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Sapiens Reports Fourth Quarter and Full Year 2018 Financial Results

HOLON, Israel, Feb. 26, 2019 /PRNewswire/ -- Sapiens International Corporation, (SPNS) and (SPNS), a leading global provider of software solutions for the insurance industry, and a member of the Formula Group (FORTY) and (TASE:FORT), today announced its financial results for the fourth quarter and full year ended December 31, 2018.

Sapiens International Corporation Logo

 

Summary Results for Fourth Quarter 2018 (USD in millions, except per share data)


GAAP

% Change

Non-GAAP

% Change


December 31, 2018

December 31, 2017


December 31, 2018

December 31, 2017


Revenue

73.3

71.6

2.4%

73.4

72.4

1.4%

Operating Income

6.6

1.1

500%

10.8

9.1

18.7%

Operating Margin

9.0%

1.6%

740 bps

14.8 %

12.5%

230 bps

Net income

3.8

3.4

11.8%

7.9

6.0

31.7 %

Diluted EPS

$0.07

$0.07

-

$0.16

$0.12

33 %









 

 

Summary Results for Full Year 2018 (USD in millions, except per share data)


GAAP

% Change

Non-GAAP

% Change


December 31, 2018

December 31, 2017


December 31, 2018

December 31, 2017


Revenue

289.7

269.2

7.6%

290.3

272.0

6.7 %

Operating Income

23.0

1.0

2200%

39.6

23.1

71.4 %

Operating Margin

7.9%

0.4%

750 bps

13.6 %

8.5 %

510 bps

Net income

14.0

0.6

2233%

28.3

15.4

83.8 %

Diluted EPS

$0.28

$0.01

2700%

$0.56

$0.31

80.6 %









 

 

"Sapiens had a strong finish to 2018, closing out the year with another quarter of growth and profitability by executing on our key objectives. In the fourth quarter, on a Non-GAAP basis, revenue totaled $73.4 and operating margin improved by 230 basis points to 14.8%. We continued the expansion of our P&C businesses in key markets. We managed costs and aligned our R&D investments with our growth segments, which increased operating profit and fueled almost 31.7% increase in net income in the quarter," stated Roni Al-Dor. president and CEO, Sapiens.

"In 2018, Sapiens made significant progress on our key objectives, which drove outstanding financial performance for the year. For the full year, on a Non-GAAP basis, revenue increased 6.7% driven by new deals, acquisitions and by expanding our business with existing customers as illustrated by double-digit growth in our EMEA P&C business. Meanwhile, we have fully integrated our Stream and Adaptik operations, which has accelerated the growth of our U.S. P&C business. Also, we made meaningful headway in our L&A business, creating a stronger foundation for growth in 2019. Synergies and cost controls produced significant expansion in operating margin, which increased over 500 basis points to 13.6%, exceeding the high end of our annual guidance.

"The expansion of our solutions and service offerings from both product development initiatives and acquisitions, as well as our collaborations with InsurTech groups to complement our core offerings, helped us win new business and earn increased industry recognition. To support all of these offerings, we are building a new account management executive team to evolve our customer support model into global customer success teams, focused on cross-selling, upselling and increasing awareness of all of our capabilities and products." continued Mr. Al-Dor.

Mr. Al-Dor concluded: "We have recently launched a new brand architecture to reflect our evolution into a unified global provider of innovative digital insurance solutions. With an improved competitive position as a one-stop-shop for insurance software solutions and an enhanced product and service platform, we're forecasting 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%."

Quarterly Results Conference Call

Management will host a conference call and webcast on February 26, 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): + 1-888-668-9141; International: +972-3-918-0609; 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 March 5, 2019, as follows: North America: 1-888-295-2634; International: +972-3-925-5918

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, and non-GAAP basic and diluted earnings per share.

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 intangible assets, capitalization of software development, stock-based compensation, compensation related to acquisition and acquisition-related costs, restructuring and cost reduction costs, redeemable non-controlling interests, loss on sales of Marketable Securities and tax adjustment regarding non-GAAP adjustments, as well as the impact of one-time adjustment to our deferred taxes as a result of the U.S. Tax Cuts and Job act 2017.

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.

About Sapiens

Sapiens International Corporation is a leading global provider of software solutions for the insurance industry, with a 35-year track record of delivering to more than 400 organizations. The company offers software platforms, solutions and services, including a full digital suite, to satisfy the needs of property and casualty/general insurers, and life, pension and annuity providers. Sapiens also services the reinsurance, workers' compensation, financial and compliance, and decision management markets.

The company's portfolio includes policy administration, billing and claims, underwriting, illustration and electronic application. The digital suite features customer and agent portals, and a business intelligence platform. 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, 2017, and subsequent reports and registration statements filed from time to time with the Securities and Exchange Commission.



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


  Year ended




December 31,


December 31,




2018


2017


2018


2017




 (unaudited)


 (unaudited)


 (unaudited)


 (unaudited)











 Revenue


73,311


71,600


289,707


269,194

 Cost of revenue


45,428


45,776


180,138


175,678











 Gross profit


27,883


25,824


109,569


93,516











 Operating expenses:










 Research and development, net


8,284


8,427


34,414


31,955


 Selling, marketing, general and administrative


13,016


16,265


52,133


60,559

 Total operating expenses


21,300


24,692


86,547


92,514











 Operating income


6,583


1,132


23,022


1,002











 Financial expense, net


829


1,000


3,957


3,010

 Taxes on income and other expenses (tax benefit), net


1,922


(3,301)


5,065


(2,564)





















 Net income


3,832


3,433


14,000


556











 Attributable to non-controlling interest


80


(157)


215


(189)


Attributed to redeemable non-controlling interest


-


43


-


43


Adjustment to redeemable non-controlling interest


-


350


-


350











 Net income attributable to Sapiens' shareholders


3,752


3,197


13,785


352





















 Basic earnings per share


0.08


0.07


0.28


0.01











 Diluted earnings per share


0.07


0.06


0.28


0.01











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


49,920


49,325


49,827


49,170










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


50,210


50,032


50,106


49,926

                   

 

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


  Year ended




December 31,


December 31,




2018


2017


2018


2017




 (unaudited)


 (unaudited)


 (unaudited)


 (unaudited)











 Revenue


73,433


72,448


290,297


272,003

 Cost of revenue


42,113


42,931


167,353


165,336











 Gross profit


31,320


29,517


122,944


106,667











 Operating expenses:










 Research and development, net


9,666


9,663


39,574


37,522


 Selling, marketing, general and administrative


10,805


10,795


43,810


46,032

 Total operating expenses


20,471


20,458


83,384


83,554











 Operating income


10,849


9,059


39,560


23,113











 Financial expense, net


829


1,000


3,957


2,780

 Taxes on Income and other expenses, net


2,114


2,033


7,325


4,940





















 Net income


7,906


6,026


28,278


15,393











 Attributable to non-controlling interest


80


(115)


215


(147)











 Net income attributable to Sapiens' shareholders


7,826


6,141


28,063


15,540





















 Basic earnings per share


0.16


0.12


0.56


0.32











 Diluted earnings per share


0.16


0.12


0.56


0.31




















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


49,920


49,325


49,827


49,170










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


50,210


50,032


50,106


49,926

 

 


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


  Year ended



December 31,


December 31,



2018


2017


2018


2017



(unaudited)


(unaudited)


(unaudited)


(unaudited)










GAAP revenue


73,311


71,600


289,707


269,194

Valuation adjustment on acquired deferred
revenue


122


848


590


2,809

Non-GAAP revenue


73,433


72,448


290,297


272,003



















GAAP gross profit


27,883


25,824


109,569


93,516

Valuation adjustment on acquired deferred
revenue


122


848


590


2,809

Amortization of capitalized software


1,247


1,270


4,859


4,824

Amortization of other intangible assets


2,068


1,575


7,926


5,518

Non-GAAP gross profit


31,320


29,517


122,944


106,667










GAAP operating income


6,583


1,132


23,022


1,002

Gross profit adjustments


3,437


3,693


13,375


13,151

Capitalization of software development


(1,382)


(1,236)


(5,160)


(5,567)

Amortization of other intangible assets


926


489


3,293


1,725

Stock-based compensation


472


655


1,942


2,035

Compensation related to acquisition and
acquisition-related costs


813


144


3,088


2,685

Restructuring and cost reduction plan


-


4,182


-


8,082

Non-GAAP operating income


10,849


9,059


39,560


23,113










  GAAP net income attributable to Sapiens'
shareholders


3,752


3,197


13,785


352

  Operating income adjustments


4,266


7,927


16,538


22,111

Adjustment to redeemable non-controlling
interest


-


350

-


-


350

Loss on sales of Marketable Securities


-


-


-


230

  Tax and other


(192)


(5,333)


(2,260)


(7,503)

  Non-GAAP net income attributable to
Sapiens' shareholders


7,826


6,141


28,063


15,540











 

 

Summary of NON-GAAP Financial Information

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



  Three months ended


  Year ended


December 31,


December 31,


2018


2017


2018


2017


(unaudited)


(unaudited)


(unaudited)


(unaudited)













Revenues

73,433

100%


72,448

100%


290,297

100%


272,003

100%

Gross profit

31,320

42.7%


29,517

40.7%


122,944

42.4%


106,667

39.2%

Operating profit

10,849

14.8%


9,059

12.5%


39,560

13.6%


23,113

8.5%

Net income to shareholders

7,826

10.7%


6,141

8.5%


28,063

9.7%


15,540

5.7%

Adjusted EBITDA

11,797

16.1%


10,076

13.9%


43,344

14.9%


26,935

9.9%













Basic earnings per share

0.16



0.12



0.56



0.32


Diluted earnings per share

0.16



0.12



0.56



0.31


 

 

Non-GAAP Revenues by Geographic Breakdown

U.S. dollars in thousands



Q4 2018


Q3 2018


Q2 2018


Q1 2018


Q4 2017











North America

34,974


36,734


34,606


31,035


31,580

Europe

30,850


30,611


32,518


34,479


29,789

Asia Pacific

3,140


3,480


3,305


3,439


3,817

South Africa

4,469


2,412


2,113


2,132


7,262











Total

73,433


73,237


72,542


71,085


72,448

 

 

Adjusted EBITDA Calculation

U.S. dollars in thousands




  Three months ended


  Year ended



December 31,


December 31,



2018


2017


2018


2017










GAAP operating profit


6,583


1,132


23,022


1,002










Non-GAAP adjustments:









Amortization of capitalized software


1,247


1,270


4,859


4,824

Amortization of other intangible assets


2,994


2,064


11,219


7,243

Capitalization of software development


(1,382)


(1,236)


(5,160)


(5,567)

Stock-based compensation


472


655


1,942


2,035

Compensation related to acquisition and
acquisition-related costs


813


144


3,088


2,685

Restructuring and cost reduction plan


-


4,182


-


8,082

Valuation adjustment on acquired
deferred revenue


122


848


590


2,809










Non-GAAP operating profit


10,849


9,059


39,560


23,113










Depreciation


948


1,017


3,784


3,822










Adjusted EBITDA


11,797


10,076


43,344


26,935

 

 

SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands





December 31,


December 31,




2018


2017




 (unaudited)


 (unaudited)







 ASSETS












 CURRENT ASSETS






Cash and cash equivalents


64,628


71,467


Trade receivables, net and unbilled receivables


59,159


53,226


Other receivables and prepaid expenses


6,224


6,280








Total current assets


130,011


130,973







 LONG-TERM ASSETS






Property and equipment, net


8,515


10,695


Severance pay fund


4,699


4,547


Goodwill and intangible assets, net


231,348


223,729


Other long-term assets


4,292


3,675








Total long-term assets


248,854


242,646







 TOTAL ASSETS


378,865


373,619







LIABILITIES AND EQUITY











 CURRENT LIABILITIES






Trade payables


6,149


7,044


Current maturities of Series B Debentures


9,898


-


Accrued expenses and other liabilities


46,999


46,612


Deferred revenue


18,759


16,513








Total current liabilities


81,805


70,169







 LONG-TERM LIABILITIES






Series B Debentures, net of current maturities


68,577


78,281


Deferred tax liabilities


11,681


9,171


Other long-term liabilities


8,696


8,271


Accrued severance pay


5,622


5,500








Total long-term liabilities


94,576


101,223













REDEEMABLE NON-CONTROLLING INTEREST


-


1,353







EQUITY



202,484


200,874







TOTAL LIABILITIES AND EQUITY


378,865


373,619

 

 


SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES


CONSOLIDATED STATEMENT OF CASH FLOW

U.S. dollars in thousands



For the year ended December 31,


2018

2017


(unaudited)

(unaudited)

Cash flows from operating activities:



Net income

14,000

556

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



Depreciation and amortization

19,862

15,871

Amortization of premium, accrued interest and loss on sales of marketable
securities

-

509

Stock-based compensation related to options issued to employees

1,942

2,035




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



Trade receivables

(7,588)

(5,253)

Deferred tax assets

(1,567)

(8,840)

Other operating assets

509

3,688

Trade payables

(1,870)

(1,388)

Other operating liabilities

20

858

Deferred revenues

2,349

1,249

Severance pay

43

(37)




Net cash provided by operating activities

27,700

9,248




Cash flows from investing activities:



Purchase of property and equipment

(1,914)

(2,622)

Proceeds from sales of marketable securities

-

35,369

Payments for business acquisition, net of cash acquired

(18,507)

(100,381)

Capitalized software development costs

(5,160)

(5,567)




Net cash used in investing activities

(25,581)

(73,201)




Cash flows from financing activities:



Proceeds from employee stock options exercised

895

2,453

Distribution of dividend

(9,978)

(9,851)

Repayment of loans

(237)

(56)

Issuance of debenture, net

-

78,229

Payments of contingent considerations

(61)

(766)

Dividend to non-controlling interest

(47)

-




Net cash provided by (used in) financing activities

(9,428)

70,009




Effect of exchange rate changes on cash and cash equivalents

470

4,503




Increase (decrease) in cash and cash equivalents

(6,839)

10,559

Cash and cash equivalents at the beginning of period

71,467

60,908




Cash and cash equivalents at the end of period

64,628

71,467

 

Debentures Covenants

As of December 31, 2018, 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 $200 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 6.97%.

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 0.35.

 

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

 




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