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6-K 1 ea0211780-6k_formula.htm FORMULA REPORTS 2ND QUARTER 2024 RESULTS

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 6-K

 

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16 OF

THE SECURITIES EXCHANGE ACT OF 1934

 

For the month of August 2024

 Commission File Number 0-29442

 

FORMULA SYSTEMS (1985) LTD.

(Translation of registrant’s name into English)

 

Terminal Center, 1 Yahadut Canada Street, Or-Yehuda, Israel 6037501

(Address of principal executive offices)

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F

 

Form 20-F ☒ Form 40-F ☐

 

 

 

 


 

CONTENTS

 

Quarterly Results of Operations

 

On August 20, 2024, Formula Systems (1985) Ltd. (“we” or “us”) announced our financial results for the second quarter and first half ended June 30, 2024.  A copy of our press release announcing our results is furnished as Exhibit 99.1 to this Report of Foreign Private Issuer on Form 6-K (this “Form 6-K”) and is incorporated herein by reference.

 

Exhibits

 

Exhibit No.   Title of Exhibit
99.1   Formula Systems Reports Second Quarter and First Half 2024 Financial Results

 

1


 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

  

FORMULA SYSTEMS (1985) LTD.  
   
By: /s/ Asaf Berenstin  
  Name:  Asaf Berenstin  
  Title: Chief Financial Officer  
  Date: August 20, 2024  

 

2


 

EXHIBIT INDEX

 

EXHIBIT 
NUMBER
  DESCRIPTION
99.1   Formula Systems Reports Second Quarter and First Half 2024 Financial Results

 

 

3

 

 

EX-99.1 CHARTER 2 ea021178001ex99-1_formula.htm FORMULA REPORTS 2ND QUARTER 2024 RESULTS

Exhibit 99.1

 

 

Formula Systems Reports Second Quarter and First Half 2024 Financial Results

 

Operating Income for the Second Quarter Increased by 8.4% Year Over Year to a Second Quarter Record Breaking $65 million. Net Income Attributable to Formula Systems Shareholders for the Second Quarter Increased by 10.7% Year Over Year to a Second Quarter Record-Braking $18.8 million.

 

OR YEHUDA, Israel, Aug. 20, 2024 (GLOBE NEWSWIRE) -- Formula Systems (1985) Ltd. (Nasdaq and TASE: FORTY) (“Formula” or the “Company”), a global information technology group 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 first half period ended June 30, 2024.

 

Financial Highlights for the Second Quarter Ended June 30, 2024

 

Revenues for the second quarter ended June 30, 2024 increased by 1.9% to $667.7 million, compared to $655.4 million in the same period last year. On a constant-currency basis (calculated based on average currency exchange rates for the three months ended June 30, 2023), revenues for the second quarter of 2024 would have increased by 3.5% to $678.3 million, compared to the same period last year.

 

Operating income for the second quarter ended June 30, 2024 increased by 8.4% to a second quarter record breaking $65.0 million compared to $60.0 million in the same period last year.

 

Net income attributable to Formula’s shareholders for the second quarter ended June 30, 2024 increased by 10.7% to a second quarter record-breaking $18.8 million, or $1.20 per fully diluted share, compared to $17.0 million, or $1.11 per fully diluted share, in the same period last year.

 

Financial Highlights for the Six Month-Period Ended June 30, 2024

 

Revenues for the first half period ended June 30, 2024 increased by 3.0% to a first-half record-breaking $1.37 billion, compared to $1.33 billion in the same period last year. On a constant currency basis (calculated based on average currency exchange rates for the first half ended June 30, 2023), revenues for the first half period ended June 30, 2024 would have increased by approximately 5.0% to $1.39 billion, compared to the same period last year.

 

Operating income for the first half period ended June 30, 2024 increased by 5.7% to a first-half record-breaking $127.6 million, compared to $120.8 million in the same period last year.

 

Net income attributable to Formula’s shareholders for the first half period ended June 30, 2024 increased by 10.1% to a first-half record-breaking $36.0 million, or $2.31 per fully diluted share, compared to $32.7 million, or $2.11 per fully diluted share, in the same period last year.

 

 


 

As of June 30, 2024, Formula held 48.21%, 43.54%, 46.71%, 100%, 50%, 90.1%, 80%, 100% and 100% 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., Ofek Aerial Photography Ltd., ZAP Group Ltd., and Shamrad Electronic (1997) Ltd., respectively.

 

Consolidated cash and cash equivalents and short-term bank deposits totaled approximately $472.9 million as of June 30, 2024, compared to $528.2 million as of December 31, 2023.

 

Total equity as of June 30, 2024 and December 31, 2023 was $1.3 billion (representing 49.1% and 46.5% of the total consolidated statements of financial position, respectively).

 

Declaration of Dividend for the First Half of 2024

 

Based on the Company’s results, the Company’s board of directors approved the distribution of a cash dividend in an amount of NIS 2.32 per share (approximately $0.63 per share) and in an aggregate amount of approximately NIS 35.6 million (approximately $9.6 million).

 

The dividend is payable on September 26, 2024, to all of the Company’s shareholders of record at the close of trading on the Nasdaq Global Select Market (or the Tel-Aviv Stock Exchange, as appropriate) on September 12, 2024. The dividend will be paid in New Israeli Shekels with respect to the Company's ordinary shares traded on the Tel Aviv Stock Exchange and American Depositary Receipts traded on the Nasdaq Global Select Market.

 

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.

 

Debentures Covenants

 

As of June 30, 2024, Formula was in compliance with all of its financial covenants under the debenture series issued by it, based on the following achievements:

 

Covenant 1

 

Target equity attributable to Formula’s shareholders (excluding non-controlling interests): above $215 million.

 

Actual equity attributable to Formula’s shareholders as of June 30, 2024 was $644.0 million.

 

 

Covenant 2

 

Target ratio of net financial indebtedness to net capitalization (in each case, as defined under the indenture for Formula’s Series A and C Secured Debentures): below 65%.

 

Actual ratio of net financial indebtedness to net capitalization, as of June 30, 2024 was (0.02%).

 

Covenant 3

 

Target ratio of net financial indebtedness to EBITDA (based on the accumulated calculation for the four most recent quarters): below 5.

 

Actual ratio of net financial indebtedness to EBITDA as of June 30, 2024 was (0.001).

 

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Comments of Management

 

Commenting on the results, Guy Bernstein, CEO of Formula Systems, said: “I am proud of Formula’s strong performance in the second quarter and throughout the first half of 2024 as we reported another second quarter of record revenues, operating income and net income in the Company’s history. Our operating income of $65 million in the second quarter of 2024 was up 8.4% on a year over year basis and 3.9% on a on a sequential basis, growing our semi-annual operating income to $127.6 million. These results underscore our commitment to driving sustained growth and operational excellence across all facets of our business. We continue to uphold our core values of innovation, professionalism, agility, and transparency across our entire group. These principles enable us to consistently create significant value for our customers by helping them manage, streamline, and accelerate their operations, ultimately contributing to their growth.”

 

“Matrix reported its best second quarter in history with record-breaking results recorded across all its key financial indices: revenues, gross profit, operating income, net income and EBITDA. Matrix revenues for the second quarter grew by 3.6% year over year reaching an all-time second quarter high of NIS 1.33 billion (approximately $357.8 million). Operating income grew by 13.9%, reaching NIS 111.3 million (approximately $29.9 million). We are pleased with Matrix’s continued recognition as a market leader in Israel in the implementation of fastest-growing technologies, such as cloud, cyber, digital, data, DevOps and AI, which enable the company to create significant value for its customers in managing, streamlining, accelerating and making its businesses thrive. Matrix continues to strengthen its position as a company executing complex and innovative projects of national significance – economic, social, and security-related – that are helping the State of Israel during this challenging period. There is a strong demand in Israel and in North America for software services in digital, cloud, cyber, data, and core operating systems—areas in which Matrix is a market leader, and which are at the center of the IT market demand even during times of war.”

 

“Sapiens revenues for the second quarter reached $137 million, reflecting a 6.6% increase compared to the same period last year. Sapiens Non-GAAP operating profit totaled $25 million, representing 18.2% of its total revenues. Sapiens results demonstrate its strong execution capabilities, particularly with robust growth in North America and Europe. As a global player with multiple product lines and cloud capabilities and a cost-efficient operating model which combines off-and on-shore delivery capabilities, we believe that Sapiens is positioned in a sweet spot to reap the gains of this opportunity.”

 

“Magic Software's operational results for the second quarter and first half of 2024 has been increasingly improving, underscoring the positive momentum that continues to drive its business forward. While Magic Software operates in a dynamic macroeconomic landscape, which has presented challenges for some of its North American blue-chip clients, particularly in the face of softer demand and budget constraints, we remain optimistic about the future. Magic Software’s business is constantly improving, and its pipeline is robust as the vast majority of its customers continue to recognize the unique value it brings, increasingly choosing Magic Software as their preferred partner for their innovative digital and cloud transformation initiatives. We are confident that this momentum driven by Magic Software’s ongoing efforts to cultivate cutting-edge capabilities will continue to build throughout the year and propel it toward sustained, long-term profitability and enduring value to its shareholders.”

 

“Michpal concluded the second quarter with quarterly consolidated revenues of NIS 37.3 million (approximately $10.0 million), growing 10.6% year over year on a constant currency basis. Michpal offers comprehensive proprietary on-premise and web-based payroll software solutions and related services, as well as integrated specialized management systems in the field of financial accounting, taxation and compliance, for accounting professionals (accountants and tax consultants), bookkeepers, controllers, and CFOs.”

 

“TSG’s, a leading provider of defense and homeland security solutions, reports a strong start as a public company on the Tel-Aviv Stock Exchange, with notable growth in its core markets. EBITDA for the second quarter of 2024 increased by 13.3% year over year to NIS 13.0 million compared to NIS 11.5 million in the same period last year. This solid performance reflects TSG's successful efforts to capitalize on both its traditional defense sector activities, driven by increasing geopolitical instability in the Middle East and Europe, and its growing presence in the Israeli municipal sector. The ongoing demand for advanced defense and homeland security solutions, coupled with long-term engagements in municipal projects, continues to drive TSG’s growth. TSG remains committed to leveraging its expertise in developing innovative solutions to meet the evolving needs of its customers.”

 

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Stand-Alone Financial Measures

 

This press release presents, further below, certain stand-alone financial measures to reflect Formula’s 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 Formula’s 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 Formula’s stand-alone financial position. Formula’s management uses these measures to compare the Company’s performance in the current period 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 Company’s 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 Formula’s 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 Company’s 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.

+972-3-5389487

ir@formula.co.il

 

Forward Looking Statements

 

Certain 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: adverse macro-economic trends and their duration, including inflation, relatively high interest rates, and supply chain delays, which trends may last for a significant period 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 degree of our success in developing and deploying new technologies for software solutions that address the updated needs of our customers and serve as the basis for our revenues; 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 particularly in the current hybrid office/work-from-home environment; risks related to industries, such as the insurance, healthcare, defense and the telecom, in which certain of our clients operate; risks posed by our global sales and operations, such as changes in regulatory requirements, supply chain disruptions, geopolitical instability stemming from Russia’s invasion of Ukraine, wide-spread viruses and epidemics or fluctuations in currency exchange rates; and risks related to our and our subsidiaries’ 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 “Item 3.D Risk Factors” in our most recent Annual Report on Form 20-F for the year ended December 31, 2023, filed with the U.S. Securities and Exchange Commission on May 15, 2024, 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, or to conform those statements to actual results or to changes in our expectations.

 

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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,  
    2024     2023     2024     2023  
    Unaudited     Unaudited  
Revenues     667,680       655,374       1,366,081       1,325,773  
Cost of revenues     501,234       494,436       1,035,420       1,002,904  
Gross profit     166,446       160,938       330,661       322,869  
Research and development costs, net     20,432       19,210       40,649       38,518  
Selling, marketing and general and administrative expenses     80,975       81,744       162,388       163,573  
Operating income     65,039       59,984       127,624       120,778  
Financial expenses, net     3,829       5,612       9,431       12,696  
Income before taxes on income     61,210       54,372       118,193       108,082  
Taxes on income     13,650       11,380       27,108       22,870  
Income after taxes     47,560       42,992       91,085       85,212  
Share of profit (loss) of companies accounted for at equity, net     (135 )     174       (32 )     209  
Net income     47,425       43,166       91,053       85,421  
Net income attributable to non-controlling interests     28,586       26,145       55,055       52,716  
Net income attributable to Formula Systems shareholders     18,839       17,021       35,998       32,705  
Earnings per share (basic)     1.23       1.12       2.36       2.14  
Earnings per share (diluted)     1.20       1.11       2.31       2.11  
Number of shares used in computing earnings per share (basic)     15,304,355       15,301,017       15,303,811       15,300,642  
Number of shares used in computing earnings per share (diluted)     15,624,160       15,480,800       15,597,645       15,472,436  

 

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FORMULA SYSTEMS (1985) LTD.

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

U.S. dollars in thousands

 

    June 30,     December 31,  
    2024     2023  
    (Unaudited)        
ASSETS            
CURRENT ASSETS:            
Cash and cash equivalents     408,262       451,946  
Short-term deposits     64,617       76,224  
Trade receivables, net     710,299       721,008  
Prepaid expenses and other accounts receivable     90,274       84,670  
Inventories     30,189       42,008  
Total current assets     1,303,641       1,375,856  
                 
NON-CURRENT ASSETS:                
Long-term investments and receivables     52,729       52,002  
Deferred taxes     46,547       46,856  
Investments in companies accounted for at equity     18,836       20,796  
Property, plants and equipment, net     49,731       52,931  
Right-of-use assets     112,844       120,651  
Intangible assets, net and goodwill     1,118,288       1,143,509  
Total non-current assets     1,398,975       1,436,745  
                 
Total assets     2,702,616       2,812,601  
                 
LIABILITIES AND EQUITY                
CURRENT LIABILITIES:                
Credit from banks and others     150,467       145,973  
Debentures     64,206       72,885  
Current maturities of lease liabilities     41,127       44,064  
Trade payables     199,123       258,649  
Deferred revenues     147,193       137,643  
Employees and payroll accrual     197,529       209,384  
Other accounts payable     76,996       73,124  
Liabilities in respect of business combinations     5,656       7,954  
Put options of non-controlling interests     49,400       35,987  
Total current liabilities     931,697       985,663  
                 
LONG-TERM LIABILITIES:                
Loans from banks and others     63,557       90,887  
Debentures     194,444       231,541  
Lease liabilities     79,760       84,639  
Other long-term liabilities     12,976       12,678  
Deferred taxes     53,022       59,206  
Deferred revenues     17,077       4,873  
Liabilities in respect of business combinations     1,912       2,622  
Put options of non-controlling interests     11,079       21,880  
Employees benefit liabilities, net     10,189       10,427  
Total long-term liabilities     444,016       518,753  
                 
EQUITY                
Equity attributable to Formula Systems shareholders     644,022       625,762  
Non-controlling interests     682,881       682,423  
Total equity     1,326,903       1,308,185  
                 
Total liabilities and equity     2,702,616       2,812,601  

 

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FORMULA SYSTEMS (1985) LTD.

STAND-ALONE STATEMENTS OF FINANCIAL POSITION

U.S. dollars in thousands

 

    June 30,     December 31,  
    2024     2023  
    (Unaudited)        
ASSETS            
CURRENT ASSETS:            
Cash and cash equivalents     30,524       30,082  
Dividend receivable     11,277       -  
Other accounts receivable and prepaid expenses     13,175       10,326  
Total current assets     54,976       40,408  
                 
NON-CURRENT ASSETS:                
Investment in subsidiaries and a jointly controlled entity (*)                
Matrix IT Ltd.     154,760       160,056  
Sapiens International Corporation N.V.     255,813       251,658  
Magic Software Enterprises Ltd.     129,932       128,549  
Other     141,663       147,975  
Total investment in subsidiaries and a jointly controlled entity     682,168       688,238  
                 
Long term receivables and other investments     24,049       22,737  
Property, plants and equipment, net     10       11  
Total non-current assets     706,227       710,986  
                 
Total assets     761,203       751,394  
                 
LIABILITIES AND EQUITY                
CURRENT LIABILITIES:                
Loans from banks and others     2,227       -  
Debentures     21,742       32,126  
Trade payables     198       137  
Other accounts payable     1,254       2,697  
Liability in respect of a business combination     257       267  
Total current liabilities     25,678       35,227  
                 
LONG-TERM LIABILITIES:                
Loans from banks and others     4,064       -  
Debentures     87,439       90,405  
Total long-term liabilities     91,503       90,405  
                 
EQUITY     644,022       625,762  
                 
TOTAL LIABILITIES AND EQUITY     761,203       751,394  

 

(*) 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.

 

 

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