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Formula Systems Reports Third Quarter 2019 Results

Operating income for the third quarter increased 39% year over year to $37.0 million. Net income attributable to Shareholders for nine-month period ended September 30, 2019 increased 33% year over year to $28.8 million

OR YEHUDA, Israel, Nov. 19, 2019 (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 nine month-period and third quarter ended September 30, 2019.

Financial Highlights for the Third Quarter Ended September 30, 2019

  • Consolidated revenues for the third quarter increased by 23.9% to $449.0 million, with growth recorded across Formula’s entire investment portfolio. Revenues for the third quarter ended September 30, 2018 amounted to $362.4 million.
  • Consolidated operating income for the third quarter increased by 39.4% to $37.0 million, with growth recorded across Formula’s entire investment portfolio. Consolidated operating income for the third quarter ended September 30, 2018 amounted to $26.6 million.  
  • Consolidated net income attributable to Formula’s shareholders for the third quarter was $9.8 million, or $0.63 per fully diluted share, compared to $6.8 million, or $0.45 per fully diluted share, in the same period last year, reflecting an increase of 43.9%.   

Financial Highlights for the Nine Month-Period Ended September 30, 2019

  • Consolidated revenues for the nine-month period ended September 30, 2019 increased by 14.0% to $1,252.9 million, with growth recorded across Formula’s entire investment portfolio. Revenues for the nine-month period ended September 30, 2018 amounted to $1,099.3 million.
  • Consolidated operating income for the nine-month period ended September 30, 2019 increased by 31.5% to $101.4 million, with growth recorded across Formula’s entire investment portfolio. Consolidated operating income for the nine-month period ended September 30, 2018 amounted to $77.1 million.  
  • Consolidated net income attributable to Formula’s shareholders for the nine-month period ended September 30, 2019 was $28.8 million, or $1.80 per fully diluted share, compared to $21.6 million, or $1.44 per fully diluted share, in the same period last year, reflecting an increase of 33.3%.   
  • As of September 30, 2019 Formula held 48.88%, 48.01%, 45.37%, 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 $367.3 million as of September 30, 2019, compared to $295.3 million as of December 31, 2018.   
  • Total equity as of September 30, 2019 was $872.1 million (representing 43.6% 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 Second Half of 2019

Based on the Company’s results, the Company’s board of directors declared a cash dividend in the amount of NIS 1.60 per share (approximately 46 cents per share) and in the aggregate amount of approximately NIS 24.5 million (approximately $7 million).

The dividend is payable on January 8th, 2020 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 December 24th, 2019.

In accordance with Israeli tax law, the dividend is subject to withholding at source at the rate of 30% (if the recipient of the dividend is at the time of distribution or was at any time during the preceding 12-month period the holder of 10% or more of the Company's share capital) or 25% (for all other dividend recipients) of the dividend amount payable to each shareholder of record, subject to applicable exemptions.

The dividend will be paid in New Israeli Shekel with respect to the ordinary shares of Formula Systems traded on the Tel Aviv Stock Exchange, and in US dollar with respect to the American Depositary Receipts of Formula Systems traded on the NASDAQ Global Select Market based on the NIS/US dollar exchange rate immediately prior to the distribution date.

Debentures Covenants

As of September 30, 2019, Formula was in compliance with all of its financial covenants under the debentures issued by Formula and under a loan granted by a financial institution, 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 $415.7 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 12%.

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 0.59.

Comments of Management

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

“Matrix delivered it best ever third quarter, with double-digit growth across all key indices (revenues, gross profit, operating income, net income and EBITDA) across both quarter and period, validating once again its proven strategy of organic growth combined with M&A activity. We are proud to witness that Matrix is consistently being awarded as a market leader in its fields and operations and maintaining its dominance over the Israeli market as being the largest technology execution, management and infrastructure project company.”

“Sapiens’ results for the third quarter of 2019 demonstrate that its pursue after key objectives such as top-line growth, margin expansion, leverage offshore capabilities and improved economies of scale served as fundamentals for its growth and margin expansion achievements (revenues increased by 12.8% and non-GAAP operating margin improved by 240 basis points compared to the same period last year). Encouraged by its pipeline of business and anticipated growth for the remaining of 2019, Sapiens increased its revenue guidance for the full year of 2019 to a range of $323 - $325 million, from a previous guidance of revenues on the higher end of $318-$323 million. The increase in revenue and the leverage from improved economies of scale allowed Sapiens to also increase the guidance for its full-year, non-GAAP operating margin in the range of 15.8% - 16.0%.”

“Magic Software continued its momentum from the beginning of 2019, reporting an all-time best quarterly results with revenues of $86 million and operational profit of $12 million (on a non-GAAP basis), reflecting a double-digit growth of 19% and 18% year over year, in revenues and Non-GAAP operating income, respectively. This growth derives from Magic’s ability to leverage its continued long engagement cycles with its customers, along with its M&A activity which included this quarter the acquisition of NetEffects inc., a US based company, specializes in IT staffing and recruiting. This acquisition supports Magic continuing efforts to maintain and upgrade its strong market position as a preferred one-stop-shop software services vendor.”

“TSG IT Advanced Systems Ltd. had a strong revenue growth of 25% during the nine-month period of 2019, compared to the same period in previous year and 36% in the third quarter of 2019 compared to the same period last year. Such growth is mainly driven from command & control activities of the company, the Israeli market as well as from overseas.”

“We announced today that Michpal completed its second acquisition in less than twelve months’ of Unique Software Industries Ltd. for consideration of approximately NIS 49 million and up to NIS 12 million which are subject to defined performance goals. Unique is a software development and services company, providing integrated solutions in the field of payroll for more than 30 years, including pay-stubs, pension services management, education funds management, and software solutions for managing employee attendance. We believe that Unique’s activities are synergetic and complementary to Formula’s operations in the field of payroll, to which we have entered less them 36 months ago. I believe that this acquisition will allow us to expand our operations in these fields together with the broadening of Unique’s operations by capitalizing on Formula’s assets and transactional capabilities.”  

“Lastly, the solid growth accompanied by our record breaking results recorded across all of our key financial indices and across our entire investment portfolio, allow us to declare a cash dividend to our shareholders for the second half of 2019 in a total amount of approximately $7 million, on top of the $8.0 million we already distributed for the first half of 2019 while maintaining confidence in our ability to continue executing on our M&A strategy.” 

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.



                 
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,  
  2019   2018   2019   2018  
  Unaudited    
Revenues 1,252,910   1,099,288   448,984   362,430  
Cost of revenues 970,842   854,856   347,727   282,240  
                 
Gross profit 282,068   244,432   101,257   80,190  
Research and development costs, net 34,251   31,339   11,961   9,891  
Selling, marketing and general and administrative expenses 146,402   135,954   52,276   43,732  
Operating income 101,415   77,139   37,020   26,567  
                 
Financial expenses, net 12,505   7,366   5,177   4,112  
                 
Income before taxes on income 88,910   69,773   31,843   22,455  
Taxes on income 20,475   16,020 (*) 7,455   4,297 (*)
                 
Income after taxes 68,435   53,753 (*) 24,388   18,158 (*)
Share of profit (loss) of companies accounted for at equity, net 1,515   (66)   429   (3)  
                 
Net income 69,950   53,687 (*) 24,817   18,155 (*)
Net income attributable to non-controlling interests 41,114   32,057 (*) 15,060   11,375 (*)
                 
Net income attributable to Formula Systems' shareholders 28,836   21,630   9,757   6,780  
                 
Earnings per share (basic) 1.90   1.47   0.64   0.46  
Earnings per share (diluted) 1.80   1.44   0.63   0.45  
                 
Number of shares used in computing earnings per share (basic) 15,158,811   14,730,920   15,280,517   14,731,862  
Number of shares used in computing earnings per share (diluted) 15,356,988   15,565,098   15,290,015   15,574,171  
                 
                 
(*) Immaterial adjustment to comparative data                
                 



       
FORMULA SYSTEMS (1985) LTD.      
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION    
U.S. dollars in thousands      
    September 30,   December 31,
    2019   2018
    (Unaudited)    
 ASSETS      
CURRENT ASSETS:      
  Cash and cash equivalents 348,377   268,492
  Short-term deposits 11,262   16,881
  Marketable securities 7,677   9,913
  Trade receivables 470,455   441,468
  Other accounts receivable and prepaid expenses 58,208   40,397
  Inventories 7,485   3,882
Total current assets 903,464   781,033
         
LONG-TERM ASSETS:      
  Deferred taxes 16,243   14,214
  Other long-term accounts receivable and prepaid expenses 25,331   23,121
Total long-term assets 41,574   37,335
         
INVESTMENTS IN COMPANIES ACCOUNTED      
  FOR AT EQUITY METHOD 27,362   25,710
         
PROPERTY, PLANTS AND EQUIPMENT, NET 40,573   29,182
         
OPERATING LEASE RIGHT-OF-USE ASSETS 107,534   -
         
NET INTANGIBLE ASSETS AND GOODWILL 881,454   790,901
         
TOTAL ASSETS 2,001,961   1,664,161
         
CURRENT LIABILITIES:      
  Loans and credit from banks and others 170,254   71,180
  Debentures 21,647   55,822
  Current maturities of operating lease liabilities 34,144   -
  Trade payables 105,750   118,786
  Deferred revenues 91,094   59,509
  Other accounts payable 180,897   168,873
  Dividend payable -   5,015
  Liabilities in respect of business combinations 9,330   5,602
  Put options of non-controlling interests 43,368   40,926
Total current liabilities 656,484   525,713
         
LONG-TERM LIABILITIES:      
  Loans and credit from banks and others 111,779   139,527
  Debentures 183,949   114,902
  Long term operating lease liabilities 78,745   -
  Other long-term liabilities 6,409   8,734
  Deferred taxes 34,581   34,800
  Deferred revenues 5,305   4,906
  Liabilities in respect of business combinations 15,327   5,625
  Put options of non-controlling interests 26,093   15,673
  Employees benefit liabilities 11,212   8,884
Total long-term liabilities 473,400   333,051
         
EQUITY      
  Equity attributable to Formula Systems' shareholders 415,732   367,630
  Non-controlling interests 456,345   437,767
Total equity 872,077   805,397
         
TOTAL LIABILITIES AND EQUITY 2,001,961   1,664,161
         



       
FORMULA SYSTEMS (1985) LTD.      
STAND-ALONE STATEMENTS OF FINANCIAL POSITION      
U.S. dollars in thousands      
    September 30,   December 31,
    2019   2018
    (Unaudited)
 ASSETS      
CURRENT ASSETS:      
  Cash and cash equivalents 93,938   31,411
  Other accounts receivable and prepaid expenses 2,884   8,106
Total current assets 96,822   39,517
         
INVESTMENTS IN SUBSIDIARIES AND A JOINTLY      
CONTROLLED ENTITY (*)      
  Matrix IT Ltd. 122,441   114,133
  Sapiens International Corporation N.V. 174,075   169,867
  Magic Software Enterprises Ltd. 110,867   108,829
  Other 58,917   54,316
Total Investments in subsidiaries and a jointly controlled entity 466,300   447,145
         
OTHER LONG TERM RECEIVABLES 2,733   2,733
         
PROPERTY, PLANTS AND EQUIPMENT, NET 3   3
         
TOTAL ASSETS 565,858   489,398
         
CURRENT LIABILITIES:      
  Loans from banks and others 12,856   12,422
  Debentures 11,167   44,589
  Trade payables 74   182
  Other accounts payable 883   1,442
  Dividends payable -   5,015
Total current liabilities 24,980   63,650
         
LONG-TERM LIABILITIES:      
  Loans from banks and others -   11,793
  Debentures 125,146   46,325
Total long-term liabilities 125,146   58,118
         
EQUITY 415,732   367,630
         
TOTAL LIABILITIES AND EQUITY 565,858   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.