Form 6-K FORMULA SYSTEMS (1985) For: Aug 17

 

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 2022

 

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 ☐

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐

 

 

 

CONTENTS

 

Quarterly Results of Operations

 

On August 17, 2022, Formula Systems (1985) Ltd. (“we” or “us”) announced our financial results for the second quarter and first half ended June 30, 2022.  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.

 

The GAAP financial statements appended to this Form 6-K in Exhibit 99.1 are hereby incorporated by reference in our Registration Statement on Form S-8 (SEC File No. 333-156686).

 

Exhibit No.		Title of Exhibit
99.1		Formula Systems Reports Second Quarter and First Half 2022 Financial Results

 

 

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 17, 2022

 

 

EXHIBIT INDEX

 

EXHIBIT  NUMBER		DESCRIPTION
99.1		Formula Systems Reports Second Quarter and First Half 2022 Financial Results

 

 

3

 

Exhibit 99.1

 

PRESS RELEASE

 

Formula Systems Reports Second Quarter and First Half 2022 Financial Results: Net Income for the Second Quarter Reached $32.9 Million

 

Double-digit growth recorded across all key financial indices for the first half: revenues, gross profit, operating income, and net income attributable to Formula’s shareholders.

 

Or Yehuda, Israel, August 17, 2022 – Formula Systems (1985) Ltd. (Nasdaq and TASE: FORTY), 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 six month-period ended June 30, 2022.

 

Financial Highlights for the Second Quarter Ended June 30, 2022

 

●	Consolidated revenues for the second quarter ended June 30, 2022 increased by 9.6% to $644.6 million, compared to $587.9 million in the second quarter of the previous year.

 

●

Consolidated operating income for the second quarter ended June 30, 2022 increased by 97.0% to $99.5 million, compared to $50.5 million in the second quarter of the previous year. Operating income for the second quarter of 2022 included a capital gain realized from the disposition of a Matrix IT subsidiary in an amount of $44.2 million. Excluding such impact, consolidated operating income for the second quarter ended June 30, 2022, increased by 9.5% compared to the second quarter of the previous year.

 

●

Consolidated net income attributable to Formula’s shareholders for the second quarter ended June 30, 2022 increased by 147% to $32.9 million, or $2.12 per fully diluted share, compared to $13.3 million, or $0.86 per fully diluted share, in the second quarter of the previous year. Net income for the second quarter of 2022 was positively impacted by approximately $17.1 million of income realized from the disposition of a subsidiary of Matrix IT Ltd. Excluding such impact, consolidated net income attributable to Formula’s shareholders for the second quarter ended June 30, 2022 increased by 18.9% year over year compared to the second quarter of the previous year.

 

Financial Highlights for the Six Month-Period Ended June 30, 2022

 

●	Consolidated revenues for the first half ended June 30, 2022 increased by 12.2% to $1.3 billion, compared to $1.16 billion in the first half of the previous year.

 

●

Consolidated operating income for the first half ended June 30, 2022 increased by 62.2% to $158.9 million, compared to $98.0 million in the first half of the previous year. Operating income for the first half of 2022 included a capital gain realized from the disposition of a Matrix IT subsidiary in an amount of $44.2 million. Excluding such impact, consolidated operating income for the first half ended June 30, 2022, increased by 17.1% compared to the first half of the previous year.

 

●

Consolidated net income attributable to Formula’s shareholders for the first half ended June 30, 2022 increased by 90.9% to $49.2 million, or $3.18 per fully diluted share, compared to $25.8 million, or $1.66 per fully diluted share, in the first half of the previous year. Net income for the first half of 2022 was positively impacted by approximately $17.1 million of income realized from the disposition of a subsidiary of Matrix IT Ltd. Excluding such impact, consolidated net income attributable to Formula’s shareholders for the first half ended June 30, 2022 increased by 24.6% year over year compared to the first half of the previous year.

 

 

●

As of June 30, 2022, Formula held 48.7%, 43.9%, 46.3%, 100%, 50%, 90.1%, 80% 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. and ZAP Group Ltd., respectively.

 

●	Consolidated cash and cash equivalents, short-term bank deposits and investments in marketable securities totaled approximately $451.5 million as of June 30, 2022, compared to $512.5 million as of December 31, 2021.

 

●	Total equity as of June 30, 2022 was $1.16 billion (representing 44.5% of the total consolidated statements of financial position), compared to $1.18 billion (representing 42.9% of the total consolidated statements of financial position) as of December 31, 2021.

 

Debentures Covenants

 

As of June 30, 2022, 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 was equal to $540.7 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, 2022, was equal to 8.6%.

 

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 (based on the accumulated calculation for the four most recent quarters and excluding a capital gain of $44.2 million realized from the disposition of a Matrix IT subsidiary), as of June 30, 2022, was equal to 0.25.

 

Comments of Management

 

Commenting on the results, Guy Bernstein, CEO of Formula Systems, said: “I am proud that the momentum we saw coming out of 2021 has continued throughout the first half of 2022, reflected in all-time high first half financial results across all our key financial indices. We continue to demonstrate strong results in 2022, delivering solid growth in revenue, reaching $644.6 million in revenues for the second quarter, with a record-breaking net income for the second quarter of $15.9 million that reflected 18.9% year over year growth, excluding the impact of the disposition of Infinity Labs Ltd, a subsidiary of Matrix I.T Ltd. These outstanding results stand as a testament to our strong fundamentals and our pivotal role in influencing our customers’ growth strategies across all the areas in which we operate. Our broad investment portfolio allows us to carefully mitigate the current risks in the IT market, which are mainly the challenging macro-economic environment, as well as the fierce competition over talented IT workforce. We continue our efforts across our entire group to adhere to our core values of innovation, professionalism, agility and transparency, which allow us to continue to create significant value for our customers in managing, streamlining, accelerating and contributing to their growth. We continue to invest organically and inorganically in our service lines and are excited about the innovative capabilities we are building to drive continued long term profitable growth and shareholder value.”

 

 

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

[email protected]

 

 

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, including inflation, rising interest rates and supply chain delays, triggered in part by the COVID-19 (coronavirus) pandemic, 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 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; risks related to the insurance industry in which our clients operate; risks associated with our global sales and operations, such as changes in regulatory requirements, adverse consequences of international conflicts such as Russia’s invasion of the Ukraine, or fluctuations in currency exchange rates; and risks related to our 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, filed with the U.S. Securities and Exchange Commission on May 16, 2022, 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.

 

 

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,
		2022				2021				2022				2021
		Unaudited								Unaudited
Revenues			644,594				587,875				1,302,162				1,160,518
Cost of revenues			495,783				446,934				998,325				894,019
Gross profit			148,811				140,941				303,837				266,499
Research and development costs, net			17,848				16,321				35,198				32,325
Selling, marketing and general and administrative expenses			75,636				74,086				153,913				136,186
Capital gain from realization of a Matrix IT's subsidiary			44,208				-				44,208				-
Operating income			99,535				50,534				158,934				97,988
Financial expenses, net			3,716				5,940				8,399				11,043
Income before taxes on income			95,819				44,594				150,535				86,945
Taxes on income			21,421				10,844				32,923				20,193
Income after taxes			74,398				33,750				117,612				66,752
Share of profit of companies accounted for at equity, net			380				431				613				661
Net income			74,778				34,181				118,225				67,413
Net income attributable to non-controlling interests			41,835				20,846				69,048				41,659
Net income attributable to Formula Systems' shareholders			32,943				13,335				49,177				25,754
Earnings per share (basic)			2.16				0.87				3.24				1.68
Earnings per share (diluted)			2.12				0.86				3.18				1.66
Number of shares used in computing earnings per share (basic)			15,295,517				15,289,267				15,293,955				15,289,267
Number of shares used in computing earnings per share (diluted)			15,487,852				15,362,906				15,496,092				15,350,431

 

 

FORMULA SYSTEMS (1985) LTD.

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

U.S. dollars in thousands

 

		June 30,				December 31,
		2022				2021
		(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents			412,096				485,391
Short-term deposits			38,322				25,924
Marketable securities			1,049				1,142
Trade receivables, net			656,504				696,321
Other accounts receivable and prepaid expenses			70,653				72,118
Inventories			36,744				21,221
Total current assets			1,215,368				1,302,117
LONG-TERM ASSETS:
Deferred taxes			40,360				46,364
Other investments, long-term accounts receivable and prepaid expenses			30,072				23,676
Investments in companies accounted for at equity method			26,628				28,900
Property, plants and equipment, net			53,096				56,886
Right-of-use assets			97,427				115,833
Net intangible assets and goodwill			1,144,895				1,174,790
Total long-term assets			1,392,478				1,446,449
TOTAL ASSETS			2,607,846				2,748,566
CURRENT LIABILITIES:
Loans and credit from banks and others			223,387				175,696
Debentures			36,402				48,455
Current maturities of lease liabilities			37,798				41,655
Trade payables			183,923				205,835
Deferred revenues			135,373				140,660
Employees and payroll accrual			188,039				207,553
Other accounts payable			59,936				80,411
Liabilities in respect of business combinations			12,138				7,773
Put options of non-controlling interests			43,679				39,558
Total current liabilities			920,675				947,596
LONG-TERM LIABILITIES:
Loans from banks and others			129,435				157,229
Debentures			171,106				205,035
Lease liabilities			68,939				84,839
Other long-term liabilities			11,293				12,183
Deferred taxes			70,366				78,135
Deferred revenues			13,196				17,757
Liabilities in respect of business combinations			25,668				21,644
Put options of non-controlling interests			25,676				31,720
Employees benefit liabilities, net			10,070				12,641
Total long-term liabilities			525,749				621,183
EQUITY
Equity attributable to Formula Systems' shareholders			540,672				540,960
Non-controlling interests			620,750				638,827
Total equity			1,161,422				1,179,787
TOTAL LIABILITIES AND EQUITY			2,607,846				2,748,566

 

 

FORMULA SYSTEMS (1985) LTD.

STAND-ALONE STATEMENTS OF FINANCIAL POSITION

U.S. dollars in thousands

 

		June 30,				December 31,
		2022				2021
		(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents			14,653				14,163
Dividend receivable			2,286				-
Other accounts receivable and prepaid expenses			5,182				4,513
Total current assets			22,121				18,676
LONG-TERM ASSETS:
Investment in subsidiaries and a jointly controlled entity (*)
Matrix IT Ltd.			164,379				154,391
Sapiens International Corporation N.V.			219,464				231,130
Magic Software Enterprises Ltd.			122,131				122,358
Other			157,358				174,481
Total investment in subsidiaries and a jointly controlled entity			663,332				682,360
Long term receivables and other investments			2,263				2,547
Property, plants and equipment, net			9				10
Total long-term assets			665,604				684,917
TOTAL ASSETS			687,725				703,593
CURRENT LIABILITIES:
Loans from banks and others			10,000				-
Debentures			15,273				28,654
Trade payables			232				192
Other accounts payable			7,570				5,339
Put options of non-controlling interests			1,082				-
Liability in respect of a business combination			1,022				-
Total current liabilities			35,179				34,185
LONG-TERM LIABILITIES:
Debentures			111,874				126,049
Put options of non-controlling interests			-				1,249
Liability in respect of a business combination			-				1,150
Total long-term liabilities			111,874				128,448
EQUITY			540,672				540,960
TOTAL LIABILITIES AND EQUITY			687,725				703,593

 

(*)

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.

 

 

7

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