Magic Software Enterprises(US:MGIC)2019-05-16 18:53Financial Data and Key Metrics Changes - The company's Q1 2019 revenue increased by 3% to $71.8 million compared to $69.7 million in Q1 2018 [8] - Non-GAAP operating income rose by 4% year-over-year to $10.1 million for the quarter [14] - Non-GAAP gross profit for Q1 2019 was $23.6 million, down approximately 4% from $24.6 million in Q1 2018 [11] - Non-GAAP net income increased by 8% to $6.7 million or $0.14 per fully diluted share compared to $6.2 million or $0.14 per fully diluted share in the same period last year [16] Business Line Data and Key Metrics Changes - The revenue mix for Q1 2019 was 26% from software solutions and 74% from professional services, compared to 28% and 72% respectively in 2018 [13] - Professional services accounted for 85% of the growth in 2018, impacting the gross margin [12] Market Data and Key Metrics Changes - Geographical revenue breakdown showed North America at 48%, Israel at 39%, Europe at 8%, and APAC and the rest of the world at 5% [10] Company Strategy and Development Direction - The acquisition of PowWow SmartUX is aimed at enhancing the company's low-code development platform, which aligns with the demand for digital workplace transformation [9] - The company plans to invest in marketing and localization to integrate PowWow's platform into existing markets [30] Management's Comments on Operating Environment and Future Outlook - Management noted a slowdown in technology sales at the beginning of 2019, which is typical as companies finalize budgets [34] - The company remains confident in achieving its full-year 2019 revenue guidance of $313 million to $319 million, reflecting a growth rate of 10% to 12% [21][22] Other Important Information - The company implemented a new accounting standard, ASC 842, affecting the balance sheet but not the P&L [20] - Cash and cash equivalents decreased to approximately $109 million from $116 million at the end of 2018, primarily due to dividend payments [18] Q&A Session Summary Question: Can you elaborate on the PowWow acquisition and its synergies? - Management highlighted synergies in technology and methodology, emphasizing the alignment of low-code paradigms and user experience improvements [27][28] Question: Why did revenue decelerate during the quarter while maintaining guidance? - Management explained that the slowdown was due to typical seasonal trends and an increase in headcount for professional services, which impacted gross profit [34][35] Question: How will the company maintain stable operating margins with the increasing mix of professional services? - Management indicated that hiring from specific locations and improving technology sales would help maintain gross margins [40][41] Question: Will the PowWow investment be dilutive to EPS in 2019? - Management acknowledged a potential negative impact on EPS between $0.02 to $0.04 due to the subscription model and initial investments [46][47]