Sapiens Reports Third Quarter 2020 Financial Results
HOLON, Israel, Nov. 5, 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 third quarter ended September 30, 2020.
Summary Results for Third Quarter 2020 (USD in millions, except per share data)
---
GAAP Non-GAAP
September 30, 2020 September 30, 20
19
% Change September 30, 2020 September 30, 20
19
% Change
Revenue $97.6 $82.6 18.2% $98.0 $82.6 18.5%
Gross Profit $40.1 $33.3 20.3% $44.2 $36.7 20.4%
---
Gross Margin 41.0% 40.3%
70 bps 45.1% 44.4%
70 bps
Operating Income $12.1 $10.1 19.6% $17.9 $13.5 32.0%
---
Operating Margin 12.4% 12.2%
20 bps 18.2% 16.4%
180 bps
Net Income (*) $9.3 $7.4 25.9% $13.7 $10.4 32.0%
---
Diluted EPS $0.18 $0.15 20.0% $0.27 $0.21 28.6%
---
(*) Attributable to Sapiens' shareholders.
"Sapiens delivered strong execution across key geographies and product lines to grow third quarter non-GAAP revenue by 18.5%, fueled by outstanding strategic performance in Europe and North America and leveraging existing customer relationships to upsell products and services. Non-GAAP Operating margin increased to a record of 18.2%, an increase of 180 basis points year-over-year," said Roni Al-Dor, Sapiens president and CEO.
-- Lately our products received excellent recognition from the analysts and
research community across both Life and P&C, and in North America and
Europe:
-- In Europe, we have been recognized as Leaders in the 2 Gartner Magic
Quadrant for policy administration and insurance platform for both our
Life and P&C solutions
In North America, we have received the Excellent award by Celent in the Life New Business and Underwriting report
"Our outlook for 2020 has improved despite COVID-19. We continue to sign new business and increase our revenue from existing customers. In addition, the 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 non-GAAP revenue range is now $381 million to $383 million, as compared to our prior range of $376 million to $381 million., we are also increasing the range of our non-GAAP operating margin for 2020 to 17.6% to 17.7% from prior range of 16.5% to 16.9%."
Quarterly Results Conference Call
Management will host a conference call and webcast on November 5, 20202 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 November 14, 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.
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. 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 Nine months ended
September 30 September 30
2020 2019 2020 2019
(unaudited) (unaudited) (unaudited) (unaudited)
Revenue 97,645 82,643 281,242 238,959
Cost of revenue 57,567 49,316 166,641 144,371
Gross profit 40,078 33,327 114,601 94,588
Operating expenses:
Research and development, net 10,375 9,445 30,229 27,145
Selling, marketing, general and administrative 17,606 13,767 49,594 39,797
Total operating expenses 27,981 23,212 79,823 66,942
Operating income 12,097 10,115 34,778 27,646
Financial and other expenses, net 1,042 261 2,593 1,749
Taxes on income 1,520 2,349 6,430 6,350
Net income 9,535 7,505 25,755 19,547
Attributable to non-controlling interest 196 87 299 134
Net income attributable to Sapiens' shareholders 9,339 7,418 25,456 19,413
Basic earnings per share 0.19 0.15 0.51 0.39
Diluted earnings per share 0.18 0.15 0.50 0.38
Weighted average number of shares outstanding used to 50,625 50,027 50,367 50,005
compute basic earnings per share (in thousands)
Weighted average number of shares outstanding used to 51,581 50,742 51,280 50,534
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 Nine months ended
September 30 September 30
2020 2019 2020 2019
(unaudited) (unaudited) (unaudited) (unaudited)
Revenue 97,968 82,643 281,565 238,959
Cost of revenue 53,762 45,931 155,668 134,349
Gross profit 44,206 36,712 125,897 104,610
Operating expenses:
Research and development, net 11,881 10,986 34,423 31,648
Selling, marketing, general and administrative 14,466 12,196 42,218 35,101
Total operating expenses 26,347 23,182 76,641 66,749
Operating income 17,859 13,530 49,256 37,861
Financial and other expenses, net 1,042 261 2,593 1,749
Taxes on income 2,875 2,770 8,866 7,635
Net income 13,942 10,499 37,797 28,477
Attributable to non-controlling interest 196 87 299 134
Net income attributable to Sapiens' shareholders 13,746 10,412 37,498 28,343
Basic earnings per share 0.27 0.21 0.74 0.57
Diluted earnings per share 0.27 0.21 0.73 0.56
Weighted average number of shares outstanding used to 50,625 50,027 50,367 50,005
compute basic earnings per share (in thousands)
Weighted average number of shares outstanding used to 51,581 50,742 51,280 50,534
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 Nine months ended
September 30, September 30,
2020 2019 2020 2019
(unaudited) (unaudited) (unaudited) (unaudited)
GAAP revenue 97,645 82,643 281,242 238,959
Valuation adjustment on acquired deferred revenue 323 323
Non-GAAP revenue 97,968 82,643 281,565 238,959
GAAP gross profit 40,078 33,327 114,601 94,588
Revenue adjustment 323 323
Amortization of capitalized software 1,600 1,438 4,627 4,169
Amortization of other intangible assets 2,205 1,947 6,346 5,853
Non-GAAP gross profit 44,206 36,712 125,897 104,610
GAAP operating income 12,097 10,115 34,778 27,646
Gross profit adjustments 4,128 3,385 11,296 10,022
Capitalization of software development (1,506) (1,541) (4,194) (4,503)
Amortization of other intangible assets 825 539 2,112 1,614
Stock-based compensation 1,361 382 2,747 1,123
Acquisition-related costs *) 954 650 2,517 1,959
Non-GAAP operating income 17,859 13,530 49,256 37,861
GAAP net income attributable to Sapiens' 9,339 7,418 25,456 19,413
shareholders
Operating income adjustments 5,762 3,415 14,478 10,215
Taxes on income (1,355) (421) (2,436) (1,285)
Non-GAAP net income attributable to 13,746 10,412 37,498 28,343
Sapiens' 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)
Q3 2020 Q2 2020 Q1 2020 Q4 2019 Q3 2019
---
Revenues 97,968 93,063 90,534 86,715 82,643
Gross profit 44,206 41,900 39,791 38,402 36,712
Operating income 17,859 16,783 14,614 14,345 13,530
Net income to Sapiens' shareholders 13,746 13,340 10,412 10,553 10,412
Adjusted EBITDA 19,010 17,854 15,724 15,271 14,523
Basic earnings per share 0.27 0.27 0.21 0.21 0.21
Diluted earnings per share 0.27 0.26 0.20 0.21 0.21
Non-GAAP Revenues by Geographic Breakdown
U.S. dollars in thousands
Q3 2020 Q2 2020 Q1 2020 Q4 2019 Q3 2019
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North America 49,979 46,610 44,567 41,787 44,413
Europe 42,394 41,030 40,232 37,504 30,273
Rest of the world 5,595 5,423 5,735 7,424 7,957
Total 97,968 93,063 90,534 86,715 82,643
Adjusted Free Cash-Flow
U.S. dollars in thousands
Q3 2020 Q2 2020 Q1 2020 Q4 2019 Q3 2019
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Cash-flow from operating activities 16,705 14,761 5,759 21,429 18,671
Increase in capitalized software development costs (1,506) (1,251) (1,437) (1,162) (1,541)
Capital expenditures (963) (393) (552) (2,456) (973)
Capital expenditures related to new campus in India - (6,325)
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Free cash-flow 14,236 13,117 3,770 17,811 9,832
Capital expenditures related to new campus in India - 6,325
Cash payments attributed to acquisition-related costs(*) (**) 242 1,562 737 200 100
Adjusted free cash-flow 14,478 14,679 4,507 18,011 16,257
(*) 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 Nine months ended
September 30 September 30
2020 2019 2020 2019
GAAP operating profit 12,097 10,115 34,778 27,646
Non-GAAP adjustments:
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Valuation adjustment on acquired deferred revenue 323 323
Amortization of capitalized software 1,600 1,438 4,627 4,169
Amortization of other intangible assets 3,030 2,486 8,458 7,467
Capitalization of software development (1,506) (1,541) (4,194) (4,503)
Stock-based compensation 1,361 382 2,747 1,123
Compensation related to acquisition and acquisition-related costs 954 650 2,517 1,959
Non-GAAP operating profit 17,859 13,530 49,256 37,861
Depreciation 1,151 993 3,332 2,544
Adjusted EBITDA 19,010 14,523 52,588 40,405
SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands
September 30,
December 31,
2020 2019
(unaudited)
(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents 131,667 66,295
Trade receivables, net and unbilled receivables 63,805 50,221
Investment in restricted deposit 22,890
Other receivables and prepaid expenses 10,399 7,817
Total current assets 205,871 147,223
LONG-TERM ASSETS
Property and equipment, net 16,744 16,601
Severance pay fund 5,377 5,106
Goodwill and intangible assets, net 266,696 228,691
Operating lease right-of-use assets 49,300 49,539
Other long-term assets 6,095 5,261
Total long-term assets 344,212 305,198
TOTAL ASSETS 550,083 452,421
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Trade payables 5,306 5,107
Current maturities of Series B Debentures 19,796 9,898
Accrued expenses and other liabilities 67,465 60,574
Current maturities of operating lease liabilities 9,558 8,312
Deferred revenue 26,450 21,021
Total current liabilities 128,575 104,912
LONG-TERM LIABILITIES
Series B Debentures, net of current maturities 98,681 58,850
Deferred tax liabilities 6,395 5,082
Other long-term liabilities 10,847 8,321
Long-term operating lease liabilities 44,934 43,394
Accrued severance pay 7,274 6,364
Total long-term liabilities 168,131 122,011
REDEEMABLE NON-CONTROLLING INTEREST 477
EQUITY 252,900 225,498
TOTAL LIABILITIES AND EQUITY 550,083 452,421
SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOW
U.S. dollars in thousands
For the Nine months
ended June 30,
2020 2019
(unaudited) (unaudited)
---
Cash flows from operating activities:
Net income 25,755 19,547
Reconciliation of net income to net cash provided by operating
activities:
Depreciation and amortization 16,417 14,180
Accretion of discount on Series B Debentures 91 124
Capital gain from sale of property and equipment 4 (129)
Stock-based compensation related to options issued to employees 2,747 1,123
Net changes in operating assets and liabilities, net of amount acquired:
Trade receivables, net and unbilled receivables (10,225) 3,642
Deferred tax assets, net (391) (2,664)
Other operating assets 3,653 1,425
Trade payables (778) (1,534)
Other operating liabilities (294) 4,562
Deferred revenues (194) 4,419
Accrued severance pay, net 440 33
---
Net cash provided by operating activities 37,225 44,728
===
Cash flows from investing activities:
Purchase of property and equipment (1,908) (9,018)
Investment in deposit (379) (1,119)
Proceeds from sale of property and equipment 12 821
Proceeds from restricted deposit used for completed acquisition 22,890
Payments for business acquisitions, net of cash acquired (35,395) (1,572)
Capitalized software development costs (4,194) (4,503)
---
Net cash used in investing activities (18,974) (15,391)
===
Cash flows from financing activities:
Proceeds from employee stock options exercised 4,919 435
Distribution of dividend (7,044) (10,362)
Repayment of Series B Debenture (9,898) (9,898)
Issuance of Series B Debentures 60,386
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 47,825 (20,015)
===
Effect of exchange rate changes on cash and cash equivalents (704) (812)
Increase in cash and cash equivalents 65,372 8,510
Cash and cash equivalents at the beginning of period 66,295 64,628
---
Cash and cash equivalents at the end of period 131,667 73,138
===
Debentures Covenants
As of September 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 $251 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 (5.05)%.
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 (0.18).
In October 2020, the company completed a capital raise of $100M.
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SOURCE Sapiens International Corporation
