Sapiens Reports First Quarter 2020 Financial Results and Announces a Cash Dividend of $0.14 Per Share
HOLON, Israel, May 14, 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) (TASE: FORT), today announced its financial results for the first quarter ended March 31, 2020.
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Summary
Results for First
Quarter 2020 (USD in millions, except per share data)
---
GAAP
Non-GAAP
March 31, 2020 March 31, 20
19
% Change
March 31, 2020 March 31, 20
19
% Change
---
Revenue $90.5 $76.8 17.9% $90.5 $76.8 17.9%
Gross Profit $36.3 $29.8 21.7% $39.8 $33.1 20.2%
---
Gross Margin 40.1% 38.8%
130 bps 44.0% 43.1%
90 bps
Operating Income $10.3 $8.1 27.3% $14.6 $11.8 24.4%
---
Operating Margin 11.4% 10.5%
90 bps 16.1% 15.3%
80 bps
Net Income (*) $6.8 $5.2 32.3% $10.4 $8.4 24.1%
---
Diluted EPS $0.13 $0.10 30% $0.20 $0.17 17.6%
---
(*) Attributable to Sapiens' shareholders
"Sapiens' first-quarter performance reflects our continued focus on supporting our existing customers and closing new business," said Roni Al-Dor, president and CEO, Sapiens. "On a non-GAAP basis, we reported 17.9% revenue growth and increased operating margins by 80 basis points to 16.1%, with both P&C and L&A contributing to growth in the quarter."
"In March, we responded to the COVID-19 global outbreak per country, controlling expenses where appropriate, while maintaining productivity. I'm incredibly proud of my teams' accomplishments in this unique and challenging environment, and impressed by our customers' rapid shift to remote work, while they remained committed to their customers and their own digital transformation projects. As a result, Sapiens maintained momentum through the quarter," said Al-Dor.
Continued Al-Dor: "Across all our product lines, we see a growing demand for managed services, which is a testament to our delivery model - it allows carriers to focus on running their business. The current business disruption highlights the need for legacy insurance companies to migrate their platforms and increase their relevancy with more digital solutions. Our recent acquisition in Germany, sum.cumo, expands our digital offerings, helping us become even more competitive. While there continues to be uncertainty resulting from COVID-19, we remain focused on executing our long-term strategy. I am confident that as the global economy recovers, Sapiens will emerge stronger and well- positioned for continued growth."
"Strong demand for our digital products, combined with high recurring revenue and a solid balance sheet, position us for success in this challenging environment. We've taken appropriate actions to provide the necessary flexibility for revenue growth and operating efficiency within the current circumstances. While our business remains strong, due to macro events there could be delays in closing new deals, which could slightly impact our revenue. Therefore, we are slightly revising our annual revenue guidance for 2020 to the range of $368 million to $377 million, as compared to our prior range of $377 million to $383 million. Overall, we changed the mid-point of the revenue guidance by 2.0%. Sapiens' guidance for annual operating margin remains unchanged at 16.0% to 16.5%," said Al-Dor.
"Furthermore, Sapiens remains committed to returning value to shareholders," concluded Al-Dor. "Despite the condition in the market, we announce a dividend of $0.14 per share - approximately $7 million - reflecting our continued confidence in our business and Sapiens' ability to generate cash."
The dividend will be paid on June 10, 2020 to Sapiens Shareholders of record as of May 27, 2020. The prospective dividend is subject to withholding tax at source, under the Israeli Tax law, at the rate of 25% of the dividend amount payable to each shareholders of record.
Quarterly Results Conference Call
Management will host a conference call and webcast on May 14, 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): + 1-888-407-2553; International: +972-3-918-0610; UK: 0-800-917-9141
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 23, 2020, as follows:
North America: 1-888-326-9310; International: +972-3-925-5925
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 stock-based compensation expense, depreciation and amortization, capitalized of software development costs, compensation expenses related to acquisition and acquisition-related costs, financial and other expenses, and provision for income taxes. These amounts are often excluded by other companies to help investors understand the operational performance of their business.
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 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. The Company adds back payments related to investment in the 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, which 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
March 31,
2020 2019
(unaudited) (unaudited)
Revenue 90,534 76,787
Cost of revenue 54,270 46,980
Gross profit 36,264 29,807
Operating expenses:
Research and development, net 10,526 8,777
Selling, marketing, general and administrative 15,460 12,953
Total operating expenses 25,986 21,730
Operating income 10,278 8,077
Financial and other expenses, net 1,487 1,054
Taxes on income 1,901 1,847
Net income 6,890 5,176
Attributed to non-controlling interest 70 21
Net income attributable to Sapiens' shareholders 6,820 5,155
Basic earnings per share 0.14 0.10
Diluted earnings per share 0.13 0.10
Weighted average number of shares outstanding used 50,175 49,986
to compute basic earnings per share (in thousands)
Weighted average number of shares outstanding used 51,083 50,329
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,
2020 2019
(unaudited) (unaudited)
Revenue 90,534 76,787
Cost of revenue 50,743 43,683
Gross profit 39,791 33,104
Operating expenses:
Research and development, net 11,963 10,169
Selling, marketing, general and administrative 13,214 11,185
Total operating expenses 25,177 21,354
Operating income 14,614 11,750
Financial and other expenses, net 1,487 1,054
Taxes on income 2,645 2,285
Net income 10,482 8,411
Attributable to non-controlling interest 70 21
Net income attributable to Sapiens' shareholders 10,412 8,390
Basic earnings per share 0.21 0.17
Diluted earnings per share 0.20 0.17
Weighted average number of shares outstanding used 50,175 49,986
to compute basic earnings per share (in thousands)
Weighted average number of shares outstanding used 51,083 50,329
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,
2020 2019
(unaudited) (unaudited)
GAAP gross profit 36,264 29,807
Amortization of capitalized software 1,496 1,341
Amortization of other intangible assets 2,031 1,956
Non-GAAP gross profit 39,791 33,104
GAAP operating income 10,278 8,077
Gross profit adjustments 3,527 3,297
Capitalization of software development (1,437) (1,392)
Amortization of other intangible assets 589 535
Stock-based compensation 622 453
Acquisition-related costs *) 1,035 780
Non-GAAP operating income 14,614 11,750
GAAP net income attributable to Sapiens' shareholders 6,820 5,155
Operating income adjustments 4,336 3,673
Taxes on income (744) (438)
Non-GAAP net income attributable to Sapiens' shareholders 10,412 8,390
(*) 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)
Q1 2020 Q4 2019 Q3 2019 Q2 2019 Q1 2019
---
Revenues 90,534 86,715 82,643 79,529 76,787
Gross profit 39,791 38,402 36,712 34,794 33,104
Operating income 14,614 14,345 13,530 12,581 11,750
Net income to Sapiens' shareholders 10,412 10,553 10,412 9,541 8,390
Adjusted EBITDA 15,724 15,271 14,523 13,358 12,524
Basic earnings per share 0.21 0.21 0.21 0.19 0.17
Diluted earnings per share 0.20 0.21 0.21 0.19 0.17
Non-GAAP Revenues by Geographic Breakdown
U.S. dollars in thousands
Q1 2020 Q4 2019 Q3 2019 Q2 2019 Q1 2019
---
North America 44,567 41,787 44,413 39,216 38,149
Europe 40,232 37,504 30,273 33,881 32,193
Rest of the world 5,735 7,424 7,957 6,432 6,445
Total 90,534 86,715 82,643 79,529 76,787
Adjusted Free Cash-Flow
U.S. dollars in thousands
Q1 2020 Q4 2019 Q3 2019 Q2 2019 Q1 2019
---
Cash-flow from operating activities 5,759 21,429 18,671 15,507 10,550
Increase in capitalized software development costs (1,437) (1,162) (1,541) (1,570) (1,392)
Capital expenditures (552) (2,456) (973) (1,079) (641)
Capital expenditures related to new campus in India - (6,325)
---
Free cash-flow 3,770 17,811 9,832 12,858 8,517
Capital expenditures related to new campus in India - 6,325
Cash payments attributed to acquisition-related costs(*) 737 200 100 1,692 1,608
(**)
Adjusted free cash-flow 4,507 18,011 16,257 14,550 10,125
(*) 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
March
31,
2020 2019
(unaudited) (unaudited)
GAAP operating income 10,278 8,077
Non-GAAP adjustments:
---
Amortization of capitalized software 1,496 1,341
Amortization of other intangible assets 2,620 2,491
Capitalization of software development (1,437) (1,392)
Stock-based compensation 622 453
Compensation related to acquisition and acquisition-related 1,035 780
costs
Non-GAAP operating income 14,614 11,750
Depreciation 1,110 773
Adjusted EBITDA 15,724 12,523
SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands
March 31,
December 31,
2020 2019
(unaudited)
(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents 79,557 66,295
Trade receivables, net and unbilled receivables 59,958 50,221
Investment in restricted deposit 22,890
Other receivables and prepaid expenses 8,105 7,817
Total current assets 147,620 147,223
LONG-TERM ASSETS
Property and equipment, net 16,657 16,601
Severance pay fund 4,949 5,106
Goodwill and intangible assets, net 246,676 228,691
Operating lease right-of-use assets 45,872 49,539
Other long-term assets 6,549 5,261
Total long-term assets 320,703 305,198
TOTAL ASSETS 468,323 452,421
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Trade payables 5,650 5,107
Current maturities of Series B Debentures 9,898 9,898
Short-term bank loan 20,000
Accrued expenses and other liabilities 62,886 60,574
Current maturities of operating lease liabilities 7,920 8,312
Deferred revenue 22,797 21,021
Total current liabilities 129,151 104,912
LONG-TERM LIABILITIES
Series B Debentures, net of current maturities 48,985 58,850
Deferred tax liabilities 7,094 5,082
Other long-term liabilities 7,975 8,321
Long-term operating lease liabilities 40,945 43,394
Accrued severance pay 6,319 6,364
Total long-term liabilities 111,318 122,011
EQUITY 227,854 225,498
TOTAL LIABILITIES AND EQUITY 468,323 452,421
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,
2020 2019
(unaudited) (unaudited)
---
Cash flows from operating activities:
Net income 6,890 5,176
Reconciliation of net income to net cash provided by operating
activities:
Depreciation and amortization 5,226 4,605
Accretion of discount on Series B
Debentures 33 39
Stock-based compensation related to
options issued to employees 622 453
Net changes in operating assets and liabilities, net of amount
acquired:
Trade receivables, net and unbilled
receivables (9,009) (4,194)
Deferred tax assets, net (1,257) (855)
Other operating assets 2,260 328
Trade payables (52) (426)
Other operating liabilities (759) 1,247
Deferred revenues 1,655 4,167
Accrued severance pay, net 150 10
---
Net cash provided by operating
activities 5,759 10,550
===
Cash flows from investing activities:
Purchase of property and equipment (552) (641)
Investment in deposit (665) (1,106)
Proceeds from restricted deposit used
for completed acquisition 22,890
Payments for business acquisitions,
net of cash acquired (22,061)
Capitalized software development
costs (1,437) (1,392)
---
Net cash used in investing activities (1,825) (3,139)
===
Cash flows from financing activities:
Proceeds from employee stock options
exercised 600 17
Repayment of Series B Debenture (9,898) (9,898)
Receipt of short-term loan 20,000
Repayment of loan - (2)
Payment of contingent considerations (538) (58)
Dividend to non-controlling interest - (66)
---
Net cash used in financing activities 10,164 (10,007)
===
Effect of exchange rate changes on
cash and cash equivalents (836) 1,352
Increase (decrease) in cash and cash
equivalents 13,262 (1,244)
Cash and cash equivalents at the
beginning of period 66,295 64,628
---
Cash and cash equivalents at the end
of period 79,557 63,384
===
Debentures Covenants
As of March 31, 20120, 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 $226 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 (0.08)%.
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 (0.003).
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Investors and Media Contact
Brett Mass
Managing Partner
Hayden IR
Phone: +1 646-536-7331
Email: Brett.Masss@HaydenIR.com
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SOURCE Sapiens International Corporation
