Sapiens Reports Third Quarter 2024 Financial Results
ROCHELLE PARK, N.J., Nov. 11, 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 third quarter ended September 30, 2024.
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Summary
Results for Third
Quarter 2024 (USD in millions, except per share data)
GAAP Non-GAAP
Q3 2024 Q3 2023 % Change Q3 2024 Q3 2023 % Change
Revenue $137.0 $130.7 4.8 % $137.0 $130.8 4.8 %
Gross Profit $60.3 $56.0 7.8 % $62.8 $59.3 6.0 %
Gross Margin 44.0 % 42.8 % 120 bps 45.8 % 45.3 % 50 bps
Operating Income $21.7 $20.3 7.3 % $25.1 $24.1 4.3 %
Operating Margin 15.9 % 15.5 % 40 bps 18.3 % 18.4 % -10 bps
Net Income (*) $18.3 $15.9 15.5 % $21.1 $19.1 10.5 %
Diluted EPS $0.33 $0.28 17.9 % $0.37 $0.34 8.8 %
(*) Attributable to Sapiens' shareholders
Roni Al-Dor, President and CEO of Sapiens, stated, "This quarter showcased solid performance in our key regions. We are pleased to report that revenue reached $137 million this quarter, reflecting a 4.8% increase over the same period last year. Revenue growth was driven by 7.1% growth in our European region, 1.7% growth in North America and 6.6% growth in ROW regions. This quarter's non-GAAP operating profit totaled $25 million, representing 18.3% of total revenue."
Mr. Al-Dor continued, "Revenue fell short of our targets in the third quarter, and the challenges we encountered are expected to impact revenue in the fourth quarter. Today, we are revising our 2024 non-GAAP revenue guidance to a range of $541 million to $546 million, down from the previous range of $550 million to $555 million - a 1.6% reduction at the midpoint. However, we expect our non-GAAP operating margin to be within our guidance range at 18.2%. Looking into 2025, we anticipate a low single-digit revenue growth."
Quarterly Results Conference Call
Management will host a conference call and webcast on November 11, 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) is a global leader in intelligent insurance software solutions. With Sapiens' robust platform, customer-driven partnerships, and rich ecosystem, insurers are empowered to future-proof their organizations with operational excellence in a rapidly changing marketplace. We help insurers harness the power of AI and advanced automation to support core solutions for property and casualty, workers' compensation, and life insurance, including reinsurance, financial & compliance, data & analytics, digital, and decision management. Sapiens boasts a longtime global presence, serving over 600 customers in more than 30 countries with its innovative SaaS offerings. Recognized by industry experts and selected for the Microsoft Top 100 Partner program, Sapiens is committed to partnering with our customers for their entire transformation journey and is continuously innovating to ensure their success.
Investor and Media Contact Investor Contacts
Yaffa Cohen-Ifrah
Brett Maas
Chief Marketing Officer and Head of
Managing Partner, Hayden
IR
Investor Relations, Sapiens
Yaffa.cohen-ifrah@sapiens.com +1 646-536-7331
+1 917-533-4782
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 that are incorporated herein and therein by reference 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, that 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? the global macroeconomic environment, including headwinds caused by inflation, relatively high interest rates, potentially unfavorable currency exchange rate movements, and uncertain economic conditions, and their impact on our revenues, profitability and cash flows; 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 coronavirus epidemic, and 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 Annual Report on Form 20-F for the year ended December 31, 2023, to be filed in the near future, 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 Nine months ended
September 30, September 30,
2024 2023 2024 2023
(unaudited) (unaudited) (unaudited) (unaudited)
Revenue 137,025 130,705 408,074 383,725
Cost of revenue 76,729 74,753 230,114 220,080
Gross profit 60,296 55,952 177,960 163,645
Operating expenses:
Research and development, net 16,449 16,028 49,779 47,391
Selling, marketing, general and
administrative 22,101 19,659 64,030 57,475
Total operating expenses 38,550 35,687 113,809 104,866
Operating income 21,746 20,265 64,151 58,779
Financial and other (income) expenses, net (913) 551 (3,114) 2,310
Taxes on income 4,324 3,710 12,812 10,627
Net income 18,335 16,004 54,453 45,842
Attributable to non-controlling interest 132 141 371
Net income attributable to Sapiens' shareholders 18,335 15,872 54,312 45,471
Basic earnings per share 0.33 0.29 0.97 0.82
Diluted earnings per share 0.33 0.28 0.97 0.82
Weighted average number of shares outstanding used to 55,854 55,397 55,799 55,251
compute basic earnings per share (in thousands)
Weighted average number of shares outstanding used to 56,308 55,813 56,151 55,657
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,
2024 2023 2024 2023
(unaudited) (unaudited) (unaudited) (unaudited)
GAAP revenue 137,025 130,705 408,074 383,725
Valuation adjustment on acquired deferred 55 165
revenue
Non-GAAP revenue 137,025 130,760 408,074 383,890
GAAP gross profit 60,296 55,952 177,960 163,645
Revenue adjustment 55 165
Amortization of capitalized software 1,470 1,418 4,584 4,274
Amortization of other intangible assets 1,043 1,835 3,630 5,531
Non-GAAP gross profit 62,809 59,260 186,174 173,615
GAAP operating income 21,746 20,265 64,151 58,779
Gross profit adjustments 2,513 3,308 8,214 9,970
Capitalization of software development (1,834) (1,638) (5,374) (4,975)
Amortization of other intangible assets 1,276 1,074 3,732 3,234
Stock-based compensation 646 1,038 2,229 2,960
Acquisition-related costs *) 754 11 1,248 21
Non-GAAP operating income 25,101 24,058 74,200 69,989
GAAP net income attributable to Sapiens' 18,335 15,872 54,312 45,471
shareholders
Operating income adjustments 3,355 3,793 10,049 11,210
Taxes on income (599) (585) (1,808) (1,738)
Non-GAAP net income attributable to Sapiens' 21,091 19,080 62,553 54,943
shareholders
(*) 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 Nine months ended
September 30, September 30,
2024 2023 2024 2023
GAAP operating profit 21,746 20,265 64,151 58,779
Non-GAAP adjustments:
---
Valuation adjustment on acquired deferred revenue 55 165
Amortization of capitalized software 1,470 1,418 4,584 4,274
Amortization of other intangible assets 2,319 2,909 7,362 8,765
Capitalization of software development (1,834) (1,638) (5,374) (4,975)
Stock-based compensation 646 1,038 2,229 2,960
Compensation related to acquisition and acquisition-related costs 754 11 1,248 21
Non-GAAP operating profit 25,101 24,058 74,200 69,989
Depreciation 1,288 719 3,480 2,750
Adjusted EBITDA 26,389 24,777 77,680 72,739
Summary of NON-GAAP Financial Information
U.S. dollars in thousands (except per share amounts)
Q3 2024 Q2 2024 Q1 2024 Q4 2023 Q3 2023
Revenues 137,025 136,800 134,249 130,914 130,760
Gross profit 62,809 62,481 60,884 59,370 59,260
Operating income 25,101 24,836 24,263 24,152 24,058
Adjusted EBITDA 26,389 25,931 25,360 25,267 24,777
Net income to Sapiens' shareholders 21,091 21,041 20,421 20,081 19,080
Diluted earnings per share 0.37 0.37 0.36 0.36 0.34
Annual Recurring Revenue ("ARR")
U.S. dollars in thousands
Three months ended
September
30,
2024 2023
Annual Recurring Revenue 173,414 157,589
Non-GAAP Revenues by Geographic Breakdown
U.S. dollars in thousands
Q3 2024 Q2 2024 Q1 2024 Q4 2023 Q3 2023
North America 55,755 57,918 55,158 54,882 54,848
Europe 69,281 66,072 68,727 65,239 64,662
Rest of the World 11,989 12,810 10,364 10,793 11,250
Total 137,025 136,800 134,249 130,914 130,760
Non-GAAP Revenue breakdown
U.S. dollars in thousands
Three months ended Nine months ended
September 30, September 30,
2024 2023 2024 2023
Software products and re-occurring post-production services (*) 100,707 87,356 292,992 251,757
Pre-production implementation services (**) 36,318 43,404 115,082 132,133
Total Revenues 137,025 130,760 408,074 383,890
Three months ended Nine months ended
September 30, September 30,
2024 2023 2024 2023
Software products and re-occurring post-production services (*) 53,809 46,053 156,386 133,339
Pre-production implementation services (**) 9,000 13,207 29,788 40,276
Total Gross profit 62,809 59,260 186,174 173,615
Three months ended Nine months ended
September 30, September 30,
2024 2023 2024 2023
Software products and re-occurring post-production services (*) 53.4 % 52.7 % 53.4 % 53.0 %
Pre-production implementation services (**) 24.8 % 30.4 % 25.9 % 30.5 %
Gross Margin 45.8 % 45.3 % 45.6 % 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
Q3 2024 Q2 2024 Q1 2024 Q4 2023 Q3 2023
Cash-flow from operating activities 13,083 8,545 18,488 38,646 3,988
Increase in capitalized software development costs (1,834) (1,823) (1,717) (1,543) (1,638)
Capital expenditures (1,125) (666) (466) (421) (696)
Free cash-flow 10,124 6,056 16,305 36,682 1,654
Cash payments attributed to acquisition-related costs(*) (**) 124 134 751 221
Adjusted free cash-flow 10,248 6,190 17,056 36,903 1,654
(*) 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 rendered.
SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
U.S. dollars in thousands
September
30, December 31,
2024 2023
(unaudited) (unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents 146,152 126,716
Short-term bank deposit 39,800 75,400
Trade receivables, net and unbilled
receivables 109,670 90,273
Other receivables and prepaid expenses 25,769 22,514
Total current assets 321,391 314,903
LONG-TERM ASSETS
Property and equipment, net 11,431 12,661
Severance pay fund 3,446 3,605
Goodwill and intangible assets, net 310,533 317,352
Operating lease right-of-use assets 20,502 23,557
Other long-term assets 15,993 17,546
Total long-term assets 361,905 374,721
TOTAL ASSETS 683,296 689,624
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Trade payables 8,224 6,291
Current maturities of Series B
Debentures 19,796 19,796
Accrued expenses and other liabilities 80,610 77,873
Current maturities of operating lease
liabilities 5,861 6,623
Deferred revenue 32,810 38,541
Total current liabilities 147,301 149,124
LONG-TERM LIABILITIES
Series B Debentures, net of current
maturities 19,778 39,543
Deferred tax liabilities 7,938 10,820
Other long-term liabilities 11,399 11,538
Long-term operating lease liabilities 17,532 21,084
Accrued severance pay 8,039 7,568
Total long-term liabilities 64,686 90,553
EQUITY 471,309 449,947
TOTAL LIABILITIES AND EQUITY 683,296 689,624
SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOW
U.S. dollars in thousands
For the n
ine months ended
September 30,
2024 2023
(unaudited) (unaudited)
Cash flows from operating activities:
Net income 54,453 45,842
Reconciliation of net income to net cash provided by operating activities:
Depreciation 3,480 2,750
Amortization of capitalized software and other intangible assets 11,946 13,039
Accretion of discount on Series B Debentures 32 47
Capital loss from sale of property and equipment 13 83
Stock-based compensation related to options issued to employees 2,229 2,960
Net changes in operating assets and liabilities, net of amount acquired:
Increase in trade receivables, net and unbilled receivables (20,640) (8,698)
Decrease in deferred tax liabilities, net (2,280) (1,410)
Increase in other operating assets (908) (4,107)
Increase (decrease) in trade payables 1,989 (616)
Decrease in other operating liabilities (5,154) (10,110)
Increase (decrease) in deferred revenues (5,684) 363
Increase in accrued severance pay, net 640 636
Net cash provided by operating activities 40,116 40,779
Cash flows from investing activities:
Purchase of property and equipment (2,306) (2,145)
Proceeds from (investment in) deposits 36,360 (55,379)
Proceeds from sale of property and equipment 49 40
Payments for business acquisitions, net of cash acquired (375)
Capitalized software development costs (5,374) (4,975)
Acquisition of intellectual property - (177)
Net cash provided by (used in) investing activities 28,354 (62,636)
Cash flows from financing activities:
Proceeds from employee stock options exercised 98 4,755
Distribution of dividend (29,789) (28,144)
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 (53,618) (43,232)
Effect of exchange rate changes on cash and cash equivalents 4,584 1,865
Increase (decrease) in cash and cash equivalents 19,436 (63,224)
Cash and cash equivalents at the beginning of period 126,716 160,285
Cash and cash equivalents at the end of period 146,152 97,061
Debentures Covenants
As of September 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 $471.3 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 (44.90)%.
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 (1.42).
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SOURCE Sapiens International Corporation
