• Formula Systems Reports Financial Results for the Third Quarter and First Nine Months Period Ended September 30, 2024

    ソース: Nasdaq GlobeNewswire / 21 11 2024 07:54:18   America/New_York

    OR YEHUDA, Israel, Nov. 21, 2024 (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 third quarter and first nine months period ended September 30, 2024.

    Financial Highlights for the Third Quarter Ended September 30, 2024

    • Revenues for the third quarter ended September 30, 2024 increased by 6.9% to a record breaking $699.9 million, compared to $654.8 million in the same period last year.

    • Operating income for the third quarter ended September 30, 2024 increased by 21.9% to $71.0 million compared to $58.2 million in the same period last year. Operating income for the third quarter of 2024 includes a capital gain in an amount of $6.5 million realized from the initial public offering of our affiliate, TSG IT Advanced Systems Ltd, on the TASE exchange. This gain reflects the appreciation in value of our investment in TSG IT Advanced Systems Ltd and is recorded under 'Other Income' in our consolidated financial statements. The initial public offering of TSG IT Advanced Systems Ltd was priced at NIS 183.25 per share (approximately $48.6 per share), implying a market valuation of approximately NIS 462 million (approximately $122.6 million) at the time of the IPO.

    • Net income attributable to Formula’s shareholders for the third quarter ended September 30, 2024 increased by 51.4% to $23.6 million, or $1.51 per fully diluted share, compared to $15.6 million, or $1.00 per fully diluted share, in the same period last year.

    Financial Highlights for the Nine-Month Period Ended September 30, 2024

    • Revenues for the nine-months ended September 30, 2024 increased by 4.3% to a nine-month record-breaking $2.07 billion, compared to $1.98 billion in the same period last year.

    • Operating income for the nine-months ended September 30, 2024 increased by 11% to $198.7 million, compared to $179.0 million in the same period last year.

    • Net income attributable to Formula’s shareholders for the nine-months ended September 30, 2024 increased by 23.4% to $59.6 million, or $3.81 per fully diluted share, compared to $48.3 million, or $3.10 per fully diluted share, in the same period last year.

    • As of September 30, 2024, Formula held 48.21%, 43.51%, 46.71%, 100%, 47.2%, 90.1%, 80%, 100% 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., ZAP Group Ltd., and Shamrad Electronic (1997) Ltd., respectively.

    • Consolidated cash and cash equivalents and short-term bank deposits totaled approximately $510.9 million as of September 30, 2024, compared to $528.2 million as of December 31, 2023.

    • Total equity as of September 30, 2024 was $1.36 billion (representing 47.8% of the total consolidated statements of financial position), compared to $1.31 billion (representing 46.5% of the total consolidated statements of financial position) as of December 31, 2023.

    Debentures Covenants

    As of September 30, 2024, 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 $325 million.

    • Actual equity attributable to Formula’s shareholders as of September 30, 2024 was $660.1 million.

    Covenant 2

    • Target ratio of net financial indebtedness to net capitalization (in each case, as defined under the indenture for Formula’s Series C and D Secured Debentures): below 65%.

    • Actual ratio of net financial indebtedness to net capitalization, as of September 30, 2024 was 0.18%.

    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 September 30, 2024 was 0.006.

    Comments of Management

    Commenting on the results, Guy Bernstein, CEO of Formula Systems, said: “I am proud of Formula’s strong performance in the third quarter and throughout the first nine-months of 2024. Our operating income of $71.0 million in the third quarter of 2024 was up 21.9% on a year over year basis and 9.2% on a on a sequential basis, growing our nine-months of 2024 operating income to $198.7 million. These results underscore our commitment to driving sustained growth and operational excellence across all facets of our business. We continue to uphold our core values of innovation, professionalism, agility, and transparency across our entire group. These principles enable us to consistently create significant value for our customers by helping them manage, streamline, and accelerate their operations, ultimately contributing to their growth.”

    “Matrix reported its best third quarter in history with record-breaking results recorded across all its key financial indices: revenues, gross profit, operating income, net income and EBITDA. Matrix revenues for the third quarter grew by 6.4% year over year reaching an all-time third quarter high of NIS 1.42 billion (approximately $381.9 million). Operating income grew by 16.0%, reaching NIS 108.2 million (approximately $29.1 million). We are pleased with Matrix’s continued recognition as a market leader in Israel in the implementation of fastest-growing technologies, such as cloud, cyber, digital, data, DevOps and AI, which enable the company to create significant value for its customers in managing, streamlining, accelerating and making its businesses thrive. Matrix operates across all fronts in the technology sector, offering a rich variety of technological solutions, particularly in high-demand areas such as cloud, cybersecurity, digital, data, and AI. Our activities with the defense sector and defense industries continue to be extensive and demonstrate consistent growth. Matrix's leading position, particularly in high-demand technologies and solutions, its broad range of technological services and solutions, its wide sectoral diversification, and its extensive U.S. operations all enable Matrix to maintain its vitality, value, and leadership in the industry for its clients, partners, and investors. These strengths allow Matrix to continue demonstrating growth even during challenging economic, political, and security periods. Matrix continues its strategy of mergers and acquisitions in core and complementary areas. As part of this strategy, Matrix intends to complete several additional M&A transactions this year to support accelerated growth rates and increase value propositions for its clients.”

    “Sapiens revenues for the third quarter reached $137 million, reflecting a 4.8% increase compared to the same period last year. Sapiens Non-GAAP operating profit totaled $25 million, representing 18.3% of its total revenues.. Revenue growth was driven by 7.1% growth in Sapiens’ European region, 1.7% growth in North America and 6.6% growth in ROW regions. This quarter's non-GAAP operating profit totaled $25 million (on a U.S GAAP basis), representing 18.3% of total revenue.”

    “Magic Software reported another strong quarter of growth and resilience, with a 10.4% year-over-year increase in revenues, reaching $143 million. This performance reflects the continued success of Magic Software’s strategic focus on delivering value to its customers through innovative digital and cloud transformation solutions. While navigating in a dynamic macroeconomic environment, Magic Software’s diversified portfolio and strong client relationships have enabled it to achieve consistent growth and improve operational efficiency. Looking ahead, we are confident in Magic Software’s ability to continue building on this momentum as it further invest in its business and enhance its capabilities to meet the evolving needs of its customers worldwide. Magic Software revised its annual revenue guidance for 2024 increasing the lower range of its revenue guidance from $540 million to $544 million reflecting its continued solid momentum for the remaining part of the year and positive outlook. Magic Software full year revenues guidance for 2024 is $544 million to $550 million.”

    “Michpal concluded the first nine-months of 2024 with consolidated revenues of NIS 115.5 million (approximately $31.1 million), growing 9.4% year over year on a constant currency basis. Michpal offers comprehensive proprietary on-premise and web-based payroll software solutions and related services, as well as integrated specialized management systems in the field of financial accounting, taxation and compliance, for accounting professionals (accountants and tax consultants), bookkeepers, controllers, and CFOs. Michpal continues its strategy of mergers and acquisitions in core and complementary areas. As part of this strategy, Michpal intends to complete additional M&A transactions this year to support accelerated growth rates and increase value propositions for its clients.”

    “TSG concluded the third quarter of 2024 with strong results, demonstrating significant growth in revenue and profits. Revenues for the third quarter of 2024 increased by 15.7% year over year to NIS 84.2 million (approximately $22.7 million). EBITDA for the third quarter of 2024 increased by 14.3% year-over-year on a constant currency basis to NIS 13.5 million (approximately $3.6 million), compared to NIS 11.8 million (approximately $3.2 million) in the same period last year. TSG continues to advance the expansion and enhancement of its operations while strengthening its marketing and sales capabilities both domestically and internationally. TSG has also expanded product development across its two main sectors and successfully secured six tenders with Israeli municipalities during the third quarter of 2024. Following the successful completion of its IPO on the Tel Aviv Stock Exchange, TSG is actively pursuing mergers and acquisitions initiatives to enhance its capabilities and further capitalize on its business potential.”

    “Over the past year, Zap Group, Israel's leading consumer websites company, has demonstrated agility in adapting to evolving market dynamics. The launch of its groundbreaking E-Commerce Marketplace platform marks a pivotal transformation in its business model. By integrating cutting-edge technology and service-driven solutions, Zap Group has enhanced its relationships with small and medium-sized businesses, driving higher sales volumes, while deepening connections with end consumers through a 360-degree, holistic experience. In its first year of operation, the Marketplace platform has delivered remarkable results, with tens of thousands of transactions generating tens of millions of NIS. Currently, over 400 stores feature more than 70,000 products, reflecting strong adoption and success. The platform enables businesses to engage directly with consumers, fostering personalized relationships, leveraging data-driven insights, and effectively managing customer journeys. This innovation positions Zap Group at the forefront of Israel’s digital economy. In response to broader economic challenges, including the geopolitical situation in Israel since October 2023, Zap Group has adopted a prudent approach to investments and operations. While prioritizing operational efficiency and cost optimization, Zap Group remains committed to growth. As it continues to expand its digital platforms, enhance customer engagement, and optimize data management, Zap Group is well-positioned to deliver seamless and value-driven e-commerce experiences.”

    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 in the current period 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 and their duration, including inflation, relatively high 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 degree of our success in developing and deploying new technologies for software solutions that address the updated needs of our customers and serve as the basis for our revenues; 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 particularly in the current hybrid office/work-from-home environment; risks related to industries, such as the insurance, healthcare, defense and the telecom, in which certain of our clients operate; risks posed by our global sales and operations, such as changes in regulatory requirements, supply chain disruptions, geopolitical instability stemming from Russia’s invasion of Ukraine, wide-spread viruses and epidemics or fluctuations in currency exchange rates; and risks related to our and our subsidiaries’ 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, 2023, filed with the U.S. Securities and Exchange Commission on May 15, 2024, 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 Nine months ended
     September 30, September 30,
     2024 2023 2024 2023
     Unaudited Unaudited
    Revenues 699,931 654,839 2,066,012 1,980,612
    Cost of revenues527,033 495,222 1,562,453 1,498,126
            
    Gross profit 172,898 159,617 503,559 482,486
    Research and development costs, net20,977 19,702 61,626 58,220
    Selling, marketing and general and administrative expenses88,098 81,669 250,486 245,242
    Other income, net7,207 - 7,207 -
    Operating income 71,030 58,246 198,654 179,024
            
    Financial expenses, net5,809 6,423 15,240 19,119
            
    Income before taxes on income 65,221 51,823 183,414 159,905
    Taxes on income13,862 12,486 40,970 35,356
            
    Income after taxes51,359 39,337 142,444 124,549
    Share of profits of companies accounted for at equity, net325 392 293 601
            
    Net income 51,684 39,729 142,737 125,150
    Net income attributable to non-controlling interests28,066 24,133 83,121 76,849
            
    Net income attributable to Formula Systems shareholders 23,618 15,596 59,616 48,301
            
    Earnings per share (basic)1.55 1.02 3.91 3.15
    Earnings per share (diluted)1.51 1.00 3.81 3.10
            
    Number of shares used in computing earnings per share (basic)15,305,453 15,301,767 15,304,360 15,301,017
    Number of shares used in computing earnings per share (diluted)15,650,374 15,543,518 15,616,220 15,496,380
            



    FORMULA SYSTEMS (1985) LTD.    
    CONSOLIDATED STATEMENTS OF FINANCIAL POSITION   
    U.S. dollars in thousands    
      September 30, December 31, 
      2024 2023 
      (Unaudited)   
    ASSETS    
    CURRENT ASSETS:    
     Cash and cash equivalents469,711 451,946 
     Short-term deposits41,142 76,224 
     Trade receivables, net757,194 721,008 
     Prepaid expenses and other accounts receivable86,408 84,670 
     Inventories27,037 42,008 
    Total current assets1,381,492 1,375,856 
          
    NON-CURRENT ASSETS:    
     Long-term investments and receivables66,054 52,002 
     Deferred taxes32,778 33,361(*)
     Investments in companies accounted for at equity23,846 20,796 
     Property, plants and equipment, net51,372 52,931 
     Right-of-use assets154,668 120,651 
     Intangible assets, net and goodwill1,140,260 1,143,509 
    Total non-current assets1,468,978 1,423,250 
          
    Total assets2,850,470 2,799,106 
          
    LIABILITIES AND EQUITY    
    CURRENT LIABILITIES:    
     Credit from banks and others155,562 145,973 
     Debentures64,560 72,885 
     Current maturities of lease liabilities44,610 44,064 
     Trade payables226,692 258,649 
     Deferred revenues141,187 137,643 
     Employees and payroll accrual213,427 209,384 
     Other accounts payable79,082 73,124 
     Liabilities in respect of business combinations5,672 7,954 
     Put options of non-controlling interests50,641 35,987 
    Total current liabilities981,433 985,663 
          
    LONG-TERM LIABILITIES:    
     Loans from banks and others66,039 90,887 
     Debentures227,117 231,541 
     Lease liabilities118,833 84,639 
     Other long-term liabilities13,024 12,678 
     Deferred taxes38,740 45,711(*)
     Deferred revenues15,180 4,873 
     Liabilities in respect of business combinations1,981 2,622 
     Put options of non-controlling interests16,016 21,880 
     Employees benefit liabilities, net10,615 10,427 
    Total long-term liabilities507,545 505,258 
          
    EQUITY     
     Equity attributable to Formula Systems shareholders660,089 625,762 
     Non-controlling interests701,403 682,423 
    Total equity1,361,492 1,308,185 
          
    Total liabilities and equity2,850,470 2,799,106 
          
     (*) Reclassified    
          


    FORMULA SYSTEMS (1985) LTD.    
    STAND-ALONE STATEMENTS OF FINANCIAL POSITION   
    U.S. dollars in thousands    
      September 30, December 31, 
      2024 2023 
      (Unaudited) 
    ASSETS    
    CURRENT ASSETS:    
     Cash and cash equivalents68,707 30,082 
     Dividend receivable7,296 - 
     Other accounts receivable and prepaid expenses3,133 5,639(*)
    Total current assets79,136 35,721 
          
    NON-CURRENT ASSETS:    
     Investment in subsidiaries and a jointly controlled entity (**)    
         Matrix IT Ltd.157,756 160,056 
         Sapiens International Corporation N.V.260,361 251,658 
         Magic Software Enterprises Ltd.134,822 128,549 
         TSG Advanced IT Systems Ltd.22,278 18,998 
         Michpal Micro Computers (1983) Ltd.49,232 47,936(*)
         Zap Group Ltd.55,586 60,844(*)
         Other27,323 24,884(*)
     Total investment in subsidiaries and a jointly controlled entity707,358 692,925 
          
     Other investments and long term receivables37,611 22,737 
     Property, plants and equipment, net9 11 
    Total non-current assets744,978 715,673 
          
    Total assets824,114 751,394 
          
    LIABILITIES AND EQUITY    
    CURRENT LIABILITIES:    
     Loans from banks and others2,255 - 
     Debentures22,746 32,126 
     Trade payables377 137 
     Other accounts payable6,187 2,697 
     Liability in respect of a business combination314 267 
    Total current liabilities31,879 35,227 
          
    LONG-TERM LIABILITIES:    
     Loans from banks and others3,556 - 
     Debentures128,590 90,405 
    Total long-term liabilities132,146 90,405 
          
    EQUITY 660,089 625,762 
          
    Total liabilities and equity824,114 751,394 
          
          
    (*)Reclassified    
    (**)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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