Sapiens Reports Fourth Quarter and Full Year 2017 Financial Results

Sapiens Reports Fourth Quarter and Full Year 2017 Financial Results

HOLON, Israel, March 8, 2018 /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 and TASE: FORT), today announced its financial results for the fourth quarter and full year ended December 31, 2017.

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Fourth Quarter 2017 Highlights:

    --  Revenue increases 25.4% to $71.6 million. Non-GAAP revenue increased
        26.9% from the same period in the prior year to $72.4 million.
    --  Operating income totaled $1.1 million, down 79.8% compared to last year.
        Non-GAAP operating income totaled $9.1 million, up 20.9% compared to the
        same period in the prior year.
    --  Operating margin of 1.6%, compared to 9.8% last year. Non-GAAP operating
        margin of 12.5%, compared to 13.1% last year.
    --  Net income attributable to Sapiens' shareholders totaled $3.2 million.
        Non-GAAP net income attributable to Sapiens' shareholders totaled $6.1
        million, compared to $6.0 in the same period last year.
    --  Diluted earnings per share of $0.07 per diluted share. Non-GAAP diluted
        earnings per share of $0.12 per diluted share, flat compared to the same
        period in the prior year.

Full Year 2017 Highlights:

    --  Revenue increases 24.5% to $269.2 million. Non-GAAP revenue increased
        25.8% from the same period in the prior year to $272.0 million.
    --  Operating income totaled $1.0 million, down 96.0% from the same period
        in the prior year. Non-GAAP operating profit totaled $23.1 million, a
        decrease of 22.0% from last year.
    --  Operating margin of 0.4%, compared to 11.5% in the same period in the
        prior year. Non-GAAP operating margin of 8.5%, compared to 13.7% last
        year.
    --  Net income attributable to Sapiens' shareholders totaled $0.4 million.
        Non-GAAP net income attributable to Sapiens' shareholders totaled $15.5
        million, a decrease of 35.8% from the same period in the prior year.
    --  Diluted earnings per share of $0.01 per diluted share. Non-GAAP diluted
        earnings per share of $0.31 per diluted share.

"We made progress in 2017 executing to our long-term strategy of becoming a leading global provider of insurance software solutions and services. We invested in acquisitions to gain rapid entrance into the US market where we acquired products and solutions, clients, personnel and resources, and strong brands in focused geographies and market segments, as well as R&D to improve our competitive advantages through internal development of products and solutions," said Roni Al-Dor, president and CEO, Sapiens. "From a growth and profitability perspective 2017 was a mixed year. We reported full year Non-GAAP revenue of $272 million, near the top of our revised 2017 guidance range, a year-over-year increase of 25.8%, primarily due to the acquisition of StoneRiver. However, we did not fully meet our 2017 expectations for profitability, with adjusted non-GAAP operating margin for the year of 8.5%."

Al-Dor concluded: "Sapiens is reiterating prior guidance for 2018 full-year revenues in the range of $280-$285 million (on a non-GAAP basis), an increase of approximately 3% to 5%. Growth is anticipated to be below prior year levels due to the elimination of certain non-core revenue, extension of the rollout time-line for a large client, certain projects that came through an acquisition that will not renew, and the loss of some revenue due to product duplication between StoneRiver and Adaptik. We are also maintaining expectations for adjusted operating margin a range of 12% to 13% (on a non-GAAP basis), based on integration, restructuring benefits, and maximizing our acquired talent."

Quarterly Results Conference Call

Management will host a conference call and webcast today, March 8 at 9:00 a.m. Eastern Time (4:00 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 March 18, 2017, as follows:
North America: 1-888-782-4291; International: +972-3-925-5918

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, as well as the impact of one-time adjustment to our deferred taxes as a result of the U.S. Tax Cuts and Job act 2017.

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.


                            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                          Year ended

                                                                                                      December 31,                             December 31,
                                                                                                      ------------                            ------------

                                                                                                       2017                    2016                         2017                  2016

                                                                                        (unaudited)              (unaudited)          (unaudited)                  (unaudited)
                                                                                        ----------               ----------           ----------                   ----------


     Revenue                                                                                         71,600                  57,113                      269,194               216,190

     Cost of revenue                                                                                 45,776                  34,648                      175,678               130,402
                                                                                                     ------                  ------                      -------               -------


     Gross profit                                                                                    25,824                  22,465                       93,516                85,788


     Operating expenses:

                             Research and development, net                                              8,427                   5,087                       31,955                16,488

                             Selling, marketing, general and administrative                            16,265                  11,787                       60,559                44,460


     Total operating expenses                                                                        24,692                  16,874                       92,514                60,948
                                                                                                     ------                  ------                       ------                ------


     Operating income                                                                                 1,132                   5,591                        1,002                24,840


     Financial expense (income), net                                                                  1,000                      98                        3,010                 (533)

     Taxes and other expenses, net                                                                  (3,301)                  1,383                      (2,564)                5,772
                                                                                                     ------                   -----                       ------                 -----



     Net income                                                                                       3,433                   4,110                          556                19,601
                                                                                                      =====                   =====                          ===                ======


     Attributable to non-controlling interest                                                         (157)                    (9)                       (189)                 (43)
                                                                                                       ====                     ===                         ====                   ===

    Attributed to redeemable non-controlling interest                                                    43                       7                           43                 (134)
                                                                                                        ===                     ===                          ===                  ====

    Adjustment to redeemable non-controlling interest                                                   350                     301                          350                   442
                                                                                                        ===                     ===                          ===                   ===


     Net income attributable to Sapiens' shareholders                                                 3,197                   3,811                          352                19,336
                                                                                                      =====                   =====                          ===                ======

     Basic earnings per share                                                                          0.07                    0.08                         0.01                  0.40
                                                                                                       ====                    ====                         ====                  ====


     Diluted earnings per share                                                                        0.07                    0.08                         0.01                  0.40
                                                                                                       ====                    ====                         ====                  ====



    Weighted average number of shares outstanding used to                                            49,325                  49,021                       49,170                48,947
    compute basic earnings per share (in thousands)


    Weighted average number of shares outstanding used to                                            50,032                  49,935                       49,926                49,780
    compute diluted earnings per share (in thousands)


    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                            Year ended

                                                                                          December 31,                              December 31,
                                                                                          ------------                              ------------

                                                                                           2017                     2016                         2017                   2016

                                                                            (unaudited)              (unaudited)           (unaudited)                  (unaudited)
                                                                            ----------               ----------            ----------                   ----------


     Revenue                                                                            72,448                   57,113                      272,003                216,190

     Cost of revenue                                                                    42,931                   33,263                      165,336                124,423
                                                                                        ------                   ------                      -------                -------


     Gross profit                                                                       29,517                   23,850                      106,667                 91,767


     Operating expenses:

                             Research and development, net                                  9,663                    6,178                       37,522                 22,033

                             Selling, marketing, general and administrative                10,795                   10,179                       46,032                 40,119


     Total operating expenses                                                           20,458                   16,357                       83,554                 62,152
                                                                                        ------                   ------                       ------                 ------


     Operating income                                                                    9,059                    7,493                       23,113                 29,615


     Financial expense (income), net                                                     1,000                      (9)                       2,780                  (640)

     Taxes and other expenses                                                            2,033                    1,533                        4,940                  6,179
                                                                                         -----                    -----                        -----                  -----



     Net income                                                                          6,026                    5,969                       15,393                 24,076
                                                                                         =====                    =====                       ======                 ======


     Attributable to non-controlling interest                                              115                     (11)                         147                    123
                                                                                           ===                      ===                          ===                    ===


     Net income attributable to Sapiens' shareholders                                    6,141                    5,958                       15,540                 24,199
                                                                                         =====                    =====                       ======                 ======



     Basic earnings per share                                                             0.12                     0.12                         0.32                   0.49
                                                                                          ====                     ====                         ====                   ====


     Diluted earnings per share                                                           0.12                     0.12                         0.31                   0.49
                                                                                          ====                     ====                         ====                   ====



    Weighted average number of shares outstanding used to                               49,325                   49,021                       49,170                 48,947
    compute basic earnings per share (in thousands)


    Weighted average number of shares outstanding used to                               50,032                   49,935                       49,926                 49,780
    compute diluted earnings per share (in thousands)

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            Year ended

                                                                      December 31,                  December 31,
                                                                      ------------                  ------------

                                                                          2017                 2016         2017       2016
                                                                          ----                 ----         ----       ----

    GAAP revenue                                                        71,600               57,113      269,194    216,190

    Valuation adjustment on acquired deferred revenue                      848                    -       2,809          -
                                                                           ---                  ---       -----        ---

    Non-GAAP revenue                                                    72,448               57,113      272,003    216,190
                                                                        ======               ======      =======    =======



    GAAP gross profit                                                   25,824               22,465       93,516     85,788

    Revenue adjustment                                                     848                    -       2,809          -

    Amortization of capitalized software                                 1,270                1,092        4,824      4,929

    Amortization of other intangible assets                              1,575                  293        5,518      1,050
                                                                         -----                  ---        -----

    Non-GAAP gross profit                                               29,517               23,850      106,667     91,767
                                                                        ======               ======      =======     ======



    GAAP operating income (loss)                                         1,132                5,591        1,002     24,840

    Gross profit adjustments                                             3,693                1,385       13,151      5,979

    Capitalization of software development                             (1,236)             (1,091)     (5,567)   (5,545)

    Amortization of other intangible assets                                489                  300        1,725      1,207

    Stock-based compensation                                               655                  522        2,035      1,955

    Compensation related to acquisition and acquisition-related costs      144                  786        2,685      1,179

    Restructuring and cost reduction plan                                4,182                    -       8,082          -
                                                                         -----                  ---       -----        ---

    Non-GAAP operating income                                            9,059                7,493       23,113     29,615
                                                                         =====                =====       ======     ======



     GAAP net income (loss) attributable to Sapiens' shareholders        3,197                3,811          352     19,336

     Operating income (loss) adjustments                                 7,927                1,902       22,111      4,775

     Adjustment to redeemable non-controlling interest                     350                  302          350        443

     Loss on sales of Marketable Securities                                  -                   -         230          -

     Tax and Other *                                                   (5,333)                (57)     (7,503)     (355)
                                                                                                        ------

     Non-GAAP net income attributable to Sapiens' shareholders           6,141                5,958       15,540     24,199
                                                                         =====                =====       ======     ======

*Includes $3.8M US tax Cuts and Job Act Effect in 2017


    Summary of Non-GAAP Financial Information

    U.S. dollars in thousands (except per share amounts)


                                          Three months ended                Twelve months ended

                                             December 31,                       December 31,
                                                                                ------------

                                                          2017               2016                                   2017                 2016

                                              (unaudited)            (unaudited)                       (unaudited)       (unaudited)
                                              ----------             ----------                        ----------        ----------


    Revenues                                            72,448  100%                            57,113              100%             272,003   100% 216,190  100%

    Gross profit                                        29,517 40.7%                            23,850             41.8%             106,667  39.2%  91,767 42.4%

    Operating profit                                     9,059 12.5%                             7,493             13.1%              23,113   8.5%  29,615 13.7%

    Net income to
     shareholders                                        6,141  8.5%                             5,958             10.4%              15,540   5.7%  24,199 11.2%

    Adjusted EBITDA                                     10,076 13.9%                             8,298             14.5%              26,935   9.9%  32,450 15.0%


    Basic earnings
     per share                                            0.12                                    0.12                                  0.32           0.49

    Diluted earnings
     per share                                            0.12                                    0.12                                  0.31           0.49


    Non-GAAP Revenues by Geographic Breakdown

    U.S. dollars in thousands


                                              Q4 2017       Q3 2017        Q2 2017        Q1 2017        Q4 2016
                                              -------       -------        -------        -------        -------


    North America                                    31,580         32,780         28,544         19,465         21,107

    Europe & South Africa                            37,051         35,324         36,711         32,489         28,292

    APAC                                              3,817          5,750          3,912          4,580          7,714
                                                      -----          -----          -----          -----          -----


    Total                                            72,448         73,854         69,167         56,534         57,113


    Adjusted EBITDA Calculation

    U.S. dollars in thousands


                                            Three months ended           Year ended

                                                December 31,            December 31,
                                               ------------             ------------

                                                2017               2016            2017       2016
                                                ----               ----            ----       ----


    GAAP operating profit (loss)               1,132              5,591           1,002     24,840


    Non-GAAP adjustments:
    ---------------------

    Amortization of capitalized software       1,270              1,092           4,824      4,929

    Amortization of other intangible assets    2,064                593           7,243      2,257

    Capitalization of software development   (1,236)           (1,091)        (5,567)   (5,545)

    Stock-based compensation                     655                522           2,035      1,955

    Compensation related to acquisition and      144                786           2,685      1,179
    acquisition-related costs

    Restructuring and cost reduction plan      4,182                  -          8,082          -

    Valuation adjustment on acquired             848                  -          2,809          -
    deferred revenue


    Non-GAAP operating profit                  9,059              7,493          23,113     29,615


    Depreciation                               1,017                805           3,822      2,835


    Adjusted EBITDA                           10,076              8,298          26,935     32,450
                                              ======              =====          ======     ======


    SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES


    CONDENSED CONSOLIDATED BALANCE SHEETS

    U.S. Dollars in thousands


                                                                        December 31,            December 31,

                                                                                         2017                    2016
                                                                                         ----                    ----

                                                                         (unaudited)             (unaudited)
                                                                         ----------              ----------


     ASSETS


     CURRENT ASSETS

                                 Cash and cash equivalents                               71,467                  60,908

                                 Trade receivables, net                                  53,226                  34,684

                                 Other receivables and prepaid expenses                   6,280                   6,389

                                 Marketable securities                                        -                 18,220



                                 Total current assets                                   130,973                 120,201



     LONG-TERM ASSETS

                                 Marketable securities                                        -                 17,228

                                 Property and equipment, net                             10,695                   9,807

                                 Severance pay fund                                       4,547                   4,041

                                 Goodwill and intangible assets, net                    221,403                 101,951

                                 Other long-term assets                                   3,675                   4,623

                                 Total long-term assets                                 240,320                 137,650



     TOTAL ASSETS                                                                    371,293                 257,851
                                                                                     =======                 =======


    LIABILITIES AND EQUITY


     CURRENT LIABILITIES

                                 Trade payables                                           7,044                   6,562

                                 Accrued expenses and other liabilities                  46,277                  32,049

                                 Deferred revenue                                        16,513                   9,137

                                 Total current liabilities                               69,834                  47,748



     LONG-TERM LIABILITIES

                                 Other long-term liabilities                             15,451                   9,864

                                 Debenture                                               78,281                       -

                                 Accrued severance pay                                    5,500                   4,940



                                 Total long-term liabilities                             99,232                  14,804




    REDEEMABLE NON-CONTROLLING INTEREST                                                1,353                     908
                                                                                       -----                     ---


    EQUITY                                                                            200,874                 194,391
                                                                                      -------                 -------


    TOTAL LIABILITIES AND EQUITY                                                     371,293                 257,851
                                                                                     =======                 =======


    SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES


    CONSOLIDATED STATEMENT OF CASH FLOW

    U.S. dollars in thousands


                                                                   Year ended
                                                                   ----------

                                                                December 31,
                                                                ------------

                                                                  2017            2016
                                                                  ----            ----

                                                          (unaudited)    (unaudited)

    Cash flows from operating activities:

    Net income (loss)                                              556          19,601

    Reconciliation of net income (loss) to net cash provided by
     operating activities:

    Depreciation and amortization                               15,871          10,021

    Amortization of premium, accrued
     interest and loss on sales of
     marketable                                                    509           (516)
    securities

    Stock-based compensation related to
     options issued to employees                                 2,270           1,955


    Net changes in operating assets and liabilities, net of amount
     acquired:

    Trade receivables                                          (5,253)        (5,435)

    Deferred tax assets                                        (8,840)          1,664

    Other operating assets                                       3,688         (3,309)

    Trade payables                                             (1,388)          1,101

    Other operating liabilities                                    118           2,223

    Deferred revenues                                            1,249         (1,035)

    Severance pay                                                 (37)          (231)


    Net cash provided by operating
     activities                                                  8,743          26,039
                                                                 =====          ======


    Cash flows from investing activities:

    Purchase of property and equipment                         (2,622)        (4,664)

    Purchase of marketable securities,
     net of interest received                                        -        (9,017)

    Proceeds from sales of marketable
     securities                                                 35,369          13,898

    Payments for business acquisition,
     net of cash acquired                                    (103,103)        (4,382)

    Capitalized software development
     costs                                                     (5,567)        (5,545)

                 Restricted cash                                     -          1,393
                                                                   ---          -----


    Net cash used in investing activities                     (75,923)        (8,317)
                                                               =======          ======


    Cash flows from financing activities:

    Proceeds from employee stock options
     exercised                                                   1,823             890

    Payment to shareholders in respect of
     acquisition                                                     -        (1,440)

    Loan received net of repayment of
     loan                                                            -        (9,786)

    Issuance of debenture, net                                  78,173               -

    Repayment of loan                                                -          (824)

    Distribution of dividend                                   (9,851)           (73)


    Net cash provided by (used in)
     financing activities                                       70,145        (11,233)
                                                                ======         =======


    Effect of exchange rate changes on
     cash and cash equivalents                                   7,594              68


    Increase in cash and cash equivalents                       10,559           6,557

    Cash and cash equivalents at the
     beginning of period                                        60,908          54,351
                                                                ------          ------


    Cash and cash equivalents at the end
     of period                                                  71,467          60,908
                                                                ======          ======

Debenture Covenants

As of December 31, 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 $200 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 (3.28)%.

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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SOURCE Sapiens International Corporation