Magic Software Enterprises(US:MGIC)2019-08-13 20:18Financial Data and Key Metrics Changes - The company's Q2 2019 revenues totaled $77.1 million, reflecting a 10% increase compared to $70.2 million in Q2 2018 and a 7% increase from $71.8 million in Q1 2019 [8] - Non-GAAP gross profit for Q2 2019 was $25.9 million, up approximately 11% from $23.4 million in Q2 2018, with a non-GAAP gross margin increase to 33.7% from 33.4% [12] - Non-GAAP operating income increased 9% to $10.7 million, with an operating margin of 13.9% compared to 14% in the previous year [17] - Non-GAAP net income for Q2 increased 1% to $7.1 million, or $0.14 per fully diluted share, compared to $7 million or $0.16 per share in the same period last year [20] Business Line Data and Key Metrics Changes - Revenue mix for the first half of 2019 was approximately 28% from software solutions and 72% from professional services, consistent with 2018 [13] - The gross profit mix for the first half of 2019 was approximately 52% from software solutions and 48% from professional services, compared to 54% and 46% respectively in the prior year [13] Market Data and Key Metrics Changes - North America accounted for 48% of total revenues, Israel 36%, Europe 9%, and APAC and the rest of the world 7% [11] - North America contributed 53% of the growth, while Israel contributed 27% [11] Company Strategy and Development Direction - The company is focused on geographic expansion and complementary products, actively seeking small-to-mid sized companies with revenues between $20 million and $50 million for potential acquisitions [25] - The company is investing in offshore R&D capabilities, with approximately 120 employees in India and 150 in St. Petersburg, aimed at improving operational efficiency and supporting future growth [44][46] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving full-year 2019 guidance despite a decline in business with CVS, indicating that new projects with existing clients have compensated for this decline [10] - The company anticipates maintaining operating margins in the range of 13% to 15% in the medium to long term [39] Other Important Information - The company declared a semi-annual cash dividend of $0.156 per share, totaling approximately $7.6 million for the first half of 2019, reflecting about 75% of net income [23] - The company generated $15.9 million from operating activities in Q2 and $26.6 million in the first half of 2019 [22] Q&A Session Summary Question: Performance of PowWow acquisition - Management indicated that PowWow's performance included a significant deal valued at $800,000 with a financial institution, but overall contributions for 2019 are expected to be between $500,000 to $1 million for the second half [30][31] Question: Impact of CVS on revenue - CVS accounted for around 13% to 15% of revenues this quarter, with a decline of approximately $10 million in annual revenues compared to 2018, but new projects have helped maintain profitability [34][35] Question: Offshore R&D presence and margin uplift - The company has 120 employees in India and 150 in St. Petersburg, with expectations that these offshore capabilities will improve margins, albeit with small numbers [44][46] Question: Guidance for 2019 - The company reaffirmed its revenue guidance of $313 million to $319 million, despite the decline in CVS business [64] Question: M&A outlook - Management confirmed they are close to finalizing an acquisition deal and expect it to happen within the current quarter [67][70]