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. (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 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.