Formula Systems Reports First Quarter 2024 Financial Results
Formula Systems (FORTY) reported first-quarter 2024 financial results, showing a 4.2% year-over-year revenue increase to $698.4 million. Net income rose by 9.4% to $17.2 million ($1.10 per fully diluted share). Operating income increased by 2.9% to $62.6 million. The company’s consolidated cash and equivalents totaled $516.1 million as of March 31, 2024. Total equity remained at $1.31 billion.
Matrix IT achieved a 12.6% revenue growth, reaching an all-time high of approximately $396.9 million. Sapiens' revenues grew by 7.6% to $134.2 million. Magic Software's revenues decreased by 8.2% year-over-year but saw a 4.1% quarter-over-quarter increase. Michpal's revenues grew 14% year-over-year to approximately $10.4 million. TSG’s operating income increased by 15.4% year-over-year.
Despite challenges, including the mobilization of 250 employees due to military service, Formula Systems maintained strong financial performance and compliance with financial covenants.
- Revenue increased by 4.2% to $698.4 million year-over-year.
- Net income rose by 9.4% to $17.2 million.
- Operating income increased by 2.9% to $62.6 million.
- Matrix IT achieved a 12.6% revenue increase to approximately $396.9 million.
- Sapiens' revenues grew by 7.6% to $134.2 million.
- Michpal's quarterly revenues grew 14% year-over-year to approximately $10.4 million.
- TSG's operating income increased by 15.4% year-over-year.
- Magic Software's revenues decreased by 8.2% compared to the first quarter of 2023.
- Consolidated cash and equivalents decreased from $528.2 million to $516.1 million.
- The absence of 250 employees due to military service impacted profitability in certain areas.
Insights
The first quarter results of Formula Systems reflect a modest yet steady improvement in financial performance. A 4.2% revenue increase to
Analyzing the company's operating income, which rose by 2.9% to
Another aspect to highlight is the company's compliance with its financial covenants, particularly the equity attributable to shareholders and the net financial indebtedness ratios. These figures indicate a robust financial health, which is beneficial for maintaining investor confidence and securing future financing if needed. For a retail investor, this stability should be reassuring, as it implies lower financial risk and potential for consistent returns.
The segmented performance of Formula Systems' subsidiaries provides insight into specific growth areas and potential risks. The standout performer, Matrix IT, achieved a remarkable 12.6% revenue growth, reaching
Sapiens International's 7.6% revenue growth and significant ARR growth of 12.7% highlight its potential in the insurance software market, driven by its diverse product lines and cost-efficient operating models. This can be particularly appealing in a market with rising demand for comprehensive and scalable digital solutions.
However, Magic Software's revenue decline of 8.2% year-over-year indicates a need for caution. The unexpected suspension of projects by key U.S. clients underscores the volatility and dependency on large customers. Retail investors should keep an eye on how the company manages client relationships and adapts to such unexpected changes.
From a technology perspective, the focus areas of Matrix IT such as AI, cloud, cyber and digital solutions are in high demand, aligning well with current technological advancements. The company's ability to innovate and lead in these sectors could drive sustained growth, especially as businesses continue to prioritize digital transformation and cybersecurity.
Sapiens' focus on cloud capabilities and a combination of offshore and onshore delivery models demonstrate strategic positioning in the global market, allowing for cost efficiency and scalability. This positions them well to capitalize on the increasing demand for software and digital solutions in various industries, including financial services.
Magic Software's challenges, particularly the decline in professional services demand, highlight the risks associated with dependency on a few large clients. However, their engagement in innovative digital transformation initiatives suggests potential for recovery and growth if they can diversify their client base and reduce reliance on time-and-materials projects.
Revenues for the First Quarter Increased by
OR YEHUDA, Israel, May 22, 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 first quarter ended March 31, 2024.
Financial Highlights for the First Quarter Ended March 31, 2024
- Revenues for the first quarter ended March 31, 2024 increased by
4.2% to$698.4 million , compared to$670.4 million in the same period last year. On a constant-currency basis (calculated based on average currency exchange rates for the three months ended March 31, 2023), revenues for the first quarter of 2024 would have increased by6.6% to$714.8 million , compared to the same period last year. - Operating income for the first quarter ended March 31, 2024 increased by
2.9% to$62.6 million compared to$60.8 million in the same period last year. On a constant-currency basis (calculated based on average currency exchange rates for the three months ended March 31, 2023), operating income for the first quarter of 2024 would have increased by approximately2.1% to$62.1 million , compared to the same period last year. - Net income attributable to Formula’s shareholders for the first quarter ended March 31, 2024 increased by
9.4% to$17.2 million , or$1.10 per fully diluted share, compared to$15.7 million , or$1.01 per fully diluted share, in the same period last year. - As of March 31, 2024, Formula held
48.21% ,43.61% ,46.71% ,100% ,50% ,90.1% ,80% ,100% and100% 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
$516.1 million as of March 31, 2024, compared to$528.2 million as of December 31, 2023. - Total equity as of March 31, 2024, and as of December 31, 2023, was
$1.31 billion (representing46.5% of the total consolidated statements of financial position).
Debentures Covenants
As of March 31, 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
$215 million . - Actual equity attributable to Formula’s shareholders as of March 31, 2024 was
$631.5 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, as of March 31, 2024 was (
1.0% ).
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 March 31, 2024 was (0.04).
Comments of Management
Commenting on the results, Guy Bernstein, CEO of Formula Systems, said: “Formula Systems group continues to demonstrate strong and consistent performance, making big strides across multiple fronts, as reflected by our 2024 first quarter revenues and operational profits. Our broad investment portfolio allows us to carefully mitigate the current risks in the IT market, which are mainly a product of the challenging macro-economic environment. With respect to recent events taking place in Israel, since October 7, 2023, as a result of which approximately 1,100 of our 22,000 employees were drafted to active military service in Israel’s Iron Swards war, as of the date of this report approximately 250 of our employees are still in active military service. The absence of such employees resulted in lower profitability in the first quarter in certain areas of our operations (despite partial compensation paid by the State of Israel). Our global operations, which rely on our dedicated global employee base, continue to be unaffected by the war, while our Israeli teams continue to work generally in a usual hybrid manner. As such, the impact of the recent events on our operations across our investment portfolio was not severe.”
“Matrix concluded the first quarter with double-digit growth and record-breaking results recorded across all its key operational financial indices: revenues, gross profit, operating income, net income and EBITDA. Matrix revenues for the first quarter grew by
“Sapiens’ revenues for the first quarter increased by
“Magic Software's operational results for the first quarter reflected a positive start to the year, as revenues for the first quarter increased by
“Michpal concluded the first quarter with quarterly revenues of NIS 38.2 million (approximately
“TSG’s operating income for the first quarter of 2024 increased by
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 | |||
| March 31, | |||
| 2024 | 2023 | ||
| Unaudited | |||
| Revenues | 698,401 | 670,399 | |
| Cost of revenues | 534,186 | 508,468 | |
| Gross profit | 164,215 | 161,931 | |
| Research and development costs, net | 20,217 | 19,308 | |
| Selling, marketing and general and administrative expenses | 81,413 | 81,829 | |
| Operating income | 62,585 | 60,794 | |
| Financial expenses, net | 5,602 | 7,084 | |
| Income before taxes on income | 56,983 | 53,710 | |
| Taxes on income | 13,458 | 11,490 | |
| Income after taxes | 43,525 | 42,220 | |
| Share of profit of companies accounted for at equity, net | 103 | 35 | |
| Net income | 43,628 | 42,255 | |
| Net income attributable to non-controlling interests | 26,469 | 26,571 | |
| Net income attributable to Formula Systems shareholders | 17,159 | 15,684 | |
| Earnings per share (basic) | 1.12 | 1.02 | |
| Earnings per share (diluted) | 1.10 | 1.01 | |
| Number of shares used in computing earnings per share (basic) | 15,303,267 | 15,300,267 | |
| Number of shares used in computing earnings per share (diluted) | 15,570,761 | 15,464,464 | |
FORMULA SYSTEMS (1985) LTD.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
U.S. dollars in thousands
| March 31, | December 31, | |||
| 2024 | 2023 | |||
| (Unaudited) | ||||
| ASSETS | ||||
| CURRENT ASSETS: | ||||
| Cash and cash equivalents | 436,791 | 451,946 | ||
| Short-term deposits | 79,345 | 76,224 | ||
| Trade receivables, net | 735,217 | 721,008 | ||
| Prepaid expenses and other accounts receivable | 92,557 | 84,670 | ||
| Inventories | 34,563 | 42,008 | ||
| Total current assets | 1,378,473 | 1,375,856 | ||
| NON-CURRENT ASSETS: | ||||
| Long-term investments and receivables | 60,047 | 52,002 | ||
| Deferred taxes | 51,916 | 46,856 | ||
| Investments in companies accounted for at equity | 19,473 | 20,796 | ||
| Property, plants and equipment, net | 51,267 | 52,931 | ||
| Right-of-use assets | 118,789 | 120,651 | ||
| Intangible assets, net and goodwill | 1,128,220 | 1,143,509 | ||
| Total non-current assets | 1,429,712 | 1,436,745 | ||
| Total assets | 2,808,185 | 2,812,601 | ||
| LIABILITIES AND EQUITY | ||||
| CURRENT LIABILITIES: | ||||
| Credit from banks and others | 160,806 | 145,973 | ||
| Debentures | 74,568 | 72,885 | ||
| Current maturities of lease liabilities | 43,921 | 44,064 | ||
| Trade payables | 222,552 | 258,649 | ||
| Deferred revenues | 166,337 | 137,643 | ||
| Employees and payroll accrual | 214,366 | 209,384 | ||
| Other accounts payable | 83,687 | 73,124 | ||
| Dividend payable | 9,580 | - | ||
| Liabilities in respect of business combinations | 11,184 | 7,954 | ||
| Put options of non-controlling interests | 49,335 | 35,987 | ||
| Total current liabilities | 1,036,336 | 985,663 | ||
| LONG-TERM LIABILITIES: | ||||
| Loans from banks and others | 70,846 | 90,887 | ||
| Debentures | 197,048 | 231,541 | ||
| Lease liabilities | 83,267 | 84,639 | ||
| Other long-term liabilities | 12,461 | 12,678 | ||
| Deferred taxes | 59,887 | 59,206 | ||
| Deferred revenues | 16,342 | 4,873 | ||
| Liabilities in respect of business combinations | 1,763 | 2,622 | ||
| Put options of non-controlling interests | 13,665 | 21,880 | ||
| Employees benefit liabilities, net | 10,460 | 10,427 | ||
| Total long-term liabilities | 465,739 | 518,753 | ||
| EQUITY | ||||
| Equity attributable to Formula Systems shareholders | 631,463 | 625,762 | ||
| Non-controlling interests | 674,647 | 682,423 | ||
| Total equity | 1,306,110 | 1,308,185 | ||
| Total liabilities and equity | 2,808,185 | 2,812,601 | ||
FORMULA SYSTEMS (1985) LTD.
STAND-ALONE STATEMENTS OF FINANCIAL POSITION
U.S. dollars in thousands
| March 31, | December 31, | |||
| 2024 | 2023 | |||
| (Unaudited) | ||||
| ASSETS | ||||
| CURRENT ASSETS: | ||||
| Cash and cash equivalents | 26,955 | 30,082 | ||
| Dividend receivable | 17,374 | - | ||
| Other accounts receivable and prepaid expenses | 10,440 | 10,326 | ||
| Total current assets | 54,769 | 40,408 | ||
| NON-CURRENT ASSETS: | ||||
| Investment in subsidiaries and a jointly controlled entity (*) | ||||
| Matrix IT Ltd. | 154,683 | 160,056 | ||
| Sapiens International Corporation N.V. | 249,564 | 251,658 | ||
| Magic Software Enterprises Ltd. | 131,507 | 128,549 | ||
| Other | 146,412 | 147,975 | ||
| Total investment in subsidiaries and a jointly controlled entity | 682,166 | 688,238 | ||
| Long term receivables and other investments | 28,299 | 22,737 | ||
| Property, plants and equipment, net | 10 | 11 | ||
| Total non-current assets | 710,475 | 710,986 | ||
| Total assets | 765,244 | 751,394 | ||
| LIABILITIES AND EQUITY | ||||
| CURRENT LIABILITIES: | ||||
| Debentures | 32,217 | 32,126 | ||
| Trade payables | 103 | 137 | ||
| Other accounts payable | 2,434 | 2,697 | ||
| Dividends payable | 9,580 | - | ||
| Liability in respect of a business combination | 263 | 267 | ||
| Total current liabilities | 44,597 | 35,227 | ||
| LONG-TERM LIABILITIES: | ||||
| Debentures | 89,184 | 90,405 | ||
| Total long-term liabilities | 89,184 | 90,405 | ||
| EQUITY | 631,463 | 625,762 | ||
| TOTAL LIABILITIES AND EQUITY | 765,244 | 751,394 | ||
(*) 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
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