Sapiens Reports Fourth Quarter and Full Year 2019 Financial Results
HOLON, Israel, Feb. 24, 2020 /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 fourth quarter and full year ended December 31, 2019.
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Summary Results for Fourth Quarter 2019 (USD in millions, except per share data)
GAAP % Change Non-GAAP % Change
Q4-2019 Q Q4-2019 Q
4 4
-2018 -2018
Revenue $86.7 $73.3 18.3% $86.7 $73.4 18.1%
Gross Profit $34.9 $27.9 25.3% $38.4 $31.3 22.6%
---
Gross Margin 40.3% 38.0%
230 bps 44.3% 42.7%
160 bps
Operating
Income $10.2 $6.6 55.3% $14.3 $10.8 32.2%
---
Operating
Margin 11.8% 9.0%
280 bps 16.5% 14.8%
170 bps
Net income
(*) $6.8 $3.8 82.1% $10.6 $7.8 34.8%
---
Diluted EPS $0.13 $0.07 85.7% $0.21 $0.16 31.3%
---
Summary Results for Full Year 2019 (USD in millions, except per share data)
GAAP % Change Non-GAAP % Change
---
2019 2018 2019 2018
Revenue $325.7 $289.7 12.4% $325.7 $290.3 12.2%
Gross Profit $129.5 $109.6 18.2% $143.0 $122.9 16.3%
--- ---
Gross Margin 39.8% 37.8%
200 bps 43.9% 42.4%
150 bps
Operating
Income $37.9 $23.0 64.5% $52.2 $39.6 32.0%
--- ---
Operating
Margin 11.6% 7.9%
370 bps 16.0% 13.6%
240 bps
Net income
(*) $26.2 $13.8 90.4% $38.9 $28.1 38.6%
--- ---
Diluted EPS $0.52 $0.28 85.7% $0.77 $0.56 37.5%
--- ---
(*) Attributable to Sapiens' shareholders
"Sapiens finished 2019 on a very strong note with fourth quarter non-GAAP revenue reaching a record high of $86.7 million and non-GAAP operating margin improving by 170 basis points to 16.5%. For the full year, we advanced our business globally, growing revenue by 12.2% to $325.7 million, the high end of the annual guidance range, fueled by prior acquisitions that delivered increased market penetration with new products, particularly on the digital front. We grew our core business in both P&C, with double digit growth, and saw expansion in our L&A business towards the end of the year. Increased revenue, combined with significant operating leverage from our offshore operations, improved Sapiens 2019 non-GAAP operating margins by 240 basis points to 16.0%. This was a strong year of execution on many fronts, and I want to congratulate the Sapiens global team for their outstanding work in 2019," stated Roni Al-Dor. president and CEO, Sapiens.
"The Sapiens global team delivered one of our most successful years to date with 34 new logos for 2019." continued Mr. Al-Dor. Mr. Al-Dor concluded: "We are building a unified global platform of innovative digital insurance solutions and advancing our competitive position as a one-stop-shop for insurance software with enhanced products and services. The pipeline for 2020 is very robust and we see further opportunities to increase operating efficiencies and improve margins. We are introducing 2020 guidance for revenue in a range of $377 million to $383 million, and operating margin in a range of 16.0% to 16.5%."
Quarterly Results Conference Call
Management will host a conference call and webcast today, February 24, 2020 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- 9180609; 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 4, 2020, as follows:
North America: 1-888-295-2634; International: +972-3-925-5901
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 payments related to investment in new campus in India, 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.
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 Year ended
December 31, December 31,
2019 2018 2019 2018
(unaudited) (unaudited) (unaudited) (unaudited)
Revenue 86,715 73,311 325,674 289,707
Cost of revenue 51,782 45,428 196,153 180,138
Gross profit 34,933 27,883 129,521 109,569
Operating expenses:
Research and development, net 10,233 8,284 37,378 34,414
Selling, marketing, general and administrative 14,477 13,016 54,274 52,133
Total operating expenses 24,710 21,300 91,652 86,547
Operating income 10,223 6,583 37,869 23,022
Financial and other expenses, net 1,019 829 2,768 3,957
Taxes on income 2,260 1,922 8,610 5,065
Net income 6,944 3,832 26,491 14,000
Attributable to non-controlling interest 110 80 244 215
Net income attributable to Sapiens' shareholders 6,834 3,752 26,247 13,785
Basic earnings per share 0.14 0.08 0.53 0.28
Diluted earnings per share 0.13 0.07 0.52 0.28
Weighted average number of shares outstanding used to 50,109 49,920 50,031 49,827
compute basic earnings per share (in thousands)
Weighted average number of shares outstanding used to 51,009 50,210 50,653 50,106
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,
2019 2018 2019 2018
(unaudited) (unaudited) (unaudited) (unaudited)
Revenue 86,715 73,433 325,674 290,297
Cost of revenue 48,313 42,113 182,662 167,353
Gross profit 38,402 31,320 143,012 122,944
Operating expenses:
Research and development, net 11,395 9,666 43,043 39,574
Selling, marketing, general and administrative 12,662 10,805 47,763 43,810
Total operating expenses 24,057 20,471 90,806 83,384
Operating income 14,345 10,849 52,206 39,560
Financial and other expenses, net 1,019 829 2,768 3,957
Taxes on income 2,663 2,114 10,298 7,325
Net income 10,663 7,906 39,140 28,278
Attributable to non-controlling interest 110 80 244 215
Net income attributable to Sapiens' shareholders 10,553 7,826 38,896 28,063
Basic earnings per share 0.21 0.16 0.78 0.56
Diluted earnings per share 0.21 0.16 0.77 0.56
Weighted average number of shares outstanding used to 50,109 49,920 50,031 49,827
compute basic earnings per share (in thousands)
Weighted average number of shares outstanding used to 51,009 50,210 50,653 50,106
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,
2019 2018 2019 2018
(unaudited) (unaudited) (unaudited) (unaudited)
GAAP revenue 86,715 73,311 325,674 289,707
Valuation adjustment on acquired deferred revenue 122 590
Non-GAAP revenue 86,715 73,433 325,674 290,297
GAAP gross profit 34,933 27,883 129,521 109,569
Valuation adjustment on acquired deferred revenue 122 590
Amortization of capitalized software 1,499 1,247 5,668 4,859
Amortization of other intangible assets 1,970 2,068 7,823 7,926
Non-GAAP gross profit 38,402 31,320 143,012 122,944
GAAP operating income 10,223 6,583 37,869 23,022
Gross profit adjustments 3,469 3,437 13,491 13,375
Capitalization of software development (1,162) (1,382) (5,665) (5,160)
Amortization of other intangible assets 563 926 2,177 3,293
Stock-based compensation 282 472 1,405 1,942
Acquisition-related costs *) 970 813 2,929 3,088
Non-GAAP operating income 14,345 10,849 52,206 39,560
GAAP net income attributable to Sapiens' 6,834 3,752 26,247 13,785
shareholders
Operating income adjustments 4,122 4,266 14,337 16,538
Tax and other (403) (192) (1,688) (2,260)
Non-GAAP net income attributable to Sapiens' 10,553 7,826 38,896 28,063
shareholders
(*) 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)
Q4 2019 Q3 2019 Q2 2019 Q1 2019 Q
4
2018
Revenues 86,715 82,643 79,529 76,787 73,433
Gross profit 38,402 36,712 34,794 33,104 31,320
Operating income 14,345 13,530 12,581 11,750 10,849
Net income to Sapiens' shareholders 10,553 10,412 9,541 8,390 7,826
Adjusted EBITDA 15,271 14,523 13,358 12,524 11,797
Basic earnings per share 0.21 0.21 0.19 0.17 0.16
Diluted earnings per share 0.21 0.21 0.19 0.17 0.16
Non-GAAP Revenues by Geographic Breakdown
U.S. dollars in thousands
Q4 2019 Q3 2019 Q2 2019 Q1 2019 Q
4
2018
North America 41,787 44,413 39,216 38,149 34,974
Europe 37,504 30,273 33,881 32,193 30,850
Asia Pacific 3,781 4,087 3,515 3,670 3,140
South Africa 3,643 3,870 2,917 2,775 4,469
Total 86,715 82,643 79,529 76,787 73,433
Adjusted Free Cash-Flow
U.S. dollars in thousands
Q4 2019 Q3 2019 Q2 2019 Q1 2019 Q
4
2018
---
Cash-flow from operating activities 21,429 18,671 15,507 10,550 11,509
Increase in capitalized software development costs (1,162) (1,541) (1,570) (1,392) (1,382)
Capital expenditures (2,456) (973) (1,079) (641) (204)
Capital expenditures related to new campus in India - (6,325)
---
Free cash-flow 17,811 9,832 12,858 8,517 9,923
Capital expenditures related to new campus in India - 6,325
Cash payments attributed to acquisition-related costs(*) 200 100 1,692 1,608 790
(**)
Adjusted free cash-flow 18,011 16,257 14,550 10,125 10,713
(*) 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 Year ended
December 31, December 31,
2019 2018 2019 2018
GAAP operating profit 10,223 6,583 37,869 23,022
Non-GAAP adjustments:
---
Amortization of capitalized software 1,499 1,247 5,668 4,859
Amortization of other intangible assets 2,533 2,994 10,000 11,219
Capitalization of software development (1,162) (1,382) (5,665) (5,160)
Stock-based compensation 282 472 1,405 1,942
Acquisition-related costs 970 813 2,929 3,088
Valuation adjustment on acquired deferred revenue 122 590
Non-GAAP operating profit 14,345 10,849 52,206 39,560
Depreciation 926 948 3,470 3,784
Adjusted EBITDA 15,271 11,797 55,676 43,344
SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands
December 31,
December 31,
2019 2018
(unaudited)
(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents 66,295 64,628
Trade receivables, net and unbilled receivables 50,221 59,159
Investment in deposit 22,890
Other receivables and prepaid expenses 7,817 6,224
Total current assets 147,223 130,011
LONG-TERM ASSETS
Property and equipment, net 16,601 8,515
Severance pay fund 5,106 4,699
Goodwill and intangible assets, net 228,691 231,348
Operating lease right-of-use assets 49,539
Other long-term assets 5,261 4,292
Total long-term assets 305,198 248,854
TOTAL ASSETS 452,421 378,865
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Trade payables 5,107 6,149
Current maturities of Series B Debentures 9,898 9,898
Accrued expenses and other liabilities 60,574 46,999
Current maturities of operating lease liabilities 8,312
Deferred revenue 21,021 18,057
Total current liabilities 104,912 81,103
LONG-TERM LIABILITIES
Series B Debentures, net of current maturities 58,850 68,577
Deferred tax liabilities 5,082 11,681
Other long-term liabilities 8,321 9,398
Long-term operating lease liabilities 43,394
Accrued severance pay 6,364 5,622
Total long-term liabilities 122,011 95,278
EQUITY 225,498 202,484
TOTAL LIABILITIES AND EQUITY 452,421 378,865
SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOW
U.S. dollars in thousands
For the twelve months ended
December 31,
2019 2018
(unaudited)
(unaudited)
---
Cash flows from operating activities:
Net income 26,491 14,000
Reconciliation of net income (loss) to net cash provided by operating activities:
Depreciation and amortization 19,138 19,862
Accretion of discount on Series B Debentures 171 194
Capital gain from sale of property and equipment (40)
Stock-based compensation related to options issued to employees 1,405 1,942
Net changes in operating assets and liabilities, net of amount acquired:
Trade receivables, net and unbilled receivables 10,514 (7,588)
Deferred tax assets (6,441) (1,567)
Other operating assets 6,726 509
Trade payables (1,476) (1,870)
Other operating liabilities 6,667 (174)
Deferred revenues 2,747 2,349
Severance pay 255 43
---
Net cash provided by operating activities 66,157 27,700
===
Cash flows from investing activities:
Purchase of property and equipment (11,474) (1,914)
Investment in deposit (24,009)
Payments for business acquisition, net of cash acquired (1,554) (18,507)
Proceeds from sale of property and equipment 834
Capitalized software development costs (5,665) (5,160)
---
Net cash used in investing activities (41,868) (25,581)
===
Cash flows from financing activities:
Proceeds from employee stock options exercised 780 895
Distribution of dividend (11,009) (9,978)
Repayment of Series B Debentures (9,898)
Repayment of loan (4) (237)
Payment of contingent considerations (374) (61)
Dividend to non-controlling interest (149) (47)
---
Net cash provided by financing activities (20,654) (9,428)
===
Effect of exchange rate changes on cash and cash equivalents (1,968) 470
Increase (decrease) in cash and cash equivalents 1,667 (6,839)
Cash and cash equivalents at the beginning of period 64,628 71,467
---
Cash and cash equivalents at the end of period 66,295 64,628
===
Debentures Covenants
As of December 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 $224 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 1.58%.
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 0.07.
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SOURCE Sapiens International Corporation
