• Formula Systems Reports Fourth Quarter and full year 2020 Financial Results with Annual Net Income of $46.8 million, a 20% growth year over year

    Source: Nasdaq GlobeNewswire / 17 Mar 2021 10:46:14   America/New_York

    OR YEHUDA, Israel, March 17, 2021 (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 fourth quarter and full year ended December 31, 2020.

    Financial Highlights for the Fourth Quarter Ended December 31, 2020

    • Consolidated revenues for the fourth quarter increased by 21.2% to a record breaking $543.2 million. Revenues for the fourth quarter ended December 31, 2019 amounted to $448.2 million.

    • Consolidated operating income for the fourth quarter increased by 23.4% to a record breaking $45.8 million, with growth recorded across Formula’s entire investment portfolio. Consolidated operating income for the fourth quarter ended December 31, 2019 amounted to $37.1 million.

    • Consolidated net income attributable to Formula’s shareholders for the fourth quarter increased by 19.1% to $11.9 million, or $0.76 per fully diluted share, compared to $10.0 million, or $0.64 per fully diluted share, for the fourth quarter ended December 31, 2019.

    Financial Highlights for the Year Ended December 31, 2020

    • Consolidated revenues for the year increased by 13.7% to a record breaking $1,933.9 million, with growth recorded across Formula’s entire investment portfolio. Revenues for the year ended December 31, 2019 amounted to $1,701.1 million.

    • Consolidated operating income for the year increased by 23.2% to a record breaking $170.6 million, with growth recorded across Formula’s entire investment portfolio. Consolidated operating income for the year ended December 31, 2019 amounted to $138.5 million.

    • Consolidated net income attributable to Formula’s shareholders for the year was $46.8 million, or $3.01 per fully diluted share, compared to $38.8 million, or $2.44 per fully diluted share in the year ended December 31, 2019, reflecting an increase of 20.5% year over year.

    • As of December 31, 2020, Formula held 49.3%, 44.0%, 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 totaled approximately $533.2 million as of December 31, 2020, compared to $405.2 million as of December 31, 2019.

    • Total equity as of December 31, 2020 was $ 1,107.5 million (representing 43.9% 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 December 31, 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 $502.7 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 1.1%.

    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 0.046.

    Comments of Management

    Commenting on the results, Guy Bernstein, CEO of Formula Systems, said: “We are very pleased to conclude 2020 on a high note across our entire investment portfolio reaching an all-time record across all of our key indices (revenues, operating income, EBITDA and net income), overcoming multiple challenges introduced by COVID-19 pandemic and quickly and productively adjusting to the new work environment. We enter into 2021 with a strong momentum and plan to continue our efforts across our entire portfolio to adhere our core values of innovation, professionalism, agility and transparency which allow us to continue our growth and preserve our leading position.”

    “Matrix managed to quickly overcome the challenges and adjust to the “New Normal” introduced by the COVID-19 global pandemic and managed to finish 2020 as a record-breaking year across all financial indices. Among the adjustments were the transition to a hybrid work model and significantly increase the company’s scope of operations in all high-demand technology sectors. We are pleased with Matrix continued recognition as a market leader in the implementation of fastest-growing technologies, such as: cloud, cyber, digital, data, AI and machine learning, which enables the company to create significant value for its customers in managing, streamlining, accelerating, and making their businesses thrive. Matrix is positioned as the preferred technology partner in the Israeli market for 15 years in a row. Looking forward and witnessing the increasing demand for digital services, cloud services, infrastructure, computing, and data analytics, Matrix intends to expand and recruit more quality personnel to fill the many positions required in these areas in order to continue to lead the innovation in Israel’s IT industry and maintain the position of a market leader.”

    “Sapiens finished 2020 on a strong note, despite the multiple challenges introduced by the COVID-19 pandemic, with record fourth quarter Non-GAAP revenues crossing the $100 million-dollar-mark, coming in at $103 million, 19% higher than last year and strong Non-GAAP operating margin of 18.1%, improving by 164 basis points, compared to the same period last year. For the full year of 2020 Non-GAAP revenue increased by 18% to $384 million and Non-GAAP operating margin of 17.7%. The results demonstrate how well Sapiens is executing its proven “Land and Expand” strategy, which enables it to grow in the highly regulated and regionally diverse global insurance markets and validate its operating leverage. In addition, Sapiens continues to preserve its position as a one-stop-shop in P&C and Life with its hundreds of customers, along with offering complimentary and digital solutions. Sapiens enters into 2021 with a strong momentum, a solid balance sheet and plans to leverage its recent acquisitions.”

    “Magic also finished 2020 on a strong note with record breaking revenues of $104.6 million for the fourth quarter, reflecting 15% increase from the same period last year and exceeding the 100 million-dollar-mark for the first time. For the full year of 2020, Magic’s revenues increased 14% year over year to $371 million and non-GAAP operating income increased 20% year over year to $53 million. The company’s results of operations for the year demonstrate its ability to manage the business and execute on its strategy during uncertain times introduced by the COVID-19 global pandemic while keeping its employees safe and productive.”

    “Michpal group continues to realize synergies and monetize on its business 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. 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.”

    “TSG (held jointly by Formula and Israel Aerospace Industries) also finished the year on a high note, signing a new multi-million-dollar G2G agreement with a law enforcement agency in South East Asia. TSG will deliver a multi-sensory and multidisciplinary system which would include and integrate a Command & Control system, for the use of the entire organization. In addition, during 2020 TSG had the opportunity to put to good use its proven AI development capabilities developed for the defense sector in order to predict Hospital respiratory deterioration of Covid-19 infected patients. The system was integrated in the Beilinson Hospital in Israel and generated impressive results. This is another perfect example of TSG’s capability to monetize on long term capabilities dedicated to the defense sector in the private sector.”

    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  Year ended 
      December 31,  December 31, 
      2020  2019  2020  2019 
              
      Unaudited  Unaudited    
    Revenues  543,240   448,205   1,933,918   1,701,115 
    Cost of revenues  418,264   344,224   1,486,485   1,315,066 
    Gross profit  124,976   103,981   447,433   386,049 
    Research and development costs, net  14,220   12,439   52,604   46,690 
    Selling, marketing and general and administrative expenses  64,989   54,468   224,188   200,870 
    Operating income  45,767   37,074   170,641   138,489 
    Financial expenses, net  10,723   6,147   26,885   18,652 
    Income before taxes on income  35,044   30,927   143,756   119,837 
    Taxes on income  6,754   6,726   31,268   27,201 
    Income after taxes  28,290   24,201   112,488   92,636 
    Share of profit of companies accounted for at equity, net  1,200   272   1,535   1,787 
    Net income  29,490   24,473   114,023   94,423 
    Net income attributable to non-controlling interests  17,597   14,489   67,247   55,603 
    Net income attributable to Formula Systems’ shareholders  11,893   9,984   46,776   38,820 
                     
    Earnings per share (basic)  0.77   0.65   3.05   2.56 
    Earnings per share (diluted)  0.76   0.64   3.01   2.44 
                     
    Number of shares used in computing earnings per share (basic)  15,288,017   15,282,600   15,286,142   15,189,758 
    Number of shares used in computing earnings per share (diluted)  15,293,138   15,291,360   15,292,450   15,340,867 
                     

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

      December 31,  December 31, 
      2020  2019 
      (Unaudited)    
    ASSETS      
    CURRENT ASSETS:      
    Cash and cash equivalents  501,626   368,666 
    Short-term deposits  30,289   29,886 
    Marketable securities  1,238   6,600 
    Trade receivables  520,144   486,007 
    Other accounts receivable and prepaid expenses  83,610   65,709 
    Inventories  23,988   8,636 
    Total current assets  1,160,895   965,504 
             
    LONG-TERM ASSETS:        
    Deferred taxes  39,890   38,865 
    Other long-term accounts receivable and prepaid expenses  22,703   22,205 
    Total long-term assets  62,593   61,070 
             
    INVESTMENTS IN COMPANIES ACCOUNTED FOR AT EQUITY METHOD  28,478   26,021 
             
    PROPERTY, PLANTS AND EQUIPMENT, NET  59,559   43,059 
             
    OPERATING LEASE RIGHT-OF-USE ASSETS  114,414   104,130 
             
    NET INTANGIBLE ASSETS AND GOODWILL  1,094,073   889,473 
             
    TOTAL ASSETS  2,520,012   2,089,257 
             
    CURRENT LIABILITIES:        
    Loans and credit from banks and others  120,444   125,297 
    Debentures  41,454   31,362 
    Current maturities of operating lease liabilities  32,065   35,673 
    Trade payables  153,259   125,163 
    Deferred revenues  128,898   93,512 
    Other accounts payable  258,717   205,205 
    Dividend payable  -   7,081 
    Liabilities in respect of business combinations  9,121   8,431 
    Put options of non-controlling interests  35,843   39,668 
    Total current liabilities  779,801   671,392 
             
    LONG-TERM LIABILITIES:        
    Loans and credit from banks and others  180,316   162,062 
    Debentures  203,070   175,411 
    Long term operating lease liabilities  91,188   73,686 
    Other long-term liabilities  12,191   8,311 
    Deferred taxes  68,368   53,854 
    Deferred revenues  16,626   6,491 
    Liabilities in respect of business combinations  16,582   14,895 
    Put options of non-controlling interests  29,257   15,182 
    Employees benefit liabilities  15,119   11,639 
    Total long-term liabilities  632,717   521,531 
             
    EQUITY        
    Equity attributable to Formula Systems’ shareholders  502,728   421,640 
    Non-controlling interests  604,766   474,694 
    Total equity  1,107,494   896,334 
             
    TOTAL LIABILITIES AND EQUITY  2,520,012   2,089,257 
             

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

      December 31,  December 31, 
      2020  2019 
        
      (Unaudited) 
    ASSETS      
    CURRENT ASSETS:      
    Cash and cash equivalents  47,852   82,725 
    Other accounts receivable and prepaid expenses  4,977   6,803 
    Total current assets  52,829   89,528 
             
    INVESTMENTS IN SUBSIDIARIES AND A JOINTLY        
    CONTROLLED ENTITY (*)        
    Matrix IT Ltd.  142,194   125,809 
    Sapiens International Corporation N.V.  227,771   176,832 
    Magic Software Enterprises Ltd.  117,624   114,019 
    Other  90,395   72,322 
    Total Investments in subsidiaries and a jointly controlled entity  577,984   488,982 
             
    OTHER LONG TERM RECEIVABLES  1,707   1,539 
             
    PROPERTY, PLANTS AND EQUIPMENT, NET  2   2 
             
    TOTAL ASSETS  632,522   580,051 
             
    CURRENT LIABILITIES:        
    Loans from banks and others  -   13,130 
    Debentures  21,652   20,296 
    Trade payables  349   69 
    Other accounts payable  2,328   1,274 
    Dividends payable  -   7,081 
    Total current liabilities  24,329   41,850 
             
    LONG-TERM LIABILITIES:        
    Debentures  104,394   116,561 
    Put options of non-controlling interests  1,071   - 
    Total long-term liabilities  105,465   116,561 
             
    EQUITY  502,728   421,640 
             
    TOTAL LIABILITIES AND EQUITY  632,522   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.


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