Q1 2024 Magic Software Enterprises Ltd Earnings Call
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Magic Software Enterprises 2024 first quarter financial results conference call. Magic's first quarter 2024 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.
Ladies and gentlemen, thank you for standing by welcome to the Magic software Enterprises 2024, our first quarter financial results Conference call Magic's first quarter 2024 earnings release was issued before the market opened this morning, and it has been posted on the Companys web.
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.
Speaker Change: Site 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.
Speaker Change: 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 that projections or other forward looking statements may be provided on this conference call the safe Harbor provision.
Operator: Before we start, I would like to remind everyone that 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 contents 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.
Speaker Change: I did in the press release issued today also applies to the contents of this call.
Speaker Change: 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 world to non-GAAP financial measures.
Speaker Change: A reconciliation schedule showing GAAP versus non-GAAP results has been provided in the press release issued before the market opened this morning, a replay of this call will be available after the call on the Investor Relations section of the Companys website I will now turn the call over to Mr. Asaf Bernstein CFO of Magic software.
Operator: A reconciliation schedule showing GAAP versus non-GAAP results has been provided in the press release issued before the market opened this morning. 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 Berenstin, CFO of Magic Software. Please go ahead.
Speaker Change: Sir Please go ahead.
Asaf Berenstin: Thank you, operator, and thank you, everyone, for joining us today as we report our first quarter 2024 financial results. During the call today, I will review highlights from our first quarter results and provide an overview of our results.
Asaf Bernstein: Thank you operator, and thank you everyone for joining us today as we report our first quarter 2024 financial results joining the call today I will review highlights from our fourth from our first quarter results and provide an overview of our outlook.
Asaf Berenstin: Revenues in the first quarter of 2024 decreased to $130.7 million, down approximately 8.2% from the first quarter of 2023. As we have already mentioned in past calls, the effect of the currency fluctuation on our revenues was still 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 March 31, 2023, revenues for the first quarter of 2024 would have decreased by approximately 6.4% compared to the first quarter of 2023 to $133.3 million, a 2.6 million higher than our reported revenue figure for the quarter. On a sequential basis, revenues for the first quarter increased by 4.1%.
Asaf Bernstein: The first quarter of 2024 decreased $130 7 million down approximately eight 2% for the first quarter of 2023.
Asaf Bernstein: As we already mentioned in past calls the effect of the currency fluctuation on our revenues.
Asaf Bernstein: We're still seeing a significant 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 March 31, 2023 revenues for the first quarter of 2020 fall would have decreased by approximately six 4% compared to the first quarter of 2023 to one.
Asaf Bernstein: Rather than $33 3 million.
Asaf Bernstein: A $2 6 million higher than our reported revenue for the quarter on a sequential basis revenues for the first quarter increased by four 1%.
Asaf Berenstin: As we described in the third quarter results conference call on November 14th, 2023, the reduction in our revenues was caused primarily by two factors. Currency headwinds caused by the significant deterioration of the new Israeli shekel relative to the US dollar in 2023, reaching 3.6% for this quarter, which has hurt our Israeli shekel-denominated operation by $2.56 million for the first quarter. And a substantial and unexpected decline in the demand for our professional services by several of our important US-based blue-chip customers, which, without any advanced certification and due to internal reasons unrelated to our software services, decided during the second half of the third quarter of 2023 and going forward to immediately suspend significant parts of their active time and material-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.
Speaker Change: I believe you've got into the third quarter results conference call on November 14th 2023, the reduction you know our revenues.
Speaker Change: Was caused primarily by two factors currency headwind caused by the significant deterioration of the new Israeli shekel relative to the U S. Dollar in 2023, reaching three 6% for the for this quarter, which will help our Israeli shekel denominated operation by $266 million for the first quarter and.
Speaker Change: It's a substantial an unexpected decline in the demand for our professional services for several of our important U S based blue chip customers, which without any adverse certification and entering another reason that were related to our software services decided during the second half of the third quarter of.
Speaker Change: 2020, you're saying going forward to immediately suspend significant parts of their active time and material based projects behind the results. Also lies the ongoing challenging macroeconomic climate, which did not help our ability to overcome the poverty I'll just boxes, that's way against us.
Asaf Berenstin: Despite these difficulties working against us, we continue to plow forward with our worldwide dedication and confidence that we can continue to execute on sales of our 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 U.S. customers are facing macro and company-specific challenges, the sequential improvement in our top-line results reflect that the vast majority of our customers continue to value our unique proposition and resume to engage us to an increasing degree as a preferred partner for innovative digital transformation initiatives.
Speaker Change: Despite these difficulties working against US we continue to plough forward, we'd all worldwide dedication and confidence that we can continue to execute on sales of our world class suite of products and providing related services.
Speaker Change: Low code No code survey and services offerings are critical as customers continue to automate and digitize the systems and products and what are some of them use customers are facing macro and company specific challenges the sequential improvement in our topline results reflected in the vast majority of our customers continue to value our unique pops.
Speaker Change: And then it jumped to engage us.
Speaker Change: Toward increasing degree.
Speaker Change: So a partner for <unk>.
Speaker Change: These digital transformation initiatives.
Asaf Berenstin: Furthermore, even in this challenging environment, our non-gap operating margin held strong at approximately 13.9% of our revenues, 19 basis points higher compared to the margin during the first quarter of 2023 and 50 basis points higher compared to the full year of 2023.
Speaker Change: Furthermore, even in this challenging environment, our non-GAAP operating margin held strong at above some of your 13, 9% of our revenues 1990 basis points higher compared to the margin during the first quarter of 2023, and 50 basis points higher compared to the full year of 2023.
Asaf Berenstin: This shows the inherent scalability and defensibility 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 in order 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 initiative software solutions and services. We also continue to see excellent execution by our teams.
Speaker Change: This shows the inherent scalability and defensibility of our business model and our ability to maintain and even improve our operating margin whether a revenue cycle for we believe that our ability to maintain the profitability of our operations will keep our balance sheet is strong and will enable us to invest in order to drive revenue growth in the future.
Speaker Change: We look at that business, we see that we continue to leverage our digital technologies and cloud based platforms to create strong demand for our initiative software solutions and services. We similarly continued to see excellent execution by our teams setting aside the fact that that slowed down our revenues in North America, which will beyond our control we are experiencing.
Asaf Berenstin: Setting aside the factors that slowed down our 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. We have made it our mission to help businesses choose the best cloud migration strategy and avoid the pitfalls associated with moving to the cloud.
Speaker Change: Another quarter of solid performance, we called it across all other parts of our business, we continue to see exciting opportunities and growth potential in the dynamic world of cloud technology in managed services. We have made it our vision to help businesses choose the best cloud migration strategy and avoid the pitfalls associate.
Speaker Change: Moving to the cloud we understand that the cloud is not just a technology shift you took the transformative journey that requires expertise dedication and innovation, we apply industry, leading best practices to ensure that our clients cloud deployments to meet the highest standards of performance scalability security and reliability.
Asaf Berenstin: We understand that the cloud is not just a technology shift; it's a transformative journey that requires expertise, dedication, and innovation. We apply industry-leading best practices to ensure that our clients' cloud deployments meet the highest standards of performance, scalability, security, and reliability. Our suite of managed cloud services is designed to address critical aspects of cloud operation and client business continuity, enabling our clients to focus on their core competencies while leaving the management and optimization of the cloud and IT systems environment to us. Our services include Knock as a service, Sock as a service, DevOps as a service, Phenops as a service, and much more.
Speaker Change: Our suite of managed cloud services designed to address critical aspect of cloud operation and clients business continuity, enabling our clients to focus on their core competencies, while leaving the management and optimization of the cloud and I D systems environment to us.
Speaker Change: Services include no cause a survey show cause a service that helps our service field service and much more.
Asaf Berenstin: What sets Magic apart is its deep domain expertise, a customer-centric approach, and a proven track record of delivering successful cloud migrations and transformations. Our team of seasoned professionals leverages their expertise across the three major cloud platforms, AWS, GCP, and Azure, so we are well equipped to provide our customers with the optimal solutions tailored to their unique needs.
Speaker Change: What's the magic of parties deep domain expertise the customer centric approach and a proven track record of delivering successful cloud migration and transformation team of seasoned professionals leverages the expertise across the three major cloud platform AWS UCP and Arsenal and we are well equipped to provide our customers with the optum.
Speaker Change: A mile solution tailored to their unique needs, we have over 350 satisfied customers across various industries and geographies.
Asaf Berenstin: We have over 350 satisfied customers across various industries and geographies trust us with their cloud journey. We are committed to delivering excellence, innovation, and value to our customers, and we are confident that we can help them achieve their cloud goals. Lastly, as you know, Gen AI is a game-changer in the cloud industry, and the leading cloud providers, AWS, Azure, and GCP, are investing heavily in it. We at Magic are strategically positioned to leverage their solutions and offer them to our customers with our value-added services and expertise. Moreover, cloud vendors are partnering with us to implement their solutions for customers, recognizing our strong market presence and reputation.
Speaker Change: Well Trust us with their cloud journey, we are committed to delivering excellence innovation and value to our customers and we are confident that we can help them achieve their cloud goals.
Lastly, as you know Jenny I is a game changer in the cloud industry and the leading cloud providers AWS Azure and GCB on investing heavily in it we have to magic are strategically positioned to leverage their solutions and also them to our customers with our value added services and expertise.
Oh, well the cloud vendors are partnering with us to implement the <unk>.
Solutions to customers, recognizing our strong market presence and reputation plus.
Asaf Berenstin: Proceeding to address our first quarter financial results, in the first quarter of 2024, our revenues in North America amounted to $52.3 million, which is approximately $19.9 million or 27.4% lower compared to Q1 of 2023, and $1.4 million or 2.7% higher compared to Q4 of 2023. Revenues in North America accounted for 40% of our overall quarterly revenues. Revenues from our Israeli operations amounted to $59.2 million, up 11.1% compared to $53.3 million reported in the same period last year.
Speaker Change: Well, it's easy to address our first quarter financial results in the first quarter of 'twenty 'twenty four our revenues in North America amounted to $52 3 million, which is approximately $19 9 million or 27, 4% lower compared to Q1 of 2023, and $1 4 million or two 7%.
Compared to Q4 2023 revenues North America accounted this quarter for 40% of our overall quarterly revenues.
Revenues from our lease really operations amounted to $59 2 million up by 11, 1% compared to $53 3 million reported in the same period last year.
Asaf Berenstin: The impact of the continued devaluation of the new Israeli shekel versus the U.S. dollar has reduced the increase recorded in our dollar-reported Israeli market revenues. On a constant currency basis, calculated based on average currency exchange rates for the three months ended March 31, 2023, revenues for the first quarter of 2024 of our Israeli operation would have increased by an additional $2.1 million year-over-year to $61.3 million, reflecting a year-over-year growth of 15% in real terms. This demonstrates our strong performance in the region and reconfirms our long-term strategic decision to focus on mature, stable, and technology-driven sectors, which allows us to partially compensate for the current slowdown we are experiencing in North America.
Speaker Change: The impact of the continued devaluation of the new Israeli shekel versus the U S. Dollar reduced the interest recorded in our dollar reported Israeli market revenues on a constant currency basis calculated based on average currency exchange rates for the three months ended March 31st 2023 revenues for the first quarter of 2024 Israeli operation would.
Speaker Change: Inches by additional $2 1 million year over year to $61 3 million.
Speaker Change: Electing a year old, but he's also 15% in real terms.
Speaker Change: This demonstrates our strong performance in the region and reconfirm, our long term strategic decision to focus on mature stable and technology, driven sectors, which allowed us to partially compensate for the kogan slowdown we experienced in North America.
Asaf Berenstin: The revenues from our Israeli operations accounted for 45% of our overall quarterly revenues. Turning now to profitability, despite continued currency headwinds and the slowdown in US-based revenues as of the second half of 2023, we were nevertheless able to increase our gross margin for the first quarter of 2024 by 110 basis points to 29.3% of revenues, or $38.3 million, compared to 28.2% in the corresponding quarter of 2023, when it was $40.1 million.
Speaker Change: Revenues form of Israeli operations accounted for 45% of our overall quarterly revenues.
Speaker Change: Turning now to profitability, despite continued currency headwinds and a slowdown in the U S based revenues as of the second half of 2023, we will nevertheless, able to increase our gross margin for the first quarter of 2020, followed by one other than 10 basis points to 29, 3% over revenues of $38 $3 million compared.
Speaker Change: 28, 2% in the corresponding quarter of 2023 in which it was $40 1 million.
Asaf Berenstin: The breakdown of our revenue mix for the first quarter of 2024 was approximately 90% 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%, the same as in 2023 as a whole. The breakdown of our gross profit mix for the first quarter was approximately 42% related to our software solutions and 58% related to our professional services, the same as in 2023 as a whole.
Speaker Change: The breakdown of our revenue mix for the first quarter of 2024 was approximately 90% related to our software solution with a gross margin of approximately 64% and 81% related to our professional services with a gross margin of approximately 21% same as in 2023 as a whole.
Speaker Change: The breakdown of our gross profit mix for the fourth for the first quarter was approximately 42% related to our software solutions and 58% related to professional services.
Speaker Change: Same as in 2023 as a whole.
Asaf Berenstin: Our non-GAAP operating income for the first quarter of 2024 fell on an absolute basis while increasing on a percentage basis compared to the corresponding period of 2023. It was $18.1 million compared to $18.5 million in the same period last year. This reflects an operating margin of 13.9% for the quarter, compared to 13% in the first quarter of 2020. On a constant currency basis, calculated based on average currency exchange rates for the three-month period ended March 31, 2023, NomeGap's operating income for the first quarter of 2024 would have reached $18.5 million, the same as it was in the first quarter of 2023. Financial expenses
Our non-GAAP operating income for the first quarter of 'twenty 'twenty four fell on an absolute basis, while increasing on a percentage basis compared to the corresponding period of 2023.
It was $18 1 million compared to $18 5 million in the same period last few.
Speaker Change: This reflects an operating margin of 13, 9% for the quarter compared to 13% in the first quarter of 2023.
Speaker Change: On a constant currency basis calculated based on average currency exchange rates for the three months period ended March 31st 2023, non-GAAP operating income for the first quarter of 2020, followed would've reached $18 5 million.
Speaker Change: Same as it was in the first quarter of 2023.
Asaf Berenstin: During the quarter, we had financial debt interest expenses of 1.5 million dollars related to our 80 million dollar financial debt. Compared to 0.7 million of interest expenses recorded in the same quarter last year related to a total financial debt of 50 million dollars. The increase in our financial expenses mainly resulted from the increase in our overall debt during 2023 and in our interest rates, as the majority of our debt bears a variable interest rate, which has been subject to higher interest rates in Q1 2024 compared to the same period last year.
Speaker Change: Financial expenses during the quarter, we had financial depth interest expenses of $1 $5 million related to our $80 million of financial debt.
Speaker Change: Two 0.7 million of interest expenses recorded in the same quarter last year related to a total financial debt of $50 million.
Speaker Change: The increase in financial expenses, mainly resulted from the increase in our overall debt during 2023, and you know interest rates level as the majority of our variable interest rate, which has been subject to higher interest rates in Q1 2024 compared to the same period last year.
Asaf Berenstin: Net income attributed to non-controlling interest, as our business combination model has often relied on keeping former shareholders in acquired entities as minority stakeholders, in addition to their managerial role in such entities, we are allocating a portion of our net income to these minority shareholders. Non-GAAP net income attributed to non-controlling interest slightly decreased to $1.6 million compared to $1.9 million for the same period last year.
Net income attributable to Noncontrolling interest as a business combination model has often relies on keeping former shareholders and acquired entities of minority stake holders. In addition to the managerial hall in such entities. We are allocating a portion of our net income to these minority shareholders non-GAAP net income attributed to <unk>.
Speaker Change: Non controlling interest slightly decreased $1 $6 million compared to $1 9 million for the same period last year.
Asaf Berenstin: Our non-GAAP net income for the first quarter decreased by 10.4% to $11.3 million or $0.23 per fully diluted share, compared to $12.6 million or $0.26 per fully diluted share in the same period last year, mainly due to an increase in our financial expenses resulting from increased levels of debt and increased bank interest. Turning now to the balance sheet, as of March 31st, 2023, cash and cash equivalents, and short-term bank deposits amounted to approximately $126 million, compared to $107 million as of December 2023.
Speaker Change: non-GAAP net income for the first quarter decreased by 10, 4% to $11 3 million or <unk> 23 cents per fully diluted share compared to $12 6 million or <unk> 26 cents per fully diluted share in the same period last year, mainly resulting from the increased financial expenses, resulting from interest level of depth and increased bank interest.
Speaker Change: Right.
Speaker Change: Turning now to the balance sheet as of March 31st 2023, cash and cash equivalent and short term bank deposits amounted to approximately $126 million.
Speaker Change: One other than 7 million as of December 2023.
Asaf Berenstin: Our total financial debt as of March 31st, 2024, amounted to $78 million, compared to $81 million as of December 2023. Our cash flow from operating activities was $27.7 million during the first quarter of 2024 compared to $18.8 million in the same period of 2023 and $12.4 million in the fourth quarter of 2023. In our press release issued today, we announced that the Magic Board of Directors has declared a semi-annual cash dividend in the amount of $0.204 per share, or in the aggregate amount of approximately $10 million, reflecting approximately 70% of our net income for the second half of 2023.
Speaker Change: Total financial debt as of March 31, 2020 amounted to $78 million compared.
Speaker Change: Compared to 81 million out of as of December of two.
2023.
Speaker Change: Our cash flow from operating activities was $27 7 million during the first quarter of 2024 compared to $18 8 million at the same period of 2023 and $12 4 million in the fourth quarter of 2023.
Speaker Change: You know a press release issued today, we announced that Magic Board of directors has declared a semiannual cash dividend in the amount of $20.04 per share or.
Aggregate amount of approximately $10 million, reflecting approximately 70% of our net income for the second half of 2023, the dividend will be paid on July 11, 2024 to shareholders of record as of June 27, 2024.
Asaf Berenstin: The dividend will be paid on July 11, 2024, to shareholders of record as of June 27, 2024. Finally, today we are reiterating our 2024 guidance. We expect 2024 full-year revenue in the range of $540 million to $550 million. I will now turn the call over to the operator for questions. Thank you.
Finally today, we are reiterating our 2024 guidance, we expect 2020 for full year revenue in the range of 540 million to five other than $50 million.
Speaker Change: I will now turn the call over to the operator for questions.
Operator: 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.
Speaker Change: Thank you ladies and gentlemen at this time, we'll 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.
Operator: Your questions will be polled in the order they are received. Please stand by while we poll for your questions. The first question is from Maggie Nolan of William Blair. Maggie, please go ahead.
Speaker Change: <unk> for your questions.
Speaker Change: The first question is from Maggie Nolan of William Blair. Please go ahead.
Speaker Change: Maggie.
Jesse: Hi, this is Jesse on behalf of Maggie Nolan. Thanks for taking our questions. We had a few for you today. So first to start, could you talk about how this quarter compared to your expectations and what gives you confidence in achieving full year guidance?
Speaker Change: Hi, This is Jesse on for Maggie Nolan Thanks for taking our questions. We had excuse for you today so.
Asaf Berenstin: I think that, first of all, yes, it met our expectations. We need to remember that, still, although it's on a reduced level, we still have around 70 people. At the highest level, it was 200 people back in October and November, and now it went down in December to around 120, and now 70 people that are still on reserve duty. We saw, except, I would say, if we compare it to last year, except for the U.S. market, though we saw improvement compared to Q4, in the Israeli market, we saw a significant improvement and continued improvement.
Jesse: So first to start could you talk about how this quarter compared to your expectations.
Jesse: And what gives you guide what gives you confidence in achieving full year guidance.
Speaker Change: I think that first of all yes.
Speaker Change: The expectation is we need to remember that still although it's only reduced level and we still have around 70 people.
Speaker Change: At the highest level. It was 200 people in the back in October and November and now it went down in December to a hard one other than 'twenty and all 70 people that are still there.
Speaker Change: On reserves do you do.
Speaker Change: We saw except for I would say, if we compare it to last year, except for the U S market, though we saw improvement compared to Q4, we in the Israeli market, we see a significant improvement and continuous improvement. We also saw that in 2023, 50% on.
Asaf Berenstin: We also saw that in 2023, 15% on a constant currency basis year over year. And we see our backlog, which is increasing. We see strong demand for our services and good execution by our teams, and with that, we feel confident that we will meet the guidance that we provided for 2024. We also mentioned that we expect 2024 to act in a way that the second half will be much stronger than the first half, and 80% of the growth will come during the second half, rather than from the first half. So this is something that we also communicated in prior calls.
Speaker Change: A constant currency basis year over you, we see our backlog, which is increasing we see a strong.
Speaker Change: Strong demand for our services and good execution by our by our teams and with that we feel the confidence that we meet that we will meet the guidance that we provided the full 2020 fold. We also mention that we expect 2024 to act as that in a way that is second half would be much stronger than the first half.
Speaker Change: And 80% of the growth will come from the second during the second half and rather than from the first half.
Speaker Change: So this is something that as we communicated also in prior calls.
Asaf Berenstin: That's great. And then one of my follow-up questions was about the execution you're seeing. Could you elaborate on just the execution you're seeing? Is there anything going on in the sales or delivery organization that you're proud of?
Speaker Change: That's great and then one of my follow up questions was on the execution you're saying.
Speaker Change: Could you elaborate on just to execute the execution, you're saying is there anything going on in the sales or just the reorganization that you're proud of.
Asaf Berenstin: I think that basically things are, you know, working as planned. Again, we made some adjustments in the U.S. operations, of course, because of the situation that we currently face with our customers there. But in the Israeli market, of course, we push on sales, and we see the contribution and the return on our investment in terms of the revenues that we record and that we explain to you.
I think that basically it seems as though you know are walking.
Speaker Change: In plan and again, we did some adjustment in the U S operations of course because of the situations that we call once we face with our customers so but in the Israeli market of course, we push on on Saturday and we see the court when do we see the contribution and the return on our investment in terms of the revenues.
Speaker Change: With that we are that.
Speaker Change: We call them that we have.
Speaker Change: We explained to you about.
Asaf Berenstin: Okay, that makes sense to me. And then the last one we had, we saw one of your subsidiaries acquire a staffing and technology services firm based in the United States back in April. Can you talk about the strategic decision behind the acquisition? Do you think you'll continue pivoting the business to more of a services company than a software company?
Speaker Change: Okay that makes sense to me and then the last one.
Speaker Change: We had we saw one of your subsidiaries acquired in staffing and technology services firm based in the United States back in April.
Speaker Change: Can you talk about the strategic decision behind the acquisition do you think Youll continue pivoting the business to more of a.
Speaker Change: Services company than a software company.
Asaf Berenstin: I don't think it's a question of pivoting in the way that the current state of the business is. We have 80% of our operations which are mainly services, and 20% of the business is relying mostly on our technology, proprietary technology, so this is not something that we call now that we are pivoting towards services. In the U.S. market, if you look back, you would see that we traditionally did acquisitions there and mostly in the staffing area.
Speaker Change: I don't think it's a question of people working in.
Speaker Change: In the way that you know that the current.
Speaker Change: The state of the business, we have 80% of our operations, which are mainly you know services in 20% of the business, which are which is relying on mostly our technology a proprietary technologies. So this is not something that you know that we call. Just now we are pivoting towards a service.
Speaker Change: So in the U S.
Speaker Change: Market. If you look back you would see that you know we traditionally did the acquisitions, there and mostly in the staffing.
Asaf Berenstin: We are acquiring market share. These are companies that, for us, are very easy to integrate with our current operations. Once we buy them, we manage to improve them in terms of their margins, and we manage to push their business forward, depending on the regions that we are acquiring but enhancing, let's say, their clientele, and enhancing their operations. So this is something that we normally do, and we intend to continue doing, and hopefully, with the situation today, the macroeconomic situation in the US, we will find additional opportunities and continue to even buy more as time progress You know, depends on the... depends on the situation.
Speaker Change: We are acquiring market share. These are companies that for us it's a.
Speaker Change: Oh, very easily to where <unk> seen a great.
Speaker Change: We don't call out operations.
Jesse: Awesome. Thanks for taking our questions.
Speaker Change: And we manageable once we buy them, we managed to improve them in terms of the margins and we managed to push the business forward.
Speaker Change: We did.
Speaker Change: It depends on the regions that we are wearing body, but enhancing let's say and the clients that I mean, I think the operation. So this is something that we would that we normally do and we intend to continue doing and hopefully with the situation today the macroeconomic situation in the in the in the U S. Perhaps do even find additional opportunities.
Speaker Change: And continue to even buy more.
Speaker Change: At the time progress, but this is you know very.
Speaker Change: Hmm.
Speaker Change: It all depends on the.
Speaker Change: And on the situation.
Speaker Change: Awesome, Thanks for taking our questions.
Speaker Change: Yeah.
Chris Reimer: The next question is from Chris Reimer of Barclays. Please go ahead.
Speaker Change: The next question is from Chris Reimer of Barclays. Please go ahead.
Chris Reimer: Hi, thanks for taking my questions. Glad to see the reiteration of the year-end guidance. I was wondering if you could give any color on the pipeline and maybe where you're seeing strengths. And then, just touching on the U.S. customers who reduced their interactions with you over the last year, do you see them coming back to the table at some point? Are there ongoing discussions? Just any color on that would be great. Thanks.
Chris Reimer: Hi, Thanks for taking my questions I'm glad to see the reiteration of the year end guidance.
Speaker Change: I was wondering if he could give any color on the pipeline and maybe where you're seeing strength.
Speaker Change: And then just touching on the U S customers are who.
Reduced there.
Speaker Change: Interactions with you over the last year do you see them coming back to the table at some point are there ongoing discussions.
Speaker Change: Just any any color on that would be great. Thanks, Okay. So that relates to the.
Asaf Berenstin: Okay, so I'll relate first to the strong demand that we see here in Israel and in Europe. Definitely, we see a lot of traction around the cloud, around defense, all digital areas. You know, it's all growing, and we see a strong demand. It's for U.S. customers. We usually work with, I would call them probably Fortune 1000 in the U.S. Due to the interest level at the beginning of last year, they stopped many of the projects.
Speaker Change: The strong demand that we see here in the Israeli operation in Europe.
Speaker Change: Definitely Oh, we see a lot of traction around that.
Speaker Change: Love the wrong.
Speaker Change: Defense all digital area of Hum.
Speaker Change: It's all growing and we see a strong demand.
Speaker Change: For the U S customers, we usually work with let's call them, probably fortune for Fortune 1000, and the U S.
Speaker Change: Due to the interest level somewhere beginning golf.
Speaker Change: Last year, they are stopped many of the projects.
Asaf Berenstin: I think now we saw that it was stabilized, and they are starting to hire again. They are way more cautious, so as long as the interest is high, they are way more cautious. By the way, for the small businesses that we work with, we do see a strong demand. For the bigger ones, I think it will take a bit of time. But all in all, the reduction in force has stopped, and they have started to hire, but not at the same scale that we were used to.
Speaker Change: I think now we saw that it was a stabilized and starting to hire again.
We're more cautious so as.
Speaker Change: As long as the interest is high that we're more cautious by the way on the small businesses that we work with we do see a strong demand.
Speaker Change: The bigger one.
Speaker Change: I think it will take epitope.
Speaker Change: But all in all it's.
Speaker Change: The reduction in force has stopped.
Speaker Change: And they started to hire.
Speaker Change: Not at the same scale that we were used to.
Asaf Berenstin: Got it. And then, just touching on your AI strategy, you mentioned partnerships with the large cloud vendors. Can you just give some color on where you're seeing AI touch the business and some potential use cases that come out of that?
Speaker Change: Got it.
Speaker Change: And then just touching on your AI strategy, you mentioned the partnerships with the large cloud vendors can you just give some color on where you're seeing.
Speaker Change: Are you seeing a high.
Speaker Change: Touch the business and some potential use cases that come out of that.
Asaf Berenstin: We see a strong change in the Gen AI area. I think the concept of Gen AI has brought a big change to enterprise customers and to the industry with the fact that we can actually bring business value using this type of solution. Okay, it's no longer like a long journey with the hope of a result. This is a short journey with quick evidence of results, maybe even a failure, but then we're getting up again and jumping on the next iteration.
Speaker Change: Okay.
Speaker Change: We see this great change in the journey.
Speaker Change: Sorry, Jenny I area.
Speaker Change: The concept of Jenny I brought a big change to to the enterprise customers and to the industry with the fact that we can actually.
Speaker Change: Brink abuse this value using these this.
Speaker Change: Type of solution, Okay, it's no longer like.
Speaker Change: A long journey with hoping will fully resolve this is a short journey. We see weak evidence of result may be even a failure, but then getting up again and jumping on the on the next iteration and we have the partnership with AWS and Azure and the GCB on that end.
Asaf Berenstin: And we have a partnership with AWS, Azure, and GCP on that. And we implement some of our technology in combination with their technology, taking it to our customers since most of our business, or a lot of our business, is evolving around data and organizational data. And since we're coming with customers that have data on-premises, and they're moving to the cloud, all this combination is putting us in the perfect place of actually bringing value to our customers in all different areas of the cloud or on-premises with their data or cloud data. So we see it very fast happening.
We implement some of our technology in a combination with dirt technology, taking it into our customers since most of our business. So a lot of our business is evolving around the data and organizational data and since we're coming with customers that have data on prem and they're moving to the.
Speaker Change: Cloud all this combination is putting us in the perfect place of actually bringing value to our customers in all different areas.
Speaker Change: Areas, you'll see us in the cloud or on Prem.
Speaker Change: To date, though or the cloud data so we see it very fast happening.
Chris Reimer: Got it. Thanks. Thanks. That's it for me.
Speaker Change: Got it. Thanks. Thanks, that's it that's it for me.
Speaker Change: Yeah.
Operator: If there are any additional questions, please press star 1. If you wish to cancel your request, please press star 2. 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?
Speaker Change: 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.
Speaker Change: There are no further questions at this time, Mr. Bernstein would you like to make your concluding statement.
Guy Bernstein: Thank you everyone for joining the call. I'm glad that we are starting to see a positive shift again in our business, and hopefully, we'll be able to bring you some good news in the near future. Thank you.
Guy Bernstein: Thank you everyone for joining the call I'm glad that we start to see the.
Guy Bernstein: Positive shifts again in our business.
Guy Bernstein: And.
Speaker Change: Hopefully, we'll be able to bring some good news in the near future. Thank you.
Operator: Thank you. This concludes the Magic Software Enterprises LTD 2024 First Quarter Results Conference Call. Thank you for your participation. You may go ahead and disconnect.
Speaker Change: Thank you. This concludes the magic software Enterprises L. P. D 2024, our first quarter results conference call. Thank you for your participation you May go ahead and disconnect.
Speaker Change: Okay.
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Speaker Change: Okay.
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Speaker Change: Okay.
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