Sapiens Reports Second Quarter 2020 Financial Results

HOLON, Israel, Aug. 4, 2020 /PRNewswire/ -- Sapiens International Corporation, SPNS and SPNS, a leading global provider of software solutions for the insurance industry, and a member of the Formula Group FORTY and FORT, today announced its financial results for the second quarter ended June 30, 2020.

Sapiens_Logo

Summary Results for Second Quarter 2020 (USD in millions, except per share data)



GAAP



Non-GAAP





June 30, 2020

June 30, 2019

% Change

June 30, 2020

June 30, 2019

% 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).

Cision View original content:http://www.prnewswire.com/news-releases/sapiens-reports-second-quarter-2020-financial-results-301105459.html

SOURCE Sapiens International Corporation

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