dollar in 2020 three.

Reaching nine 7% for the corn for the year and nine 3% for the fourth quarter, which has hurt our chicken be nominated operation.

And do it all before the fourth quarter and $29 22.

For the year.

Second a substantial an unexpected decline in demand for our professional services.

All of our important U S based customers.

Without any adverse simplification and choose to internal reasons unrelated to our social services. We started during the second half of the third quarter and going forward.

Ridley suspend a significant part of their active time and material projects.

The results also lot of the ongoing challenging macro economic climates would you did not help our ability to overcome department of adverse effects stores.

Way against Us.

We also noted a significant third quarter events, the outbreak of the war against which I always organization come off which among other things of course led to the drop downs to our competitors salaries of approximately people on drug out although 700 employees.

We keep on spending with your burden is fine and we show employers, while farming and being Germany's already armed forces.

Continued success.

Asaf Berenstin: We have seen, even in this challenging environment, that outstanding execution by our teams and our adherence to our cost structure enable us to improve our portability. In the fourth quarter of 2023, our non-gap operating margin held strong at approximately 14.1% of our revenue, 80 basis points higher compared to the margin during the first half of 2023 and 140 basis points higher compared to the corresponding period last year. This shows the inherent scalability and the sensibility of our business model and our ability to maintain and even improve our operating margin, whether our revenues rise or fall. We believe that our ability to maintain the profitability of our operations will keep our balance sheet strong and will enable us to invest to drive revenue growth in the future. As we look at our business, we see that we continue to leverage our digital technologies and cloud-based platforms to create strong demand for our innovative software solutions and services. We also continue to see excellent execution by our teams.

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The absence of Israeli employees when the roster for Arctic monetary fairly soon after the beginning of the war on them. So those servers together with a decline in demand for our software services hold several of our important U S based customers and the continued challenging macroeconomic environment of high interest rates persistent inflation.

And then just capital spending have caused us when we bought significant revenues for the fourth quarter and for the second half compared to the same periods last year.

Having said that I would like to highlight that the fourth quarter revenues have reached the higher end of our fourth quarter revenue guidance targets.

Okay.

Despite all of those difficulties worsening or desktops, we continue to press forward with our worldwide the education and culture that we can continue to execute on shelves with our world class suite of products and related services.

Our low code no code and services offerings are critical as customers continue to automate and discharge their systems and products and what are some of our customers are facing macro and company specific challenges. We believe we have the hardship of offerings to address our clients' needs.

Asaf Berenstin: Setting aside the fact that the slowest revenues in North America, which were beyond our control, we experienced another quarter of solid performance across all other parts of our business. We continue to see exciting opportunities and growth potential in the dynamic realm of cloud technology and managed services. Since the first days of Magic Software, we have been characterized by our ability to take complex IT processes and make them simple.

We are seeing even in this challenging environment and outstanding execution by our auditors.

Adherence to our cost structure enable us to improve our profitability. Despite the lower revenue in the fourth quarter of 2023, our non-GAAP operating margin held strong at approximately 14.1%, although revenue 80 basis points higher compared to the module joined the first half of 2023 and one.

Other than 40 basis points higher compared to the corresponding period last year.

Asaf Berenstin: Today, we put our focus on helping our clients to transition seamlessly to the cloud, enhance their software-as-a-service capabilities, and deliver exceptional value through our comprehensive suite of managed cloud services. We have made it our mission to assist businesses in overcoming the challenges associated with migrating to the cloud and achieving true self-experience. Like many others, we recognize that the cloud is not just technology. It is a transformative journey that demands expertise, dedication, and innovation to which we bring industry-leading best practices, ensuring that our clients' cloud deployments meet the highest standards of performance, scalability, security, and reliability. Our suite of managed cloud services, which include services such as NOC as a service, SOC as a service, DevOps as a service, PNOPS as a service, and much more, are tailored to address critical aspects of cloud operations and...

This shows the inherent scalability and defensibility of our business hold up better.

Duane timing, even improve operating margin, whether all of that and it was right at all for us.

We believe that that ability to link and the profitability of our operations, we keep on our balance sheet strong and will enable us to invest to drive revenue rose in the future.

As we look at our business, we see that we continue to leverage all figured out technologies and cloud based platforms to create strong demand for our innovative social solution and services we.

We similarly continued to see excellent execution by our teams. So I think I started to talk to the slower our revenues in North America, which were beyond our control we experienced another quarter of solid performance recorded of course, all other parts of our business, we continue to see exciting opportunities and growth potential in the dynamic realm or cloud.

<unk> and managed services.

She was the first phase of Magic software, we have been characterized by a bank.

Complex processes and maintenance things that today, we switched our focus on helping our clients to transition seamlessly to the cloud.

So software as a service capabilities and deliver exceptional value to our cause.

Asaf Berenstin: Client Business Continuity, empowering our clients to focus on their core competences while leading the management and optimization of the cloud and IT system environments for our customers. The global cloud services market continues to experience rapid growth, with businesses of all sizes recognizing the benefits of migrating to the cloud. The managed cloud services market, in particular, is projected to witness substantial expansion with a double-digit CAGR due to the increasing complexity of cloud environments and the need for specialized expertise. As of today, Magic has over 300 customers consuming its managed cloud services.

<unk> managed cloud services.

Really though Michelle.

In overcoming the challenges associated with migrating to the cloud and that you can't Trust Us excellence.

Like many others, we recognize that the cloud is not just technology sheets.

The transformative journey that the Maverick stupid dedication and innovation to which we bring industry, leading best practices, ensuring that our class cloud deployments meet the highest standards of performance scalability security and reliability.

Oh Super managed cloud services, which include services such as milk as a service all kinds of service several other service field service and much more a failure to address critical aspect of cloud operations.

And.

Asaf Berenstin: OSF MagicaPath is its deep domain expertise, a customer-centric approach, and a proven track record of delivering successful cloud transformation. Our team of seasoned professionals leverages their expertise across the three major cloud platforms, AWS, GCP, and Azure, and is well positioned to provide our customers with optimal solutions tailored to their unique needs. Our strategic focus centers on being industry leaders in artificial intelligence, AI, and generative AI. This strategic alignment allows us to cater to a diverse clientele, ranging from digital native technology companies to traditional enterprises. By harnessing the power of AI and generative AI, we aim to empower businesses to enhance efficiency and competitiveness in their respective domains.

Sure enough business to continue in terms of business continuity and following our clients to focus on the whole comfort competence of why the management an option.

One of the cloud and Iot system environments to us.

The global cloud services market continuously dropping calls we did have some or all sizes recognizing the benefit of migrating to the cloud. They managed cloud service marketing particular is projected to witness substantial expression with others. Just can't go doing joint due to the increasing complexity of cloud environment and the Nashville.

Especially life expertise.

As of today Magic has over 300 logos consuming these managed cloud services.

What's the magic of Bob's deep domain expertise and customer centric approach and a proven track record of delivering successful cloud transformation.

Emerald seasonal position to leverage their expertise across the three major cloud platform.

In New York, GCB and origin and are well positioned to provide our customers with a person with optimized solutions tailored to their unique needs our strategic focus centers on being an industry leader in artificial intelligence AI in January.

Asaf Berenstin: Proceeding to address our 4th quarter financials, in the 4th quarter of 2023, our revenues in North America amounted to $51.3 million, which is approximately $30.4 million, or 37% lower compared to the 4th quarter of 2022, and $7.2 million, or 12% lower compared to the 3rd quarter of 2023, mainly due to additional cutbacks made by several clients in the U.S., among which some of our Revenue from our Israeli operation amounted to $54.3 million, up by 9.5% compared to $49.6 million reported in the fourth quarter of 2021. The impact of the continued devaluation of the new Israeli shekel versus the U.S. dollar was a material factor in reducing the increase in our dollar-reported Israeli market revenue.

These strategic alignment allows us to cater to diverse client base.

Ranging from digital matrix technology companies to traditional enterprises by harnessing the power of AI engine.

Generally there are.

We aim to empower businesses to enhance efficiency and competitiveness.

These domains.

Proceeding to address our fourth quarter financials in the fourth quarter was 2023, our revenues in North America amounted to $51 $3 million, which is approximately $34 million or 37% lower compared to the fourth quarter was 2022 and seven.

$2 million or 12% lower compared to the third quarter of 2023, mainly due to additional cutbacks made by several of the class in the U S. Our malls, which some of our largest customers during the second half of the third quarter.

We decided to reduce expenses and put in all of the IP investment decision, resulting in a decrease of close to 600, although you, especially as compared to the respective quarter of last year.

Asaf Berenstin: On a current currency basis, calculated based on the average currency exchanges for the three months ended December 31st, 2022, revenues for the fourth quarter of 2023 over the Israeli operation would have increased by an additional $5.6 million. $59.9 million overall, reflecting a year-over-year growth of 20.8% in the lift-end. This demonstrates our strong performance in the region and reconfirms our long-term strategic decision to focus on mature, stable, and technology-driven sectors such as healthcare, which accounts for 20% of our business, high-tech, which accounts for 25%, defense, 10%, finance, 15%, and the public sector, 5%, which allows us to partially compensate for the current slowdown we are experiencing in North America. Turning now to profitability, despite the significant currency headwinds and the problems with our U.S.-based revenues during the second half of 2023, we were nevertheless able to increase our gross margin for the fourth quarter of 2023 by 150 basis points to 30.8% of revenues, or $38.6 million, compared to 29.3% in the corresponding quarter of 2022, when it was $43.2 million.

Revenue for money, he's already operation amounted to $54 3 million up by nine 5% compared to $49 $6 million reported in the fourth quarter was 2022.

The influx of the continuous evaluation of the new Israeli shekel versus the U S. Dollar was immaterial the foxhole and refusing to increase although dollar reported you've already market revenue on.

And of course, Michael when she basis calculated based on the average exchange rates for the three months ended December 31st 2022.

Revenues for the fourth quarter was strange when he feels like he's already operation would have increased by.

Dish amount of $5 6 million.

$59 $5 million overall, reflecting a year over these were also 28% increase there.

This demonstrates our strong performance in the region and reconfirm, our long term strategic decision to focus on mature stable and technology, driven sectors, such as healthcare, which accounts for 20% of our business.

<unk>, which accounts for 25% defense, 10% finance, 15% and the public sector, 5%, which allowed us to.

Partially compensate for the colon slow Darwin experience in North America.

Turning now to profitability, despite the significant currency headwinds and the problems with other U S. Based revenue during the second half of 'twenty to 'twenty three we will nevertheless, able to increase our gross margin for the fourth quarter of 2023 by 150 basis points to 38% of revenues all $38 6 million.

As compared to 1929, 3% in the corresponding quarter of 2022 in which it was $43 2 million.

Asaf Berenstin: The breakdown of our revenue mix for the year of 2023 was approximately 19% related to our software solutions with a gross margin of approximately 64% and 81% related to our professional services with a gross margin of approximately 21%. In 2022, approximately 17% of our revenues will be attributable to our software solution segment, with a gross margin of approximately 64%, same as this year, and 83% related to our professional services, with a gross margin of approximately 21%, again, same as this year. The breakdown of our gross profit mix for the year was approximately 42% related to our software solutions and 58% related to our professional services, compared to 39% and 61% in the same period last year. An on-gap operating income for the fourth quarter of 2023 fell on an absolute basis while increasing on a percentage basis compared to the corresponding period of 2022. It was $17.7 million compared to $18.7 million in the same period last year.

The breakdown of our revenue mutual to IMO 2023 was approximately 19% related to our social solution with a gross margin of approximately 64% and 81% related to our professional services gross margin of approximately 21%.

2022, approximately 17% of our revenues were attributable to our software solutions segment with a gross margin of approximately 64% same as this year and 83% related to our professional services with a gross margin of approximately 21% again same as this year.

The breakdown of our gross profit for the year was approximately 42% electrical system solution and 58% related to our professional services compared to 39% and 61% in the same period last year.

Our non-GAAP operating income for the fourth quarter of 2020, So you spend on an absolute basis weight, increasing on a percentage basis compared to the corresponding period of 2022 and for $17 7 million compared to $18 7 million in the same period last year.

Asaf Berenstin: This reflects an operating margin of 14.1% for the quarter, compared to 12.7% in the fourth quarter of 2021. On a constant currency basis, calculated based on average currency exchange rates for the three-month period ended December 31, 2022, non-GAAP operating income for the fourth quarter of 2023 would have decreased by 2.8% to $18.2 million, excluding recording, and financial expenses. During the quarter, we had financial debt interest expenses of $1.5 million related to our $81 million financial debt compared to $0.7 million of interest expenses recorded in the same period last year related to a total financial debt of $51 million. The increase in our financial expenses mainly resulted from the increase in our overall debt in 2023 and in our interest rate level, as the majority of our debt bears variable interest rates, which have been subject to higher interest rates in Net income attributable to non-controlling interests, as our business combination model has often relied on keeping formal shareholders in acquired entities as minority stakeholders, in addition to their managerial role in such entities.

This reflects an operating margin of 14, 1% for the quarter compared to 12, 7% in the fourth quarter of 2020 two.

On a constant currency basis calculated based on average currency exchange rates for the three months period ended December 31st 2022, non-GAAP operating income for the fourth quarter of 2023 would have decreased by two 8% to $18 2 million.

For the quarter.

But I shouldn't expenses during the quarter, we had fashion depth interest expressive or one $5 million related to our $81 million financial depth.

Back to 0.7 million interest expenses recorded in the same period last year related to a total financial debt of 51 million.

Thank you.

Financial expenses, mainly resulted from the interest you know overall debt in 2023, and you know the interest rate as the majority of that first variable interest rates, which have been subject to higher interest rates and cultural fit compared to the same period last year.

Net income attributable to noncontrolling interests or.

Business combination more than I've, often relies on keeping former shareholders and acquired entities a minority stakeholder. In addition to the manager at home such entities. We are allocating a portion of our net income for those minority shareholders.

Asaf Berenstin: We are allocating a portion of our net income to those minority shareholders. Net income attributable to non-controlling interests increased to $1.5 million compared to $1.6 million for the same period last year, but non-GAAP net income for the fourth quarter decreased by 24% to $11.6 million, or $0.24 per fully diluted share, compared to $13.4 million, or $0.27 per fully diluted share in the same period last year, which was a product of the reduction in our operating income, an increase in financial expenses resulting Turning now to the full year results for the 12 months that ended December 31st, 2023. In 2023, revenues decreased to $535.1 million, down approximately 5.6 percent from $568.8 million in 2022. As we have already mentioned, during the year, the effect of currency fluctuations on our revenues over the course of the year was significant compared to the corresponding year.

Net income attributable to Noncontrolling interest increased $1 5 million compared to one 6 million for the same period last year.

Our non-GAAP net income for the fourth quarter decreased by 24% to $11 6 million or 24 cents per fully diluted share compared to $13 4 million or 27 cents per fully diluted share in the same period last year, which was a product of all the reduction in the operating income and introducing financial expenses, resulting.

For me interest level of tariffs and increased strike interesting.

Turning now to the full year results for the 12 months ended December 31st 2023.

2023 revenues decreased to $535 1 million down approximately approximate five 6% from 568 8 million in 2022.

We already mentioned during the year the effects of the coffee penetration on our revenues over the course of the year was significant compared to the corresponding to use on a constant currency basis calculated based on the average currency exchange rates for the 12 months ended December 31st 2022 revenues fell 23 would have decreased by approximately one 6% to five other there.

Asaf Berenstin: On a constant currency basis, calculated based on the average currency exchange rates for the 12 months ended December 31, 2022, revenues for 2023 would have decreased by approximately 1.6 percent to $557.9 million compared to 2022, $22.8 million higher than our reported revenue figure for the year. Turning now to profitability, despite the significant currency headwind and the problems with our US-based revenues during the second half of 2023, we were nevertheless able to increase our gross margin for the year by 120 basis points to 29.6% of revenues or $158.4 million compared to 28.4% in 2022, when it was $160.8 million. Our non-GAAP operating income for the year fell on an absolute basis, while increasing on a percentage basis It was 71.8 million compared to 74.5 million in the same period last year.

Seven 9 million compared to 2022.

$22.8 million higher than our reported revenue figure for the U K.

Turning now to profitability, despite a significant currency headwind the problems and the problems with a U S. Based revenues during the second half of 'twenty to 'twenty. Three we were nevertheless, able to increase our gross margin for the year by one other than 20 basis points to 29, 6% of revenues.

When I lived in and $58 4 million compared to 28, 4% in 2022 in which it was $168 million.

I've only got public I think English will do you fell on an absolute basis, while increasing on a percentage basis compared to the corresponding periods of 2022.

$71 8 million compared to $74 5 million in the same period last year. This reflects an operating margin of 13, 4% for the quarter home pixel to you compared to $13 one in 2022.

Asaf Berenstin: This reflects an operating margin of 13.4% for the year, compared to 13.1% in 2022. On a constant currency basis calculated based on average currency exchange rates for the 12 months period ended December 31st, 2022, non-GAAP operating income for the year would have reached $74.5 million, same as last year. Our non-gap net income for the year decreased by 6.5% to $48.4 million or $0.99 per fully diluted share, compared to $51.7 million or $0.105 per fully diluted share in 2022, which was a product of the reduction in our operating income and increased financial expenses, resulting in an increased level of debt and increased banking. Turning now to the balance sheet, as of December 31st, 2023, our cash and cash equivalents and short-term bank deposits amounted to approximately $107 million, the same as of September 30th, 2023.

And of course your policy basis calculated based on average currency exchange rates for the 12 months period ended December 31st 2022, non-GAAP operating income for the you would have reached $274 5 million same as last year.

I've only got 19 careful do you decreased by six 5% from $48 4 million or 99 cents to a fully diluted share compared to $51 7 million or whatever then five cents per fully diluted share in 2022, which was a part of him and he's actually you know operating income and Andrew fashion expenses, resulting from an interest level.

And increased banking.

Turning now to the balance sheet as December 31st 2023, our cash and cash equivalents and short term borrowings before they can market to approximate if you want other than 7 million same as of September 32023.

Asaf Berenstin: Our total financial debt as of December 31st, 2023 amounted to $81 million, compared to $88 million as of the end of the previous quarter. Our cash flow from operating activities was $12.4 million during the fourth quarter of 2023, compared to $12.1 million in the same period of 2022. Our cash flow from operating activities for the year increased 29% to $77.9 million, compared to $60 million excluding payments of deferred and contingent considerations related to acquisitions recorded under cash flow from operating activities.

Total financial debt as of December 31st 2023 amounted to 81 million compared to 88 million.

End of the previous quarter.

Our cash flow from operating activities was $12 4 million during the fourth quarter of 2023 compared to $12 5 million in the same period of 2022.

Cash flow from operating activities for the year is 29% to $77 9 million compared to $60 million, excluding payments on deferred and contingent consideration related to acquisition, we called it under the cash flow from opening up the activity.

Asaf Berenstin: In closing, I would like to turn to our annual revenue guidance for 2024. As we stated on our third-quarter earnings call, as of the third quarter, our business activity in North America experienced a significant slowdown, side-by-side with the outbreak of the Israeli war against the terrorist organization Hamas, which, among other things, has led to the drafting into active military service of approximately 200 of our 1,700 Israeli employees. We acknowledge that while short-term conditions are not ideal, we are nevertheless optimistic that in 2024, once the major part of the war in Israel will also be behind us, we expect to return to our normalized historical growth rate in the mid-term. As such, we anticipate 2024 revenues to be in the range between $540 million and $550 million, based on current currency exchanges. With guidance for 2024, when measured against our annualized 2023, fourth quarter revenue on a go-forward basis reflects an annual growth rate of 7.5% to 9.5%. Magic has a well-established track record of growth, profitability, and high-cost generation.

In closing I would like to turn to our annual revenue guidance for 2024.

As we stated on our third quarter earnings call as of the third quarter, our business activity in North America experienced a significant slowdown in side by side to the outbreak of the war against the Telus organization come up which among other things has led to drafting to excuse me to serve as a whole function of U 200 of our 17, either the Israeli employees.

We acknowledge that's why the short term conditions I'm not again, we are nevertheless optimistic that in 2020 for one of the major part of the world needs whether it would also be behind US we expect to return to a normalized historical growth rates in Demeter as such we anticipate funding 20 full revenues to range between 540 million and five.

Other than the 50 million based on current currency exchange rates.

Guidance for 'twenty 'twenty four when measured against our annualized 2023 fourth quarter revenue on a go forward basis, reflecting an annual growth of seven 5% to nine 5%.

Magic has a well established truck vehicles of growing profitability and cash generation across the globe, our dedicated team as long as it is.

Operator: Across the globe, our dedicated team is... We are resolutely focused on executing our strategic vision to not only restore but compress our previous hikes, thereby ensuring sustained growth and the continual enhancement of shareholders' value. I would like to thank our clients and shareholders for their continued support and trust, and we look forward to continuing to deliver results on your behalf. With that, I will turn the call over to the operator for Thank you. Ladies and gentlemen, at this time, we will begin the question and answer session. If you have a question, please press star 1. If you wish to cancel your request, please press star 2. If you are using speaker equipment, kindly lift the handset before pressing the numbers.

There's a totally focused on executing our strategic vision.

On the store, but professor oblivious sites, thereby ensuring sustained growth and they continue.

Continue on even half simple shareholder value I would like to thank our Carrington shareholders for their continued support and trust and we look forward to continuing to deliver results and you'll behalf without that we'd turn the call over to the operator for questions.

Thank you ladies and gentlemen at this time, we will begin the question and answer session. If you have a question. Please press star one if you wish to cancel your request. Please press star two if you are using speaker equipment kind of lift the handset before pressing the numbers youre questions will be pulled in the order. They are received please standby while we poll.

For your question.

The first question is from Chris Reimer of Barclays. Please go ahead.

Yeah, Hi, Thanks for taking my questions and congratulations on the strong results.

I was wondering if you could provide any color on the outlook and maybe some of the contributing factors in arriving at your your revenues range.

Chris Reimer: Your questions will be answered in the order they are received. Please stand by while we poll for your questions. The first question is from Chris Reimer of Barclays; please go ahead. Yeah, hi, thanks for taking my questions and congratulations on the strong results. I was wondering if you could provide any color on the outlook and maybe some of the contributing factors in arriving at your revenue range. Basically, if we separate between the U.S. market, the North American market, and the Israeli market, in the Israeli market, we saw, in 2023 compared to 2022, a continued strong momentum, by the way, despite the events that we are currently experiencing in Israel and the fact that we had... What can you learn about the Israeli effort against Hamas?

Okay.

Basically if we separated between the U S. Small cases in North American market is easily market Israeli market. We saw in 2023 compared to 2022. It continues to strong momentum by the way. Despite the events that we are currently experiencing a nissan and the fact that we have.

Had all through the quarter.

We can come out of the employees and drafted T D.

You said your airports against Hamas.

I think that's what drove our revenues significantly higher was first of all decided that we are.

Operating a strong sector.

Like do you like the finance.

The final sexual can be high 660 N E.

And of course, the defense Expo, which is because of the events in Israel had to accelerated project delivery and even increase the level of the level of operation that we are that we have to deal with them prior to the.

Chris Reimer: What drove our revenue significantly higher was, first of all, the fact that we are operating in strong sectors like Israel, like finance, the finance sector, the high tech sector, and, of course, the defense sector, which, because of the events in Israel, had to accelerate projects, deliverables, and even increase the level of operations that we had with them prior to the crisis. The second half is expected to be significantly higher than in the first half. I would assume that 20 to 25% of the growth will happen during the first half of 2022, and the rest will happen during the second half of 2022. I got it. And how would you describe the business environment in the U.S. versus the last two quarters? Have you seen any change?

Due to the happenings of the newsroom.

And with that I would say that when we show away guidance is food food grossly next year between seven 5% to 95% still I think that the second half is expected to be significantly higher than than in the first half if I need to.

Assume I would I would assume that 20% to 25% of the growth will happen during the first half and the rest will happen during the second half of 'twenty 'twenty four.

Got it.

And how would you describe the environment in the U S versus the last two quarters have you seen any change.

Asaf Berenstin: We, um... All right. Thank you, www.MagicSoftware.com. So we don't... Oh, And so, you know, we're trying, uh, it's a bit. We don't want to sound too optimistic, but we have started to see new hiring. But yeah, this is on a small scale, and therefore we prefer to... Conservative Party.

I think we we saw.

And.

Come down or it's Oh resumes.

Fees any more cuts.

Do you know what it's running.

Okay.

We don't want to send to solve the.

Domestic was when you start to see a new hirings.

But what do you how do you fill the small scale therefore, we prefer to.

Vehicles.

Got it.

Chris Reimer: Got it. Thanks a lot. That's it for me.

Thanks, a lot that's it for me.

Okay.

Margaret Marie Niesen Nolan: The next question is from Maggie Nolan of William Blair. Please go ahead. Hi, thank you for all the detail. Can you talk about talent management and your utilization and margin targets for 2024, given the changes in the client base as well as the draft in Israel? I think that currently, and again, looking forward next year, as we said, in the mid-term, to return to our regular pace of operation or growth, I think that our growth margins should remain relatively stable at around 29%. As I mentioned during the call, our growth margins from the software side of www.magicsoftware.com, If you look back at three, five, seven years ago, you see that it is around 64%. Our gross margin from our professional services is around between 21% or 22%, also going forward.

The next question is from Maggie Nolan of William Blair. Please go ahead.

Hi, Thank you for all the detail can you talk about talent management and your utilization and margin targets for 2024, given the changes in the client base as well as the dropped in Israel.

I think that's going to lead them.

And again looking for the next year as we said in the meeting to Mr them to return to us.

They go to a peso Xu duration goes live and I'm, assuming that all gross margin and <unk>.

<unk> should remain relatively stable at 29%.

As I mentioned during the call.

Our gross margins on the software side of the.

All information is if you look back who really five seven years back you'll see that he sees all 64%.

Gross margin for miles sufficient services used to hobbies between 'twenty, one and 22%.

Also going forward it seems that.

Margaret Marie Niesen Nolan: I think that those margins are pretty stable going forward. The shift sometimes on our weighted average gross margin is, as in this year, because of the changes, because of the mix between those two operations, because of the fact that the level of our professional services went down significantly in the U.S. market, lowering our lowest part of the margin business. We managed to experience higher margins on average. Again, looking back, I think that the 13 percent operating margin is what we are currently always aiming to be around or at that level.

Those margins are pretty stable did you say, but going forward the shift sometimes on a.

Weighted average gross margin is I mean do you feel goes because of the changes because of the mix between those two operations because of the fact that the level of our professional services went down significantly in the U S market the lowering of low it was part of the margin business, we managed to experience.

Margins on average and again looking back I think the 13% operating margin.

What we are calling T always aiming to be a round.

Well at that level.

Thank you and with respect to your revenue guidance for the year, what are the foreign currency assumptions baked into that guidance.

Asaf Berenstin: And with respect to your revenue guidance for the year, what are the foreign currency assumptions baked into that guidance? at www.magicsoftware.com www.magicsoftware.com, The current level of currency exchange. And on a year-over-year basis, what is roughly the impact using the current level? Oh, basically, the average in 2023 was around 3.69, the current exchange rate; we are at 3.65, so currently, there shouldn't be any significant difference except for Q4 where the average rate was around 3.8, and today we are at 3.65. So again, on the Israeli side of our operation, 40% of our revenues today should pick up our profit.

As I mentioned on the call do we take the call and we don't try to anticipate the.

The fluctuation will be a colon see otherwise we would we would have been I do I do.

The other parcel business multimillion lupinacci.

We use the current level of <unk>.

The current levels are going to change the quality of exchange rate.

Yeah.

And on a year over year basis, what is roughly the impact using the correct level.

And basically the averaging a 2023 was $3 69 V calling for exchange rate.

$3 65, that's so I don't so currently there's there shouldn't be any significant difference except for Q4, where the average age was around 3.8 and today. We are at $3 65, So again on the Israeli side of operation, 40% of our revenues today got that shoot.

I'll pick up on the Oh, gosh, it's a little bit.

Operator: Thank you. If there are any additional questions, please press star 1. If you wish to cancel your request, please press star 2.

Thank you.

Okay.

If there are any additional questions. Please press star one if you wish to cancel your request. Please press star two please standby, while we poll for more questions.

Operator: Please stand by while we poll for more questions. There are no further questions at this time. Mr. Bernstein, would you like to make your concluding statement? Thank you everyone for joining the call. There will be news in the near future. Thank you. This concludes the Magic Software Enterprises LTD 2023 fourth quarter results conference call. Thank you for your participation. You may go ahead and disconnect. The End

There are no further questions at this time, Mr. Bernstein would you like to make your concluding statement.

So thank you everyone for joining the call.

Hum.

To hope to bring.

Good news in the near future.

Well Jordan.

Thank you. This concludes the magic software Enterprises L. T. D 2023 fourth quarter results Conference call. Thank you for your participation you May go ahead and disconnect.

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