Ladies and gentlemen, thank you for standing by. Welcome to the Magic Software Enterprises 2023 Second Quarter Financial Results Conference Call. Magic second 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. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. For operator assistance during the call, please press star zero. With us on the line today are Magic CEO, Mr. Guy Bernstein, Magic CFO, Mr. Asaf Berenstin, and Magic CTO, Mr. Yuval Lavi. Before we start, I would 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 or 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. 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 website. I will now turn the call over to Mr. Asaf Berenstin, CFO of Magic Software. Please go ahead. Thank you, Yoni, and thank you everyone for joining us today as we report our second quarter 2023 financial results. During the call today, I will review highlights from our second quarter results and provide an overview of our achievements. We appreciate your continued support and look forward to sharing our progress with you. Revenues in the second quarter of 2023 increased to $137.6 million, up 0.4% from the second quarter of 2022. The currency headwind on revenues is significant compared to the second quarter of last year. On a constant currency basis, calculated based on average currency exchange rate for the three months ended June 30, 2022, revenues for Q2 2023 would have increased by 4.4% to a record-breaking second quarter result of $143 million. Even when compared to the previous quarter of this year on a constant currency basis, calculated based on average currency exchange rate for the three months ended March 31st, 2023, our revenues in Q2 2023 would have been $1.8 million higher than the reported one, reaching $139.4 million. These results demonstrate the continued growing investment made by enterprises and organizations worldwide, even during the 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 units. We continue to see exciting opportunities and growth potential in the dynamic realm of cloud technology and managed services. Since the first days of Magic Software, our DNA was to take complex IT processes and make them simple. Today, we put our focus on helping our clients to transition seamlessly to the cloud, enhance their Software as a Service capabilities, and deliver exceptional value through our comprehensive suite of managed cloud services. We have made it our mission to assist businesses in overcoming the challenges associated with migrating to the cloud and achieving true SaaS excellence. We recognize that the cloud is not just a technology shift, it's a transformative journey that demands expertise, dedication, and innovation, to which we bring industry-leading best practices, ensuring that our clients' cloud deployments meet the highest standards of performance, scalability, security, and reliability. Our suite of managed cloud services, which include services such as NOC as a Service, SOC as a Service, DevOps as a Service, FinOps as a Service, and much more, are tailored to address critical aspects of cloud operations, empowering our clients to focus on their core competencies, while leaving the management and optimization of their cloud environment to us. We converted our integration and application products to be fully cloud-native. We created some new products like Workspace, and we are now starting to provide those products as managed cloud services, allowing our new and existing customers to move their businesses to the SaaS model while keeping their legacy systems and with minimal disturbance to their business. The global cloud services market continues to experience rapid growth, with businesses all, of all sizes recognizing the benefits of migrating to the cloud. The managed cloud services market, in particular, is projected to witness substantial expansion due to the increasing complexity of cloud environments and the need for specialized expertise. What sets Magic apart is our deep domain expertise, a customer-centric approach, and a proven track record of delivering successful cloud transformations. Our teams of seasoned professionals is committed to understanding our clients' unique needs and tailoring our services to drive tangible business outcomes. Moving to our financials. In the Q2 of 2023, our revenues in North America amounted to $69.2 million, 4.1%, and approximately $2.9 million lower than Q2 of 2022, and $3.4 million lower compared to Q1 of 2023, mainly due to cutbacks made by several clients in the U.S. and especially CVS Health, which decided to reduce expenses and put on hold IT investment decisions, resulting in a decrease of close to 250 of our US specialists since the end of 2022. Most of them, around 150 specialists, during the Q2 of 2023. Revenue for our Israeli operations amounted to $51.7 million, up 1% compared to Q2 of 2022. The impact of the continued devaluation of the Israeli new shekel versus the US dollar was material over our Israeli market revenue. On a constant currency basis, calculated based on average currency exchange rate for the three months ended June 30, 2022, the revenues for the second quarter of 2022 of our Israeli operation would have increased by $5.4 million- $57.1 million, reflecting a year-over-year growth of 11.1%. This demonstrates our strong performance in the region and reconfirms our long-term strategic decision to focus on mature, stable, and technology-driven sectors such as healthcare, defense, finance, and the public sector, which compensated for the current slowdown we are experiencing in North America. 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 engages 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 services global vendor. We have a well-established track record of growth, profitability, and a high cash generation, and the Magic team worldwide is committed to executing our strategy to deliver growth and continue improving our shareholders' value. Moving to geographical breakdown of our revenues. During the Q2 of 2023, North America accounted for 50% of total revenues, Israel, 38%, Europe, 9%, and APAC and the rest of the world accounted for 3% of our Q2 revenues. Turning now to profitability. Despite the significant currency headwind, we were able to deliver growth in our gross profit as well as in gross margin. Our non-GAAP gross profit for the second quarter of 2023 reached $41.6 million, up approximately 9.3% compared to $38.2 million in the same period last year. Our non-GAAP gross margin for the second quarter of 2023 increased by 240 basis points, from 27.9%- 30.3% in the second quarter of 2023. The breakdown of our revenue mix for the six-month period of 2023 was approximately 18.4% related to our software solutions, with a gross margin of approximately 63.1%, and 81.6% related to our professional services with a gross margin of approximately 21.6%. While in the first half of 2022, approximately 80% of our revenues were attributable to our software solution segment, with a gross margin of approximately 64% and 82% related to our professional services with a gross margin of approximately 20%. The breakdown of our gross profit mix for the six-month period of 2023 was approximately 40% related to our software solutions and 60% related to our professional services, compared to 41% and 59% in the same period last year. Our non-GAAP operating income for the second quarter of 2023 increased by approximately 4% to $18.4 million, compared to $17.8 million in the same period last year. This reflects an operating margin of 13.4% for the quarter, compared to 13% in the second quarter of 2022. On a constant currency basis, calculated based on average currency exchange rate for the three-month period ended June 30, 2022, non-GAAP operating income for the second quarter would have increased by approximately 7% to a second quarter record-breaking result of $19.1 million. Financial expenses net. During the quarter, we had financial debt interest expenses of $1.2 million, resulted from our $89.6 million financial debt, compared to $0.4 million recorded in the same period last year, for a total financial debt of $56.5 million. As our overall debt continued to grow in 2023, and as the majority of our debt bears variable interest rate, we still expect interest expenses to rise compared to last year. Net income attributable to non-controlling interests. As our business combination model has often relied 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 our net income to those minority shareholders. Net income attributable to non-controlling interests increased to $1.8 million, compared to $1.6 million in the same period last year. Our non-GAAP tax expenses this quarter totaled $2.9 million, compared to a tax expense of $3.9 million in the second quarter of 2022. Our effective tax rate for the first half of 2023 was approximately 17%, compared to 20% recorded in the same period last year. Our non-GAAP net income for the second quarter increased 15.4% to $13.5 million, or $0.28 per fully diluted share, compared to $11.7 million or $0.24 per fully diluted share in the same period last year. Turning now to the balance sheet. As of June 30, 2023, cash and cash equivalent and short-term bank deposits amounted to approximately $106 million, compared to $106.4 million in the previous quarter. During the second quarter, Magic paid shareholders $14.7 million with respect to its 2022 second half semiannual dividend distribution, as well as $12.3 million towards settlement of liabilities related to acquisition, which we acquired in prior years. Our cash flow from operating activities reached $23.9 million during the second quarter of 2023, compared to $5.6 million in the same period last year. In our press release issued today, we announced that Magic Board of Directors has declared a semiannual cash dividend in an amount of $0.327 per share, or in the aggregate amount of approximately $16.1 million, reflecting approximately 75% of our net income for the first half of 2023. The dividend will be paid on September 13th, 2023, to shareholders of record as of August 30, 2023. In closing, I would like to turn to our guidance for 2023. Our revenue guidance update considers the, the following two main factors: one, the impact of foreign exchange headwinds, and mainly the continued devaluation of the Israeli new shekel versus the US dollar, and two, the slowdown of our operations in North America market. With respect to the exchange rate turbulence, we continue with witnessing a significant weakness of the Israeli new shekel versus the US dollar, which began during the second half of 2022 and has been continuously depreciating ever since. The impact on our yearly revenue guidance for the previous guidance, from the previous guidance reported in May, amounts to approximately $6 million. With respect to the slowdown we have experienced during the first half of 2020 in the North American market, and in particular, the reduced level of our workforce at CVS Health, though we start seeing first signs of improvement, we are still below our original expectations, and as such, decided to reduce the forecasted revenue level until the end of the year. The impact on our annual guidance amounts to approximately $9 million. As a result, we have updated our revenue guidance from a range of $585 million-$593 million, to a new range of $570 million-$580 million. We anticipate that Q3 will be higher than Q2 revenues by 3.5%-4%. In summary, we remain committed to executing our strategy, leveraging our strength, and delivering sustainable growth and value for our shareholders. Our business model enables us to navigate the current macroeconomic environment with added stability. Today, over 85% of our revenue comes from existing clients, giving us stability and highly visible source of cash from operations. Our confidence in the market's need for digital transformation and in our ability to address it remains high. We can confidently continue to execute our strategy to deliver growth and generate cash. I would like to thank our clients and our shareholders for their continued support and trust, and we look forward to deliver greater success throughout the remainder of 2023. With that, I will now turn the call over to operator for questions. 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're using speaker equipment, kindly lift the handset before pressing the numbers. Your questions will be polled in the order they are received. Please stand by while we poll for your questions. The first question is from Chris Reimer of Barclays. Please go ahead. Hi, guys. Thanks for taking my questions. First off, could you give any color about what contributed to the margin expansion? Would that have just derived from the reduction of the North American-related employees, or was something else going into that? Any color on that would be helpful. Yes, in, in major aspect, mainly the reduction of our operation with CVS, which carried a much lower gross margin than our other professional service project that we do. With CVS, because of the magnitude of overall relationship in our business, we have something between 10%-12% gross margin, and as you can see, our average gross margin is around 28%-28.5%. Once that went down, it impacted our gross margin for the quarter. Okay. You mentioned seeing some signs of improvement. Can you give any color on that as it leads into the pipeline for maybe next year? Maybe if you could just comment on what kind of projects are you seeing being done now, maybe in lieu of something else? Yeah. Hi, this is Yuval. We see, again, the digital transformation and cloud, and movement to the cloud all over. Even in some places, we see CVS in the future going into more digital transformation. This is what reassure us that we are on the right track as far as looking to provide a cloud transformation to our, to our customers. In terms of the-- In terms of our prospects, during the first six months of the year, we did see a significant reduction of new business coming from the, the U.S. in several sectors that we operate in. It's, it's in the telecom, of course, in the healthcare, as I mentioned, but also for cloud consumption and from high-tech companies. By the end of the second quarter, and let's say, all through the month of July, we see, we see clients coming back, we see pipelines recuperate. We believe that this is not something that, you know, only represents July, but something that, that we feel is a window going back to improvement, rather than one, one thing, thing. One thing. Great, thanks. That's very helpful. That's it for me. The next question is from Maggie Nolan of William Blair. Please go ahead. Thank you. Can you talk a little bit about the kind of percentage of revenue coming from your managed cloud services versus other services that you offer, and how you expect that to be developing over time? First of all, I need to, to put out that, if we look at the cloud consumption, for example, and today, we sell something around $60 million in approximately $60 million, give or take, in current cloud consumption, but we don't show it on a gross, we, we show it on, on the net, and this is under a gross margin that can run from 4%, around 4% or 5% or 5%. Despite the fact that we sell what we see as a significant amount of revenue from cloud consumption services, this is not something that is highly reflected on our, on our top line. Nevertheless, it, of course, brings other type of businesses and services, as I mentioned, as SOC as a service. NOC as a Service, FinOps, all other managed services. We can see that our... I think more than 50% of our ongoing offering that are in the market are asking for managed cloud services. Regardless to the type of cloud services, but they want it as a managed cloud service and not as a perpetual and not as on-premises. We see it more and more. I think it's hard to say the cut and the, the absolute numbers that are being here and there because this is a shift that we see in some places, but also increased. From putting the line, it's hard at the moment, for me at least. Got it. No, that's helpful. Thank you. On the demand side of things, can you talk a little bit about, you know, what level of these are cancellations, is it spend that you expect will materialize in the future at some point? What do you think it takes for your customers to get comfortable kind of loosening up their budgets and spending again? I think we need to differentiate here between the US market and the rest of the world. In the U.S., we saw that customers started to squeeze their budget at the beginning of the year, to went down dramatically towards mid, second quarter. Now we start to see again that they start to hire again, we prefer to be cautious here because we don't know where to, where it goes. In the Israeli market, for example, you know, nothing happened. It's like, the market, with all the mess in the country, still the business is rather good. You know, again, we prefer to be cautious because there is some kind of uncertainty, political uncertainty, that affected at the beginning, and now it's like, we, we, we see that the business are growing again. This is where we stand. Got it. Thank you for the update. 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 poll for more questions. There are no further questions at this time. Mr. Bernstein, would you like to make your concluding statement? Yes. Thank you, everyone, for joining, another call of Magic Software. We definitely intend to bring you more good news in next quarters. Thank you very much. Thank you. This concludes the Magic Software Enterprises, Ltd. 2023 Second Quarter Results Conference Call. 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