Formula Systems Reports Second Quarter Results for 2014

OR YEHUDA, Israel, Aug. 14, 2014 /PRNewswire/ -- Formula Systems (1985) Ltd. FORTY a global information technology company principally engaged, through its subsidiary and affiliates, in providing software consulting services, developing proprietary software products, and providing computer-based business solutions, today announced its results for the second quarter of 2014.

Financial Highlights for the Second Quarter of 2014

  • In March 2014, Magic Software issued 6,900,000 of its ordinary shares in a follow-on public offering, of which Formula purchased 700,000 ordinary shares at a price of $8.50 per share. As a result of the offering, our beneficial ownership percentage in Magic Software decreased from 51.6% to 45.0%, resulting in the deconsolidation of Magic Software from our financial statements. Following the said deconsolidation and starting March 5, 2014, our investment in Magic Software is measured under the equity method of accounting.
  • Revenues for the second quarter ended June 30, 2014, decreased 27% to $147.5 million compared to $201.2 million in the same period last year. Revenue for the second quarter was negatively impacted by the deconsolidation of Magic's and Sapiens' results of operations totaling $67.8 million, which were consolidated during all of the second quarter of 2013. 
  • Operating income for the quarter ended June 30, 2014, decreased 46% to $8.4 million compared to $15.4 million in the same period last year. Operating income was negatively impacted by the deconsolidation of Magic's and Sapiens' results of operations totaling $6.9 million, which were consolidated during all of the second quarter of 2013. 
  • Net income for the quarter ended June 30, 2014, amounted to $2.9 million, or $0.20 per fully diluted share, compared to $4.9 million, or $0.34 per fully diluted share, in the same period last year. Net income for the second quarter of 2014 was negatively impacted by loss of $1.7 million recorded as a result of the decrease in Formula's beneficial ownership percentage in Sapiens from 47.7% to 47.1% due to the exercise of employee stock-based compensation.

Financial Highlights for the Six-Month Period Ended June 30, 2014

  • Revenues for the six-month period ended June 30, 2014, decreased 18% to $321.0 million compared to $389.9 million in the same period last year. Revenue for the six-month period was negatively impacted by the deconsolidation of Magic's and Sapiens' results of operations totaling $105.4 million. 
  • Operating income for the six-month period ended June 30, 2014, decreased 46% to $15.3 million compared to $28.6 million in the same period last year. Operating income was negatively impacted by the deconsolidation of Magic's and Sapiens' results of operations totaling $10.2 million.
  • Net income for the six-month period ended June 30, 2014, amounted to $60.0 million (or $4.15 per fully diluted share) compared to $9.1 million (or $0.64 per fully diluted share) in the same period last year; Net income for the six-month period ended June 30, 2014 was positively impacted by a net gain of $61.4 million recorded in relation to Formula's loss of control in Magic Software described above offset by the $4.8 million loss recorded as a result of the decrease of Formula's beneficial ownership percentage in Sapiens from 48.6% to 47.1% due to the exercise of employee stock-based compensation and warrants.
  • Consolidated cash and short-term and long-term investments in marketable securities totaled approximately $98.9 million as of June 30, 2014.
  • Total equity as of June 30, 2014 was $477.3 million (representing 53% of the total balance sheet).

Comments of Management
Commenting on the results, Guy Bernstein, CEO of Formula Systems, said, "We are pleased with our strong performance during the first half of the year across our portfolio. Matrix continued to show steady top-line growth during the first half of 2014 with revenues increasing 6% year over year. With new multi-million dollar wins, increased demand for its services and a steady pipeline of large IT projects, Matrix continues to be positioned as Israel's leading IT service provider, benefiting from increased confidence from customers, investors and market analysts. Backed with 92.8 million dollars in cash and short-term investments, Magic maintained double-digit growth momentum through the second quarter and first half of 2014 with strong performance in sales and profitability across its products and professional services. It enjoyed revenues of $40.6 million and non-GAAP operating income of $6.0 million for the second quarter, up 17% and 28% respectively year over year and reasserted its revenue guidance of $161 million to $165 million for the full-year 2014. Sapiens produced another record quarter with revenues of $38.7 million and non-GAAP operating income of $4.0 million, up 16.9% and 19.6% respectively year over year. With total cash and investments in marketable securities of $79.8 million, Sapiens maintains its confidence in its ability to deliver its full-year 2014 revenue guidance of $154 million to $158 million. "

About Formula
Formula Systems (1985) Ltd. is a global information technology company principally engaged, through its subsidiaries and affiliates, in providing software consulting services, developing proprietary software products, and providing computer-based business solutions.

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 INCOME

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










Six months ended 


Three months ended


June 30, 


June 30, 


2014


2013


2014


2013


Unaudited


Unaudited

Revenues 

321,006


389,928


147,517


201,158

Cost of revenues 

264,497


296,120


125,368


152,710









Gross profit 

56,509


93,808


22,149


48,448

Research and development costs, net 

787


7,980


-


3,873

Selling, general and administrative expenses 

40,385


57,241


13,785


29,121

Other income (expenses), net 

3


(2)


3


(11)









Operating income 

15,340


28,585


8,367


15,443









Financial expenses, net 

(4,523)


(3,566)


(2,459)


(2,091)









Income before taxes on income 

10,817


25,019


5,908


13,352

Taxes on income 

4,437


4,039


1,752


2,253









Income after taxes

6,380


20,980


4,156


11,099

Equity in gains (losses) of affiliated companies, net 

60,837


(23)


937


(34)









Net income 

67,217


20,957


5,093


11,065

Change in redeemable non controlling interests

305


1,357


(354)


605

Net income attributable to non-controlling interests 

6,915


10,479


2,545


5,579









Net income attributable to Formula's shareholders 

59,997


9,121


2,902


4,881









Earnings per share (basic)

4.31


0.67


0.21


0.36

Earnings per share (diluted)

4.15


0.64


0.20


0.34









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

13,894,239


13,625,239


13,911,782


13,654,478

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

14,397,005


13,921,454


14,427,788


14,094,366

 

FORMULA SYSTEMS (1985) LTD.

CONSOLIDATED CONDENSED BALANCE SHEETS

U.S. dollars in thousands




June 30,


Dec 31,




2014


2013




(Unaudited)



 ASSETS




CURRENT ASSETS:





Cash and cash equivalents

81,278


82,123


Marketable securities

17,203


17,956


Short-term deposit

14


672


Trade receivables

155,313


193,582


Other accounts receivable and prepaid expenses

32,742


36,488


Inventories

2,649


2,407

Total current assets

289,199


333,228






LONG-TERM INVESTMENTS:





Marketable securities 

399


520


Deferred Taxes

15,876


13,152


Prepaid expenses and other accounts receivable

10,006


8,761

Total  Long-Term Investments

26,281


22,433






INVESTMENTS IN AFFILIATED COMPANIES

330,733


161,501






SEVERANCE PAY FUND 

61,662


68,148






PROPERTY, PLANTS AND EQUIPMENT, NET 

17,471


19,408






NET INTANGIBLE ASSETS AND GOODWILL

175,188


267,077






TOTAL  ASSETS

900,534


871,795






CURRENT LIABILITIES:





Liabilities to banks 

39,876


35,636


Trade payables 

40,086


52,645


Deferred revenues 

30,145


28,454


Other accounts payable 

65,554


89,670


Dividend payable 

7,067


4,565

Total current liabilities

182,728


210,970






LONG-TERM LIABILITIES:





Liabilities to banks and others 

116,370


62,447


Deferred taxes

27,204


8,157


Deferred revenue

6,304


4,990


Other long-term payables

2,671


4,289


Accrued severance pay 

75,048


81,258

Total long-term liabilities

227,597


161,141






REDEEMABLE NON-CONTROLLING INTEREST

12,882


23,529






EQUITY 





Formula shareholders' equity

386,257


319,341


Non-controlling interests

91,070


156,814

Total equity

477,327


476,155






TOTAL LIABILITIES AND EQUITY

900,534


871,795
















*)  Restated due to a misstatement in revenues recognized in Matrix in 2009 until 2013 (Decreasing Revenues

      in 2011,2012 and 2013 $1.7, $1.8 and $0.8 million respectively;  Decreasing net income in  2011,2012 

      and 2013 $0.7, $0.7 and $0.3 million respectively)


And the following effect on the consolidated condensed balance sheet: 

As of December 31, 2013








As

previously

reported


Adjustment

As adjusted

Trade receivables


201,144


-7,562

193,582

Other accounts receivable 


34,609


1,876

36,485

Formula shareholders' equity


322,185


-2,844

319,341

Non-controlling interests


159,653


-2,839

156,814

SOURCE Formula Systems (1985) Ltd.

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