Formula Systems Reports Third Quarter 2020 Financial Results

Rhea-AI Summary

Formula Systems (NASDAQ: FORTY) reported strong Q3 results, with consolidated revenues rising by 8.5% to $487.3 million and operating income increasing by 22.5% to $45.4 million compared to Q3 2019. Net income attributable to shareholders surged 29.4% to $12.6 million, or $0.82 per share. For the nine-month period, revenues grew 11% to $1,390.7 million, with net income of $34.9 million, up 21% year-over-year. Despite ongoing global challenges due to COVID-19, the company showcased robust growth across its investment portfolio.

Positive

• Operating income increased by 22.5%, reaching $45.4 million.
• Net income increased by 29.4% to $12.6 million.
• Consolidated revenues for nine months rose by 11% to $1,390.7 million.
• Sapiens achieved a revenue increase of 18.2% to $97.6 million in Q3.

Negative

• None.

Operating income for the third quarter increased by 23% year-over-year to a record breaking $45.4 million. Net income attributable to Formula’s Shareholders for the third quarter increased by 29% year-over-year to a record breaking $12.6 million.

Or Yehuda, Israel, Nov. 18, 2020 (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 third quarter and nine months-period ended September 30, 2020.

Financial Highlights for the Third Quarter Ended September 30, 2020 

• Consolidated revenues for the third quarter increased by 8.5% to $487.3 million. Revenues for the third quarter ended September 30, 2019 amounted to $449.0 million.

• Consolidated operating income for the third quarter increased by 22.5% to a record breaking $45.4 million, with growth recorded across Formula’s entire investment portfolio. Consolidated operating income for the third quarter ended September 30, 2019 amounted to $37.0 million.

• Consolidated net income attributable to Formula’s shareholders for the third quarter increased by 29.4% to a record breaking $12.6 million, or $0.82 per fully diluted share, compared to $9.8 million, or $0.63 per fully diluted share, for the third quarter ended September 30, 2019. 

Financial Highlights for the Nine-Months Period Ended September 30, 2020 

• Consolidated revenues for the nine-month period ended September 30, 2020 increased by 11.0% to $1,390.7 million, with growth recorded across Formula’s entire investment portfolio. Revenues for the nine-month period ended September 30, 2019 amounted to $1,252.9 million.

• Consolidated operating income for the nine-month period ended September 30, 2020 increased by 23.1% to $124.9 million, with growth recorded across Formula’s entire investment portfolio. Consolidated operating income for the nine-month period ended September 30, 2019 amounted to $101.4 million.

• Consolidated net income attributable to Formula’s shareholders for the nine-month period ended September 30, 2020 was $34.9 million, or $2.25 per fully diluted share, compared to $28.8 million, or $1.80 per fully diluted share, in the same period last year, reflecting an increase of 21.0% year over year.

• As of September 30, 2020 Formula held 49.0%, 47.4%, 45.5%, 100%, 50%, 90.09% and 80% 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., and Ofek Aerial Photography Ltd., respectively.

• Consolidated cash and cash equivalents, bank deposits and investments in marketable securities totalled approximately $435.8 million as of September 30, 2020, compared to $405.2 million as of December 31, 2019.

• Total equity as of September 30, 2020 was $938.4 million (representing 42.3% of the total consolidated balance sheet), compared to $896.3 million (representing 42.9% of the total consolidated balance sheet) as of December 31, 2019.  

Debentures Covenants

As of September 30, 2020, 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 $444.6 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 11.0%.

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 0.46.

Comments of Management

Commenting on the results, Guy Bernstein, CEO of Formula Systems, said, “We are very pleased to witness the delivery of strong execution during the third quarter across our entire portfolio companies, on all financial fronts and across key business sectors, geographies and product lines. Such achievements are particularly exceptional in light of the impacts of the COVID-19 pandemic and the lockdown and restrictions imposed in Israel and across the globe. Fueled by outstanding strategic performance and extent software and solutions for digital transformation, Formula Group continues to successfully face the ongoing global crisis, recording for the nine month period double digit growth across all its key financial indices: revenues; operating income and net income.”

“Matrix successfully managed to improve and show record results across all its key indices (revenues, net and operating income, gross profit, EBITDA and cash flow), overcoming a challenging period in Israel and across the globe. Matrix’s position as Israel’s largest technology, application and infrastructure services company, its extent solutions offering in the fields of digital transformation, supply chain and logistics, cloud and hardware infrastructure, AI and cyber, and its footprint in the healthcare, security, transportation and finance sectors, well position Matrix through the continuous global crisis, and set the ground for the day after the crisis ends”.

“In Spite of the COVID-19 global pandemic, Sapiens delivered strong execution across all of its key geographies and product lines and managed to increase third quarter revenues by 18.2% year over year to an all-time high of $97.6 million. Non-GAAP operating margin increased to a record braking of 18.2%, an increase of 180 basis points year over year. We are extremely proud in Sapiens receiving global acknowledgement by winning three different awards/recognitions for excellence by the analysts and research community, Gartner Magic Quadrant for policy administration and insurance platform for both its Life and P&C solutions and the Excellent award by Celent in the Life New Business and Underwriting report. Despite the COVID-19 pandemic, Sapiens’ outlook continues to improve as a result of signing new deals, increasing revenues from existing customers, and completing the acquisition of Delphi, positioning the company as a leader of the MPL market in North America.  

“Magic delivered a double-digit record-breaking growth in both revenues (11%) and operating income (30%) as a result of an increased demand, from existing and new customers. Magic’s outlook for 2020 improved in spite of the COVID-19 pandemic, resulting in Magic raising its guidance from between $350 million and $360 million to between $358 million and $365 million. We are committed to continue with Magic proven strategy to enhance its portfolio as a one-stop-shop for digital transformation, both organically and through acquisitions.”

“Michpal group continues to realize synergies and monetize on its busines model with its revenues also fueled by the acquisition of Unique Software Enterprises Ltd. concluded in November 2019 and Liram Financial Software Ltd., concluded in May 2020, growing by 70% year over year. Michpal Group is well positioned to continue helping its customers to adjust to the ever-changing governmental labor guidelines which are introduced in light of the COVID-19 pandemic.”

“I am pleased to see that the steps we took across all our portfolio companies to endure the COVID-19 pandemic are paying off. We will continue to address the new market challenges and take all necessary steps to emerge stronger and well positioned.”

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. In addition, there is uncertainty about the spread of the COVID19 pandemic virus and the impact it will have on the Company’s operations, the demand for Company’s products, global supply chains and economic activity in general. These and other risks and uncertainties are detailed in the Company’s Securities and Exchange Commission filings. 

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,
		2020				2019				2020				2019
		Unaudited								Unaudited
Revenues		487,344				448,984				1,390,678				1,252,910
Cost of revenues			370,952				347,727				1,068,221				970,842
Gross profit			116,392				101,257				322,457				282,068
Research and development costs, net			13,337				11,961				38,384				34,251
Selling, marketing and general and administrative expenses			57,691				52,276				159,199				146,402
Operating income			45,364				37,020				124,874				101,415
Financial expenses, net			5,891				5,177				16,162				12,505
Income before taxes on income			39,473				31,843				108,712				88,910
Taxes on income			8,088				7,455				24,514				20,475
Income after taxes			31,385				24,388				84,198				68,435
Share of profit (loss) of companies accounted for at equity, net			(12	)			429				335				1,515
Net income			31,373				24,817				84,533				69,950
Net income attributable to non-controlling interests			18,743				15,060				49,650				41,114
Net income attributable to Formula Systems’ shareholders			12,630				9,757				34,883				28,836
Earnings per share (basic)			0.83				0.64				2.28				1.90
Earnings per share (diluted)			0.82				0.63				2.25				1.80
Number of shares used in computing earnings per share (basic)			15,286,350				15,280,517				15,285,517				15,158,811
Number of shares used in computing earnings per share (diluted)			15,293,113				15,290,015				15,292,498				15,356,988

  
FORMULA SYSTEMS (1985) LTD.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
U.S. dollars in thousands

		September 30,				December 31,
		2020				2019
		(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents			431,864				368,666
Short-term deposits			2,784				29,886
Marketable securities			1,181				6,600
Trade receivables			476,334				486,007
Other accounts receivable and prepaid expenses			61,685				65,709
Inventories			17,659				8,636
Total current assets			991,507				965,504
LONG-TERM ASSETS:
Deferred taxes			41,369				38,865
Other long-term accounts receivable and prepaid expenses			22,196				22,205
Total long-term assets			63,565				61,070
INVESTMENTS IN COMPANIES ACCOUNTED FOR AT EQUITY METHOD			27,505				26,021
PROPERTY, PLANTS AND EQUIPMENT, NET			57,031				43,059
OPERATING LEASE RIGHT-OF-USE ASSETS			99,728				104,130
NET INTANGIBLE ASSETS AND GOODWILL			977,512				889,473
TOTAL ASSETS			2,216,848				2,089,257
CURRENT LIABILITIES:
Loans and credit from banks and others			115,712				125,297
Debentures			41,294				31,362
Current maturities of operating lease liabilities			32,863				35,673
Trade payables			110,498				125,163
Deferred revenues			103,072				93,512
Other accounts payable			213,665				205,205
Dividend payable			-				7,081
Liabilities in respect of business combinations			12,445				8,431
Put options of non-controlling interests			26,666				39,668
Total current liabilities			656,215				671,392
LONG-TERM LIABILITIES:
Loans and credit from banks and others			189,468				162,062
Debentures			205,802				175,411
Long term operating lease liabilities			74,894				73,686
Other long-term liabilities			11,380				8,311
Deferred taxes			60,626				53,854
Deferred revenues			11,576				6,491
Liabilities in respect of business combinations			13,510				14,895
Put options of non-controlling interests			39,851				15,182
Employees benefit liabilities			15,156				11,639
Total long-term liabilities			622,263				521,531
EQUITY
Equity attributable to Formula Systems’ shareholders			444,594				421,640
Non-controlling interests			493,776				474,694
Total equity			938,370				896,334
TOTAL LIABILITIES AND EQUITY			2,216,848				2,089,257

  
FORMULA SYSTEMS (1985) LTD.
STAND-ALONE STATEMENTS OF FINANCIAL POSITION
U.S. dollars in thousands

		September 30,				December 31,
		2020				2019
		(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents			53,183				82,725
Other accounts receivable and prepaid expenses			4,283				6,803
Total current assets			57,466				89,528
INVESTMENTS IN SUBSIDIARIES AND A JOINTLY CONTROLLED ENTITY (*)
Matrix IT Ltd.			130,756				125,809
Sapiens International Corporation N.V.			185,015				176,832
Magic Software Enterprises Ltd.			113,415				114,019
Other			86,843				72,322
Total Investments in subsidiaries and a jointly controlled entity			516,029				488,982
OTHER LONG TERM RECEIVABLES			1,595				1,539
PROPERTY, PLANTS AND EQUIPMENT, NET			2				2
TOTAL ASSETS			575,092				580,051
CURRENT LIABILITIES:
Loans from banks and others			-				13,130
Debentures			20,465				20,296
Trade payables			290				69
Other accounts payable			1,743				1,274
Dividends payable			-				7,081
Total current liabilities			22,498				41,850
LONG-TERM LIABILITIES:
Debentures			107,121				116,561
Put options of non-controlling interests			879				-
Total long-term liabilities			108,000				116,561
EQUITY			444,594				421,640
TOTAL LIABILITIES AND EQUITY			575,092				580,051

(*)

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 were the Q3 earnings results for Formula Systems (FORTY)?

For Q3, Formula Systems reported a revenue of $487.3 million, operating income of $45.4 million, and net income of $12.6 million.

How did Formula Systems (FORTY) perform in the nine-month period ended September 30, 2020?

For the nine-month period, consolidated revenues increased by 11% to $1,390.7 million, with a net income of $34.9 million.

What is the outlook for Formula Systems (FORTY) amidst the COVID-19 pandemic?

Despite COVID-19 challenges, Formula Systems has shown robust growth and continues to execute effectively across its portfolio.