Sapiens Reports Solid Improvement in Third Quarter 2017 Financial Results
HOLON, Israel, Nov. 9, 2017 /PRNewswire/ -- Sapiens International Corporation, (NASDAQ: SPNS; TASE: SPNS), a leading global provider of software solutions for the insurance industry, with a growing presence in the financial services sector, and a member of the Formula Group (NASDAQ: FORTY; TASE: FORTY), today announced its financial results for the third quarter ended September 30, 2017.
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Third Quarter 2017 Highlights:
GAAP Non-GAAP
---- --------
Revenue increases 27.5% to $72 Revenue increases 30.8% to $73.9
million. million.
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Operating income totaled $4.5 Operating profit totaled $9.1
million, down 31.8% million, up 24.4%.
compared to last year.
----------------------
Operating margin of 6.2%, Operating margin of 12.4%,
compared to 11.7% last year compared to 13.0% last
and (4.3%) in prior quarter. year and 4.7% in prior quarter.
---------------------------- -------------------------------
Net income attributable to Net income attributable to
Sapiens' shareholders Sapiens' shareholders
totaled $2.9 million. totaled $6.3 million.
--------------------- ---------------------
EPS of $0.06 per diluted share. EPS of $0.13 per diluted share.
------------------------------- -------------------------------
"Sapiens' third-quarter results show solid improvement, as evidenced by strong revenue growth, a higher non-GAAP operating profit and increased non-GAAP net income," said Roni Al-Dor, president and CEO, Sapiens. "Our quarterly results demonstrate incremental progress. Our non-GAAP operating margin improved from 4.7% in the previous quarter to 12.4%, primarily due to the successful integration of StoneRiver following our acquisition and the implementation of restructuring and cost-saving initiatives. These initiatives were enacted following the halt of the development project that we reported in the first quarter."
"All of StoneRiver's corporate functions and back-office operations have been fully integrated with Sapiens," said Al-Dor. "We are now operating as one cohesive company focused on expanding business with existing customers and growing our global customer base."
"To facilitate our customers' transformations and digital journeys, we have realigned our global operations. Sapiens launched a digital division in the third quarter focused on providing digital products and services across all company divisions," continued Al-Dor. "We also created a product strategy function that is responsible for go-to-market strategy and product innovation across our global insurance product portfolio. This group will work closely with the product, sales, marketing and client relations teams to build and communicate our unique value proposition, while maximizing synergies across products. These changes will enable Sapiens to deliver timely, targeted solutions to satisfy insurance carriers' mission-critical needs."
Al-Dor concluded: "Sapiens is maintaining our guidance for 2017 full-year revenues of $265 to $275 million (on a non-GAAP basis), which we now expect to be on the higher end. We are also maintaining expectations for a full-year operating profit margin between 9-10% (on a non-GAAP basis), which we now expect to be on the lower end of our guidance, but would continue our trend of improving profitability."
Quarterly Results Conference Call
Management will host a conference call and webcast on November 9 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: http://www.sapiens.com/investors/presentations-and-webcast/
If you are unable to join live, a replay of the call will be accessible until November 19, 2017:
North America: +1-888-295-2634; International: +972-3-925-5927
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, 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, acquisition-related costs, restructuring and cost reduction costs, loss on sales of Marketable Securities and tax adjustment regarding non-GAAP adjustments.
Management of the Company does not consider these non-GAAP measures in isolation, or as an alternative to financial measures determined in accordance with GAAP. The principal limitation of these non-GAAP financial measures is that they exclude significant expenses and income that are required by GAAP to be recorded in the Company's financial statements. In addition, they are subject to inherent limitations, as they reflect the exercise of judgment by management about which expenses and income are excluded or included in determining these non-GAAP financial measures.
To compensate for these limitations, management presents non-GAAP financial measures in connection with GAAP results. Sapiens urges investors to review the reconciliation of its non-GAAP financial measures to the comparable GAAP financial measures, which it includes in press releases announcing quarterly financial results, including this press release, and not to rely on any single financial measure to evaluate the Company's business.
Reconciliation tables of the most comparable GAAP financial measures to the non-GAAP financial measures used in this press release are included with the financial tables of this release.
The Company defines Adjusted EBITDA as net profit, adjusted for valuation adjustment on acquired deferred revenue, stock-based compensation expense, depreciation and amortization, capitalized of software development costs, compensation expenses related to acquisition, 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 (NASDAQ and TASE: SPNS) is a leading global provider of software solutions for the insurance industry, with a growing presence in the financial services sector. We offer integrated core software solutions and business services, and a full digital suite for the property and casualty/general insurance; life, pension and annuities; and reinsurance markets. Sapiens also services the workers' compensation and financial and compliance markets.
Our portfolio includes policy administration, billing and claims; underwriting, illustration and electronic application; reinsurance and decision management software. Sapiens' digital platform features customer and agent portals, and a business intelligence platform. With a 30-year track record of delivering to more than 400 organizations, Sapiens' team of over 2,500 operates through our fully-owned subsidiaries in North America, the United Kingdom, EMEA and Asia Pacific. 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, 2016, 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 Nine months ended
September 30 September 30
------------ ------------
2017 2016 2017 2016
(unaudited) (unaudited) (unaudited) (unaudited)
---------- ---------- ---------- ----------
Revenue 72,011 56,480 159,077
197,594
Cost of revenue 46,774 34,366 129,902 95,754
------ ------ ------- ------
Gross profit 25,237 22,114 67,692 63,323
Operating expenses:
Research and development, net 8,381 4,147 23,528 11,401
Selling, marketing, general and administrative 12,363 11,376 44,294 32,673
Total operating expenses 20,744 15,523 67,822 44,074
------ ------ ------ ------
Operating income (loss) 4,493 6,591 (130) 19,249
Financial expense (income), net 863 (225) 2,010 (631)
Taxes and other expenses, net 679 1,463 737 4,389
--- ----- --- -----
Net income (loss) 2,951 5,353 (2,877) 15,491
===== ===== ====== ======
Attributable to non-controlling interest 6 48 (32) (34)
=== === === ===
Net income (loss) attributable to Sapiens' shareholders 2,945 5,305 (2,845) 15,525
===== ===== ====== ======
Basic earnings (loss) per share 0.06 0.11 (0.06) 0.32
==== ==== ===== ====
Diluted earnings (loss) per share 0.06 0.11 (0.06) 0.32
==== ==== ===== ====
Weighted average number of shares outstanding used to 49,182 49,002 49,118 48,922
compute basic earnings per share (in thousands)
Weighted average number of shares outstanding used to 49,859 49,849 49,118 49,722
compute diluted earnings per share (in thousands)
Summary of Non-GAAP Financial Information
U.S. dollars in thousands (except per share amounts)
Three months ended Nine months ended
September 30 September 30
2017 2016 2017 2016
(unaudited) (unaudited) (unaudited) (unaudited)
---------- ---------- ---------- ----------
Revenues 73,854 100% 56,480 100% 199,555 100% 159,077 100%
Gross profit 30,291 41.0% 23,617 41.8% 77,150 38.7% 67,917 42.7%
Operating profit 9,139 12.4% 7,348 13.0% 14,054 7.0% 22,122 13.9%
Net income to shareholders 6,288 8.5% 6,004 10.6% 9,399 4.7% 18,241 11.5%
Adjusted EBITDA 10,100 13.7% 8,115 14.4% 16,859 8.4% 24,152 15.2%
Basic earnings per share 0.13 0.12 0.19 0.37
Diluted earnings per share 0.13 0.12 0.19 0.37
Non-GAAP Revenues by Geographic Breakdown
U.S. dollars in thousands
Q3 2017 Q2 2017 Q1 2017 Q4 2016 Q3 2016
------- ------- ------- ------- -------
North America 32,780 28,544 19,465 21,107 19,706
Europe & South Africa 35,324 36,711 32,489 28,292 28,675
APAC 5,750 3,912 4,580 7,714 8,099
----- ----- ----- ----- -----
Total 73,854 69,167 56,534 57,113 56,480
Adjusted EBITDA Calculation
U.S. dollars in thousands
Three months ended Nine months ended
September 30 September 30
------------ ------------
2017 2016 2017 2016
---- ---- ---- ----
GAAP operating profit (loss) 4,493 6,591 (130) 19,249
Non-GAAP adjustments:
---------------------
Amortization of capitalized software 1,298 1,172 3,554 3,837
Amortization of other intangible assets 2,198 658 5,179 1,664
Capitalization of software development (1,416) (1,674) (4,331) (4,454)
Stock-based compensation 469 493 1,380 1,433
Compensation related to acquisition and 254 108 2,541 393
acquisition-related costs
Restructuring and cost reduction plan - - 3,900 -
Valuation adjustment on acquired 1,843 - 1,961 -
deferred revenue
Non-GAAP operating profit 9,139 7,348 14,054 22,122
Depreciation 961 767 2,805 2,030
Adjusted EBITDA 10,100 8,115 16,859 24,152
====== ===== ====== ======
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
------------ ------------
2017 2016 2017 2016
---- ---- ---- ----
GAAP revenue 72,011 56,480 197,594 159,077
Valuation adjustment on acquired deferred revenue 1,843 - 1,961 -
----- --- ----- ---
Non-GAAP revenue 73,854 56,480 199,555 159,077
====== ====== ======= =======
GAAP gross profit 25,237 22,114 67,692 63,323
Revenue adjustment 1,843 - 1,961 -
Amortization of capitalized software 1,298 1,172 3,554 3,837
Amortization of other intangible assets 1,913 331 3,943 757
----- --- -----
Non-GAAP gross profit 30,291 23,617 77,150 67,917
====== ====== ====== ======
GAAP operating income (loss) 4,493 6,591 (130) 19,249
Gross profit adjustments 5,054 1,503 9,458 4,594
Capitalization of software development (1,416) (1,674) (4,331) (4,454)
Amortization of other intangible assets 285 327 1,236 907
Stock-based compensation 469 493 1,380 1,433
Compensation related to acquisition and 254 108 2,541 393
acquisition-related costs
Restructuring and cost reduction plan - - 3,900 -
--- --- ----- ---
Non-GAAP operating income 9,139 7,348 14,054 22,122
===== ===== ====== ======
GAAP net income (loss) attributable to Sapiens' 2,945 5,305 (2,845) 15,525
shareholders
Operating income (loss) adjustments 4,646 757 14,184 2,873
Adjustment to redeemable non-controlling interest - 38 - 141
Loss on sales of Marketable Securities - - 230 -
Tax and Other (1,303) (96) (2,170) (298)
------
Non-GAAP net income attributable to Sapiens' 6,288 6,004 9,399 18,241
shareholders
Non-GAAP basic earnings per share 0.13 0.12 0.19 0.37
==== ==== ==== ====
Non-GAAP diluted earnings per share 0.13 0.12 0.19 0.37
==== ==== ==== ====
Weighted average number of shares outstanding used to 49,182 49,002 49,118 48,922
compute basic earnings per share (in thousands)
Weighted average number of shares outstanding used to 49,859 49,849 49,891 49,722
compute diluted earnings per share (in thousands)
SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
U.S. Dollars in thousands
September 30, December 31,
2017 2016
---- ----
(unaudited) (unaudited)
---------- ----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents 80,493 60,908
Trade receivables, net 54,543 34,684
Other receivables and prepaid expenses 9,830 6,389
Marketable securities - 18,220
Total current assets 144,866 120,201
LONG-TERM ASSETS
Marketable securities - 17,228
Property and equipment, net 9,285 9,807
Severance pay fund 4,421 4,041
Goodwill and intangible assets, net 219,978 101,951
Other long-term assets 3,951 4,623
Total long-term assets 237,635 137,650
TOTAL ASSETS 382,501 257,851
======= =======
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Trade payables 6,816 6,562
Accrued expenses and other liabilities 43,664 32,049
Deferred revenue 20,821 9,137
Total current liabilities 71,301 47,748
LONG-TERM LIABILITIES
Other long-term liabilities 23,599 9,864
Debenture 78,238 -
Accrued severance pay 5,330 4,940
Total long-term liabilities 107,167 14,804
REDEEMABLE NON-CONTROLLING INTEREST 908 908
--- ---
EQUITY 203,125 194,391
------- -------
TOTAL LIABILITIES AND EQUITY 382,501 257,851
======= =======
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
------------
2017 2016
---- ----
(unaudited) (unaudited)
Cash flows from operating activities:
Net income (loss) (2,991) 15,491
Reconciliation of net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 11,535 7,531
Amortization of premium, accrued
interest and loss on sales of
marketable securities 509 (380)
Stock-based compensation related
to options issued to employees 1,349 1,433
Net changes in operating assets and liabilities, net of amount
acquired:
Trade receivables (8,526) 11
Deferred tax assets (2,366) 366
Other operating assets (282) (3,383)
Trade payables (1,245) 1,231
Other operating liabilities 688 (254)
Deferred revenues 6,521 2,203
Severance pay (63) (210)
Net cash provided by operating
activities 5,129 24,039
===== ======
Cash flows from investing activities:
Purchase of property and equipment (1,687) (3,732)
Purchase of marketable securities,
net of interest received - (5,605)
Proceeds from sales of marketable
securities 35,369 5,394
Payments for business acquisition,
net of cash acquired (97,672) (4,861)
Capitalized software development
costs (4,331) (4,454)
Restricted cash - 4
--- ---
Net cash used in investing
activities (68,321) (13,254)
======= =======
Cash flows from financing activities:
Proceeds from employee stock
options exercised 438 809
Payment to shareholders in respect
of acquisition - (1,440)
Loan received net of repayment of
loan - (642)
Issuance of debenture, net 78,198 -
Distribution of dividend - (9,786)
Net cash provided by (used in)
financing activities 78,636 (11,059)
====== =======
Effect of exchange rate changes on
cash and cash equivalents 4,141 2,151
Increase in cash and cash
equivalents 19,585 1,877
Cash and cash equivalents at the
beginning of period 60,908 54,351
------ ------
Cash and cash equivalents at the
end of period 80,493 56,228
====== ======
Debenture Covenants
As of September 30, 2017, 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 $202 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 (1.12)%.
On October 2017 Sapiens announces cash Dividend of $0.20 per share and $9.8 million in total. The dividend will be paid on Thursday, December 14, 2017 subject to shareholders approval.
The company will be in compliance with the covenants mentioned above, following the reflection of the announced dividend.
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SOURCE Sapiens International Corporation
