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Sapiens Reports Third Quarter 2020 Financial Results

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HOLON, Israel, Nov. 5, 2020 /PRNewswire/ -- Sapiens International Corporation, (NASDAQ:SPNS) (TASE: SPNS), a leading global provider of software solutions for the insurance industry, and a member of the Formula Group (NASDAQ:FORTY) (TASE: FORT), today announced its financial results for the third quarter ended September 30, 2020.

 

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


GAAP


Non-GAAP



September 30, 2020

September 30, 2019

% Change

September 30, 2020

September 30, 2019

% Change

Revenue

$97.6

$82.6

18.2%

$98.0

$82.6

18.5%

Gross Profit

$40.1

$33.3

20.3%

$44.2

$36.7

20.4%

Gross Margin

41.0%

40.3%

70 bps

45.1%

44.4%

70 bps

Operating Income

$12.1

$10.1

19.6%

$17.9

$13.5

32.0%

Operating Margin

12.4%

12.2%

20 bps

18.2%

16.4%

180 bps

Net Income (*)

$9.3

$7.4

25.9%

$13.7

$10.4

32.0%

Diluted EPS

$0.18

$0.15

20.0%

$0.27

$0.21

28.6%

(*) Attributable to Sapiens' shareholders.

 

"Sapiens delivered strong execution across key geographies and product lines to grow third quarter non-GAAP revenue by 18.5%, fueled by outstanding strategic performance in Europe and North America and leveraging existing customer relationships to upsell products and services. Non-GAAP Operating margin increased to a record of 18.2%, an increase of 180 basis points year-over-year," said Roni Al-Dor, Sapiens president and CEO.

  • Lately our products received excellent recognition from the analysts and research community across both Life and P&C, and in North America and Europe: 
  • In Europe, we have been recognized as Leaders in the 2 Gartner Magic Quadrant for policy administration and insurance platform for both our Life and P&C solutions

In North America, we have received the Excellent award by Celent in the Life New Business and Underwriting report  

"Our outlook for 2020 has improved despite COVID-19. We continue to sign new business and increase our revenue from existing customers. In addition, the Delphi acquisition enhances our position as a leading solutions provider in the MPL market in North America. As such, we are raising our 2020 revenue guidance range," concluded Roni Al-Dor. "Our revised 2020 non-GAAP revenue range is now $381 million to $383 million, as compared to our prior range of $376 million to $381 million., we are also increasing the range of our non-GAAP operating margin for 2020 to 17.6% to 17.7% from prior range of 16.5% to 16.9%." 

Quarterly Results Conference Call

Management will host a conference call and webcast on November 5, 20202 at 9:30 a.m. Eastern Time (4:30 p.m. in Israel) to review and discuss Sapiens' results.

Please call the following numbers (at least 10 minutes before the scheduled time) to participate:

North America (toll-free): + 1-888-668-9141 ; International: +972-3-918-0609;  UK: 0-800-917-9141.

The live webcast of the call can be viewed on Sapiens' website at https://www.sapiens.com/investor-relations/ir-events-presentations/.

If you are unable to join live, a replay of the call will be accessible until November 14, 2020, as follows: North America: 1-877-456-0009; International: 972-3-9255901. A recorded version of the webcast will also be available via the Sapiens website for three months at the same location.

A recorded version of the webcast will also be available via the Sapiens website, for three months at the same location.

Non-GAAP Financial Measures

This press release contains the following non-GAAP financial measures: non-GAAP revenue, non-GAAP gross profit, non-GAAP operating income, non-GAAP net income attributed to Sapiens shareholders, non-GAAP basic and diluted earnings per share, Adjusted EBITDA and Adjusted Free Cash-Flow.

Sapiens believes that these non-GAAP measures of financial results provide useful information to management and investors regarding certain financial and business trends relating to Sapiens' financial condition and results of operations. The Company's management uses these non-GAAP measures to compare the Company's performance to that of prior periods for trend analyses, for purposes of determining executive and senior management incentive compensation and for budgeting and planning purposes. These measures are used in financial reports prepared for management and in quarterly financial reports presented to the Company's board of directors. The Company believes that the use of these non-GAAP financial measures provides an additional tool for investors to use in evaluating ongoing operating results and trends, and in comparing the Company's financial measures with other software companies, many of which present similar non-GAAP financial measures to investors.

Non-GAAP financial measures consist of GAAP financial measures adjusted to exclude: Valuation adjustment on acquired deferred revenue, amortization of capitalized software development and other intangible assets, capitalization of software development, stock-based compensation, compensation related to acquisition and acquisition-related costs, restructuring and cost reduction costs, and tax adjustments related to non-GAAP adjustments.

Management of the Company does not consider these non-GAAP measures in isolation, or as an alternative to financial measures determined in accordance with GAAP. The principal limitation of these non-GAAP financial measures is that they exclude significant expenses and income that are required by GAAP to be recorded in the Company's financial statements. In addition, they are subject to inherent limitations, as they reflect the exercise of judgment by management about which expenses and income are excluded or included in determining these non-GAAP financial measures.

To compensate for these limitations, management presents non-GAAP financial measures in connection with GAAP results. Sapiens urges investors to review the reconciliation of its non-GAAP financial measures to the comparable GAAP financial measures, which it includes in press releases announcing quarterly financial results, including this press release, and not to rely on any single financial measure to evaluate the Company's business.

Reconciliation tables of the most comparable GAAP financial measures to the non-GAAP financial measures used in this press release are included with the financial tables of this release.

The Company defines Adjusted EBITDA as net profit, adjusted for valuation adjustment on acquired deferred revenue, stock-based compensation expense, depreciation and amortization, capitalized of software development costs, compensation expenses related to acquisition and acquisition-related costs, restructuring and cost reduction costs, financial expense (income), provision for income taxes and other income (expenses). These amounts are often excluded by other companies to help investors understand the operational performance of their business.

The Company uses Adjusted EBITDA as a measurement of its operating performance, because it assists in comparing the operating performance on a consistent basis by removing the impact of certain non-cash and non-operating items. Adjusted EBITDA reflects an additional way of viewing aspects of the operations that the Company believes, when viewed with the GAAP results and the accompanying reconciliations to corresponding GAAP financial measures, provide a more complete understanding of factors and trends affecting its business. The Company uses Adjusted Free Cash-Flow as a measurement of its operating performance, and reconciles cash-flow from operating activities to Adjusted Free Cash-Flow, while reducing the amounts for capitalization of software development costs and capital expenditures. The Company adds back payments related to investment in the new campus in India, cash payments made for former acquisitions in respect of  future performance targets and retention criteria as determined upon acquisition date of the respective acquired company, which were included in the cash-flow from operating activities. We believe that Adjusted Free Cash-Flow is useful in evaluating our business, because Adjusted Free Cash-Flow reflects the cash surplus available to fund the expansion of our business.

About Sapiens

Sapiens International Corporation empowers insurers to succeed in an evolving industry. The company offers digital software platforms, solutions and services for the property and casualty, life, pension and annuity, reinsurance, financial and compliance, workers' compensation and financial markets. With more than 35 years of experience delivering to over 500 organizations globally, Sapiens has a proven ability to satisfy customers' core, data and digital requirements. For more information: www.sapiens.com

Forward Looking Statements

Some of the statements in this press release may constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities and Exchange Act of 1934 and the United States Private Securities Litigation Reform Act of 1995. Words such as "will," "expects," "believes" and similar expressions are used to identify these forward-looking statements (although not all forward-looking statements include such words). These forward-looking statements, which may include, without limitation, projections regarding our future performance and financial condition, are made on the basis of management's current views and assumptions with respect to future events. Any forward-looking statement is not a guarantee of future performance and actual results could differ materially from those contained in the forward-looking statement.

These statements speak only as of the date they were made, and we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. We operate in a changing environment. New risks emerge from time to time and it is not possible for us to predict all risks that may affect us. For more information regarding these risks and uncertainties, as well as certain additional risks that we face, please refer to the Risk Factors detailed in Item 3 of Part III of our Annual Report on Form 20-F for the year ended December 31, 2019, and subsequent reports and registration statements filed from time to time with the Securities and Exchange Commission.

Investors and Media Contact
Brett Mass
Managing Partner
Hayden IR
Phone: +1 646-536-7331
Email: Brett.Masss@HaydenIR.com

 

 

SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES                   
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                 
U.S. dollars in thousands (except per share amounts)





  Three months ended


  Nine months ended




 September 30


September 30




2020


2019


2020


2019




 (unaudited)


 (unaudited)


 (unaudited)


 (unaudited)











 Revenue


97,645


82,643


281,242


238,959

 Cost of revenue


57,567


49,316


166,641


144,371











 Gross profit


40,078


33,327


114,601


94,588











 Operating expenses:










 Research and development, net


10,375


9,445


30,229


27,145


 Selling, marketing, general and administrative


17,606


13,767


49,594


39,797

 Total operating expenses


27,981


23,212


79,823


66,942











 Operating income


12,097


10,115


34,778


27,646











 Financial and other expenses, net


1,042


261


2,593


1,749

 Taxes on income


1,520


2,349


6,430


6,350





















 Net income


9,535


7,505


25,755


19,547











 Attributable to non-controlling interest


196


87


299


134











 Net income attributable to Sapiens' shareholders


9,339


7,418


25,456


19,413





















 Basic earnings per share


0.19


0.15


0.51


0.39











 Diluted earnings per share


0.18


0.15


0.50


0.38




















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


50,625


50,027


50,367


50,005










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


51,581


50,742


51,280


50,534

 

 

SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES                   
CONDENSED CONSOLIDATED NON-GAAP STATEMENTS OF INCOME
                       
U.S. dollars in thousands (except per share amounts)





  Three months ended


  Nine months ended




September 30


 September 30




2020


2019


2020


2019




 (unaudited)


 (unaudited)


 (unaudited)


 (unaudited)











 Revenue


97,968


82,643


281,565


238,959

 Cost of revenue


53,762


45,931


155,668


134,349











 Gross profit


44,206


36,712


125,897


104,610











 Operating expenses:










 Research and development, net


11,881


10,986


34,423


31,648


 Selling, marketing, general and administrative


14,466


12,196


42,218


35,101

 Total operating expenses


26,347


23,182


76,641


66,749











 Operating income


17,859


13,530


49,256


37,861











 Financial and other expenses, net


1,042


261


2,593


1,749

 Taxes on income


2,875


2,770


8,866


7,635





















 Net income


13,942


10,499


37,797


28,477











 Attributable to non-controlling interest


196


87


299


134











 Net income attributable to Sapiens' shareholders


13,746


10,412


37,498


28,343





















 Basic earnings per share


0.27


0.21


0.74


0.57











 Diluted earnings per share


0.27


0.21


0.73


0.56




















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


50,625


50,027


50,367


50,005










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


51,581


50,742


51,280


50,534

 

SAPIENS INTERNATIONAL CORPORATION N.V. AND SUBSIDIARIES 
RECONCILIATION OF GAAP TO NON-GAAP RESULTS
U.S. dollars in thousands (except per share amounts)




Three months ended


Nine months ended



September 30,


September 30,



2020


2019


2020


2019



(unaudited)


(unaudited)


(unaudited)


(unaudited)










GAAP revenue


97,645


82,643


281,242


238,959

Valuation adjustment on acquired deferred revenue         


323


-


323


-

Non-GAAP revenue  


97,968


82,643


281,565


238,959










GAAP gross profit


40,078


33,327


114,601


94,588

Revenue adjustment


323


-


323


-

Amortization of capitalized software


1,600


1,438


4,627


4,169

Amortization of other intangible assets


2,205


1,947


6,346


5,853

Non-GAAP gross profit


44,206


36,712


125,897


104,610










GAAP operating income


12,097


10,115


34,778


27,646

Gross profit adjustments


4,128


3,385


11,296


10,022

Capitalization of software development


(1,506)


(1,541)


(4,194)


(4,503)

Amortization of other intangible assets


825


539


2,112


1,614

Stock-based compensation


1,361


382


2,747


1,123

Acquisition-related costs *)


954


650


2,517


1,959

Non-GAAP operating income


17,859


13,530


49,256


37,861










GAAP net income attributable to Sapiens'
shareholders


9,339


7,418


25,456


19,413

Operating income adjustments


5,762


3,415


14,478


10,215

Taxes on income


(1,355)


(421)


(2,436)


(1,285)

Non-GAAP net income attributable to
Sapiens' shareholders


13,746


10,412


37,498


28,343











(*) Acquisition-related costs pertain to charges on behalf of M&A agreements related to future performance targets and retention criteria, as well as third-party services, such as, tax, accounting and legal rendered until the acquisition date.


 

 

Summary of NON-GAAP Financial Information
U.S. dollars in thousands (except per share amounts)



Q3 2020


Q2 2020


Q1 2020


Q4 2019


Q3 2019











Revenues

97,968


93,063


90,534


86,715


82,643

Gross profit

44,206


41,900


39,791


38,402


36,712

Operating income

17,859


16,783


14,614


14,345


13,530

Net income to Sapiens' shareholders

13,746


13,340


10,412


10,553


10,412

Adjusted EBITDA

19,010


17,854


15,724


15,271


14,523











Basic earnings per share

0.27


0.27


0.21


0.21


0.21

Diluted earnings per share

0.27


0.26


0.20


0.21


0.21

 

Non-GAAP Revenues by Geographic Breakdown
U.S. dollars in thousands



Q3 2020


Q2 2020


Q1 2020


Q4 2019


Q3 2019











North America

49,979


46,610


44,567


41,787


44,413

Europe

42,394


41,030


40,232


37,504


30,273

Rest of the world

5,595


5,423


5,735


7,424


7,957











Total

97,968


93,063


90,534


86,715


82,643

 

Adjusted Free Cash-Flow
U.S. dollars in thousands



Q3 2020


Q2 2020


Q1 2020


Q4 2019


Q3 2019











Cash-flow from operating activities

16,705


14,761


5,759


21,429


18,671

Increase in capitalized software development costs

(1,506)


(1,251)


(1,437)


(1,162)


(1,541)

Capital expenditures

(963)


(393)


(552)


(2,456)


(973)

Capital expenditures related to new campus in India

-


-


-


-


(6,325)

Free cash-flow

14,236


13,117


3,770


17,811


9,832











Capital expenditures related to new campus in India

-


-


-


-


6,325

Cash payments attributed to acquisition-related costs(*) (**)

242


1,562


737


200


100











Adjusted free cash-flow

14,478


14,679


4,507


18,011


16,257

(*) Included in cash-flow from operating activities

(**) Acquisition-related payments pertain to payments on behalf of M&A agreements related to future performance targets and retention criteria, as well as third-party services, such as, tax, accounting and legal rendered until the acquisition date.

 

 

Adjusted EBITDA Calculation
U.S. dollars in thousands




Three months ended


Nine months ended



 September 30


 September 30



2020


2019


2020


2019










GAAP operating profit


12,097


10,115


34,778


27,646










Non-GAAP adjustments:









Valuation adjustment on acquired deferred revenue


323


-


323


-

Amortization of capitalized software


1,600


1,438


4,627


4,169

Amortization of other intangible assets


3,030


2,486


8,458


7,467

Capitalization of software development


(1,506)


(1,541)


(4,194)


(4,503)

Stock-based compensation


1,361


382


2,747


1,123

Compensation related to acquisition and acquisition-related costs


954


650


2,517


1,959










Non-GAAP operating profit


17,859


13,530


49,256


37,861










Depreciation


1,151


993


3,332


2,544










Adjusted EBITDA


19,010


14,523


52,588


40,405



 

 

SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands





September 30,


December 31,




2020


2019




 (unaudited)


 (unaudited)







 ASSETS












 CURRENT ASSETS






Cash and cash equivalents


131,667


66,295


Trade receivables, net and unbilled receivables


63,805


50,221


Investment in restricted deposit


-


22,890


Other receivables and prepaid expenses


10,399


7,817








Total current assets


205,871


147,223







 LONG-TERM ASSETS






Property and equipment, net


16,744


16,601


Severance pay fund


5,377


5,106


Goodwill and intangible assets, net


266,696


228,691


Operating lease right-of-use assets


49,300


49,539


Other long-term assets


6,095


5,261








Total long-term assets


344,212


305,198







 TOTAL ASSETS


550,083


452,421







LIABILITIES AND EQUITY











 CURRENT LIABILITIES






Trade payables


5,306


5,107


Current maturities of Series B Debentures


19,796


9,898


Accrued expenses and other liabilities


67,465


60,574


Current maturities of operating lease liabilities


9,558


8,312


Deferred revenue


26,450


21,021








Total current liabilities


128,575


104,912







 LONG-TERM LIABILITIES






Series B Debentures, net of current maturities


98,681


58,850


Deferred tax liabilities


6,395


5,082


Other long-term liabilities


10,847


8,321


Long-term operating lease liabilities


44,934


43,394


Accrued severance pay


7,274


6,364








Total long-term liabilities


168,131


122,011













REDEEMABLE NON-CONTROLLING INTEREST


477


-







EQUITY



252,900


225,498







TOTAL LIABILITIES AND EQUITY


550,083


452,421

 

 

SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOW
U.S. dollars in thousands



For the Nine months ended June 30,


2020

2019


(unaudited)

(unaudited)

 

Cash flows from operating activities:



Net income

25,755

19,547

Reconciliation of net income to net cash provided by operating

activities:



Depreciation and amortization

16,417

14,180

Accretion of discount on Series B Debentures

91

124

Capital gain from sale of property and equipment

4

(129)

Stock-based compensation related to options issued to employees

2,747

1,123




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



Trade receivables, net and unbilled receivables

(10,225)

3,642

Deferred tax assets, net

(391)

(2,664)

Other operating assets

3,653

1,425

Trade payables

(778)

(1,534)

Other operating liabilities

(294)

4,562

Deferred revenues

(194)

4,419

Accrued severance pay, net

440

33




Net cash provided by operating activities

37,225

44,728




Cash flows from investing activities:



Purchase of property and equipment

(1,908)

(9,018)

Investment in deposit

(379)

(1,119)

Proceeds from sale of property and equipment

12

821

Proceeds from restricted deposit used for completed acquisition

22,890

-

Payments for business acquisitions, net of cash acquired

(35,395)

(1,572)

Capitalized software development costs

(4,194)

(4,503)




Net cash used in investing activities

(18,974)

(15,391)




Cash flows from financing activities:



Proceeds from employee stock options exercised

4,919

435

Distribution of dividend

(7,044)

(10,362)

Repayment of Series B Debenture

(9,898)

(9,898)

Issuance of Series B Debentures

60,386

-

Receipt of short-term loan

20,000

-

Repayment of loan

(20,000)

(4)

Payment of contingent considerations

(538)

(120)

Dividend to non-controlling interest

-

(66)




Net cash provided by (used in) financing activities

47,825

(20,015)




Effect of exchange rate changes on cash and cash equivalents

(704)

(812)




Increase in cash and cash equivalents

65,372

8,510

Cash and cash equivalents at the beginning of period

66,295

64,628




Cash and cash equivalents at the end of period

131,667

73,138

 

Debentures Covenants

As of September 30, 2020, Sapiens was in compliance with all of its financial covenants under the indenture for the Series B Debentures, based on having achieved the following in its consolidated financial results:

Covenant 1

  • Target shareholders' equity (excluding minority interest): above $120 million.
  • Actual shareholders' equity equal to $251 million.

Covenant 2

  • Target ratio of net financial indebtedness to net capitalization (in each case, as defined under the indenture for the Company's Series B Debentures) below 65%.
  • Actual ratio of net financial indebtedness to net capitalization equal to (5.05)%.

Covenant 3

  • Target ratio of net financial indebtedness to EBITDA (accumulated calculation for the four last quarters) is below 5.5.
  • Actual ratio of net financial indebtedness to EBITDA (accumulated calculation for the four last quarters) is equal to (0.18).

In October 2020, the company completed a capital raise of $100M.

Cision View original content to download multimedia:http://www.prnewswire.com/news-releases/sapiens-reports-third-quarter-2020-financial-results-301167089.html

SOURCE Sapiens International Corporation

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