EX-99.1 2 f6k110419ex99-1_sapiens.htm SAPIENS REPORTS THIRD QUARTER 2019 FINANCIAL RESULTS

Exhibit 99.1

 

 

 

Sapiens Reports Third Quarter 2019 Financial Results

 

Holon, Israel, November 4, 2019 – Sapiens International Corporation, (NASDAQ and TASE: SPNS), a leading global provider of software solutions for the insurance industry, and a member of the Formula Group (NASDAQ: FORTY and TASE: FORT), today announced its financial results for the third quarter ended September 30, 2019.

 

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

 

   GAAP   % Change   Non-GAAP   % Change 
   Q3-2019   Q3-2018       Q3-2019   Q3-2018     
Revenue  $82.6   $73.2    12.8%  $82.6   $73.2    12.8%
Gross Profit  $33.3   $27.8    19.9%  $36.7   $30.9    18.8%
Gross Margin   40.3%   38.0%   230 bps    44.4%   42.2%   220 bps 
Operating Income  $10.1   $6.8    48.4%  $13.5   $10.3    31.7%
Operating Margin   12.2%   9.3%   290 bps    16.4%   14.0%   240 bps 
Net income (*)  $7.4   $5.2    43.1%  $10.4   $7.5    37.9%
Diluted EPS  $0.15   $0.10    50%  $0.21   $0.15    40%

 

(*)Attributable to Sapiens’ shareholders

 

“The third quarter demonstrated continued execution of Sapiens’ 2019 priorities: top-line growth and margin expansion. Non-GAAP revenue increased 12.8%, primarily due to continued expansion in our property & casualty (P&C) divisions, and initial growth in our life & annuity (L&A) division,” said Roni Al-Dor, president and CEO, Sapiens.

 

“A global focus on Sapiens’ key objectives to leverage our offshore capabilities, along with improved economies of scale, drove a non-GAAP operating margin improvement of 240 basis points. The increase in operating income has fueled continued expansion of Sapiens’ product, sales and delivery teams, all of which are key to building next year’s pipeline and supporting our capacity to deliver current projects. Sapiens is confident we have built a platform that can support long term top-line growth, with the infrastructure to cost-effectively support our long-term profitability.”

 

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Continued Al-Dor: “I’m encouraged by our pipeline of business and anticipated growth for the remainder of 2019. Following the acquisition of Calculo, we are increasing our full-year, non-GAAP revenue to a range of $323 - $325 million, from a previous guidance of revenues on the higher end of $318-$323 million. The increase in revenue and the leverage from improved economies of scale allow Sapiens to increase the guidance for full-year, non-GAAP operating margin in the range of 15.8%-16.0%, compared to our previous guidance of 15.6%-15.8%.”

 

Quarterly Results Conference Call

 

Management will host a conference call and webcast on November 4, 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- 9180644; UK: 0-800-917-9141

 

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 November 14, 2019, as follows: North America: 1-888-295-2634; International: +972-3-925-5901

 

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.

 

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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 payments related to investment in new campus in India, 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

 

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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

 

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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   Nine months ended 
   September 30   September 30 
   2019   2018   2019   2018 
   (unaudited)   (unaudited)   (unaudited)   (unaudited) 
                 
Revenue   82,643    73,237    238,959    216,396 
Cost of revenue   49,316    45,438    144,371    134,710 
                     
Gross profit   33,327    27,799    94,588    81,686 
                     
Operating expenses:                    
Research and development, net   9,445    8,350    27,145    26,130 
Selling, marketing, general and administrative   13,767    12,635    39,797    39,117 
Total operating expenses   23,212    20,985    66,942    65,247 
                     
Operating income   10,115    6,814    27,646    16,439 
                     
Financial expense, net   261    974    1,749    3,128 
Taxes and other expenses, net   2,349    629    6,350    3,143 
                     
Net income   7,505    5,211    19,547    10,168 
                     
Attributable to non-controlling interest   87    28    134    135 
                     
Net income attributable to Sapiens’ shareholders   7,418    5,183    19,413    10,033 
                     
Basic earnings per share   0.15    0.10    0.39    0.20 
                     
Diluted earnings per share   0.15    0.10    0.38    0.20 
                     
Weighted average number of shares outstanding used to compute basic earnings per share (in thousands)   50,027    49,826    50,005    49,795 
                     
Weighted average number of shares outstanding used to compute diluted earnings per share (in thousands)   50,742    50,143    50,534    50,070 

 

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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   Nine months ended 
   September 30   September 30 
   2019   2018   2019   2018 
   (unaudited)   (unaudited)   (unaudited)   (unaudited) 
                 
Revenue   82,643    73,237    238,959    216,864 
Cost of revenue   45,931    42,334    134,349    125,240 
                     
Gross profit   36,712    30,903    104,610    91,624 
                     
Operating expenses:                    
Research and development, net   10,986    9,658    31,648    29,908 
Selling, marketing, general and administrative   12,196    10,972    35,101    33,005 
Total operating expenses   23,182    20,630    66,749    62,913 
                     
Operating income   13,530    10,273    37,861    28,711 
                     
Financial expense, net   261    974    1,749    3,128 
Taxes and other expenses   2,770    1,723    7,635    5,211 
                     
Net income   10,499    7,576    28,477    20,372 
                     
Attributable to non-controlling interest   87    28    134    135 
                     
Net income attributable to Sapiens’ shareholders   10,412    7,548    28,343    20,237 
                     
Basic earnings per share   0.21    0.15    0.57    0.41 
                     
Diluted earnings per share   0.21    0.15    0.56    0.40 
                     
Weighted average number of shares outstanding used to compute basic earnings per share (in thousands)   50,027    49,826    50,005    49,795 
                     
Weighted average number of shares outstanding used to compute diluted earnings per share (in thousands)   50,742    50,143    50,534    50,070 

 

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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   Nine months ended 
   September 30   September 30 
   2019   2018   2019   2018 
   (unaudited)   (unaudited)   (unaudited)   (unaudited) 
                 
GAAP revenue   82,643    73,237    238,959    216,396 
Valuation adjustment on acquired deferred revenue   -    -    -    468 
Non-GAAP revenue   82,643    73,237    238,959    216,864 
                     
GAAP gross profit   33,327    27,799    94,588    81,686 
Valuation adjustment on acquired deferred revenue   -    -    -    468 
Amortization of capitalized software   1,438    1,205    4,169    3,612 
Amortization of other intangible assets   1,947    1,899    5,853    5,858 
Non-GAAP gross profit   36,712    30,903    104,610    91,624 
                     
GAAP operating income   10,115    6,814    27,646    16,439 
Gross profit adjustments   3,385    3,104    10,022    9,938 
Capitalization of software development   (1,541)   (1,308)   (4,503)   (3,778)
Amortization of other intangible assets   539    739    1,614    2,367 
Stock-based compensation   382    384    1,123    1,470 
Acquisition-related costs *)   650    540    1,959    2,275 
Non-GAAP operating income   13,530    10,273    37,861    28,711 
                     
GAAP net income attributable to Sapiens’ shareholders   7,418    5,183    19,413    10,033 
Operating income adjustments   3,415    3,459    10,215    12,272 
Tax and other   (421)   (1,094)   (1,285)   (2,068)
Non-GAAP net income attributable to Sapiens’ shareholders   10,412    7,548    28,343    20,237 

 

(*)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.

 

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

 

   Q3 2019   Q2 2019   Q1 2019   Q4 2018   Q3 2018 
                     
Revenues   82,643    79,529    76,787    73,433    73,237 
Gross profit   36,712    34,794    33,104    31,320    30,903 
Operating income   13,530    12,581    11,750    10,849    10,273 
Net income to Sapiens’ shareholders   10,412    9,541    8,390    7,826    7,548 
Adjusted EBITDA   14,523    13,358    12,524    11,797    11,236 
                          
Basic earnings per share   0.21    0.19    0.17    0.16    0.15 
Diluted earnings per share   0.21    0.19    0.17    0.16    0.15 

 

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

 

   Q3 2019   Q2 2019   Q1 2019   Q4 2018   Q3 2018 
                     
North America   44,413    39,216    38,149    34,974    36,734 
Europe   30,273    33,881    32,193    30,850    30,611 
Asia Pacific   4,087    3,515    3,670    3,140    3,480 
South Africa   3,870    2,917    2,775    4,469    2,412 
                          
Total   82,643    79,529    76,787    73,433    73,237 

 

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

 

   Q3 2019   Q2 2019   Q1 2019   Q4 2018   Q3 2018 
                     
Cash-flow from operating activities   18,671    15,507    10,550    11,509    6,370 
Increase in capitalized software development costs   (1,541)   (1,570)   (1,392)   (1,382)   (1,308)
Capital expenditures   (973)   (1,079)   (641)   (204)   (831)
Capital expenditures related to new campus in India   (6,325)   -    -    -    - 
Free cash-flow   9,832    12,858    8,517    9,923    4,231 
                          
Capital expenditures related to new campus in India   6,325    -    -    -    - 
Cash payments attributed to acquisition-related costs(*) (**)   100    1,692    1,608    790    - 
                          
Adjusted free cash-flow   16,257    14,550    10,125    10,713    4,231 

 

(*)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.

 

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Adjusted EBITDA Calculation
U.S. dollars in thousands

 

   Three months ended   Nine months ended 
   September 30   September 30 
   2019   2018   2019   2018 
                 
GAAP operating profit   10,115    6,814    27,646    16,439 
                     
Non-GAAP adjustments:                    
Amortization of capitalized software   1,438    1,205    4,169    3,612 
Amortization of other intangible assets   2,486    2,638    7,467    8,225 
Capitalization of software development   (1,541)   (1,308)   (4,503)   (3,778)
Stock-based compensation   382    384    1,123    1,470 
Acquisition-related costs   650    540    1,959    2,275 
Valuation adjustment on acquired deferred revenue   -    -    -    468 
                     
Non-GAAP operating profit   13,530    10,273    37,861    28,711 
                     
Depreciation   993    963    2,544    2,855 
                     
Adjusted EBITDA   14,523    11,236    40,405    31,566 

 

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SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES

 

CONDENSED CONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands

 

   September 30,   December 31, 
   2019   2018 
   (unaudited)   (unaudited) 
         
ASSETS        
         
CURRENT ASSETS        
Cash and cash equivalents   73,138    64,628 
Trade receivables, net and unbilled receivables   57,237    59,159 
Other receivables and prepaid expenses   7,567    6,224 
           
Total current assets   137,942    130,011 
           
LONG-TERM ASSETS          
Property and equipment, net   15,446    8,515 
Severance pay fund   5,052    4,699 
Goodwill and intangible assets, net   230,935    231,348 
Operating lease right-of-use assets   52,747    - 
Other long-term assets   5,445    4,292 
           
Total long-term assets   309,625    248,854 
           
TOTAL ASSETS   447,567    378,865 
           
LIABILITIES AND EQUITY          
           
CURRENT LIABILITIES          
Trade payables   5,506    6,149 
Current maturities of Series B Debentures   9,898    9,898 
Accrued expenses and other liabilities   54,848    46,999 
Current maturities of operating lease liabilities   8,155    - 
Deferred revenue   22,691    18,057 
           
Total current liabilities   101,098    81,103 
           
LONG-TERM LIABILITIES          
Series B Debentures, net of current maturities   58,803    68,577 
Deferred tax liabilities   9,040    11,681 
Other long-term liabilities   8,228    9,398 
Long-term operating lease liabilities   47,663    - 
Accrued severance pay   6,082    5,622 
           
Total long-term liabilities   129,816    95,278 
           
EQUITY   216,653    202,484 
           
TOTAL LIABILITIES AND EQUITY   447,567    378,865 

 

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SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES

 

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

 

   For the nine months ended
September 30,		 
   2019   2018 
   (unaudited)   (unaudited) 
Cash flows from operating activities:        
Net income   19,547    10,168 
Reconciliation of net income (loss) to net cash provided by operating activities:          
Depreciation and amortization   14,180    14,694 
Accretion of discount on Series B Debentures   124    140 
Capital gain from sale of property and equipment   (129)   - 
Stock-based compensation related to options issued to employees   1,123    1,462 
           
Net changes in operating assets and liabilities, net of amount acquired:          
Trade receivables, net and unbilled receivables   3,642    (10,654)
Deferred tax assets   (2,664)   (2,448)
Other operating assets   1,425    (1,233)
Trade payables   (1,534)   1,657 
Other operating liabilities   4,562    416 
Deferred revenues   4,419    1,937 
Severance pay   33    52 
           
Net cash provided by operating activities   44,728    16,191 
           
Cash flows from investing activities:          
Purchase of property and equipment   (9,018)   (1,710)
Investment in deposit   (1,119)   - 
Payments for business acquisition, net of cash acquired   (1,572)   (18,203)
Proceeds from sale of property and equipment   821    - 
Capitalized software development costs   (4,503)   (3,778)
           
Net cash used in investing activities   (15,391)   (23,691)
           
Cash flows from financing activities:          
Proceeds from employee stock options exercised   435    532 
Distribution of dividend   (10,362)   - 
Repayment of Series B Debentures   (9,898)   - 
Repayment of loan   (4)   (41)
Payment of contingent considerations   (120)   (61)
Dividend to non-controlling interest   (66)   (47)
           
Net cash provided by financing activities   (20,015)   383 
           
Effect of exchange rate changes on cash and cash equivalents   (812)   (271)
           
Increase (decrease) in cash and cash equivalents   8,510    (7,388)
Cash and cash equivalents at the beginning of period   64,628    71,467 
           
Cash and cash equivalents at the end of period   73,138    64,079 

 

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Debentures Covenants

 

As of September 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 $215 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 -1.81%.

 

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 -0.07.

 

 

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