Magic Software Enterprises Ltd (MGIC) 2023 Q1 法說會逐字稿

Welcome to Magic Software Enterprises 2023 First Financial Results Conference Call. (Operator Instructions) As a reminder, this conference is being recorded. With us on the line today are Magic's CEO, Mr. Guy Bernstein; Magic's CFO, Mr. Asaf Berenstin; and Magic VP of Technology and Innovation, Mr. Yuval Lavi.

歡迎參加Magic Software Enterprises 2023 年第一次財務業績電話會議。 （操作員指示）提醒一下，本次會議正在錄音。今天與我們一起在線的有 Magic 的首席執行官 Guy Bernstein 先生； Magic 的首席財務官 Asaf Berenstin 先生；以及 Magic 技術與創新副總裁 Yuval Lavi 先生。

Magic first quarter 2023 earnings release was issued before the market opened this morning, and it has been posted on the company's website at www.magicsoftware.com.

Magic 2023 年第一季財報於今天早上開市前發布，並已在公司網站 www.magicsoftware.com 上發布。

Before we start, I'd like to remind everyone that this conference call may contain projections or other forward-looking statements. 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 or expectations or otherwise.

在我們開始之前，我想提醒大家，本次電話會議可能包含預測或其他前瞻性陳述。今天發布的新聞稿中規定的安全港條款也適用於本次通話的內容。 Magic 明確表示不承擔更新或修改任何前瞻性陳述的義務，無論是由於未來事件、新資訊、觀點或預期的變化或其他原因。

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 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 our Investor Relations section of the company's website.

此外，在今天的電話會議中，管理層將參考非 GAAP 財務指標，今天早上開市前發布的新聞稿中已經提供了一份顯示 GAAP 與非 GAAP 結果的對帳表。電話會議結束後，您可以在公司網站的投資者關係部分重播本次電話會議。

I will now turn the call over to Mr. Asaf Berenstin, CFO of Magic Software. Please go ahead.

現在我將電話轉給 Magic Software 的財務長 Asaf Berenstin 先生。請繼續。

Thank you, operator, and thank you, everyone, for joining us today as we report our first quarter 2023 financial results.

謝謝接線員，也謝謝大家今天加入我們，一起報告 2023 年第一季的財務表現。

During the call today, I will review highlights from our first quarter results and provide an overview of our achievements. We appreciate your continued support and look forward to sharing our progress with you.

在今天的電話會議中，我將回顧我們第一季業績的亮點並概述我們所取得的成就。我們感謝您的持續支持，並期待與您分享我們的進展。

Our hard work and dedication continued to contributed to our solid performance in the first quarter of 2023 as we report approximately 3% year-over-year growth in revenues, reaching first quarter all time high of $142.4 million and operating income of $18.4 million. These results demonstrate the growing investments made by enterprises and organization worldwide even during current challenging macroeconomic climate to leverage their digital technologies and cloud-based platforms, creating high demand for our innovative software solutions and services, which together with the outstanding execution by our teams, led to another quarter of solid performance recorded across our business.

我們的辛勤工作和奉獻精神繼續為我們 2023 年第一季的穩健業績做出貢獻，我們報告收入同比增長約 3%，達到第一季歷史最高的 1.424 億美元，營業收入達到 1840 萬美元。這些結果表明，即使在當前充滿挑戰的宏觀經濟環境下，全球企業和組織仍在不斷增加投資，以利用其數位技術和基於雲端的平台，從而對我們的創新軟體解決方案和服務產生了很高的需求，再加上我們團隊的出色執行力，使我們的整個業務再創一個季度的穩健業績。

Our top line reported growth in Q1 of 2023 was solely driven by our North American operation, which grew by 4% year-over-year to $72.6 million, while revenues reported with respect to our operations in Israel remained flat at $53.3 million. On a constant currency basis, our revenues in the Israeli market grew by 10% year-over-year, which represents in real terms an all-time high of $58.8 million when calculated based on average currency exchange rate for the 3 months ended on March 31, 2022.

我們 2023 年第一季的營收成長完全由北美業務推動，該業務年增 4% 至 7,260 萬美元，而以色列業務的收入則保持平穩，為 5,330 萬美元。以固定匯率計算，我們在以色列市場的營收年增 10%，以截至 2022 年 3 月 31 日的 3 個月的平均貨幣匯率計算，實質營收創歷史新高，達到 5,880 萬美元。

The strong growth of our operation in Israel -- in the Israeli market, particularly in light of the current macroeconomic conditions, reconfirms our long-term strategic decision to focus on mature, stable and technology-driven sectors such as health care, defense, finance and the public sector, which compensated the recent slowdown, which we are currently experiencing in the high-tech and telecom sectors, mainly in North America and to some extent, also in Israel.

我們在以色列市場的業務強勁成長，尤其是在當前宏觀經濟條件下，這再次證實了我們的長期戰略決策，即專注於成熟、穩定和技術驅動的行業，例如醫療保健、國防、金融和公共部門，這彌補了我們目前在高科技和電信領域（主要在北美，某種程度上也在以色列）所經歷的經濟放緩。

Despite seeing some ongoing caution during recent months in the high-tech sector, we are still witnessing a healthy demand and maintaining a solid pipeline to deliver continued growth during 2023 as our customers increasingly engage us as a preferred partner for innovative digital transformation initiatives. And as such, we continue to fortify our position as a leading software solution and an IT service global vendor.

儘管近幾個月來高科技產業持續存在一些謹慎情緒，但我們仍然看到健康的需求，並保持著穩固的管道，以在 2023 年實現持續成長，因為我們的客戶越來越多地將我們作為創新數位轉型計畫的首選合作夥伴。因此，我們繼續鞏固我們作為領先軟體解決方案和 IT 服務全球供應商的地位。

We have a well-established track record of growth, profitability and high cash generation, and the Magic team worldwide is committed to executing our strategy to deliver growth and to continue improving our shareholders' value.

我們擁有良好的成長、獲利和高現金產生記錄，全球的 Magic 團隊致力於執行我們的策略，實現成長並繼續提高股東價值。

On the M&A front, despite the rising interest rate environment, we continue to believe that M&A remains an important part of our growth strategy, and as such, we continue to explore, though with an increased level of cautious new opportunities in the fields that we operate in as well as in fields that we target and identify growth opportunities as we have in the past.

在併購方面，儘管利率環境不斷上升，我們仍然相信併購仍然是我們成長策略的重要組成部分，因此，我們會繼續探索，但會更加謹慎地在我們經營的領域以及我們瞄準的領域尋找新的機會，並像過去一樣識別成長機會。

Moving to the financials and starting with the geographical breakdown of our revenues. During the first quarter of 2023, North America accounted for 51% of our total revenues; Israel 37%; Europe 9%; and APAC and the Rest of the World accounted for 3% of our first quarter revenues.

轉到財務方面，首先從我們收入的地理分佈開始。 2023年第一季度，北美占我們總營收的51%；以色列 37%；歐洲 9%；亞太地區和世界其他地區占我們第一季營收的 3%。

Our revenues in North America reached $72.6 million, up 3.9% compared to $69.9 million in the same period last year. Revenue in Israel reached $53.3 million as in the same period last year. On a constant currency basis, our revenues in the Israeli market grew by 10% year-over-year, which, as I have already mentioned, represented in real terms an all-time high of $58.8 million compared to $53.3 million in the same period last year.

我們在北美的營收達到 7,260 萬美元，較去年同期的 6,990 萬美元成長 3.9%。以色列的收入與去年同期一樣達到5,330萬美元。以固定匯率計算，我們在以色列市場的營收年增了 10%，正如我已經提到的，與去年同期的 5,330 萬美元相比，實際收入達到了歷史最高水平，達到 5,880 萬美元。

Turning now to profitability. Despite the significant currency headwind, we were able to deliver growth in our gross profit as well as in our gross margin. As our non-GAAP gross profit for the first quarter of 2023 reached $40.2 million, up approximately 3.1% compared to $38.9 million in the same period last year. Our non-GAAP gross margin for the first quarter of 2023 increased by 10 basis points from 28.1% in the first quarter of 2022 to 28.2% in the first quarter of 2023. On a constant currency basis, our gross margin would have gained additional 30 basis points and amounted to 28.4%.

現在談談獲利能力。儘管面臨巨大的貨幣逆風，我們仍然能夠實現毛利和毛利率的成長。由於我們 2023 年第一季的非 GAAP 毛利達到 4,020 萬美元，較去年同期的 3,890 萬美元成長約 3.1%。我們 2023 年第一季的非 GAAP 毛利率從 2022 年第一季的 28.1% 增加 10 個基點至 2023 年第一季的 28.2%。以固定匯率計算，我們的毛利率將額外增加 30 個基點，達到 28.4%。

The breakdown of our revenue mix for the first quarter of 2023 was approximately 18% related to our software solutions with a gross margin of approximately 65% and 82% related to our professional services with a gross margin of approximately 20%. While in the first quarter of 2022, approximately 19% of our revenues were attributed to our Software Solutions segment, with a gross margin of approximately 64% and 81% related to our professional services with gross margin of approximately 20%.

我們 2023 年第一季的營收組成細分為：約 18% 來自軟體解決方案，毛利率約為 65%；82% 來自專業服務，毛利率約為 20%。而在 2022 年第一季度，我們約 19% 的收入來自軟體解決方案部門，毛利率約為 64%，81% 的收入來自我們的專業服務，毛利率約為 20%。

The breakdown of our gross profit mix for the quarter was approximately 42% related to our software solutions and 58% related to our professional services compared to 43% and 57% in the same period of last year.

本季我們的毛利組成中，約有 42% 來自軟體解決方案，58% 來自專業服務，而去年同期分別為 43% 和 57%。

Our non-GAAP operating income for the first quarter of 2023 decreased by 3.4% to $18.5 million compared to $19.1 million in the same period last year. This reflects an operating margin of 13% for the quarter compared to 13.8% in the first quarter of 2022 and 13.1% in 2022 as a whole.

2023 年第一季度，我們的非 GAAP 營業收入為 1,850 萬美元，較去年同期的 1,910 萬美元下降 3.4%。這反映出本季的營業利潤率為 13%，而 2022 年第一季為 13.8%，2022 年全年為 13.1%。

On a constant currency basis, calculated based on average currency exchange rate for the 3 months ended on March 31, 2022, non-GAAP operating income for the first quarter of 2023 would have been -- would have increased by approximately 3% to a first quarter record breaking $19.6 million.

以固定匯率計算，根據截至 2022 年 3 月 31 日的 3 個月的平均貨幣匯率計算，2023 年第一季的非 GAAP 營業收入將成長約 3%，達到創第一季紀錄的 1,960 萬美元。

Financial expenses. During the quarter, we had a financial debt interest expenses of $0.8 million resulted from our $67 million financial debt compared to $0.2 million recorded in the same period last year for a total financial debt of $60 million. As the majority of our debt, there's variable interest and interest rates are still expected to rise. We expect our interest expenses to continue growing.

財務費用。本季度，我們的金融債務利息支出為 80 萬美元，源自 6,700 萬美元的金融債務，而去年同期的金融債務總額為 6,000 萬美元，利息支出為 20 萬美元。由於我們的大部分債務都是浮動利率，而且利率預計仍會上升。我們預計我們的利息支出將繼續增長。

Net income attributable to noncontrolling interest as our business combination model has also relied on keeping former shareholders in acquired entities as minority shareholders in addition to their managerial role in such entities, we are allocating a portion of our net income to these minority shareholders. Net income attributed to noncontrolling interest amounted this quarter to $1.7 million compared to $1.5 million in the same period last year.

歸屬於非控制權益的淨收入由於我們的業務合併模式也依賴將被收購實體中的前股東保留為少數股東，並保留他們在這些實體中的管理角色，因此我們將部分淨收入分配給這些少數股東。本季歸屬於非控股權益的淨收入為 170 萬美元，而去年同期為 150 萬美元。

Our non-GAAP tax expenses this quarter totaled $3.1 million compared to a tax expense of $3.6 million in the first quarter of 2022. Our effective tax rate for the quarter was approximately 18% compared to 20% recorded in the same period last year.

本季我們的非公認會計準則稅費總計 310 萬美元，而 2022 年第一季的稅費為 360 萬美元。本季我們的有效稅率約為 18%，而去年同期為 20%。

Our non-GAAP net income attributable to Magic shareholders for the first quarter decreased 3.2% to $12.6 million or $0.26 per fully diluted share compared to $13 million or $0.26 per fully diluted share in the same period last year.

第一季度，我們歸屬於 Magic 股東的非 GAAP 淨利潤為 1,260 萬美元，即每股攤薄收益 0.26 美元，而去年同期的非 GAAP 淨利潤為 1,300 萬美元，即每股攤薄收益 0.26 美元，下降 3.2%。

Turning now to the balance sheet. As of March 31, cash and cash equivalents and short-term bank deposits amounted to approximately $106.4 million compared to $87 million in the previous quarter. Our total financial debt as of March 31, amounted to $67.4 million compared to $51.2 million in the previous quarter. Our cash flow from operating activities reached $18.8 million during the first quarter of 2023 compared to $12.8 million in the same period last year.

現在來看資產負債表。截至 3 月 31 日，現金及現金等價物及短期銀行存款總額約為 1.064 億美元，而上一季為 8,700 萬美元。截至 3 月 31 日，我們的總金融債務為 6,740 萬美元，而上一季為 5,120 萬美元。 2023 年第一季度，我們的營運活動現金流達到 1,880 萬美元，去年同期為 1,280 萬美元。

In closing, I would like to turn to our guidance for 2023. We are reiterating our 2023 full year revenue guidance of $585 million to $593 million, reflecting annual growth of 3.2% to 4.6%. We believe that this growth takes into consideration anticipated organic growth, the current macroeconomic environment and the current devaluation of foreign currency exchanges versus average rate in 2022.

最後，我想談談我們對 2023 年的指導。我們重申 2023 年全年營收指引為 5.85 億美元至 5.93 億美元，年增率為 3.2% 至 4.6%。我們認為，這一成長考慮了預期的有機成長、當前的宏觀經濟環境以及當前外匯匯率相對於 2022 年平均匯率的貶值。

In summary, we remain committed to executing our strategy, leveraging our strength and delivering sustainable growth and value for our shareholders.

總之，我們將繼續致力於執行我們的策略，利用我們的優勢，為股東實現可持續的成長和價值。

I would like to thank our clients and shareholders for their continued support and trust, and we look forward to delivering even greater success throughout the remainder of 2023.

我要感謝我們的客戶和股東一直以來的支持和信任，我們期待在 2023 年剩餘時間取得更大的成功。

With that, I will now turn the call over to the operator for questions.

說完這些，我現在將電話轉給接線生來回答問題。

(Operator Instructions)

（操作員指示）

The first question is from Chris Reimer of Barclays.

第一個問題來自巴克萊銀行的克里斯‧雷默 (Chris Reimer)。

I was wondering if you could give some more color on the diversification that your strategy of diversifying revenue verticals that you mentioned and if there's anything in particular where you're seeing a slight change and basically where you see the growth coming from this year.

我想知道您是否可以更詳細地介紹您提到的多元化收入垂直策略，以及您是否看到了哪些特別的細微變化，以及您認為今年的成長主要來自哪裡。

So I think it's a very unique year this year because of what happened in the -- with the economy and the market and the interest rates. We definitely see some customers being cautious in the States. For now, outside of the States, especially in Israel, we don't see that. So we pushed quite hard on the Israeli market in order to compensate for some of the business reduction in the States. But all in all, we feel quite comfortable because we are working with big corporates. So we know how to plan it.

因此，我認為今年是非常特殊的一年，因為經濟、市場和利率方面所發生的變化。我們確實看到美國的一些客戶很謹慎。目前，在美國以外，尤其是以色列，我們還沒有看到這種情況。因此，我們大力開拓以色列市場，以彌補美國業務的部分減少。但總的來說，我們感覺很舒服，因為我們正在與大公司合作。所以我們知道如何計劃。

Just adding to that. In terms of the business, we see, of course, the growth coming from our clients that basically are moving their core systems to the cloud. We see a significant improvement and increase in our cloud consumption operation. We see significant increase on our cybersecurity consulting. We provide hardening services for our clients. We provide penetration test, we provide NOC services. We provide CISO as a service -- [so called] the service to our clients. I think that just on the migration of what we expect to continue and see a migration of core systems into the cloud is probably the main growth engine for the company.

只是補充一下。就業務而言，我們當然看到成長來自於我們的客戶基本上將其核心系統遷移到雲端。我們看到我們的雲端消費營運有了顯著的改善和成長。我們的網路安全諮詢業務顯著成長。我們為客戶提供強化服務。我們提供滲透測試，我們提供NOC服務。我們提供 CISO 服務—[所謂的]為客戶提供服務。我認為，我們預計將繼續進行的遷移以及核心系統向雲端的遷移可能是公司的主要成長引擎。

And a lot about managed service as opposed to professional services, moving into a managed cloud service offering.

與專業服務相比，託管服務有許多方面，轉向託管雲端服務。

Okay. That's really helpful. And just one more. How comfortable are you with current staffing levels? And are you finding attrition rates may be declining? Or is there some -- is there any change or easing related to employee acquisitions?

好的。這真的很有幫助。還有一個。您對目前的人員配置水準滿意嗎？您是否發現員工流動率可能正在下降？或者是否存在一些—與員工收購相關的變化或放寬？

I think today, we see that due to the current market situation, attrition rates have significantly decreased. Of course, the most talented people are still being looked after and courted and their level of salary and their ambition to stay is always something that is very challenging.

我認為今天我們看到，由於當前的市場狀況，流失率已經顯著下降。當然，最有才華的人仍然受到照顧和追捧，他們的薪資水平和留下來的意願始終是非常具有挑戰性的。

But on the average, we see people that are hanging on to their seats. So this became more comfortable. We see the salaries being pretty much stabilized and all of the increases that we experienced in 2022 and in 2021, post-COVID, were already behind us.

但平均而言，我們看到人們都緊緊地守在自己的座位上。這樣就變得更舒適了。我們看到薪資水準基本上穩定，2022 年和 2021 年（新冠疫情之後）經歷的所有增長都已經過去了。

I think that our heat rate in recruiting new employees have also been improved. So in the past we had to look for much more employees and the competition was much higher in order to succeed and recruit people. And now today, it's a bit more easier.

我認為我們招募新員工的熱度也提高了。因此，過去為了成功招募人才，我們必須尋找更多的員工，而且競爭也更加激烈。而現在，事情變得容易多了。

And I also think that when we're looking in to bring juniors in a way that will grow inside the organization as opposed to bringing champions that it's much harder to compete on.

而且我還認為，當我們尋求以一種能夠在組織內成長的方式引進初級球員時，與引進冠軍球員相比，這要困難得多。

The next question is from Maggie Nolan of William Blair.

下一個問題來自威廉布萊爾的瑪吉諾蘭。

I'm hoping you can give us a little bit more clarity on how you expect revenue to come in for the year on a quarterly basis, and it was great to see you reiterate that in the full year.

我希望您能更清楚地告訴我們您對全年季度收入的預期，很高興看到您在全年收入預期中重申了這一點。

It's a little bit difficult during this kind of call to provide something that we won't -- that we don't share on the global side, and on our PR. But I can say that, of course, we have -- as I said, we have 50% of our business in the U.S. Second quarter is a regular quarter, full, full day, billable days, no chain, no special events as opposed to the Israeli market, where we have the Passover, and we have the Independence Day, which are holiday season that our employees where -- it's already happened, we're on vacation days. So in Q1, we had like 65 billable days in the Israeli market. It goes down next quarter to 59.5. Overall, I would say that, that should bite -- or normally bite our revenue level by around 3.5% for Q2 versus Q1.

在這種電話會議中，提供一些我們不會在全球和公關方面分享的資訊有點困難。但我可以說，當然，正如我所說，我們 50% 的業務在美國。第二季度是一個常規季度，全天、可計費天數，沒有連鎖店，沒有特殊活動，而以色列市場則不同，我們有逾越節和獨立日，這些都是假期，我們的員工都在休假——這已經發生了，我們正在休假。因此，在第一季度，我們在以色列市場的可計費天數約為 65 天。下個季度將下降至 59.5。總的來說，我認為這將對我們第二季的收入水準造成影響——或者說通常會對我們第二季的收入水準造成約 3.5% 的影響，而第一季的收入水準將比第二季減少。

That's really helpful. And then what opportunity do you think there is from potential increases in enterprise spending on AI for your business? And then how also do you intend to leverage it within your own business models?

這真的很有幫助。那麼，您認為企業在人工智慧方面的支出增加會為您的企業帶來什麼機會？那麼，您還打算如何在自己的商業模式中利用它呢？

We are -- again, I'm not sure I fully understood the question about the AI. But we are looking in to implement quite a lot of AI into our technologies in specific fields, okay? We're looking now for some cooperation or joint ventures around the predictive and other trends in this market. But the challenge again with AI, we want to come with the defined solution, not just with the general statement of how we're doing AI as, again, most of this market.

我們——再說一次，我不確定我是否完全理解了有關人工智慧的問題。但我們正在考慮將大量人工智慧應用到特定領域的技術中，好嗎？我們現在正在尋找圍繞該市場的預測和其他趨勢的一些合作或合資企業。但人工智慧再次面臨挑戰，我們希望提出明確的解決方案，而不僅僅是像大多數市場一樣，對我們如何進行人工智慧做出一般性的陳述。

So we're trying to come and see how we plug it into our product and to our solution. Putting aside all the other consultancies that we have, that are doing also AI consultancy, okay? So it's kind of from 2-level. AI consultancy, data sciences and stuff like that and bringing AI into our products.

因此，我們正在嘗試了解如何將其融入我們的產品和解決方案中。撇開我們所有的其他顧問公司不談，它們也從事人工智慧諮詢業務，好嗎？所以它有點像是來自兩個層次。人工智慧諮詢、數據科學等等，並將人工智慧融入我們的產品。

(Operator Instructions) There are no further questions at this time. There is an additional question from Mike Silver of Kingston Capital.

（操作員指示）目前沒有其他問題。金斯頓資本的邁克·西爾弗 (Mike Silver) 也提出了一個問題。

Is there anything you could share about future acquisitions?

您能分享一些有關未來收購的資訊嗎？

We do have 2 or 3 potential acquisitions. Again, we are trying to play safe here. We are -- we made the negotiations from our side way harder because we think the market allowed it -- to us. We don't see yet as -- we call a reduction in multiples on prices. But I'm sure it will come. I don't know how if it will be that significant, but for sure, it will come. So for the time being, we are trying to close with the one we have in the pipe at better terms.

我們確實有 2 或 3 個潛在的收購機會。再次強調，我們正努力確保安全。我們讓談判變得更加困難，因為我們認為市場允許我們這樣做。我們還沒有看到——我們稱之為價格倍數的降低。但我確信它會到來。我不知道它是否真的那麼重要，但可以肯定的是，它會發生。因此，目前，我們正試圖以更有利的條件完成我們現有的交易。

There are no further questions at this time. Mr. Bernstein, would you like to make your concluding statement?

目前沒有其他問題。伯恩斯坦先生，您願意做最後發言嗎？

Yes. So thank you very much for joining our call, and we sure hope to bring you some more good news in the next call. Thank you very much.

是的。非常感謝您參加我們的電話會議，我們當然希望在下次電話會議中為您帶來更多好消息。非常感謝。

Thank you. This concludes Magic Software Enterprises Ltd. 2023 First Quarter Results Conference Call. Thank you for your participation. You may go ahead and disconnect.

謝謝。至此，Magic Software Enterprises Ltd. 2023 年第一季業績電話會議結束。感謝您的參與。您可以繼續並斷開連線。