Sapiens Reports Second Quarter 2024 Financial Results
ROCHELLE PARK, N.J., Aug. 1, 2024 /PRNewswire/ -- Sapiens International Corporation, (NASDAQ: SPNS) (TASE: SPNS), a leading global provider of software solutions for the insurance industry, today announced its financial results for the second quarter ended June 30, 2024.
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Summary
Results for Second
Quarter 2024 (USD in millions, except per share data)
GAAP Non-GAAP
Q2 2024 Q2 2023 % Change Q2 2024 Q2 2023 % Change
Revenue $136.8 $128.3 6.6 % $136.8 $128.4 6.6 %
Gross Profit $60.1 $54.7 10.0 % $62.5 $58.0 7.7 %
Gross Margin 43.9 % 42.6 % 130 bps 45.7 % 45.2 % 50 bps
Operating Income $21.9 $19.6 11.5 % $24.8 $23.4 6.1 %
Operating Margin 16.0 % 15.3 % 70 bps 18.2 % 18.2 % 0 bps
Net Income (*) $18.6 $15.4 20.9 % $21.0 $18.6 13.1 %
Diluted EPS $0.33 $0.28 17.9 % $0.37 $0.33 12.1 %
(*) Attributable to Sapiens' shareholders
Roni Al-Dor, President and CEO of Sapiens, stated, "We are pleased to report that revenue reached $137 million this quarter, reflecting a 6.6% increase over the same period last year. This quarter non-GAAP demonstrated our strong execution capabilities, particularly with robust growth in North America and Europe. This quarter's non-GAAP operating profit totaled $25 million, representing 18.2% of total revenue. Additionally, net income this quarter grew by 13%, and EPS per diluted share was $0.37 this quarter of 2024, up 12.1% from the second quarter of 2023".
"We reiterate our 2024 guidance for non-GAAP revenues in a range of $550 million to $555 million and for non-GAAP operating margin in a range of 18.1%-18.5%," concluded Mr. Al-Dor.
Quarterly Results Conference Call
Management will host a conference call and webcast on August 1, 2024, 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): 1-888-642-5032
International: 972-3-9180644
UK: 0-800-917-5108
The live webcast of the call can be viewed on Sapiens' website at: https://veidan.activetrail.biz/sapiensq2-2024. A replay of the call will be available one business day following the completion of the event at the same link for 90 days.
Non-GAAP Financial Measures
This press release contains the following non-GAAP financial measures: non-GAAP revenue, ARR, non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating income, non-GAAP operating margin, 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 Annual Recurring Revenue ("ARR") as the annualized value of our revenue from customer subscriptions, term licenses, maintenance, application maintenance, and cloud solutions, which may not be the same as the timing and amount of revenue recognized. The ARR run rate is equal to the product of (i) the sum of these revenues in our most recently completed fiscal quarter, multiplied by (ii) four.
The Company defines Adjusted EBITDA as net profit, adjusted to eliminate valuation adjustment on acquired deferred revenue, stock-based compensation expense, depreciation and amortization, capitalization 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 as well, in order 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 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 (NASDAQ and TASE: SPNS) empowers the financial sector, with a focus on insurance, to transform and become digital, innovative, and agile. With more than 40 years of industry expertise, Sapiens' cloud-based SaaS insurance platform offers pre-integrated, low-code capabilities across core, data and digital domains to accelerate our customers' digital transformation. Serving over 600 customers in more than 30 countries, Sapiens offers insurers across property and casualty, workers' compensation, and life insurance markets the most comprehensive set of solutions, from core to complementary, including Reinsurance, Financial & Compliance, Data & Analytics, Digital, and Decision Management. For more information visit www.sapiens.com or follow us on LinkedIn.
Investor and Media Contact
Yaffa Cohen-Ifrah
Chief Marketing Officer and Head of Investor Relations, Sapiens
Yaffa.cohen-ifrah@sapiens.com
+1 917-533-4782
Investor Contacts
Brett Maas
Managing Partner, Hayden IR
+1 646-536-7331
Brett.Maas@HaydenIR.com
Kimberly Rogers
Managing Director, Hayden IR
+1 541-904-5075
kim@HaydenIR.com
Forward Looking Statements
Certain matters discussed in this press release are forward-looking statements within the meaning of Section 27A of the Securities Act, Section 21E of the Exchange Act and the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995, and are based on our beliefs, assumptions and expectations, as well as information currently available to us. Such forward-looking statements may be identified by the use of the words "anticipate," "believe," "estimate," "expect," "may," "will," "plan" and similar expressions. Such statements reflect our current views with respect to future events and are subject to certain risks and uncertainties. There are important factors that could cause our actual results, levels of activity, performance or achievements to differ materially from the results, levels of activity, performance or achievements expressed or implied by the forward-looking statements, including, but not limited to: the degree of our success in our plans to leverage our global footprint to grow our sales? the degree of our success in integrating the companies that we have acquired through the implementation of our M&A growth strategy? the lengthy development cycles for our solutions, which may frustrate our ability to realize revenues and/or profits from our potential new solutions? our lengthy and complex sales cycles, which do not always result in the realization of revenues? the degree of our success in retaining our existing customers or competing effectively for greater market share? difficulties in successfully planning and managing changes in the size of our operations? the frequency of the long-term, large, complex projects that we perform that involve complex estimates of project costs and profit margins, which sometimes change mid-stream? the challenges and potential liability that heightened privacy laws and regulations pose to our business? occasional disputes with clients, which may adversely impact our results of operations and our reputation? various intellectual property issues related to our business? potential unanticipated product vulnerabilities or cybersecurity breaches of our or our customers' systems? risks related to the insurance industry in which our clients operate? risks associated with our global sales and operations, such as changes in regulatory requirements, wide-spread viruses and epidemics like the recent novel coronavirus pandemic, which adversely affected our results of operations, or fluctuations in currency exchange rates? and risks related to our principal location in Israel and our status as a Cayman Islands company. While we believe such forward-looking statements are based on reasonable assumptions, should one or more of the underlying assumptions prove incorrect, or these risks or uncertainties materialize, our actual results may differ materially from those expressed or implied by the forward-looking statements. Please read the risks discussed under the heading "Risk Factors" in our most recent Annual Report on Form 20-F, which we filled with the SEC on March 31, 2022, in order to review conditions that we believe could cause actual results to differ materially from those contemplated by the forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that future results, levels of activity, performance and events and circumstances reflected in the forward-looking statements will be achieved or will occur. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason, to conform these statements to actual results or to changes in our expectations.
SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
U.S. dollars in thousands (except per share amounts)
Three months ended Six months ended
June 30, June 30,
2024 2023 2024 2023
(unaudited) (unaudited) (unaudited) (unaudited)
Revenue 136,800 128,299 271,049 253,020
Cost of revenue 76,696 73,635 153,385 145,327
Gross profit 60,104 54,664 117,664 107,693
Operating expenses:
Research and development, net 16,809 15,746 33,330 31,363
Selling, marketing, general and
administrative 21,412 19,297 41,929 37,816
Total operating expenses 38,221 35,043 75,259 69,179
Operating income 21,883 19,621 42,405 38,514
Financial and other expenses (income), net (1,109) 562 (2,201) 1,759
Taxes on income 4,375 3,587 8,488 6,917
Net income 18,617 15,472 36,118 29,838
Attributable to non-controlling interest 69 141 239
Net income attributable to Sapiens' shareholders 18,617 15,403 35,977 29,599
Basic earnings per share 0.33 0.28 0.65 0.54
Diluted earnings per share 0.33 0.28 0.64 0.53
Weighted average number of shares outstanding used to 55,797 55,196 55,771 55,176
compute basic earnings per share (in thousands)
Weighted average number of shares outstanding used to 56,163 55,582 56,072 55,576
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 Six months ended
June 30,
June 30,
2024 2023 2024 2023
(unaudited) (unaudited) (unaudited) (unaudited)
GAAP revenue 136,800 128,299 271,049 253,020
Valuation adjustment on acquired deferred revenue - 55 110
Non-GAAP revenue 136,800 128,354 271,049 253,130
GAAP gross profit 60,104 54,664 117,664 107,693
Revenue adjustment - 55 110
Amortization of capitalized software 1,569 1,425 3,114 2,856
Amortization of other intangible assets 808 1,848 2,587 3,696
Non-GAAP gross profit 62,481 57,992 123,365 114,355
GAAP operating income 21,883 19,621 42,405 38,514
Gross profit adjustments 2,377 3,328 5,701 6,662
Capitalization of software development (1,823) (1,679) (3,540) (3,337)
Amortization of other intangible assets 1,223 1,084 2,456 2,160
Stock-based compensation 811 1,059 1,583 1,922
Acquisition-related costs *) 365 4 494 10
Non-GAAP operating income 24,836 23,417 49,099 45,931
GAAP net income attributable to Sapiens' shareholders 18,617 15,403 35,977 29,599
Operating income adjustments 2,953 3,796 6,694 7,417
Taxes on income (529) (589) (1,209) (1,153)
Non-GAAP net income attributable to Sapiens' shareholders 21,041 18,610 41,462 35,863
(*) Acquisition-related costs pertain to charges on behalf of M&A agreements related to future performance targets and retention criteria, as well as completed or prospective third-party services, such as tax, accounting and legal rendered..
Adjusted EBITDA Calculation
U.S. dollars in thousands
Three months ended Six months ended
June 30, June 30,
2024 2023 2024 2023
GAAP operating profit 21,883 19,621 42,405 38,514
Non-GAAP adjustments:
---
Valuation adjustment on acquired deferred revenue 55 110
Amortization of capitalized software 1,569 1,425 3,114 2,856
Amortization of other intangible assets 2,031 2,932 5,043 5,856
Capitalization of software development (1,823) (1,679) (3,540) (3,337)
Stock-based compensation 811 1,059 1,583 1,922
Compensation related to acquisition and acquisition-related costs 365 4 494 10
Non-GAAP operating profit 24,836 23,417 49,099 45,931
Depreciation 1,095 976 2,192 2,031
Adjusted EBITDA 25,931 24,393 51,291 47,962
Summary of
NON-GAAP
Financial Information
U.S. dollars in thousands (except per share amounts)
Q2 2024 Q1 2024 Q4 2023 Q3 2023 Q2 2023
Revenues 136,800 134,249 130,914 130,760 128,354
Gross profit 62,481 60,884 59,370 59,260 57,992
Operating income 24,836 24,263 24,152 24,058 23,417
Adjusted EBITDA 25,931 25,360 25,267 24,777 24,393
Net income to Sapiens' shareholders 21,041 20,421 20,081 19,080 18,610
Diluted earnings per share 0.37 0.36 0.36 0.34 0.33
Annual Recurring Revenue ("ARR")
U.S. dollars in thousands
Three months ended
June 30,
2024 2023
168,593 150,417
Non-GAAP Revenues by Geographic Breakdown
U.S. dollars in thousands
Q2 2024 Q1 2024 Q4 2023 Q3 2023 Q2 2023
North America 57,918 55,158 54,882 54,848 52,116
Europe 66,072 68,727 65,239 64,662 62,960
Rest of the World 12,810 10,364 10,793 11,250 13,278
Total 136,800 134,249 130,914 130,760 128,354
Non-GAAP Revenue breakdown
U.S. dollars in thousands
Three months ended Six months ended
June 30, June 30,
2024 2023 2024 2023
Software products and re-occurring post-production services (*) 98,044 82,559 192,285 164,401
Pre-production implementation services (**) 38,756 45,795 78,764 88,729
Total Revenues 136,800 128,354 271,049 253,130
Three months ended Six months ended
June 30, June 30,
2024 2023 2024 2023
Software products and re-occurring post-production services (*) 52,237 42,437 102,577 87,286
Pre-production implementation services (**) 10,244 15,555 20,788 27,069
Total Gross profit 62,481 57,992 123,365 114,355
Three months ended Six months ended
June 30, June 30,
2024 2023 2024 2023
Software products and re-occurring post-production services (*) 53.3 % 51.4 % 53.3 % 53.1 %
Pre-production implementation services (**) 26.4 % 34.0 % 26.4 % 30.5 %
Gross Margin 45.7 % 45.2 % 45.5 % 45.2 %
(*) Software products and re-occurring post-production services include
mainly subscription, term license, maintenance, application maintenance,
cloud solutions and post-production services. This revenue stream is a
mix of recurring and re-occurring in nature.
(**) Pre-production implementation services include mainly implementation
services before go-live, which are one-time in nature.
Adjusted Free Cash-Flow
U.S. dollars in thousands
Q2 2024 Q1 2024 Q4 2023 Q3 2023 Q2 2023
Cash-flow from operating activities 8,545 18,488 38,646 3,988 14,603
Increase in capitalized software development costs (1,823) (1,717) (1,543) (1,638) (1,679)
Capital expenditures (666) (466) (421) (696) (775)
Free cash-flow 6,056 16,305 36,682 1,654 12,149
Cash payments attributed to acquisition-related costs(*) (**) 134 751 221
Adjusted free cash-flow 6,190 17,056 36,903 1,654 12,149
(*) Included in cash-flow from operating activities
(**) Acquisition-related payments pertain to charges on behalf of M&A agreements related to future performance targets and retention criteria, as well as completed or prospective third-party services, such as tax, accounting and legal.
SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
U.S. dollars in thousands
June 30, December 31,
2024 2023
(unaudited) (unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents 122,646 126,716
Short-term bank deposit 63,800 75,400
Trade receivables, net and unbilled
receivables 102,101 90,273
Other receivables and prepaid expenses 20,258 22,514
Total current assets 308,805 314,903
LONG-TERM ASSETS
Property and equipment, net 12,065 12,661
Severance pay fund 3,360 3,605
Goodwill and intangible assets, net 307,231 317,352
Operating lease right-of-use assets 20,505 23,557
Other long-term assets 15,571 17,546
Total long-term assets 358,732 374,721
TOTAL ASSETS 667,537 689,624
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Trade payables 11,296 6,291
Current maturities of Series B
Debentures 19,796 19,796
Accrued expenses and other liabilities 74,057 77,873
Current maturities of operating lease
liabilities 5,705 6,623
Deferred revenue 31,928 38,541
Total current liabilities 142,782 149,124
LONG-TERM LIABILITIES
Series B Debentures, net of current
maturities 19,768 39,543
Deferred tax liabilities 8,517 10,820
Other long-term liabilities 11,469 11,538
Long-term operating lease liabilities 17,816 21,084
Accrued severance pay 7,443 7,568
Total long-term liabilities 65,013 90,553
EQUITY 459,742 449,947
TOTAL LIABILITIES AND EQUITY 667,537 689,624
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,
2024 2023
(unaudited) (unaudited)
Cash flows from operating activities:
Net income 36,118 29,838
Reconciliation of net income to net cash provided by operating activities:
Depreciation and amortization 10,349 10,743
Accretion of discount on Series B Debentures 22 32
Capital (gain) loss from sale of property and equipment (9) 86
Stock-based compensation related to options issued to employees 1,583 1,922
Net changes in operating assets and liabilities, net of amount acquired:
Decrease (increase) in trade receivables, net and unbilled receivables (12,723) 2,351
Increase (decrease) in deferred tax liabilities, net (1,428) 45
Decrease (increase) in other operating assets 3,445 (390)
Increase (decrease) in trade payables 4,446 (1,014)
Decrease in other operating liabilities (8,354) (12,572)
Increase (decrease) in deferred revenues (6,587) 5,284
Increase in accrued severance pay, net 171 466
Net cash provided by operating activities 27,033 36,791
Cash flows from investing activities:
Purchase of property and equipment (1,146) (1,439)
Proceeds from (investment in) deposits 12,136 (70,002)
Proceeds from sale of property and equipment 14 30
Payments for business acquisitions, net of cash acquired (375)
Capitalized software development costs (3,540) (3,337)
Acquisition of intellectual property - (177)
Net cash provided by (used in) investing activities 7,089 (74,925)
Cash flows from financing activities:
Proceeds from employee stock options exercised 98
Distribution of dividend (15,635) (13,796)
Repayment of Series B Debenture (19,796) (19,796)
Acquisition of non-controlling interest (4,131)
Dividend to non-controlling interest - (47)
Net cash used in financing activities (39,464) (33,639)
Effect of exchange rate changes on cash and cash equivalents 1,272 905
Decrease in cash and cash equivalents (4,070) (70,868)
Cash and cash equivalents at the beginning of period 126,716 160,285
Cash and cash equivalents at the end of period 122,646 89,417
Debentures Covenants
As of June 30, 2024, 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 non-controlling interest): above
$120 million.
-- Actual shareholders' equity (excluding non-controlling interest) equal
to $459.7 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 (46.79)%.
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 (1.45).
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SOURCE Sapiens International Corporation
