Formula Systems Reports Financial Results for the Third Quarter and First Nine Months Period Ended September 30, 2024

Rhea-AI Summary

Formula Systems reported strong Q3 2024 financial results with revenues increasing 6.9% year-over-year to a record $699.9 million. Operating income grew 21.9% to $71.0 million, including a $6.5 million capital gain from TSG IT Advanced Systems' IPO. Net income attributable to shareholders rose 51.4% to $23.6 million ($1.51 per share). For the nine-month period, revenues increased 4.3% to $2.07 billion, with operating income up 11% to $198.7 million. The company maintains strong cash positions with $510.9 million in cash and short-term deposits, and total equity of $1.36 billion as of September 30, 2024.

Positive

• Record quarterly revenue of $699.9 million, up 6.9% YoY
• Operating income increased 21.9% to $71.0 million
• Net income grew 51.4% to $23.6 million
• $6.5 million capital gain from TSG IT Advanced Systems IPO
• Strong cash position of $510.9 million
• Total equity increased to $1.36 billion

Negative

• Cash and short-term deposits decreased from $528.2 million in December 2023 to $510.9 million

Insights

Financial Analyst

The Q3 2024 results demonstrate robust financial performance with several noteworthy achievements. Revenue growth of 6.9% to a record $699.9 million, coupled with a significant operating income increase of 51.4% to $71 million, shows strong operational execution. The IPO of TSG IT Advanced Systems generated a $6.5 million capital gain, highlighting successful portfolio management.

Key financial metrics show healthy fundamentals: strong cash position of $510.9 million, improved equity position at $1.36 billion (47.8% of total assets) and excellent covenant compliance with minimal financial leverage (net financial indebtedness to EBITDA ratio of 0.006). The diversified portfolio across multiple IT segments and geographies provides resilience, while strategic M&A activities across subsidiaries indicate continued growth potential.

Market Research Analyst

Formula Systems' portfolio companies are showing remarkable market adaptation and growth. Matrix's leadership in high-demand technologies (cloud, cyber, digital, data, DevOps, AI) positions it well in the Israeli tech market. Sapiens' geographic expansion with 7.1% growth in Europe and steady growth in North America demonstrates successful market penetration. The transformation of Zap Group into an E-commerce marketplace with 400+ stores and 70,000+ products represents significant digital evolution.

The company's strategic focus on emerging technologies and digital transformation services aligns well with current market demands. The successful IPO of TSG IT Advanced Systems and continued M&A activities across subsidiaries indicate strong market positioning and growth potential in the Israeli and global IT services market.

Revenues for the Third Quarter Increased by 6.9% Year Over Year to a Record Breaking $700 million. Net Income Attributable to Formula Systems Shareholders for the Third Quarter Increased by 51.4% Year Over Year to $23.6 million.

OR YEHUDA, Israel, Nov. 21, 2024 (GLOBE NEWSWIRE) -- Formula Systems (1985) Ltd. (Nasdaq and TASE: FORTY) (“Formula” or the “Company”), a global information technology group 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 first nine months period ended September 30, 2024.

Financial Highlights for the Third Quarter Ended September 30, 2024

• Revenues for the third quarter ended September 30, 2024 increased by 6.9% to a record breaking $699.9 million, compared to $654.8 million in the same period last year.
  
  
• Operating income for the third quarter ended September 30, 2024 increased by 21.9% to $71.0 million compared to $58.2 million in the same period last year. Operating income for the third quarter of 2024 includes a capital gain in an amount of $6.5 million realized from the initial public offering of our affiliate, TSG IT Advanced Systems Ltd, on the TASE exchange. This gain reflects the appreciation in value of our investment in TSG IT Advanced Systems Ltd and is recorded under 'Other Income' in our consolidated financial statements. The initial public offering of TSG IT Advanced Systems Ltd was priced at NIS 183.25 per share (approximately $48.6 per share), implying a market valuation of approximately NIS 462 million (approximately $122.6 million) at the time of the IPO.
  
  
• Net income attributable to Formula’s shareholders for the third quarter ended September 30, 2024 increased by 51.4% to $23.6 million, or $1.51 per fully diluted share, compared to $15.6 million, or $1.00 per fully diluted share, in the same period last year.

Financial Highlights for the Nine-Month Period Ended September 30, 2024

• Revenues for the nine-months ended September 30, 2024 increased by 4.3% to a nine-month record-breaking $2.07 billion, compared to $1.98 billion in the same period last year.
  
  
• Operating income for the nine-months ended September 30, 2024 increased by 11% to $198.7 million, compared to $179.0 million in the same period last year.
  
  
• Net income attributable to Formula’s shareholders for the nine-months ended September 30, 2024 increased by 23.4% to $59.6 million, or $3.81 per fully diluted share, compared to $48.3 million, or $3.10 per fully diluted share, in the same period last year.
  
  
• As of September 30, 2024, Formula held 48.21%, 43.51%, 46.71%, 100%, 47.2%, 90.1%, 80%, 100% 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., ZAP Group Ltd., and Shamrad Electronic (1997) Ltd., respectively.
  
  
• Consolidated cash and cash equivalents and short-term bank deposits totaled approximately $510.9 million as of September 30, 2024, compared to $528.2 million as of December 31, 2023.
  
  
• Total equity as of September 30, 2024 was $1.36 billion (representing 47.8% of the total consolidated statements of financial position), compared to $1.31 billion (representing 46.5% of the total consolidated statements of financial position) as of December 31, 2023.

Debentures Covenants

As of September 30, 2024, Formula was in compliance with all of its financial covenants under the debenture series issued by it, based on the following achievements:

Covenant 1

• Target equity attributable to Formula’s shareholders (excluding non-controlling interests): above $325 million.
  
  
• Actual equity attributable to Formula’s shareholders as of September 30, 2024 was $660.1 million.

Covenant 2

• Target ratio of net financial indebtedness to net capitalization (in each case, as defined under the indenture for Formula’s Series C and D Secured Debentures): below 65%.
  
  
• Actual ratio of net financial indebtedness to net capitalization, as of September 30, 2024 was 0.18%.

Covenant 3

• Target ratio of net financial indebtedness to EBITDA (based on the accumulated calculation for the four most recent quarters): below 5.
  
  
• Actual ratio of net financial indebtedness to EBITDA as of September 30, 2024 was 0.006.

Comments of Management

Commenting on the results, Guy Bernstein, CEO of Formula Systems, said: “I am proud of Formula’s strong performance in the third quarter and throughout the first nine-months of 2024. Our operating income of $71.0 million in the third quarter of 2024 was up 21.9% on a year over year basis and 9.2% on a on a sequential basis, growing our nine-months of 2024 operating income to $198.7 million. These results underscore our commitment to driving sustained growth and operational excellence across all facets of our business. We continue to uphold our core values of innovation, professionalism, agility, and transparency across our entire group. These principles enable us to consistently create significant value for our customers by helping them manage, streamline, and accelerate their operations, ultimately contributing to their growth.”

“Matrix reported its best third quarter in history with record-breaking results recorded across all its key financial indices: revenues, gross profit, operating income, net income and EBITDA. Matrix revenues for the third quarter grew by 6.4% year over year reaching an all-time third quarter high of NIS 1.42 billion (approximately $381.9 million). Operating income grew by 16.0%, reaching NIS 108.2 million (approximately $29.1 million). We are pleased with Matrix’s continued recognition as a market leader in Israel in the implementation of fastest-growing technologies, such as cloud, cyber, digital, data, DevOps and AI, which enable the company to create significant value for its customers in managing, streamlining, accelerating and making its businesses thrive. Matrix operates across all fronts in the technology sector, offering a rich variety of technological solutions, particularly in high-demand areas such as cloud, cybersecurity, digital, data, and AI. Our activities with the defense sector and defense industries continue to be extensive and demonstrate consistent growth. Matrix's leading position, particularly in high-demand technologies and solutions, its broad range of technological services and solutions, its wide sectoral diversification, and its extensive U.S. operations all enable Matrix to maintain its vitality, value, and leadership in the industry for its clients, partners, and investors. These strengths allow Matrix to continue demonstrating growth even during challenging economic, political, and security periods. Matrix continues its strategy of mergers and acquisitions in core and complementary areas. As part of this strategy, Matrix intends to complete several additional M&A transactions this year to support accelerated growth rates and increase value propositions for its clients.”

“Sapiens revenues for the third quarter reached $137 million, reflecting a 4.8% increase compared to the same period last year. Sapiens Non-GAAP operating profit totaled $25 million, representing 18.3% of its total revenues.. Revenue growth was driven by 7.1% growth in Sapiens’ European region, 1.7% growth in North America and 6.6% growth in ROW regions. This quarter's non-GAAP operating profit totaled $25 million (on a U.S GAAP basis), representing 18.3% of total revenue.”

“Magic Software reported another strong quarter of growth and resilience, with a 10.4% year-over-year increase in revenues, reaching $143 million. This performance reflects the continued success of Magic Software’s strategic focus on delivering value to its customers through innovative digital and cloud transformation solutions. While navigating in a dynamic macroeconomic environment, Magic Software’s diversified portfolio and strong client relationships have enabled it to achieve consistent growth and improve operational efficiency. Looking ahead, we are confident in Magic Software’s ability to continue building on this momentum as it further invest in its business and enhance its capabilities to meet the evolving needs of its customers worldwide. Magic Software revised its annual revenue guidance for 2024 increasing the lower range of its revenue guidance from $540 million to $544 million reflecting its continued solid momentum for the remaining part of the year and positive outlook. Magic Software full year revenues guidance for 2024 is $544 million to $550 million.”

“Michpal concluded the first nine-months of 2024 with consolidated revenues of NIS 115.5 million (approximately $31.1 million), growing 9.4% year over year on a constant currency basis. Michpal offers comprehensive proprietary on-premise and web-based payroll software solutions and related services, as well as integrated specialized management systems in the field of financial accounting, taxation and compliance, for accounting professionals (accountants and tax consultants), bookkeepers, controllers, and CFOs. Michpal continues its strategy of mergers and acquisitions in core and complementary areas. As part of this strategy, Michpal intends to complete additional M&A transactions this year to support accelerated growth rates and increase value propositions for its clients.”

“TSG concluded the third quarter of 2024 with strong results, demonstrating significant growth in revenue and profits. Revenues for the third quarter of 2024 increased by 15.7% year over year to NIS 84.2 million (approximately $22.7 million). EBITDA for the third quarter of 2024 increased by 14.3% year-over-year on a constant currency basis to NIS 13.5 million (approximately $3.6 million), compared to NIS 11.8 million (approximately $3.2 million) in the same period last year. TSG continues to advance the expansion and enhancement of its operations while strengthening its marketing and sales capabilities both domestically and internationally. TSG has also expanded product development across its two main sectors and successfully secured six tenders with Israeli municipalities during the third quarter of 2024. Following the successful completion of its IPO on the Tel Aviv Stock Exchange, TSG is actively pursuing mergers and acquisitions initiatives to enhance its capabilities and further capitalize on its business potential.”

“Over the past year, Zap Group, Israel's leading consumer websites company, has demonstrated agility in adapting to evolving market dynamics. The launch of its groundbreaking E-Commerce Marketplace platform marks a pivotal transformation in its business model. By integrating cutting-edge technology and service-driven solutions, Zap Group has enhanced its relationships with small and medium-sized businesses, driving higher sales volumes, while deepening connections with end consumers through a 360-degree, holistic experience. In its first year of operation, the Marketplace platform has delivered remarkable results, with tens of thousands of transactions generating tens of millions of NIS. Currently, over 400 stores feature more than 70,000 products, reflecting strong adoption and success. The platform enables businesses to engage directly with consumers, fostering personalized relationships, leveraging data-driven insights, and effectively managing customer journeys. This innovation positions Zap Group at the forefront of Israel’s digital economy. In response to broader economic challenges, including the geopolitical situation in Israel since October 2023, Zap Group has adopted a prudent approach to investments and operations. While prioritizing operational efficiency and cost optimization, Zap Group remains committed to growth. As it continues to expand its digital platforms, enhance customer engagement, and optimize data management, Zap Group is well-positioned to deliver seamless and value-driven e-commerce experiences.”

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 in the current period 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

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: adverse macro-economic trends and their duration, including inflation, relatively high interest rates, and supply chain delays, which trends may last for a significant period 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 degree of our success in developing and deploying new technologies for software solutions that address the updated needs of our customers and serve as the basis for our revenues; 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 particularly in the current hybrid office/work-from-home environment; risks related to industries, such as the insurance, healthcare, defense and the telecom, in which certain of our clients operate; risks posed by our global sales and operations, such as changes in regulatory requirements, supply chain disruptions, geopolitical instability stemming from Russia’s invasion of Ukraine, wide-spread viruses and epidemics or fluctuations in currency exchange rates; and risks related to our and our subsidiaries’ 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 “Item 3.D Risk Factors” in our most recent Annual Report on Form 20-F for the year ended December 31, 2023, filed with the U.S. Securities and Exchange Commission on May 15, 2024, 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, or to conform those 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				Nine months ended
	September 30,				September 30,
	2024		2023		2024		2023
	Unaudited				Unaudited
Revenues	699,931		654,839		2,066,012		1,980,612
Cost of revenues	527,033		495,222		1,562,453		1,498,126
Gross profit	172,898		159,617		503,559		482,486
Research and development costs, net	20,977		19,702		61,626		58,220
Selling, marketing and general and administrative expenses	88,098		81,669		250,486		245,242
Other income, net	7,207		-		7,207		-
Operating income	71,030		58,246		198,654		179,024
Financial expenses, net	5,809		6,423		15,240		19,119
Income before taxes on income	65,221		51,823		183,414		159,905
Taxes on income	13,862		12,486		40,970		35,356
Income after taxes	51,359		39,337		142,444		124,549
Share of profits of companies accounted for at equity, net	325		392		293		601
Net income	51,684		39,729		142,737		125,150
Net income attributable to non-controlling interests	28,066		24,133		83,121		76,849
Net income attributable to Formula Systems shareholders	23,618		15,596		59,616		48,301
Earnings per share (basic)	1.55		1.02		3.91		3.15
Earnings per share (diluted)	1.51		1.00		3.81		3.10
Number of shares used in computing earnings per share (basic)	15,305,453		15,301,767		15,304,360		15,301,017
Number of shares used in computing earnings per share (diluted)	15,650,374		15,543,518		15,616,220		15,496,380

FORMULA SYSTEMS (1985) LTD.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
U.S. dollars in thousands
		September 30,		December 31,
		2024		2023
		(Unaudited)
ASSETS
CURRENT ASSETS:
	Cash and cash equivalents	469,711		451,946
	Short-term deposits	41,142		76,224
	Trade receivables, net	757,194		721,008
	Prepaid expenses and other accounts receivable	86,408		84,670
	Inventories	27,037		42,008
Total current assets		1,381,492		1,375,856
NON-CURRENT ASSETS:
	Long-term investments and receivables	66,054		52,002
	Deferred taxes	32,778		33,361	(*)
	Investments in companies accounted for at equity	23,846		20,796
	Property, plants and equipment, net	51,372		52,931
	Right-of-use assets	154,668		120,651
	Intangible assets, net and goodwill	1,140,260		1,143,509
Total non-current assets		1,468,978		1,423,250
Total assets		2,850,470		2,799,106
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
	Credit from banks and others	155,562		145,973
	Debentures	64,560		72,885
	Current maturities of lease liabilities	44,610		44,064
	Trade payables	226,692		258,649
	Deferred revenues	141,187		137,643
	Employees and payroll accrual	213,427		209,384
	Other accounts payable	79,082		73,124
	Liabilities in respect of business combinations	5,672		7,954
	Put options of non-controlling interests	50,641		35,987
Total current liabilities		981,433		985,663
LONG-TERM LIABILITIES:
	Loans from banks and others	66,039		90,887
	Debentures	227,117		231,541
	Lease liabilities	118,833		84,639
	Other long-term liabilities	13,024		12,678
	Deferred taxes	38,740		45,711	(*)
	Deferred revenues	15,180		4,873
	Liabilities in respect of business combinations	1,981		2,622
	Put options of non-controlling interests	16,016		21,880
	Employees benefit liabilities, net	10,615		10,427
Total long-term liabilities		507,545		505,258
EQUITY
	Equity attributable to Formula Systems shareholders	660,089		625,762
	Non-controlling interests	701,403		682,423
Total equity		1,361,492		1,308,185
Total liabilities and equity		2,850,470		2,799,106
	(*) Reclassified

FORMULA SYSTEMS (1985) LTD.
STAND-ALONE STATEMENTS OF FINANCIAL POSITION
U.S. dollars in thousands
		September 30,		December 31,
		2024		2023
		(Unaudited)
ASSETS
CURRENT ASSETS:
	Cash and cash equivalents	68,707		30,082
	Dividend receivable	7,296		-
	Other accounts receivable and prepaid expenses	3,133		5,639	(*)
Total current assets		79,136		35,721
NON-CURRENT ASSETS:
	Investment in subsidiaries and a jointly controlled entity (**)
	Matrix IT Ltd.	157,756		160,056
	Sapiens International Corporation N.V.	260,361		251,658
	Magic Software Enterprises Ltd.	134,822		128,549
	TSG Advanced IT Systems Ltd.	22,278		18,998
	Michpal Micro Computers (1983) Ltd.	49,232		47,936	(*)
	Zap Group Ltd.	55,586		60,844	(*)
	Other	27,323		24,884	(*)
	Total investment in subsidiaries and a jointly controlled entity	707,358		692,925
	Other investments and long term receivables	37,611		22,737
	Property, plants and equipment, net	9		11
Total non-current assets		744,978		715,673
Total assets		824,114		751,394
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
	Loans from banks and others	2,255		-
	Debentures	22,746		32,126
	Trade payables	377		137
	Other accounts payable	6,187		2,697
	Liability in respect of a business combination	314		267
Total current liabilities		31,879		35,227
LONG-TERM LIABILITIES:
	Loans from banks and others	3,556		-
	Debentures	128,590		90,405
Total long-term liabilities		132,146		90,405
EQUITY		660,089		625,762
Total liabilities and equity		824,114		751,394
(*)	Reclassified
(**)	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.

FAQ

What was Formula Systems (FORTY) revenue growth in Q3 2024?

Formula Systems reported a 6.9% year-over-year revenue growth to $699.9 million in Q3 2024.

How much did Formula Systems (FORTY) earn in net income for Q3 2024?

Formula Systems earned $23.6 million in net income attributable to shareholders in Q3 2024, up 51.4% from the previous year.

What was the capital gain from TSG IT Advanced Systems IPO in Q3 2024?

Formula Systems realized a $6.5 million capital gain from TSG IT Advanced Systems' IPO on the TASE exchange in Q3 2024.

What is Formula Systems (FORTY) cash position as of September 30, 2024?

Formula Systems held $510.9 million in consolidated cash and cash equivalents and short-term bank deposits as of September 30, 2024.