• Formula Systems Reports First Quarter 2023 Financial Results: Revenues for the First Quarter Increased by 3% Year Over Year to a Record-Breaking $670.4 Million

    ソース: Nasdaq GlobeNewswire / 23 5 2023 07:22:05   America/New_York

    OR YEHUDA, Israel, May 23, 2023 (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 first quarter ended March 31, 2023.

    Financial Highlights for the First Quarter Ended March 31, 2023

    • Consolidated revenues for the first quarter ended March 31, 2023 increased by approximately 3.0% to $670.4 million, compared to $650.7 million in the same period last year. On a constant currency basis (calculated based on average currency exchange rates for the three months ended March 31, 2022), consolidated revenues for the first quarter of 2023 would have increased by approximately 11.3% to a record breaking $724.1 million.
    • Consolidated operating income for the first quarter ended March 31, 2023 increased by approximately 2.3% to $60.8 million, compared to $59.4 million in the same period last year. On a constant currency basis (calculated based on average currency exchange rates for the three months ended March 31, 2022), consolidated operating income for the first quarter of 2023 would have increased by approximately 9.0% to a record-breaking result of $64.7 million.
    • Consolidated net income attributable to Formula’s shareholders for the first quarter ended March 31, 2023 decreased by approximately 3.4% to $15.7 million, or $1.01 per fully diluted share, compared to $16.2 million, or $1.04 per fully diluted share, in the same period last year. The decrease in Net income was mainly attributable to the increase in interest expenses resulting from the increase in variable interest rates. Financial expenses net, increased by approximately 51.3% to $7.1 million, compared to $4.7 million in the same period last year.
    • As of March 31, 2023, Formula held 48.2%, 44.1%, 46.3%, 100%, 50%, 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, short-term bank deposits and short-term investments totaled approximately $516.9 million as of March 31, 2023, compared to $569.1 million as of December 31, 2022.
    • Total equity as of March 31, 2023, was $1.19 billion (representing 42.9% of the total consolidated statements of financial position), compared to $1.18 billion (representing 42.1% of the total consolidated statements of financial position) as of December 31, 2022.

    Declaration of Dividend for the Second Half of 2022

    • Based on the Company’s results, the Company’s board of directors approved the distribution of a cash dividend in an amount of NIS 2.30 per share (approximately $0.63 per share) and in an aggregate amount of approximately NIS 35.3 million (approximately $9.7 million).
    • The dividend is payable on June 22, 2023, to all of the Company’s shareholders of record at the close of trading on the Nasdaq Global Select Market (or the Tel-Aviv Stock Exchange, as appropriate) on June 5, 2023. The dividend will be paid in New Israeli Shekels with respect to the Company’s ordinary shares traded on the Tel Aviv Stock Exchange and American Depositary Receipts traded on the Nasdaq Global Select Market.

     

    In accordance with Israeli tax law, the dividend is subject to withholding tax at source at the rate of 30% (if the recipient of the dividend is at the time of distribution or was at any time during the preceding 12-month period the holder of 10% or more of the Company’s share capital) or 25% (for all other dividend recipients) of the dividend amount payable to each shareholder of record, subject to applicable exemptions.

    Debentures Covenants

    As of March 31, 2023, 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, 2023 was $564.4 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, 2023 was 8.0%.

    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 March 31, 2023, was 0.29.

    Comments of Management

    Commenting on the results, Guy Bernstein, CEO of Formula Systems, said: “I am very proud of our first quarter achievements. During the quarter, we continued to make big strides across multiple fronts, which is reflected by our record-breaking results (revenues and operating income). Our broad investment portfolio allows us to carefully mitigate the current risks in the IT market, which are mainly a product of the challenging macro-economic environment. We continue our efforts across our entire group to create significant value for our customers in managing, streamlining, accelerating, and contributing to their growth.”

    “Matrix concluded the first quarter with double digit growth and record-breaking results recorded across all its key financial indices: revenues, gross profit, operating income, EBITDA and net income attributable to shareholders. Matrix revenues grew organically by 11.8% year over year reaching an all-time quarterly high of NIS 1.29 billion (approximately $365.1 million). Operating income grew organically by 12.2%, crossing for the first time ever the NIS 100 million mark (approximately $24.6 million), amounting to NIS 101.5 million (approximately $24.6 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 their businesses thrive. There is a strong demand in Israel for software services in digital, cloud, cyber, data, and core operating systems—areas in which Matrix is a market leader, and which are at the center of the IT market demand. North America, which accounts for 8% of Matrix’s first quarter revenues and 14% of its operating income, also showed significant growth, with an increase of approximately 31.2% in operating income, along with a substantial improvement in operating margin. We believe that Matrix has significant growth potential in the North American market especially in the field AI-based solutions for anti-money laundering and prevention of financial crimes, as well as across all of its other areas of expertise in the North American market.”

    “Sapiens’ revenues for the first quarter reached $124.7 million, and on a constant currency basis, grew by approximately 10%. Non-GAAP operating income for the first quarter reached $22.5 million, representing an operating margin of 18.0%. Sapiens’ customer-centric model, implemented globally, has consistently driven growth and profitability while generating cash flow. Sapiens ended 2022 with significant enhancements in its products, delivery, and talent that helped it build a momentum that has carried over into 2023. Since the beginning of the year Sapiens has already signed new deals for P&C, Life, and Reinsurance and is optimistic as to the quality of its new business pipeline. Sapiens has increased its full-year 2023 non-GAAP revenues guidance to $507 million to $512 million compared to its previous guidance of $502 million to $507 million, and also increased its guidance for the full year 2023 non-GAAP operating margin to 17.8%-18.2%, compared to previous guidance of 17.6% to 18.0%. These revised targets demonstrate Sapiens’ commitment to delivering outstanding results and driving sustained growth.”

    “Magic Software delivered a solid first quarter, with revenues increasing year-over-year by 3% to $142.4 million, and growing on a constant currency basis by approximately 8%. Magic Software continues to lead complex and strategic projects that are critical for its clients, across multiple sectors, while remaining cautious on the macro-economic environment. As we move forward, Magic Software remains committed to executing its strategy to build a broad portfolio of software products and services that create value for its customers in managing, streamlining, accelerating and maximizing their businesses.”

    “Michpal continues to monetize on its business model with its revenues for the first quarter growing organically by 11.5% year over year on a constant currency basis compared to the same period last year, to NIS 33.5 million (approximately $9.5 million). Michpal ended 2022 with significant enhancements to its product offering and is well-positioned to continue its positive momentum from the first quarter throughout the remainder of the year.”

    “TSG continues materializing its strategy of expanding its presence in the Israeli municipal institutions sector after acquiring 60% of the outstanding share capital of E.P.R. Systems Ltd in 2022. E.P.R offers comprehensive software solutions for municipal institutions primarily to manage all their billing and collection operations for all types of revenues, including taxes, fees and levies and several innovative extension modules. Additionally, E.P.R offers a full scope of expert implementation, application management and hosting services, enabling municipal institutions to execute their digital and business strategies. During the first quarter of 2023 TSG concluded the acquisition of 100% of the equity of BAR Technologies Ltd., a leading provider of property management software solutions and services in the Israeli municipal institutions sector. Headquartered in Israel, BAR Technologies has over 25 years of experience and serves more than 170 clients, including dozens of local authorities and local committees for planning and construction. The company offers comprehensive software solutions for municipal institutions primarily to manage, monitor and control all their land, real estate and construction projects.”

    “Lastly, Zap Group, a leading group of consumer sites in Israel and a well-reputable brand in the Israeli market, offering a wide range of solutions in the field of advertising, continues to invest both organically and inorganically in its service lines and is currently in the final stages before going live with its new marketplace platform. We believe this new platform will enable small and medium businesses in Israel to sell their products through an advanced platform that combines objective price comparison between sellers with a reliable and comfortable online buying experience.”

    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, 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 for the year ended December 31, 2022, filed with the U.S. Securities and Exchange Commission on May 15, 2023, 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 
     March 31, 
     2023 2022 
     Unaudited 
    Revenues 670,399 650,716(*)
    Cost of revenues508,468 494,874(*)
         
    Gross profit 161,931 155,842(*)
    Research and development costs, net19,308 17,350 
    Selling, marketing and general and administrative expenses81,829 79,093(*)
    Operating income 60,794 59,399 
         
    Financial expenses, net7,084 4,683 
         
    Income before taxes on income 53,710 54,716 
    Taxes on income11,490 11,502 
         
    Income after taxes42,220 43,214 
    Share of profit of companies accounted for at equity, net35 233 
         
    Net income 42,255 43,447 
    Net income attributable to non-controlling interests26,571 27,213 
         
    Net income attributable to Formula Systems shareholders 15,684 16,234 
         
    Earnings per share (basic)1.02 1.06 
    Earnings per share (diluted)1.01 1.04 
         
    Number of shares used in computing earnings per share (basic)15,300,267 15,292,392 
    Number of shares used in computing earnings per share (diluted)15,464,464 15,502,775 
         
    (*) Immaterial adjustments to comparative data.    
         



    FORMULA SYSTEMS (1985) LTD.    
    CONSOLIDATED STATEMENTS OF FINANCIAL POSITION   
    U.S. dollars in thousands    
      March 31, December 31, 
      2023 2022 
      (Unaudited)   
     ASSETS    
    CURRENT ASSETS:    
     Cash and cash equivalents447,893 544,342 
     Short-term deposits68,972 23,976 
     Short-term investments- 738 
     Trade receivables, net717,782 702,727 
     Prepaid expenses and other accounts receivable80,910 64,535 
     Inventories38,627 35,181 
    Total current assets1,354,184 1,371,499 
          
    NON-CURRENT ASSETS:    
     Long-term investments and receivables40,896 38,985 
     Deferred taxes42,928 42,027 
     Investments in companies accounted for at equity20,194 20,746 
     Property, plants and equipment, net54,323 54,971 
     Right-of-use assets120,025 116,840 
     Intangible assets, net and goodwill1,138,517 1,148,887 
    Total non-current assets1,416,883 1,422,456 
          
    Total assets2,771,067 2,793,955 
          
    LIABILITIES AND EQUITY    
    CURRENT LIABILITIES:    
     Credit from banks and others163,324 157,882 
     Debentures76,692 68,293 
     Current maturities of lease liabilities48,217 45,497 
     Trade payables194,199 222,482 
     Deferred revenues156,502 131,639 
     Employees and payroll accrual194,028 201,225 
     Other accounts payable89,373 86,340 
     Liabilities in respect of business combinations19,561 27,129 
     Put options of non-controlling interests60,300 60,500 
    Total current liabilities1,002,196 1,000,987 
          
    LONG-TERM LIABILITIES:    
     Loans from banks and others111,133 115,874 
     Debentures269,215 305,632 
     Lease liabilities79,416 78,966 
     Other long-term liabilities13,839 14,101 
     Deferred taxes62,078 59,465 
     Deferred revenues7,417 8,859 
     Liabilities in respect of business combinations7,836 12,345 
     Put options of non-controlling interests18,485 11,688 
     Employees benefit liabilities, net9,280 9,116 
    Total long-term liabilities578,699 616,046 
          
    EQUITY     
     Equity attributable to Formula Systems shareholders564,413 551,875 
     Non-controlling interests625,759 625,047 
    Total equity1,190,172 1,176,922 
          
    Total liabilities and equity2,771,067 2,793,955 
          



    FORMULA SYSTEMS (1985) LTD.   
    STAND-ALONE STATEMENTS OF FINANCIAL POSITION  
    U.S. dollars in thousands   
      March 31, December 31,
      2023 2022
      (Unaudited)
     ASSETS   
    CURRENT ASSETS:   
     Cash and cash equivalents33,840 39,363
     Dividend receivable17,890 -
     Other accounts receivable and prepaid expenses6,780 7,326
    Total current assets58,510 46,689
         
    LONG-TERM ASSETS:   
     Investment in subsidiaries and a jointly controlled entity (*)   
     Matrix IT Ltd.149,577 149,701
     Sapiens International Corporation N.V.228,939 228,860
     Magic Software Enterprises Ltd.121,444 125,058
     Other151,650 154,408
     Total investment in subsidiaries and a jointly controlled entity651,610 658,027
         
     Long term receivables and other investments13,625 12,870
     Property, plants and equipment, net8 8
    Total long-term assets665,243 670,905
         
    TOTAL ASSETS723,753 717,594
         
    CURRENT LIABILITIES:   
     Debentures33,024 32,999
     Trade payables15 125
     Other accounts payable2,581 5,596
     Put options of non-controlling interests819 848
     Liability in respect of a business combination415 426
    Total current liabilities36,854 39,994
         
    LONG-TERM LIABILITIES:   
     Debentures122,252 125,484
     Liability in respect of a business combination234 241
    Total long-term liabilities122,486 125,725
         
    EQUITY 564,413 551,875
         
    TOTAL LIABILITIES AND EQUITY723,753 717,594
         
    (*)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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