Sapiens Reports First Quarter 2019 Financial Results
HOLON, Israel, May 6, 2019 /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: FORT), today announced its financial results for the first quarter ended March 31, 2019.
Summary
Results for First
Quarter 2019 (USD in millions, except per share data)
GAAP
% Change
Non-GAAP
% Change
March 31, 2019
March 31, 2018
March 31, 2019 March 31, 2018
Revenue 76.8 71.0 8.2% 76.8 71.1 8%
Gross Profit 29.8 27.0 10.3% 33.1 30.3 9.3%
---
Gross Margin 38.8% 38.1%
70 bps 43.1% 42.6%
50 bps
Operating Income 8.1 4.7 72% 11.8 8.9 32.6%
---
Operating Margin 10.5% 6.6%
390 bps 15.3% 12.5%
280 bps
Net income (*) 5.2 2.8 81.8% 8.4 6.3 33%
---
Diluted EPS $0.10 $0.06 66.7% 0.17 0.13 30.8%
---
(*) Attributable to Sapiens' shareholders
"Sapiens continues to execute on our strategy to increase top line growth and profitability. I am pleased to see continued momentum in the first quarter of 2019, as we focused on achieving our key objectives for this year. In the quarter our revenue growth was driven by an acceleration in our North American segment, which grew 23% off a very strong gains in our P&C business. In addition, our best-in-class digital P&C platform in EMEA is winning new business with its ability to offer an improved customer experience and highly configurable solutions. Non-GAAP Gross margin expanded by 50 basis points, and we leveraged our off-shore capabilities to lower our operational cost. These gains helped offset our planned expenditures on key sales hires and customer success personnel. As a result, non-GAAP operating margin increased by 280 basis points to 15.3%, and non-GAAP net income grew 33% this quarter", said Roni Al-Dor, president and CEO, Sapiens.
"Looking out to the remainder of 2019, our primary drivers of growth are continued expansion of our P&C segment, a stable outlook for our L&A segment, and increased cross-selling to our current customer base."
"With revenues growth and improvement in our operating margin in the first quarter, we are confident in our ability to deliver full-year 2019 guidance", concluded Roni Al-Dor. "We are maintaining 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%, however we now expect operating margin to be on the higher end of this range".
Quarterly Results Conference Call
Management will host a conference call and webcast on May 6, 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): + 1-888-407-2553; International: +972-3-918-0610; UK: 0-800-917-5108
The live webcast of the call can be viewed on Sapiens' website at: 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 May 13, 2019, 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, non-GAAP basic and diluted earnings per share, Adjusted EBITDA and Adjusted Free Cash-Flow.
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 capitalized software development and other intangible assets, capitalization of software development, stock-based compensation, compensation related to acquisition and acquisition-related costs, restructuring and cost reduction costs, and tax adjustments related to non-GAAP adjustments.
Management of the Company does not consider these non-GAAP measures in isolation, or as an alternative to financial measures determined in accordance with GAAP. The principal limitation of these non-GAAP financial measures is that they exclude significant expenses and income that are required by GAAP to be recorded in the Company's financial statements. In addition, they are subject to inherent limitations, as they reflect the exercise of judgment by management about which expenses and income are excluded or included in determining these non-GAAP financial measures.
To compensate for these limitations, management presents non-GAAP financial measures in connection with GAAP results. Sapiens urges investors to review the reconciliation of its non-GAAP financial measures to the comparable GAAP financial measures, which it includes in press releases announcing quarterly financial results, including this press release, and not to rely on any single financial measure to evaluate the Company's business.
Reconciliation tables of the most comparable GAAP financial measures to the non-GAAP financial measures used in this press release are included with the financial tables of this release.
The Company defines Adjusted EBITDA as net profit, adjusted for valuation adjustment on acquired deferred revenue, stock-based compensation expense, depreciation and amortization, capitalized of software development costs, compensation expenses related to acquisition 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.
The Company uses Adjusted Free Cash-Flow as a measurement of its operating performance, and reconciles cash-flow from operating activities to Adjusted Free Cash-Flow while reducing the amounts for capitalization of software development costs and capital expenditures, and eliminating retention payments and other acquisition costs, which are included in the cash-flow from operating activities.
About Sapiens
Sapiens International Corporation empowers insurers to succeed in an evolving industry. The company offers digital software platforms, solutions and services for the property and casualty, life, pension and annuity, reinsurance, financial and compliance, workers' compensation and financial markets. With more than 35 years of experience delivering to over 450 organizations globally, Sapiens has a proven ability to satisfy customers' core, data and digital requirements. 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, 2018, and subsequent reports and registration statements filed from time to time with the Securities and Exchange Commission.
Investors and Media Contact
Yaffa Cohen-Ifrah
Chief Marketing Officer and Head of Corporate Communications
Sapiens International
U.S. Mobile: +1-201-250-9414
Mobile: +972-54-9099039
Email: yaffa.cohen-ifrah@sapiens.com
SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
U.S. dollars in thousands (except per share amounts)
Three months ended
March 31,
2019 2018
(unaudited) (unaudited)
Revenue 76,787 70,995
Cost of revenue 46,980 43,967
Gross profit 29,807 27,028
Operating expenses:
Research and development, net 8,777 9,147
Selling, marketing, general and administrative 12,953 13,184
Total operating expenses 21,730 22,331
Operating income 8,077 4,697
Financial expense, net 1,054 838
Taxes and other expenses, net 1,847 1,031
Net income 5,176 2,828
Attributed to non-controlling interest 21 (8)
Net income attributable to Sapiens' shareholders 5,155 2,836
Basic earnings per share 0.10 0.06
Diluted earnings per share 0.10 0.06
Weighted average number of shares outstanding used 49,986 49,773
to compute basic earnings per share (in thousands)
Weighted average number of shares outstanding used 50,329 50,070
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,
2019 2018
(unaudited) (unaudited)
Revenue 76,787 71,085
Cost of revenue 43,683 40,801
Gross profit 33,104 30,284
Operating expenses:
Research and development, net 10,169 10,324
Selling, marketing, general and administrative 11,185 11,097
Total operating expenses 21,354 21,421
Operating income 11,750 8,863
Financial expense, net 1,054 838
Taxes and other expenses 2,285 1,726
Net income 8,411 6,299
Attributable to non-controlling interest 21 (8)
Net income attributable to Sapiens' shareholders 8,390 6,307
Basic earnings per share 0.17 0.13
Diluted earnings per share 0.17 0.13
Weighted average number of shares outstanding used 49,986 49,773
to compute basic earnings per share (in thousands)
Weighted average number of shares outstanding used 50,329 50,070
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,
2019 2018
(unaudited) (unaudited)
GAAP revenue 76,787 70,995
Valuation adjustment on acquired deferred revenue 90
Non-GAAP revenue 76,787 71,085
GAAP gross profit 29,807 27,028
Valuation adjustment on acquired deferred revenue 90
Amortization of capitalized software 1,341 1,255
Amortization of other intangible assets 1,956 1,911
Non-GAAP gross profit 33,104 30,284
GAAP operating income 8,077 4,697
Gross profit adjustments 3,297 3,256
Capitalization of software development (1,392) (1,177)
Amortization of other intangible assets 535 922
Stock-based compensation 453 587
Compensation related to acquisition and acquisition-related costs 780 578
Non-GAAP operating income 11,750 8,863
GAAP net income attributable to Sapiens' shareholders 5,155 2,836
Operating income adjustments 3,673 4,166
Tax and other (438) (695)
Non-GAAP net income attributable to Sapiens' shareholders 8,390 6,307
Summary of
NON-GAAP
Financial Information
U.S. dollars in thousands (except per share amounts)
Three months ended
March 31,
2019 2018
(unaudited) (unaudited)
---
Revenues 76,787 100% 71,085 100%
Gross
profit 33,104 43.1% 30,284 42.6%
Operating
income 11,750 15.3% 8,863 12.5%
Net
income
attributable
to
Sapiens'
shareholders 8,390 10.9% 6,307 8.9%
Adjusted
EBITDA 12,523 16.3% 9,945 14.0%
Basic
earnings
per
share 0.17 0.13
Diluted
earnings
per
share 0.17 0.13
Non-GAAP Revenues by Geographic Breakdown
U.S. dollars in thousands
Q1 2019 Q
4
2018 Q3 2018 Q2 2018 Q1 2018
---
North America 38,149 34,974 36,734 34,606 31,035
Europe 32,193 30,850 30,611 32,518 34,479
Asia Pacific 3,670 3,140 3,480 3,305 3,439
South Africa 2,775 4,469 2,412 2,113 2,132
Total 76,787 73,433 73,237 72,542 71,085
Adjusted Free Cash-Flow
U.S. dollars in thousands
Q1 2019 Q
4
2018 Q3 2018 Q2 2018 Q1 2018
---
Cash-flow from operating activities 10,550 11,509 6,370 658 9,163
Increase in capitalized software (1,392) (1,382) (1,308) (1,293) (1,177)
development costs
Capital expenditures (641) (204) (831) (402) (477)
Retention payments and 1,608 790 256 1,149
acquisition costs*
Adjusted free cash-flow 10,125 10,713 4,231 (781) 8,658
* Included in cash-flow from operating activities
Adjusted EBITDA Calculation
U.S. dollars in thousands
Three months ended
March
31,
2019 2018
(unaudited) (unaudited)
GAAP operating income 8,077 4,697
Non-GAAP adjustments:
---
Valuation adjustment on acquired deferred revenue 90
Amortization of capitalized software 1,341 1,255
Amortization of other intangible assets 2,491 2,833
Capitalization of software development (1,392) (1,177)
Stock-based compensation 453 587
Compensation related to acquisition and acquisition-related 780 578
costs
Non-GAAP operating income 11,750 8,863
Depreciation 773 1,082
Adjusted EBITDA 12,523 9,945
SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands
March 31,
December 31,
2019 2018
(unaudited)
(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents 63,384 64,628
Trade receivables, net and unbilled receivables 64,201 59,159
Other receivables and prepaid expenses 7,993 6,224
Total current assets 135,578 130,011
LONG-TERM ASSETS
Property and equipment, net 8,603 8,515
Severance pay fund 4,754 4,699
Goodwill and intangible assets, net 231,223 231,348
Operating lease right-of-use assets 32,317
Other long-term assets 5,301 4,292
Total long-term assets 282,198 248,854
TOTAL ASSETS 417,776 378,865
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Trade payables 5,814 6,149
Current maturities of Series B Debentures 9,898 9,898
Accrued expenses and other liabilities 50,910 46,999
Current maturities of operating lease liabilities 4,830
Deferred revenue 22,259 18,057
Total current liabilities 93,711 81,103
LONG-TERM LIABILITIES
Series B Debentures, net of current maturities 58,718 68,577
Deferred tax liabilities 10,724 11,681
Other long-term liabilities 7,464 9,398
Long-term operating lease liabilities 29,637
Accrued severance pay 5,716 5,622
Total long-term liabilities 112,259 95,278
EQUITY 211,806 202,484
TOTAL LIABILITIES AND EQUITY 417,776 378,865
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,
2019 2018
(unaudited) (unaudited)
---
Cash flows from operating activities:
Net income 5,176 2,828
Reconciliation of net income to net cash provided by operating
activities:
Depreciation and amortization 4,605 5,170
Accretion of discount on Series B
Debentures 39
44*
Stock-based compensation related to
options issued to 453 587
employees
Net changes in operating assets and liabilities, net of amount
acquired:
Trade receivables, net and unbilled
receivables (4,194) 1,664
Deferred tax assets, net (855) (1,163)
Other operating assets 328 (1,000)
Trade payables (426) (3,013)
Other operating liabilities 1,247
(810)*
Deferred revenues 4,167 4,729
Accrued severance pay, net 10 127
---
Net cash provided by operating
activities 10,550 9,163
===
Cash flows from investing activities:
Purchase of property and equipment (641) (477)
Investment in deposit (1,106)
Payments for business acquisition,
net of cash acquired -
(18,203)*
Capitalized software development
costs (1,392) (1,177)
---
Net cash used in investing activities (3,139) (19,857)
===
Cash flows from financing activities:
Proceeds from employee stock options
exercised 17 10
Repayment of Series B Debenture (9,898)
Loan received, net of repayment of
loan (2) (18)
Payment of contingent considerations (58)
(61)*
Dividend to non-controlling interest (66) (47)
---
Net cash used in financing activities (10,007) (116)
===
Effect of exchange rate changes on
cash and cash equivalents 1,352 1,092
Decrease in cash and cash equivalents (1,244) (9,718)
Cash and cash equivalents at the
beginning of period 64,628 71,467
---
Cash and cash equivalents at the end
of period 63,384 61,749
===
*Reclassification
Debentures Covenants
As of March 31, 2019, 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 $210 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 2.67%.
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 0.13.
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SOURCE Sapiens International Corporation
