Sapiens Reports Second Quarter 2019 Financial Results
HOLON, Israel, Aug. 5, 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 second quarter ended June 30, 2019.
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Summary
Results for Second
Quarter 2019 (USD in millions, except per share data)
GAAP
% Change Non-GAAP % Change
June 30, 2019
June 30, 2018
June 30, 2019 June 30, 2018
Revenue $79.5 $72.2 10.2% $79.5 $72.5 9.6%
Gross Profit $31.5 $26.9 17.1% $34.8 $30.4 14.3%
---
Gross Margin 39.6% 37.2%
240 bps 43.8% 42.0%
180 bps
Operating Income $9.5 $4.9 91.8% $12.6 $9.6 31.4%
---
Operating Margin 11.9% 6.8%
510 bps 15.8% 13.2%
260 bps
Net income (*) $6.8 $2.0 239.6% $9.5 $6.4 49.5%
---
Diluted EPS $0.14 $0.04 236% $0.19 $0.13 45.4%
---
(*) Attributable to Sapiens' shareholders
"Sapiens priorities for 2019 are growth and margin expansion. In the second quarter we delivered on both of these goals. Top line non-GAAP revenue increased 9.6% and non-GAAP operating margin improved 260 basis points. Growth and profitability in the quarter tie directly to executing on our key objectives to win new customers, cross sell to existing customers, leverage our offshore capabilities, and scale revenue over our efficient cost structure. Our improving margins support our build-out of sales and customer support teams and our investment in our offshore capabilities, particularly in India. As we head into the second half of the year, our sustained performance gives us confidence that our strategy is working, and we are dedicated to further improving shareholder value through long-term, sustainable growth." said Roni Al-Dor, president and CEO, Sapiens.
"Looking out to the remainder of 2019, I'm encouraged by our pipeline of business and anticipate annual growth of over 10%. We are forecasting non-GAAP revenue in a range of $318 - $323 million, however we now expect revenues to be on the higher end of this range" concluded Roni Al-Dor. "The increase in revenue and the leverage from improved economies of scale allows us to increase the guidance for non-GAAP operating margin in a range of 15.6% - 15.8%, compared to our previous guidance of 15.2% - 15.6%"
Quarterly Results Conference Call
Management will host a conference call and webcast on August 5, 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- 9180610; 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 August 13, 2019, as follows:
North America: 1-877-456-0009; International: +972-3-925-5921
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, restructuring and cost reduction costs, tax adjustments related to non-GAAP adjustments, and acquisition-related costs, which pertain to charges on behalf of M&A agreements related to future performance targets and retention criteria as determined upon acquisition date of the respective acquired company, as well as third-party services, such as, tax, accounting and legal rendered until the acquisition date.
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, and reconciles Non-GAAP Operating Income to Adjusted EBITDA, adjusted for amortization and capitalization of capitalized software and amortization other intangible assets, stock-based compensation and acquisition-related costs, and valuation adjustment on acquired deferred revenues. The Company uses Adjusted EBITDA, 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 adds back cash payments made for former acquisitions in respect of future performance targets and retention criteria as determined upon acquisition date of the respective acquired company, and were included in the cash-flow from operating activities. We believe that Adjusted Free Cash-Flow is useful in evaluating our business, because Adjusted Free Cash-Flow reflects the cash surplus available to fund the expansion of our business.
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.
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 Six months ended
June 30 June 30
2019 2018 2019 2018
(unaudited) (unaudited) (unaudited) (unaudited)
Revenue 79,529 72,164 156,316 143,159
Cost of revenue 48,075 45,305 95,055 89,272
Gross profit 31,454 26,859 61,261 53,887
Operating expenses:
Research and development, net 8,923 8,633 17,700 17,780
Selling, marketing, general and administrative 13,077 13,298 26,030 26,482
Total operating expenses 22,000 21,931 43,730 44,262
Operating income 9,454 4,928 17,531 9,625
Financial expense, net 434 1,316 1,488 2,154
Taxes and other expenses, net 2,154 1,483 4,001 2,514
Net income 6,866 2,129 12,042 4,957
Attributable to non-controlling interest 26 115 47 107
Net income attributable to Sapiens' shareholders 6,840 2,014 11,995 4,850
Basic earnings per share 0.14 0.04 0.24 0.10
Diluted earnings per share 0.14 0.04 0.24 0.10
Weighted average number of shares outstanding used to compute basic earnings per share (in thousands) 50,002 49,785 49,994 49,779
Weighted average number of shares outstanding used to compute diluted earnings per share (in thousands) 50,530 49,998 50,430 50,033
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 Six months ended
June 30 June 30
2019 2018 2019 2018
(unaudited) (unaudited) (unaudited) (unaudited)
Revenue 79,529 72,542 156,316 143,627
Cost of revenue 44,735 42,105 88,418 82,906
Gross profit 34,794 30,437 67,898 60,721
Operating expenses:
Research and development, net 10,493 9,926 20,662 20,250
Selling, marketing, general and administrative 11,720 10,936 22,905 22,033
Total operating expenses 22,213 20,862 43,567 42,283
Operating income 12,581 9,575 24,331 18,438
Financial expense, net 434 1,316 1,488 2,154
Taxes and other expenses 2,580 1,762 4,865 3,488
Net income 9,567 6,497 17,978 12,796
Attributable to non-controlling interest 26 115 47 107
Net income attributable to Sapiens' shareholders 9,541 6,382 17,931 12,689
Basic earnings per share 0.19 0.13 0.36 0.25
Diluted earnings per share 0.19 0.13 0.36 0.25
Weighted average number of shares outstanding used to compute basic earnings per share (in thousands) 50,002 49,785 49,994 49,779
Weighted average number of shares outstanding used to compute diluted earnings per share (in thousands) 50,530 49,998 50,430 50,033
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 Six months ended
June 30, June 30,
2019 2018 2019 2018
(unaudited) (unaudited) (unaudited) (unaudited)
GAAP revenue 79,529 72,164 156,316 143,159
Valuation adjustment on acquired deferred revenue 378 468
Non-GAAP revenue 79,529 72,542 156,316 143,627
GAAP gross profit 31,454 26,859 61,261 53,887
Valuation adjustment on acquired deferred revenue 378 468
Amortization of capitalized software 1,390 1,152 2,731 2,407
Amortization of other intangible assets 1,950 2,048 3,906 3,959
Non-GAAP gross profit 34,794 30,437 67,898 60,721
GAAP operating income 9,454 4,928 17,531 9,625
Gross profit adjustments 3,340 3,578 6,637 6,834
Capitalization of software development (1,570) (1,293) (2,962) (2,470)
Amortization of other intangible assets 540 706 1,075 1,628
Stock-based compensation 288 499 741 1,086
Acquisition-related costs *) 529 1,157 1,309 1,735
Non-GAAP operating income 12,581 9,575 24,331 18,438
GAAP net income attributable to Sapiens' shareholders 6,840 2,014 11,995 4,850
Operating income adjustments 3,127 4,647 6,800 8,813
Tax and other (426) (279) (864) (974)
Non-GAAP net income attributable to Sapiens' shareholders 9,541 6,382 17,931 12,689
(*) Acquisition-related costs pertain to charges on behalf of M&A agreements related to future performance targets and retention criteria, as well as third-party services, such as, tax, accounting and legal rendered until the acquisition date.
Summary of
NON-GAAP
Financial Information
U.S. dollars in thousands (except per share amounts)
Q2 2019 Q1 2019 Q
4
2018 Q3 2018 Q2 2018
---
Revenues 79,529 76,787 73,433 73,237 72,542
Gross profit 34,794 33,104 31,320 30,903 30,437
Operating income 12,581 11,750 10,849 10,273 9,575
Net income to Sapiens' shareholders 9,541 8,390 7,826 7,548 6,382
Adjusted EBITDA 13,358 12,524 11,797 11,236 10,385
Basic earnings per share 0.19 0.17 0.16 0.15 0.13
Diluted earnings per share 0.19 0.17 0.16 0.15 0.13
Non-GAAP Revenues by Geographic Breakdown
U.S. dollars in thousands
Q2 2019 Q1 2019 Q
4
2018 Q3 2018 Q2 2018
---
North
America 39,216 38,149 34,974 36,734 34,606
Europe 33,881 32,193 30,850 30,611 32,518
Asia
Pacific 3,515 3,670 3,140 3,480 3,305
South
Africa 2,917 2,775 4,469 2,412 2,113
Total 79,529 76,787 73,433 73,237 72,542
Adjusted Free Cash-Flow
U.S. dollars in thousands
Q2 2019 Q1 2019 Q
4
2018 Q3 2018 Q2 2018
---
Cash-flow from operating activities 15,507 10,550 11,509 6,370 658
Increase in capitalized software (1,570) (1,392) (1,382) (1,308) (1,293)
development costs
Capital expenditures (1,079) (641) (204) (831) (402)
Free cash-flow 12,858 8,517 9,923 4,231 (1,037)
Cash payments attributed to acquisition-related costs(*) (**) 1,692 1,608 790 256
Adjusted free cash-flow 14,550 10,125 10,713 4,231 (781)
(*) Included in cash-flow from operating activities
(**) Acquisition-related payments pertain to payments on behalf of M&A agreements related to future performance targets and retention criteria, as well as third-party services, such as, tax, accounting and legal rendered until the acquisition date.
Adjusted EBITDA Calculation
U.S. dollars in thousands
Three months ended Six months ended
June 30 June 30
2019 2018 2019 2018
GAAP operating profit 9,454 4,928 17,531 9,625
Non-GAAP adjustments:
---
Amortization of capitalized software 1,390 1,152 2,731 2,407
Amortization of other intangible assets 2,490 2,754 4,981 5,587
Capitalization of software development (1,570) (1,293) (2,962) (2,470)
Stock-based compensation 288 499 741 1,086
Acquisition-related costs 529 1,157 1,310 1,735
Valuation adjustment on acquired deferred revenue 378 468
Non-GAAP operating profit 12,581 9,575 24,332 18,438
Depreciation 777 810 1,550 1,892
Adjusted EBITDA 13,358 10,385 25,882 20,330
SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands
June 30,
December 31,
2019 2018
(unaudited)
(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents 77,282 64,628
Trade receivables, net and unbilled receivables 58,827 59,159
Other receivables and prepaid expenses 7,615 6,224
Total current assets 143,724 130,011
LONG-TERM ASSETS
Property and equipment, net 9,264 8,515
Severance pay fund 4,941 4,699
Goodwill and intangible assets, net 230,069 231,348
Operating lease right-of-use assets 54,106
Other long-term assets 4,885 4,292
Total long-term assets 303,265 248,854
TOTAL ASSETS 446,989 378,865
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Trade payables 6,491 6,149
Current maturities of Series B Debentures 9,898 9,898
Accrued expenses and other liabilities 49,390 46,999
Current maturities of operating lease liabilities 8,107
Deferred revenue 22,782 18,057
Total current liabilities 96,668 81,103
LONG-TERM LIABILITIES
Series B Debentures, net of current maturities 58,763 68,577
Deferred tax liabilities 9,692 11,681
Other long-term liabilities 7,723 9,398
Long-term operating lease liabilities 48,105
Accrued severance pay 5,946 5,622
Total long-term liabilities 130,229 95,278
EQUITY 220,092 202,484
TOTAL LIABILITIES AND EQUITY 446,989 378,865
SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOW
U.S. dollars in thousands
For the six months ended
June 30,
2019 2018
(unaudited) (unaudited)
---
Cash flows from operating activities:
Net income 12,042 4,957
Reconciliation of net income (loss) to net cash provided by operating
activities:
Depreciation and amortization 9,262 9,886
Accretion of discount on Series B
Debentures 84 94
Capital gain from sale of property
and equipment (129)
Stock-based compensation related to
options issued to employees 741 1,086
Net changes in operating assets and liabilities, net of amount
acquired:
Trade receivables, net and unbilled
receivables 712 (2,416)
Deferred tax assets (1,435) (300)
Other operating assets (356) (886)
Trade payables 190 (4,853)
Other operating liabilities 152 (4,691)
Deferred revenues 4,760 6,888
Severance pay 34 56
---
Net cash provided by operating
activities 26,057 9,821
===
Cash flows from investing activities:
Purchase of property and equipment (1,720) (879)
Investment in deposit (1,119)
Payments for business acquisition,
net of cash acquired - (18,203)
Proceeds from sale of property and
equipment 821
Capitalized software development
costs (2,962) (2,470)
---
Net cash used in investing activities (4,980) (21,552)
===
Cash flows from financing activities:
Proceeds from employee stock options
exercised 78 128
Repayment of Series B Debentures (9,898)
Repayment of loan (4) (27)
Payment of contingent considerations (120) (61)
Dividend to non-controlling interest (66) (47)
---
Net cash provided by financing
activities (10,010) (7)
===
Effect of exchange rate changes on
cash and cash equivalents 1,587 (522)
Increase (decrease) in cash and cash
equivalents 12,654 (12,260)
Cash and cash equivalents at the
beginning of period 64,628 71,467
---
Cash and cash equivalents at the end
of period 77,282 59,207
===
Debentures Covenants
As of June 30, 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 $219 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) below 65%.
-- Actual ratio of net financial indebtedness to net capitalization equal
to -3.51%.
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 -0.15.
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
