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Sapiens Reports Second Quarter 2018 Financial Results

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Sapiens Reports Second Quarter 2018 Financial Results

Ongoing Operational Improvements Deliver Margin Expansion

PR Newswire

HOLON, Israel, Aug. 7, 2018 /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), today announced its financial results for the second quarter ended June 30, 2018.

Sapiens Logo

Second Quarter 2018 Highlights:

  • Revenue totaled $72.2 million, an increase of 4.5% compared to last year.
    Non-GAAP revenue increased 4.9% from the same period in the prior year to $72.5 million.
  • Operating income totaled $4.9 million, up from an operating loss of $2.9 million last year. Non-GAAP operating income improved to $9.6 million, up from $3.2 million the same period in the prior year.
  • Operating margin improved to 6.8% as compared to (4.3%) last year. Non-GAAP operating margin improved 850 basis points to 13.2%, compared to 4.7% last year.
  • Net income attributable to Sapiens' shareholders totaled $2 million, up from a net loss of $3.6 million last year. Non-GAAP net income attributable to Sapiens' shareholders increased to $6.4 million from $1.9 million in the same period last year.
  • GAAP Diluted earnings per share attributed to Sapiens' shareholders of $0.04 comparted to $(0.07) per diluted share in the second quarter last year.
  • Non-GAAP diluted earnings per share of $0.13 per diluted share compared to $0.04 per diluted share in the second quarter last year.
  • Cash and cash equivalents of $59.2 million, and total debt of about $78 million as of June 30, 2018.

"In the second quarter, we continued to advance towards our key objectives of, expanding our P&C business in EMEA, and North America, while improving profitability," said Roni Al-Dor, president and CEO, Sapiens. "Our enhanced digital insurance offering along with our proven products and personnel are winning new business, particularly with our P&C platforms, where we are expanding our business with new and existing clients and building our pipeline for future growth. Due to efficiency and cost cutting programs and effectively leveraging our global assets, we expanded margins and improved profitability in the quarter. This quarter's results demonstrate our ability to expand our market leadership, particularly in the areas with the greatest client demand in the insurance market: digitalization, data analytics, and legacy transformation."

Mr. Al-Dor concluded: "Based on the strength of our first half growth and our outlook for the remainder of the year, we are raising our 2018 full year guidance for non-GAAP revenues of $285 to $290 million, up from prior guidance of $280 to $285 million.

We now expect full-year 2018 non-GAAP operating margins in the range of 13.0% - 13.2%, compared to our previous guidance of 12.0%-13.0%."

Quarterly Results Conference Call

Management will host a conference call and webcast on August 7, 2018 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:

If you are unable to join live, a replay of the call will be accessible until August 14, 2018, as follows:

  • North America: 1-888-254-7270; International: +972-3-925-5918
  • 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, and non-GAAP basic and diluted earnings per share.

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 intangible assets, capitalization of software development, stock-based compensation, compensation related to acquisition and acquisition-related costs, restructuring and cost reduction costs, loss on sales of Marketable Securities and tax adjustment regarding non-GAAP adjustments, as well as the impact of one-time adjustment to our deferred taxes as a result of the U.S. Tax Cuts and Job act 2017.

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.

About Sapiens

Sapiens International Corporation is a leading global provider of software solutions for the insurance industry, with a 30-year track record of delivering to more than 400 organizations. The company offers software platforms, solutions and services, including a full digital suite, to satisfy the needs of property and casualty/general insurers, and life, pension and annuity providers. Sapiens also services the reinsurance, workers' compensation, financial and compliance, and decision management markets.

The company's portfolio includes policy administration, billing and claims, underwriting, illustration and electronic application. The digital suite features customer and agent portals, and a business intelligence platform. For more information: www.sapiens.com.

Forward Looking Statement

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, 2017, and subsequent reports and registration statements filed from time to time with the Securities and Exchange Commission.              

     

 

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




2018


2017


2018


2017




 (unaudited)


 (unaudited)


 (unaudited)


 (unaudited)











 Revenue


72,164


69,049


143,159


125,583

 Cost of revenue


45,305


45,740


89,272


83,128











 Gross profit


26,859


23,309


53,887


42,455











 Operating expenses:










 Research and development, net


8,633


8,952


17,780


15,147


 Selling, marketing, general and administrative


13,298


17,343


26,482


31,931

 Total operating expenses


21,931


26,295


44,262


47,078











 Operating income (loss)


4,928


(2,986)


9,625


(4,623)











 Financial expense, net


1,316


709


2,154


1,147

 Taxes and other expenses (income), net


1,483


(109)


2,514


58





















 Net income (loss)


2,129


(3,586)


4,957


(5,828)











 Attributable to non-controlling interest


115


(8)


107


(38)











 Net income (loss) attributable to Sapiens' shareholders


2,014


(3,578)


4,850


(5,790)





















 Basic earnings per share


0.04


(0.07)


0.10


(0.12)











 Diluted earnings per share


0.04


(0.07)


0.10


(0.12)




















Weighted average number of shares outstanding used to
compute basic earnings per share (in thousands)


49,785


49,124


49,779


49,086










Weighted average number of shares outstanding used to
compute diluted earnings per share (in thousands)


49,998


49,124


50,033


49,086

 

            

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




2018


2017


2018


2017




 (unaudited)


 (unaudited)


 (unaudited)


 (unaudited)











 Revenue


72,542


69,167


143,627


125,701

 Cost of revenue


42,105


42,778


82,906


78,842











 Gross profit


30,437


26,389


60,721


46,859











 Operating expenses:










 Research and development, net


9,926


10,802


20,250


18,062


 Selling, marketing, general and administrative


10,936


12,370


22,033


23,882

 Total operating expenses


20,862


23,172


42,283


41,944











 Operating income


9,575


3,217


18,438


4,915











 Financial expense, net


1,316


709


2,154


917

 Taxes and other expenses


1,762


589


3,488


925





















 Net income


6,497


1,919


12,796


3,073











 Attributable to non-controlling interest


115


(8)


107


(38)











 Net income attributable to Sapiens' shareholders


6,382


1,927


12,689


3,111





















 Basic earnings per share


0.13


0.04


0.25


0.06











 Diluted earnings per share


0.13


0.04


0.25


0.06




















Weighted average number of shares outstanding used to
compute basic earnings per share (in thousands)


49,785


49,124


49,779


49,086










Weighted average number of shares outstanding used to
compute diluted earnings per share (in thousands)


49,998


49,887


50,033


49,906


 

 


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,



2018


2017


2018


2017



(unaudited)


(unaudited)


(unaudited)


(unaudited)










GAAP revenue


72,164


69,049


143,159


125,583

Valuation adjustment on acquired deferred revenue


378


118


468


118

Non-GAAP revenue


72,542


69,167


143,627


125,701



















GAAP gross profit


26,859


23,309


53,887


42,455

Valuation adjustment on acquired deferred revenue


378


118


468


118

Amortization of capitalized software


1,152


1,235


2,407


2,256

Amortization of other intangible assets


2,048


1,727


3,959


2,030

Non-GAAP gross profit


30,437


26,389


60,721


46,859










GAAP operating income (loss)


4,928


(2,986)


9,625


(4,623)

Gross profit adjustments


3,578


3,080


6,834


4,404

Capitalization of software development


(1,293)


(1,850)


(2,470)


(2,915)

Amortization of other intangible assets


706


-


1,628


951

Stock-based compensation


499


456


1,086


911

Compensation related to acquisition and acquisition-related costs


1,157


617


1,735


2,287

Restructuring and cost reduction plan


-


3,900


-


3,900

Non-GAAP operating income


9,575


3,217


18,438


4,915










  GAAP net income (loss) attributable to Sapiens' shareholders


2,014


(3,578)


4,850


(5,790)

  Operating income adjustments


4,647


6,203


8,813


9,538

Loss on sales of Marketable Securities


-


-


-


230

  Tax and other


(279)


(698)


(974)


(867)

  Non-GAAP net income attributable to Sapiens' shareholders


6,382


1,927


12,689


3,111










 


 

Summary of NON-GAAP Financial Information

U.S. dollars in thousands (except per share amounts)



Three months ended


Six months ended


June 30


June 30


2018


2017


2018


2017


(unaudited)


(unaudited)


(unaudited)


(unaudited)













Revenues

72,542

100%


69,167

100%


143,627

100%


125,701

100%

Gross profit

30,437

41.9%


26,389

38.2%


60,721

42.3%


46,859

37.6%

Operating profit

9,575

13.2%


3,217

4.7%


18,438

12.8%


4,915

3.9%

Net income to shareholders

6,382

8.8%


1,927

2.8%


12,689

8.8%


3,111

2.5%

Adjusted EBITDA

10,385

14.3%


4,179

6.0%


20,330

14.1%


6,753

5.4%













Basic earnings per share

0.13



0.04



0.25



0.06


Diluted earnings per share

0.13



0.04



0.25



0.06


 

 

Non-GAAP Revenues by Geographic Breakdown

U.S. dollars in thousands



Q2 2018


Q1 2018


Q4 2017


Q3 2017


Q2 2017











North America

34,606


31,035


31,580


32,780


28,544

Europe

32,518


34,479


29,789


28,984


31,418

Asia Pacific

3,305


3,439


3,817


5,750


3,912

South Africa

2,113


2,132


7,262


6,340


5,293











Total

72,542


71,085


72,448


73,854


69,167


 


 

Adjusted EBITDA Calculation

U.S. dollars in thousands




Three months ended


Six months ended



 June 30


 June 30



2018


2017


2018


2017










GAAP operating profit (loss)


4,928


(2,986)


9,625


(4,623)










Non-GAAP adjustments:









Amortization of capitalized software


1,152


1,235


2,407


2,256

Amortization of other intangible assets


2,754


1,727


5,587


2,981

Capitalization of software development


(1,293)


(1,850)


(2,470)


(2,915)

Stock-based compensation


499


456


1,086


911

Compensation related to acquisition and
acquisition-related costs


1,157


617


1,735


2,287

Restructuring and cost reduction plan


-


3,900


-


3,900

Valuation adjustment on acquired deferred
revenue and long term contract


378


118


468


118










Non-GAAP operating profit


9,575


3,217


18,438


4,915










Depreciation


810


962


1,892


1,838










Adjusted EBITDA


10,385


4,179


20,330


6,753


 

 

SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands





June 30,


December 31,




2018


2017




 (unaudited)


 (unaudited)







 ASSETS












 CURRENT ASSETS






Cash and cash equivalents


59,207


71,467


Trade receivables, net


55,313


53,226


Other receivables and prepaid expenses


7,723


6,280








Total current assets


122,243


130,973







 LONG-TERM ASSETS






Property and equipment, net


9,228


10,695


Severance pay fund


4,161


4,547


Goodwill and intangible assets, net


235,658


223,729


Other long-term assets


3,957


3,675








Total long-term assets


253,004


242,646







 TOTAL ASSETS


375,247


373,619







LIABILITIES AND EQUITY











 CURRENT LIABILITIES






Trade payables


3,696


7,044


Current maturities of Series B Debentures


9,898


-


Accrued expenses and other liabilities


43,259


46,612


Deferred revenue


22,798


16,513








Total current liabilities


79,651


70,169







 LONG-TERM LIABILITIES






Series B Debentures, net of current maturities


68,478


78,281


Deferred tax liabilities


9,251


9,171


Other long-term liabilities


8,202


8,271


Accrued severance pay


5,118


5,500








Total long-term liabilities


91,049


101,223













REDEEMABLE NON-CONTROLLING INTEREST


1,353


1,353







EQUITY



203,194


200,874







TOTAL LIABILITIES AND EQUITY


375,247


373,619

 


 

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,


2018

2017


(unaudited)

(unaudited)

 

Cash flows from operating activities:



Net income (loss)

4,957

(5,828)

Reconciliation of net income (loss) to net cash provided by operating

activities:



Depreciation and amortization

9,886

7,075

Amortization of premium, accrued interest and loss on sales of marketable securities

-

509

Stock-based compensation related to options issued to employees

1,086

911




Net changes in operating assets and liabilities, net of amount acquired:



Trade receivables

(2,416)

(3,236)

Deferred tax assets

(300)

(1,662)

Other operating assets

(886)

928

Trade payables

(4,853)

(512)

Other operating liabilities

(4,968)

1,595

Deferred revenues

6,888

7,241

Severance pay

56

30




Net cash provided by operating activities

9,450

7,051




Cash flows from investing activities:



Purchase of property and equipment

(879)

(1,102)

Proceeds from sales of marketable securities

-

35,369

Payments for business acquisition, net of cash acquired

(17,893)

(94,951)

Capitalized software development costs

(2,470)

(2,915)




Net cash used in investing activities

(21,242)

(63,599)




Cash flows from financing activities:



Proceeds from employee stock options exercised

128

385

Loan received, net of repayment of loan

(27)

37,974

Dividend to non-controlling interest

(47)

-




Net cash provided by financing activities

54

38,359




Effect of exchange rate changes on cash and cash equivalents

(522)

3,697




Decrease in cash and cash equivalents

(12,260)

(14,492)

Cash and cash equivalents at the beginning of period

71,467

60,908




Cash and cash equivalents at the end of period

59,207

46,416

Debentures Covenants

As of June 30, 2018, Sapiens was in compliance with all of its financial covenants under the indenture for the Series B Debentures that it issued in September 2017, 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 $203 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) bellow 65%.
  • Actual ratio of net financial indebtedness to net capitalization equal to 8.62%.

Investors and Media Contact
Yaffa Cohen-Ifrah
Chief Marketing Officer and Head of Corporate Communications
Sapiens International
U.S. Mobile: +1 201-250-9414
Mobile: +972 54-909-9039
Email: yaffa.cohen-ifrah@sapiens.com

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SOURCE Sapiens International Corporation

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