Sapiens Reports Third Quarter 2018 Financial Results
HOLON, Israel, Nov. 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 and TASE: FORT), today announced its financial results for the third quarter ended September 30, 2018.
Third Quarter 2018 Summary (comparisons are to the third quarter of 2017: amounts are in thousands, except per share amounts):
GAAP
Non-GAAP
---
Revenue totaled $73.2 million an Revenue totaled $73.2 million, a decrease of 0.8%
increase of 1.7% compared to compared to $73.9 million.
$72.0 million.
---
Operating income totaled $6.8 Operating income totaled $10.3 million an increase of
million an increase of 51.7% 12.4% compared to $9.1 million.
compared to $ 4.5 million.
---
Operating margin of 9.3%
compared to 6.2%.
Operating margin of 14.0% compared to 12.4%.
---
Net income attributable to Net income attributable to Sapiens' shareholders
Sapiens' shareholders totaled increased 20.0% to $7.5 million compared to $6.3
$5.2 million, an increase of million.
76.0% compared to $2.9.
million.
---
EPS of $ 0.1 per diluted share
compared to $0.06.
EPS of $ 0.15 per diluted share versus $0.13.
---
"In the third quarter, we expanded our P&C business in the US and EMEA markets by leveraging our solutions and customers relationships, while continuing to improve our operational performance. As a result, we delivered solid performance in the quarter, with a 160 basis point increase in non-GAAP operating margin year-over-year. We grew our North America business by 12%, and we have recently announced several important wins and go-lives in this key market," stated Roni Al-Dor, president and CEO, Sapiens.
"We are increasing customer touch points globally through our client summits in the U.S. and EMEA, where we showcase our product capabilities and our outstanding teams. In addition, to maintain momentum with our clients, we are building a new global customer success operation that will be tasked with customers management as well as sales responsibilities, including cross selling and upselling, and increasing our 400 customers awareness of the entire Sapiens' platforms," continued Mr. Al-Dor.
"In order to extend our competitive advantage and further grow our business, we are partnering with InsurTech and fintech start-up to complement our core offering while enabling our customers to improve their platforms and provide the highest level of service to their clients."
Mr. Al-Dor concluded: "Based on the strength of our year-to-date results and our outlook for the fourth quarter, we are maintaining our guidance to 2018 full year non-GAAP revenues of $285 to $290 million, which we now expect to be on the higher end and we are increasing our non-GAAP operating margins in the range of 13.3% to 13.5% compared to our previous guidance of 13.0% - 13.2%."
Quarterly Results Conference Call
Management will host a conference call and webcast on November 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): + 1-888-668-9141; 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 14, 2018, as follows: North America: 1-888-295-2634; 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 Nine months ended
September 30, September 30,
2018 2017 2018 2017
(unaudited) (unaudited) (unaudited) (unaudited)
Revenue 73,237 72,011 216,396 197,594
Cost of revenue 45,438 46,774 134,710 129,902
Gross profit 27,799 25,237 81,686 67,692
Operating expenses:
Research and development, net 8,350 8,381 26,130 23,528
Selling, marketing, general and administrative 12,635 12,363 39,117 44,294
Total operating expenses 20,985 20,744 65,247 67,822
Operating income (loss) 6,814 4,493 16,439 (130)
Financial expense, net 974 863 3,128 2,010
Taxes and other expenses, net 629 679 3,143 737
Net income (loss) 5,211 2,951 10,168 (2,877)
Attributable to non-controlling interest 28 6 135 (32)
Net income (loss) attributable to Sapiens' shareholders 5,183 2,945 10,033 (2,845)
Basic earnings per share 0.1 0.06 0.2 (0.06)
Diluted earnings per share 0.1 0.06 0.2 (0.06)
Weighted average number of shares outstanding used to 49,826 49,182 49,795 49,118
compute basic earnings per share (in thousands)
Weighted average number of shares outstanding used to 50,143 49,859 50,070 49,118
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 Nine months ended
September 30, September 30,
2018 2017 2018 2017
(unaudited) (unaudited) (unaudited) (unaudited)
Revenue 73,237 73,854 216,864 199,555
Cost of revenue 42,334 43,563 125,240 122,405
Gross profit 30,903 30,291 91,624 77,150
Operating expenses:
Research and development, net 9,658 9,797 29,908 27,859
Selling, marketing, general and administrative 10,972 11,355 33,005 35,237
Total operating expenses 20,630 21,152 62,913 63,096
Operating income 10,273 9,139 28,711 14,054
Financial expense, net 974 863 3,128 1,780
Taxes and other expenses 1,723 1,982 5,211 2,907
Net income 7,576 6,294 20,372 9,367
Attributable to non-controlling interest 28 6 135 (32)
Net income attributable to Sapiens' shareholders 7,548 6,288 20,237 9,399
Basic earnings per share 0.15 0.13 0.41 0.19
Diluted earnings per share 0.15 0.13 0.40 0.19
Weighted average number of shares outstanding used to 49,826 49,182 40,795 49,118
compute basic earnings per share (in thousands)
Weighted average number of shares outstanding used to 50,143 49,859 50,070 49,891
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 Nine months ended
September 30, September 30,
2018 2017 2018 2017
(unaudited) (unaudited) (unaudited) (unaudited)
GAAP revenue 73,237 72,011 216,396 197,594
Valuation adjustment on acquired deferred 1,843 468 1,961
revenue
Non-GAAP revenue 73,237 73,854 216,864 199,555
GAAP gross profit 27,799 25,237 81,686 67,692
Valuation adjustment on acquired deferred 1,843 468 1,961
revenue
Amortization of capitalized software 1,205 1,298 3,612 3,554
Amortization of other intangible assets 1,899 1,913 5,858 3,943
Non-GAAP gross profit 30,903 30,291 91,624 77,150
GAAP operating income (loss) 6,814 4,493 16,439 (130)
Gross profit adjustments 3,104 5,054 9,938 9,458
Capitalization of software development (1,308) (1,416) (3,778) (4,331)
Amortization of other intangible assets 739 285 2,367 1,236
Stock-based compensation 384 469 1,470 1,380
Compensation related to acquisition 540 254 2,275 2,541
and acquisition-related costs
Restructuring and cost reduction plan 3,900
Non-GAAP operating income 10,273 9,139 28,711
14,054
GAAP net income (loss) attributable to 5,183 2,945 10,033
Sapiens' shareholders
(2,845)
Operating income adjustments 3,459 4,646 12,272 14,184
Loss on sales of Marketable Securities 230
Tax and other (1,094) (1,303) (2,068) (2,170)
Non-GAAP net income attributable to 7,548 6,288 20,237 9,399
Sapiens' shareholders
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,
2018 2017 2018 2017
(unaudited) (unaudited) (unaudited) (unaudited)
---
Revenues 73,237 100% 73,854 100% 216,864 100% 199,555 100%
Gross profit 30,903 42.2% 30,291 41.0% 91,624 42.2% 77,150 38.7%
Operating profit 10,273 14.0% 9,139 12.4% 28,711 13.2% 14,054 7.0%
Net income to
shareholders 7,548 10.3% 6,288 8.5% 20,237 9.3% 9,399 4.7%
Adjusted EBITDA 11,236 15.3% 10,100 13.7% 31,566 14.6% 16,859 8.4%
Basic earnings
per share 0.15 0.13 0.41 0.19
Diluted earnings
per share 0.15 0.13 0.40 0.19
Non-GAAP Revenues by Geographic Breakdown
U.S. dollars in thousands
Q3 2018 Q2 2018 Q1 2018 Q4 2017 Q3 2017
---
North
America 36,734 34,606 31,035 31,580 32,780
Europe 30,611 32,518 34,479 29,789 28,984
Asia
Pacific 3,480 3,305 3,439 3,817 5,750
South
Africa 2,412 2,113 2,132 7,262 6,340
Total 73,237 72,542 71,085 72,448 73,854
Adjusted EBITDA Calculation
U.S. dollars in thousands
Three months ended Nine months ended
September 30, September 30,
2018 2017 2018 2017
GAAP operating profit (loss) 6,814 4,493 16,439 (130)
Non-GAAP adjustments:
---
Amortization of capitalized software 1,205 1,298 3,612 3,554
Amortization of other intangible assets 2,638 2,198 8,225 5,179
Capitalization of software development (1,308) (1,416) (3,778) (4,331)
Stock-based compensation 384 469 1,470 1,380
Compensation related to acquisition and 540 254 2,275 2,541
acquisition-related costs
Restructuring and cost reduction plan 3,900
Valuation adjustment on acquired 1,843 468 1,961
deferred revenue and long term contract
Non-GAAP operating profit 10,273 9,139 28,711 14,054
Depreciation 963 961 2,855 2,805
Adjusted EBITDA 11,236 10,100 31,566 16,859
SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands
September 30,
December 31,
2018 2017
(unaudited)
(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents 64,079 71,467
Trade receivables, net 63,177 53,226
Other receivables and prepaid expenses 7,637 6,280
Total current assets 134,893 130,973
LONG-TERM ASSETS
Property and equipment, net 9,039 10,695
Severance pay fund 4,197 4,547
Goodwill and intangible assets, net 235,980 223,729
Other long-term assets 4,631 3,675
Total long-term assets 253,847 242,646
TOTAL ASSETS 388,740 373,619
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Trade payables 10,012 7,044
Current maturities of Series B Debentures 9,898
Accrued expenses and other liabilities 57,345 46,612
Deferred revenue 18,347 16,513
Total current liabilities 95,602 70,169
LONG-TERM LIABILITIES
Series B Debentures, net of current maturities 68,523 78,281
Deferred tax liabilities 10,895 9,171
Other long-term liabilities 8,089 8,271
Accrued severance pay 5,157 5,500
Total long-term liabilities 92,664 101,223
REDEEMABLE NON-CONTROLLING INTEREST 1,353
EQUITY 200,474 200,874
TOTAL LIABILITIES AND EQUITY 388,740 373,619
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,
2018 2017
(unaudited) (unaudited)
---
Cash flows from operating activities:
Net income (loss) 10,168 (2,877)
Reconciliation of net income (loss) to net cash provided by
operating
activities:
Depreciation and amortization 14,694 11,535
Amortization of premium, accrued
interest and loss on sales of - 509
marketable securities
Stock-based compensation related
to options issued to employees 1,462 1,349
Net changes in operating assets and liabilities, net of amount
acquired:
Trade receivables (10,654) (8,526)
Deferred tax assets (2,448) (2,366)
Other operating assets (1,233) (282)
Trade payables 1,657 (1,245)
Other operating liabilities 185 574
Deferred revenues 1,937 6,521
Severance pay 52 (63)
---
Net cash provided by operating
activities 15,820 5,129
===
Cash flows from investing activities:
Purchase of property and equipment (1,710) (1,687)
Proceeds from sales of marketable
securities - 35,369
Payments for business acquisition,
net of cash acquired (17,893) (97,672)
Capitalized software development
costs (3,778) (4,331)
---
Net cash used in investing
activities (23,381) (68,321)
===
Cash flows from financing activities:
Loan received net of loan
repayments (41)
Dividend to non-controlling
interest (47)
Proceeds from employee stock
options exercised 532 438
Issuance of debenture, net - 78,198
---
Net cash provided by financing
activities 444 78,636
===
Effect of exchange rate changes on
cash and cash equivalents (271) 4,141
Increase (decrease) in cash and
cash equivalents (7,388) 19,585
Cash and cash equivalents at the
beginning of period 71,467 60,908
---
Cash and cash equivalents at the
end of period 64,079 80,493
===
Debentures Covenants
As of September 30, 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 $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 6.68%.
Covenant 3
-- Target ratio of net financial indebtedness to EBITDA (accumulated
calculation for the four last quarters) is below 5.5.
-- Actual ratio of net financial indebtedness to EBITDA (accumulated
calculation for the four last quarters) is equal to 0.34.
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: +972-54-909-9039
Email: yaffa.cohen-ifrah@sapiens.com
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SOURCE Sapiens International Corporation
