FORM 6-K

 

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON D.C. 20549

  

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16

of the Securities Exchange Act of 1934

 

For the month of May 2020

 

FORMULA SYSTEMS (1985) LTD.

(Translation of registrant’s name into English)

 

5 HaPlada Street, Or-Yehuda, Israel

(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 ☐

 

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934

 

Yes ☐ No ☒

 

 

 

 

 

 

SIGNATURE

 

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

  

(Registrant)

 

 

 

By:

/s/ Asaf Berenstin

 

 

Asaf Berenstin CFO

 

 

dated: May 28, 2020

 

 

1

 

 

Exhibit Index

 

Exhibit No.

 

Description

99.1

 

Formula Systems Reports First Quarter 2020 Financial Results

 

 

2

 

 


Exhibit 99.1

 

PRESS RELEASE

 

Formula Systems Reports First Quarter 2020 Financial Results

 

Operating income for the first quarter increased 22% year-over-year to a record breaking $38.8 million. Net income attributable to Formula’s Shareholders for the first quarter increased 10% year-over-year to a record breaking $11.0 million.

 

Or Yehuda, Israel, May 28, 2020 – 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 first quarter ended March 31, 2020.

 

Financial Highlights for the First Quarter Ended March 31, 2020

 

 

Consolidated revenues for the first quarter increased by 19.1% to a record breaking $466.3 million, with growth recorded across Formula’s entire investment portfolio. Revenues for the first quarter ended March 31, 2019 amounted to $391.4 million.

 

 

Consolidated operating income for the first quarter increased by 22.5% to a record breaking $38.8 million, with growth recorded across Formula’s entire investment portfolio. Consolidated operating income for the first quarter ended March 31, 2019 amounted to $31.7 million.

 

 

Consolidated net income attributable to Formula’s shareholders for the first quarter increased by 9.8% to a record breaking $11.0 million, or $0.71 per fully diluted share, compared to $10.0 million, or $0.58 per fully diluted share, for the first quarter ended March 31, 2019.

 

 

As of March 31, 2020 Formula held 49.02%, 47.84%, 45.52%, 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. and Insync Staffing Solutions, Inc. and Ofek Aerial Photography Ltd., respectively.

 

 

Consolidated cash and cash equivalents, bank deposits and investments in marketable securities totaled approximately $448.8 million as of March 31, 2020, compared to $405.5 million as of December 31, 2019.

 

 

Total equity as of March 31, 2020 was $889.8 million (representing 41.7% 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 March 31, 2020, Formula was in compliance with all of its financial covenants under the debentures issued by Formula, 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 is equal to $418.1 million.

 

1

 

 

Covenant 2

 

 

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

 

 

Actual ratio of net financial indebtedness to net capitalization is equal to 10.8%.

 

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 0.47.

 

Comments of Management

 

Commenting on the results, Guy Bernstein, CEO of Formula Systems, said, “We are very pleased to begin 2020 with a strong quarter across our entire portfolio, especially in light of the COVID-19 global pandemic, which broke out in March 2020 and drastically affected the global economy and markets. In order to address the new market challenges, we have focused across our entire portfolio on taking all necessary steps in order to keep our employees safe and productive and control expenses to assure strong cash flow, while supporting our existing customers and closing new deals.”

 

“Matrix delivered record-breaking first quarter results across all its key indicators (revenues, gross profit, operating income, net income and EBITDA), overcoming the most challenging period of the last decade and maintaining its outstanding ranking by Midroog (Aa3) and STKI (IT and Technology market leader). While as of this point Matrix did not encounter any material negative impact on its global and Israeli activities, it is constantly performing risk assessments and is taking precautionary steps in order to successfully overcome the global crises.”

 

“Sapiens’ results for the first quarter of 2020 demonstrate its pursuit of key objectives in this challenging environment, such as focusing on its proven strategy, supporting existing customers, closing new deals, controlling expenses while maintaining productivity. Such steps, together with a strong demand for its digital products, high recurring revenue and solid balance sheet, position it for success despite the global COVID-19 crisis. Sapiens reported a 17.9% revenue growth and increased operating margins (on a non-GAAP basis) to 16.1%, with both its P&C and L&A contributing to growth in the quarter. While its business remains strong, due to macro events there could be delays in closing new deals, which could slightly impact Sapiens’ revenue. Therefore, Sapiens slightly revised its annual revenue guidance for 2020 to the range of $368 million to $377 million, as compared to its prior range of $377 million to $383 million, thereby reducing the mid-point of their revenue guidance by 2.0%”

 

“Magic’s first-quarter strong performance reflects its continued focus on supporting its existing customers and closing new deals in addition to taking all necessary steps facing this challenging period. In addition, as part of Magic’s continued efforts to improve its financial position and as a testimony of its confidence in its existing operations, during the first quarter Magic increased its equity interest in Roshtov Software Industries Ltd., by 20.05%, from 60% to 80.05%, and in Comblack IT Ltd., by 10.2%, from 70% to 80.2%. Similarly to Sapiens, Magic also slightly revised its annual revenue guidance for 2020 to the range of $350 million to $360 million, as compared to its prior range of $360 million to $370 million, thereby reducing the mid-point of the revenue guidance by 2.7%.

 

2

 

 

During the first quarter, Michpal promoted the execution of its long-term strategy to become a leading provider in Israel of integrated solutions in the field of payroll including pay-stubs, pension services management, education funds management, and software solutions for managing employee attendance. Last year Michpal improved its competitive position through both organic products and solution development, and acquisitions with a focus on growth. Now that the acquired companies are fully integrated, Michpal is realizing synergies, and maximizing its acquired talent.

 

Michpal is well positioned to help its customers to adjust to the ever-changing governmental instructions for employers, while complying with laws and regulation, especially in light of COVID-19.”

 

“During the first quarter, Formula completed the acquisition of 80% of the share capital of Ofek Ariel Photography Ltd., Israel’s market leader in the fields of aerial and satellite mapping, geographic data collection and processing, and provider of services in numerous geographic applications. Among Ofek’s customers are many government authorities and foreign government, which will enable Formula group to expand its customer base and its software and service offerings to the fields of satellite mapping, geographic data collection and processing. We have complete confidence in the management team of Ofek lead by Chairman, Udi Friedlander and CEO, David Peretz, who will continue to lead the company in its journey to success”.

 

“I am confident that the steps taken across all our portfolio companies will ensure that all companies will emerge stronger and well positioned for continued growth when the global economy recovers, allowing us to continue returning value to our shareholders.”.”

 

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 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

 

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. In addition, there is uncertainty about the spread of the COVID19 virus and the impact it will have on the Company’s operations, the demand for Company’s products, global supply chains and economic activity in general. These and other risks and uncertainties are detailed in the Company’s Securities and Exchange Commission filings.  

 

3

 

 

FORMULA SYSTEMS (1985) LTD.

CONSOLIDATED CONDENSED STATEMENTS OF PROFIT OR LOSS

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

 

 

 

Three months ended

 

 

 

March 31,

 

 

 

2020

 

 

2019

 

 

 

Unaudited

 

Revenues

 

 

466,270

 

 

 

391,354

 

Cost of revenues

 

 

363,131

 

 

 

303,494

 

 

 

 

 

 

 

 

 

 

Gross profit

 

 

103,139

 

 

 

87,860

 

Research and development costs, net

 

 

12,963

 

 

 

10,584

 

Selling, marketing and general and administrative expenses

 

 

51,373

 

 

 

45,596

 

Operating income

 

 

38,803

 

 

 

31,680

 

 

 

 

 

 

 

 

 

 

Financial expenses, net

 

 

4,644

 

 

 

3,596

 

 

 

 

 

 

 

 

 

 

Income before taxes on income

 

 

34,159

 

 

 

28,084

 

Taxes on income

 

 

7,723

 

 

 

6,261

 

 

 

 

 

 

 

 

 

 

Income after taxes

 

 

26,436

 

 

 

21,823

 

Share of profit (loss) of companies accounted for at equity, net

 

 

129

 

 

 

726

 

 

 

 

 

 

 

 

 

 

Net income

 

 

26,565

 

 

 

22,549

 

Net income attributable to non-controlling interests

 

 

15,544

 

 

 

12,513

 

 

 

 

 

 

 

 

 

 

Net income attributable to Formula Systems’ shareholders

 

 

11,021

 

 

 

10,036

 

 

 

 

 

 

 

 

 

 

Earnings per share (basic)

 

 

0.72

 

 

 

0.68

 

Earnings per share (diluted)

 

 

0.71

 

 

 

0.58

 

 

 

 

 

 

 

 

 

 

Number of shares used in computing earnings per share (basic)

 

 

15,284,684

 

 

 

14,855,794

 

Number of shares used in computing earnings per share (diluted)

 

 

15,291,806

 

 

 

15,587,689

 

 

4

 

 

FORMULA SYSTEMS (1985) LTD.

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

U.S. dollars in thousands

 

 

 

March 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

 

 

(Unaudited)

 

ASSETS

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

438,410

 

 

 

369,042

 

Short-term deposits

 

 

7,026

 

 

 

29,886

 

Marketable securities

 

 

3,387

 

 

 

6,600

 

Trade receivables

 

 

479,473

 

 

 

485,824

 

Other accounts receivable and prepaid expenses

 

 

68,847

 

 

 

67,273

 

Inventories

 

 

7,623

 

 

 

7,156

 

Total current assets

 

 

1,004,766

 

 

 

965,781

 

 

 

 

 

 

 

 

 

 

LONG-TERM ASSETS:

 

 

 

 

 

 

 

 

Deferred taxes

 

 

37,350

 

 

 

35,445

 

Other long-term accounts receivable and prepaid expenses

 

 

22,131

 

 

 

21,493

 

Total long-term assets

 

 

59,481

 

 

 

56,938

 

 

 

 

 

 

 

 

 

 

INVESTMENTS IN COMPANIES ACCOUNTED FOR AT EQUITY METHOD

 

 

27,315

 

 

 

26,350

 

 

 

 

 

 

 

 

 

 

PROPERTY, PLANTS AND EQUIPMENT, NET

 

 

47,952

 

 

 

43,059

 

 

 

 

 

 

 

 

 

 

OPERATING LEASE RIGHT-OF-USE ASSETS

 

 

99,783

 

 

 

104,130

 

 

 

 

 

 

 

 

 

 

NET INTANGIBLE ASSETS AND GOODWILL

 

 

894,177

 

 

 

892,349

(*)

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

 

2,133,474

 

 

 

2,088,607

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

Loans and credit from banks and others

 

 

173,889

 

 

 

125,299

 

Debentures

 

 

30,210

 

 

 

31,362

 

Current maturities of operating lease liabilities

 

 

30,538

 

 

 

35,673

 

Trade payables

 

 

125,071

 

 

 

125,163

 

Deferred revenues

 

 

103,700

 

 

 

93,512

 

Other accounts payable

 

 

195,917

 

 

 

205,106

 

Dividend payable

 

 

-

 

 

 

7,081

 

Liabilities in respect of business combinations

 

 

12,158

 

 

 

8,431

 

Put options of non-controlling interests

 

 

25,318

 

 

 

39,668

 

Total current liabilities

 

 

696,801

 

 

 

671,295

 

 

 

 

 

 

 

 

 

 

LONG-TERM LIABILITIES:

 

 

 

 

 

 

 

 

Loans and credit from banks and others

 

 

190,900

 

 

 

162,058

 

Debentures

 

 

161,975

 

 

 

175,411

 

Long term operating lease liabilities

 

 

75,898

 

 

 

73,686

 

Other long-term liabilities

 

 

 

8,744

 

 

 

8,313

 

Deferred taxes

 

 

51,393

 

 

 

50,877

(*)

Deferred revenues

 

 

10,840

 

 

 

6,491

 

Liabilities in respect of business combinations

 

 

14,451

 

 

 

17,321

(*)

Put options of non-controlling interests

 

 

19,789

 

 

 

15,182

 

Employees benefit liabilities

 

 

12,898

 

 

 

11,639

 

Total long-term liabilities

 

 

546,888

 

 

 

520,978

 

 

 

 

 

 

 

 

 

 

EQUITY

 

 

 

 

 

 

 

 

Equity attributable to Formula Systems’ shareholders

 

 

418,094

 

 

 

421,640

 

Non-controlling interests

 

 

471,691

 

 

 

474,694

 

Total equity

 

 

889,785

 

 

 

896,334

 

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND EQUITY

 

 

2,133,474

 

 

 

2,088,607

 

 

 

(*)

Immaterial adjustment to comparative data

5

 

  

FORMULA SYSTEMS (1985) LTD.

STAND-ALONE STATEMENTS OF FINANCIAL POSITION

U.S. dollars in thousands

 

 

 

March 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

 

 

(Unaudited)

 

ASSETS

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

Cash and cash equivalents

 

 

54,282

 

 

 

82,725

 

Other accounts receivable and prepaid expenses

 

 

7,225

 

 

 

6,803

 

Total current assets

 

 

61,507

 

 

 

89,528

 

 

 

 

 

 

 

 

 

 

INVESTMENTS IN SUBSIDIARIES AND A JOINTLY CONTROLLED ENTITY (*)

 

 

 

 

 

 

 

 

Matrix IT Ltd.

 

 

124,494

 

 

 

125,809

 

Sapiens International Corporation N.V.

 

 

176,851

 

 

 

176,832

 

Magic Software Enterprises Ltd.

 

 

112,823

 

 

 

114,019

 

Other

 

 

80,931

 

 

 

72,322

 

Total Investments in subsidiaries and a jointly controlled entity

 

 

495,099

 

 

 

488,982

 

 

 

 

 

 

 

 

 

 

OTHER LONG TERM RECEIVABLES

 

 

1,539

 

 

 

1,539

 

 

 

 

 

 

 

 

 

 

PROPERTY, PLANTS AND EQUIPMENT, NET

 

 

2

 

 

 

2

 

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

 

558,147

 

 

 

580,051

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

Loans from banks and others

 

 

-

 

 

 

13,130

 

Debentures

 

 

19,819

 

 

 

20,296

 

Trade payables

 

 

36

 

 

 

69

 

Other accounts payable

 

 

1,370

 

 

 

1,274

 

Dividends payable

 

 

-

 

 

 

7,081

 

Total current liabilities

 

 

21,225

 

 

 

41,850

 

 

 

 

 

 

 

 

 

 

LONG-TERM LIABILITIES:

 

 

 

 

 

 

 

 

Debentures

 

 

112,990

 

 

 

116,561

 

Put options of non-controlling interests

 

 

5,838

 

 

 

-

 

Total long-term liabilities

 

 

118,828

 

 

 

116,561

 

 

 

 

 

 

 

 

 

 

EQUITY

 

 

418,094

 

 

 

421,640

 

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND EQUITY

 

 

558,147

 

 

 

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.

 

 

6