FORMULA SYSTEMS (1985) LTD. OR YEHUDA, Israel, Nov. 19, 2017 /PRNewswire/ -- 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 ended September 30, 2017, in accordance with International Financial Reporting Standards (IFRS).
Financial Highlights for the Third Quarter Ended September 30, 2017
-- Consolidated revenues for the third quarter increased by 22.3% to a
record-breaking $348.6 million, compared to $285.1 million in the same
period last year.
-- Consolidated operating income for the third quarter, decreased by 4.3%
to $22.5 million, compared to $23.5 million in the same period last
year. The decrease in operating income is attributable to Sapiens'
operating income decreasing from $6.8 million in the third quarter of
2016 to $3.2 million in the third quarter of 2017 (when measured in
accordance with IFRS) due to amortization of intangible assets following
the acquisition of StoneRiver earlier this year and the implementation
of a restructuring and cost reduction plan following the halt of a
software development project with a significant customer of Sapiens. The
restructuring and cost reduction plan included: de-emphasis of non-core
activities in APAC and efficiency measures post the halted development
project and the integration of StoneRiver. The cost savings primarily
included headcount reductions as well as other cost saving measures.
Sapiens expects restructuring and cost reduction expenses of up to $5
million for the full year 2017. Excluding the negative impact of
Sapiens' results, Formula's operating income increased 15.8% year over
year.
-- Consolidated net income attributable to Formula's shareholders for the
third quarter was $5.4 million, or $0.36 per fully diluted share,
compared to $5.7 million, or $0. 38 per fully diluted share, in the same
period last year. The decrease in net income attributable to Formula's
shareholders is mainly attributable to a decrease in Sapiens' net income
from $5.5 million in the third quarter of 2016 to $1.6 million in the
third quarter of 2017 (as detailed above) offset by devaluation of long
term liabilities to banks and others denominated in New Israeli Shekels,
following the erosion of the New Israeli Shekel against the US dollar
amounting to $0.4 million compared to an appreciation of long term
liabilities to banks and others denominated in New Israeli Shekels
amounting to $1.2 million recorded in the same period last year.
Excluding the negative impact of Sapiens' results and the positive
impact of the devaluation of Formula's long term liabilities to banks
and others denominated in New Israeli Shekels, Formula net income
increased by approximately 2% year over year.
Financial Highlights for Nine-Month Period Ended September 30, 2017
-- Consolidated revenues for the nine-month period ended September 30, 2017
increased 22.6% to $988.6 million, compared to $806.3 million in the
same period last year.
-- Consolidated operating income for the nine-month period ended September
30, 2017 decreased 18.3% to $53.6 million, compared to $65.6 million in
the same period last year. The decrease in operating income is
attributable to Sapiens' operating income decreasing from $19.5 million
recorded in the nine-month period ending September 30, 2016 to an
operating loss of $0.2 million recorded in the nine-month period ending
September 30, 2017 (when measured in accordance with IFRS) due to the
integration of StoneRiver and the implementation of a restructuring and
cost reduction plan (as detailed above). Excluding the negative impact
of Sapiens' results, Formula operating income for the nine-month period
ended September 30, 2017 increased approximately 16.7% year over year.
-- Consolidated net income attributable to Formula's shareholders for the
nine-month period ended September 30, 2017 was $5.6 million, or $0.37
per fully diluted share, compared to $16.5 million, or $1.10 per fully
diluted share, in the same period last year. The decrease in net income
attributable to Formula's shareholders is primarily attributable to a
decrease in Sapiens' net income from $15.8 million in the nine-month
period ended September 30, 2016 to a loss of $2.9 million in the
nine-month period ended September 30, 2017 (as detailed above) and to an
appreciation of long term liabilities to banks and others denominated in
New Israeli Shekels, following the erosion of the US dollar against the
New Israeli Shekel amounting to $5.5 million compared to $1.9 million
recorded in the same period last year. Excluding the negative impact of
Sapiens' results and the appreciation of Formula's long term liabilities
to banks and others denominated in New Israeli Shekels, Formula net
income increased by 17.5% year over year.
-- As of September 30, 2017, Formula held 49.5%, 48.7%, 47.2%, 100%, 50%
and 90% of the outstanding ordinary shares of Matrix IT, Sapiens
International Corporation N.V, Magic Software Enterprises Ltd., Michpal
Micro Computers (1983) Ltd., TSG IT Advanced Systems, and Insync
Staffing Solutions, respectively.
-- Consolidated cash, short-term investments in marketable securities and
bank deposits totaled approximately $248.7 million as of September 30,
2017.
-- Total consolidated equity as of September 30, 2017, was $754.3 million
(representing 50% of the total balance sheet).
-- As of September 30, 2017, Formula was in compliance with all of its
financial covenants under the debentures issued by Formula in September
2015 and under loans granted from other financial institutions.
Comments of Management
"Formula's third quarter results show solid improvement as evidenced by the group's strong revenue growth" said Guy Bernstein, CEO of Formula.
"Matrix crossed the quarterly revenue mark of $200 million for the first time, and achieved growth across all financial indicators. Matrix reported record-breaking revenues of $203.7 million and $576.4 million in the third quarter and in the first nine months of 2017, reflecting an increase of 13.2% and 12.4% year over year, respectively. Matrix's financial strength, its position in the market and its thousands of experts with the experience and knowledge at its disposal, enable Matrix to provide its customers with innovative technologies and solutions that address the challenges of the market.
Sapiens' third quarter results demonstrate another quarter of double-digit revenue growth and incremental progress. Sapiens reported record-breaking revenues of $72 million reflecting a year over year increase of 28%, with non-GAAP operating margin improving from 4.7% in the previous quarter to 12.5%. This solid improvement is primarily a result of the successful integration of StoneRiver (Sapiens' recent acquisition) and the implementation of cost-saving measures enacted following the halt of the development project that Sapiens reported in the first quarter. Sapiens is maintaining its guidance for 2017 full year revenues of $265 to $275 million (on a non-GAAP basis), which is expected to be on the higher end. Sapiens is also maintaining its expectations for full-year operating profit margin between 9-10% (on a non-GAAP basis), which is expected to be on the lower end.
Magic continued its double-digit growth momentum through the third quarter and first nine months of 2017 with strong performance in sales and revenues across its products and professional services. It enjoyed revenues of $66 million and non-GAAP operating income of $9.1 million for the third quarter, up 21% and 17% respectively year over year, driven primarily by organic growth. Due to better visibility, Magic narrowed its revenue guidance to between $250 million and $255 million for the full-year 2017, up from their prior guidance of between $245 million and $255 million. Magic's ever-growing portfolio, including Magic xpc iPaaS Platform, its most recent release, provides both the solutions and services needed by enterprises to succeed in today's digital marketplace.
TSG (held jointly by Formula and Israel Aerospace Industries ("IAI")) together with IAI, were declared winners of Israel's Ministry of Defense (IMOD) tender as part of the "IDF Network" program for leading the transfer of the IDF's computers infrastructure (currently operating in dozens of locations) to centralized, advanced data centers and will consolidate dozens of computer centers, currently scattered across the country, and establish modern computer centers. Six leading Israeli and international technology groups competed in the tender. The scope of the project is estimated at hundreds of millions of shekels over the next decade. This win is the largest technological tender in the history of the IDF and the IMOD.
We are excited about Michpal's market opportunity following the release of a new product and a new service line - "Michpal Pension" and "Michpal PensionPlus". These solutions enable all employers to digitally report their employees' pension fund payments to their respective pension funds as required by law (all employers who employ more than 21 employees required to digitally report their pension fund payments from February 1, 2018 ; employers with no more than 20 employees will be required from February 1, 2019)".
About Formula
Formula Systems (1985) Ltd. is a global information technology 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.
+972-3-5389487
ir@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 Formula's 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.
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,
------------- -------------
2017 2016 2017 2016
---- ---- ---- ----
Unaudited Unaudited
--------- ---------
Revenues 348,629 285,080 988,600 806,307
Cost of revenues 271,434 217,170 772,588 615,881
------- ------- ------- -------
Gross profit 77,195 67,910 216,012 190,426
Research and development costs, net 10,076 5,717 29,459 15,447
Selling, general and administrative expenses 44,628 38,701 132,948 109,401
------ ------ ------- -------
Operating income 22,491 23,492 53,605 65,578
Financial expenses, net (4,044) (4,224) (*) (18,950) (9,258) (*)
------ ------ ------- ------
Income before taxes on income 18,447 19,268 (*) 34,655 56,320 (*)
Taxes on income 5,504 4,883 11,834 15,400
----- ----- ------ ------
Income after taxes 12,943 14,385 (*) 22,821 40,920 (*)
Equity in gains of affiliated companies, net 107 599 517 791
--- --- --- ---
Net income 13,050 14,984 (*) 23,338 41,711 (*)
Net income attributable to redeemable non-controlling interests 772 706 (*) 1,644 1,343 (*)
Net income attributable to non-controlling interests 6,882 8,618 (*) 16,080 23,921 (*)
----- ----- ------ ------
Net income attributable to Formula's shareholders 5,396 5,660 (*) 5,614 16,447 (*)
Earnings per share (basic) 0.38 0.40 0.39 1.16
Earnings per share (diluted) 0.36 0.38 0.37 1.10
Number of shares used in computing earnings per share (basic) 14,374,579 14,231,627 14,338,590 14,195,915
========== ========== ========== ==========
Number of shares used in computing earnings per share (diluted) 15,539,781 15,514,378 14,697,459 15,494,645
========== ========== ========== ==========
(*) Immaterial adjustment of comparative data
FORMULA SYSTEMS (1985) LTD.
CONSOLIDATED STATEMENTS OF
FINANCIAL POSITION
U.S. dollars in thousands
September 30, December 31,
------------- ------------
2017 2016
---- ----
(Unaudited)
----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents 234,400 238,161
Marketable securities 14,311 37,516
Short-term deposits 38 13
Trade receivables 359,037 308,338
Other accounts receivable 48,231 45,678
Inventories 5,120 3,953
Total current assets 661,137 633,659
-------------------- ------- -------
LONG-TERM ASSETS:
Marketable securities - 17,228
Deferred taxes 16,199 15,227
Prepaid expenses and other assets 16,102 14,390
Total long-term assets 32,301 46,845
---------------------- ------ ------
INVESTMENTS IN
COMPANIES ACCOUNTED
FOR
AT EQUITY METHOD 24,704 24,080
------ ------
PROPERTY, PLANTS AND
EQUIPMENT, NET 27,836 26,130
------ ------
INTANGIBLE ASSETS, NET
AND GOODWILL 774,224 627,605
------- -------
Total assets 1,520,202 1,358,319
------------ ========= =========
CURRENT LIABILITIES:
Liabilities to banks and other
financial institutions 105,637 84,760
Debentures 3,898 3,274
Trade payables 76,014 80,114
Deferred revenues 59,651 37,030
Employees and payroll accruals 99,071 90,709
Other accounts payable 45,298 41,889
Dividend payable 5,015 7,070
Liabilities related to business
combinations 4,484 8,119
Redeemable non-controlling
interests 6,105 6,073
Total current
liabilities 405,173 359,038
------------- ------- -------
LONG-TERM LIABILITIES:
Liabilities to banks and other
financial institutions 104,419 115,529
Other long-term liabilities 10,218 9,384
Debentures, net of current
maturities 132,994 55,441
Deferred taxes 43,649 30,939
Deferred revenues 8,452 4,697
Liabilities related to business
combinations 2,650 9,611
Liability in respect to capital
lease - 108
Employee benefit liabilities 9,378 6,174
Redeemable non-controlling
interests 48,982 43,556
Total long-term
liabilities 360,742 275,439
--------------- ------- -------
EQUITY
Formula Systems (1985) equity 351,037 336,387
Non-controlling interests 403,250 387,455
Total equity 754,287 723,842
------------
TOTAL LIABILITIES AND
EQUITY 1,520,202 1,358,319
========= =========
FORMULA SYSTEMS (1985) LTD.
STANDALONE FINANCIAL DATA HIGHLIGHTS
U.S. dollars in thousands
September 30, December 31,
------------- ------------
2017 2016
---- ----
(Unaudited) (Unaudited)
---------- ----------
Debentures 58,552 58,715
Other financial liabilities 37,711 46,564
Formula shareholders' equity 351,037 336,387
Cash, cash equivalents and short-term marketable
securities 13,182 43,537
Fair market value of equity holdings in publicly traded
subsidiaries 818,013 725,860
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SOURCE Formula Systems (1985) Ltd.
