Sapiens Reports Fourth Quarter and Full Year 2018 Financial Results
HOLON, Israel, Feb. 26, 2019 /PRNewswire/ -- Sapiens International Corporation, (NASDAQ: SPNS) and (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 fourth quarter and full year ended December 31, 2018.
Summary
Results for Fourth
Quarter 2018 (USD in millions, except per share data)
GAAP % Change
Non-GAAP % Change
December 31, 2018
December 31, 2017
December 31, 2018 December 31, 2017
Revenue 73.3 71.6 2.4% 73.4 72.4 1.4%
Operating
Income 6.6 1.1 500% 10.8 9.1 18.7%
---
Operating
Margin 9.0% 1.6%
740 bps 14.8 % 12.5%
230 bps
Net income 3.8 3.4 11.8% 7.9 6.0 31.7 %
---
Diluted
EPS $0.07 $0.07 $0.16 $0.12 33 %
---
Summary
Results for Full Year
2018 (USD in millions, except per share data)
GAAP % Change Non-GAAP % Change
December 31, 2018
December 31, 2017
December 31, 2018 December 31, 2017
Revenue 289.7 269.2 7.6% 290.3 272.0 6.7 %
Operating
Income 23.0 1.0 2200% 39.6 23.1 71.4 %
---
Operating
Margin 7.9% 0.4%
750 bps 13.6 % 8.5 %
510 bps
Net income 14.0 0.6 2233% 28.3 15.4 83.8 %
---
Diluted
EPS $0.28 $0.01 2700% $0.56 $0.31 80.6 %
---
"Sapiens had a strong finish to 2018, closing out the year with another quarter of growth and profitability by executing on our key objectives. In the fourth quarter, on a Non-GAAP basis, revenue totaled $73.4 and operating margin improved by 230 basis points to 14.8%. We continued the expansion of our P&C businesses in key markets. We managed costs and aligned our R&D investments with our growth segments, which increased operating profit and fueled almost 31.7% increase in net income in the quarter," stated Roni Al-Dor. president and CEO, Sapiens.
"In 2018, Sapiens made significant progress on our key objectives, which drove outstanding financial performance for the year. For the full year, on a Non-GAAP basis, revenue increased 6.7% driven by new deals, acquisitions and by expanding our business with existing customers as illustrated by double-digit growth in our EMEA P&C business. Meanwhile, we have fully integrated our Stream and Adaptik operations, which has accelerated the growth of our U.S. P&C business. Also, we made meaningful headway in our L&A business, creating a stronger foundation for growth in 2019. Synergies and cost controls produced significant expansion in operating margin, which increased over 500 basis points to 13.6%, exceeding the high end of our annual guidance.
"The expansion of our solutions and service offerings from both product development initiatives and acquisitions, as well as our collaborations with InsurTech groups to complement our core offerings, helped us win new business and earn increased industry recognition. To support all of these offerings, we are building a new account management executive team to evolve our customer support model into global customer success teams, focused on cross-selling, upselling and increasing awareness of all of our capabilities and products." continued Mr. Al-Dor.
Mr. Al-Dor concluded: "We have recently launched a new brand architecture to reflect our evolution into a unified global provider of innovative digital insurance solutions. With an improved competitive position as a one-stop-shop for insurance software solutions and an enhanced product and service platform, we're forecasting 2019 full year non-GAAP revenues in the range of $318 to $323 million, with non-GAAP operating margins in the range of 15.2% to 15.6%."
Quarterly Results Conference Call
Management will host a conference call and webcast on February 26, 2019 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: https://www.sapiens.com/investor-relations/ir-events-presentations/
If you are unable to join live, a replay of the call will be accessible until March 5, 2019, as follows: North America: 1-888-295-2634; International: +972-3-925-5918
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, redeemable non-controlling interests, 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 35-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 Year ended
December 31, December 31,
2018 2017 2018 2017
(unaudited) (unaudited) (unaudited) (unaudited)
Revenue 73,311 71,600 289,707 269,194
Cost of revenue 45,428 45,776 180,138 175,678
Gross profit 27,883 25,824 109,569 93,516
Operating expenses:
Research and development, net 8,284 8,427 34,414 31,955
Selling, marketing, general and administrative 13,016 16,265 52,133 60,559
Total operating expenses 21,300 24,692 86,547 92,514
Operating income 6,583 1,132 23,022 1,002
Financial expense, net 829 1,000 3,957 3,010
Taxes on income and other expenses (tax benefit), net 1,922 (3,301) 5,065 (2,564)
Net income 3,832 3,433 14,000 556
Attributable to non-controlling interest 80 (157) 215 (189)
Attributed to redeemable non-controlling interest 43 43
Adjustment to redeemable non-controlling interest 350 350
Net income attributable to Sapiens' shareholders 3,752 3,197 13,785 352
Basic earnings per share 0.08 0.07 0.28 0.01
Diluted earnings per share 0.07 0.06 0.28 0.01
Weighted average number of shares outstanding used to 49,920 49,325 49,827 49,170
compute basic earnings per share (in thousands)
Weighted average number of shares outstanding used to 50,210 50,032 50,106 49,926
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,
2018 2017 2018 2017
(unaudited) (unaudited) (unaudited) (unaudited)
Revenue 73,433 72,448 290,297 272,003
Cost of revenue 42,113 42,931 167,353 165,336
Gross profit 31,320 29,517 122,944 106,667
Operating expenses:
Research and development, net 9,666 9,663 39,574 37,522
Selling, marketing, general and administrative 10,805 10,795 43,810 46,032
Total operating expenses 20,471 20,458 83,384 83,554
Operating income 10,849 9,059 39,560 23,113
Financial expense, net 829 1,000 3,957 2,780
Taxes on Income and other expenses, net 2,114 2,033 7,325 4,940
Net income 7,906 6,026 28,278 15,393
Attributable to non-controlling interest 80 (115) 215 (147)
Net income attributable to Sapiens' shareholders 7,826 6,141 28,063 15,540
Basic earnings per share 0.16 0.12 0.56 0.32
Diluted earnings per share 0.16 0.12 0.56 0.31
Weighted average number of shares outstanding used to 49,920 49,325 49,827 49,170
compute basic earnings per share (in thousands)
Weighted average number of shares outstanding used to 50,210 50,032 50,106 49,926
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,
2018 2017 2018 2017
(unaudited) (unaudited) (unaudited) (unaudited)
GAAP revenue 73,311 71,600 289,707 269,194
Valuation adjustment on acquired deferred 122 848 590 2,809
revenue
Non-GAAP revenue 73,433 72,448 290,297 272,003
GAAP gross profit 27,883 25,824 109,569 93,516
Valuation adjustment on acquired deferred 122 848 590 2,809
revenue
Amortization of capitalized software 1,247 1,270 4,859 4,824
Amortization of other intangible assets 2,068 1,575 7,926 5,518
Non-GAAP gross profit 31,320 29,517 122,944 106,667
GAAP operating income 6,583 1,132 23,022 1,002
Gross profit adjustments 3,437 3,693 13,375 13,151
Capitalization of software development (1,382) (1,236) (5,160) (5,567)
Amortization of other intangible assets 926 489 3,293 1,725
Stock-based compensation 472 655 1,942 2,035
Compensation related to acquisition and 813 144 3,088 2,685
acquisition-related costs
Restructuring and cost reduction plan 4,182 8,082
Non-GAAP operating income 10,849 9,059 39,560 23,113
GAAP net income attributable to Sapiens' 3,752 3,197 13,785 352
shareholders
Operating income adjustments 4,266 7,927 16,538 22,111
Adjustment to redeemable non-controlling 350 350
interest
Loss on sales of Marketable Securities 230
Tax and other (192) (5,333) (2,260) (7,503)
Non-GAAP net income attributable to 7,826 6,141 28,063 15,540
Sapiens' shareholders
Summary of
NON-GAAP
Financial Information
U.S. dollars in thousands (except per share amounts)
Three months ended
Year ended
December 31,
December 31,
2018 2017 2018 2017
(unaudited) (unaudited) (unaudited) (unaudited)
---
Revenues 73,433 100% 72,448 100% 290,297 100% 272,003 100%
Gross profit 31,320 42.7% 29,517 40.7% 122,944 42.4% 106,667 39.2%
Operating profit 10,849 14.8% 9,059 12.5% 39,560 13.6% 23,113 8.5%
Net income to
shareholders 7,826 10.7% 6,141 8.5% 28,063 9.7% 15,540 5.7%
Adjusted EBITDA 11,797 16.1% 10,076 13.9% 43,344 14.9% 26,935 9.9%
Basic earnings
per share 0.16 0.12 0.56 0.32
Diluted earnings
per share 0.16 0.12 0.56 0.31
Non-GAAP Revenues by Geographic Breakdown
U.S. dollars in thousands
Q
4
2018 Q3 2018 Q2 2018 Q1 2018 Q4 2017
---
North
America 34,974 36,734 34,606 31,035 31,580
Europe 30,850 30,611 32,518 34,479 29,789
Asia
Pacific 3,140 3,480 3,305 3,439 3,817
South
Africa 4,469 2,412 2,113 2,132 7,262
Total 73,433 73,237 72,542 71,085 72,448
Adjusted EBITDA Calculation
U.S. dollars in thousands
Three months ended Year ended
December 31, December 31,
2018 2017 2018 2017
GAAP operating profit 6,583 1,132 23,022 1,002
Non-GAAP adjustments:
---
Amortization of capitalized software 1,247 1,270 4,859 4,824
Amortization of other intangible assets 2,994 2,064 11,219 7,243
Capitalization of software development (1,382) (1,236) (5,160) (5,567)
Stock-based compensation 472 655 1,942 2,035
Compensation related to acquisition and 813 144 3,088 2,685
acquisition-related costs
Restructuring and cost reduction plan 4,182 8,082
Valuation adjustment on acquired 122 848 590 2,809
deferred revenue
Non-GAAP operating profit 10,849 9,059 39,560 23,113
Depreciation 948 1,017 3,784 3,822
Adjusted EBITDA 11,797 10,076 43,344 26,935
SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands
December 31,
December 31,
2018 2017
(unaudited)
(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents 64,628 71,467
Trade receivables, net and unbilled receivables 59,159 53,226
Other receivables and prepaid expenses 6,224 6,280
Total current assets 130,011 130,973
LONG-TERM ASSETS
Property and equipment, net 8,515 10,695
Severance pay fund 4,699 4,547
Goodwill and intangible assets, net 231,348 223,729
Other long-term assets 4,292 3,675
Total long-term assets 248,854 242,646
TOTAL ASSETS 378,865 373,619
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Trade payables 6,149 7,044
Current maturities of Series B Debentures 9,898
Accrued expenses and other liabilities 46,999 46,612
Deferred revenue 18,759 16,513
Total current liabilities 81,805 70,169
LONG-TERM LIABILITIES
Series B Debentures, net of current maturities 68,577 78,281
Deferred tax liabilities 11,681 9,171
Other long-term liabilities 8,696 8,271
Accrued severance pay 5,622 5,500
Total long-term liabilities 94,576 101,223
REDEEMABLE NON-CONTROLLING INTEREST 1,353
EQUITY 202,484 200,874
TOTAL LIABILITIES AND EQUITY 378,865 373,619
SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOW
U.S. dollars in thousands
For the year ended
December 31,
2018 2017
(unaudited) (unaudited)
---
Cash flows from operating activities:
Net income 14,000 556
Reconciliation of net income to net cash provided by operating
activities:
Depreciation and amortization 19,862 15,871
Amortization of premium, accrued
interest and loss on sales of
marketable - 509
securities
Stock-based compensation related to
options issued to employees 1,942 2,035
Net changes in operating assets and liabilities, net of amount
acquired:
Trade receivables (7,588) (5,253)
Deferred tax assets (1,567) (8,840)
Other operating assets 509 3,688
Trade payables (1,870) (1,388)
Other operating liabilities 20 858
Deferred revenues 2,349 1,249
Severance pay 43 (37)
---
Net cash provided by operating
activities 27,700 9,248
===
Cash flows from investing activities:
Purchase of property and equipment (1,914) (2,622)
Proceeds from sales of marketable
securities - 35,369
Payments for business acquisition,
net of cash acquired (18,507) (100,381)
Capitalized software development
costs (5,160) (5,567)
---
Net cash used in investing activities (25,581) (73,201)
===
Cash flows from financing activities:
Proceeds from employee stock options
exercised 895 2,453
Distribution of dividend (9,978) (9,851)
Repayment of loans (237) (56)
Issuance of debenture, net - 78,229
Payments of contingent considerations (61) (766)
Dividend to non-controlling interest (47)
Net cash provided by (used in)
financing activities (9,428) 70,009
===
Effect of exchange rate changes on
cash and cash equivalents 470 4,503
Increase (decrease) in cash and cash
equivalents (6,839) 10,559
Cash and cash equivalents at the
beginning of period 71,467 60,908
---
Cash and cash equivalents at the end
of period 64,628 71,467
===
Debentures Covenants
As of December 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 $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 6.97%.
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 0.35.
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
