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Formula Systems Reports Third Quarter 2020 Financial Results

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Formula Systems (1985) Ltd.
·13 min read
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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.