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://www.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: 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     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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