Thank you, operator, and thank you, everyone, for joining us today as we report our second quarter financial results 2022. Today, I will review highlights for our second quarter results and provide an overview of our achievements.

Magic delivered strong start to first half revenue increasing by 21.7% year-over-year to approximately $276 million, exceeding market expectations. Revenues for the second quarter reached all-time second quarter high of approximately $137 million, reflecting a 15% increase compared to the same period last year.

On a constant currency basis, revenue for the second quarter of 2022 increased by 17.4% compared to the same period of the previous year, with 89% of the growth organic. This achievement delivered the 10.3% year-over-year increase in our non-GAAP operating income in the second quarter with operating margin reaching 12.8%, down from 13.4% in the same period last year.

Magic second quarter results strongly demonstrated our sustained profit-oriented approach. We continue to support existing loyal customers as well as closing new deals.

The continued strategic focus on the execution of our priority of top line growth resulted in yet another strong performance for the quarter, with sales mainly coming from the ongoing expansion of our business in North America and in Israel. And despite the impact of the Jewish holiday season of Passover, which this year resulted in a decrease of approximately two billable working days equivalent to approximately $1.5 million in revenues compared to the same period last year and four billable working days equivalent to approximately $3 million of revenues compared to the first quarter of 2022.Magic Software is a global company operating across multiple markets and offering broad IT services portfolio.

Our strategy allows us to carefully balance our growth resources, investments and risks across regions and markets. Our solid execution in the second quarter validates our strategy of building a broad business portfolio, which provides the foundation for our sustained solid performance and growth as we continue supporting our customers throughout their innovative digital transformation journey based on our long-term engagement cycle.

Moreover, we invest significant effort in improving and enhancing our offering to help our clients develop a well-rounded approach of trust and safety as part of our broader customer experience strategy. We are witnessing healthy demand and developing a growing pipeline to deliver continued growth in 2022, as our customers increasingly engage us as a preferred partner for innovative digital transformation initiatives.

And as such, we continue increasing our resources despite fierce competition of our talented IT workforce currently having hundreds of open positions. We are extremely proud of the positive results we continue to demonstrate, particularly from our organic growth with close to 3,800 talented employees spread globally compared to 3,500 in this respective period.

And despite the challenging macroeconomic environment and while it seems to be a sense of customers longer decision-making process, we are still certain that we will - that we have all the necessary tools in place for sustained growth. We have a well-established record of growth, profitability and high cash generation and the Magic team worldwide is committed to executing our strategy to deliver growth and continue improving our shareholders' value.

On the M&A front, as we have in the past, we continue to explore M&A opportunities in the fields that we operate in as well as in fields that we target and identify growth opportunities. In July 2022, we acquired Intrafaces, a provider of IT professional services, based in Nantes, France, and a long-term partner of ours for a total consideration of €3.3 million.

We believe that this acquisition can enhance the existing operation of our French office. Intrafaces is expected to contribute approximately $2 million to our 2022 second half revenue.

Moving to the financials and starting with the geographical breakdown of our revenues. During the second quarter, North America accounted for 53% of total revenues, Israel 38%, Europe 6% and APAC and the rest of the world accounted for 3% of our second quarter revenues.

Our revenues in North America reached $73.3 million, up 14.6% compared to $63.9 million in the same period of the previous year, accounting for 52% of our growth in the same quarter, all organic growth. On a sequential basis, North America revenue was stable at the $73 million revenue.

Revenue in Israel reached $51.4 million, up 18% compared to $43.6 million in the same period last year, accounting for approximately 43% of our growth in the second quarter. On a constant currency basis, revenue in Israel increased by approximately 21% in the same period last year.

On a sequential basis and despite the negative impact of the Jewish holiday season of Passover, revenue remained stable at $51 million. This region was significantly affected by the currency's headwind, as the Israeli Shekel weakened against the dollar.

On a constant currency basis, our sequential growth would have been 4%. Turning now to profitability.

Despite the significant currency headwind as well as the continued increase in labor costs, we were able to deliver a growth in gross - in our gross profit. And our amount of gross profit for the second quarter of 2022 reached $38.2 million, up approximately 11% compared to $34.4 million in the second quarter of last year.

On a constant currency basis, gross profit would have increased by approximately 15% compared to the second quarter of last year to approximately $39.6 million. Our non-GAAP gross margin for the second quarter of 2022 decreased by 100 basis points, down 28.9% in the second quarter of 2021 to 27.9% in the second quarter of 2022.

The decrease in our gross margin is mainly attributable to the change of our revenue mix related to our software solution versus our professional services as well as the increase in employee payroll costs due to robust demand for digital, cloud, data, cyber and core system professional experts and to the devaluation of the new Israeli Shekel and the euro versus the U.S. dollar.

On a constant currency basis, compared to the second quarter of last year, our gross margin would have been 28.3%, down only 60 basis points. The breakdown of our revenue mix for the 6-month period of 2022 was approximately 18% related to our software solutions with a gross margin of approximately 64% and 82% related to our professional services with a gross margin of approximately 20%.

While in the same period of 2021, 21% of our revenues were attributable to our software solutions segment with a gross margin of approximately 64% and 79% related to our professional services with a gross margin of approximately 20%. The increase in the percentage of our professional services is due to the continued strong demand for our professional experts, driving our professional services revenue stream.

The breakdown of our gross profit mix for the 6-month period of 2022 was approximately 41% related to our software solutions and 59% related to our professional services compared to 45% and 55% in the same period of last year, respectively. Moving to operational costs.

R&D expenses on a non-GAAP basis in the second quarter of 2022 totaled $3.3 million compared to $3.2 million in the first quarter of 2021 and $3.2 million in the same period of last year. Our operating - non-GAAP operating income for the second quarter of 2022 increased by 10.3% to $17.6 million compared to $15.9 million in the same period of last year and $18.9 million in the first quarter of 2022.

This reflects an operating margin of 12.8% for this quarter compared to 13.4% in the second quarter of 2021 and 13.6% in the first quarter of 2022.Our non-GAAP tax expenses this quarter totaled $4 million compared to a tax expense of $2.5 million in the second quarter of 2021. Our effective tax rate for the 6-month period of 2022 was approximately 21.4% compared to 17.3% recorded in 2021.

We expect an effective tax rate in 2022 to be in the range of 21% to 22%. Our non-GAAP net income for the second quarter increased 2.8% to $11.6 million or $0.24 per fully diluted share compared to $11.3 million or $0.23 per fully diluted share in the same period last year.

Turning now to the balance sheet. As of June 30, 2022, cash and cash equivalents, short and long-term bank deposits and marketable securities amounted to approximately $93.9 million compared to $116.5 million in the previous quarter.

Our total financial debt as of June 30, 2022, amounted to $56.5 million compared to $60 million in the previous quarter. During the second quarter, Magic paid its shareholders $10.6 million with respect to its 2021 second half semiannual dividend distribution as well as $5.3 million towards contingent payment liabilities related to acquisitions made in prior years and net repayment of loans in the amount of $1.6 million.

During the second quarter of 202, our cash flow for operating activities, excluding the payments of deferred and contingent consideration related to acquisitions included in the cash flow for operating activities reached $7.3 million. The low operating cash flow for operating activities was mainly due to the timing of contracted payments milestone as well as deferred payments paid by our customers in previous quarters, which were recognized as revenues this quarter.

In our press release issued today, we announced that Magic Board of Directors has declared a semiannual cash dividend in the amount of $0.29 per share having the aggregate amount of approximately $14.3 million, reflecting approximately 75% of our net income for the first half of 2022. The dividend will be paid on September 13, 2022 to shareholders of record as of August 30, 2022.

Today Dividend Solutions announced - marked Magic Software's 10th Year Anniversary of semiannual dividend distribution policy adopted on September 5, 2012. So despite past 10 years, Magic has distributed a cumulative amount of over $132 million to each shareholder.

In closing, I would like to turn to our guidance to the rest of 2022. Given our solid backlog and our strong pipeline and taking into consideration the negative impact of the strengthening of the U.S.

dollar mainly versus the new Israeli Shekel in euro, we are revising for the second time this year, our 2022 annual revenue guidance to a new range of $545 million to $555 million from a lower range of $540 to $550 million, reflecting annual growth of 13.5% to 14.5% year-over-year. With that, I will now turn the call back to the operator for questions.

Good afternoon. Thanks for the presentation.

And congrats on the strong results. I wanted to discuss a little bit the level of demand you're seeing.

I mean, you definitely posted some solid organic growth, but I'm assuming that a lot of the sales were - actually the conversation started a couple of months ago before the downturn. So I guess I'm interested in the current level, the discussions you're currently having with prospective customers.

Do you get any pushback of them saying, what - we'll revisit next year once we have less pressure? Or you do feel that you are being perceived as kind of business critical.

And therefore, the investment decision is taking place regardless of the environment because it's just the digital transformation is too important to postpone.

Tavy I will divide the question into two. First, the - I think, the most significant place where we start to fill, although it's insignificant for us is with the young companies, we do have some activities with young companies.

And there, we see that they have become a bit more strict on their expenses because they understand that it will be way more difficult for them to raise money. And of course, on the other side, we are quite on top in order to make sure that we are being paid.

Talking about the big accounts, so for now, we don't see any negative trends with the big accounts. Although you know we are quite aware of the situation in the market, and I must say that although for now, we don't see or feel it, while people are starting to talk about some kind of recession, it will probably affect the mood of everybody.

So people will be a bit more cautious in terms of spending. I must say that in most big accounts, we are on the critical path of their investment.

So it would be a bit hard for them to squeeze. But at the end, we are working in cooperation with them.

So as I said, we don't feel it now, but we are quite aware of the situation. And we do everything we can in order to prevent it and increase within the main accounts so that if we decide if they will decide to squeeze a bit, then we will be able to compensate.

Yes. That's very helpful.

And I guess on the M&A side, you are very active on that front. Do you feel that the multiples have compressed and therefore, it's a good time to be more aggressive on the M&A front or since - I mean, I'm not 100% sure on the private side.

If you read it as much as on the public side, I'm just curious to get your feedback on that.

So I would say that on the - especially on the - where we play on the private side, we never attempt to go with the crazy multiples before. So we definitely have no reason to do it now.

I think the trend that we see is that companies are coming to talk. And they understand while talking to us that they know what we pay for - what are the multiples that we pay.

And before that, they had the dream of selling the company for tons of money. Now they are way more reasonable.

So we do have a few in the pipe, but yet to be seen.

Thank you. Can you talk a little bit more about your new deal closures from the quarter, maybe what verticals you're having success in?

Are there particular service areas that you're seeing clients gravitate forward versus shy away from in this particular economic environment?

Yes. I think that, first of all, we always remember that 85% to 88% of our business is relying on our existing customers.

I think that Guy partially recently in his previous - in his answer to the previous question in terms of the more young we get a sense of speaking about if there is a animosity of speaking about like a slight regression or preparing for that. But on the big accounts that we have, especially in the banking sector, in the health care sector, in the defense sector.

These all - after these sectors, we see a very solid and very growing pipeline. In the health tech, we can see that we have companies that are now more controlled in their move to the cloud.

So they are more concerned with the regulation and the cybersecurity and the move to the cloud. So these kind of projects bring us more business.

Okay. And then can you talk a little bit about how wage inflation, foreign currency and hiring plans are all shaping your gross margin expectations for the next two quarters?

First of all, Nolan, it's like - it depends on when you're asking the question. If we look at the June 30, the dollar - 40% of our business is with Israeli customers, the dollar versus the Shekel was 3.5%.

Now it is back to 3.27%. So it's pretty hectic changes between the quarters.

I think that the good thing about Magic is that the fact that we're - in most parts wherever we have client, wherever we do business, we are put on the ground and our costs are equivalent to the same currency that we are also getting paid by. So in that aspect, we feel that we are pretty covered and changes in the exchanges rates mostly impact our bottom line rather than anything else.

So currently, as we see now, we see if rates stay the same, we are in a good position. Most of the heat that we got from exchange rates were during the second quarter.

We said that our gross margin was 27.9%, where it should have been, if we apply the same rates that are now on the same rate that we had in Q1 of 2022 - we should have been at 28.3% gross margin. Same on the operating margin, we reported 12.8%, but if we were applying today's rate or the Q1 rates, we would have reported 13.1% operating margins, which are basically our standard operating margin and our standard gross margin.

So currently, we see improvement, but every quarter is a different question. But again, as I said, the business is naturally hedged.

Yes. So again, thank you very much for joining our call, and we surely hope to bring you some more good news in the next quarter and the one after.

Thank you very much.