Sapiens Reports Second Quarter 2020 Financial Results
HOLON, Israel, Aug. 4, 2020 /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 second quarter ended June 30, 2020.
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Summary Results for Second Quarter 2020 (USD in millions, except per share data)
GAAP Non-GAAP
June 30, 2020 June 30, 20 % Change June 30, 2020 June 30, 20
19 19 % Change
Revenue $93.1 $79.5 17.0% $93.1 $79.5 17.0%
Gross
Profit $38.3 $31.5 21.6% $41.9 $34.8 20.4%
---
Gross
Margin 41.1% 39.6%
150 bps 45.0% 43.8%
120 bps
Operating
Income $12.4 $9.5 31.2% $16.8 $12.6 33.4%
---
Operating
Margin 13.3% 11.9%
140 bps 18.0% 15.8%
220 bps
Net Income
(*) $9.3 $6.8 35.9% $13.3 $9.5 39.8%
---
Diluted EPS $0.18 $0.14 28.6% $0.26 $0.19 36.8%
---
(*) Attributable to Sapiens' shareholders.
"Our second quarter growth was driven by North America and Europe and reached a growth rate of 17.0%. Non-Gaap Operating income grew 33.4%, lifting operating margin by 220 basis points to a record 18.0%, primarily due to cost saving steps we implemented as COVID-19 appeared," said Roni Al-Dor, Sapiens president and CEO.
"Our outlook for 2020 has improved despite COVID-19. We continue to sign new business and increase our revenue from existing customers with upselling opportunities. "In addition the recent Delphi acquisition enhances our position as a leading solutions provider in the MPL market in North America As such, we are raising our 2020 revenue guidance range," concluded Roni Al-Dor. "Our revised 2020 revenue range is now $376 million to $381 million, as compared to our prior range of $368 million to $377 million. The Delphi business acquisition which we completed at the end of July is currently in loss position, partially offsetting our operational improvement in 2020. That being said we are increasing our guidance to 16.5% to 16.9% from prior range of 16.0% to 16.5%."
Quarterly Results Conference Call
Management will host a conference call and webcast on August 4, 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: +972-3-918-0609; 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 August 13, 2020, as follows:
North America: +1-877-456-0009; International: +972-3-9255901
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 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 500 organizations globally, Sapiens has a proven ability to satisfy customers' core, data and digital requirements. For more information: www.sapiens.com
Forward Looking Statements
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, 2019, and subsequent reports and registration statements filed from time to time with the Securities and Exchange Commission.
Investors and Media Contact
Brett Mass
Managing Partner
Hayden IR
Phone: +1-646-536-7331
Email: Brett.Masss@HaydenIR.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 Six months ended
June 30 June 30
2020 2019 2020 2019
(unaudited) (unaudited) (unaudited) (unaudited)
Revenue 93,063 79,529 183,597 156,316
Cost of revenue 54,804 48,075 109,074 95,055
Gross profit 38,259 31,454 74,523 61,261
Operating expenses:
Research and development, net 9,328 8,923 19,854 17,700
Selling, marketing, general and administrative 16,528 13,077 31,988 26,030
Total operating expenses 25,856 22,000 51,842 43,730
Operating income 12,403 9,454 22,681 17,531
Financial and other expenses, net 63 434 1,550 1,488
Taxes on income 3,010 2,154 4,911 4,001
Net income 9,330 6,866 16,220 12,042
Attributable to non-controlling interest 33 26 103 47
Net income attributable to Sapiens' shareholders 9,297 6,840 16,117 11,995
Basic earnings per share 0.19 0.14 0.32 0.24
Diluted earnings per share 0.18 0.14 0.32 0.24
Weighted average number of shares outstanding used to compute basic earnings per share (in thousands) 50,297 50,002 50,236 49,994
Weighted average number of shares outstanding used to compute diluted earnings per share (in thousands) 51,173 50,530 51,128 50,430
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
2020 2019 2020 2019
(unaudited) (unaudited) (unaudited) (unaudited)
Revenue 93,063 79,529 183,597 156,316
Cost of revenue 51,163 44,735 101,906 88,418
Gross profit 41,900 34,794 81,691 67,898
Operating expenses:
Research and development, net 10,579 10,493 22,542 20,662
Selling, marketing, general and administrative 14,538 11,720 27,752 22,905
Total operating expenses 25,117 22,213 50,294 43,567
Operating income 16,783 12,581 31,397 24,331
Financial and other expenses, net 63 434 1,550 1,488
Taxes on income 3,347 2,580 5,992 4,865
Net income 13,373 9,567 23,855 17,978
Attributable to non-controlling interest 33 26 103 47
Net income attributable to Sapiens' shareholders 13,340 9,541 23,752 17,931
Basic earnings per share 0.27 0.19 0.47 0.36
Diluted earnings per share 0.26 0.19 0.46 0.36
Weighted average number of shares outstanding used to compute basic earnings per share (in thousands) 50,297 50,002 50,236 49,994
Weighted average number of shares outstanding used to compute diluted earnings per share (in thousands) 51,173 50,530 51,128 50,430
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,
2020 2019 2020 2019
(unaudited) (unaudited) (unaudited) (unaudited)
GAAP gross profit 38,259 31,454 74,523 61,261
Amortization of capitalized software 1,531 1,390 3,027 2,731
Amortization of other intangible assets 2,110 1,950 4,141 3,906
Non-GAAP gross profit 41,900 34,794 81,691 67,898
GAAP operating income 12,403 9,454 22,681 17,531
Gross profit adjustments 3,641 3,340 7,168 6,637
Capitalization of software development (1,251) (1,570) (2,688) (2,962)
Amortization of other intangible assets 698 540 1,287 1,075
Stock-based compensation 764 288 1,386 741
Acquisition-related costs *) 528 529 1,563 1,309
Non-GAAP operating income 16,783 12,581 31,397 24,331
GAAP net income attributable to Sapiens' shareholders 9,297 6,840 16,117 11,995
Operating income adjustments 4,380 3,127 8,716 6,800
Taxes on income (337) (426) (1,081) (864)
Non-GAAP net income attributable to Sapiens' shareholders 13,340 9,541 23,752 17,931
(*) 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 2020 Q1 2020 Q4 2019 Q3 2019 Q2 2019
Revenues 93,063 90,534 86,715 82,643 79,529
Gross profit 41,900 39,791 38,402 36,712 34,794
Operating income 16,783 14,614 14,345 13,530 12,581
Net income to Sapiens' shareholders 13,340 10,412 10,553 10,412 9,541
Adjusted EBITDA 17,854 15,724 15,271 14,523 13,358
Basic earnings per share 0.27 0.21 0.21 0.21 0.19
Diluted earnings per share 0.26 0.20 0.21 0.21 0.19
Non-GAAP Revenues by
Geographic Breakdown
U.S. dollars in thousands
Q2 2020 Q1 2020 Q4 2019 Q3 2019 Q2 2019
North America 46,610 44,567 41,787 44,413 39,216
Europe 41,030 40,232 37,504 30,273 33,881
Rest of the world 5,423 5,735 7,424 7,957 6,432
Total 93,063 90,534 86,715 82,643 79,529
Adjusted Free Cash-Flow
U.S. dollars in thousands
Q2 2020 Q1 2020 Q4 2019 Q3 2019 Q2 2019
---
Cash-flow from operating activities 14,761 5,759 21,429 18,671 15,507
Increase in capitalized software development costs (1,251) (1,437) (1,162) (1,541) (1,570)
Capital expenditures (393) (552) (2,456) (973) (1,079)
Capital expenditures related to new campus in India - (6,325)
---
Free cash-flow 13,117 3,770 17,811 9,832 12,858
Capital expenditures related to new campus in India - 6,325
Cash payments attributed to acquisition-related costs(*) (**) 1,562 737 200 100 1,692
Adjusted free cash-flow 14,679 4,507 18,011 16,257 14,550
(*) 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
2020 2019 2020 2019
GAAP operating profit 12,403 9,454 22,681 17,531
Non-GAAP adjustments:
---
Amortization of capitalized software 1,531 1,390 3,027 2,731
Amortization of other intangible assets 2,808 2,490 5,428 4,981
Capitalization of software development (1,251) (1,570) (2,688) (2,962)
Stock-based compensation 764 288 1,386 741
Compensation related to acquisition and acquisition-related costs 528 529 1,563 1,310
Non-GAAP operating profit 16,783 12,581 31,397 24,332
Depreciation 1,071 777 2,182 1,550
Adjusted EBITDA 17,854 13,358 33,579 25,882
SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands
June 30,
December 31,
2020 2019
(unaudited)
(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents 127,978 66,295
Trade receivables, net and unbilled receivables 62,969 50,221
Investment in restricted deposit 22,890
Other receivables and prepaid expenses 9,041 7,817
Total current assets 199,988 147,223
LONG-TERM ASSETS
Property and equipment, net 16,486 16,601
Severance pay fund 5,839 5,106
Goodwill and intangible assets, net 248,733 228,691
Operating lease right-of-use assets 50,231 49,539
Other long-term assets 6,017 5,261
Total long-term assets 327,306 305,198
TOTAL ASSETS 527,294 452,421
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Trade payables 5,738 5,107
Current maturities of Series B Debentures 19,796 9,898
Accrued expenses and other liabilities 64,443 60,574
Current maturities of operating lease liabilities 9,073 8,312
Deferred revenue 25,061 21,021
Total current liabilities 124,111 104,912
LONG-TERM LIABILITIES
Series B Debentures, net of current maturities 98,434 58,850
Deferred tax liabilities 7,235 5,082
Other long-term liabilities 8,312 8,321
Long-term operating lease liabilities 44,319 43,394
Accrued severance pay 7,367 6,364
Total long-term liabilities 165,667 122,011
REDEEMABLE NON-CONTROLLING INTEREST 458
EQUITY 237,058 225,498
TOTAL LIABILITIES AND EQUITY 527,294 452,421
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,
2020 2019
(unaudited) (unaudited)
Cash flows from operating activities:
Net income 16,220 12,042
Reconciliation of net income to net
cash provided by operating
activities:
Depreciation and amortization 10,637 9,262
Accretion of discount on Series B
Debentures 77 84
Capital gain from sale of property
and equipment (129)
Stock-based compensation related to
options issued to employees 1,386 741
Net changes in operating assets and
liabilities, net of amount acquired:
Trade receivables, net and unbilled
receivables (11,554) 712
Deferred tax assets, net (1,146) (1,435)
Other operating assets 3,286 (356)
Trade payables (275) 190
Other operating liabilities (2,187) 152
Deferred revenues 4,008 4,760
Accrued severance pay, net 68 34
Net cash provided by operating
activities 20,520 26,057
Cash flows from investing activities:
Purchase of property and equipment (945) (1,720)
Investment in deposit (379) (1,119)
Proceeds from restricted deposit used
for completed acquisition 22,890
Payments for business acquisitions,
net of cash acquired (22,483) 821
Capitalized software development
costs (2,688) (2,962)
Net cash used in investing activities (3,605) (4,980)
Cash flows from financing activities:
Proceeds from employee stock options
exercised 2,334 78
Distribution of dividend (6,632)
Repayment of Series B Debenture (9,898) (9,898)
Issuance of Series B Debentures, net
of issuance expenses of $863 60,155
Receipt of short-term loan 20,000
Repayment of loan (20,000) (4)
Payment of contingent considerations (538) (120)
Dividend to non-controlling interest (66)
Net cash provided by (used in)
financing activities 45,421 (10,010)
Effect of exchange rate changes on
cash and cash equivalents (652) 1,587
Increase in cash and cash equivalents 61,684 12,654
Cash and cash equivalents at the
beginning of period 66,295 64,628
Cash and cash equivalents at the end
of period 127,979 77,282
Debentures Covenants
As of June 30, 2020, Sapiens was in compliance with all of its financial covenants under the indenture for the Series B Debentures, 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 $237 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 (3.4)%.
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 (0.1).
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SOURCE Sapiens International Corporation
