Q2 2024 Magic Software Enterprises Ltd Earnings Call
Speaker Change: [inaudible]
Operator: Ladies and gentlemen, thank you for standing by. Welcome to Magic Software Enterprises' 2024 Second Quarter Financial Results Conference Call. Magic's second 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 listen only mode. A brief questions and answer session will follow the formal presentation.
Speaker Change: Ladies and gentlemen, thank you for standing by. Welcome to Magic Software Enterprises' 2024 Second Quarter Financial Results Conference Call.
Operator: 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 have been 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, expectations, or otherwise.
Asaf Berenstin: 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. A replay of this call will be available on the investor relations section of the company's website. South, please go ahead.
Speaker Change: Magic's second quarter 2024 earnings release was issued before the market opened this morning and it has been posted on the company's website at
Speaker Change: At this time, all participants are in listen-only mode. Brief questions and answer session will follow the formal presentation.
Speaker Change: With us on the line today are Magic CEO Mr. Guy Berenstin, Magic CFO Mr. Asaf Berenstin and Magic CTO Mr. Yuval Lavi.
Speaker Change: Before we start, I would like to remind everyone that projections or other forward looking statements may have been provided on this conference call.
Speaker Change: The safe harbour provision provided in the press release issued today also applies to the content 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, expectations or otherwise.
Speaker Change: Also, during the course of today's call, management will refer to non-GAAP financial measures.
Speaker Change: A reconciliation schedule showing GAAP versus non-GAAP results have been provided in the press release issued before the market opened this morning.
Speaker Change: A replay of this call will be available.
Speaker Change: on the investor relations sections of the company's website. I will now turn the call over to Mr. Asaf Berenstin, CFO of Magic Software. Asaf, please go ahead.
Asaf Berenstin: Thank you, Alvarezo, and thank you, everyone, for joining us today as we report our second quarter 2024 financial results. During the call today, I will review highlights from the second quarter and provide an overview of our outline. Revenues in the second quarter of 2024 decreased $136.3 million, down approximately 1% from the second quarter of 2020. On a constant currency basis, calculated based on the average currency exchange rates for the three-month end of June 30, 2023, revenues for the second quarter of 2024 would have increased by approximately 0.4% to $138.1 million.
Speaker Change: [inaudible]
Asaf Berenstin: Thank you Operator and thank you everyone for joining us today as we report our second quarter 2024 financial results.
Speaker Change: During the call today I will leave you highlights for a second quarter result and provide another view of our channel.
Speaker Change: Revenues in the second quarter of 2024 decreased to $136.3 million, down approximately 1% from the second quarter of 2023.
Speaker Change: On a constant currency basis calculated based on the average currency exchange rates for the three months ended June 30, 2023, revenues for the second quarter of 2024 would have increased by approximately 0.4% to $138.1 million.
Asaf Berenstin: This quarter showcased solid execution, with Israel delivering sequential mid-single-digit growth of 6.6%, and North America delivering sequential double-digit growth of 11.1%, primarily due to the addition of Tyrolese ink acquired at the beginning of the second quarter. Theories, Inc. is an IT and engineering consulting firm based in Indiana with extensive IT industry experience that specializes in delivering strategic IT solutions, application development, cloud, and staff augmentation services across diverse sectors including healthcare, life science, financial services, retail, and manufacturing.
Speaker Change: This photo showcase solid execution with either a delivering sequential mid-single digit growth of 6.6% and North America delivering sequential double digit growth of 11.1%
Speaker Change: Primarily resulted from the addition of Tyrolese ink acquired at the beginning of the second quarter.
Speaker Change: Theory being is an IT and engineering consulting firm Berenstin in Diana with extensive IT industry experience who specialize in delivering strategic IT solutions.
Speaker Change: Applications Development, Cloud, and Staff Augmentation Services, I cause diverse sectors, including healthcare, life science, financial services, retail and manufacturing.
Asaf Berenstin: Peore's management has worked together for many years and it is a great addition to our operations in the U.S. As I mentioned in the previous calls, the reduction in our second quarter and first half revenues compared to last year's results is primarily breven by two fucks. Currency headwind caused mainly by the continued devaluation of the new Israeli shekel relative to the U.S. dollar, amounting to 2.1% year-over-year for the quarter and 2.8% for the six-month period, which along with the devaluation of other foreign currencies reduced the reported revenues by $1.9 million for the second quarter and by $4.5 million for the six-month period, and in more important, the substantial and unexpected decline in demand for professional services from several of our important US-based blue cheap customers, which due to internal reasons unrelated to our services, decided during the second half of 2023 and going forward to suspend significant parts of their active time and material-based projects, particularly in the face of software demand and budget constraints. That said, over the past 6 to 9 months, client sentiment in the U.S. has remained stable with no significant changes, either positive or negative.
Speaker Change: Theory of Management has worked together for many years and it is a great addition to all operations in the U.S.
Speaker Change: As I mentioned in the previous calls, the reduction in our second quarter and first half revenues compared to last year's results is primarily driven by two factors.
Speaker Change: Currency headwind caused mainly by the continued devaluation of the new Israeli shekel relative to the U.S. dollar, amounting to 2.1% year-over-year for the quarter and 2.8% for the six-month period.
Speaker Change: which along with the evaluation of other foreign currencies it used a reported revenues by $1.9 million for the second quarter and by $4.5 million for the six months period.
Speaker Change: And...
Speaker Change: In more important, the substantial and unexpected decline in demand for professional services from several other important U.S. base blue chip customers.
Speaker Change: which due to internal reasons unrelated to our services decided during the second half of 2023 and going forward to suspend significant parts of their active time and material-based projects particularly in the face of software demand and budget constraints.
Speaker Change: That said, over the past six to nine months, client sentiment in the U.S. has remained stable with no significant changes, either positive or negative.
Asaf Berenstin: While we have not yet seen material marked improvement, we believe that an improving U.S. economy could serve as a catalyst for growth in our U.S. operations. Although our full-year guidance does not currently account for any macroeconomic improvement, we are confident that we are on the right path and momentum is... Despite this 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 in providing related services. Our AI, low-code, no-code, and service offerings are critical as customers continue to automate and digitize their systems and products.
Speaker Change: While we have not yet seen material market improvement, we believe that an improving U.S. economy could serve as a catalyst for growth in our U.S. operation.
Speaker Change: Although a full year guidance does not currently account for any macroeconomic improvement we are confident that we are on the right path and momentum is building.
Speaker Change: Despite its difficult walking 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 suit of product and in providing related services.
Speaker Change: Our AI, low-code, no-code and service offerings are critical as customers continue to automate and digitize their systems and products.
Asaf Berenstin: 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. Furthermore, even in this challenging environment, our non-gap operating margin for the second quarter held strong at approximately 13.4% of our revenues, the same as in the second quarter of 2026. Our operating margins for the first half of 2024 increased by 40 basis points to 13.6% compared to 13.2% in the same period.
Speaker Change: 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: Furthermore, even in this challenging environment, our non-gap operating margin for the second quarter held strong at approximately 13.4% of our revenues, same as in the second quarter of 2023.
Speaker Change: Operating mileage for the first half of 2024 increased by 40 basis points to 13.6% compared to 13.2% in the same period last year.
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 similarly continue to see excellent execution by our...
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 our revenues rise or fall.
Speaker Change: 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.
Speaker Change: 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 initiative software solution and service.
Speaker Change: We similarly continue to see excellent execution by our team.
Asaf Berenstin: Setting aside the factors that slowed us 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: Setting aside the factors that slowed us down, our revenues in North America, which were beyond our control, we experienced another quarter of solid performance recorded 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.
Speaker Change: We have made it our vision to help businesses choose the best cloud migration strategy and avoid the pitfalls associated with moving to the cloud. We apply industry-leading best practices to ensure that our clients, cloud deployments, meet their highest standards of performance, scalability, security and reliability.
Asaf Berenstin: We apply industry-leading best practices to ensure that our clients' cloud deployments meet their highest standards of performance, scalability, security, and reliability. Our suite of managed cloud services is designed to address critical aspects of cloud operations and client business continuity, enabling our clients to focus on their core competencies while leaving the management and optimization of their cloud and IT system environment to us. Our services include Knock-as-a-Service, Sock-as-a-Service, DevOps-as-a-Service, Phenox-as-a-Service, and much more.
Speaker Change: Our suite of managed cloud services is designed to address critical aspects of cloud operations and client business continuity.
Speaker Change: Enabling our clients to focus on their call competencies, while leaving the management and optimization of the cloud and IT system environment to us. Our services include knock-up service, knock-up service, their box-up service, seen-up service and much more.
Asaf Berenstin: What such magic appart is deep domain expertise, a customer-centric approach, and a proven track record of delivering successful cloud migration and transformation. We have approximately 400 satisfied customers across various industries and geographies who start us on 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. Proceeding to our address, our second quarter financial results.
Speaker Change: What sets Magica apart is the deep domain expertise, a customer-centric approach and a proven track record of delivering successful cloud migration and transformation.
Speaker Change: We have approximately 435 customers across various industries and geographies who start 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.
Asaf Berenstin: In the second quarter of 2024, our revenues in North America amounted to $58 million, which is approximately $11.2 million or 16.2% lower compared to Q2 of 2023, and $5.8 million or 11.1% higher compared to Q1 of 2024. Revenues in North America accounted for 43% of our overall quarterly revenues. Revenues from our Israeli operation amounted to $58.2 million, up by 12.6% compared to $51.7 million reported for the same period last year.
Speaker Change: Proceeding to address our second quarter financial results.
Speaker Change: In the second quarter of 2024, our revenues in North America amounted to 68 million dollars, which is approximately 11.2 million dollars or 16.2% lower compared to Q2 of 2023.
Speaker Change: and 5.8 million dollars or 11.1% fire compared to Q1 of 2024. Berenstin is the North America accounted for 43% of our overall quarterly revenues.
Speaker Change: Revenue for Malaysia, the operation amounted to $58.2 million, up by 12.6% compared to 51.7 million reported on the same period last year.
Asaf Berenstin: This demonstrates a 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 slowdown we experienced in the second half of 2023 in North America. Revenue from our Israeli operations accounted for 43% of our overall quarterly revenue. Turning now to profitability, our gross margin for the second quarter of 2024 amounted to 29.4% of revenues, or $40.1 million, compared to 30.3% in the same corresponding quarter of 2023, or $41.6 million for the same period last year.
Speaker Change: This demonstrate a strong performance in the region and reconference a long-term strategic decision to focus on mature, stable and technology driven.
Speaker Change: Sectors, which allow them to partially compensate for the slowdown with experience from the second half of 2023 in North America. Revenue for Marisa Relioperations accounted for 43% of all the whole quarter of these revenues.
Speaker Change: Turning now to profitability, our gross margin for the second quarter of 2024 amounted to 29.4% of revenues, or $4.1 million.
Speaker Change: compare to 30.3% in the same call as 1.4 of 2023.
Speaker Change: or 41.6 mm for the same period last year.
Asaf Berenstin: On a semiannual basis, our gross margin for the first half of 2024 amounted to 29.4%, or $78.4 million, up by 20 basis points from 29.2% in the same period last year. The breakdown of our revenue mix for the six-month period of 2024 was approximately 19% related to our software solutions, with a gross margin of approximately 65%, and 81% related to our professional services, with a gross margin of approximately 20% The breakdown of our gross profit mix for the 6 months period of 2024 was approximately 43% related to a social solution and 57% related to a professional service. Arnon Gap's operating income for the second quarter of 2024 was $18.2 million, compared to $18.4 million in the same period last year.
Speaker Change: On a semi-annual basis, a gross margin for the first half of 2024 amounted to 29.4% or 78.4 million dollars up by 20 basis points from 29.2% in the same period last year.
Speaker Change: The breakdown of our revenue mix for the six-month period of 2024 was approximately 19% related to our software solutions, with a gross margin of approximately 65%, and 81% related to our professional services, with a gross margin of approximately 20%.
Speaker Change: The breakdown of our gross profit mix for the six-month period of 2024 was approximately 43% related to our software solutions and 57% related to our professional services.
Speaker Change: A non-gap operating or income for the second quarter of 2024 was 18.2 million dollars, compared to 18.4 million in the same period as last year.
Asaf Berenstin: This reflects an operating margin of 13.4% for the quarter, same as in the second quarter of 2020. On a constant currency basis, calculated based on average currency exchange rates for the three-month period ended June 30, 2023, non-GAAP operating income for the second quarter of 2024 would have reached $18.4 million, same as it was in the second quarter of 2024. Financial expenses. During the quarter, we had financial debt interest expenses of 1.1 million dollars related to our 75 million dollar financial debt. Compared to 1.1 million dollars of interest expenses recorded in the same quarter last year related to a total financial debt of 70 million, the increase in our financial extend stress mainly resulted from foreign currency exchange and saturation income of approximately $0.8 million recorded with respect to monetary assets and liabilities denominated in foreign currency in the respective quarter
Speaker Change: This reflects an operating margin of 13.4% for the quarter, same as in the second quarter of 2023.
Speaker Change: On a constant currency base is calculated based on average currency exchange rates for the 3 month period and then the June 30, 2023, non-gap operating income for the second quarter of 2024, would have reached 18.4 million dollars same as it was in the second quarter of 2023.
Speaker Change: Financial expenses, during the quarter we have financial debt interest expenses of $1.1 million, related to a 75 million dollar financial debt, compared to a 1.1 million dollar of interest expenses recorded in the same quarter last, related to a total financial debt of 70 million.
Speaker Change: The increase in our financial expenses mainly resulted from foreign currency exchange and fluctuation income of approximately 0.8 million dollars recorded with respect to monetary assets and liabilities, the nominated in foreign currency in the respective quarter.
Asaf Berenstin: Net income attributed to non-controlling interests, as our business combination model occasionally relies on keeping former shareholders in acquired entities as minority stakeholders, in addition to their managerial roles in such entities, we are allocating a portion of our net income to these minority shareholders. Non-GAAP net income attributable to non-controlling interests slightly increased to $2,000,000 compared to $1,800,000 for the same period last year.
Speaker Change: Net income attributed to non-controlling interests, as our business combination model occasionally relies on keeping former shareholders in acquired entities as minority stakeholders, in addition to their managerial roles in such entities, we are allocating a portion of our net income to these minority shareholders.
Speaker Change: Non-GAAP net income attributed to non-GAAP to non-controlling interest slightly increased to $2 million compared to $1.8 million for the same period last year.
Asaf Berenstin: Our non-GAAP net income for the second quarter decreased by 13.6% to $11.7 million, or $0.24 per fully diluted share, compared to $13.5 million, or $0.28 per fully diluted share, in the same period last year, mainly resulting from currency exchange rate fluctuation income of approximately $0.8 million recorded with respect to monetary assets and liabilities denominated in foreign currency in the respective quarter and an increase in our tax expenses. Turning now to the balance sheet, as of June 30, 2024, cash and cash equivalents and short-term bank deposits amounted to approximately $108.4 million, compared to $106.7 million as of December 31, 2023. Total financial debt as of June 30, 2024 amounted to approximately $65 million, compared to $81.2 million as of December 31, 2023.
Speaker Change: Our non-gap net income for the second quarter decreased by 13.6% to $11.7 million, or $0.24 per fully diluted share, compared to $13.5 million, or $0.28 per fully diluted share in the same period last year.
Speaker Change: Mainly resulting from conventional change rate fluctuation in come-of-approximately 0.8 million recorded with respect to monetary asset and liabilities. Denominated in foreign currency in the respective quarter and increase in our tax expenses.
Speaker Change: Turning now to the balance sheet, as of June 30, 2024, cash and cash equivalent and short-term bank deposit amounted to approximately $108.4 million, compared to $106.7 million as of December 31st, 2023.
Speaker Change: A total financial debt as of June 30, 2024, amounted to $0.65 million, compelled to $81.2 million as of December 31, 2023.
Speaker Change: Arcasio from operating activity during the six-month period of 2024 was $41.1 million, compared to $42.6 million in the same period of 2023.
Speaker Change: Moving to our guidance, 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.
Asaf Berenstin: Our cash flow from operating activity during the six-month period of 2024 was $41.1 million, compared to $42.6 million in the same period of 2022. Moving to our guidance, 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. 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: [inaudible]
Speaker Change: 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.
Speaker Change: If you're using speaker equipment kindly lift the handset before pressing the numbers, your questions will be pulled by the order that they are received.
Speaker Change: Please stand by while we pull for your questions.
Operator: Your questions will be called in the order that they are received. Please stand by while we poll for your questions. The first question is from Maggie Nolan of William Blair. Please go ahead. Hi, thank you. Congratulations on reiterating the guidance here. I wanted to ask you about what you're seeing with your customer base, maybe how those conversations around demand for your services have evolved since you saw the weakness last quarter, and am I right in perceiving that you have a little bit of increased optimism around North American customers in particular?
Speaker Change: The first question is from Maggie Nolan of William Blair, please go ahead.
Maggie Nolan: Hi, thank you.
Maggie Nolan: Congrats on reiterating the guidance here. I wanted to ask you about what you're seeing with your customer base, maybe how those conversations
Speaker Change: Around, you know, demand for your services have evolved since you saw the weakness last quarter. And on my right in, you know, perceiving that you have a little bit of increased optimism around North American customers in particular.
Operator: So basically, in Israel and in Europe, especially in Israel, we see a phenomenon where we continue to grow. The demand is very strong, although what's happening in Israel. In the States, right now, we see it's stable with some early signs of improvement. Um... But we see that the cell cycle is still quite long compared to what it used to be like, you know, you're in the house.
Speaker Change: So basically in Israel and in Europe, especially in Israel we see a phenomena where we continue to grow, the demand is very strong although what's happening in Israel.
Speaker Change: in the states, right now we see it stable with some first signs for improvements.
Speaker Change: But we see that the cell cycle is still quite long.
Speaker Change: compared to what it used to be like, you know.
Speaker Change: [inaudible]
Asaf Berenstin: Okay, that's helpful. Thank you. And then on margins, good to see that you can, you know, pull on some levers to help improve them, you know, even in the face of, you know, year-over-year revenue declines. But what do you think is kind of a normalized level of operating margin on more of a multi-year basis for the business? I think if we left, let's say, in a stable environment, I would probably do it, I think, 14% of the time.
Speaker Change: Okay, that's helpful. Thank you. And then on the margins, good to see that you can, you know.
Speaker Change: Pull on some levers to help improve them, you know, even in the face of.
Speaker Change: You know, there will be a revenue decline, but...
Speaker Change: What are you thinking is kind of a normalized level of operating margin on more of like a multi-year basis for the business?
Speaker Change: I think if we leave in a stable environment
Speaker Change: I would probably, I think, 14% is a typical.
Asaf Berenstin: [inaudible] But, you know, right now we have a situation where we, um... We don't see a big improvement in the States, which is a big market for us. We definitely see improvements in Israel. In parallel, of course, we continue to invest in our new products. So, uh... We are the Beatles.
Speaker Change: I'm...
Speaker Change: But, you know, right now we have a situation where we don't see a big improvement in the States, which is a big market for us. We definitely see improvements in Israel, and in parallel, of course, we continue to invest in our new products.
Speaker Change: So, uh...
Asaf Berenstin: Just to emphasize, 14, 13.5%, and 14% is for the operating margin, and for the gross margin, be something between 29 and 30. Okay, that's helpful. Thank you very much.
Speaker Change: We are a bit less than that.
Speaker Change: Just to emphasize, between 13.5 and 14% is for the operating margin and for the gross margin it would be something between the 29 and 30%.
Operator: The next question is from Chris Reimer of Barclays; please go ahead. Hi, thanks for taking my questions. I have two.
Speaker Change: The next question is from Chris Rhymer of Barclays. Please go ahead.
Asaf Berenstin: One on margins. You guys have pretty consistently delivered margin expansion over the last year, and I'm just wondering if there was anything specific in this quarter where operating margin was flat, and gross margin was down a bit. Is it just because of the revenue mix, or is it due to the acquisition that you mentioned earlier? Thanks for following on that.
Chris Rhymer: Hi, thanks for taking my questions. I have two one on margins. You guys have pretty consistently delivered margin expansion over the last year and I'm just wondering if there was anything specific in this quarter.
Speaker Change: that operating margin was flat, gross margin was down a bit. Is it just because of the revenues mix or is it due to the acquisition that you mentioned earlier?
Asaf Berenstin: If you could just touch on the acquired business a little more in detail. So in terms of the margins, eventually, this quarter, we had fewer billable days in the Israeli market. In the first quarter, we had around 65 billable days. In the second quarter, we had 59 billable days because of the pass-over holiday season.
Speaker Change: Following on that, if you could just touch on the acquired business a little more in detail.
Speaker Change: So in terms of the margins, eventually this quarter we had.
Speaker Change: Less billable days in the Israeli market
Operator: Ladies and gentlemen, thank you for standing by. Welcome to Magic Software Enterprises 2024 second quarter financial results conference goal. Magic's second 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.
Speaker Change: In the first quarter, we had...
Asaf Berenstin: As Israel is 43%, same as the U.S. sector that we work in, that influences our gross margin and takes it down a bit. We managed to still maintain a solid margin, as you mentioned, because of the sales of our software licenses, which basically..., covered for the missing profitability in the Profession of service. So this is with respect to the margin. With respect to the operations that we have acquired, again, it's a company that provides software services staff augmentation, works mainly from its headquarters in Indiana, serving, again, some blue-chip customers like Johnson & Johnson, Securitas, and other US companies.
Speaker Change: Around 65 billable days in the second quarter. We are 59
Speaker Change: because of the passover holiday season, as Israel is 43% same as in 2016.
Speaker Change: It's the same as the U.S. sector.
Speaker Change: and that we work, you know, that influences our cosmology and...
Operator: At this time all participants are in listening only mode. A brief questions and answer session will follow the formal presentation.
Speaker Change: Take it down with it. We manage to still
Speaker Change: you know maintain a solid margin, as you mentioned, because of the self-delightances which basically are covered for the missing profitability and professional service division.
Operator: With us on the line today, our Magic CEO, Mr. Guy Bernstein, Magic CFO, Mr. Asaf Bernstein, and Magic CTO, Mr. Yuvallavi. Before we start, I would like to remind everyone that projections or other forward-looking statements may have been provided on this conference call. The Safe Harbor provision provided in the press release issue today also applies to the content of this call.
Speaker Change: So this is with respect to the margin, with respect to the operations that we have.
Speaker Change: that we have acquired. Again, it's.
Speaker Change: You know, it's a company that provides software services, staff augmentation, work mainly from headquarters in Indiana.
Operator: Magic expressly disclaims any obligation to update or revise any of these forward-looking statements, whether we call the future event, new information, a change in its views, expectations or otherwise. Also during the course of today's call, management will refer to non-gap financial measures. A reconciliation schedule showing gap versus non-gap results have been provided in the press release issue before the market opened this morning.
Speaker Change: Um...
Speaker Change: serving, again, some blue-chip customers like Johnson & Johnson, Securitas, and other U.S. companies, but they are working also with global companies.
Asaf Berenstin: But they are also working with global companies. For example, on the opposite side, because they're also working with SMBs, they are less impacted by the macroeconomic situation today in the US, which hinders mainly large organizations that we work with.
Speaker Change: For example, on the opposite side, because they are also working with SMBs, they will less impact.
Speaker Change: by the economic situation today in the U.S., which in the...
Asaf Berenstin: And with them, we are positive that we are seeing that they manage to maintain their profit and grow from one year to another. So for us, it's another good addition to operations in North America. And as we normally do from one year to another, we look for this kind of operation, these kinds of businesses, and we hope to acquire them.
Speaker Change: mainly, you know, large organizations that we work with and with them, we are positive that and we are seeing that they manage to maintain their profit and grow from one year to another.
Operator: A replay of this call will be available on the investor relations sections of the company's website.
Operator: I will now turn the call over to Mr. Asaf Bernstein, CFO of Magic Software. Asaf, please go ahead.
Speaker Change: So for us, it's another good addition for operations in North America, and as we normally do for one year to another, we look for this kind of operation, this kind of business, and we opt to acquire this.
Asaf Bernstein: Thank you, Operator, and thank you everyone for joining us today as we report our second quarter 2024 financial results. During the call today, I will review highlights from our second quarter results and provide an overview of our outlook. Revenues in the second quarter of 2024 decreased $136.3 million down approximately 1% from the second quarter of 2023. On a constant currency basis, calculated based on the average currency exchange rate for the three-month end of June 30, 2023, revenues for the second quarter of 2024 would have increased by approximately 0.4% to $138.1 million.
Asaf Berenstin: Great, thanks. That's really helpful. That's it for me.
Speaker Change: Great. Thanks. That's really helpful. That's it for me.
Operator: If there are any additional questions, please press star one. If you wish to cancel your request, please press star two; please stand by while we ask for more questions. There are no further questions at this time. Mr. Berenstin, would you like to make your concluding statement? So thanks again for everyone joining our call, and we sure hope to have you on our next call next quarter and bring you some. Thank you. This concludes Magic Software Enterprises Limited's 2024 second quarter results conference call. Thank you for your participation. You may now go ahead and disconnect. B O O F
Speaker Change: If there are any additional questions, please press star 1. If you wish to consider your request, please press star 2.
Speaker Change: Please stand by where we perform for more questions.
Speaker Change: There are no further questions at this time.
Speaker Change: Would you like to make your concluding statement?
Speaker Change: Thanks again for everyone to join in our call and we hope to have you on our next call next quarter and bring some...
Asaf Bernstein: This total showcase solid execution with either a delivering sequential mid-single digit growth of 6.6%, and North America delivering sequential double digit growth of 11.1%, primarily resulted from the addition of theories ink at the beginning of the second quarter. Theories ink is an ITN engineering consulting firm based in Indiana, with extensive IT industry experience, who specialize in delivering strategic IT solutions, application development, cloud, and staff augmentation services, I cause diverse sectors, including healthcare, life science, financial services, retail, and manufacturing. Theories management has worked together for many years, and it is a great addition to our operations in the US.
Speaker Change: Good news. Thank you.
Speaker Change: Thank you. This concludes MAGIC Software Enterprises Limited 2024 second quarter results conference call. Thank you for your participation. You may now go ahead and disconnect.
Asaf Bernstein: As I mentioned in the previous calls, the reduction in our second quarter and first half revenues compared to last year's results, it's primarily driven by two facts. Corrincy Headwind caused mainly by the continuous evaluation of the new Israeli-shake irrelevative to the US dollars, amounting to 2.1% here over years for the quarter, and 2.8% for the six-month period, which along with the evaluation of other relevant currencies it used a reported revenues by $1.9 million for the second quarter, and by $4.5 million for the six-month period.
Asaf Bernstein: And in more important, the substantial and unexpected decline in demand for professional services from several of our important US-based blue-chip customers, which due to internal reasons unrelated to our services, decided during the second half of 2023 and going forward to suspend significant parts of their active time and material-based projects, particularly in the face of software demand and budget constraints. That said, over the past six to nine months client sentiment in the US has remained stable with no significant changes either positive or negative.
Asaf Bernstein: While we have not yet been seen material market improvement, we believe that an improving US economy could serve as a catalyst for growth in our US operations. Although our full-year guidance does not currently account for any macroeconomic improvement, we are confident that we are on the right path and momentum is building. Despite this difficult 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 suit of product and in providing related services.
Asaf Bernstein: Our AI, low-code, no-code and service offerings are critical as customers continue to automate and digitize the system and products. And while some of our US customers are facing macro and company-specific challenges, the sequential improvement in our top-line results reflect 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. Furthermore, even in this challenging environment, our non-gap operating margins for the second quarter held strong at approximately 13.4% of our revenues, same as in the second quarter of 2023.
Asaf Bernstein: Our operating margins for the first half of 2024 increased by 40 basis points to 13.6% compared to 13.2% in the same 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 in order to drive revenue growth in the future.
Asaf Bernstein: 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 initiative software solution and services. We similarly continue to see excellent execution by our teams. Setting aside the factors that slowed us down our revenues in North America, which were beyond our control, we experience another quarter of solid performance recorded across all other parts of our business. We continue to see exciting opportunities and growth potential in the dynamic realm of cloud technology and minister.
Asaf Bernstein: We have made it our vision to help businesses choose the best cloud migration strategy and avoid the pitfalls associated with moving to the cloud. We apply industry-leading best practices to ensure that our clients, cloud deployments meet the highest standards of performance, scalability, security and reliability. Our suit-of-manage cloud services is designed to address critical aspect of cloud operations and client business continuities, enabling our clients to focus on their core competencies while leaving the management and optimization of the cloud and IT system environment to us.
Asaf Bernstein: Our services include knock-as-a-service, talk-as-a-service, DevOps-as-a-service, phoenix-as-a-service, and much more. What such magic appellate is the deep domain expertise, a customer-centric approach and a proven track record of delivering successful cloud migration and transformation. We have approximately 400 satisfied customers across various industries and geographies who start 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.
Asaf Bernstein: Proceeding to our address are second quarter financial results. In the second quarter of 2024, our revenue in North America amounted to $58 million, which is approximately $11.2 million or $16.2% lower compared to Q2 of 2023. And $5.8 million or $11.1% higher compared to Q1 of 2024. The revenues in North America accounted for 43% of our overall quarterly revenues. The revenues for Marisa and the operation amounted to $58.2 million app by 12.6% compared to $51.7 million reported on the same period last year.
Asaf Bernstein: This demonstrate a strong performance in the region and reconfremes a long-term strategic decision to focus on mature, stable, and technology driven sectors, which allows us to partially compensate for the slowdown we experience from the second half of 2023 in North America. Revenue for Marisa and the operation accounted for 43% of our overall quarterly revenues. Turning now to profitability, our gross margin for the second quarter of 2024 amounted to 29.4% of revenues or $40.1 million compared to $3.3% in the same corresponding quarter of 2023 or $41.6 million for the same period last year.
Asaf Bernstein: On a semi-annual basis, our gross margin for the first half of 2024 amounted to 29.4% or $78.4 million app by 20 basis points from 29.2% in the same period last year. The regular revenue mix for the six months period of 2024 was approximately 19% related to our software solution with a gross margin of approximately 65%, and 81% related to our professional services with a gross margin of approximately 20%. The breakdown of our gross profit mix for the six months period of 2024 was approximately 43% related to our software solution, and 57% related to our professional services.
Asaf Bernstein: Our non-gap operating income for the second quarter of 2024 was $18.2 million compared to $18.4 million in the same period last year. Matthew. This reflects an operating margin of 13.4% for the quarter, same as in the second quarter of 2023. On a constant currency base is calculated based on average currency exchange rates for the 3 months period and June 30, 2023. Non-gap operating income for the second quarter of 2024 would have reached $18.4 million, same as it was in the second quarter of 2023.
Asaf Bernstein: Financial expenses, during the quarter we had financial debt interest expenses of $1.1 million related to a $75 million financial debt compared to $1.1 million of interest expenses recorded in the same quarter last year related to a total financial debt of $70 million. The increase in our financial expenses mainly resulted from foreign currency exchange rates fluctuation income of approximately $0.8 million recorded with respect to monetary assets and liabilities denominated in foreign currency in the respective quarter.
Asaf Bernstein: Net income attributed to non-controlling interest as our business combination model occasionally relies on keeping former shareholders in acquired entities as minority stakeholders in addition to their managerial roles in such entities, we are allocating the portion of our net income to these minority shareholders. Non-gap net income attributed to non-gap to non-controlling interest slightly increased to $2 million compared to $1.8 million for the same period last year. Non-gap net income for the second quarter decreased by 13.6% to 11.7 million on 24 cents per fully diluted share compared to 13.5 million or 28 cents per fully diluted share in the same period last year, mainly resulting from currency exchange rates fluctuation income of approximately 0.8 million recorded with respect to monetary asset and liabilities denominated in foreign currency in the respective quarter and increased in our tax expenses.
Asaf Bernstein: Turning now to the balance sheet as of June 30, 2024 cash and cash equivalent and show 10 bank deposits amounted to approximately $108.4 million compared to $106.7 million as of December 31, 2023. Our total financial debt as of June 30, 2024 amounted to approximately 65 million compared to 81.2 million as of December 31, 2023. Our cash from operating activity during the six months period of 2024 was 41.1 million dollar compared to 42.6 million in the same period of 2023.
Asaf Bernstein: Moving to our guidance, we are reiterating our 2024 guidance. We expect 2024 fully revenue in the range of 540 million to 550 million.
Operator: I will now 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 kindly lift the handset before pressing the numbers. Your questions will be called by the order that they are received. Please stand by while we pull for your questions.
Maggie Nolan: The first question is from Maggie Nolan of William Blair. Please go ahead. Hi. Thank you. Congrats on reiterating the guidance here. I wanted to ask you about what you're seeing with your customer base, maybe how those conversations around, you know, demand for your services have evolved since you saw the weakness last quarter. And am I right in, you know, perceiving that you have a little bit of increased optimism around North American customers in particular?
Maggie Nolan: So basically in, in Israel and in Europe, especially in Israel, we see a phenomena where we continue to grow that demand is very strong, although what's happening in Israel. In the States, right now we see it's stable with some first signs for improvement, but we see that the cell cycle is still quite long compared to what it used to be like, you know, year and a half ago.
Asaf Bernstein: Okay, that's helpful. Thank you. And then on the margins, good to see that you have been, you know, both pulling some levers to help improve them, you know, even in the face of, you know, European revenue declines, but what are you thinking is kind of a normalized level of operating margin on more of like a multi-year basis for the business? I think if we leave let's say in a stable environment, I would probably, I think 14% is achievable.
Asaf Bernstein: But, you know, right now we have a situation where we don't see a big improvement in the States, which is a big market for us. We definitely see improvements in Israel. And in parallel, of course, we continue to invest in our new products. So we are a bit less than that. So just to emphasize, between 13.5 and 14% is for the operating margin, and for the growth margin, it will be something between the 29 and 30%.
Asaf Bernstein: Okay, that's helpful. Thank you very much.
Chris Reimer: The next question is from Chris Reimer of Barclays. Please go ahead. Hi, thanks for taking my questions.
Chris Reimer: I have two, one on margins. You guys have pretty consistently delivered margin expansion over the last year. And I'm just wondering if there was anything specific in this quarter that operating margin was flat, gross margin was down a bit. Is it just because of the revenues mix, or is it due to the acquisition that you mentioned earlier?
Asaf Bernstein: And then following on that, if you could just touch on the acquired business a little more in detail. So in terms of the margins, eventually this quarter, we had less billable days in the Israeli market. In the first quarter, we had around 65 billable days. In the second quarter, we had 59 bills a day because of the path of the holiday season. As Israel is 43% same as in the US sector that we work.
Asaf Bernstein: That influences our gross margin and take it down a bit. We managed to still maintain solid margin as you mentioned because of the sales of our software licenses, which.., basically covered for the missing profitability in the professional service division.
Asaf Bernstein: So this is with respect to the margin, with respect to the operations that we have that we have acquired. Again, it's, you know, it's a company that provides the software services staff augmentation, work mainly from headquartering in Indiana, serving again some blue chief customers like Johnson & Johnson, security tasks and other US companies, but they are working also with global companies. For example, on the opposite side, because they are working with SMBs, they were less impact by the economic situation today in the US, which hinders mainly, you know, large organizations that we work with.
Asaf Bernstein: And with them, we are positive that and we are seeing that they manage to maintain their profit and grow for one year to another. So for us, it's another good addition for operations in North America. And as we normally do from, you know, one year to another, we look for this kind of operation, this kind of businesses and we hope to acquire them.
Chris Reimer: Great, thanks. That's really helpful.
Operator: That's it for me. If there are any additional questions, please press star one. If you wish to cancel your request, please press star two. Please stand by while we pour for more questions.
Operator: There are no further questions at this time.
Guy Bernstein: Mr. Bernstein, would you like to make your concluding statement? Yes, so thanks again for everyone joining our call and we sure hope to have you on our next call, next quarter and bring some good news. Thank you.
Operator: This concludes Magic Software Enterprise's limited 2024 second quarter results conference call. Thank you for your participation.
Operator: You may now go ahead and disconnect.