GlobeNewswire Inc | Nov 18, 2020 06:44AM EST

November 18, 2020

Operating income for the third quarter increased by 23% year-over-year to a record breaking $45.4 million. Net income attributable to Formulas Shareholders for the third quarter increased by 29% year-over-year to a record breaking $12.6 million.

Or Yehuda, Israel, Nov. 18, 2020 (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 third quarter and nine months-period ended September30,2020.

Financial Highlights for the Third Quarter Ended September 30, 2020

-- Consolidated revenues for the third quarter increased by 8.5% to $487.3million. Revenues for the third quarter ended September 30, 2019 amounted to $449.0million.

-- Consolidated operating income for the third quarter increased by 22.5% to a record breaking $45.4million, with growth recorded across Formulas entire investment portfolio. Consolidated operating income for the third quarter ended September 30, 2019 amounted to $37.0million.

-- Consolidated net income attributable to Formulas shareholders for the third quarter increased by 29.4% to a record breaking $12.6million, or $0.82 per fully diluted share, compared to $9.8million, or $0.63 per fully diluted share, for the third quarter ended September 30, 2019.

Financial Highlights for the Nine-Months Period Ended September 30, 2020

-- Consolidated revenues for the nine-month period ended September 30, 2020 increased by 11.0% to $1,390.7million, with growth recorded across Formulas entire investment portfolio. Revenues for the nine-month period ended September 30, 2019 amounted to $1,252.9million.

-- Consolidated operating income for the nine-month period ended September 30, 2020 increased by 23.1% to $124.9 million, with growth recorded across Formulas entire investment portfolio. Consolidated operating income for the nine-month period ended September 30, 2019 amounted to $101.4million.

-- Consolidated net income attributable to Formulas shareholders for the nine-month period ended September 30, 2020 was $34.9million, or $2.25 per fully diluted share, compared to $28.8million, or $1.80 per fully diluted share, in the same period last year, reflecting an increase of 21.0% year over year.

-- As of September 30, 2020 Formula held 49.0%, 47.4%, 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 totalled approximately $435.8million as of September 30, 2020, compared to $405.2 million as of December 31, 2019.

-- Total equity as of September 30, 2020 was $938.4million (representing 42.3% 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 September 30, 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 $444.6 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 11.0%.

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) is equal to 0.46.

Comments of Management

Commenting on the results, Guy Bernstein, CEO of Formula Systems, said, We are very pleased to witness the delivery of strong execution during the third quarter across our entire portfolio companies, on all financial fronts and across key business sectors, geographies and product lines. Such achievements are particularly exceptional in light of the impacts of the COVID-19 pandemic and the lockdown and restrictions imposed in Israel and across the globe. Fueled by outstanding strategic performance and extent software and solutions for digital transformation, Formula Group continues to successfully face the ongoing global crisis, recording for the nine month period double digit growth across all its key financial indices: revenues; operating income and net income.

Matrix successfully managed to improve and show record results across all its key indices (revenues, net and operating income, gross profit, EBITDA and cash flow), overcoming a challenging period in Israel and across the globe. Matrixs position as Israels largest technology, application and infrastructure services company, its extent solutions offering in the fields of digital transformation, supply chain and logistics, cloud and hardware infrastructure, AI and cyber, and its footprint in the healthcare, security, transportation and finance sectors, well position Matrix through the continuous global crisis, and set the ground for the day after the crisis ends.

In Spite of the COVID-19 global pandemic, Sapiens delivered strong execution across all of its key geographies and product lines and managed to increase third quarter revenues by 18.2% year over year to an all-time high of $97.6 million. Non-GAAP operating margin increased to a record braking of 18.2%, an increase of 180 basis points year over year. We are extremely proud in Sapiens receiving global acknowledgement by winning three different awards/recognitions for excellence by the analysts and research community, Gartner Magic Quadrant for policy administration and insurance platform for both its Life and P&C solutions and the Excellent award by Celent in the Life New Business and Underwriting report. Despite the COVID-19 pandemic, Sapiens outlook continues to improve as a result of signing new deals, increasing revenues from existing customers, and completing the acquisition of Delphi, positioning the company as a leader of the MPL market in North America.

Magic delivered a double-digit record-breaking growth in both revenues (11%) and operating income (30%) as a result of an increased demand, from existing and new customers. Magics outlook for 2020 improved in spite of the COVID-19 pandemic, resulting in Magic raising its guidance from between $350 million and $360 million to between $358 million and $365 million. We are committed to continue with Magic proven strategy to enhance its portfolio as a one-stop-shop for digital transformation, both organically and through acquisitions.

Michpal group continues to realize synergies and monetize on its busines 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, growing by 70% year over year. 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.

I am pleased to see that the steps we took across all our portfolio companies to endure the COVID-19 pandemic are paying off. We will continue to address the new market challenges and take all necessary steps to emerge stronger and well positioned.

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 LOSS U.S. dollars in thousands (except per share data)

Three months ended Nine months ended September 30, September 30, 2020 2019 2020 2019 Unaudited Unaudited Revenues 487,344 448,984 1,390,678 1,252,910 Cost of 370,952 347,727 1,068,221 970,842 revenuesGross profit 116,392 101,257 322,457 282,068 Research anddevelopment 13,337 11,961 38,384 34,251 costs, netSelling,marketing andgeneral and 57,691 52,276 159,199 146,402 administrativeexpensesOperating 45,364 37,020 124,874 101,415 incomeFinancial 5,891 5,177 16,162 12,505 expenses, netIncome before 39,473 31,843 108,712 88,910 taxes on incomeTaxes on income 8,088 7,455 24,514 20,475 Income after 31,385 24,388 84,198 68,435 taxesShare of profit(loss) ofcompanies (12 ) 429 335 1,515 accounted forat equity, netNet income 31,373 24,817 84,533 69,950 Net incomeattributable to 18,743 15,060 49,650 41,114 non-controllinginterestsNet incomeattributable toFormula 12,630 9,757 34,883 28,836 Systems?shareholders Earnings per 0.83 0.64 2.28 1.90 share (basic)Earnings per 0.82 0.63 2.25 1.80 share (diluted) Number ofshares used incomputing 15,286,350 15,280,517 15,285,517 15,158,811 earnings pershare (basic)Number ofshares used incomputing 15,293,113 15,290,015 15,292,498 15,356,988 earnings pershare (diluted)

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

September30, December31, 2020 2019 (Unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents 431,864 368,666 Short-term deposits 2,784 29,886 Marketable securities 1,181 6,600 Trade receivables 476,334 486,007 Other accounts receivable and prepaid 61,685 65,709 expensesInventories 17,659 8,636 Total current assets 991,507 965,504 LONG-TERM ASSETS: Deferred taxes 41,369 38,865 Other long-term accounts receivable and 22,196 22,205 prepaid expensesTotal long-term assets 63,565 61,070 INVESTMENTS IN COMPANIES ACCOUNTED FOR AT 27,505 26,021 EQUITY METHOD PROPERTY, PLANTS AND EQUIPMENT, NET 57,031 43,059 OPERATING LEASE RIGHT-OF-USE ASSETS 99,728 104,130 NET INTANGIBLE ASSETS AND GOODWILL 977,512 889,473 TOTAL ASSETS 2,216,848 2,089,257 CURRENT LIABILITIES: Loans and credit from banks and others 115,712 125,297 Debentures 41,294 31,362 Current maturities of operating lease 32,863 35,673 liabilitiesTrade payables 110,498 125,163 Deferred revenues 103,072 93,512 Other accounts payable 213,665 205,205 Dividend payable - 7,081 Liabilities in respect of business 12,445 8,431 combinationsPut options of non-controlling interests 26,666 39,668 Total current liabilities 656,215 671,392 LONG-TERM LIABILITIES: Loans and credit from banks and others 189,468 162,062 Debentures 205,802 175,411 Long term operating lease liabilities 74,894 73,686 Other long-term liabilities 11,380 8,311 Deferred taxes 60,626 53,854 Deferred revenues 11,576 6,491 Liabilities in respect of business 13,510 14,895 combinationsPut options of non-controlling interests 39,851 15,182 Employees benefit liabilities 15,156 11,639 Total long-term liabilities 622,263 521,531 EQUITY Equity attributable to Formula Systems? 444,594 421,640 shareholdersNon-controlling interests 493,776 474,694 Total equity 938,370 896,334 TOTAL LIABILITIES AND EQUITY 2,216,848 2,089,257

FORMULA SYSTEMS (1985) LTD.STAND-ALONE STATEMENTS OF FINANCIAL POSITIONU.S. dollars in thousands

September30, December31, 2020 2019 (Unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents 53,183 82,725 Other accounts receivable and prepaid 4,283 6,803 expensesTotal current assets 57,466 89,528 INVESTMENTS IN SUBSIDIARIES AND A JOINTLY?CONTROLLED ENTITY (*)Matrix IT Ltd. 130,756 125,809 Sapiens International Corporation N.V. 185,015 176,832 Magic Software Enterprises Ltd. 113,415 114,019 Other 86,843 72,322 Total Investments in subsidiaries and a 516,029 488,982 jointly controlled entity OTHER LONG TERM RECEIVABLES 1,595 1,539 PROPERTY, PLANTS AND EQUIPMENT, NET 2 2 TOTAL ASSETS 575,092 580,051 CURRENT LIABILITIES: Loans from banks and others - 13,130 Debentures 20,465 20,296 Trade payables 290 69 Other accounts payable 1,743 1,274 Dividends payable - 7,081 Total current liabilities 22,498 41,850 LONG-TERM LIABILITIES: Debentures 107,121 116,561 Put options of non-controlling interests 879 - Total long-term liabilities 108,000 116,561 EQUITY 444,594 421,640 TOTAL LIABILITIES AND EQUITY 575,092 580,051

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.