FORTY Formula Systems 1985 Ltd

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.+972-3-5389487ir@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 LOSSU.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 POSITIONU.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 POSITIONU.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.