Q2 2025 Magic Software Enterprises Ltd Earnings Call
<unk> second quarter 2025 earnings release was issued before the market opened this morning, and it has been posted on the company's website at Www Dot Magic software Dot com.
At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation.
With us on the line today Magic's CEO, Mr. Guy Bernstein, Magic's CFO, Mr assessments, Dane and Magic city only still developing.
Before we start I would like to remind everyone. This budget projections.
Or other forward looking statements may be provided on this conference call. The safe Harbor provision provided in the press release issued today also applies to the content of this call.
Yeah.
Magic expressly disclaims any obligation to update or revise any of these forward looking statements, whether because of future events, new information, a changing its view or expectations or otherwise.
Also during the course of today's call management will refer to non-GAAP financial measures.
Reconciliation scheduled showing GAAP of various 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.
We now turn off the call to Mr. Assessed finished <unk> CFO of Magic software. Please go ahead.
SaaS. Please go ahead.
Thank you operator, and thank you everyone for joining us today, a report our second quarter of 2025 financial results. During the call today I will review our alerts for second quarter results and provide an overview of our overall.
Revenue in the second quarter of 2025 increased where quarterly all time record of one other than $51 6 million.
Broker of approximately 11, 3% from the second quarter of 2024 and sequential growth of two 8%. This quarter showcased solid execution with you from delivering a year over year double digit growth of 18, 8% with more than 90% organic primarily resulted.
Strong demand for our cloud Dev ops.
AI services, along with continued strong demand for our services in the defense sector.
Our North American operation delivered a strong performance this quarter with revenue increasing approximately six 5% year over year and 6% on a sequential basis in the United States. The results for the first half of 2025 reflected approximately 9% equals.
Revenue growth.
Given by agreements executed in late 2024, and early 2025, we are beginning to see signs of improvement in the U S market reinforcing our positive momentum and positioning us for continued growth through the second half of the year.
We remain steadfast in our global commitment and confidence in our ability to drive continued growth through sales of our world class product suite and delivery of high value services, leveraging our low code No code cloud based platform and managed services, we are well positioned to meet the accelerating demand for automation.
They get their vision and innovative software solution.
<unk> continued to execute with excellence and our customers increasingly recognize the unique value, we deliver engaging golf as a preferred partner for.
Transformative digital initiative.
Brands combined with exciting opportunities of course cloud technology, and AI reinforce our positive momentum position us for a strong second half of the year.
At Magic, we are finding their way organization unlock the full potential of generate BVI.
It continues to reshape industries and everybody's life.
Therefore, foreign transforming our internal operations. So you can imagine in our product and delivering the next generation services that drive measurable business impact.
Today, we manage over 270 projects spanning across more than 20 industries have expanded our expert team from over 32 over 50 specialists and offer comprehensive end to end solution for successful <unk> adoption.
For proof of concept to large scale deployment, our customers enjoy remarkable a 70% success rate nearly six times higher than the industry average of 12%.
Supported by more than 100, AI focused events and over 10 strategic alliances with global leaders, such as AWS Azure and Google Cloud, we empower organizations in finance health care government defense and manufacturing to accelerate innovation and enhance productivity and secured a competitive advantage.
In the AI era.
With an average of three major AI developments announced weekly we ensure our clients gain the benefits of the latest breakthrough.
While keeping their strategies align with core business objective.
Backed by deep expertise and proven success, we see unprecedented.
Opportunities to further expand the U S.
Elevate our offerings.
Proceeding to address our second quarter geographic revenue breakdown in the second quarter of 2025, our revenues in North America increased by six 5% from $58 4 million to $62 2 million.
Revenue from our Israeli operation totaled $68 7 million, an increase of 18, 8% compared to $57 8 million in the same period last year.
On a constant currency basis revenues grew by 13, 5%. This performance underscores our strengths in the region and reaffirms our long term strategic focus on mature stable and technology different sectors.
Revenues from our Israeli operations accounted for 47% of our overall quarterly revenue.
Turning to profitability, our non-GAAP gross margin for the second quarter of 2025 was 28, 7% of revenue amounting to $43 6 million compared to 29, 4%.
$41 million in the corresponding quarter of 2024.
The year over year change in gross margin, primarily reflects the composition of our revenue mix and the timing of the new hours of a term based software agreements in the current fiscal year. The majority of these and yours are scheduled for the fourth quarter with a smaller portion in the third quarter compared to the first and second quarters of the prior year.
Sequentially, our gross margin improved by 20 basis points rising from 28, 5% in the first quarter of 2025 to 28, 7% in the second quarter.
This improvement came despite the timing of the Passover holiday, which reduced second quarter billable days by approximately four and a half days compared to the first quarter.
That reduction was equivalent to about 7% of time and material billable capacity.
That operation.
The breakdown of our revenue mix for the second quarter of 2025 was approximately 17% related to our software solution with a gross margin of approximately 65% and 83% related to our professional services with a gross margin of approximately 21%.
Comparable to 18% related to our software solutions with a gross margin of approximately 64% and 82% related to our professional services with a gross margin of approximately 22% in 2020 for every hole.
Our non-GAAP operating income for the second quarter of 2025 increased by one 9%.
$18 6 million compared to $18 2 million in the same period last year.
Financial expenses during the second quarter, we had financial expenses of $700000 compared to $1 2 million.
The decrease in our financial expenses was mainly attributed to the continued decrease of our overall financial debt during 2024 and in the first half of 2025 for an AD format average debt of $72 million during the second quarter of 2000 $24 million to $63 million during the second quarter of 2025.
The balance of our financial debt as of June 32025 amounts to approximately $70 million.
Net income attributable to Noncontrolling interest as a business combination model.
<unk> relies on keeping former shareholders and acquired entities as minority stakeholder. In addition to the manager of it on the wall and such entities. We are allocating a portion of net income to these minority shareholder.
non-GAAP net income attributable to Noncontrolling interest decreased $1 8 million.
Compared to 2 million for the same period last year.
Our non-GAAP net income attributable to shareholders for the second quarter increased by eight 7% to $12 7 million or <unk> 26 per fully diluted share compared to $11 7 million or <unk> 24 cents per fully diluted share.
Turning to the balance sheet as of June 32025, cash and cash equivalent and short term bank deposits amounted to approximately $90 million.
Compared to $112 8 million as of December 31, 2024.
Our total financial debt as of June 32025 amounted to approximately $70 million compared to $60 million.
As of December 31, 2024.
On January eight 2025, and on May seven 2025 in accordance with our dividend distribution policy, we paid out shareholder cash dividends on the aggregate of approximately $27 6 million.
For $56.02 per share for the first and second half of 2024.
In addition, today in accordance with our dividend distribution policy, our board of directors declared a semiannual cash dividend in an amount of $29.06 per share and in the aggregate amount of approximately $14 5 million.
Reflecting approximately 75% of our distributable profit for the first half of 2025.
Dividend is payable on October 22nd 2025 to one of the company's shareholders of record at the close of trading on NASDAQ Global select market on October six 2025.
Cash flow from operating activities for the first half of 2025 amounted to $21 2 million.
Compared to $41 4 million in the corresponding period of 2024.
For the 12 months period ended June 32025 cash flow from operating activities totaled $54 6 million.
Compared to $67 7 million recorded in the respective period.
The decline in our first half cash flow from operating activities, primarily reflect our increased investment in working capital to support our revenue growth trajectory. This is particularly evident in our record setting topline performance with second quarter revenues, reaching an all time high.
These dynamics do not reflect a deterioration in our underlying performance on the contrary both operating income and net income increased compared to the same period last year, we expect cash conversion to normalize over the coming quarters.
Turning to our guidance for 2025, we continue to observe a healthy demand across our market and are building a strong and growing pipeline that supports our expectation for sustained growth throughout the year.
Accordingly, we revised our full year 2025 revenue guidance, increasing the previous estimate of $593 million to $603 million to a revised range of 600 million to 610 million based on current currency exchange rates.
Outdated guidance reflect that reflects the sustained operational momentum and favorable outlook for the remaining part of the U S. Representing an anticipated annual revenue growth rate of approximately eight 6% to 10, 4% as compared to the five physically.
In conclusion, I would like to reiterate the announcement made in March regarding the signing of a memorandum of understanding to enter into negotiation for the contemplated merger with magic into matrix. This proposed transaction represents a significant inflection point in our corporate journey, one that holds the potential to be transformative.
For both organizations.
The contemplated merger is expected to combined with the strength of the two well established technology leaders, creating a more diversified and resilient global it service provider. The combined entity will possess enhance capabilities to serve a broader range of customers across geographies and industries further accelerated innovation.
<unk> and deliver sustainable long term value to shareholders. We continue advancing through the execution phase of the transaction and anticipate presenting the transaction for shareholders endorsement in the fourth quarter of 2025.
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.
If you have a question. Please press star one if you wish to cancel your other question. Please press star two.
If you are using speaker equipment kind of lift the handset before pressing the numbers.
Speaker #1: Conference Center. Please hold for an operator. Welcome to the Conference Center. Please hold for an operator.
Questions will be pulled in the order they are received.
Operator: Financial Results Conference call. Magic Software Enterprises Ltd.'s second quarter 2025 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. A brief question and answer session will follow the formal presentation. With us on the line today are Magic Software Enterprises Ltd.'s CEO, Mr. Guy Bernstein, Magic Software Enterprises Ltd.'s CFO, Mr. Asaf Berenstein, and Magic Software Enterprises Ltd.'s CTO, Mr. Yuval Aviv. 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 content of this call. Magic Software Enterprises Ltd.
Standby, while we poll for your questions.
My first question.
So I'm out of Barclays. Please go ahead.
Speaker #2: Hello? Hello? Magic Software, what is your name, please? Which company? Thank you. Transferring you in.
Hi, congratulations on the strong results and thanks for taking my question.
Can you give us any color on customer behavior in the U S and perhaps to what degree if any you're seeing a recovery in it spend in that region.
Overhaul.
It varies of course between the different the operations that we have in the U S but with.
With our major clients that we hold and we see a increased demand.
Speaker #3: Representing an anticipated annual revenue growth rate of approximately 8.6% to 10.4% as compared to the prior fiscal year. In conclusion, I would like to reiterate the announcement made in March regarding the signing of a memorandum of understanding to enter into negotiations for the contemplated merger of Magic Inc. Matrix.
You need to remember that forward.
Pretty much almost a year, we saw segment operating segment the level of demand and then now from the first quarter to the second quarter and on a basically can go into our expectation for the remaining of the year, we see some <unk>.
Operator: expressly disclaimed an obligation to update or revise any of these forward-looking statements, whether because of future events, new information, a change in its view or expectation, or otherwise. Also, during the course of today's call, management will refer to non-GAAP financial measures. A reconciliation schedule showing GAAP and various 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 over the call to Mr. Asaf Berenstein, CFO of Magic Software Enterprises Ltd. Please go ahead. Asaf, please go ahead.
Speaker #3: This proposed transaction represents a significant inflection point in our corporate journey—one that holds the potential to be transformative for both organizations. The contemplated merger is expected to combine the strength of two well-established technology leaders, creating a more diversified and resilient global IT service provider.
Expectedly Corporation in the demand for our services.
Uh-huh got it and can you talk about some of the drivers that are impacting margins and how do you see these drivers evolving.
Towards the end of the year through to through the year end.
As I mentioned.
Speaker #3: The combined entity would possess enhanced capabilities to serve a broader range of customers across geographies and industries, faster accelerated innovation, and deliver sustainable long-term value-to-shareholders.
Mainly we were impacted by the timing of the recognition of the selling of silver.
So the term license software, which last year.
Mainly occurred during the first half of the year and this year. It is much concentrated on the first the renewal term how much concentrated on the fourth quarter of the year with flight with a small portion in Q3. This is on one hand on the secondhand and more and more primarily is the mix of our revenues are basically we see a significant increase.
Speaker #3: We continue advancing through the execution phase of the transaction and anticipate presenting the transaction for shareholders endorsements in the first quarter of 2025. I will now turn the call over to the operator for questions.
Asaf Berenstein: Thank you, operator, and thank you, everyone, for joining us today as we report our Q2 2025 financial results. During the call today, I will review highlights from our Q2 results and provide an overview of our outlook. Revenue in the Q2 of 2025 increased to a quarterly all-time record of $151.6 million, up approximately 11.3% from the Q2 of 2024, and sequential growth of 2.8%. This quarter showcased solid execution, with Israel delivering a year-over-year double-digit growth of 18.8%, with more than 90% organic, primarily resulted from strong demand for our cloud, DevOps, and AI services, along with continued strong demand for our services in the defense sector. Our North American operation delivered strong performance this quarter, with revenue increasing approximately 6.5% year-over-year and 6% on a sequential basis.
Speaker #4: Thank you. Ladies and gentlemen, at this time we will begin the question-and-answer session. If you have a question, please press *1.
And revenues formerly <unk>.
Project and service operation and this operation as I mentioned Carey.
Speaker #4: 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.
Gross margin of around 21% versus a technology operation that carries a 64% to 65 gross margin. So this quarter this quarter and for the second quarter and for the first half of 2025, we sold the entire increase in gross profit coming from the.
Speaker #4: Your questions will be polled in the order they're received. Please stand by while we pull for your questions. The first question is from Chris Reimer of Bartlett.
Speaker #4: Please go ahead.
Coming from the professional service side of the business we expect.
Speaker #5: Hi, congratulations on the strong results and thanks for taking my questions. Can you give any color on customer behavior in the US and perhaps to what degree if any you're seeing a recovery in IT spend in that region?
For that to improve in the second half towards the software.
Which will improve the margins that you currently see and what level of them.
You'll basis at around 29%.
Speaker #3: Overall, it varies, of course, between the different operations that we have in the US. But with the major clients that we hold, we see increased demand, we need to remember that for pretty much almost a year we saw a stagnant level of demand and now from the first quarter to the second quarter and on a basing on our expectations for the remaining of the year, we see some expected recuperation in their demand for our services.
Got it. Thanks, that's very helpful. If I could just ask one more around cloud.
Cloud how would you describe the progress of customers transitioning to cloud solutions now, let's say versus last year.
Asaf Berenstein: In the U.S., results for the first half of 2025 reflected approximately 9% year-over-year revenue growth, driven by agreements executed in late 2024 and early 2025. We are beginning to see first signs of improvement in the U.S. market, reinforcing our positive momentum and positioning us for continued growth through the second half of the year. We remain steadfast in our global commitment and confident in our ability to drive continued growth through sales of our world-class product suite and delivery of high-value services. Leveraging our AI low-code/no-code cloud-based platform and managed services, we are well positioned to meet the accelerating demand for automation, digitization, and innovative software solutions. Our teams continue to execute with excellence, and our customers increasingly recognize the unique value we deliver, engaging us as a preferred partner for transformative digital initiatives.
And let you answer.
So that.
I can take it.
We see more and more adoption.
So all around we get a new.
New customers are jumping directly into the cloud.
Legacy customer even in our Japanese territory starting to.
The address and adopt the cloud solution in the cloud offering so as we are a traditional business and we have some legacy customers both of them starting to see more and more move.
Speaker #5: Got it. Can you talk about some of the drivers that are impacting margins and how do you see these drivers evolving towards the end of the year, through the year end?
Towards the cloud and we're looking forward to it.
Speaker #3: As I mentioned, mainly we were impacted by the timing of the recognition of the selling of our term license software, which last year mainly occurred during the first half of the year, and this year it is much concentrated on the renewal terms are much concentrated on the fourth quarter of the year, with a small portion in Q3.
Peter cloud adoption.
Got it thanks, that's it for me.
The next question.
Nolan of William Blair. Please go ahead.
Asaf Berenstein: These trends, combined with exciting opportunities across cloud technology and AI, reinforce our positive momentum, positioning us for a strong second half of the year. At Magic Software Enterprises Ltd., we are redefining the way organizations unlock the full potential of GenAI projects. As AI continues to reshape industries and everybody's life, we are at the forefront, transforming our internal operations, reimagining our products, and delivering next-generation services that drive measurable business impact. Today, we manage over 270 projects spanning across more than 20 industries, have expanded our expert team from over 30 to over 50 specialists, and offer comprehensive end-to-end solutions for successful GenAI adoption. From proof of concept to large-scale deployment, our customers enjoy a remarkable 70% success rate, nearly six times higher than the industry average of 12%.
Hi, Thank you I'm, hoping you could give us a little more commentary on how the pipeline is building.
Maybe the size and types of deals that you're seeing from customers.
Speaker #3: This is on one hand. On the second hand and more primarily, is the mix of our revenues. Basically, we see a significant increase in revenues from our projects and service operations, and these operations, as I mentioned, carry gross margin of around 21%, versus our technology operation that carries a 64% to 65% gross margin.
I think that the significant driver that you're giving back on the prior question is coming from the cloud and AI.
We see a as I mentioned, we have hundreds of projects that are in the midst, we managed to convert those projects.
In a higher.
A much higher rate than industry standard.
Speaker #3: So, this quarter, and for the second quarter, and for the first half of 2025, we saw the entire increase in gross profit coming from the professional service side of the business. We expect for that to improve in the second half towards the software.
Those projects push also fully for cloud services.
We managed to increase our position in that aspect not only in the Israeli market not only in the U S.
Fence sector, but in many sectors, including the U S and also in the recently also in Canada and the U K.
Speaker #3: Which will improve the margins that you currently see, and will level them on an annual basis at around 29%.
So this is one of the significant drivers that we see today in the business.
Asaf Berenstein: Supported by more than 100 AI-focused events and over 10 strategic alliances with global leaders such as AWS, Azure, and Google Cloud, we empower organizations in finance, healthcare, government, defense, and manufacturing to accelerate innovation, enhance productivity, and secure their competitive advantage in the AI era. With an average of three major AI developments announced weekly, we ensure our clients gain the benefits of the latest breakthrough while keeping their strategies aligned with core business objectives. Backed by deep expertise and proven success, we see unprecedented opportunities to further expand and elevate our offerings. Proceeding to address our second quarter geographic revenue breakdown. In the second quarter of 2025, our revenues in North America increased by 6.5%, from $58.4 million to $62.2 million. Revenue from our Israeli operation totaled $68.7 million, an increase of 18.8% compared to $57.8 million in the same period last year.
Yeah.
Ed.
Jim.
Speaker #5: Got it. Thanks. That's very helpful. If I could just ask one more around cloud, how would you describe the progress of customers transitioning to cloud solutions now, let's say, versus last year?
These are definitely.
Agricultural land and expand.
Okay. So we see a lot of lending is U 270 in more projects, but this project is not ending with people and extending this is just the nature of what Jimmy how are you doing to all of us in the market.
Speaker #3: I'll let you validate that.
Speaker #6: I can take it. We see more and more adoption of cloud from all around. Again, new customers are jumping directly into the cloud, and legacy customers, even in our Japanese territory, are starting to address and adopt the cloud solution and the cloud offering.
Understood and then.
Then can you comment a little on the strategy behind the acquisition that was done in July and the contribution to our financials for this year. Thank you.
We didn't acquire any company in July.
Speaker #6: So as you know, we are a traditional business and we have some legacy customers, but we're starting to see more and more move towards the cloud.
A small manufacturing company.
Axiom am I, it's a very small.
Asian.
Speaker #6: And we're looking forward to a bigger cloud adoption.
It's something.
The $2 $5 million in terms of turnover rate.
Speaker #5: Got it. Thanks. That's it for me.
So kind of a consultancy firm that we work with them as a partner and we are.
Speaker #4: The next question is from Maggie Noland of William Blair. Please go ahead.
One of them in order to push for that way.
Asaf Berenstein: On a constant currency basis, revenues grew by 13.5%. This performance underscores our strength in the region and reaffirms our long-term strategic focus on mature, stable, and technology-driven sectors. Revenues from our Israeli operations accounted for 47% of our overall quarterly revenues. Turning to profitability, our non-GAAP gross margin for the second quarter of 2025 was 28.7% of revenue, amounting to $43.6 million compared to 29.4% or $40.1 million in the corresponding quarter of 2024. The year-over-year change in gross margin primarily reflects the composition of our revenue mix and the timing of renewals of our term-based software agreements. In the current fiscal year, the majority of these renewals are scheduled for the fourth quarter, with a smaller portion in the third quarter compared to the first and second quarters of the prior year.
And our businesses.
Speaker #7: Hi, thank you. I'm hoping you could give us a little more commentary on how the pipeline is building, maybe the size and types of deals that you're seeing from customers.
The way I operate from the U S.
Okay.
Got it okay. Thank you for taking my questions.
Is there any additional questions. Please press star one if you wish to cancel the only question. Please press star two.
Speaker #3: I think that the significant driver, touching even back on the prior question, is coming from the cloud and AI. As I mentioned, we have hundreds of projects that are in the mix.
But when we pull from all of your questions.
Okay.
There are no further questions at this time.
Speaker #3: We managed to convert those projects in a higher in a much higher rate than industry standard. Those projects push also for cloud services. We managed to increase our position in that aspect, not only in the Israeli market, not only in the Israeli defense sector, but in many sectors including the US and also in the recently also in Canada, in the UK.
Mr. Bernstein would you like to make a concluding statement.
Thank you everybody for joining us to the call today, and we hope to continue and giving you a good news.
Coming close.
Thank you. This is the magic software enterprises SBB 2025 second quarter results Conference call. Thank you for your participation you May go ahead and disconnect.
Speaker #3: So this is one of the significant drivers that we see today in the business.
Speaker #6: Yeah, and I can add that the GenAI opportunities are definitely of the type "land and expand." We see a lot of landing, as you hear, 270 and more projects, but these projects are not ending.
Asaf Berenstein: Sequentially, our gross margin improved by 20 basis points, rising from 28.5% in the first quarter of 2025 to 28.7% in the second quarter. This improvement came despite the timing of the Passover holiday, which reduced second quarter billable days by approximately 4.5 days compared to the first quarter. That reduction was equivalent to about 7% of time and material billable capacity in our Israel operations. The breakdown of our revenue mix for the second quarter of 2025 was approximately 17% related to our software solutions, with a gross margin of approximately 65%, and 83% related to our professional services, with a gross margin of approximately 21%. Compared to 18% related to our software solutions, with a gross margin of approximately 64%, and 82% related to our professional services, with a gross margin of approximately 22% in 2024 as a whole.
Speaker #6: We keep on expanding. This is just the nature of what GenAI is doing to all of us in the market.
Speaker #7: Understood. And then can you comment a little on the strategy behind the acquisition that was done in July and the contributions to the financials for this year?
Speaker #7: Thank you.
Speaker #3: We didn't acquire any company in July.
Speaker #7: Small manufacturing company?
Speaker #3: Axiom. It's a very small operation. It's something at around $2.5 million in terms of turnover. It's a kind of consultancy firm that we work with as a partner, and we acquired them in order to push forward our business.
Asaf Berenstein: Our non-GAAP operating income for the second quarter of 2025 increased by 1.9% to $18.6 million compared to $18.2 million in the same period last year. Financial expenses during the second quarter, we had financial expenses of $700,000 compared to $1.2 million. The decrease in our financial expenses was mainly attributed to the continued decrease of our overall financial debt during 2024 and in the first half of 2025, from an average debt of $72 million during the second quarter of 2024 to $63 million during the second quarter of 2025. The balance of our financial debt as of June 30, 2025, amounts to approximately $70 million.
Speaker #6: Possibly are you.
Speaker #3: Factory operation in the US.
Speaker #5: Thank you for taking my questions.
Speaker #4: Is there any additional questions, please press star one. If you wish to cancel your request, please press star two. Please stand by while we pull for more of your questions.
Speaker #4: There are no further questions at this time. Mr. Berenstin, would you like to make a concluding statement?
Speaker #3: Thank you, everybody. For joining us to the call today. We hope to continue in giving you a good news on our upcoming call.
Asaf Berenstein: 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 role in such entities, we are allocating a portion of net income to these minority shareholders. Non-GAAP net income attributable to non-controlling interests decreased to $1.8 million compared to $2 million for the same period last year. Our non-GAAP net income attributable to shareholders for the second quarter increased by 8.7% to $12.7 million or $0.26 per fully diluted share compared to $11.7 million or $0.24 per fully diluted share. Turning to the balance sheet, as of June 30, 2025, cash and cash equivalent and short-term bank deposits amounted to approximately $90 million compared to $112.8 million as of December 31, 2024.
Asaf Berenstein: Our total financial debt as of June 30, 2025, amounted to approximately $70 million compared to $60 million as of December 31, 2024. On January 8, 2025, and on May 7, 2025, in accordance with our dividend distribution policy, we paid our shareholders cash dividends on the aggregate of approximately $27.6 million or $0.562 per share for the first and second half of 2024. In addition, today, in accordance with our dividend distribution policy, our board of directors declared a semi-annual cash dividend in an amount of $0.296 per share and in an aggregate amount of approximately $14.5 million, reflecting approximately 75% of our distributable profits for the first half of 2025. The dividend is payable on October 22, 2025, to all of the company's shareholders of record at the close of trading on Nasdaq Global Select Market on October 6, 2025.
Asaf Berenstein: Cash flow from operating activities for the first half of 2025 amounted to $21.2 million compared to $41.4 million in the corresponding period of 2024. For the 12-month period ended June 30, 2025, cash flow from operating activities totaled $54.6 million compared to $67.7 million recorded in the respective period. The decline in our first half cash flow from operating activities primarily reflects our increased investment in working capital to support our revenue growth trajectory. This is particularly evident in our record-setting top-line performance, with second quarter revenues reaching an all-time high. These dynamics do not reflect a deterioration in our underlying performance. On the contrary, both operating income and net income increased compared to the same period last year. We expect cash conversion to normalize over the coming quarter.
Asaf Berenstein: Turning to our guidance for 2025, we continue to observe healthy demand across our markets, and are building a strong and growing pipeline that supports our expectations for sustained growth throughout the year. Accordingly, we revise our full year 2025 revenue guidance, increasing the previous estimate of $593 million to $603 million to a revised range of $600 million to $610 million based on current currency exchange rate. This updated guidance reflects the sustained operational momentum and favorable outlook for the remaining part of the year, representing an anticipated annual revenue growth rate of approximately 8.6% to 10.4% as compared to the prior fiscal year. In conclusion, I would like to reiterate the announcement made in March regarding the signing of a memorandum of understanding to enter into negotiation for the contemplated merger of Magic Software Enterprises Ltd. into Matrix I.T.
Asaf Berenstein: This proposed transaction represents a significant inflection point in our corporate journey, one that holds the potential to be transformative for both organizations. The contemplated merger is expected to combine the strength of two well-established technology leaders, creating a more diversified and resilient global IT service provider. The combined entity would possess enhanced capabilities to serve a broader range of customers across geographies and industries, foster accelerated innovation, and deliver sustainable long-term value to shareholders. We continue advancing through the execution phase of the transaction and anticipate presenting the transaction for shareholders' endorsements in the fourth quarter of 2025. 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 one. If you wish to cancel your request, please press star two. If you are using speaker equipment, kindly leave the headset before pressing the numbers. Your questions will be pulled in the order they are received. Please stand by while we pull for your questions. The first question is from Chris Reimer of Bartlett, please go ahead.
Chris Reimer: Hi, congratulations on the strong results and thanks for taking my question. Can you give any color on customer behavior in the U.S. and perhaps to what degree, if any, you're seeing a recovery in IT spend in that region?
Asaf Berenstein: Overall, it varies, of course, between the different operations that we have in the U.S. But with the major clients that we hold, we see increased demand. We need to remember that for pretty much almost a year, we saw a stagnant level of demand. Now, from the first quarter to the second quarter, and based on our expectations for the remaining of the year, we see some expected recuperation in their demand for our services.
Chris Reimer: Got it. Can you talk about some of the drivers that are impacting margins, and how do you see these drivers evolving towards the end of the year through the year-end?
Asaf Berenstein: As I mentioned, mainly, we were impacted by the timing of the recognition or the selling of our term license software, which last year mainly occurred during the first half of the year. This year, it is much concentrated on the renewal terms, much concentrated on the fourth quarter of the year, with a small portion in Q3. This is on one hand. On the second hand, and more primarily, is the mix of our revenues. Basically, we see a significant increase in revenues from our projects and service operations. These operations, as I mentioned, carry a gross margin of around 21% versus our technology operation that carries a 64% to 65% gross margin. This quarter and for the second quarter and for the first half of 2025, we saw the entire increase in gross profit coming from the professional service side of the business.
Asaf Berenstein: We expect for that to improve in the second half towards the software, which will improve the margins that you currently see and will level them on an annual basis at around 29%.
Chris Reimer: Got it. Thanks. That's very helpful. If I could just ask one more around cloud, how would you describe the progress of customers transitioning to cloud solutions now versus last year?
Asaf Berenstein: let Yuval Aviv, Chief Technology Officer, answer that.
Yuval Aviv: I can take it. We see more and more adoption of cloud from all around. Again, new customers are jumping directly into the cloud, and legacy customers, even in our Japanese territory, are starting to address and adopt the cloud solution and the cloud offering. As you know, we are a traditional business and we have some legacy customers, but we are starting to see more and more move towards the cloud. We are looking forward to a bigger cloud adoption.
Chris Reimer: Got it. Thanks. That's it for me.
Operator: The next question is from Maggie Nolan of William Blair. Please go ahead.
Maggie Nolan: Hi, thank you. I am hoping you could give us a little more commentary on how the pipeline is building, maybe the size and types of deals that you are seeing from customers.
Asaf Berenstein: I think that the significant driver, touching even back on the prior question, is coming from cloud and AI. We see, as I mentioned, we have hundreds of projects that are in the midst. We manage to convert those projects in a much higher rate than industry standard. Those projects push also for cloud services. We manage to increase our position in that aspect, not only in the Israeli market, not only in the Israeli defense sector, but in many sectors, including the U.S. and also recently also in Canada and the UK. So this is one of the significant drivers that we see today in the business.
Yuval Aviv: Yeah, I can add that the GenAI opportunities are definitely of the type of lend and expand. We see a lot of lending, as you hear, 270 and more projects. But this project is not ending. We keep on expanding. This is just the nature of what GenAI is doing to all of us in the market.
Maggie Nolan: Understood. Can you comment a little on the strategy behind the acquisition that was done in July and the contribution to the financials for this year? Thank you.
Asaf Berenstein: We did not acquire any company in July.
Maggie Nolan: A small manufacturing company?
Asaf Berenstein: Axiom is a very small operation. It is something at around $2.5 million in terms of turnover. It is a kind of a consultancy firm that we work with them as partners, and we acquired them in order to push forward our business in the factory operation in the U.S.
Maggie Nolan: Got it. Okay. Thank you for taking my questions.
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 pull from all of your questions. There are no further questions at this time. Mr. Berenstein, would you like to make a concluding statement?
Asaf Berenstein: Thank you, everybody, for joining us to the call today. We hope to continue in giving you good news on our upcoming call.
Operator: Thank you. This concludes the Magic Software Enterprises Ltd 2025 second quarter results conference call. Thank you for your participation. You may go ahead and disconnect.