Formula Systems Reports Results for Fourth Quarter and Full Year of 2014 with Annual Net Income of $75.1 Million

OR YEHUDA, Israel, March 12, 2015 /PRNewswire/ -- Formula Systems (1985) Ltd. FORTY 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, today announced its results for the fourth quarter and full year ended December 31, 2014.

Financial Highlights for the Fourth Quarter Ended December 31, 2014

• From August 21, 2014 through December 23, 2014, Formula purchased an aggregate of 1,545,802 common shares of Sapiens International Corporation N.V. through broker-initiated and private transactions for an aggregate purchase price of $11.9 million; pursuant to which Formula's holdings in Sapiens were increased to 50.2%.

As a result of Formula's gaining of control in Sapiens, Formula's investment in Sapiens (which until then was measured under the equity method of accounting) was consolidated in Formula's closing balances as of December 31, 2014. The gain recognized in relation to the consolidation of Sapiens and the related re-measurement of the investment to fair value amounted to $4.2 million and is presented in the income statement as "equity in gains of affiliated companies, net."

• Net income for the fourth quarter of 2014 amounted to $8.8 million, or $0.60 per fully diluted share, compared to $66.4 million, or $4.65 per fully diluted share, in the same period last year. Net income for the fourth quarter showed a year over year decrease due to the gain recognized in the same period last year in the amount of $61.2 million in relation to Sapiens' November 2013 follow-on public offering pursuant to which Formula's holdings in Sapiens were reduced below 50% which resulted with Formula's investment in Sapiens to be accounted from that day on under the equity method of accounting and the related re-measurement to fair value of Formula's investment in Sapiens.
• Revenues for the fourth quarter of 2014 amounted to $162.0 million. Revenues for the fourth quarter showed a year over year decrease due to the deconsolidation of Magic's and Sapiens' results of operations, which were previously consolidated during the fourth quarter of 2013, and which continued to be accounted in 2014 under the equity method of accounting. Formula's comparable non-GAAP pro-forma revenues, had it entirely consolidated Magic's and Sapiens' results of operations in the fourth quarters of both 2014 and 2013, would have totaled $246.3 million, compared to $226.8 million in the same period last year, reflecting a year over year increase of 8.6%.
• Operating income for the fourth quarter of 2014 amounted to $9.8 million, compared to $17.4 million in the same period last year. Operating income for the fourth quarter showed a decrease due to the deconsolidation of Magic's and Sapiens' results of operations, which were previously consolidated during the fourth quarter of 2013. Formula's comparable non-GAAP pro-forma operating income had it entirely consolidated Magic's and Sapiens' results of operations for the fourth quarters of both 2014 and 2013 would have totaled $18.4 million, compared to $19.1 million in the same period last year, reflecting a year over year decrease of 3.3%.
• As of December 31, 2014 Formula held 50.2%, 50.2% and 45.1% of the outstanding ordinary shares of Matrix, Sapiens and Magic respectively.  

Financial Highlights for the Year Ended December 31, 2014

• Net income for the year ended December 31, 2014 amounted to $75.1 million, or $5.19 per fully diluted share, compared to $80.7 million, or $5.68 per fully diluted share, in the same period last year. Net income for the year 2014 was positively impacted by a net gain of $61.4 million recorded in relation to Magic Software's March 2014 follow-on public offering pursuant to which Formula's holdings in Magic were reduced below 50% which resulted with Formula's investment in Magic to be accounted from that day on under the equity method of accounting and the related re-measurement to fair value of Formula's investment in Magic and a net gain of $4.2 million recorded in relation to Formula's gaining control in Sapiens, offset by a $4.9 million loss recorded under the equity method of accounting as a result of the decrease of approximately 1.7% of Formula's beneficial ownership percentage in Sapiens during 2014 due to the exercise of employee stock-based compensation and warrants and net loss of $3.9 million recorded under the equity method of accounting related to amortization of identifiable intangible assets. Net income for the year 2013 was positively impacted by a gain in the amount of $61.2 million in relation to Sapiens' November 2013 follow-on public offering, which resulted in related re-measurement to fair value of Formula investment in Sapiens.
• Revenues for the year ending December 31, 2014 amounted to $636.4 million compared to $795.9 million in the same period last year. Revenues showed a year over year decrease due to the deconsolidation of Magic's and Sapiens' results of operations, which were previously consolidated during the same period in 2013. Formula's comparable non-GAAP pro-forma revenues, had it continued to consolidate Magic's and Sapiens' results of operations for the years 2014 and 2013, would have totaled $930.8 million, compared to $814.0 million in the same period last year, reflecting a year over year increase of 14.3%.
• Operating income for the year ending December 31, 2014 amounted to $35.0 million compared to $60.7 million in the same period last year. Operating income showed a year over year decrease due to the deconsolidation of Magic's and Sapiens' results of operations, which were previously consolidated during the same period in 2013. Formula's comparable non-GAAP pro-forma operating income, had it continued to consolidate Magic's and Sapiens' results of operations for the years 2014 and 2013, would have totaled $66.7 million, compared to $62.4 million in the same period last year, reflecting a year over year increase of 6.9%.
• Consolidated cash, short-term deposits and short-term and long-term investments in marketable securities totaled approximately $163.4 million as of December 31, 2014. Formula's stand-alone net debt as of December 31, 2014 amounted to $26.9 million.
• Total equity as of December 31, 2014 was $648.8 million, representing 58% of Formula's total assets.

Comments of Management
Commenting on the results, Guy Bernstein, CEO of Formula Systems, said, "We are pleased with our financial performance in 2014 and growth prospects for 2015 across our portfolio. Matrix finished both the year and the fourth quarter with record revenues. Despite the challenging local economy, Matrix increased annual operating profit by 3.9% and net profit by 4.8% (measured based on local currency). Matrix continues to adapt itself to fast-changing technology and market environments, including the transition to digital, mobile and cloud, by expanding its presence in the Americas, and through organic growth, mergers and acquisitions, and the creation of new ventures. Sapiens concluded 2014 with a solid revenue increase driven by growth in all its products and across all its geographic regions, with revenues increasing by 16.3% to a record-breaking $157.5 million, meeting its annual revenue guidance. It also demonstrated sequential improvements in operating margin during each quarter of the year. Having enhanced its products and sales and marketing organization, Sapiens is strengthening its reputation as a provider of innovative insurance software solutions. By focusing on growth areas, Sapiens is well positioned to continue its growth trajectory and has given guidance for double-digit growth in the range of $174 to $178 million for 2015 and anticipates operational margins in the range of 12-13% for the full year 2015. Magic enjoyed its fifth year of record-breaking revenues and operating results in 2014, coming in at the top end of its revenue guidance at $164.3 million for the year. Magic experienced growth across all revenue streams, including software and licenses, maintenance and professional services. Despite being hit by foreign currency devaluations, Magic was able to maintain business operational margins in the range of 16%. With a healthy cash balance, Magic is well-positioned to capitalize on opportunities to accelerate growth both organically, by enabling enterprises to leverage their business-critical legacy systems as they transition to enterprise mobility and cloud-based operations, and through new business acquisitions."

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.

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SOURCE Formula Systems