Formula Systems posts record $782m Q2 revenue, up 30% year on year

Formula Systems (1985) Ltd. has reported second-quarter revenues of $782.4 million, a 29.8% year-on-year increase and a new quarterly record for the Nasdaq and Tel Aviv-listed IT holding group. Operating income rose 41.3% to $71.6 million in the same period, while net income attributable to Formula's shareholders from continuing operations climbed 163.7% to $23.3 million, or $1.47 per diluted share.

For the first half of 2026, revenues reached $1.52 billion, up 24.4% year on year, with operating income increasing 53.3% to $153.7 million. The company cautioned that the first-half figure included a $16.6 million capital gain arising from dilution of its stake in affiliate TSG IT Advanced Systems following a private placement and employee stock option exercises. Stripping out that one-off, operating income growth was 36.7%, and net income from continuing operations attributable to shareholders would have increased 105.5% rather than the reported 186.4%.

The board declared a cash dividend of $1.63 per share, totalling approximately $25 million, payable on 6 October 2026 to shareholders of record on 22 September 2026. The payout is backed by cash and short-term deposits of $864.5 million held at the group level as of 30 June 2026, though that figure is down from $1.28 billion at year-end 2025, largely reflecting dividends and acquisition spend since then.

Subsidiary performance

Matrix IT, Formula's largest subsidiary by revenue, reported NIS 2.1 billion (approximately $718.3 million) in second-quarter revenues, up 6.3% in shekel terms, and set its own record for operating income at NIS 202.2 million. CEO Guy Bernstein attributed Matrix's resilience to exposure to high-demand segments including cloud, cybersecurity, data and AI implementation services in Israel, combined with growing US operations.

Michpal Technologies, the group's payroll, HR and financial-software unit, grew Q2 revenues 31.2% year on year to NIS 63.6 million and nearly doubled adjusted net income attributable to shareholders. Michpal completed the acquisition of Zviran Group in April 2026 and signalled further M&A intent, with a cash position of NIS 266.4 million. TSG IT Advanced Systems, which supplies command-and-control systems and UAV technology primarily to defence customers, posted 22% revenue growth in Q2 and has raised approximately NIS 296 million in equity since October 2025, supplemented by NIS 223 million in Series A debentures issued in June 2026. TSG acquired spatial-detection firm Mabat 3D in March and manufacturing integrator Production Floor in May.

Market context and competitive positioning

Formula operates as a diversified IT holding company, a model that insulates group-level results from single-segment slowdowns but can obscure which business lines are driving margin expansion. Its closest structural comparators in Israel include Elbit Systems' technology services arm and private holding groups, though Formula is unusual in listing several subsidiaries independently on the Tel Aviv Stock Exchange. The Matrix subsidiary competes directly with the Israeli arms of global systems integrators such as Atos, Capgemini and IBM, as well as local rivals.

The defence-technology growth at TSG is worth contextualising against the broader trend of IT groups deepening exposure to military and dual-use markets amid elevated global defence budgets. TSG's UAV and command-and-control focus places it in a segment attracting significant institutional capital, which the NIS 192 million January 2026 placement from leading Israeli institutional investors reflects.

Formula's balance sheet remains conservatively positioned: its debenture covenants require equity attributable to shareholders of above $325 million; actual equity stood at $1.21 billion. The net financial indebtedness-to-EBITDA ratio of minus 2.07 indicates a net cash position rather than leverage, giving the group flexibility to pursue further acquisitions through its subsidiaries. The comparative 2025 figures have been restated to exclude Sapiens International, of which Formula sold its controlling interest to Advent in December 2025, reclassified as discontinued operations under IFRS 5.