FORTY Formula Systems 1985 Ltd

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