GlobeNewswire Inc | May 20, 2021 07:57AM EDT

May 20, 2021

OR YEHUDA, Israel, May 20, 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 first quarter ended March 31,2021.

Financial Highlights for the First Quarter Ended March 31, 2021

-- Consolidated revenues for the first quarter ended March 31, 2021 increased by 22.8% to a record breaking $572.6million compared to $466.3 million in the same period last year. -- Consolidated operating income for the first quarter ended March 31, 2021 increased by 22.3% to a record breaking $47.5million, with growth recorded across Formulas entire investment portfolio, compared to $38.8 million in the same period last year. -- Consolidated net income attributable to Formulas shareholders for the first quarter ended March 31, 2021 increased by 12.7% to $12.4million, or $0.80 per fully diluted share, compared to $11.0million, or $0.71 per fully diluted share, in the same period last year. -- As of March 31, 2021, Formula held 48.9%, 43.9%, 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 $459.6million as of March 31, 2021, compared to $533.2 million as of December 31, 2020. -- Total equity as of March 31, 2021 was $ 1,103.7million (representing 45.2% of the total consolidated balance sheet), compared to $1,108.5 million (representing 44.0% of the total consolidated balance sheet) as of December 31, 2020.

Debentures Covenants

As of March 31, 2021, 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 $499.9 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 3.4%.

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 0.14.

Comments of Management

Commenting on the results, Guy Bernstein, CEO of Formula Systems, said: We are very pleased to kick off 2021 on a strong note across our entire investment portfolio reaching all-time highs across all of our key indices (revenues, gross profit, operating income, EBITDA and net income). Our strong results evidence our continued focus on the execution of our growth strategy. We plan to continue our efforts across our entire portfolio to adhere to our core values of innovation, professionalism, agility and transparency which allow us to continue our growth and protect our leading position.

Matrix reported its best first quarter in history with record-breaking results recorded across all its financial indices. Matrix reported a record-breaking backlog of approximately NIS 4.5 billion, reflecting an increase of 12.5% compared to the same period last year. Despite a slow-down recorded across Matrixs U.S. Governance, Risk and Compliance segment, we preferred to retain our quality personnel to be well positioned when the U.S financial sector recovers from the COVID-19 period in the short term. We are pleased with Matrixs continued recognition as a market leader in the implementation of fastest-growing technologies, such as cloud, cyber, digital, data, AI and MA which enables the company to create significant value for its customers in managing, streamlining, accelerating and making their businesses thrive. As Israels leading technology partner Matrix is well positioned to meet the increasing demand for digital services, cloud services, infrastructure, computing, and data analytics.

Sapiens opened 2021 on a strong note, with record first quarter Non-GAAP revenues of $110 million, 22% higher than in the same period last year and strong Non-GAAP operating margin of 17.2%, improving by 110 basis points, compared to the same period last year. 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. Sapiens updated its operating profit margin guidance, due to its plan initiated this quarter to manage its growth and investment in delivery capabilities in the North American P&C CoreSuite business and following the recent spike in COVID-19 in India, which will increase Sapiens labor costs in the short term. As a result of these two factors, operating margin in 2021 is expected to be in the range of 17.0% to 17.4% compared to the previous expected range of 17.7% to 18.0%. In addition, Sapiens increased its 2021 revenue guidance to a range of $459 to $464 million from its prior range of $457 to $463 million.

Magic Softwares solid execution in the first quarter delivered 26% revenue growth, with non-GAAP operating margin increasing to 14.0% from 12.9% in the same period last year. Magics revenue growth in the first quarter validates its strategy of building a broad business portfolio, which provides the foundation for its continued solid performance and growth. With a strategic focus, increasing global market demand for digital transformations and the steps Magic has taken over the past year to streamline its business activity, Magic Software is well positioned for continued strong financial performance. Magic increased its 2021 revenue guidance to a range of $425 to $435 million from its prior range of $420 to $430 million.

Michpal Group continues to realize synergies and monetize on its business model with its revenues, growing by 29% year over year to ILS 25 million, with 57% accounted to organic growth. Michpal Group is well positioned to continue helping its customers to adjust to the ever-changing governmental labor guidelines.

TSG (held equally by Formula and Israel Aerospace Industries) also started the year on a high note, with solid revenues and a 60% increase in operating income. We are proud that during the current operation in Gaza, the IDF is widely using the advanced systems provided by TSG and local authorities in the conflict zone which are using TSG's Command and Control system to successfully manage complex situations arising in their regions.

Lastly, we are very pleased to welcome 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, website promotion and targeted mailing. The solutions offered by Zap Group enable small and medium-size businesses to manage their commercial relationship with their consumers in a more efficient and accurate manner by using its digital marketing tools and customer targeting solutions based on big data, media and digital platforms, thereby generating significant value. The acquisition of ZAP Group, which was concluded in April 2021 serves as another milestone in Formula's strategy to offer digital based solutions to small and medium-size businesses. We will endeavor to create synergies between the business activities of Zap Group and other activities within the Formula Group, initially in the Israeli market and thereafter worldwide. The consideration for the acquisition of 100% of the outstanding share capital of ZAP Group was approximately NIS 240 million in cash (subject to certain adjustments) with a contingent amount of up to NIS 60 million in cash (up to a total purchase price of approximately NIS 300 million), subject to Zap Group meeting certain EBITDA targets during the first two years following the acquisition.

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

Forward Looking StatementsCertain 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: the COVID-19 (coronavirus) pandemic, which may last longer than expected 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, wide-spread viruses and epidemics like the recent novel coronavirus outbreak, 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 Risk Factors in our most recent Annual Report on Form 20-F, 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, 2021 2020 Unaudited Revenues 572,643 466,270 Cost of revenues 447,085 363,131 Gross profit 125,558 103,139 Research and development costs, net 16,004 12,963 Selling, marketing and general and 62,100 51,373 administrative expensesOperating income 47,454 38,803 Financial expenses, net 5,103 4,644 Income before taxes on income 42,351 34,159 Taxes on income 9,349 7,723 Income after taxes 33,002 26,436 Share of profit of companies accounted for at 230 129 equity, net Net income 33,232 26,565 Net income attributable to non-controlling 20,813 15,544 interests Net income attributable to Formula Systems' 12,419 11,021 shareholders Earnings per share (basic) 0.81 0.72 Earnings per share (diluted) 0.80 0.71 Number of shares used in computing earnings 15,289,267 15,284,684 per share (basic)Number of shares used in computing earnings 15,337,859 15,291,806 per share (diluted)

FORMULA SYSTEMS (1985) LTD.CONSOLIDATED STATEMENTS OF FINANCIAL POSITIONU.S. dollars in thousands March 31, December 31, 2021 2020 (Unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents 428,154 501,650 Short-term deposits 30,289 30,289 Marketable securities 1,185 1,238 Trade receivables 555,558 519,885 Other accounts receivable and prepaid 84,013 83,820 expensesInventories 19,851 23,988 Total current assets 1,119,050 1,160,870 LONG-TERM ASSETS: Deferred taxes 39,405 39,750 Other long-term accounts receivable and 27,036 22,872 prepaid expensesTotallong-term assets 66,441 62,622 INVESTMENTS IN COMPANIES ACCOUNTED FOR AT EQUITY METHOD 28,508 28,311 PROPERTY, PLANTS AND EQUIPMENT, NET 56,855 59,176 RIGHT-OF-USE ASSETS 106,813 114,414 NET INTANGIBLE ASSETS AND GOODWILL 1,063,845 1,094,687 TOTALASSETS 2,441,512 2,520,080 CURRENT LIABILITIES: Loans and credit from banks and others 120,160 120,444 Debentures 41,663 41,454 Current maturities of lease liabilities 32,496 32,065 Trade payables 138,730 153,322 Deferred revenues 146,165 128,898 Other accounts payable 241,838 259,223 Liabilities in respect of business 6,840 8,654 combinationsPut options of non-controlling interests 31,564 35,843 Total current liabilities 759,456 779,903 LONG-TERM LIABILITIES: Loans and credit from banks and others 157,359 180,316 Debentures 179,568 203,070 Lease liabilities 84,508 91,188 Other long-term liabilities 12,723 12,191 Deferred taxes 64,427 68,367 Deferred revenues 20,434 16,626 Liabilities in respect of business 15,433 16,582 combinationsPut options of non-controlling interests 29,694 28,175 Employees benefit liabilities 14,187 15,119 Total long-term liabilities 578,333 631,634 EQUITY Equity attributable to Formula Systems' 499,917 503,201 shareholdersNon-controlling interests 603,806 605,342 Total equity 1,103,723 1,108,543 TOTAL LIABILITIES AND EQUITY 2,441,512 2,520,080

FORMULA SYSTEMS (1985) LTD.STAND-ALONE STATEMENTS OF FINANCIAL POSITIONU.S. dollars in thousands March December 31, 31, 2021 2020 (Unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents 43,058 47,852 Other accounts receivable and prepaid expenses 11,273 4,977 Total current assets 54,331 52,829 INVESTMENTS IN SUBSIDIARIES AND A JOINTLY CONTROLLED ENTITY (*) Matrix IT Ltd. 140,615 142,194 Sapiens International Corporation N.V. 227,116 227,771 Magic Software Enterprises Ltd. 115,384 118,105 Other 86,477 90,359 Total Investments in subsidiaries and a jointly 569,592 578,429 controlled entity OTHER LONG TERM RECEIVABLES 1,646 1,707 PROPERTY, PLANTS AND EQUIPMENT, NET 10 2 TOTALASSETS 625,579 632,967 CURRENT LIABILITIES: Debentures 21,043 21,652 Trade payables 38 349 Other accounts payable 2,910 2,329 Total current liabilities 23,991 24,330 LONG-TERM LIABILITIES: Debentures 100,662 104,394 Put options of non-controlling interests 1,009 1,042 Total long-term liabilities 101,671 105,436 EQUITY 499,917 503,201 TOTAL LIABILITIES AND EQUITY 625,579 632,967

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.