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

/EIN News/ -- 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 8^th, 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 24^th, 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.