GlobeNewswire Inc | Aug 18, 2020 06:24AM EDT

August 18, 2020

Operating income for the second quarter increased 24% year-over-year to a record breaking $40.7 million. Net income attributable to Formulas Shareholders for the second quarter increased 24% year-over-year to a record breaking $11.2 million.

OR YEHUDA, Israel, Aug. 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 second quarter and six months-period ended June30,2020.

Financial Highlights for the Second Quarter Ended June 30, 2020

-- Consolidated revenues for the second quarter increased by 5.9% to $437.1million. Revenues for the second quarter ended June 30, 2019 amounted to $412.6million. -- Consolidated operating income for the second quarter increased by 24.4% to a record breaking $40.7million, with growth recorded across Formulas entire investment portfolio. Consolidated operating income for the second quarter ended June 30, 2019 amounted to $32.7million. -- Consolidated net income attributable to Formulas shareholders for the second quarter increased by 24.2% to a record breaking $11.2million, or $0.73 per fully diluted share, compared to $9.0million, or $0.59 per fully diluted share, for the second quarter ended June 30, 2019.

Financial Highlights for the Six Months-Period Ended June 30, 2020

-- Consolidated revenues for the first half ended June 30, 2020 increased by 12.4% to $903.3million, with growth recorded across Formulas entire investment portfolio. Revenues for the first half ended June 30, 2019 amounted to $803.9million. -- Consolidated operating income for the first half ended June 30, 2020 increased by 23.5% to $79.5 million, with growth recorded across Formulas entire investment portfolio. Consolidated operating income for the first half ended June 30, 2019 amounted to $64.4million. -- Consolidated net income attributable to Formulas shareholders for the first half ended June 30, 2020 was $22.3million, or $1.44 per fully diluted share, compared to $19.1million, or $1.17 per fully diluted share, in the same period last year, reflecting an increase of 16.6% year over year. -- As of June 30, 2020 Formula held 49.0%, 47.7%, 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 $472.8million as of June 30, 2020, compared to $405.2 million as of December 31, 2019. -- Total equity as of June 30, 2020 was $914.6million (representing 42.2% 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.

Declaration of Dividend for the First Half of 2020

-- Based on the Companys semi-annual results, the Companys board of directors declared a cash dividend in the amount of NIS 1.77 per share (approximately $0.52 per share) and in the aggregate amount of approximately NIS 27.1 million (approximately $8.0 million). -- The dividend is payable on September 16, 2020 to all of the Companys shareholders of record at the close of trading on the NASDAQ Global Select Market (or the Tel-Aviv Stock Exchange, as appropriate) on September 3, 2020.

In accordance with Israeli tax law, the dividend is subject to withholding tax at source at the rate of 30% (if the recipient of the dividend is at the time of distribution or was at any time during the preceding 12-month period the holder of 10% or more of the Company's share capital) or 25% (for all other dividend recipients) of the dividend amount payable to each shareholder of record, subject to applicable exemptions.

The dividend will be paid in New Israeli Shekel with respect to the ordinary shares of Formula Systems (1985) Ltd that are traded on the Tel Aviv Stock Exchange and the American Depositary Receipts of Formula Systems that are traded on the NASDAQ Global Select Market.

Debentures Covenants

As of June 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 $433.3 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 9.0%.

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 0.38.

Comments of Management

Commenting on the results, Guy Bernstein, CEO of Formula Systems, said, We are very pleased to continue the strong momentum of 2020 during the second quarter which was entirely impacted by the COVID-19 pandemic, and in addition included a prolonged period of lockdown in Israel during April 2020 and Passover holiday. Despite these challenges, we witnessed strong financial results recorded across our entire portfoliocompanies which we were able to achieve due to the perseverance and cost saving actions taken by all management teams across our entire portfolio. Formula Group has managed to successfully face the crisis, thanks to, among others, its financial strength, high cash balances, low leverage, business diversification, quick response and flexibility to accommodate changes, and especially its experienced management teams .We take great pride in the recent addition of two of our subsidiaries, Matrix IT Ltd. and Sapiens International Corporation N.V.,to Tel-Aviv-35 index together with four other companies whose core activity is technology and innovationthe engine that drives the Israeli economy.

Matrix managed to deliver a double-digit growth in both net and operating income, overcoming the most challenging period of the last decade, while adapting to the new hybrid-work-environment model, combining office attendance with remote employment, increasing efficiencies and cost savings. Matrixis constantly working on preserving its business continuity and growth opportunities.

Sapiens managed to increase its revenues by 17.0% year over year as a result of organic growth in North America and Europe. Non-GAAP operating income increased by 33.4%, year over year increasing operating margin by 220 base points to a record of 18.0%, primarily due to cost saving actions implemented in light of COVID-19. Despite the COVID-19 pandemic, Sapiens outlook has improved as a result of signing new deals and completing the acquisition of Delphi, positioning the company as a leader of the MLP market in North America. In addition, Sapiens has raised its 2020 revenue guidance from $368 - $377 million to the range of $376 - $381 million.

Magics outlook for 2020 has also improved in spite of the COVID-19 pandemic due to an increased demand, from existing and new customers, for digital transformation projects, as COVID-19 pandemic forced organizations and their employees to adapt to the new forced reality and working environment. Magic plans to continue its efforts in maintaining and growing its strong financial position as a trusted advisor in the SMB market and a one-stop-shop for digital transformation, both organically and through acquisitions.

Michpal continues to realize synergies and monetize on its busines model and on the market it operates in. Michpals revenues grew by 51% year over year fueled by the acquisition of Unique Software Enterprises Ltd. concluded in November 2019 and 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.

"In July 2020, Shikun & Binui group won a tender published by the Israeli Ministry of Defense for establishing Kiryat HaModiin in the Israeli Negev. TSG IT Advanced Systems Ltd. will serve as the significant subcontractor of the project's ICT (Information Communication and Technology) contractor - Israel Aerospace Industries Ltd.

As part of the project, TSG is expected to design, build, maintain and operate IT systems in Kiryat HaModiin. The duration of the engagement is approximately 26 years. The scope of TSG activities is estimated at NIS 1.5 billion for the entire duration of the contract. The win is not expected to significantly impact TSG's results of operations over the upcoming year.

I am pleased to see that the steps taken across all our portfolio companies in order to endure the COVID-19 pandemic and emerge stronger and well positioned are paying off. We will continue to address the new market challenges and take all necessary steps in order to keep our employees safe and productive, implement cost savings and grow our business operations.

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 inthousands (except per share data) Three months ended Six months ended June 30, June 30, 2020 2019 2020 2019 Unaudited UnauditedRevenues 437,064 412,572 903,334 803,926Cost of revenues 334,138 319,621 697,269 623,115Gross profit 102,926 92,951 206,065 180,811Research and 12,084 11,706 25,047 22,290development costs, netSelling, marketing andgeneral and 50,135 48,530 101,508 94,126administrative expensesOperating income 40,707 32,715 79,510 64,395Financial expenses, net 5,627 3,732 10,271 7,328Income before taxes on 35,080 28,983 69,239 57,067incomeTaxes on income 8,703 6,759 16,426 13,020Income after taxes 26,377 22,224 52,813 44,047Share of profit ofcompanies accounted for 218 360 347 1,086at equity, netNet income 26,595 22,584 53,160 45,133Net income attributableto non-controlling 15,363 13,541 30,907 26,054interestsNet income attributableto Formula Systems' 11,232 9,043 22,253 19,079shareholders Earnings per share 0.74 0.59 1.46 1.26(basic)Earnings per share 0.73 0.59 1.44 1.17(diluted) Number of shares usedin computing earnings 15,285,517 15,279,684 15,285,100 15,097,957per share (basic)Number of shares usedin computing earnings 15,292,486 15,288,248 15,292,372 15,388,363per share (diluted)

FORMULA SYSTEMS (1985) LTD. CONSOLIDATED STATEMENTS OF FINANCIAL POSITION U.S. dollars in thousands June 30, December 31, 2020 2019 (Unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents 462,448 368,666 Short-term deposits 8,107 29,886 Marketable securities 2,265 6,600 Trade receivables 459,565 486,007 Other accounts receivable and prepaid expenses 62,952 65,709 Inventories 12,818 8,636 Total current assets 1,008,155 965,504 LONG-TERM ASSETS: Deferred taxes 41,438 38,865 Other long-term accounts receivable and prepaid 22,518 22,205 expensesTotal long-term assets 63,956 61,070 INVESTMENTS IN COMPANIES ACCOUNTED FOR AT EQUITY METHOD 27,562 26,021 PROPERTY, PLANTS AND EQUIPMENT, NET 49,306 43,059 OPERATING LEASE RIGHT-OF-USE ASSETS 107,629 104,130 NET INTANGIBLE ASSETS AND GOODWILL 913,066 889,473 TOTAL ASSETS 2,169,674 2,089,257 CURRENT LIABILITIES: Loans and credit from banks and others 102,040 125,297 Debentures 42,020 31,362 Current maturities of operating lease 31,318 35,673 liabilities Trade payables 109,836 125,163 Deferred revenues 106,967 93,512 Other accounts payable 199,437 205,205 Dividend payable - 7,081 Liabilities in respect of business combinations 11,118 8,431 Put options of non-controlling interests 26,236 39,668 Total current liabilities 628,972 671,392 LONG-TERM LIABILITIES: Loans and credit from banks and others 204,100 162,062 Debentures 214,646 175,411 Long term operating lease liabilities 82,775 73,686 Other long-term liabilities 9,198 8,311 Deferred taxes 57,143 53,854 Deferred revenues 12,257 6,491 Liabilities in respect of business combinations 11,958 14,895 Put options of non-controlling interests 21,056 15,182 Employees benefit liabilities 13,011 11,639 Total long-term liabilities 626,144 521,531 EQUITY Equity attributable to Formula Systems' 433,284 421,640 shareholders Non-controlling interests 481,274 474,694 Total equity 914,558 896,334 TOTAL LIABILITIES AND EQUITY 2,169,674 2,089,257

FORMULA SYSTEMS (1985) LTD. STAND-ALONE STATEMENTS OF FINANCIAL POSITION U.S. dollars in thousands June 30, December 31, 2020 2019 (Unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents 63,598 82,725 Other accounts receivable and prepaid expenses 4,978 6,803 Total current assets 68,576 89,528 INVESTMENTS IN SUBSIDIARIES AND A JOINTLY CONTROLLED ENTITY (*) Matrix IT Ltd. 128,141 125,809 Sapiens International Corporation N.V. 179,604 176,832 Magic Software Enterprises Ltd. 113,806 114,019 Other 86,094 72,322 Total Investments in subsidiaries and a jointly 507,645 488,982 controlled entity OTHER LONG TERM RECEIVABLES 1,583 1,539 PROPERTY, PLANTS AND EQUIPMENT, NET 2 2 TOTAL ASSETS 577,806 580,051 CURRENT LIABILITIES: Loans from banks and others - 13,130 Debentures 20,232 20,296 Trade payables 79 69 Other accounts payable 1,996 1,274 Dividends payable - 7,081 Total current liabilities 22,307 41,850 LONG-TERM LIABILITIES: Debentures 116,213 116,561 Put options of non-controlling interests 6,002 - Total long-term liabilities 122,215 116,561 EQUITY 433,284 421,640 TOTAL LIABILITIES AND EQUITY 577,806 580,051 (*) 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.