Sapiens Reports First Quarter 2018 Financial Results

Sapiens Reports First Quarter 2018 Financial Results

HOLON, Israel, May 7, 2018 /PRNewswire/ -- Sapiens International Corporation, (NASDAQ: SPNS) (TASE: SPNS), a leading global provider of software solutions for the insurance industry, and a member of the Formula Group (NASDAQ: FORTY) (TASE: FORTY), today announced its financial results for the first quarter ended March 31, 2018.

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First Quarter 2018 Highlights:

    --  Revenue totaled $71.0 million an increase of 25.6% compared to last
        year. Non-GAAP revenue increased 25.7% from the same period in the prior
        year to $71.1 million.
    --  Operating income totaled $4.7 million, up from ($1.6) million last year.
        Non-GAAP operating income totaled $8.9 million, up from $1.7 million the
        same period in the prior year.
    --  Operating margin of 6.6%, compared to negative margin last year.
        Non-GAAP operating margin of 12.5%, compared to 3.0% last year.
    --  Net income attributable to Sapiens' shareholders totaled $2.8 million.
        Non-GAAP net income attributable to Sapiens' shareholders totaled $6.3
        million, compared to $1.2 in the same period last year.
    --  Diluted earnings per share of $0.06. Non-GAAP diluted earnings per share
        of $0.13 per diluted share, compared to $0.02 in the same period in the
        prior year.
    --  Cash and cash equivalents totaled $61.7 million.

"In the first quarter we advanced the execution of our long-term strategy to be a leading provider of insurance software solutions and services around the globe. Last year we improved our competitive position through both organic product and solution development, and acquisitions in focused growth markets, particularly in Europe and North America. Now that we are fully integrated, we are realizing deal synergies, and maximizing our acquired talent. We are well positioned to help our customers capitalize on current and future insurance trends, namely digitalization, data analytics, and legacy transformation," said Roni Al-Dor, president and CEO, Sapiens.

"Revenues were above the high end of our guidance range in the first quarter, and we improved profitability year-over-year. The first quarter Non-GAAP operating margin of 12.5% was above our guidance of 10%," concluded Roni Al-Dor. "We remain on track to improve operating margins throughout 2018 and reiterate our 2018 Non-GAAP operating margin guidance of 12% to 13% with revenue in the range of $280-$285 million (on a non-GAAP basis)."

Quarterly Results Conference Call

Management will host a conference call and webcast on May 7, 2018 at 9:30 a.m. Eastern Time (4:30 p.m. in Israel) to review and discuss Sapiens' results.

Please call the following numbers (at least 10 minutes before the scheduled time) to participate:

North America (toll-free): + 1-888-407-2553; International: +972-3-918-0610; 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 May 15, 2018, 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 and 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 and acquisition-related costs, restructuring and cost reduction costs, financial expense (income), provision for income taxes and other income (expenses). These amounts are often excluded by other companies to help investors understand the operational performance of their business.

The Company uses Adjusted EBITDA as a measurement of its operating performance, 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 is a leading global provider of software solutions for the insurance industry, with a 30-year track record of delivering to more than 400 organizations. The company offers software platforms, solutions and services, including a full digital suite, to satisfy the needs of property and casualty/general insurers, and life, pension and annuity providers. Sapiens also services the reinsurance, workers' compensation, financial and compliance, and decision management markets.

The company's portfolio includes policy administration, billing and claims, underwriting, illustration and electronic application. The digital suite features customer and agent portals, and a business intelligence platform. 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, 2017, 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

                                                                                            March 31,
                                                                                            ---------

                                                                                            2018                      2017

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


     Revenue                                                                             70,995                    56,534

     Cost of revenue                                                                     43,967                    37,388
                                                                                         ------                    ------


     Gross profit                                                                        27,028                    19,146


     Operating expenses:

                             Research and development, net                                   9,147                     6,195

                             Selling, marketing, general and administrative                 13,184                    14,588


     Total operating expenses                                                            22,331                    20,783
                                                                                         ------                    ------


     Operating income (loss)                                                              4,697                   (1,637)


     Financial expense, net                                                                 838                       438

     Taxes and other expenses, net                                                        1,031                       167
                                                                                          -----                       ---


     Net income (loss)                                                                    2,828                   (2,242)
                                                                                          =====                    ======


     Attributed to non-controlling interest                                                 (8)                     (30)


     Net income (loss) attributable to Sapiens' shareholders                              2,836                   (2,212)
                                                                                          =====                    ======

                                                                                           0.06                    (0.05)





    Basic earnings (loss) per share



     Diluted earnings (loss) per share                                                     0.06                    (0.05)
                                                                                           ====                     =====


     Weighted average number of shares outstanding used                                  49,773                    49,047

      to compute basic earnings per share (in thousands)


     Weighted average number of shares outstanding used                                  50,070                    49,047

     to 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

                                                                                           March 31,
                                                                                            ---------

                                                                                            2018                     2017

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


     Revenue                                                                             71,085                   56,534

     Cost of revenue                                                                     40,801                   36,064
                                                                                         ------                   ------


     Gross profit                                                                        30,284                   20,470


     Operating expenses:

                             Research and development, net                                  10,324                    7,260

                             Selling, marketing, general and administrative                 11,097                   11,512


     Total operating expenses                                                            21,421                   18,772
                                                                                         ------                   ------


     Operating income                                                                     8,863                    1,698


     Financial expense, net                                                                 838                      208

     Taxes and other expenses                                                             1,726                      336


     Net income                                                                           6,299                    1,154
                                                                                          =====                    =====


     Attributable to non-controlling interest                                               (8)                    (30)
                                                                                            ===                      ===


     Net income attributable to Sapiens' shareholders                                     6,307                    1,184
                                                                                          =====                    =====



     Basic earnings per share                                                              0.13                     0.02
                                                                                           ====                     ====


     Diluted earnings per share                                                            0.13                     0.02
                                                                                           ====                     ====



    Weighted average number of shares outstanding used                                   49,773                   49,047
    to compute basic earnings per share (in thousands)


    Weighted average number of shares outstanding used                                   50,070                   49,998
    to 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

                                                                             March 31,
                                                                           ---------

                                                                              2018                   2017

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


    GAAP revenue                                                            70,995                 56,534

    Valuation adjustment on acquired deferred revenue                           90                      -
                                                                               ---                    ---

    Non-GAAP revenue                                                        71,085                 56,534
                                                                            ======                 ======



    GAAP gross profit                                                       27,028                 19,146

    Valuation adjustment on acquired deferred revenue                           90                      -

    Amortization of capitalized software                                     1,255                  1,021

    Amortization of other intangible assets                                  1,911                    303
                                                                             -----                    ---

    Non-GAAP gross profit                                                   30,284                 20,470
                                                                            ======                 ======


    GAAP operating income (loss)                                             4,697                (1,637)

    Gross profit adjustments                                                 3,256                  1,324

    Capitalization of software development                                 (1,177)               (1,065)

    Amortization of other intangible assets                                    922                    951

    Stock-based compensation                                                   587                    455

    Compensation related to acquisition and acquisition-related costs          578                  1,670
                                                                               ---                  -----

    Non-GAAP operating income                                                8,863                  1,698
                                                                             =====                  =====


      GAAP net income (loss) attributable to Sapiens' shareholders           2,836                (2,212)

      Operating income adjustments                                           4,166                  3,335

      Loss on sales of Marketable Securities                                     -                   230

      Tax and other                                                          (695)                 (169)

      Non-GAAP net income attributable to Sapiens'   shareholders            6,307                  1,184
                                                                             =====                  =====



    Summary of NON-GAAP Financial Information

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


                                                     Three months ended

                                                          March 31,

                                                      2018                          2017

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


    Revenues                               71,085        100%              56,534        100%

    Gross profit                           30,284       42.6%              20,470       36.2%

    Operating
     income                                 8,863       12.5%               1,698        3.0%

    Net income
     attributable
     to Sapiens'
     shareholders                           6,307        8.9%               1,184        2.1%

    Adjusted
     EBITDA                                 9,945       14.0%               2,574        4.6%


    Basic
     earnings
     per share                               0.13                            0.02

    Diluted
     earnings
     per share                               0.13                            0.02



    Non-GAAP Revenues by Geographic Breakdown

    U.S. dollars in thousands


                                           Q1 2018        Q4 2017        Q3 2017        Q2 2017        Q1 2017
                                           -------        -------        -------        -------        -------


    North America                                  31,035         31,580         32,780         28,544         19,465

    Europe                                         34,479         29,789         28,984         31,418         30,735

    Asia Pacific                                    3,439          3,817          5,750          3,912          4,580

    South Africa                                    2,132          7,262          6,340          5,293          1,754
                                                    -----          -----          -----          -----          -----


    Total                                          71,085         72,448         73,854         69,167         56,534



    Adjusted EBITDA Calculation

    U.S. dollars in thousands


                                               Three months ended

                                                    March 31,
                                                   ---------

                                                    2018                   2017

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


    GAAP operating income (loss)                   4,697                (1,637)


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

    Valuation adjustment on acquired                  90                      -
      deferred revenue

    Amortization of capitalized software           1,255                  1,021

    Amortization of other intangible assets        2,833                  1,254

    Capitalization of software development       (1,177)               (1,065)

    Stock-based compensation                         587                    455

    Compensation related to acquisition and          578                  1,670
      acquisition-related costs



    Non-GAAP operating income                      8,863                  1,698


    Depreciation                                   1,082                    876


    Adjusted EBITDA                                9,945                  2,574
                                                   =====                  =====


    SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES

    CONDENSED CONSOLIDATED BALANCE SHEETS

    U.S. dollars in thousands


                                                                              March 31,             December 31,

                                                                                             2018                    2017
                                                                                             ----                    ----

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


     ASSETS


     CURRENT ASSETS

                              Cash and cash equivalents                                      61,749                  71,467

                              Trade receivables, net                                         53,346                  53,226

                              Other receivables and prepaid expenses                          7,534                   6,280



                              Total current assets                                          122,629                 130,973



     LONG-TERM ASSETS

                              Property and equipment, net                                    10,163                  10,695

                              Severance pay fund                                              4,559                   4,547

                              Goodwill and intangible assets, net                           242,062                 223,729

                              Other long-term assets                                          4,514                   3,675



                              Total long-term assets                                        261,298                 242,646



     TOTAL ASSETS                                                                        383,927                 373,619
                                                                                         =======                 =======


    LIABILITIES AND EQUITY


     CURRENT LIABILITIES

                              Trade payables                                                  5,656                   7,044

                              Current maturities of Series B Debentures                       9,898                       -

                              Accrued expenses and other liabilities                         48,144                  46,612

                              Deferred revenue                                               20,228                  16,513



                              Total current liabilities                                      83,926                  70,169



     LONG-TERM LIABILITIES

                              Series B Debentures, net of current maturities                 68,427                  78,281

                              Deferred tax liabilities                                       10,948                   9,171

                              Other long-term liabilities                                     7,850                   8,271

                              Accrued severance pay                                           5,633                   5,500



                              Total long-term liabilities                                    92,858                 101,223




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


    EQUITY                                                                               205,790                 200,874
                                                                                         -------                 -------


    TOTAL LIABILITIES AND EQUITY                                                         383,927                 373,619
                                                                                         =======                 =======



    SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES

    CONSOLIDATED STATEMENT OF CASH FLOW

    U.S. dollars in thousands


                                                                 For the three months ended March 31,
                                                                 ------------------------------------

                                                                             2018                  2017

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



    Cash flows from operating activities:

    Net income (loss)                                                       2,828               (2,242)

    Reconciliation of net income (loss) to net cash provided by
     (used in) operating

    activities:

    Depreciation and amortization                                           5,170                 3,151

    Amortization of premium, accrued interest and                               -                  509
      loss on sales of marketable securities

    Stock-based compensation related to options issued                        588                   455
      to employees


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

    Trade receivables                                                       1,664              (10,510)

    Deferred tax assets                                                   (1,163)              (1,009)

    Other operating assets                                                (1,000)                  681

    Trade payables                                                        (3,013)                (771)

    Other operating liabilities                                           (1,138)                  908

    Deferred revenues                                                       4,729                 1,556

    Severance pay                                                             127                  (49)
                                                                              ---                   ---


    Net cash provided by (used in) operating activities                     8,792               (7,321)
                                                                            =====                ======


    Cash flows from investing activities:

    Purchase of property and equipment                                      (477)                (580)

    Proceeds from sales of marketable securities                                -               35,369

    Payments for business acquisition, net of cash                       (17,893)             (94,111)
      acquired

    Capitalized software development costs                                (1,177)              (1,065)
                                                                           ------                ------


    Net cash used in investing activities                                (19,547)             (60,387)
                                                                          =======               =======


    Cash flows from financing activities:

    Proceeds from employee stock options exercised                             10                   110

    Loan received, net of repayment of loan                                  (18)               39,987

    Dividend to non-controlling interest                                     (47)                    -
                                                                              ---                   ---


    Net cash provided by (used in) financing activities                      (55)               40,097
                                                                              ===                ======


    Effect of exchange rate changes on cash and cash equivalents            1,092                 1,818


    Increase in cash and cash equivalents                                 (9,718)             (25,793)

    Cash and cash equivalents at the beginning of period                   71,467                60,908
                                                                           ------                ------


    Cash and cash equivalents at the end of period                         61,749                35,115
                                                                           ======                ======

Debentures Covenants

As of March 31, 2018, 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 $206 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 7.45%.

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