Formula Systems Reports Second Quarter 2021 Financial

OR YEHUDA, Israel, Aug. 19, 2021 (Globalrelease Wire) — 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 second quarter and six months-period ended June 30, 2021.

Financial Highlights for the Second Quarter Ended June 30, 2021

  • Consolidated revenues for the second quarter ended June 30, 2021 increased by 34.5% to a record breaking $587.9 million compared to $437.1 million in the same period last year.
     
  • Consolidated operating income for the second quarter ended June 30, 2021 increased by 24.1% to a record breaking $50.5 million, with growth recorded across Formula’s entire investment portfolio, compared to $40.7 million in the same period last year.
     
  • Consolidated net income attributable to Formula’s shareholders for the second quarter ended June 30, 2021 increased by 18.7% to a record breaking $13.3 million, or $0.86 per fully diluted share, compared to $11.2 million, or $0.73 per fully diluted share, in the same period last year.

Financial Highlights for the Six Months-Period Ended June 30, 2021

  • Consolidated revenues for the first half ended June 30, 2021 increased by 28.5% to $1,160.5 million, with growth recorded across Formula’s entire investment portfolio. Revenues for the first half ended June 30, 2020 amounted to $903.3 million.
     
  • Consolidated operating income for the first half ended June 30, 2021 increased by 23.2% to $98.0 million, with growth recorded across Formula’s entire investment portfolio. Consolidated operating income for the first half ended June 30, 2020 amounted to $79.5 million.
     
  • Consolidated net income attributable to Formula’s shareholders for the first half ended June 30, 2021 was $25.8 million, or $1.66 per fully diluted share, compared to $22.3 million, or $1.44 per fully diluted share, in the same period last year, reflecting an increase of 15.7% year over year.
     
  • As of June 30, 2021, Formula held 48.9%, 43.9%, 45.5%, 100%, 50%, 90.1%, 80% and 100% 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., Ofek Aerial Photography Ltd. and ZAP Group Ltd., respectively.
     
  • Consolidated cash and cash equivalents, short-term bank deposits and investments in marketable securities totaled approximately $468.2 million as of June 30, 2021, compared to $533.2 million as of December 31, 2020.
     
  • Total equity as of June 30, 2021 was $1,127.4 million (representing 43.6% of the total consolidated balance sheet), compared to $1,108.5 million (representing 44.0% of the total consolidated balance sheet) as of December 31, 2020.

Declaration of Dividend for the First Half of 2021

  • Based on the Company’s semi-annual results, the Company’s board of directors approved a cash dividend in the amount of NIS 2.53 per share (approximately $0.78 per share) and in the aggregate amount of approximately NIS 38.7 million (approximately $12.0 million).
     
  • The dividend is payable on September 22, 2021 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 1, 2021. The dividend will be paid in New Israeli Shekel with respect to the ordinary shares of Formula Systems (1985) Ltd. that are traded on the Tel Aviv Stock Exchange and the American Depositary Receipts of Formula Systems that are traded on the NASDAQ Global Select Market

In accordance with Israeli tax law, the dividend is subject to withholding tax 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.

Debentures Covenants

As of June 30, 2021, 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 $517.5 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 9.0%.

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 0.38.

Comments of Management

Commenting on the results, Guy Bernstein, CEO of Formula Systems, said: “We are very pleased to continue our strong momentum recorded across our entire investment portfolio reaching all-time second quarter highs across all of our key indices (revenues, gross profit, operating income, EBITDA and net income). Our strong second quarter financial results recorded across all our key financial indices reflects our continued focus on the execution of our growth strategy. We continue our efforts across our entire portfolio to adhere to our core values of innovation, professionalism, agility and transparency which allow us to continue our growth and protect our leading position.”

“Matrix reported its best second quarter in history with record-breaking results recorded across all its key financial indices. We are pleased with Matrix’s continued recognition as a market leader in the implementation of fastest-growing technologies, such as cloud, cyber, digital, data, AI and MA which enables the company to create significant value for its customers in managing, streamlining, accelerating and making their businesses thrive. There is a strong demand in Israel for software services in digital, cloud, cyber, data, and core operating systems—areas where Matrix significantly increased its strength during the COVID-19 period, and which are in the center of the IT market demand. Matrix is involved in projects for large organizations and in national projects of the Israeli government and the security sector, such as the Nimbus project, which is expected to accelerate the implementation of cloud technology in Israel’s public sector.”

“Sapiens reported all time high Non-GAAP revenues of $115 million, 24% higher than in the same period last year and strong Non-GAAP operating margin of 17.2%, improving by 80 basis points, compared to the same period last year. The results demonstrate how well Sapiens is executing its proven “Land and Expand” strategy, which enables it to grow in the highly regulated and regionally diverse global insurance markets and validate its operating leverage. This unique value proposition enables insurers to benefit from Sapiens pre-integrated, cloud-first, low-code “insurance-in-a-box” approach across the majority of its products, empowering them to choose between deploying Sapiens end-to-end solution, or any combination of its components, to meet their evolving needs. Sapiens increased its revenue guidance for the second time this year, to a range of $461 to $466 million from its prior range of $459 to $464 million and increased its operating margin guidance to a range of 17.2% to 17.5% from its prior range 17.0% to 17.4%.”

“Magic Software’s solid execution in the second quarter delivering double-digit growth across all key financial indices (revenues, gross profit, operating income, net income and EBITDA), with record-breaking revenues reaching $119 million and record breaking operating income, demonstrate the important role Magic Software plays in its customers’ lifecycles and transformative journeys, as well as the success of its strategy to build a broad business portfolio that creates value for its customers in managing, streamlining, accelerating and maximizing their businesses. Magic increased its 2021 revenue guidance for the second time this year to a range of $450 to $460 million from its prior range of $425 to $435 million.”

“Michpal Group continues to realize synergies and monetize on its business model with its revenues, growing by 35% year over year to ILS 50 million for the first half of 2021, with 67% accounted to organic growth. Michpal Group is well positioned to continue helping its customers to adjust to the ever-changing governmental labor guidelines.”

“TSG (held equally by Formula and Israel Aerospace Industries) also concluded the first half of 2021 on a high note, with solid revenues and a 77% increase in operating income. In addition, and following the R&D efforts invested jointly with the Belinson healthcare campus, the integration of TSG AI prediction system of patient deterioration of COVID -19 was successfully finalized during the first half of 2021 and achieved impressive results.”

“Lastly, we are very pleased to include for the first time the results of Zap Group, a leading group of consumer sites in Israel and a well-reputable brand in the Israeli market, offering a wide range of solutions in the field of advertising, website promotion and targeted mailing. During these past months we’ve been focusing together with Zap’s management on the integration of Zap Group and on building a long-term strategy plan to accelerate its growth including the formation of potential business partnerships in order to expand Zap’s products and services offerings as well as reaching new customers. we will remain focused on the successful integration of Zap Group and continue to carefully explore additional M&A opportunities.”

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
[email protected]

Forward Looking Statements
Certain matters discussed in this press release that are incorporated herein and therein by reference are forward-looking statements within the meaning of Section 27A of the Securities Act, Section 21E of the Exchange Act and the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995, that are based on our beliefs, assumptions and expectations, as well as information currently available to us. Such forward-looking statements may be identified by the use of the words “anticipate,” “believe,” “estimate,” “expect,” “may,” “will,” “plan” and similar expressions. Such statements reflect our current views with respect to future events and are subject to certain risks and uncertainties. There are important factors that could cause our actual results, levels of activity, performance or achievements to differ materially from the results, levels of activity, performance or achievements expressed or implied by the forward-looking statements, including, but not limited to: the COVID-19 (coronavirus) pandemic, which may last longer than expected and materially adversely affect our results of operations; the degree of our success in our plans to leverage our global footprint to grow our sales; the degree of our success in integrating the companies that we have acquired through the implementation of our M&A growth strategy; the lengthy development cycles for our solutions, which may frustrate our ability to realize revenues and/or profits from our potential new solutions; our lengthy and complex sales cycles, which do not always result in the realization of revenues; the degree of our success in retaining our existing customers or competing effectively for greater market share; difficulties in successfully planning and managing changes in the size of our operations; the frequency of the long-term, large, complex projects that we perform that involve complex estimates of project costs and profit margins, which sometimes change mid-stream; the challenges and potential liability that heightened privacy laws and regulations pose to our business; occasional disputes with clients, which may adversely impact our results of operations and our reputation; various intellectual property issues related to our business; potential unanticipated product vulnerabilities or cybersecurity breaches of our or our customers’ systems; risks related to the insurance industry in which our clients operate; risks associated with our global sales and operations, such as changes in regulatory requirements, wide-spread viruses and epidemics like the recent novel coronavirus outbreak, or fluctuations in currency exchange rates; and risks related to our principal location in Israel.

While we believe such forward-looking statements are based on reasonable assumptions, should one or more of the underlying assumptions prove incorrect, or these risks or uncertainties materialize, our actual results may differ materially from those expressed or implied by the forward-looking statements. Please read the risks discussed under the heading “Risk Factors” in our most recent Annual Report on Form 20-F, in order to review conditions that we believe could cause actual results to differ materially from those contemplated by the forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that future results, levels of activity, performance and events and circumstances reflected in the forward-looking statements will be achieved or will occur. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason, to conform these statements to actual results or to changes in our expectations.

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,
  2021   2020   2021   2020
  Unaudited   Unaudited
Revenues 587,875   437,064   1,160,518   903,334
Cost of revenues 446,934   334,138   894,019   697,269
               
Gross profit 140,941   102,926   266,499   206,065
Research and development costs, net 16,321   12,084   32,325   25,047
Selling, marketing and general and administrative expenses 74,086   50,135   136,186   101,508
Operating income 50,534   40,707   97,988   79,510
               
Financial expenses, net 5,940   5,627   11,043   10,271
               
Income before taxes on income 44,594   35,080   86,945   69,239
Taxes on income 10,844   8,703   20,193   16,426
               
Income after taxes 33,750   26,377   66,752   52,813
Share of profit of companies accounted for at equity, net 431   218   661   347
               
Net income 34,181   26,595   67,413   53,160
Net income attributable to non-controlling interests 20,846   15,363   41,659   30,907
               
Net income attributable to Formula Systems’ shareholders 13,335   11,232   25,754   22,253
               
Earnings per share (basic) 0.87   0.74   1.68   1.46
Earnings per share (diluted) 0.86   0.73   1.66   1.44
               
Number of shares used in computing earnings per share (basic) 15,289,267   15,285,517   15,289,267   15,285,100
Number of shares used in computing earnings per share (diluted) 15,362,906   15,292,486   15,350,431   15,292,372
               
FORMULA SYSTEMS (1985) LTD.        
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION      
U.S. dollars in thousands        
    June 30,   December 31,  
    2021   2020  
    (Unaudited)      
 ASSETS        
CURRENT ASSETS:        
  Cash and cash equivalents 446,365   501,650  
  Short-term deposits 20,612   30,289  
  Marketable securities 1,211   1,238  
  Trade receivables 576,241   519,885  
  Other accounts receivable and prepaid expenses 79,600   83,820  
  Inventories 19,300   23,988  
Total current assets 1,143,329   1,160,870  
           
LONG-TERM ASSETS:        
  Deferred taxes 42,440   39,750  
  Other long-term accounts receivable and prepaid expenses 28,670   22,872  
Total long-term assets 71,110   62,622  
           
INVESTMENTS IN COMPANIES ACCOUNTED FOR AT EQUITY METHOD 28,956   28,311  
           
PROPERTY, PLANTS AND EQUIPMENT, NET 56,749   59,176  
           
RIGHT-OF-USE ASSETS 105,133   114,414  
           
NET INTANGIBLE ASSETS AND GOODWILL 1,181,000   1,094,687  
           
TOTAL ASSETS 2,586,277   2,520,080  
           
CURRENT LIABILITIES:        
  Loans and credit from banks and others 156,581   120,444  
  Debentures 37,890   41,454  
  Current maturities of lease liabilities 31,997   32,065  
  Trade payables 145,886   153,322  
  Deferred revenues 142,492   128,898  
  Other accounts payable 252,276   259,223  
  Liabilities in respect of business combinations 5,118   8,654  
  Put options of non-controlling interests 35,503   35,843  
Total current liabilities 807,743   779,903  
           
LONG-TERM LIABILITIES:        
  Loans and credit from banks and others 159,519   180,316  
  Debentures 226,000   203,070  
  Lease liabilities 83,412   91,188  
  Other long-term liabilities 15,458   12,191  
  Deferred taxes 69,860   68,367  
  Deferred revenues 19,640   16,626  
  Liabilities in respect of business combinations 32,803   16,582  
  Put options of non-controlling interests 29,875   28,175  
  Employees benefit liabilities 14,536   15,119  
Total long-term liabilities 651,103   631,634  
           
EQUITY        
  Equity attributable to Formula Systems’ shareholders 517,474   503,201  
  Non-controlling interests 609,957   605,342  
Total equity 1,127,431   1,108,543  
           
TOTAL LIABILITIES AND EQUITY 2,586,277   2,520,080  
           
FORMULA SYSTEMS (1985) LTD.        
STAND-ALONE STATEMENTS OF FINANCIAL POSITION        
U.S. dollars in thousands        
    June 30,   December 31,  
    2021   2020  
    (Unaudited) (Unaudited)  
 ASSETS        
CURRENT ASSETS:        
  Cash and cash equivalents 24,449   47,852  
  Other accounts receivable and prepaid expenses 7,981   4,977  
Total current assets 32,430   52,829  
           
INVESTMENTS IN SUBSIDIARIES AND A JOINTLY CONTROLLED ENTITY (*)        
  Matrix IT Ltd. 144,771   142,194  
  Sapiens International Corporation N.V. 223,024   227,771  
  Magic Software Enterprises Ltd. 118,944   118,105  
  Other 181,868   90,359  
Total Investments in subsidiaries and a jointly controlled entity 668,607   578,429  
           
OTHER LONG TERM RECEIVABLES 1,683   1,707  
           
PROPERTY, PLANTS AND EQUIPMENT, NET 10   2  
           
TOTAL ASSETS 702,730   632,967  
           
CURRENT LIABILITIES:        
  Debentures 16,426   21,652  
  Trade payables 90   349  
  Other accounts payable 3,607   2,329  
Total current liabilities 20,123   24,330  
           
LONG-TERM LIABILITIES:        
  Debentures 147,065   104,394  
  Put options of non-controlling interests 1,080   1,042  
  Liability in respect of business combinations 16,988    
Total long-term liabilities 165,133   105,436  
           
EQUITY 517,474   503,201  
           
TOTAL LIABILITIES AND EQUITY 702,730   632,967  
           
           
(*) 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.  

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