Sapiens to Announce Second Quarter 2019 Financial Results on August 5, 2019

Holon, Israel – August 5, 2019 – Sapiens International Corporation (NASDAQ and TASE: SPNS), a leading global provider of software solutions for the insurance industry, announced today that it will report its financial results for the second quarter that ended on June 30, 2019 on Monday, August 5, 2019.

 

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

	GAAP	% Change	Non-GAAP		% Change
	June 30, 2019	June 30, 2018		June 30, 2019	June 30, 2018
Revenue	$79.5	$72.2	10.2%	$79.5	$72.5		9.6%
Gross Profit	$31.5	$26.9	17.1%	$34.8	$30.4		14.3%
Gross Margin	39.6%	37.2%	240 bps	43.8%	42.0%		180 bps
Operating Income	$9.5	$4.9	91.8%	$12.6	$9.6		31.4%
Operating Margin	11.9%	6.8%	510 bps	15.8%	13.2%		260 bps
Net income (*)	$6.8	$2.0	239.6%	$9.5	$6.4		49.5%
Diluted EPS	$0.14	$0.04	236%	$0.19	$0.13		45.4%

 

(*) Attributable to Sapiens’ shareholders

 

“Sapiens priorities for 2019 are growth and margin expansion. In the second quarter we delivered on both of these goals. Top line non-GAAP revenue increased 9.6% and non-GAAP operating margin improved 260 basis points. Growth and profitability in the quarter tie directly to executing on our key objectives to win new customers, cross sell to existing customers, leverage our offshore capabilities, and scale revenue over our efficient cost structure. Our improving margins support our build-out of sales and customer support teams and our investment in our offshore capabilities, particularly in India. As we head into the second half of the year, our sustained performance gives us confidence that our strategy is working, and we are dedicated to further improving shareholder value through long-term, sustainable growth.” said Roni Al-Dor, president and CEO, Sapiens.

“Looking out to the remainder of 2019, I’m encouraged by our pipeline of business and anticipate annual growth of over 10%. We are forecasting non-GAAP revenue in a range of $318 – $323 million, however we now expect revenues to be on the higher end of this range” concluded Roni Al-Dor. “The increase in revenue and the leverage from improved economies of scale allows us to increase the guidance for non-GAAP operating margin in a range of 15.6% – 15.8%, compared to our previous guidance of 15.2% – 15.6%”

Quarterly Results Conference Call

Management will host a conference call and webcast on August 5, 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- 9180610; UK: 0-800-917-5108

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

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

North America: 1-877-456-0009; International: +972-3-925-5921

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,  restructuring and cost reduction costs, tax adjustments related to non-GAAP adjustments, and acquisition-related costs, which pertain to charges on behalf of M&A agreements related to future performance targets and retention criteria as determined upon acquisition date of the respective acquired company, as well as third-party services, such as, tax, accounting and legal rendered until the acquisition date.

 

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, and reconciles Non-GAAP Operating Income to Adjusted EBITDA, adjusted for amortization and capitalization of capitalized software and amortization other intangible assets, stock-based compensation and acquisition-related costs, and valuation adjustment on acquired deferred revenues. The Company uses Adjusted EBITDA, 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 adds back  cash payments made for  former acquisitions in respect of  future performance targets and retention criteria as determined upon acquisition date of the respective acquired company,   and were included in the cash-flow from operating activities. We believe that Adjusted Free Cash-Flow is useful in evaluating our business, because Adjusted Free Cash-Flow reflects the cash surplus available to fund the expansion of our business.

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: 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				Six months ended
			June 30				June 30
			2019		2018		2019		2018
			(unaudited)		(unaudited)		(unaudited)		(unaudited)
Revenue			79,529		72,164		156,316		143,159
Cost of revenue			48,075		45,305		95,055		89,272
Gross profit			31,454		26,859		61,261		53,887
Operating expenses:
	Research and development, net		8,923		8,633		17,700		17,780
	Selling, marketing, general and administrative		13,077		13,298		26,030		26,482
Total operating expenses			22,000		21,931		43,730		44,262
Operating income			9,454		4,928		17,531		9,625
Financial expense, net			434		1,316		1,488		2,154
Taxes and other expenses, net			2,154		1,483		4,001		2,514
Net income			6,866		2,129		12,042		4,957
Attributable to non-controlling interest			26		115		47		107
Net income attributable to Sapiens’ shareholders			6,840		2,014		11,995		4,850
Basic earnings per share			0.14		0.04		0.24		0.10
Diluted earnings per share			0.14		0.04		0.24		0.10
Weighted average number of shares outstanding used to compute basic earnings per share (in thousands)			50,002		49,785		49,994		49,779
Weighted average number of shares outstanding used to compute diluted earnings per share (in thousands)			50,530		49,998		50,430		50,033

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				Six months ended
			June 30				June 30
			2019		2018		2019		2018
			(unaudited)		(unaudited)		(unaudited)		(unaudited)
Revenue			79,529		72,542		156,316		143,627
Cost of revenue			44,735		42,105		88,418		82,906
Gross profit			34,794		30,437		67,898		60,721
Operating expenses:
	Research and development, net		10,493		9,926		20,662		20,250
	Selling, marketing, general and administrative		11,720		10,936		22,905		22,033
Total operating expenses			22,213		20,862		43,567		42,283
Operating income			12,581		9,575		24,331		18,438
Financial expense, net			434		1,316		1,488		2,154
Taxes and other expenses			2,580		1,762		4,865		3,488
Net income			9,567		6,497		17,978		12,796
Attributable to non-controlling interest			26		115		47		107
Net income attributable to Sapiens’ shareholders			9,541		6,382		17,931		12,689
Basic earnings per share			0.19		0.13		0.36		0.25
Diluted earnings per share			0.19		0.13		0.36		0.25
Weighted average number of shares outstanding used to compute basic earnings per share (in thousands)			50,002		49,785		49,994		49,779
Weighted average number of shares outstanding used to compute diluted earnings per share (in thousands)			50,530		49,998		50,430		50,033

 

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				Six months ended
		June 30,				June 30,
		2019		2018		2019		2018
		(unaudited)		(unaudited)		(unaudited)		(unaudited)
GAAP revenue		79,529		72,164		156,316		143,159
Valuation adjustment on acquired deferred revenue		–		378		–		468
Non-GAAP revenue		79,529		72,542		156,316			143,627
GAAP gross profit		31,454		26,859		61,261			53,887
Valuation adjustment on acquired deferred revenue		–		378		–			468
Amortization of capitalized software		1,390		1,152		2,731			2,407
Amortization of other intangible assets		1,950		2,048		3,906			3,959
Non-GAAP gross profit		34,794		30,437		67,898			60,721
GAAP operating income		9,454		4,928		17,531			9,625
Gross profit adjustments		3,340		3,578		6,637			6,834
Capitalization of software development		(1,570)		(1,293)		(2,962)			(2,470)
Amortization of other intangible assets		540		706		1,075			1,628
Stock-based compensation		288		499		741			1,086
Acquisition-related costs *)		529		1,157		1,309			1,735
Non-GAAP operating income		12,581		9,575		24,331			18,438
GAAP net income attributable to Sapiens’ shareholders		6,840		2,014		11,995			4,850
Operating income adjustments		3,127		4,647		6,800			8,813
Tax and other		(426)		(279)		(864)			(974)
Non-GAAP net income attributable to Sapiens’ shareholders		9,541		6,382		17,931			12,689

 

(*) Acquisition-related costs pertain to charges on behalf of M&A agreements related to future performance targets and retention criteria, as well as third-party services, such as, tax, accounting and legal rendered until the acquisition date.

Summary of NON-GAAP Financial Information
U.S. dollars in thousands (except per share amounts)

 

	Q2 2019		Q1 2019		Q4 2018		Q3 2018		Q2 2018
Revenues	79,529		76,787		73,433		73,237		72,542
Gross profit	34,794		33,104		31,320		30,903		30,437
Operating income	12,581		11,750		10,849		10,273		9,575
Net income to Sapiens’ shareholders	9,541		8,390		7,826		7,548		6,382
Adjusted EBITDA	13,358		12,524		11,797		11,236		10,385
Basic earnings per share	0.19		0.17		0.16		0.15		0.13
Diluted earnings per share	0.19		0.17		0.16		0.15		0.13

Non-GAAP Revenues by Geographic Breakdown
U.S. dollars in thousands

	Q2 2019		Q1 2019		Q4 2018		Q3 2018		Q2 2018
North America	39,216		38,149		34,974		36,734		34,606
Europe	33,881		32,193		30,850		30,611		32,518
Asia Pacific	3,515		3,670		3,140		3,480		3,305
South Africa	2,917		2,775		4,469		2,412		2,113
Total	79,529		76,787		73,433		73,237		72,542

Adjusted Free Cash-Flow
U.S. dollars in thousands

	Q2 2019		Q1 2019		Q4 2018		Q3 2018		Q2 2018
Cash-flow from operating activities	15,507		10,550		11,509		6,370		658
Increase in capitalized software development costs	(1,570)		(1,392)		(1,382)		(1,308)		(1,293)
Capital expenditures	(1,079)		(641)		(204)		(831)		(402)
Free cash-flow	12,858		8,517		9,923		4,231		(1,037)
Cash payments attributed to acquisition-related costs(*) (**)	1,692		1,608		790		–		256
Adjusted free cash-flow	14,550		10,125		10,713		4,231		(781)

 

(*) Included in cash-flow from operating activities

(**) Acquisition-related payments pertain to payments on behalf of M&A agreements related to future performance targets and retention criteria, as well as third-party services, such as, tax, accounting and legal rendered until the acquisition date.

 

 

Adjusted EBITDA Calculation
U.S. dollars in thousands

 

		Three months ended				Six months ended
		June 30				June 30
		2019		2018		2019		2018
GAAP operating profit		9,454		4,928		17,531		9,625
Non-GAAP adjustments:
Amortization of capitalized software		1,390		1,152		2,731		2,407
Amortization of other intangible assets		2,490		2,754		4,981		5,587
Capitalization of software development		(1,570)		(1,293)		(2,962)		(2,470)
Stock-based compensation		288		499		741		1,086
Acquisition-related costs		529		1,157		1,310		1,735
Valuation adjustment on acquired deferred revenue		–		378		–		468
Non-GAAP operating profit		12,581		9,575		24,332		18,438
Depreciation		777		810		1,550		1,892
Adjusted EBITDA		13,358		10,385		25,882		20,330

 

 

SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands

 

			June 30,		December 31,
			2019		2018
			(unaudited)		(unaudited)
ASSETS
CURRENT ASSETS
	Cash and cash equivalents		77,282		64,628
	Trade receivables, net and unbilled receivables		58,827		59,159
	Other receivables and prepaid expenses		7,615		6,224
	Total current assets		143,724		130,011
LONG-TERM ASSETS
	Property and equipment, net		9,264		8,515
	Severance pay fund		4,941		4,699
	Goodwill and intangible assets, net		230,069		231,348
	Operating lease right-of-use assets		54,106		–
	Other long-term assets		4,885		4,292
	Total long-term assets		303,265		248,854
TOTAL ASSETS			446,989		378,865
LIABILITIES AND EQUITY
CURRENT LIABILITIES
	Trade payables		6,491		6,149
	Current maturities of Series B Debentures		9,898		9,898
	Accrued expenses and other liabilities		49,390		46,999
	Current maturities of operating lease liabilities		8,107		–
	Deferred revenue		22,782		18,057
	Total current liabilities		96,668		81,103
LONG-TERM LIABILITIES
	Series B Debentures, net of current maturities		58,763		68,577
	Deferred tax liabilities		9,692		11,681
	Other long-term liabilities		7,723		9,398
	Long-term operating lease liabilities		48,105		–
	Accrued severance pay		5,946		5,622
	Total long-term liabilities		130,229		95,278
EQUITY			220,092		202,484
TOTAL LIABILITIES AND EQUITY			446,989		378,865

 

 

 

 

SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOW
U.S. dollars in thousands

 

	For the six months ended June 30,
	2019	2018
	(unaudited)	(unaudited)
Cash flows from operating activities:
Net income	12,042	4,957
Reconciliation of net income (loss) to net cash provided by operating activities:
Depreciation and amortization	9,262	9,886
Accretion of discount on Series B Debentures	84	94
Capital gain from sale of property and equipment	(129)	–
Stock-based compensation related to options issued to employees	741	1,086
Net changes in operating assets and liabilities, net of amount acquired:
Trade receivables, net and unbilled receivables	712	(2,416)
Deferred tax assets	(1,435)	(300)
Other operating assets	(356)	(886)
Trade payables	190	(4,853)
Other operating liabilities	152	(4,691)
Deferred revenues	4,760	6,888
Severance pay	34	56
Net cash provided by operating activities	26,057	9,821
Cash flows from investing activities:
Purchase of property and equipment	(1,720)	(879)
Investment in deposit	(1,119)	–
Payments for business acquisition, net of cash acquired	–	(18,203)
Proceeds from sale of property and equipment	821	–
Capitalized software development costs	(2,962)	(2,470)
Net cash used in investing activities	(4,980)	(21,552)
Cash flows from financing activities:
Proceeds from employee stock options exercised	78	128
Repayment of Series B Debentures	(9,898)	–
Repayment of loan	(4)	(27)
Payment of contingent considerations	(120)	(61)
Dividend to non-controlling interest	(66)	(47)
Net cash provided by financing activities	(10,010)	(7)
Effect of exchange rate changes on cash and cash equivalents	1,587	(522)
Increase (decrease) in cash and cash equivalents	12,654	(12,260)
Cash and cash equivalents at the beginning of period	64,628	71,467
Cash and cash equivalents at the end of period	77,282	59,207

Debentures Covenants

As of June 30, 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 $219 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 -3.51%.

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 -0.15.

 

 

 

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