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Formula Systems Reports First Quarter 2022 Financial Results: Record-Breaking Net Income of $16.2 Million

·12-min read

Double-digit growth in all financial indices. Revenues increased by 14.8% to $657.6 million. Net income increased by 30.7% year over year to a record-breaking $16.2 million

Or Yehuda, Israel, May 18, 2022 (GLOBE NEWSWIRE) -- Formula Systems (1985) Ltd. (Nasdaq: 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 first quarter ended March 31, 2022.

Financial Highlights for the First Quarter Ended March 31, 2022

Consolidated revenues for the first quarter ended March 31, 2022 increased by 14.8% to $657.6 million, compared to $572.6 million in the first quarter of the previous year.

Consolidated operating income for the first quarter ended March 31, 2022, increased by 25.2% to $59.4 million, compared to $47.5 million in the first quarter of the previous year.

Consolidated net income attributable to Formula’s shareholders for the first quarter ended March 31, 2022 increased by 30.7% to a record-breaking $16.2 million, or $1.05 per fully diluted share, compared to $12.4 million, or $0.80 per fully diluted share, in the first quarter of the previous year.

As of March 31, 2022, Formula held 48.7%, 43.9%, 45.6%, 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 $570.0 million as of March 31, 2022, compared to $512.5 million as of December 31, 2021.

Total equity as of March 31, 2022, was $1.18 billion (representing 41.6% of the total consolidated balance sheet), compared to $1.18 billion (representing 42.9% of the total consolidated balance sheet) as of December 31, 2021.

Debentures Covenants

As of March 31, 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 March 31, 2022, was equal to $537.5 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, 2022, was equal to 6.0%.

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), as of March 31, 2022, was equal to 0.21.

Comments of Management

Commenting on the results, Guy Bernstein, CEO of Formula Systems, said: “We are proud of our outstanding performance in the first quarter of 2022, reporting first quarter all-time high financial results across all our financial indices. Formula Systems started the year on a strong note, delivering double-digit growth in revenue, reaching $657.6 million, with record-breaking net income of $16.2 million that reflected 30.7% year over year growth. These outstanding results stand as a testament to our strong fundamentals and our pivotal role in influencing our customers’ growth strategies in all of the areas in which we operate. We continue our efforts across our entire group of companies to adhere to our core values of innovation, professionalism, agility and transparency, which allow us to continue create significant value for our customers in managing, streamlining, accelerating and making their businesses thrive. We are witnessing a strong demand and developing a growing pipeline for our software solutions and services in digital, cloud, cyber, data and core operating systems, across our entire business operations, remaining committed to deliver continued growth and to return value to our shareholders.”

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 and supply chain delays, triggered in large 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, to conform these 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,

2022

2021

Unaudited

Revenues

657,568

572,643

Cost of revenues

502,542

447,085

Gross profit

155,026

125,558

Research and development costs, net

17,350

16,004

Selling, marketing and general and administrative expenses

78,277

62,100

Operating income

59,399

47,454

Financial expenses, net

4,683

5,103

Income before taxes on income

54,716

42,351

Taxes on income

11,502

9,349

Income after taxes

43,214

33,002

Share of profit (loss) of companies accounted for at equity, net

233

230

Net income

43,447

33,232

Net income attributable to non-controlling interests

27,213

20,813

Net income attributable to Formula Systems’ shareholders

16,234

12,419

Earnings per share (basic)

1.06

0.81

Earnings per share (diluted)

1.05

0.80

Number of shares used in computing earnings per share (basic)

15,292,392

15,289,267

Number of shares used in computing earnings per share (diluted)

15,320,861

15,337,859

FORMULA SYSTEMS (1985) LTD.

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
U.S. dollars in thousands

March 31,

December 31,

2022

2021

(Unaudited)

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

532,824

485,391

Short-term deposits

35,949

25,924

Marketable securities

1,265

1,142

Trade receivables

675,980

696,321

Other accounts receivable and prepaid expenses

78,596

72,118

Inventories

33,497

21,221

Total current assets

1,358,111

1,302,117

LONG-TERM ASSETS:

Deferred taxes

46,430

46,364

Other long-term accounts receivable and prepaid expenses

28,152

23,676

Total long-term assets

74,582

70,040

INVESTMENTS IN COMPANIES ACCOUNTED FOR AT EQUITY METHOD

29,056

28,900

PROPERTY, PLANTS AND EQUIPMENT, NET

56,029

56,886

RIGHT-OF-USE ASSETS

108,546

115,833

NET INTANGIBLE ASSETS AND GOODWILL

1,201,988

1,174,790

TOTAL ASSETS

2,828,312

2,748,566

CURRENT LIABILITIES:

Loans and credit from banks and others

256,464

175,696

Debentures

48,954

48,455

Current maturities of lease liabilities

40,667

41,655

Trade payables

193,213

205,835

Deferred revenues

158,221

140,660

Employees and payroll accrual

203,563

207,553

Other accounts payable

86,368

80,411

Dividend payable

12,328

-

Liabilities in respect of business combinations

15,028

7,773

Put options of non-controlling interests

40,020

39,558

Total current liabilities

1,054,826

947,596

LONG-TERM LIABILITIES:

Loans from banks and others

157,320

157,229

Debentures

182,566

205,035

Lease liabilities

77,935

84,839

Other long-term liabilities

12,301

12,183

Deferred taxes

77,653

78,135

Deferred revenues

16,675

17,757

Liabilities in respect of business combinations

26,938

21,644

Put options of non-controlling interests

33,268

31,720

Employees benefit liabilities

11,407

12,641

Total long-term liabilities

596,063

621,183

EQUITY

Equity attributable to Formula Systems’ shareholders

537,526

540,960

Non-controlling interests

639,897

638,827

Total equity

1,177,423

1,179,787

TOTAL LIABILITIES AND EQUITY

2,828,312

2,748,566

FORMULA SYSTEMS (1985) LTD.

STAND-ALONE STATEMENTS OF FINANCIAL POSITION
U.S. dollars in thousands

March 31,

December 31,

2022

2021

(Unaudited)

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

11,303

14,163

Dividend receivable

11,100

-

Other accounts receivable and prepaid expenses

7,934

4,513

Total current assets

30,337

18,676

INVESTMENTS IN SUBSIDIARIES AND A JOINTLY CONTROLLED ENTITY (*)

Matrix IT Ltd.

155,400

154,391

Sapiens International Corporation N.V.

236,417

231,130

Magic Software Enterprises Ltd.

72,948

76,864

Other

221,964

219,975

Total Investments in subsidiaries and a jointly controlled entity

686,729

682,360

OTHER LONG TERM RECEIVABLES

2,494

2,547

PROPERTY, PLANTS AND EQUIPMENT, NET

9

10

TOTAL ASSETS

719,569

703,593

CURRENT LIABILITIES:

Loans from banks and others

6,297

-

Debentures

28,498

28,654

Trade payables

227

192

Other accounts payable

8,982

5,339

Dividends payable

12,328

-

Put options of non-controlling interests

1,228

-

Total current liabilities

57,560

34,185

LONG-TERM LIABILITIES:

Debentures

123,357

126,049

Put options of non-controlling interests

-

1,249

Liability in respect of a business combination

1,126

1,150

Total long-term liabilities

124,483

128,448

EQUITY

537,526

540,960

TOTAL LIABILITIES AND EQUITY

719,569

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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