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Formula Systems Reports the Results of the Third Quarter of 2018 with 22% increase in Net Income Year over Year

Formula’s revenues for the nine-month period increased by 11% year over year to $1.1 billion. Operating income for the nine-month period increased by 44% year over year to $77.1 million

Or Yehuda, Israel, Nov. 20, 2018 (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 month period ended September 30, 2018, in accordance with International Financial Reporting Standards (IFRS).

Financial Highlights for the Third Quarter Ended September 30, 2018

  • Consolidated revenues for the third quarter increased by 4.0% to $362.4 million, compared to $348.6 million in the same period last year.
  • Consolidated operating income for the third quarter increased by 18.1% to $26.6 million, compared to $22.5 million in the same period last year.  
  • Consolidated net income attributable to Formula’s shareholders for the third quarter was $6.8 million, or $0.45 per fully diluted share, compared to $5.5 million, or $0.37 per fully diluted share, in the same period last year, reflecting an increase of 22.5%.   

Financial Highlights for the Nine-Month Period Ended September 30, 2018

  • Consolidated revenues for the nine-month period ended September 30, 2018 increased by 11.2% to $1.1 billion, compared to $988.6 million in the same period last year.
  • Consolidated operating income for the nine-month period ended September 30, 2018 increased by 43.9% to $77.1 million, compared to $53.6 million in the same period last year.  
  • Consolidated net income attributable to Formula’s shareholders for the nine-month period ended September 30, 2018 was $21.6 million, or $1.44 per fully diluted share, compared to $6.3 million, or $0.42 per fully diluted share, in the same period last year, reflecting an increase of 241%.
  • As of September 30, 2018, Formula held 49.18%, 48.16%, 45.21%, 100%, 50% and 90.09% 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. and Insync Staffing Solutions, Inc., respectively.
  • Consolidated cash, short-term investments in marketable securities and short-term and long-term bank deposits totaled approximately $285.2 million as of September 30, 2018, compared to $260.8 million as of December 31, 2017.   
  • Total consolidated equity as of September 30, 2018, was $806.0 million (representing 49.2% of the total balance sheet), compared to $772.9 million (representing 49.4% of the total balance sheet) as of December 31, 2017.
  • As of September 30, 2018, Formula was in compliance with all of its financial covenants under the debentures issued by Formula and under loans granted by other financial institutions.

Comments of Management

Commenting on the results, Guy Bernstein, CEO of Formula Systems, said, “We are very pleased to report on continued growth momentum for the first nine months of 2018 in all major financial indices across our portfolio and look forward to ending the year with even more positive results.”

"In the first nine months of 2018, Matrix achieved solid growth across all its key financial indices, reporting revenues of NIS 2.3 billion (or $646 million), operating income of NIS 152.3 million (or $42.8 million) and net profit of NIS 100.2 million (or $28.2 million), in each case in the first nine months of 2018, reflecting increases of 10%, 7.3% and 15.8%, respectively, year over year. Matrix’s quarterly operating income reached NIS 50.1 million (or $13.8 million) in the third quarter, compared to NIS 52.3 million (or $14.7 million) in the same period last year, reflecting a decrease of 4.1% year over year mainly resulting from the Holidays of the Jewish month of Tishrei, which this year have entirely coincided with the third quarter (as opposed to being divided between the third and fourth quarters in the previous year).”

“Matrix continues its growth and employee recruitment momentum, as a result of winning new projects, including mega-projects, entering new fields, and accomplishing strategic mergers and acquisitions in Israel and in the US in synergetic areas of activity.”

“I am very pleased that Matrix's operations in the US show impressive growth in revenues and profitability, with about 13% of the revenues and 26% of the operating income for the third quarter coming from the US market.”

“In the third quarter, Sapiens’ revenues totaled $73.2 million, up 1.7% compared to last year, and its operating income increased by 51.7% year over year to $6.8 million, with operating margin of 9.3% compared to 6.2% in the same period last year. In non-GAAP1 terms, Sapiens’ operating margin was 14.0% during the third quarter, up from 12.4% year over year. These results reflect Sapiens’ significant strides to getting back on track, with new customer wins, enhancing new product development and effectively leveraging its global assets.”

“Sapiens expanded its P&C business in the EMEA and North American markets, while continuing to improve its operational performance. As a result, in the third quarter, Sapiens achieved a 160-basis point increase in non-GAAP operating margin year-over-year and grew its North America business by 12%.”

“To extend its competitive edge, Sapiens is partnering with InsurTech and FinTech start-ups to complement its core offering.”

“Magic’s record-breaking financial results for the third quarter and first nine months of 2018 reflect the solid demand for its software solutions and professional services, which serve to help its customers on their digital transformation journey. The third quarter revenues were $72.1 million, operating income was $7.7 million and non-GAAP2 operating income was $10.0 million, up 10%, 9% and 10% respectively, year over year, driven exclusively by organic growth.

“Magic closed during the third quarter of 2018 a private placement of $35 million (including $9.2 million invested by Formula), a strong testament of its investors’ continued confidence in the company. Magic intends to utilize such funds to continue growing organically and through mergers and acquisition.”

  1. These non-GAAP measures are subject to the discussion under “Non-GAAP Financial Measures” in Sapiens’ press release issued on November 7, 2018
  2. These non-GAAP measures are subject to the discussion under “Non-GAAP Financial Measures” in Magic Software Enterprises’ press release issued on November 13, 2018

 

“Lastly, during November 2018 Michpal expanded its business through the acquisition of an 80% share interest in Effective Solutions Ltd, an Israeli company that provides consulting services in the fields of operational cost savings and procurement, as well as salary control and monitoring. The two companies have launched a new service called ‘Michpal YEDA’, which allows clients to consult with team of experienced professionals, including employment attorneys and HR experts, with respect to payroll, labor, pensions, social security and employee income tax matters”.

“The acquisition of Effective Solutions and the launch of Michpal YEDA are important steps in the execution of our growth strategy to expand Michpal’s market share by offering clients comprehensive and holistic solutions in the payroll software and services market encompassing payroll, labor laws, employee income taxes, pensions and provident funds – all under one rooftop.”

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 affiliated company 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 (1985) Ltd. is a global information technology 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. 

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

    Nine months ended       Three months ended    
    September 30,       September 30,    
    2018   2017       2018   2017    
    Unaudited       Unaudited    
Revenues     1,099,288       988,600               362,430       348,629          
Cost of revenues     854,856       772,588               282,240       271,434          
Gross profit     244,432       216,012               80,190       77,195          
Research and development costs, net     31,339       29,459               9,891       10,076          
Selling, general and administrative expenses     135,954       132,948               43,739       44,628          
Operating income     77,139       53,605               26,560       22,491          
                                                 
Financial expenses, net     (7,366 )     (17,040 )     (*)       (4,105 )     (3,605 )     (*)  
                                                 
Income before taxes on income     69,773       36,565       (*)       22,455       18,886       (*)  
Taxes on income     16,199       11,834               4,476       5,504          
                                                 
Income after taxes     53,574       24,731       (*)       17,979       13,382       (*)  
Equity in gains (losses) of affiliated companies,                                                
 net     (66 )     517               (3 )     107          
                                                 
Net income     53,508       25,248       (*)       17,976       13,489       (*)  
Net income attributable to redeemable                                                
 non- controlling interests     4,523       2,104       (*)       1,412       928       (*)  
Net income attributable to non-controlling                                                
 interests     27,355       16,809       (*)       9,784       7,025       (*)  
Net income attributable to Formula Systems'                                                
 shareholders     21,630       6,335       (*)       6,780       5,536       (*)  
                                                 
Earnings per share (basic)     1.47       0.44       (*)       0.46       0.39       (*)  
Earnings per share (diluted)     1.44       0.42       (*)       0.45       0.37       (*)  
                                                 
Number of shares used in computing earnings                                                
 per share (basic)     14,730,920       14,338,590               14,731,862       14,374,579          
Number of shares used in computing earnings                                                
 per share (diluted)     15,565,098       14,697,459               15,574,171       15,539,781          
                                                 
*) Adjustment to comparative data                                                
                                                 
                                                 

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

    September 30,   December 31,  
    2018   2017  
    (Unaudited)          
ASSETS        
CURRENT ASSETS:        
Cash and cash equivalents     271,764       245,936    
Marketable securities     11,919       14,138    
Short-term deposits     12       735    
Trade receivables     416,587       385,778    
Other accounts receivable and prepaid expenses     48,628       44,915    
Inventories     3,845       3,299    
Total current assets     752,755       694,801    
                   
LONG-TERM ASSETS:                  
Deferred taxes     14,478       15,878    
Prepaid expenses and other accounts receivables     20,528       16,581    
Total  long-term assets     35,006       32,459    
                   
INVESTMENTS IN COMPANIES ACCOUNTED                  
 FOR AT EQUITY METHOD     25,242       25,315    
                   
PROPERTY, PLANTS AND EQUIPMENT, NET     29,733       29,807    
                   
NET INTANGIBLE ASSETS AND GOODWILL     795,837       781,255    
                   
TOTAL  ASSETS     1,638,573       1,563,637    
                   
CURRENT LIABILITIES:                  
Liabilities to banks and others     128,485       70,819    
Debentures     54,798       4,826    
Trade payables     95,793       95,339    
Deferred revenue and customer advances     59,212       58,905    
Employees and payroll accrual     97,756       111,707    
Other accounts payable     60,238       53,145    
Liabilities related to business combinations     5,485       6,811    
Redeemable non-controlling interests     37,660       31,395    
Total current liabilities     539,427       432,947    
                   
LONG-TERM LIABILITIES:                  
Liabilities to banks and others     89,058       135,616    
Other long-term liabilities     7,447       7,244    
Debentures, net of current maturities     116,448       133,739    
Deferred taxes     35,759       36,605    
Deferred revenues     5,328       9,340    
Liabilities related to business combinations     8,439       4,711    
Redeemable non-controlling interests     21,769       21,481    
Employee benefit liabilities     8,885       9,032    
Total long-term liabilities     293,133       357,768    
                   
EQUITY                  
Equity attributable to Formula Systems' shareholders     369,348       359,202    
Non-controlling interests     436,665       413,720    
Total equity     806,013       772,922    
                   
TOTAL LIABILITIES AND EQUITY     1,638,573       1,563,637    
                   

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

    September 30,   December 31,  
    2018   2017  
    (Unaudited)  
ASSETS        
CURRENT ASSETS:        
Cash and cash equivalents     35,550       14,842    
Dividend receivable     4,806       -    
Other accounts receivable and prepaid expenses     636       3,733    
Total current assets     40,992       18,575    
                   
INVESTMENTS IN SUBSIDIARIES AND AFFILIATES (*)                  
Matrix IT Ltd.     114,361       115,433    
Sapiens International Corporation N.V.     169,400       172,738    
Magic Software Enterprises Ltd.     108,780       98,898    
Other     51,527       53,408    
Total  Investments in subsidiaries and affiliates     444,068       440,477    
                   
OTHER LONG TERM RECEIVABLES     2,400       2,400    
                   
PROPERTY, PLANTS AND EQUIPMENT, NET     4       5    
                   
TOTAL  ASSETS     487,464       461,457    
                   
CURRENT LIABILITIES:                  
Liabilities to banks and others     12,499       13,413    
Debentures     44,235       4,044    
Trade payables     73       112    
Employees, payroll accrual and other accounts payable     1,199       3,729    
Total current liabilities     58,006       21,298    
                   
LONG-TERM LIABILITIES:                  
Liabilities to banks and others     12,186       25,498    
Debentures, net of current maturities     47,924       55,459    
Total long-term liabilities     60,110       80,957    
                   
EQUITY     369,348       359,202    
                   
TOTAL LIABILITIES AND EQUITY     487,464       461,457    

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