Magic Software Enterprises Ltd. Q2 FY2024 earnings call

• Revenues in Q2 2024 decreased 1% year-over-year, but +0.4% on constant currency. • Israel had sequential mid-single-digit growth of 6.6%, North America had sequential double-digit growth of 11.1% due to acquisition of Theoris, Inc. • Revenue decline driven by currency headwind (2.1% year-over-year for Q2) and unexpected drop in professional services demand from U.S. blue-chip customers. • Non-GAAP operating margin for Q2 held strong at ~13.4%, same as Q2 2023. • AI, low-cost, no-code, and service offerings are critical as customers automate and digitize. • Theoris, Inc. is an IT and engineering consulting firm added to U.S. operations.

In the second quarter of 2024, revenues decreased to $136.3 million, down ~1% from Q2 2023. On a constant currency basis, revenues would have increased ~0.4% to $138.1 million. North America revenues in Q2 2024 were $58 million, ~16.2% lower than Q2 2023 but ~11.1% higher than Q1 2024, accounting for 43% of overall quarterly revenues. Revenues from Israeli operation were $58.2 million, up 12.6% from the same period last year, accounting for 43% of overall quarterly revenues.

• Reiterating 2024 full-year revenue guidance in the range of $540 million to $550 million.

• Currency headwind from devaluation of New Israeli Shekel and other foreign currencies reducing reported revenues. • Substantial and unexpected decline in demand for professional services from several U.S.-based blue-chip customers due to internal reasons unrelated to services.

Q: What's seen with the customer base and evolution of demand conversations since last quarter, and any increased optimism around North American customers?

A: In Israel and Europe, demand is strong. In the States, it's stable with first signs of improvement but sales cycle is longer.

Q: About margins and the acquired business, any specifics on margin flatness and detail on the acquired business?

A: Less billable days in Israeli market due to Passover holiday season affected gross margin. Theoris, Inc. is a software services staff augmentation company serving blue-chip and SMBs, less impacted by U.S. macroeconomic situation, and is a good addition to North American operations.