Formula Systems (1985) .(FORTY) - 2025 Q2 - Quarterly Report

Executive Summary This section summarizes Formula Systems' Q2 and H1 2025 financial performance, key metrics, and strategic developments Financial Highlights for the Quarter Ended June 30, 2025 Formula Systems reported strong Q2 2025 with record revenues, but net income attributable to shareholders decreased due to higher financial expenses, primarily from the appreciation of the New Israeli Shekel against the U.S. dollar Q2 2025 Key Financial Highlights (YoY) | Metric | Q2 2025 (approx.) | Q2 2024 (approx.) | Change (%) | | :--------------------------------------- | :---------------- | :---------------- | :--------- | | Revenues | $743.4 million | $667.7 million | +11.3% | | Operating income | $67.9 million | $65.0 million | +4.4% | | Operating income (excl. one-time item) | N/A | N/A | +9.3% | | Net income attributable to shareholders | $15.1 million | $18.8 million | -20.1% | | Diluted EPS | $0.95 | $1.20 | -20.8% | | Financial expenses, net | $10.2 million | $3.8 million | +168.4% | - The decrease in net income was primarily driven by an increase in Financial expenses, net, totaling approximately $10.2 million in Q2 2025, compared to approximately $3.8 million in the same period last year. This increase mainly reflected adverse exchange rate differences resulting from the 9.3% appreciation of the New Israeli Shekel (NIS) against the U.S. dollar[3][4] Financial Highlights for the Six-Month Period Ended June 30, 2025 The first half of 2025 also saw record revenues and increased operating income, but net income attributable to shareholders declined due to higher financial expenses, while the company also reported its ownership stakes, cash position, and total equity H1 2025 Key Financial Highlights (YoY) | Metric | H1 2025 (approx.) | H1 2024 (approx.) | Change (%) | | :--------------------------------------- | :---------------- | :---------------- | :--------- | | Revenues | $1.5 billion | $1.37 billion | +9.7% | | Operating income | $138.4 million | $127.6 million | +8.5% | | Net income attributable to shareholders | $34.4 million | $36.0 million | -4.5% | | Diluted EPS | $2.20 | $2.31 | -4.8% | Balance Sheet Highlights (U.S. dollars in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :--------------------------------------- | :------------ | :---------------- | | Consolidated cash and cash equivalents and short-term bank deposits | $406.2 million | $563.2 million | | Total equity | $1.46 billion | $1.39 billion | - Formula Systems held significant ownership stakes in its key subsidiaries as of June 30, 2025: Matrix IT Ltd. (48.13%), Sapiens International Corporation N.V. (43.50%), Magic Software Enterprises Ltd. (46.71%), Michpal Technologies Ltd. (100%), TSG IT Advanced Systems Ltd. (42.34%), Insync Staffing Solutions, Inc. (90.1%), Ofek Aerial Photography Ltd. (80%), ZAP Group Ltd. (100%), Shamrad Electronics (1997) Ltd. (100%), and Hashahar Telecom and Electricity Ltd. (51%)[9] Dividend Declaration This section details the board's approval and specifics of the cash dividend for Q2 2025 Declaration of Dividend for the Second Quarter of 2025 Formula Systems' board of directors approved the distribution of a cash dividend for the second quarter of 2025, payable in October 2025, subject to Israeli withholding tax laws Q2 2025 Dividend Details | Metric | Value | | :--------------------------------------- | :--------------------------------------- | | Dividend per share | NIS 1.69 (approx. $0.50) | | Aggregate amount | approx. NIS 25.9 million (approx. $7.7 million) | | Payment Date | October 28, 2025 | | Record Date | October 14, 2025 | | Withholding Tax (Israeli tax law) | 30% (for 10%+ shareholders) or 25% (for others) | - 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[9] Comments of Management This section presents management's perspective on the group's performance and strategic updates from key subsidiaries Formula Systems Group Overview CEO Guy Bernstein highlighted the Formula Systems group's strong and consistent performance, achieving record first-half results across key financial and operational metrics, driven by an ongoing focus on sustainable growth and adoption of fast-growing technologies - The Formula Systems group continues to demonstrate strong and consistent performance, achieving record first-half results across key financial and operational metrics, including revenues, gross profit, operating income and EBITDA[10] - The company is implementing and advancing fast-growing technologies such as cloud, cyber, digital, data, DevOps, InsureTech and AI to generate meaningful value for customers by helping them manage, streamline, accelerate and expand their businesses[10] Subsidiary Performance & Strategic Updates This section details the individual performance and strategic initiatives of Formula Systems' key subsidiaries, including Matrix IT, Magic Software, Sapiens, Michpal Technologies, TSG IT Advanced Systems, and Zap Group, highlighting their contributions to the overall group's success and resilience in challenging market conditions Matrix IT Ltd. Matrix reported its best second quarter in history with record results across all key financial indices, driven by its leadership in high-demand technologies and extensive U.S. operations, demonstrating resilience even during challenging periods Matrix Q2 Performance (YoY, in NIS) | Metric | Q2 (NIS) | Change (%) | | :--------------------------------------- | :------------- | :--------- | | Revenues | 1.45 billion | +8.9% | | Operating income | 126.7 million | +13.9% | - Matrix is recognized as a market leader in Israel in the implementation of fast-growing technologies such as cloud, cyber, digital, data, DevOps and AI, and maintains its vitality and leadership even during challenging political and security periods[10] Magic Software Enterprises Ltd. Magic Software achieved strong Q2 growth, crossing $150 million in quarterly revenues for the first time, reflecting success in digital and cloud transformation solutions, and revised its full-year 2025 revenue guidance upwards Magic Software Q2 Performance & Guidance | Metric | Value | | :--------------------------------------- | :--------------------------------------- | | Q2 Revenues | $151.6 million (+11.3% YoY) | | Full-Year 2025 Revenue Guidance (Revised) | $600 million - $610 million (from $593 million - $603 million) | | Anticipated Annual Revenue Growth Rate | 8.6% to 10.4% (compared to prior fiscal year) | - Magic Software's performance reflects its strategic focus on delivering value to customers through innovative digital and cloud transformation solutions, enabling consistent growth despite challenging political and security periods[10] Sapiens International Corporation N.V. Sapiens completed two strategic acquisitions to strengthen its market position, and a significant agreement was announced for Advent to acquire a majority stake, with Formula Systems selling 72% of its interest while retaining 18%, expecting a substantial capital gain - Sapiens completed the acquisitions of AdvantageGo and Candella in Q2 2025, expected to strengthen its position in the Property & Casualty (P&C) and Life segments and support 2025 strategic priorities[13] - Advent will acquire a majority stake in Sapiens for $43.50 per common share, representing a premium of approximately 64% over Sapiens' undisturbed closing share price on August 8, 2025[13] Formula Systems' Sapiens Transaction Details | Metric | Value | | :--------------------------------------- | :--------------------------------------- | | Formula Systems' interest sold | Approximately 72% | | Formula Systems' retained ownership | Approximately 18% | | Expected Capital Gain (before costs) | Approximately $775 million | | Expected Closing | Q4 2025 or Q1 2026 | Michpal Technologies Ltd. Michpal Technologies is in advanced stages of IPO preparation, subject to market and regulatory conditions, and reported record first-half revenues of NIS 97.2 million (approx. $27 million), reflecting 29.1% year-over-year growth, driven by comprehensive human capital management solutions - Michpal Technologies is currently in advanced stages of preparation for an initial public offering (IPO), subject to prevailing market conditions and regulatory approvals[14] Michpal Technologies H1 2025 Revenues | Metric | H1 2025 (approx.) | Change (%) | | :--------------------------------------- | :---------------- | :--------- | | Revenues | NIS 97.2 million ($27 million) | +29.1% YoY | - The Michpal Group engages in payroll, recruitment, time and attendance, pension administration, and human resources, offering a broad suite of services and software products integrating cloud-based, artificial intelligence, and automation technologies[14][15] TSG IT Advanced Systems Ltd. TSG concluded H1 2025 with record-breaking results, demonstrating significant growth in revenue and profits, driven by expansion, enhanced marketing, product development, and active M&A initiatives TSG H1 2025 Performance (YoY, in NIS) | Metric | H1 2025 (approx.) | H1 2024 (approx.) | Change (%) | | :--------------------------------------- | :---------------- | :---------------- | :--------- | | Revenues | NIS 205.6 million ($57.2 million) | N/A | +35% | | Operating income | NIS 18.5 million ($5.1 million) | NIS 12.4 million ($3.4 million) | +49.8% | - TSG continues to advance the expansion and enhancement of its operations, strengthen marketing and sales capabilities, expand product development, and pursue mergers and acquisitions initiatives[16] Zap Group Ltd. Zap Group launched a groundbreaking E-Commerce Marketplace platform, transforming its business model and driving strong results with tens of thousands of transactions and millions in NIS revenues, hosting over 400 active stores and 100,000 products - Zap Group launched its groundbreaking E-Commerce Marketplace platform, marking a pivotal transformation in its business model by integrating cutting-edge technology and service-driven solutions[16] - The Marketplace platform is delivering strong and consistent results, with tens of thousands of transactions and revenues in the tens of millions of NIS, hosting over 400 active stores offering more than 100,000 products[16] - In response to broader economic challenges, Zap Group has adopted a prudent approach to investments and operations, prioritizing operational efficiency and cost optimization while remaining committed to growth[16] Debentures Covenants This section confirms Formula Systems' compliance with all financial covenants under its debenture series as of June 30, 2025 Compliance with Financial Covenants As of June 30, 2025, Formula Systems was in full compliance with all its financial covenants under the debenture series, significantly exceeding target equity and maintaining low ratios for net financial indebtedness - As of June 30, 2025, Formula Systems was in compliance with all of its financial covenants under the debenture series issued by it[10] Debentures Covenants Compliance as of June 30, 2025 | Covenant | Target | Actual | | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Equity attributable to Formula Systems' shareholders | Above $325 million | $722.9 million | | Ratio of net financial indebtedness to net capitalization | Below 65% | 6.13% | | Ratio of net financial indebtedness to EBITDA (four most recent quarters) | Below 5 | 0.23 | Stand-Alone Financial Measures This section explains the purpose and application of Formula Systems' stand-alone financial measures for parent company insights Purpose and Application of Stand-Alone Financial Measures Formula Systems presents stand-alone financial measures to provide additional insight into its parent company financial position, measured consistently with consolidated accounting principles, used by management for trend analysis but not as an alternative to GAAP consolidated statements - These financial measures provide useful information to management and investors regarding Formula Systems' stand-alone financial position and are used to compare performance and for internal financial reports[18] - Investments in subsidiaries and a jointly controlled entity are measured at cost adjusted by Formula Systems' share in the investees' accumulated undistributed earnings and other comprehensive income or loss[17] - Management does not consider these stand-alone measures in isolation or as an alternative to financial measures determined in accordance with GAAP, urging investors to review consolidated financial statements[19] Important Notes & Company Information This section includes disclaimers regarding Michpal Technologies' IPO, company background, and forward-looking statements Important Note re: Potential Initial Public Offering of Michpal Technologies This press release explicitly states it is not an offer for sale of Michpal Technologies securities, and any potential IPO will only occur pursuant to an effective registration statement filed under the U.S. Securities Act of 1933 - This press release is not an offer for sale of securities of Michpal Technologies[20] - Any potential initial public offering of securities of Michpal Technologies will only occur pursuant to an effective registration statement filed under the U.S. Securities Act of 1933, as amended, and a prospectus forming a part thereof[20] About Formula Systems Formula Systems is a global information technology holding company, traded on Nasdaq and TASE, engaged in providing software consulting services, computer-based business solutions, and developing proprietary software products through its subsidiaries and affiliates - Formula Systems is a global information technology holding company, whose ordinary shares are traded on the Tel-Aviv Stock Exchange and ADSs are traded on the Nasdaq Global Select Market[21] - The company is engaged, through its subsidiaries and affiliates, in providing software consulting services and computer-based business solutions and developing proprietary software products[21] Forward Looking Statements The press release contains forward-looking statements based on beliefs, assumptions, and expectations, subject to risks and uncertainties that could cause actual results to differ materially, cautioning investors not to rely on these statements - The press release contains forward-looking statements based on Formula Systems' beliefs, assumptions, and expectations, subject to certain risks and uncertainties[25] - Important factors that could cause actual results to differ materially include adverse macro-economic trends, M&A integration success, new technology development, lengthy sales cycles, customer retention, privacy laws, cybersecurity breaches, industry-specific risks, global operations risks (e.g., currency fluctuations), and risks related to its principal location in Israel[25] - Investors should not rely upon forward-looking statements as predictions of future events and are urged to read the risks discussed under 'Item 3.D Risk Factors' in the company's most recent Annual Report on Form 20-F[26] Financial Statements This section presents Formula Systems' consolidated and stand-alone financial statements for the reported periods Consolidated Condensed Statements of Profit or Loss The consolidated profit or loss statement provides a detailed breakdown of revenues, expenses, and net income for the three and six months ended June 30, 2025, compared to the same periods in 2024, highlighting key financial performance metrics Consolidated Condensed Statements of Profit or Loss (U.S. dollars in thousands) | Metric | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenues | 743,369 | 667,680 | 1,498,051 | 1,366,081 | | Cost of revenues | 557,874 | 501,234 | 1,131,848 | 1,035,420 | | Gross profit | 185,495 | 166,446 | 366,203 | 330,661 | | Research and development costs, net | 23,821 | 20,432 | 44,909 | 40,649 | | Selling, marketing and general and administrative expenses | 93,785 | 80,975 | 182,861 | 162,388 | | Operating income | 67,889 | 65,039 | 138,433 | 127,624 | | Financial expenses, net | 10,226 | 3,829 | 15,764 | 9,431 | | Income before taxes on income | 57,663 | 61,210 | 122,669 | 118,193 | | Taxes on income | 14,428 | 13,650 | 29,880 | 27,108 | | Income after taxes | 43,235 | 47,560 | 92,789 | 91,085 | | Share of profit (loss) of companies accounted for at equity, net | 211 | (135) | 1,039 | (32) | | Net income | 43,446 | 47,425 | 93,828 | 91,053 | | Net income attributable to non-controlling interests | 28,393 | 28,586 | 59,459 | 55,055 | | Net income attributable to Formula Systems shareholders | 15,053 | 18,839 | 34,369 | 35,998 | | Earnings per share (basic) | 0.98 | 1.23 | 2.26 | 2.36 | | Earnings per share (diluted) | 0.95 | 1.20 | 2.20 | 2.31 | Consolidated Statements of Financial Position The consolidated balance sheet presents a comprehensive view of Formula Systems' assets, liabilities, and equity as of June 30, 2025, compared to December 31, 2024, detailing changes in current and non-current accounts Consolidated Statements of Financial Position (U.S. dollars in thousands) | Metric | June 30, 2025 (Unaudited) | December 31, 2024 | | :--------------------------------------- | :------------------------ | :---------------- | | ASSETS | | | | Cash and cash equivalents | 393,190 | 507,799 | | Short-term deposits | 12,975 | 55,401 | | Trade receivables, net | 883,206 | 803,235 | | Prepaid expenses and other accounts receivable | 109,612 | 89,882 | | Inventories | 48,100 | 30,728 | | Total current assets | 1,447,083 | 1,487,045 | | Long-term investments and receivables | 65,344 | 54,629 | | Deferred taxes (non-current) | 39,572 | 33,850 | | Investments in companies accounted for at equity | 35,673 | 39,196 | | Property, plants and equipment, net | 55,985 | 51,795 | | Right-of-use assets | 170,188 | 156,225 | | Intangible assets, net and goodwill | 1,382,824 | 1,192,156 | | Total non-current assets | 1,749,586 | 1,527,851 | | Total assets | 3,196,669 | 3,014,896 | | LIABILITIES AND EQUITY | | | | Loans from banks and others (current) | 158,385 | 141,782 | | Debentures (current) | 93,410 | 86,782 | | Current maturities of lease liabilities | 49,649 | 45,240 | | Trade payables | 287,712 | 296,211 | | Deferred revenues (current) | 205,175 | 173,959 | | Employees and payroll accrual | 239,596 | 234,845 | | Other accounts payable | 93,116 | 98,046 | | Dividend payable | 7,139 | - | | Liabilities in respect of business combinations (current) | 8,348 | 9,191 | | Put options of non-controlling interests (current) | 50,715 | 52,420 | | Total current liabilities | 1,193,245 | 1,138,476 | | Loans from banks and others (long-term) | 79,319 | 62,733 | | Debentures (long-term) | 170,561 | 188,090 | | Lease liabilities (long-term) | 132,549 | 119,586 | | Other long-term liabilities | 12,615 | 11,708 | | Deferred taxes (long-term) | 51,421 | 42,894 | | Deferred revenues (long-term) | 16,672 | 12,522 | | Liabilities in respect of business combinations (long-term) | 8,074 | 8,751 | | Put options of non-controlling interests (long-term) | 56,882 | 30,553 | | Employees benefit liabilities | 12,801 | 10,238 | | Total long-term liabilities | 540,894 | 487,075 | | Total equity attributable to Formula Systems (1985) Ltd. shareholders | 722,920 | 679,338 | | Non-controlling interests | 739,610 | 710,007 | | Total equity | 1,462,530 | 1,389,345 | | Total liabilities and equity | 3,196,669 | 3,014,896 | Stand-Alone Statements of Financial Position The stand-alone balance sheet for Formula Systems (parent company) as of June 30, 2025, and December 31, 2024, details its cash, investments in subsidiaries, and equity, providing a specific view of the parent company's financial structure Stand-Alone Statements of Financial Position (U.S. dollars in thousands) | Metric | June 30, 2025 (Unaudited) | December 31, 2024 | | :--------------------------------------- | :------------------------ | :---------------- | | ASSETS | | | | Cash and cash equivalents | 56,603 | 25,599 | | Dividend receivable | 9,438 | 12,013 | | Other accounts receivable and prepaid expenses | 5,220 | 4,798 | | Total current assets | 71,261 | 42,410 | | Investment in subsidiaries and a jointly controlled entity | 788,775 | 752,962 | | Other investments and Long term receivables | 23,408 | 24,860 | | Property, plants and equipment, net | 10 | 10 | | Total non-current assets | 812,193 | 777,832 | | Total assets | 883,454 | 820,242 | | LIABILITIES AND EQUITY | | | | Loans from banks and others (current) | 2,478 | 2,294 | | Debentures (current) | 49,562 | 45,807 | | Trade payables | 1,268 | 1,146 | | Other accounts payable | 4,189 | 2,109 | | Put options of non-controlling interests | 1,185 | 1,005 | | Dividends payable | 7,139 | - | | Total current liabilities | 65,821 | 52,361 | | Loans from banks and others (long-term) | 2,059 | 3,047 | | Debentures (long-term) | 92,654 | 85,496 | | Total long-term liabilities | 94,713 | 88,543 | | Equity | 722,920 | 679,338 | | TOTAL LIABILITIES AND EQUITY | 883,454 | 820,242 |