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Formula Systems Reports Second Quarter and First Half 2022 Financial Results: Net Income for the Second Quarter Reached $32.9 Million
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Formula Systems Reports Second Quarter and First Half 2022 Financial Results: Net Income for the Second Quarter Reached $32.9 Million

OR YEHUDA, Israel, Aug. 17, 2022 (GLOBE NEWSWIRE) — Formula Systems (1985) Ltd. (Nasdaq and TASE: FORTY), 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, 2022.

Financial Highlights for the Second Quarter Ended June 30, 2022

  • Consolidated revenues for the second quarter ended June 30, 2022 increased by 9.6% to $644.6 million, compared to $587.9 million in the second quarter of the previous year.
  • Consolidated operating income for the second quarter ended June 30, 2022 increased by 97.0% to $99.5 million, compared to $50.5 million in the second quarter of the previous year. Operating income for the second quarter of 2022 included a capital gain realized from the disposition of a Matrix IT subsidiary in an amount of $44.2 million. Excluding such impact, consolidated operating income for the second quarter ended June 30, 2022, increased by 9.5% compared to the second quarter of the previous year.
  • Consolidated net income attributable to Formula’s shareholders for the second quarter ended June 30, 2022 increased by 147% to $32.9 million, or $2.12 per fully diluted share, compared to $13.3 million, or $0.86 per fully diluted share, in the second quarter of the previous 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, 2022 increased by 18.9% year over year compared to the second quarter of the previous year.

Financial Highlights for the Six Month-Period Ended June 30, 2022

  • Consolidated revenues for the first half ended June 30, 2022 increased by 12.2% to $1.3 billion, compared to $1.16 billion in the first half of the previous year.
  • Consolidated operating income for the first half ended June 30, 2022 increased by 62.2% to $158.9 million, compared to $98.0 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 an amount of $44.2 million. Excluding such impact, consolidated operating income for the first half ended June 30, 2022, increased by 17.1% compared to the first half of the previous year.
  • Consolidated net income attributable to Formula’s shareholders for the first half ended June 30, 2022 increased by 90.9% to $49.2 million, or $3.18 per fully diluted share, compared to $25.8 million, or $1.66 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, 2022 increased by 24.6% year over year compared to the first half of the previous year.
  • As of June 30, 2022, Formula held 48.7%, 43.9%, 46.3%, 100%, 50%, 90.1%, 80% 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. and ZAP Group Ltd., respectively.
  • Consolidated cash and cash equivalents, short-term bank deposits and investments in marketable securities totaled approximately $451.5 million as of June 30, 2022, compared to $512.5 million as of December 31, 2021.
  • Total equity as of June 30, 2022 was $1.16 billion (representing 44.5% of the total consolidated statements of financial position), compared to $1.18 billion (representing 42.9% of the total consolidated statements of financial position) as of December 31, 2021.

Debentures Covenants

As of June 30, 2022, 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 was equal to $540.7 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, as of June 30, 2022, was equal to 8.6%.

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 (based on the accumulated calculation for the four most recent quarters and excluding a capital gain of $44.2 million realized from the disposition of a Matrix IT subsidiary), as of June 30, 2022, was equal to 0.25.

Comments of Management

Commenting on the results, Guy Bernstein, CEO of Formula Systems, said: “I am proud that the momentum we saw coming out of 2021 has continued throughout the first half of 2022, reflected in all-time high first half financial results across all our key financial indices. We continue to demonstrate strong results in 2022, delivering solid growth in revenue, reaching $644.6 million in revenues for the second quarter, with a record-breaking net income for the second quarter of $15.9 million that reflected 18.9% year over year growth, excluding the impact of the disposition of Infinity Labs Ltd, a subsidiary of Matrix IT Ltd. These outstanding results stand as a testament to our strong fundamentals and our pivotal role in influencing our customers’ growth strategies across all the areas in which we operate. Our broad investment portfolio allows us to carefully mitigate the current risks in the IT market, which are mainly the challenging macro-economic environment, as well as the fierce competition over talented IT workforce. We continue our efforts across our entire group to adhere to our core values of innovation, professionalism, agility and transparency, which allow us to continue to create significant value for our customers in managing, streamlining, accelerating and contributing to their growth. We continue to invest organically and inorganically in our service lines and are excited about the innovative capabilities we are building to drive continued long term profitable growth and shareholder value.”

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, triggered in part by the COVID-19 (coronavirus) pandemic, 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, filed with the U.S. Securities and Exchange Commission on May 16, 2022, 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,
  2022   2021   2022   2021
  Unaudited   Unaudited
Revenues 644,594   587,875   1,302,162   1,160,518
Cost of revenues 495,783   446,934   998,325   894,019
Gross profit 148,811   140,941   303,837   266,499
Research and development costs, net 17,848   16,321   35,198   32,325
Selling, marketing and general and administrative expenses 75,636   74,086   153,913   136,186
Capital gain from realization of a Matrix IT’s subsidiary 44,208     44,208  
Operating income 99,535   50,534   158,934   97,988
Financial expenses, net 3,716   5,940   8,399   11,043
Income before taxes on income 95,819   44,594   150,535   86,945
Taxes on income 21,421   10,844   32,923   20,193
Income after taxes 74,398   33,750   117,612   66,752
Share of profit of companies accounted for at equity, net 380   431   613   661
Net income 74,778   34,181   118,225   67,413
Net income attributable to non-controlling interests 41,835   20,846   69,048   41,659
Net income attributable to Formula Systems’ shareholders 32,943   13,335   49,177   25,754
               
Earnings per share (basic) 2.16   0.87   3.24   1.68
Earnings per share (diluted) 2.12   0.86   3.18   1.66
               
Number of shares used in computing earnings per share (basic) 15,295,517   15,289,267   15,293,955   15,289,267
Number of shares used in computing earnings per share (diluted) 15,487,852   15,362,906   15,496,092   15,350,431
               

FORMULA SYSTEMS (1985) LTD.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
U.S. dollars in thousands
    June 30,   December 31,
    2022   2021
    (Unaudited)    
 ASSETS      
CURRENT ASSETS:      
  Cash and cash equivalents 412,096   485,391
  Short-term deposits 38,322   25,924
  Marketable securities 1,049   1,142
  Trade receivables, net 656,504   696,321
  Other accounts receivable and prepaid expenses 70,653   72,118
  Inventories 36,744   21,221
Total current assets 1,215,368   1,302,117
         
LONG-TERM ASSETS:      
  Deferred taxes 40,360   46,364
  Other investments, long-term accounts receivable and prepaid expenses 30,072   23,676
  Investments in companies accounted for at equity method 26,628   28,900
  Property, plants and equipment, net 53,096   56,886
  Right-of-use assets 97,427   115,833
  Net intangible assets and goodwill 1,144,895   1,174,790
Total long-term assets 1,392,478   1,446,449
         
TOTAL ASSETS 2,607,846   2,748,566
         
CURRENT LIABILITIES:      
  Loans and credit from banks and others 223,387   175,696
  Debentures 36,402   48,455
  Current maturities of lease liabilities 37,798   41,655
  Trade payables 183,923   205,835
  Deferred revenues 135,373   140,660
  Employees and payroll accrual 188,039   207,553
  Other accounts payable 59,936   80,411
  Liabilities in respect of business combinations 12,138   7,773
  Put options of non-controlling interests 43,679   39,558
Total current liabilities 920,675   947,596
         
LONG-TERM LIABILITIES:      
  Loans from banks and others 129,435   157,229
  Debentures 171,106   205,035
  Lease liabilities 68,939   84,839
  Other long-term liabilities 11,293   12,183
  Deferred taxes 70,366   78,135
  Deferred revenues 13,196   17,757
  Liabilities in respect of business combinations 25,668   21,644
  Put options of non-controlling interests 25,676   31,720
  Employees benefit liabilities, net 10,070   12,641
Total long-term liabilities 525,749   621,183
         
EQUITY      
  Equity attributable to Formula Systems’ shareholders 540,672   540,960
  Non-controlling interests 620,750   638,827
Total equity 1,161,422   1,179,787
         
TOTAL LIABILITIES AND EQUITY 2,607,846   2,748,566
         

FORMULA SYSTEMS (1985) LTD.
STAND-ALONE STATEMENTS OF FINANCIAL POSITION
U.S. dollars in thousands
      June 30,   December 31,
      2022   2021
      (Unaudited)
ASSETS      
CURRENT ASSETS:      
    Cash and cash equivalents 14,653   14,163
    Dividend receivable 2,286  
    Other accounts receivable and prepaid expenses 5,182   4,513
Total current assets 22,121   18,676
           
LONG-TERM ASSETS:      
    Investment in subsidiaries and a jointly controlled entity (*)      
    Matrix IT Ltd. 164,379   154,391
    Sapiens International Corporation N.V. 219,464   231,130
    Magic Software Enterprises Ltd. 122,131   122,358
    Other 157,358   174,481
    Total investment in subsidiaries and a jointly controlled entity 663,332   682,360
           
    Long term receivables and other investments 2,263   2,547
    Property, plants and equipment, net 9   10
Total long-term assets 665,604   684,917
           
TOTAL ASSETS 687,725   703,593
           
CURRENT LIABILITIES:      
    Loans from banks and others 10,000  
    Debentures 15,273   28,654
    Trade payables 232   192
    Other accounts payable 7,570   5,339
    Put options of non-controlling interests 1,082  
    Liability in respect of a business combination 1,022  
Total current liabilities 35,179   34,185
           
LONG-TERM LIABILITIES:      
    Debentures 111,874   126,049
    Put options of non-controlling interests   1,249
    Liability in respect of a business combination   1,150
Total long-term liabilities 111,874   128,448
           
EQUITY 540,672   540,960
           
TOTAL LIABILITIES AND EQUITY 687,725   703,593
           
(*)   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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