Magic Software Enterprises(MGIC) - 2019 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The fourth quarter revenue totaled $19.9 million, a decrease from$72.3 million in the same quarter last year and $85.8 million in the previous quarter, reflecting a 26$29.4 million, up approximately 25% compared to $23.4 million in the fourth quarter of last year [14] - Non-GAAP net income for the fourth quarter increased 10$6.4 million or $0.13 per fully diluted share compared to$5.8 million or $0.12 per fully diluted share in the same period last year [19] Business Line Data and Key Metrics Changes - The revenue mix for the 12-month period of 2019 was approximately 26$11.4 million, reflecting an operating margin of 12.6% for this quarter compared to 13.9% in the fourth quarter of 2018 [17] Market Data and Key Metrics Changes - North America accounted for 48% of total revenue in the fourth quarter, with Israel at 38%, Europe at 8%, and APAC and the rest of the world at 6% [13] - Revenues in North America grew 15% year-over-year, while revenues in Israel grew 20% year-over-year for the 12-month period [13] Company Strategy and Development Direction - The company aims to maintain its competitive position as a one-stop shop for digital transformation with enhanced services supported by proprietary software solutions [24] - The acquisition strategy focuses on small to midsize companies with revenues in the range of $20 million to$50 million to expand geographic reach and product offerings [11] Management's Comments on Operating Environment and Future Outlook - The company anticipates revenue in the range of $360 million to$370 million for 2020, reflecting annual growth of 10.6% to 13.6%, although this may be affected by the potential impact of the coronavirus [22] - Management expressed confidence in maintaining a gross margin baseline of 33% for 2020, despite potential disruptions from external factors [28] Other Important Information - The company generated $13.3 million from operating activities in the fourth quarter and$45.9 million during the 12-month period of 2019 [20] - Cash and cash equivalents amounted to approximately $98 million as of December 31, 2019, flat compared to the previous quarter [20] Q&A Session Summary Question: Guidance on margins and outsourcing efforts - Management indicated that margins were flat at 33% in 2018 and 2019, and they expect this to continue into 2020, with potential fluctuations due to external factors like the coronavirus [27][28] Question: Disruptions due to coronavirus - Management is ensuring that key R&D employees can work from home and is equipping those without laptops to mitigate risks [29] Question: Outperformance in 2019 - The company saw increased performance in Israel and Japan, with long-lasting customers utilizing a range of professional services [32][33] Question: Organic growth and guidance for 2020 - Approximately 60% of growth in 2019 came from acquisitions, and the guidance for 2020 includes a mix of M&A and organic growth [34][36] Question: Health of CVS relationship - The relationship with CVS declined from 14% in 2018 to around 10% in 2019, but stability is expected for 2020 following CVS's merger with Aetna [39]