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Sapiens Reports First Quarter 2019 Financial Results

HOLON, Israel, May 6, 2019 /PRNewswire/ -- Sapiens International Corporation, (SPNS) (SPNS), a leading global provider of software solutions for the insurance industry, and a member of the Formula Group (FORTY) (TASE:FORT), today announced its financial results for the first quarter ended March 31, 2019.

Sapiens International Corporation Logo

 

Summary Results for First Quarter 2019 (USD in millions, except per share data)



GAAP

% Change

Non-GAAP

% Change


March 31, 2019

March 31, 2018


March 31, 2019

March 31, 2018


Revenue

76.8

71.0

8.2%

76.8

71.1

8%

Gross Profit

29.8

27.0

10.3%

33.1

30.3

9.3%

Gross Margin

38.8%

38.1%

70 bps

43.1%

42.6%

50 bps

Operating Income

8.1

4.7

72%

11.8

8.9

32.6%

Operating Margin

10.5%

6.6%

390 bps

15.3%

12.5%

280 bps

Net income (*)

5.2

2.8

81.8%

8.4

6.3

33%

Diluted EPS

$0.10

$0.06

66.7%

0.17

0.13

30.8%









(*) Attributable to Sapiens' shareholders

 

"Sapiens continues to execute on our strategy to increase top line growth and profitability. I am pleased to see continued momentum in the first quarter of 2019, as we focused on achieving our key objectives for this year. In the quarter our revenue growth was driven by an acceleration in our North American segment, which grew 23% off a very strong gains in our P&C business. In addition, our best-in-class digital P&C platform in EMEA is winning new business with its ability to offer an improved customer experience and highly configurable solutions. Non-GAAP Gross margin expanded by 50 basis points, and we leveraged our off-shore capabilities to lower our operational cost. These gains helped offset our planned expenditures on key sales hires and customer success personnel. As a result, non-GAAP operating margin increased by 280 basis points to 15.3%, and non-GAAP net income grew 33% this quarter", said Roni Al-Dor, president and CEO, Sapiens.

"Looking out to the remainder of 2019, our primary drivers of growth are continued expansion of our P&C segment, a stable outlook for our L&A segment, and increased cross-selling to our current customer base." 

"With revenues growth and improvement in our operating margin in the first quarter, we are confident in our ability to deliver full-year 2019 guidance", concluded Roni Al-Dor. "We are maintaining 2019 full year non-GAAP revenues in the range of $318 to $323 million, with non-GAAP operating margins in the range of 15.2% to 15.6%, however we now expect operating margin to be on the higher end of this range".

Quarterly Results Conference Call

Management will host a conference call and webcast on May 6, 2019 at 9:30 a.m. Eastern Time (4:30 p.m. in Israel) to review and discuss Sapiens' results.

Please call the following numbers (at least 10 minutes before the scheduled time) to participate:

North America (toll-free): + 1-888-407-2553; International: +972-3-918-0610; UK: 0-800-917-5108

The live webcast of the call can be viewed on Sapiens' website at: https://www.sapiens.com/investor-relations/ir-events-presentations/

If you are unable to join live, a replay of the call will be accessible until May 13, 2019, as follows:

North America: 1-888-295-2634; International: +972-3-925-5918

A recorded version of the webcast will also be available via the Sapiens website, for three months at the same location.

Non-GAAP Financial Measures

This press release contains the following non-GAAP financial measures: non-GAAP revenue, non-GAAP gross profit, non-GAAP operating income, non-GAAP net income attributed to Sapiens shareholders, non-GAAP basic and diluted earnings per share, Adjusted EBITDA and Adjusted Free Cash-Flow.

Sapiens believes that these non-GAAP measures of financial results provide useful information to management and investors regarding certain financial and business trends relating to Sapiens' financial condition and results of operations. The Company's management uses these non-GAAP measures to compare the Company's performance to that of prior periods for trend analyses, for purposes of determining executive and senior management incentive compensation and for budgeting and planning purposes. These measures are 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 non-GAAP financial measures provides an additional tool for investors to use in evaluating ongoing operating results and trends, and in comparing the Company's financial measures with other software companies, many of which present similar non-GAAP financial measures to investors.

Non-GAAP financial measures consist of GAAP financial measures adjusted to exclude: Valuation adjustment on acquired deferred revenue, amortization of capitalized software development and other intangible assets, capitalization of software development, stock-based compensation, compensation related to acquisition and acquisition-related costs, restructuring and cost reduction costs, and tax adjustments related to non-GAAP adjustments.

Management of the Company does not consider these non-GAAP measures in isolation, or as an alternative to financial measures determined in accordance with GAAP. The principal limitation of these non-GAAP financial measures is that they exclude significant expenses and income that are required by GAAP to be recorded in the Company's financial statements. In addition, they are subject to inherent limitations, as they reflect the exercise of judgment by management about which expenses and income are excluded or included in determining these non-GAAP financial measures.

To compensate for these limitations, management presents non-GAAP financial measures in connection with GAAP results. Sapiens urges investors to review the reconciliation of its non-GAAP financial measures to the comparable GAAP financial measures, 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.

Reconciliation tables of the most comparable GAAP financial measures to the non-GAAP financial measures used in this press release are included with the financial tables of this release.

The Company defines Adjusted EBITDA as net profit, adjusted for valuation adjustment on acquired deferred revenue, stock-based compensation expense, depreciation and amortization, capitalized of software development costs, compensation expenses related to acquisition and acquisition-related costs, restructuring and cost reduction costs, financial expense (income), provision for income taxes and other income (expenses). These amounts are often excluded by other companies to help investors understand the operational performance of their business.

The Company uses Adjusted EBITDA as a measurement of its operating performance, because it assists in comparing the operating performance on a consistent basis by removing the impact of certain non-cash and non-operating items. Adjusted EBITDA reflects an additional way of viewing aspects of the operations that the Company believes, when viewed with the GAAP results and the accompanying reconciliations to corresponding GAAP financial measures, provide a more complete understanding of factors and trends affecting its business.

The Company uses Adjusted Free Cash-Flow as a measurement of its operating performance, and reconciles cash-flow from operating activities to Adjusted Free Cash-Flow while reducing the amounts for capitalization of software development costs and capital expenditures, and eliminating retention payments and other acquisition costs, which are included in the cash-flow from operating activities.

About Sapiens

Sapiens International Corporation empowers insurers to succeed in an evolving industry. The company offers digital software platforms, solutions and services for the property and casualty, life, pension and annuity, reinsurance, financial and compliance, workers' compensation and financial markets. With more than 35 years of experience delivering to over 450 organizations globally, Sapiens has a proven ability to satisfy customers' core, data and digital requirements. For more information: www.sapiens.com

Forward Looking Statement

Some of the statements in this press release may constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities and Exchange Act of 1934 and the United States Private Securities Litigation Reform Act of 1995. Words such as "will," "expects," "believes" and similar expressions are used to identify these forward-looking statements (although not all forward-looking statements include such words). These forward-looking statements, which may include, without limitation, projections regarding our future performance and financial condition, are made on the basis of management's current views and assumptions with respect to future events. Any forward-looking statement is not a guarantee of future performance and actual results could differ materially from those contained in the forward-looking statement.

These statements speak only as of the date they were made, and we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. We operate in a changing environment. New risks emerge from time to time and it is not possible for us to predict all risks that may affect us. For more information regarding these risks and uncertainties, as well as certain additional risks that we face, please refer to the Risk Factors detailed in Item 3 of Part III of our Annual Report on Form 20-F for the year ended December 31, 2018, and subsequent reports and registration statements filed from time to time with the Securities and Exchange Commission.

Investors and Media Contact
Yaffa Cohen-Ifrah
Chief Marketing Officer and Head of Corporate Communications
Sapiens International
U.S. Mobile: +1-201-250-9414
Mobile: +972-54-9099039
Email: yaffa.cohen-ifrah@sapiens.com

 

SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES


CONDENSED CONSOLIDATED STATEMENTS OF INCOME 

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





  Three months ended




 March 31,




2019


2018




(unaudited)


 (unaudited)







 Revenue


76,787


70,995

 Cost of revenue


46,980


43,967







 Gross profit


29,807


27,028







 Operating expenses:






 Research and development, net


8,777


9,147


 Selling, marketing, general and administrative


12,953


13,184

 Total operating expenses


21,730


22,331







 Operating income


8,077


4,697







 Financial expense, net


1,054


838

 Taxes and other expenses, net


1,847


1,031







 Net income


5,176


2,828







 Attributed to non-controlling interest


21


(8)







 Net income attributable to Sapiens' shareholders


5,155


2,836

 Basic earnings per share


0.10


0.06







 Diluted earnings per share


0.10


0.06







 Weighted average number of shares outstanding used

      to compute basic earnings per share (in thousands)


49,986


49,773






 Weighted average number of shares outstanding used

     to compute diluted earnings per share (in thousands)


50,329


50,070

   

 

SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES


CONDENSED CONSOLIDATED NON-GAAP STATEMENTS OF INCOME

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





  Three months ended




March 31,




2019


2018




(unaudited)


 (unaudited)







 Revenue


76,787


71,085

 Cost of revenue


43,683


40,801







 Gross profit


33,104


30,284







 Operating expenses:






 Research and development, net


10,169


10,324


 Selling, marketing, general and administrative


11,185


11,097

 Total operating expenses


21,354


21,421







 Operating income


11,750


8,863







 Financial expense, net


1,054


838

 Taxes and other expenses


2,285


1,726







 Net income


8,411


6,299







 Attributable to non-controlling interest


21


(8)







 Net income attributable to Sapiens' shareholders


8,390


6,307













 Basic earnings per share


0.17


0.13







 Diluted earnings per share


0.17


0.13












 Weighted average number of shares outstanding used
      to compute basic earnings per share (in thousands)


49,986


49,773






 Weighted average number of shares outstanding used
     to compute diluted earnings per share (in thousands)


50,329


50,070

 

 

SAPIENS INTERNATIONAL CORPORATION N.V. AND SUBSIDIARIES 


RECONCILIATION OF GAAP TO NON-GAAP RESULTS

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




Three months ended



March 31,



2019


2018



(unaudited)


(unaudited)






GAAP revenue


76,787


70,995

Valuation adjustment on acquired deferred revenue


-


90

Non-GAAP revenue


76,787


71,085











GAAP gross profit


29,807


27,028

Valuation adjustment on acquired deferred revenue


-


90

Amortization of capitalized software


1,341


1,255

Amortization of other intangible assets


1,956


1,911

Non-GAAP gross profit


33,104


30,284






GAAP operating income


8,077


4,697

Gross profit adjustments


3,297


3,256

Capitalization of software development


(1,392)


(1,177)

Amortization of other intangible assets


535


922

Stock-based compensation


453


587

Compensation related to acquisition and acquisition-related costs


780


578

Non-GAAP operating income


11,750


8,863






GAAP net income attributable to Sapiens' shareholders


5,155


2,836

Operating income adjustments


3,673


4,166

Tax and other


(438)


(695)

Non-GAAP net income attributable to Sapiens' shareholders


8,390


6,307

 

 

Summary of NON-GAAP Financial Information 

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



Three months ended


March 31,


2019


2018


(unaudited)


(unaudited)







Revenues

76,787

100%


71,085

100%

Gross profit

33,104

43.1%


30,284

42.6%

Operating income

11,750

15.3%


8,863

12.5%

Net income attributable to Sapiens' shareholders

8,390

10.9%


6,307

8.9%

Adjusted EBITDA

12,523

16.3%


9,945

14.0%







Basic earnings per share

0.17



0.13


Diluted earnings per share

0.17



0.13


 

 

Non-GAAP Revenues by Geographic Breakdown

U.S. dollars in thousands



Q1 2019


Q4 2018


Q3 2018


Q2 2018


Q1 2018











North America                

38,149


34,974


36,734


34,606


31,035

Europe

32,193


30,850


30,611


32,518


34,479

Asia Pacific

3,670


3,140


3,480


3,305


3,439

South Africa

2,775


4,469


2,412


2,113


2,132











Total

76,787


73,433


73,237


72,542


71,085


 


Adjusted Free Cash-Flow

U.S. dollars in thousands



Q1 2019


Q4 2018


Q3 2018


Q2 2018


Q1 2018











Cash-flow from operating activities

10,550


11,509


6,370


658


9,163

Increase in capitalized software

      development costs

(1,392)


(1,382)


(1,308)


(1,293)


(1,177)





Capital expenditures

(641)


(204)


(831)


(402)


(477)

Retention payments and

     acquisition costs*

1,608


790


-


256


1,149















Adjusted free cash-flow

10,125


10,713


4,231


(781)


8,658












* Included in cash-flow from operating activities

 

 

Adjusted EBITDA Calculation

U.S. dollars in thousands




Three months ended



 March 31,



2019


2018



(unaudited)


(unaudited)






GAAP operating income


8,077


4,697






Non-GAAP adjustments:





Valuation adjustment on acquired deferred revenue


-


90

Amortization of capitalized software


1,341


1,255

Amortization of other intangible assets


2,491


2,833

Capitalization of software development


(1,392)


(1,177)

Stock-based compensation


453


587

Compensation related to acquisition and acquisition-related
    costs


780


578






Non-GAAP operating income


11,750


8,863






Depreciation


773


1,082






Adjusted EBITDA


12,523


9,945

 

 

SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES


CONDENSED CONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands





March 31,


December 31,




2019


2018




 (unaudited)


 (unaudited)







 ASSETS












 CURRENT ASSETS






Cash and cash equivalents


63,384


64,628


Trade receivables, net and unbilled receivables


64,201


59,159


Other receivables and prepaid expenses


7,993


6,224








Total current assets


135,578


130,011







 LONG-TERM ASSETS






Property and equipment, net


8,603


8,515


Severance pay fund


4,754


4,699


Goodwill and intangible assets, net


231,223


231,348


Operating lease right-of-use assets


32,317


-


Other long-term assets


5,301


4,292








Total long-term assets


282,198


248,854







 TOTAL ASSETS


417,776


378,865







LIABILITIES AND EQUITY





 CURRENT LIABILITIES






Trade payables


5,814


6,149


Current maturities of Series B Debentures


9,898


9,898


Accrued expenses and other liabilities


50,910


46,999


Current maturities of operating lease liabilities


4,830


-


Deferred revenue


22,259


18,057








Total current liabilities


93,711


81,103







 LONG-TERM LIABILITIES






Series B Debentures, net of current maturities


58,718


68,577


Deferred tax liabilities


10,724


11,681


Other long-term liabilities


7,464


9,398


Long-term operating lease liabilities


29,637


-


Accrued severance pay


5,716


5,622








Total long-term liabilities


112,259


95,278













EQUITY



211,806


202,484

TOTAL LIABILITIES AND EQUITY


417,776


378,865

 

 


SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES


CONSOLIDATED STATEMENT OF CASH FLOW

U.S. dollars in thousands



For the three months ended March 31,


2019

2018


(unaudited)

(unaudited)

Cash flows from operating activities:



Net income

5,176

2,828

Reconciliation of net income to net cash provided by operating
activities:



Depreciation and amortization

4,605

5,170

Accretion of discount on Series B Debentures

39

44*

Stock-based compensation related to options issued to
     employees

453

587




Net changes in operating assets and liabilities, net of amount
      acquired:



Trade receivables, net and unbilled receivables

(4,194)

1,664

Deferred tax assets, net

(855)

(1,163)

Other operating assets

328

(1,000)

Trade payables

(426)

(3,013)

Other operating liabilities

1,247

(810)*

Deferred revenues

4,167

4,729

Accrued severance pay, net

10

127




Net cash provided by operating activities

10,550

9,163




Cash flows from investing activities:



Purchase of property and equipment

(641)

(477)

Investment in deposit

(1,106)

-

Payments for business acquisition, net of cash acquired

-

(18,203)*

Capitalized software development costs

(1,392)

(1,177)




Net cash used in investing activities

(3,139)

(19,857)




Cash flows from financing activities:



Proceeds from employee stock options exercised

17

10

Repayment of Series B Debenture

(9,898)

-

Loan received, net of repayment of loan

(2)

(18)

Payment of contingent considerations

(58)

(61)*

Dividend to non-controlling interest

(66)

(47)




Net cash used in financing activities

(10,007)

(116)




Effect of exchange rate changes on cash and cash equivalents

1,352

1,092




Decrease in cash and cash equivalents

(1,244)

(9,718)

Cash and cash equivalents at the beginning of period

64,628

71,467




Cash and cash equivalents at the end of period

63,384

61,749

*Reclassification

 

Debentures Covenants

As of March 31, 2019, Sapiens was in compliance with all of its financial covenants under the indenture for the Series B Debentures that it issued in September 2017, based on having achieved the following in its consolidated financial results:

Covenant 1

  • Target shareholders' equity (excluding minority interest): above $120 million.
  • Actual shareholders' equity equal to $210 million.

Covenant 2

  • Target ratio of net financial indebtedness to net capitalization (in each case, as defined under the indenture for the Company's Series B Debentures) bellow 65%.
  • Actual ratio of net financial indebtedness to net capitalization equal to 2.67%.

Covenant 3

  • Target ratio of net financial indebtedness to EBITDA (accumulated calculation for the four last quarters) is below 5.5.
  • Actual ratio of net financial indebtedness to EBITDA (accumulated calculation for the four last quarters) is equal to 0.13.

 

 

Cision

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