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Sapiens Reports Second Quarter 2020 Financial Results
[August 04, 2020]

Sapiens Reports Second Quarter 2020 Financial Results


HOLON, Israel, Aug. 4, 2020 /PRNewswire/ -- Sapiens International Corporation, (NASDAQ: SPNS) and (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 second quarter ended June 30, 2020.

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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).

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SOURCE Sapiens International Corporation


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