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Sapiens Reports Third Quarter 2018 Financial Results
[November 07, 2018]

Sapiens Reports Third Quarter 2018 Financial Results


HOLON, Israel, Nov. 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 and TASE: FORT), today announced its financial results for the third quarter ended September 30, 2018.

Sapiens International Corporation Logo (PRNewsfoto/Sapiens International)

Third Quarter 2018 Summary (comparisons are to the third quarter of 2017: amounts are in thousands, except per share amounts):





GAAP

Non-GAAP

Revenue totaled $73.2 million an increase of 1.7% compared to $72.0 million.

Revenue totaled $73.2 million, a decrease of 0.8% compared to $73.9 million.

Operating income totaled $6.8 million an increase of 51.7% compared to $ 4.5  million.

Operating income totaled $10.3 million an increase of 12.4% compared to $9.1 million.

Operating margin of 9.3% compared to 6.2%.

Operating margin of 14.0% compared to 12.4%.

Net income attributable to Sapiens' shareholders totaled $5.2 million, an increase of 76.0% compared to $2.9. million.

Net income attributable to Sapiens' shareholders increased 20.0% to $7.5 million compared to $6.3 million.

EPS of $ 0.1 per diluted share compared to $0.06.

EPS of $ 0.15 per diluted share versus $0.13.


"In the third quarter, we expanded our P&C business in the US and EMEA markets by leveraging our solutions and customers relationships, while continuing to improve our operational performance. As a result, we delivered solid performance in the quarter, with a 160 basis point increase in non-GAAP operating margin year-over-year. We grew our North America business by 12%, and we have recently announced several important wins and go-lives in this key market," stated Roni Al-Dor, president and CEO, Sapiens.

"We are increasing customer touch points globally through our client summits in the U.S. and EMEA, where we showcase our product capabilities and our outstanding teams. In addition, to maintain momentum with our clients, we are building a new global customer success operation that will be tasked with customers management as well as sales responsibilities, including cross selling and upselling, and increasing our 400 customers awareness of the entire Sapiens' platforms," continued Mr. Al-Dor.

"In order to extend our competitive advantage and further grow our business, we are partnering with InsurTech and fintech start-up to complement our core offering while enabling our customers to improve their platforms and provide the highest level of service to their clients."

Mr. Al-Dor concluded: "Based on the strength of our year-to-date results and our outlook for the fourth quarter, we are maintaining our guidance to 2018 full year non-GAAP revenues of $285 to $290 million, which we now expect to be on the higher end and we are increasing our non-GAAP operating margins in the range of 13.3% to 13.5% compared to our previous guidance of 13.0% - 13.2%."

Quarterly Results Conference Call

Management will host a conference call and webcast on November 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:

North America (toll-free): + 1-888-668-9141; International: +972-3-918-0609; UK: 0-800-917-5108

The live webcast of the call can be viewed on Sapiens' website at: http://www.sapiens.com/investors/presentations-and-webcast/

If you are unable to join live, a replay of the call will be accessible until November 14, 2018, as follows: North America: 1-888-295-2634; 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


  Nine months ended




September 30,


September 30,




2018


2017


2018


2017




 (unaudited)


 (unaudited)


 (unaudited)


 (unaudited)











 Revenue


73,237


72,011


216,396


197,594

 Cost of revenue


45,438


46,774


134,710


129,902











 Gross profit


27,799


25,237


81,686


67,692











 Operating expenses:










 Research and development, net


8,350


8,381


26,130


23,528


 Selling, marketing, general and administrative


12,635


12,363


39,117


44,294

 Total operating expenses


20,985


20,744


65,247


67,822











 Operating income (loss)


6,814


4,493


16,439


(130)











 Financial expense, net


974


863


3,128


2,010

 Taxes and other expenses, net


629


679


3,143


737





















 Net income (loss)


5,211


2,951


10,168


(2,877)











 Attributable to non-controlling interest


28


6


135


(32)











 Net income (loss) attributable to Sapiens' shareholders


5,183


2,945


10,033


(2,845)





















 Basic earnings per share


0.1


0.06


0.2


(0.06)











 Diluted earnings per share


0.1


0.06


0.2


(0.06)




















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


49,826


49,182


49,795


49,118










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


50,143


49,859


50,070


49,118

 

 

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,




2018


2017


2018


2017




 (unaudited)


 (unaudited)


 (unaudited)


 (unaudited)











 Revenue


73,237


73,854


216,864


199,555

 Cost of revenue


42,334


43,563


125,240


122,405











 Gross profit


30,903


30,291


91,624


77,150











 Operating expenses:










 Research and development, net


9,658


9,797


29,908


27,859


 Selling, marketing, general and administrative


10,972


11,355


33,005


35,237

 Total operating expenses


20,630


21,152


62,913


63,096











 Operating income


10,273


9,139


28,711


14,054











 Financial expense, net


974


863


3,128


1,780

 Taxes and other expenses


1,723


1,982


5,211


2,907





















 Net income


7,576


6,294


20,372


9,367











 Attributable to non-controlling interest


28


6


135


(32)











 Net income attributable to Sapiens' shareholders


7,548


6,288


20,237


9,399





















 Basic earnings per share


0.15


0.13


0.41


0.19











 Diluted earnings per share


0.15


0.13


0.40


0.19




















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


49,826


49,182


40,795


49,118










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


50,143


49,859


50,070


49,891


 

 

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,



2018


2017


2018


2017



(unaudited)


(unaudited)


(unaudited)


(unaudited)










GAAP revenue


73,237


72,011


216,396


197,594

Valuation adjustment on acquired deferred
revenue


-


1,843


468


1,961

Non-GAAP revenue


73,237


73,854


216,864


199,555



















GAAP gross profit


27,799


25,237


81,686


67,692

Valuation adjustment on acquired deferred
revenue


-


1,843


468


1,961

Amortization of capitalized software


1,205


1,298


3,612


3,554

Amortization of other intangible assets


1,899


1,913


5,858


3,943

Non-GAAP gross profit


30,903


30,291


91,624


77,150










GAAP operating income (loss)


6,814


4,493


16,439


(130)

Gross profit adjustments


3,104


5,054


9,938


9,458

Capitalization of software development


(1,308)


(1,416)


(3,778)


(4,331)

Amortization of other intangible assets


739


285


2,367


1,236

Stock-based compensation


384


469


1,470


1,380

Compensation related to acquisition
and acquisition-related costs


540


254


2,275


2,541

Restructuring and cost reduction plan


-


-


-


3,900

Non-GAAP operating income


10,273


9,139


28,711


 

14,054










GAAP net income (loss) attributable to
Sapiens' shareholders


5,183


2,945


10,033


 

(2,845)

Operating income adjustments


3,459


4,646


12,272


14,184

Loss on sales of Marketable Securities


-


-


-


230

Tax and other


(1,094)


(1,303)


(2,068)


(2,170)

Non-GAAP net income attributable to
Sapiens' shareholders


7,548


6,288


20,237


9,399










 


 

Summary of NON-GAAP Financial Information

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



Three months ended


Nine months ended


September 30,


September 30,


2018


2017


2018


2017


(unaudited)


(unaudited)


(unaudited)


(unaudited)













Revenues

73,237

100%


73,854

100%


216,864

100%


199,555

100%

Gross profit

30,903

42.2%


30,291

41.0%


91,624

42.2%


77,150

38.7%

Operating profit

10,273

14.0%


9,139

12.4%


28,711

13.2%


14,054

7.0%

Net income to shareholders

7,548

10.3%


6,288

8.5%


20,237

9.3%


9,399

4.7%

Adjusted EBITDA

11,236

15.3%


10,100

13.7%


31,566

14.6%


16,859

8.4%













Basic earnings per share

0.15



0.13



0.41



0.19


Diluted earnings per share

0.15



0.13



0.40



0.19


 

 

Non-GAAP Revenues by Geographic Breakdown

U.S. dollars in thousands



Q3 2018


Q2 2018


Q1 2018


Q4 2017


Q3 2017











North America

36,734


34,606


31,035


31,580


32,780

Europe

30,611


32,518


34,479


29,789


28,984

Asia Pacific

3,480


3,305


3,439


3,817


5,750

South Africa

2,412


2,113


2,132


7,262


6,340











Total

73,237


72,542


71,085


72,448


73,854


 

 

Adjusted EBITDA Calculation

U.S. dollars in thousands



Three months ended


Nine months ended



September 30,


September 30,



2018


2017


2018


2017










GAAP operating profit (loss)


6,814


4,493


16,439


(130)










Non-GAAP adjustments:









Amortization of capitalized software


1,205


1,298


3,612


3,554

Amortization of other intangible assets


2,638


2,198


8,225


5,179

Capitalization of software development


(1,308)


(1,416)


(3,778)


(4,331)

Stock-based compensation


384


469


1,470


1,380

Compensation related to acquisition and
acquisition-related costs


540


254


2,275


2,541

Restructuring and cost reduction plan


-


-


-


3,900

Valuation adjustment on acquired
deferred revenue and long term contract


-


1,843


468


1,961










Non-GAAP operating profit


10,273


9,139


28,711


14,054










Depreciation


963


961


2,855


2,805










Adjusted EBITDA


11,236


10,100


31,566


16,859


 

 

SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands




September 30,


December 31,




2018


2017




 (unaudited)


 (unaudited)







 ASSETS











 CURRENT ASSETS






Cash and cash equivalents


64,079


71,467


Trade receivables, net


63,177


53,226


Other receivables and prepaid expenses


7,637


6,280








Total current assets


134,893


130,973







 LONG-TERM ASSETS






Property and equipment, net


9,039


10,695


Severance pay fund


4,197


4,547


Goodwill and intangible assets, net


235,980


223,729


Other long-term assets


4,631


3,675








Total long-term assets


253,847


242,646







 TOTAL ASSETS


388,740


373,619







LIABILITIES AND EQUITY











 CURRENT LIABILITIES






Trade payables


10,012


7,044


Current maturities of Series B Debentures


9,898


-


Accrued expenses and other liabilities


57,345


46,612


Deferred revenue


18,347


16,513








Total current liabilities


95,602


70,169







 LONG-TERM LIABILITIES






Series B Debentures, net of current maturities


68,523


78,281


Deferred tax liabilities


10,895


9,171


Other long-term liabilities


8,089


8,271


Accrued severance pay


5,157


5,500








Total long-term liabilities


92,664


101,223













REDEEMABLE NON-CONTROLLING INTEREST


-


1,353







EQUITY



200,474


200,874







TOTAL LIABILITIES AND EQUITY


388,740


373,619

 


 

SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES


CONSOLIDATED STATEMENT OF CASH FLOW

U.S. dollars in thousands


For the nine months ended
September 30,


2018

2017


(unaudited)

(unaudited)

 

Cash flows from operating activities:



Net income (loss)

10,168

(2,877)

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



Depreciation and amortization

14,694

11,535

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

-

509

Stock-based compensation related to options issued to employees

1,462

1,349




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



Trade receivables

(10,654)

(8,526)

Deferred tax assets

(2,448)

(2,366)

Other operating assets

(1,233)

(282)

Trade payables

1,657

(1,245)

Other operating liabilities

185

574

Deferred revenues

1,937

6,521

Severance pay

52

(63)




Net cash provided by operating activities

15,820

5,129




Cash flows from investing activities:



Purchase of property and equipment

(1,710)

(1,687)

Proceeds from sales of marketable securities

-

35,369

Payments for business acquisition, net of cash acquired

(17,893)

(97,672)

Capitalized software development costs

(3,778)

(4,331)




Net cash used in investing activities

(23,381)

(68,321)




Cash flows from financing activities:



Loan received net of loan repayments

(41)

-

Dividend to non-controlling interest

(47)

-

Proceeds from employee stock options exercised

532

438

Issuance of debenture, net

-

78,198




Net cash provided by financing activities

444

78,636




Effect of exchange rate changes on cash and cash equivalents

(271)

4,141




Increase (decrease) in cash and cash equivalents

(7,388)

19,585

Cash and cash equivalents at the beginning of period

71,467

60,908




Cash and cash equivalents at the end of period

64,079

80,493

 

Debentures Covenants

As of September 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 $200 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 6.68%.

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 0.34.

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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