Operating income for the third quarter increased by 23% year-over-year to a record breaking $45.4 million. Net income attributable to Formula’s Shareholders for the third quarter increased by 29% year-over-year to a record breaking $12.6 million.

Or Yehuda, Israel, Nov. 18, 2020 (GLOBE NEWSWIRE) -- Formula Systems (1985) Ltd. (NASDAQ: FORTY), a global information technology holding company engaged, through its subsidiaries and affiliates, in providing software consulting services and computer-based business solutions and developing proprietary software products, today announced its results for the third quarter and nine months-period ended September 30, 2020.

Financial Highlights for the Third Quarter Ended September 30, 2020 

  • Consolidated revenues for the third quarter increased by 8.5% to $487.3 million. Revenues for the third quarter ended September 30, 2019 amounted to $449.0 million.
  • Consolidated operating income for the third quarter increased by 22.5% to a record breaking $45.4 million, with growth recorded across Formula’s entire investment portfolio. Consolidated operating income for the third quarter ended September 30, 2019 amounted to $37.0 million.
  • Consolidated net income attributable to Formula’s shareholders for the third quarter increased by 29.4% to a record breaking $12.6 million, or $0.82 per fully diluted share, compared to $9.8 million, or $0.63 per fully diluted share, for the third quarter ended September 30, 2019. 

Financial Highlights for the Nine-Months Period Ended September 30, 2020 

  • Consolidated revenues for the nine-month period ended September 30, 2020 increased by 11.0% to $1,390.7 million, with growth recorded across Formula’s entire investment portfolio. Revenues for the nine-month period ended September 30, 2019 amounted to $1,252.9 million.
  • Consolidated operating income for the nine-month period ended September 30, 2020 increased by 23.1% to $124.9 million, with growth recorded across Formula’s entire investment portfolio. Consolidated operating income for the nine-month period ended September 30, 2019 amounted to $101.4 million.
  • Consolidated net income attributable to Formula’s shareholders for the nine-month period ended September 30, 2020 was $34.9 million, or $2.25 per fully diluted share, compared to $28.8 million, or $1.80 per fully diluted share, in the same period last year, reflecting an increase of 21.0% year over year.
  • As of September 30, 2020 Formula held 49.0%, 47.4%, 45.5%, 100%, 50%, 90.09% and 80% of the outstanding ordinary shares of Matrix IT Ltd., Sapiens International Corporation N.V, Magic Software Enterprises Ltd., Michpal Micro Computers (1983) Ltd., TSG IT Advanced Systems Ltd., Insync Staffing Solutions, Inc., and Ofek Aerial Photography Ltd., respectively.
  • Consolidated cash and cash equivalents, bank deposits and investments in marketable securities totalled approximately $435.8 million as of September 30, 2020, compared to $405.2 million as of December 31, 2019.
  • Total equity as of September 30, 2020 was $938.4 million (representing 42.3% of the total consolidated balance sheet), compared to $896.3 million (representing 42.9% of the total consolidated balance sheet) as of December 31, 2019.  

Debentures Covenants

As of September 30, 2020, Formula was in compliance with all of its financial covenants under the debenture series issued by Formula, based on the following achievements:

Covenant 1

  • Target equity attributable to Formula’s shareholders (excluding non-controlling interests): above $215 million.
  • Actual equity attributable to Formula’s shareholders is equal to $444.6 million. 

Covenant 2

  • Target ratio of net financial indebtedness to net capitalization (in each case, as defined under the indenture for Formula’s Series A and C Secured Debentures): below 65%.
  • Actual ratio of net financial indebtedness to net capitalization is equal to 11.0%.

Covenant 3

  • Target ratio of net financial indebtedness to EBITDA (based on the accumulated calculation for the four recent quarters): below 5.
  • Actual ratio of net financial indebtedness to EBITDA (based on the accumulated calculation for the four recent quarters) is equal to 0.46.

Comments of Management

Commenting on the results, Guy Bernstein, CEO of Formula Systems, said, “We are very pleased to witness the delivery of strong execution during the third quarter across our entire portfolio companies, on all financial fronts and across key business sectors, geographies and product lines. Such achievements are particularly exceptional in light of the impacts of the COVID-19 pandemic and the lockdown and restrictions imposed in Israel and across the globe. Fueled by outstanding strategic performance and extent software and solutions for digital transformation, Formula Group continues to successfully face the ongoing global crisis, recording for the nine month period double digit growth across all its key financial indices: revenues; operating income and net income.”

“Matrix successfully managed to improve and show record results across all its key indices (revenues, net and operating income, gross profit, EBITDA and cash flow), overcoming a challenging period in Israel and across the globe. Matrix’s position as Israel’s largest technology, application and infrastructure services company, its extent solutions offering in the fields of digital transformation, supply chain and logistics, cloud and hardware infrastructure, AI and cyber, and its footprint in the healthcare, security, transportation and finance sectors, well position Matrix through the continuous global crisis, and set the ground for the day after the crisis ends”.

“In Spite of the COVID-19 global pandemic, Sapiens delivered strong execution across all of its key geographies and product lines and managed to increase third quarter revenues by 18.2% year over year to an all-time high of $97.6 million. Non-GAAP operating margin increased to a record braking of 18.2%, an increase of 180 basis points year over year. We are extremely proud in Sapiens receiving global acknowledgement by winning three different awards/recognitions for excellence by the analysts and research community, Gartner Magic Quadrant for policy administration and insurance platform for both its Life and P&C solutions and the Excellent award by Celent in the Life New Business and Underwriting report. Despite the COVID-19 pandemic, Sapiens’ outlook continues to improve as a result of signing new deals, increasing revenues from existing customers, and completing the acquisition of Delphi, positioning the company as a leader of the MPL market in North America.  

“Magic delivered a double-digit record-breaking growth in both revenues (11%) and operating income (30%) as a result of an increased demand, from existing and new customers. Magic’s outlook for 2020 improved in spite of the COVID-19 pandemic, resulting in Magic raising its guidance from between $350 million and $360 million to between $358 million and $365 million. We are committed to continue with Magic proven strategy to enhance its portfolio as a one-stop-shop for digital transformation, both organically and through acquisitions.”

“Michpal group continues to realize synergies and monetize on its busines model with its revenues also fueled by the acquisition of Unique Software Enterprises Ltd. concluded in November 2019 and Liram Financial Software Ltd., concluded in May 2020, growing by 70% year over year. Michpal Group is well positioned to continue helping its customers to adjust to the ever-changing governmental labor guidelines which are introduced in light of the COVID-19 pandemic.”

“I am pleased to see that the steps we took across all our portfolio companies to endure the COVID-19 pandemic are paying off. We will continue to address the new market challenges and take all necessary steps to emerge stronger and well positioned.”

Stand-Alone Financial Measures

This press release presents, further below, certain stand-alone financial measures to reflect Formula’s stand-alone financial position in reference to its assets and liabilities as the parent company of the group. These financial measures are prepared consistent with the accounting principles applied in the consolidated financial statements of the group. Such measures include investments in subsidiaries and a jointly controlled entity measured at cost adjusted by Formula’s share in the investees’ accumulated undistributed earnings and other comprehensive income or loss.

Formula believes that these financial measures provide useful information to management and investors regarding Formula’s stand-alone financial position. Formula’s management uses these measures to compare the Company’s performance to that of prior periods for trend analyses. These measures are also used in financial reports prepared for management and in quarterly financial reports presented to the Company’s board of directors. The Company believes that the use of these stand-alone financial measures provides an additional tool for investors to use in evaluating Formula’s financial position.

Management of the Company does not consider these stand-alone measures in isolation or as an alternative to financial measures determined in accordance with GAAP. Formula urges investors to review the consolidated financial statements which it includes in press releases announcing quarterly financial results, including this press release, and not to rely on any single financial measure to evaluate the Company’s business or financial position.

About Formula

Formula Systems, whose ordinary shares are traded on the Tel-Aviv Stock Exchange and ADSs are traded on the NASDAQ Global Select Market, is a global information technology holding company engaged, through its subsidiaries and affiliates, in providing software consulting services and computer-based business solutions and developing proprietary software products.

For more information, visit www.formulasystems.com.

Press Contact:

Formula Systems (1985) Ltd.
+972-3-5389487
ir@formula.co.il 

Except for any historical information contained herein, matters discussed in this press release might include forward-looking statements that involve a number of risks and uncertainties. Regarding any financial statements, actual results might vary significantly based upon a number of factors including, but not limited to, risks in product and technology development, market acceptance of new products and continuing product conditions, both locally and abroad, release and sales of new products by strategic resellers and customers, and other risk factors detailed in Formula’s most recent annual report and other filings with the Securities and Exchange Commission. These forward-looking statements are made only as of the date hereof, and the Company undertakes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise. In addition, there is uncertainty about the spread of the COVID19 pandemic virus and the impact it will have on the Company’s operations, the demand for Company’s products, global supply chains and economic activity in general. These and other risks and uncertainties are detailed in the Company’s Securities and Exchange Commission filings. 

FORMULA SYSTEMS (1985) LTD.
CONSOLIDATED CONDENSED STATEMENTS OF PROFIT OR LOSS  
U.S. dollars in thousands (except per share data)

  Three months ended  Nine months ended 
  September 30,  September 30, 
  2020  2019  2020  2019 
  Unaudited  Unaudited 
Revenues 487,344  448,984  1,390,678  1,252,910 
Cost of revenues  370,952   347,727   1,068,221   970,842 
Gross profit  116,392   101,257   322,457   282,068 
Research and development costs, net  13,337   11,961   38,384   34,251 
Selling, marketing and general and administrative expenses  57,691   52,276   159,199   146,402 
Operating income  45,364   37,020   124,874   101,415 
Financial expenses, net  5,891   5,177   16,162   12,505 
Income before taxes on income  39,473   31,843   108,712   88,910 
Taxes on income  8,088   7,455   24,514   20,475 
Income after taxes  31,385   24,388   84,198   68,435 
Share of profit (loss) of companies accounted for at equity, net  (12)  429   335   1,515 
Net income  31,373   24,817   84,533   69,950 
Net income attributable to non-controlling interests  18,743   15,060   49,650   41,114 
Net income attributable to Formula Systems’ shareholders  12,630   9,757   34,883   28,836 
                 
Earnings per share (basic)  0.83   0.64   2.28   1.90 
Earnings per share (diluted)  0.82   0.63   2.25   1.80 
                 
Number of shares used in computing earnings per share (basic)  15,286,350   15,280,517   15,285,517   15,158,811 
Number of shares used in computing earnings per share (diluted)  15,293,113   15,290,015   15,292,498   15,356,988 

  
FORMULA SYSTEMS (1985) LTD.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
U.S. dollars in thousands

  September 30,  December 31, 
  2020  2019 
  (Unaudited)    
ASSETS      
CURRENT ASSETS:      
Cash and cash equivalents  431,864   368,666 
Short-term deposits  2,784   29,886 
Marketable securities  1,181   6,600 
Trade receivables  476,334   486,007 
Other accounts receivable and prepaid expenses  61,685   65,709 
Inventories  17,659   8,636 
Total current assets  991,507   965,504 
         
LONG-TERM ASSETS:        
Deferred taxes  41,369   38,865 
Other long-term accounts receivable and prepaid expenses  22,196   22,205 
Total long-term assets  63,565   61,070 
         
INVESTMENTS IN COMPANIES ACCOUNTED FOR AT EQUITY METHOD  27,505   26,021 
         
PROPERTY, PLANTS AND EQUIPMENT, NET  57,031   43,059 
         
OPERATING LEASE RIGHT-OF-USE ASSETS  99,728   104,130 
         
NET INTANGIBLE ASSETS AND GOODWILL  977,512   889,473 
         
TOTAL ASSETS  2,216,848   2,089,257 
         
CURRENT LIABILITIES:        
Loans and credit from banks and others  115,712   125,297 
Debentures  41,294   31,362 
Current maturities of operating lease liabilities  32,863   35,673 
Trade payables  110,498   125,163 
Deferred revenues  103,072   93,512 
Other accounts payable  213,665   205,205 
Dividend payable  -   7,081 
Liabilities in respect of business combinations  12,445   8,431 
Put options of non-controlling interests  26,666   39,668 
Total current liabilities  656,215   671,392 
         
LONG-TERM LIABILITIES:        
Loans and credit from banks and others  189,468   162,062 
Debentures  205,802   175,411 
Long term operating lease liabilities  74,894   73,686 
Other long-term liabilities  11,380   8,311 
Deferred taxes  60,626   53,854 
Deferred revenues  11,576   6,491 
Liabilities in respect of business combinations  13,510   14,895 
Put options of non-controlling interests  39,851   15,182 
Employees benefit liabilities  15,156   11,639 
Total long-term liabilities  622,263   521,531 
         
EQUITY        
Equity attributable to Formula Systems’ shareholders  444,594   421,640 
Non-controlling interests  493,776   474,694 
Total equity  938,370   896,334 
         
TOTAL LIABILITIES AND EQUITY  2,216,848   2,089,257 

  
FORMULA SYSTEMS (1985) LTD.
STAND-ALONE STATEMENTS OF FINANCIAL POSITION
U.S. dollars in thousands

  September 30,  December 31, 
  2020  2019 
  (Unaudited) 
ASSETS      
CURRENT ASSETS:      
Cash and cash equivalents  53,183   82,725 
Other accounts receivable and prepaid expenses  4,283   6,803 
Total current assets  57,466   89,528 
         
INVESTMENTS IN SUBSIDIARIES AND A JOINTLY CONTROLLED ENTITY (*)        
Matrix IT Ltd.  130,756   125,809 
Sapiens International Corporation N.V.  185,015   176,832 
Magic Software Enterprises Ltd.  113,415   114,019 
Other  86,843   72,322 
Total Investments in subsidiaries and a jointly controlled entity  516,029   488,982 
         
OTHER LONG TERM RECEIVABLES  1,595   1,539 
         
PROPERTY, PLANTS AND EQUIPMENT, NET  2   2 
         
TOTAL ASSETS  575,092   580,051 
         
CURRENT LIABILITIES:        
Loans from banks and others  -   13,130 
Debentures  20,465   20,296 
Trade payables  290   69 
Other accounts payable  1,743   1,274 
Dividends payable  -   7,081 
Total current liabilities  22,498   41,850 
         
LONG-TERM LIABILITIES:        
Debentures  107,121   116,561 
Put options of non-controlling interests  879   - 
Total long-term liabilities  108,000   116,561 
         
EQUITY  444,594   421,640 
         
TOTAL LIABILITIES AND EQUITY  575,092   580,051 


 (*)The investments’ carrying amounts are measured consistent with the accounting principles applied in the consolidated financial statements of the group and representing the investments’ cost adjusted by Formula’s share in the investees’ accumulated undistributed earnings and other comprehensive income or loss.

Source: Formula Systems (1985) Ltd.

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