GlobeNewswire Inc | Mar 17, 2021 10:46AM EDT

March 17, 2021

OR YEHUDA, Israel, March 17, 2021 (GLOBE NEWSWIRE) -- 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 Formulas entire investment portfolio. Consolidated operating income for the fourth quarter ended December 31, 2019 amounted to $37.1 million. -- Consolidated net income attributable to Formulas 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 Formulas 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 Formulas entire investment portfolio. Consolidated operating income for the year ended December 31, 2019 amounted to $138.5 million. -- Consolidated net income attributable to Formulas 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 Formulas shareholders (excluding non-controlling interests): above $215 million. -- Actual equity attributable to Formulas 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 Formulas 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 companys 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 Israels 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, Magics revenues increased 14% year over year to $371 million and non-GAAP operating income increased 20% year over year to $53 million. The companys 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 TSGs 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 Formulas 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 Formulas 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 Formulas stand-alone financial position. Formulas management uses these measures to compare the Companys 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 Companys 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 Formulas 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 Companys 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 Formulas 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 theCOVID19pandemic virus and the impact it will have on the Companys operations, the demand for Companys products, global supply chains and economic activity in general. These and other risks and uncertainties are detailed in the Companys 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 418,264 344,224 1,486,485 1,315,066 revenuesGross profit 124,976 103,981 447,433 386,049 Research anddevelopment 14,220 12,439 52,604 46,690 costs, netSelling,marketing andgeneral and 64,989 54,468 224,188 200,870 administrativeexpensesOperating 45,767 37,074 170,641 138,489 incomeFinancial 10,723 6,147 26,885 18,652 expenses, netIncome before 35,044 30,927 143,756 119,837 taxes on incomeTaxes on income 6,754 6,726 31,268 27,201 Income after 28,290 24,201 112,488 92,636 taxesShare of profitof companies 1,200 272 1,535 1,787 accounted forat equity, netNet income 29,490 24,473 114,023 94,423 Net incomeattributable to 17,597 14,489 67,247 55,603 non-controllinginterestsNet incomeattributable toFormula 11,893 9,984 46,776 38,820 Systems?shareholders Earnings per 0.77 0.65 3.05 2.56 share (basic)Earnings per 0.76 0.64 3.01 2.44 share (diluted) Number ofshares used incomputing 15,288,017 15,282,600 15,286,142 15,189,758 earnings pershare (basic)Number ofshares used incomputing 15,293,138 15,291,360 15,292,450 15,340,867 earnings pershare (diluted)

FORMULA SYSTEMS (1985) LTD.CONSOLIDATED STATEMENTS OF FINANCIAL POSITIONU.S. dollars in thousands

December December 31, 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 22,703 22,205 expensesTotal long-term assets 62,593 61,070 INVESTMENTS IN COMPANIES ACCOUNTED FOR AT EQUITY 28,478 26,021 METHOD 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 32,065 35,673 liabilitiesTrade 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? 502,728 421,640 shareholdersNon-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 December 31, 31, 2020 2019 (Unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents 47,852 82,725 Other accounts receivable and prepaid 4,977 6,803 expensesTotal 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 577,984 488,982 jointly controlled entity 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 Formulas share in the investees accumulated undistributed earnings and other comprehensive income or loss.