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.
    ------------------------------       ---------------------------------

    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