Formula Systems Reports Record-Breaking Revenues of $329 Million for the Second Quarter with 27% Year Over Year Growth
OR YEHUDA, Israel, Aug. 17, 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 second quarter ended June 30, 2017, in accordance with International Financial Reporting Standards (IFRS).
Financial Highlights for the Second Quarter Ended June 30, 2017
-- Consolidated revenues for the second quarter increased by 27% to a
record-breaking $329.1 million, compared to $259.1 million in the same
period last year.
-- Consolidated operating income for the second quarter, decreased by 28%
to $14.9 million, compared to $20.5 million in the same period last
year. The decrease in operating income is attributable to Sapiens'
operating income decreasing from $6.3 million in the second quarter of
2016 to an operating loss of $1.7 million in the second quarter of 2017
(when measured in accordance with IFRS) due to 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: integration of
StoneRiver (Sapiens' recent acquisition), de-emphasis of non-core
activities in APAC and efficiency measures post the halted development
project. 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 operating
income increased approximately 17% year over year.
-- Consolidated net income attributable to Formula's shareholders for the
second quarter was $0.1 million, or $0.00 per fully diluted share,
compared to $6.7 million, or $0.45 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 $5.2 million in the second quarter of 2016 to a loss of $2.3
million in the second quarter of 2017 (as detailed above) and to a
devaluation 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 $2.2 million versus appreciation of long
term liabilities to banks and others denominated in New Israeli Shekels
amounting to $1.0 million recorded in the same period last year.
Financial Highlights for Six-Month Period Ended June 30, 2017 (in accordance with IFRS)
-- Consolidated revenues for the first half of 2017 increased 22.8% to
$640.0 million, compared to $521.2 million in the same period last year.
-- Consolidated operating income for the first half of 2017 decreased 26.1%
to $31.1 million, compared to $42.1 million in the same period last
year. The decrease in operating income is attributable to Sapiens'
operating income decreasing from $12.6 million in the second quarter of
2016 to an operating loss of $3.4 million in the second quarter of 2017
(when measured in accordance with IFRS) due to the implementation of a
restructuring and cost reduction plan (as detailed above). Excluding the
negative impact of Sapiens' results, Formula operating income for the
first half of 2017 increased approximately 17% year over year.
-- Consolidated net income attributable to Formula's shareholders for the
first half of 2017 was $0.2 million, or $0.02 per fully diluted share,
compared to $10.8 million, or $0.73 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 $10.2 million in the first half of 2016 to a loss of $4.6
million in the first half of 2017 (as detailed above) and to a
devaluation 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 $5.9 million versus $0.7 million
recorded in the same period last year.
-- As of June 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 $222.6 million as of June 30, 2017.
-- Total consolidated equity as of June 30, 2017, was $754.3 million
(representing 50% of the total balance sheet).
-- As of June 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
Commenting on the results, Guy Bernstein, CEO of Formula Systems, said, "We are pleased with our strong performance during the second quarter and first half of the year with double-digit revenue growth across our entire portfolio and we remain on track to deliver our full year financial targets.
While our top-line growth was strong, our profitability was impacted mostly by certain aspects of Sapiens' business activities. Sapiens delivered another quarter of double-digit revenue growth, with revenues of $69.0 million, driven by a mix of organic growth and its recent StoneRiver acquisition. During the quarter, Sapiens reported a GAAP operating loss of $1.7 million (in accordance with IFRS) as a result of the implementation of a restructuring and cost reduction plan in total of $2.7 million including integrating StoneRiver and Sapiens. Sapiens is maintaining its guidance for 2017 full year revenues of $265 to $275 million and its expectations for an operating profit margin of 13.5-14.5% in the second half of the year and full-year operating profit margin between 9-10% (all on a non-GAAP basis).
Matrix achieved another quarter of growth in all indices, both in the quarter and in the first six months with revenues increasing 14.1% and 12% respectively year over year. Matrix won several large projects in the second quarter of 2017 including two substantial multi-million dollar strategic tenders in the fields of finance and cyber, reflecting the confidence of the market in Matrix's ability to execute massive strategic projects.
Magic continued its double-digit growth momentum through the second quarter and first half of 2017 with strong performance in sales and revenues across its products and professional services. Magic enjoyed revenues of $65 million and non-GAAP operating income of $9.0 million for the second quarter, up 38% and 37% respectively year over year, and raised its revenue guidance to between $245 million and $255 million for the full year 2017. Magic's double-digit growth was driven by a mix of organic growth and M&A, which is evidence that Magic's continued efforts to create consistent growth and increased profits are paying off. Magic also updated its dividend policy from 50% to 75% of its annual distributable profits and announced a dividend distribution to its shareholders for the first half of 2017 of $0.13 per share in accordance with its revised policy. "
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 Six months ended
June 30, June 30,
-------- --------
2017 2016 2017 2016
---- ---- ---- ----
Unaudited Unaudited
--------- ---------
Revenues 329,093 259,057 639,971 521,227
Cost of revenues 256,605 197,314 501,154 398,711
------- ------- ------- -------
Gross profit 72,488 61,743 138,817 122,516
Research and development costs, net 11,572 5,214 19,383 9,730
Selling, general and administrative expenses 46,040 35,991 88,320 70,700
------ ------ ------ ------
Operating income 14,876 20,538 31,114 42,086
Financial expenses, net (6,944) (1,118) (*) (14,906) (5,035) (*)
------ ------ ------- ------
Income before taxes on income 7,932 19,420 (*) 16,208 37,051 (*)
Taxes on income 3,397 5,080 6,330 10,517
----- ----- ----- ------
Income after taxes 4,535 14,340 (*) 9,878 26,534 (*)
Equity in gains of affiliated companies, net 198 192 410 192
--- --- --- ---
Net income 4,733 14,532 (*) 10,288 26,726 (*)
Net income attributable to redeemable non-controlling interests 414 322 (*) 872 637 (*)
Net income attributable to non-controlling interests 4,253 7,512 (*) 9,198 15,303 (*)
----- ----- ----- ------
Net income attributable to Formula's shareholders 66 6,698 (*) 218 10,786 (*)
Earnings per share (basic) 0.00 0.47 0.02 0.76
Earnings per share (diluted) 0.00 0.45 0.02 0.73
Number of shares used in computing earnings per share (basic) 14,338,451 14,195,759 14,320,595 14,178,059
========== ========== ========== ==========
Number of shares used in computing earnings per share (diluted) 14,711,079 15,490,905 14,711,056 15,484,778
========== ========== ========== ==========
(*) Immaterial adjustment of comparative data
FORMULA SYSTEMS
(1985) LTD.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
U.S. dollars in
thousands
June 30, December 31,
-------- ------------
2017 2016
---- ----
(Unaudited)
----------
ASSETS
CURRENT ASSETS:
Cash and cash
equivalents 204,427 238,161
Marketable
securities 15,331 37,516
Short-term
deposits 2,872 13
Trade receivables 336,418 308,338
Other accounts
receivable 51,718 45,678
Inventories 4,359 3,953
Total current
assets 615,125 633,659
------------- ------- -------
LONG-TERM ASSETS:
Marketable
securities - 17,228
Deferred taxes 16,776 15,227
Prepaid expenses
and other assets 16,041 14,390
Total long-term
assets 32,817 46,845
--------------- ------ ------
INVESTMENTS IN
COMPANIES
ACCOUNTED FOR AT
EQUITY METHOD 24,592 24,080
------ ------
PROPERTY, PLANTS
AND EQUIPMENT, NET
28,577 26,130
------ ------
INTANGIBLE ASSETS,
NET AND GOODWILL
789,503 627,605
------- -------
Total assets
1,490,614 1,358,319
--- ========= =========
CURRENT
LIABILITIES:
Liabilities to
banks and other
financial
institutions 108,799 84,760
Debentures - 3,274
Trade payables 70,435 80,114
Deferred revenues 64,389 37,030
Employees and
payroll accruals 97,592 90,709
Other accounts
payable 50,997 41,889
Dividend payable - 7,070
Liabilities related
to business
combinations 3,887 8,119
Redeemable non-
controlling
interests 8,494 6,073
Total current
liabilities 404,593 359,038
------------- ------- -------
LONG-TERM
LIABILITIES:
Liabilities to
banks and other
financial
institutions 141,932 115,529
Other long-term
liabilities 11,923 9,384
Debentures, net of
current maturities 58,302 55,441
Deferred taxes 45,054 30,939
Deferred revenues 9,839 4,697
Liabilities related
to business
combinations 5,159 9,611
Liability in
respect to capital
lease - 108
Employee benefit
liabilities 8,454 6,174
Redeemable non-
controlling
interests 51,029 43,556
------ ------
Total long-term
liabilities 331,692 275,439
--------------- ------- -------
EQUITY
Formula Systems
(1985) equity 351,895 336,387
Non-controlling
interests 402,434 387,455
Total equity 754,329 723,842
------------ ------- -------
TOTAL LIABILITIES
AND EQUITY
1,490,614 1,358,319
========= =========
FORMULA SYSTEMS (1985) LTD.
STANDALONE FINANCIAL DATA HIGHLIGHTS
U.S. dollars in thousands
June 30, December 31,
-------- ------------
2017 2016
---- ----
(Unaudited) (Unaudited)
---------- ----------
Debentures 58,302 58,715
Other financial
liabilities 38,571 46,564
Formula
shareholders'
equity 351,895 336,387
Cash, cash
equivalents and
short-term
marketable
securities 7,664 43,537
Fair market value of
equity holdings in
publicly traded
subsidiaries 745,804 725,860
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SOURCE Formula Systems
