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Formula Systems Reports Second Quarter 2019 Results

Operating income for the second quarter increased 32% year over year to $32.7 million. Net income attributable to Shareholders for the first half of 2019 increased 28% year over year to $19.1 million  

Or Yehuda, Israel, Aug. 19, 2019 (GLOBE NEWSWIRE) -- Formula Systems (1985) Ltd. (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 six month-period and second quarter ended June 30, 2019.

Financial Highlights for the Second Quarter Ended June 30, 2019 

  • Consolidated revenues for the second quarter increased by 13.5% to $412.6 million, with growth recorded across Formula’s entire investment portfolio. Revenues for the second quarter ended June 30, 2018 amounted to $363.5 million.
  • Consolidated operating income for the second quarter increased by 32.1% to $32.7 million, with growth recorded across Formula’s entire investment portfolio. Consolidated operating income for the second quarter ended June 30, 2018 amounted to $24.8 million.
  • Consolidated net income attributable to Formula’s shareholders for the second quarter was $9.0 million, or $0.59 per fully diluted share, compared to $7.6 million, or $0.51 per fully diluted share, in the same period last year, reflecting an increase of 18.8%. 

Financial Highlights for the Six Month-Period Ended June 30, 2019 

  • Consolidated revenues for the first half increased by 9.1% to $803.9 million, with growth recorded across Formula’s entire investment portfolio. Revenues for the first half ended June 30, 2018 amounted to $736.9 million.
  • Consolidated operating income for the first half increased by 27.3% to $64.4 million, with growth recorded across Formula’s entire investment portfolio. Consolidated operating income for the first half ended June 30, 2018 amounted to $50.6 million.
  • Consolidated net income attributable to Formula’s shareholders for the first half was $19.1 million, or $1.17 per fully diluted share, compared to $14.9 million, or $0.99 per fully diluted share, in the same period last year, reflecting an increase of 28.5%.
  • As of June 30, 2019 Formula held 48.88%, 48.05%, 45.16%, 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 and cash equivalents, bank deposits and investments in marketable securities totaled approximately $389.9 million as of June 30, 2019, compared to $295.3 million as of December 31, 2018.
  • Total equity as of June 30, 2019 was $867.9 million (representing 43.9% of the total balance sheet), compared to $805.4 million (representing 48.4% of the total balance sheet) as of December 31, 2018. 

Declaration of Dividend for the First Half of 2019 

  • The Company’s board of directors declared a semi-annual cash dividend in the amount of 52 cents per share and in the aggregate amount of approximately $8.0 million.
  • The dividend is payable on September 25th, 2019 to all of the Company’s shareholders of record at the close of trading on the NASDAQ Global Select Market (or the Tel-Aviv Stock Exchange, as appropriate) on September 12th, 2019.

Debentures Covenants 

As of June 30, 2019, Formula was in compliance with all of its financial covenants under the debentures issued by Formula based on achieving the following in its consolidated financial results: 

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 $412.4 million. 

Covenant 2

  • Target ratio of net financial indebtedness to net capitalization (in each case, as defined under the indenture for the Formula’s Series A and C Secured Debentures): below 65%.
  • Actual ratio of net financial indebtedness to net capitalization is equal to 11%. 

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 0.56. 

Comments of Management

Commenting on the results, Guy Bernstein, CEO of Formula Systems, said, “We are very pleased to report our results for the second quarter and first half of 2019, demonstrating the continued strong momentum recorded across our entire investment portfolio.”

“Matrix delivered double-digit growth across all key indices (revenues, gross profit, operating profit, net profit and EBITDA) compared to the same period of 2018, despite the national holidays and Israeli Election Day which reduced the number of working days in the second quarter of 2019 by 2.5% compared to the same period in previous year. Matrix is eager to continue leading the Israeli IT Services Market and is focused on carrying out small-to-mega projects (such as in the case of the establishment of Israel’s national credit database for the Bank of Israel), digital transformation projects, significant cyber projects, and other special-top technology projects, using its uncompromising professionalism, financial strength, wide range of solutions and expertise and stable and committed management.”

“Sapiens’ results for the second quarter and first half of 2019 demonstrate that its pursue after key objectives such as winning new customers, cross selling to existing customers, leverage offshore capabilities, particularly in India, and scale revenue over efficient cost structure, served as fundamentals for its growth and margin expansion achievements (top line non-GAAP[1] increased by 9.6% and non-GAAP operating margin improved by 260 basis points compared to the same period last year). Sapiens has demonstrated significant growth over the past few years, together with an improvement in profitability which enabled its Board of Directors to adopt a dividend policy under which, every year, it will announce a distribution of an annual dividend of up to 40% of its annual net profit (Non-GAAP).

These non-GAAP measures are subject to the discussion under “Non-GAAP Financial Measures” in Sapiens’ press release issued on August 5, 2019

“Magic Software continued its momentum from the beginning of 2019, reporting strong results for the second quarter and first half of 2019. The results demonstrate that Magic’s strategic business efforts to become a preferred vendor of the digital transformation market are paying off.”

“TSG IT Advanced Systems Ltd. had a strong revenue growth of 19% during the first half of 2019, compared to the same period in previous year. Such growth was mainly driven from the overseas command & control activities of the company as well as in the Israeli market. TSG is putting great efforts in order to expand its operations overseas and recently signed a multi-million-dollar transaction with an existing customer in Asia.”

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 (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)

    Three months ended     Six months ended  
    June 30,     June 30,  
    2019     2018     2019     2018  
    Unaudited     Unaudited  
Revenues   $ 412,572     $ 363,483     $ 803,926     $ 736,858  
Cost of Revenues     319,621       282,581       623,115       572,616  
Gross profit     92,951       80,902       180,811       164,242  
Research and development costs, net     11,706       10,502       22,290       21,448  
Selling, marketing and general and                                
 administrative expenses     48,530       45,635       94,126       92,215  
Operating income     32,715       24,765       64,395       50,579  
Financial expenses, net     3,732       1,290       7,328       3,261  
Income before taxes on income     28,983       23,475       57,067       47,318  
Taxes on income     6,759       5,605       13, 020       11,723  
Income after taxes     22,224       17,870       44,047       35,595  
Share of profit (loss) of companies                                
 accounted for at equity, net     360       (133 )     1,086       (63 )
Net income   $ 22,584     $ 17,737     $ 45,133     $ 35,532  
Net income attributable to non-controlling                                
 interests     13,541       10,126       26,054       20,682  
Net income attributable to Formula                                
 Systems' shareholders   $ 9,043     $ 7,611     $ 19,079     $ 14,850  
                                 
Earnings per share (basic)   $ 0.59     $ 0.52     $ 1.26     $ 1.01  
Earnings per share (diluted)   $ 0.59     $ 0.51     $ 1.17     $ 0.99  
                                 
Number of shares used in computing                                
 earnings per share (basic)     15,279,684       14,730,865       15,097,957       14,730,449  
 Number of shares used in computing                                
 earnings per share (diluted)     15,288,248       15,569,517       15,388,363       15,568,811  

   

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

    June 30,     December 31,  
    2019     2018  
     (Unaudited)         
ASSETS            
CURRENT ASSETS:            
Cash and cash equivalents     372,928       268,492  
Short-term deposits     9,383       16,881  
Marketable securities     7,548       9,913  
Trade receivables     441,397       441,468  
Other accounts receivable and prepaid expenses     56,751       40,397  
Inventories     6,928       3,882  
Total current assets     894,935       781,033  
                 
LONG-TERM ASSETS:                
Deferred taxes     15,818       14,214  
Other long-term accounts receivable and prepaid expenses     26,993       23,121  
Total long-term assets     42,811       37,335  
                 
INVESTMENTS IN COMPANIES ACCOUNTED                
 FOR AT EQUITY METHOD     26,933       25,710  
                 
PROPERTY, PLANTS AND EQUIPMENT, NET     34,439       29,182  
                 
OPERATING LEASE RIGHT-OF-USE ASSETS     114,077        
                 
NET INTANGIBLE ASSETS AND GOODWILL     864,017       790,901  
                 
TOTAL ASSETS     1,977,212       1,664,161  
                 
CURRENT LIABILITIES:                
Credit from banks and others     163,895       71,180  
Debentures     21,952       55,822  
Current maturities of operating lease liabilities     34,267        
Trade payables     93,060       118,786  
Deferred revenues     81,394       59,509  
Other accounts payable     177,509       168,873  
Dividend payable           5,015  
Liabilities in respect of business combinations     5,431       5,602  
Put options of non-controlling interests     42,059       40,926  
Total current liabilities     619,567       525,713  
                 
LONG-TERM LIABILITIES:                
Loans from banks and others     117,163       139,527  
Debentures     190,558       114,902  
Long-term operating lease liabilities     84,070        
Other long-term liabilities     6,479       8,734  
Deferred taxes     35,572       34,800  
Deferred revenues     5,990       4,906  
Liabilities in respect of business combinations     13,835       5,625  
Put options of non-controlling interests     25,386       15,673  
Employee benefit liabilities     10,656       8,884  
Total long-term liabilities     489,709       333,051  
                 
EQUITY                
Equity attributable to Formula’s shareholders     412,389       367,630  
Non-controlling interests     455,547       437,767  
Total equity     867,936       805,397  
                 
TOTAL LIABILITIES AND EQUITY     1,977,212       1,664,161  

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

    June 30,     December 31,  
    2019     2018  
     (Unaudited)  
             
ASSETS            
CURRENT ASSETS:            
Cash and cash equivalents     99,408       31,411  
Other accounts receivable and prepaid expenses     3,176       8,106  
Total current assets     102,584       39,517  
                 
INVESTMENTS IN SUBSIDIARIES AND A JOINTLY CONTROLLED ENTITY (*)                
Matrix IT Ltd.     118,387       114,133  
Sapiens International Corporation N.V.     176,729       169,867  
Magic Software Enterprises Ltd.     110,988       108,829  
Other     57,469       54,316  
Total Investments in subsidiaries and a jointly controlled entity     463,573       447,145  
                 
OTHER LONG-TERM RECEIVABLES     2,733       2,733  
                 
PROPERTY, PLANTS AND EQUIPMENT, NET     3       3  
                 
TOTAL ASSETS     568,893       489,398  
                 
CURRENT LIABILITIES:                
Credit from banks and others     12,720       12,422  
Debentures     10,887       44,589  
Trade payables     432       182  
Other accounts payable     669       1,442  
Dividends payable           5,015  
Total current liabilities     24,708       63,650  
                 
LONG-TERM LIABILITIES:                
Loans from banks and others           11,793  
Debentures     131,796       46,325  
Total long-term liabilities     131,796       58,118  
                 
EQUITY     412,389       367,630  
                 
TOTAL LIABILITIES AND EQUITY     568,893       489,398  

(*) 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.