Formula Systems Reports Second Quarter and First Half 2023 Financial Results
- Revenues for Q2 2023 increased by 3% YoY to $655.4 million
- Net income for Q2 2023 was $17.0 million
- Consolidated operating income for Q2 2023 amounted to $60.0 million
- Consolidated net income attributable to Formula's shareholders for Q2 2023 increased by 7.3% YoY
- Revenues for the first half of 2023 increased by 3.0% to $1.33 billion
- Net income for the first half of 2023 was $32.7 million
- Formula was in compliance with all its financial covenants under the debenture series issued by it
- None.
Revenues for the Second Quarter Increased by
OR YEHUDA, Israel, Aug. 17, 2023 (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 second quarter and six month-period ended June 30, 2023.
Financial Highlights for the Second Quarter Ended June 30, 2023
- Consolidated revenues for the second quarter ended June 30, 2023 increased by approximately
2.9% to a second-quarter record-breaking$655.4 million , compared to$636.9 million in the same period last year. On a constant currency basis (calculated based on average currency exchange rates for the three months ended June 30, 2022), consolidated revenues for the second quarter of 2023 would have increased by approximately9.1% to$695.0 million . - Consolidated operating income for the second quarter ended June 30, 2023 amounted to
$60.0 million compared to$99.5 million in the same period last year. Operating income for the second quarter of 2022 included a capital gain realized from the disposition of a Matrix IT subsidiary in the amount of$44.2 million . Excluding such impact, consolidated operating income for the second quarter ended June 30, 2023, increased by8.4% compared to the second quarter of the previous year. On a constant currency basis (calculated based on average currency exchange rates for the three months ended June 30, 2022), the consolidated operating income for the second quarter of 2023 would have increased by approximately13.5% to$62.8 million , compared to the same period last year (excluding the above-mentioned capital gain of$44.2 million recorded in 2022). - Consolidated net income attributable to Formula’s shareholders for the second quarter ended June 30, 2023 amounted to
$17.0 million , or$1.11 per fully diluted share, compared to$32.9 million , or$2.12 per fully diluted share, in the same period last year. Net income for the second quarter of 2022 was positively impacted by approximately$17.1 million of income realized from the disposition of a subsidiary of Matrix IT Ltd. Excluding such impact, consolidated net income attributable to Formula’s shareholders for the second quarter ended June 30, 2023 increased by7.3% year over year compared to the second quarter of the previous year.
Net income in the period was negatively impacted by the increase in interest expenses resulting from the increase in variable interest rates. Financial expenses net, increased by approximately51.0% to$5.6 million , compared to$3.7 million in the same period last year.
Financial Highlights for the Six Month-Period Ended June 30, 2023
- Consolidated revenues for the first half ended June 30, 2023 increased by
3.0% to a first-half record-breaking$1.33 billion , compared to$1.29 billion in the first half of the previous year. On a constant currency basis (calculated based on average currency exchange rates for the first half ended June 30, 2022), consolidated revenues for the first half 2023 would have increased by approximately10.1% to$1.42 billion . - Consolidated operating income for the first half ended June 30, 2023 amounted to
$120.8 million , compared to $158.9 million in the first half of the previous year. Operating income for the first half of 2022 included a capital gain realized from the disposition of a Matrix IT subsidiary in the amount of$44.2 million . Excluding such impact, consolidated operating income for the first half ended June 30, 2023, increased by5.3% compared to the first half of the previous year. On a constant currency basis (calculated based on average currency exchange rates for the first half ended June 30, 2022), the consolidated operating income for the first half of 2023 would have increased by approximately11.1% to$127.5 million , compared to the same period last year (excluding the above-mentioned capital gain of$44.2 million recorded in 2022). - Consolidated net income attributable to Formula’s shareholders for the first half ended June 30, 2023 amounted to
$32.7 million , or$2.11 per fully diluted share, compared to $49.2 million, or $3.18 per fully diluted share, in the first half of the previous year. Net income for the first half of 2022 was positively impacted by approximately$17.1 million of income realized from the disposition of a subsidiary of Matrix IT Ltd. Excluding such impact, consolidated net income attributable to Formula’s shareholders for the first half ended June 30, 2023 increased by1.9% year over year compared to the first half of the previous year.
Net income in the six-month period was negatively impacted by the increase in interest expenses resulting from the increase in variable interest rates. Financial expenses net, increased by approximately51.2% to$12.7 million , compared to$8.4 million in the same period last year. - As of June 30, 2023, Formula held
48.2% ,44.0% ,46.3% ,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, short-term bank deposits and short-term investments totaled approximately
$477.5 million as of June 30, 2023, compared to$569.1 million as of December 31, 2022. - Total equity as of June 30, 2023, was
$1.23 billion (representing45.0% of the total consolidated statements of financial position), compared to$1.18 billion (representing42.1% of the total consolidated statements of financial position) as of December 31, 2022.
Debentures Covenants
As of June 30, 2023, 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 June 30, 2023 was
$576.1 million .
Covenant 2
- Target ratio of net financial indebtedness to net capitalization (in each case, as defined under the indenture for Formula’s Series A and C Secured Debentures): below
65% . - Actual ratio of net financial indebtedness to net capitalization, as of June 30, 2023 was
9.4% .
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 June 30, 2023, was 0.35.
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 in 2023 second quarter and first half all-time high revenues and profits. During the first half, we. 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. We continue our efforts across our entire group to create significant value for our customers in managing, streamlining, accelerating, and contributing to their growth.”
“Matrix concluded the first half of 2023 with double-digit growth and record-breaking results recorded across all its key financial indices: revenues, gross profit, operating income, EBITDA and net income attributable to shareholders. Matrix revenues for the first half grew by
“Sapiens achieved a strong second quarter, with
“Magic Software delivered a solid second quarter, with revenue reaching
“Michpal continues to monetize on its business model with its revenues for the first half growing organically by
“TSG concluded the first half of 2023 with double-digit growth and record-breaking results recorded across its revenues, operating income. TSG revenues for the first half grew by
“Lastly, Zap Group continues to develop and invest in diverse advanced fields and innovative technologies, and improving its operations, preserving its position as the leading digital marketing and advertising group in Israel. With a deep understanding of the Israeli market and consumer needs, Zap Group successfully manages diverse and significant content and consumer sites and provides strategic services and advertising solutions to its customers. In addition, during recent weeks following advanced development Zap Group launched its state-of-the-art Marketplace platform based on SAP and Mirakl’s platforms. The Zap Group Marketplace platform offers a reliable and comfortable online buying experience by utilizing a simple ‘compare and purchase’ interface, allowing customers to select and purchase from a variety of products arranged in dozens of popular categories, all using a single shopping cart, with a simple and user-friendly operating system.”
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
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, including inflation, rising 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 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, adverse consequences of international conflicts such as Russia’s invasion of the Ukraine, 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 “Item 3.D Risk Factors” in our most recent Annual Report on Form 20-F for the year ended December 31, 2022, filed with the U.S. Securities and Exchange Commission on May 15, 2023, 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 | Six months ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Unaudited | Unaudited | |||||||||||||||
Revenues | 655,374 | 636,892 | (*) | 1,325,773 | 1,287,608 | (*) | ||||||||||
Cost of revenues | 494,436 | 487,388 | (*) | 1,002,904 | 982,262 | (*) | ||||||||||
Gross profit | 160,938 | 149,504 | (*) | 322,869 | 305,346 | (*) | ||||||||||
Research and development costs, net | 19,210 | 17,848 | 38,518 | 35,198 | ||||||||||||
Selling, marketing and general and administrative expenses | 81,744 | 76,329 | (*) | 163,573 | 155,422 | (*) | ||||||||||
Capital gain from realization of a Matrix IT's subsidiary | 0 | 44,208 | 0 | 44,208 | ||||||||||||
Operating income | 59,984 | 99,535 | 120,778 | 158,934 | ||||||||||||
Financial expenses, net | (5,612 | ) | (3,716 | ) | (12,696 | ) | (8,399 | ) | ||||||||
Income before taxes on income | 54,372 | 95,819 | 108,082 | 150,535 | ||||||||||||
Taxes on income | 11,380 | 21,421 | 22,870 | 32,923 | ||||||||||||
Income after taxes | 42,992 | 74,398 | 85,212 | 117,612 | ||||||||||||
Share of profit of companies accounted for at equity, net | 174 | 380 | 209 | 613 | ||||||||||||
Net income | 43,166 | 74,778 | 85,421 | 118,225 | ||||||||||||
Net income attributable to non-controlling interests | 26,145 | 41,835 | 52,716 | 69,048 | ||||||||||||
Net income attributable to Formula Systems shareholders | 17,021 | 32,943 | 32,705 | 49,177 | ||||||||||||
Earnings per share (basic) | 1.12 | 2.16 | 2.14 | 3.24 | ||||||||||||
Earnings per share (diluted) | 1.11 | 2.12 | 2.11 | 3.18 | ||||||||||||
Number of shares used in computing earnings per share (basic) | 15,301,017 | 15,295,517 | 15,300,642 | 15,293,955 | ||||||||||||
Number of shares used in computing earnings per share (diluted) | 15,480,800 | 15,487,852 | 15,472,436 | 15,496,092 | ||||||||||||
(*) Immaterial adjustments to comparative data.
FORMULA SYSTEMS (1985) LTD. | |||||||
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION | |||||||
U.S. dollars in thousands | |||||||
June 30, | December 31, | ||||||
2023 | 2022 | ||||||
(Unaudited) | |||||||
ASSETS | |||||||
CURRENT ASSETS: | |||||||
Cash and cash equivalents | 385,997 | 544,342 | |||||
Short-term deposits | 91,475 | 23,976 | |||||
Short-term investments | - | 738 | |||||
Trade receivables, net | 698,141 | 702,727 | |||||
Prepaid expenses and other accounts receivable | 76,382 | 64,535 | |||||
Inventories | 39,374 | 35,181 | |||||
Total current assets | 1,291,369 | 1,371,499 | |||||
NON-CURRENT ASSETS: | |||||||
Long-term investments and receivables | 49,498 | 38,985 | |||||
Deferred taxes | 43,960 | 42,027 | |||||
Investments in companies accounted for at equity | 19,894 | 20,746 | |||||
Property, plants and equipment, net | 53,877 | 54,971 | |||||
Right-of-use assets | 118,215 | 116,840 | |||||
Intangible assets, net and goodwill | 1,149,612 | 1,148,887 | |||||
Total non-current assets | 1,435,056 | 1,422,456 | |||||
Total assets | 2,726,425 | 2,793,955 | |||||
LIABILITIES AND EQUITY | |||||||
CURRENT LIABILITIES: | |||||||
Credit from banks and others | 155,685 | 157,882 | |||||
Debentures | 66,011 | 68,293 | |||||
Current maturities of lease liabilities | 46,192 | 45,497 | |||||
Trade payables | 202,932 | 222,482 | |||||
Deferred revenues | 136,390 | 131,639 | |||||
Employees and payroll accrual | 182,366 | 201,225 | |||||
Other accounts payable | 70,149 | 86,340 | |||||
Liabilities in respect of business combinations | 13,045 | 27,129 | |||||
Put options of non-controlling interests | 51,188 | 60,500 | |||||
Total current liabilities | 923,958 | 1,000,987 | |||||
LONG-TERM LIABILITIES: | |||||||
Loans from banks and others | 118,543 | 115,874 | |||||
Debentures | 265,221 | 305,632 | |||||
Lease liabilities | 79,544 | 78,966 | |||||
Other long-term liabilities | 13,980 | 14,101 | |||||
Deferred taxes | 60,172 | 59,465 | |||||
Deferred revenues | 5,878 | 8,859 | |||||
Liabilities in respect of business combinations | 5,827 | 12,345 | |||||
Put options of non-controlling interests | 15,892 | 11,688 | |||||
Employees benefit liabilities, net | 9,741 | 9,116 | |||||
Total long-term liabilities | 574,798 | 616,046 | |||||
EQUITY | |||||||
Equity attributable to Formula Systems shareholders | 576,106 | 551,875 | |||||
Non-controlling interests | 651,563 | 625,047 | |||||
Total equity | 1,227,669 | 1,176,922 | |||||
Total liabilities and equity | 2,726,425 | 2,793,955 | |||||
FORMULA SYSTEMS (1985) LTD. | |||||||
STAND-ALONE STATEMENTS OF FINANCIAL POSITION | |||||||
U.S. dollars in thousands | |||||||
June 30, | December 31, | ||||||
2023 | 2022 | ||||||
(Unaudited) | |||||||
ASSETS | |||||||
CURRENT ASSETS: | |||||||
Cash and cash equivalents | 38,126 | 39,363 | |||||
Other accounts receivable and prepaid expenses | 6,966 | 7,326 | |||||
Total current assets | 45,092 | 46,689 | |||||
NON-CURRENT ASSETS: | |||||||
Investment in subsidiaries and a jointly controlled entity (*) | |||||||
Matrix IT Ltd. | 150,197 | 149,701 | |||||
Sapiens International Corporation N.V. | 234,321 | 228,860 | |||||
Magic Software Enterprises Ltd. | 124,805 | 125,058 | |||||
Other | 144,614 | 154,408 | |||||
Total investment in subsidiaries and a jointly controlled entity | 653,937 | 658,027 | |||||
Long term receivables and other investments | 21,715 | 12,870 | |||||
Property, plants and equipment, net | 7 | 8 | |||||
Total non-current assets | 675,659 | 670,905 | |||||
Total assets | 720,751 | 717,594 | |||||
LIABILITIES AND EQUITY | |||||||
CURRENT LIABILITIES: | |||||||
Debentures | 22,128 | 32,999 | |||||
Trade payables | 169 | 125 | |||||
Other accounts payable | 1,315 | 5,596 | |||||
Put options of non-controlling interests | 853 | 848 | |||||
Liability in respect of a business combination | 405 | 426 | |||||
Total current liabilities | 24,870 | 39,994 | |||||
LONG-TERM LIABILITIES: | |||||||
Debentures | 119,546 | 125,484 | |||||
Liability in respect of a business combination | 229 | 241 | |||||
Total long-term liabilities | 119,775 | 125,725 | |||||
EQUITY | 576,106 | 551,875 | |||||
TOTAL LIABILITIES AND EQUITY | 720,751 | 717,594 | |||||
(*) 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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