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SPNS Sapiens International

Filed: 4 May 21, 8:10am

Exhibit 99.1

 

 

 

Sapiens Reports First Quarter 2021 Financial Results

 

Holon, Israel, May 4, 2021Sapiens International Corporation, (NASDAQ and TASE: SPNS), a leading global provider of software solutions for the insurance industry, today announced its financial results for the first quarter ended March 31, 2021.

 

Summary Results for First Quarter 2021 (USD in millions, except per share data)

 

  GAAP     Non-GAAP    
  Q1 2021  Q1 2020  % Change  Q1 2021  Q1 2020  % Change 
Revenue $109.6  $90.5   21.1% $110.2  $90.5   21.7%
Gross Profit $44.3  $36.3   22.0% $49.2  $39.8   23.7%
Gross Margin  40.4%  40.1%  30bps  44.7%  44.0%  70bps
Operating Income $12.4  $10.3   20.3% $19.0  $14.6   30.0%
Operating Margin  11.3%  11.4%  (10)bps  17.2%  16.1%  110bps
Net Income (*) $9.8  $6.8   44.2% $14.9  $10.4   43.2%
Diluted EPS $0.18  $0.13   38.5% $0.27  $0.20   35.0%

 

(*)Attributable to Sapiens’ shareholders.

 

“Our revenue growth in the first quarter validates our strategy of building global diversity with a broad business portfolio, which provides the foundation for Sapiens’ performance and growth. Solid execution in the first quarter delivered 22% non-GAAP revenue growth, with non-GAAP revenues reaching a record $110 million and non-GAAP operating margin increasing to 17.2% from 16.1%. Our growth in the first quarter originated primarily from Europe and Rest-of-the-World. Operating a global company across multiple insurance markets and deploying a diversified product offering allows us to balance our growth, resources, investments, and risks across regions and markets. With a strategic focus and the increasing global market demand for digital insurance solutions and transformations, Sapiens is well positioned for continued financial performance,” said Roni Al-Dor, Sapiens president and CEO.

 

“We are increasing our 2021 revenue guidance to a range of $459 to $464 million from our prior range of $457 to $463 million. We are also updating our operating profit margin guidance, due to our plan initiated this quarter to manage our growth and investment in delivery capabilities in the North American P&C CoreSuite business, and following the recent spike in COVID-19 in India, which will increase our labor costs in the short term. As a result of these two factors, operating margin in 2021 is expected to be in the range of 17.0% to 17.4% compared to the previous range of 17.7% to 18.0%. I would like to highlight that Sapiens remains committed to increasing its profitability and margins, as we have done year after year.”

 

Quarterly Results Conference Call

 

Management will host a conference call and webcast today, May 4, 2021 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- 642-5032; International: +972-3-918-0609; UK: 0-800-917-5108.

 

The live webcast of the call can be accessed on Sapiens’ website at https://www.sapiens.com/investor-relations/ir-events-presentations/. A replay of the call will be available one business day following the completion of the event at the same location for 90 days.

 

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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.

 

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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 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 more than 600 organizations globally, Sapiens has a proven ability to satisfy customers’ core, data and digital requirements. For more information: www.sapiens.com.

 

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Forward Looking Statements

 

Certain matters discussed in this press release that are incorporated herein and therein by reference are forward-looking statements within the meaning of Section 27A of the Securities Act, Section 21E of the Exchange Act and the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995, that are based on our beliefs, assumptions and expectations, as well as information currently available to us. Such forward-looking statements may be identified by the use of the words “anticipate,” “believe,” “estimate,” “expect,” “may,” “will,” “plan” and similar expressions. Such statements reflect our current views with respect to future events and are subject to certain risks and uncertainties. There are important factors that could cause our actual results, levels of activity, performance or achievements to differ materially from the results, levels of activity, performance or achievements expressed or implied by the forward-looking statements, including, but not limited to: the COVID-19 (coronavirus) pandemic, which may last longer than expected and materially adversely affect our results of operations; the degree of our success in our plans to leverage our global footprint to grow our sales; the degree of our success in integrating the companies that we have acquired through the implementation of our M&A growth strategy; the lengthy development cycles for our solutions, which may frustrate our ability to realize revenues and/or profits from our potential new solutions; our lengthy and complex sales cycles, which do not always result in the realization of revenues; the degree of our success in retaining our existing customers or competing effectively for greater market share; difficulties in successfully planning and managing changes in the size of our operations; the frequency of the long-term, large, complex projects that we perform that involve complex estimates of project costs and profit margins, which sometimes change mid-stream; the challenges and potential liability that heightened privacy laws and regulations pose to our business; occasional disputes with clients, which may adversely impact our results of operations and our reputation; various intellectual property issues related to our business; potential unanticipated product vulnerabilities or cybersecurity breaches of our or our customers’ systems; risks related to the insurance industry in which our clients operate; risks associated with our global sales and operations, such as changes in regulatory requirements, wide-spread viruses and epidemics like the recent novel coronavirus outbreak, or fluctuations in currency exchange rates; and risks related to our principal location in Israel and our status as a Cayman Islands company.

 

While we believe such forward-looking statements are based on reasonable assumptions, should one or more of the underlying assumptions prove incorrect, or these risks or uncertainties materialize, our actual results may differ materially from those expressed or implied by the forward-looking statements. Please read the risks discussed under the heading “Risk Factors” in our most recent Annual Report on Form 20-F, in order to review conditions that we believe could cause actual results to differ materially from those contemplated by the forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that future results, levels of activity, performance and events and circumstances reflected in the forward-looking statements will be achieved or will occur. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason, to conform these statements to actual results or to changes in our expectations.

 

Investors and Media Contact

Sapiens

Daphna Golden

Vice President, Head of Investor Relations

Email: ir@sapiens.com

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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 
  March 31, 
  2021  2020 
  (unaudited)  (unaudited) 
       
Revenue  109,592   90,534 
Cost of revenue  65,336   54,270 
         
Gross profit  44,256   36,264 
         
Operating expenses:        
Research and development, net  13,088   10,526 
Selling, marketing, general and administrative  18,803   15,460 
Total operating expenses  31,891   25,986 
         
Operating income  12,365   10,278 
         
Financial and other expenses, net  515   1,487 
Taxes on income  1,948   1,901 
         
Net income  9,902   6,890 
         
Attributed to non-controlling interest  67   70 
         
Net income attributable to Sapiens’ shareholders  9,835   6,820 
Basic earnings per share  0.18   0.14 
         
Diluted earnings per share  0.18   0.13 
         
Weighted average number of shares outstanding used to compute basic earnings per share (in thousands)  54,689   50,175 
         
Weighted average number of shares outstanding used to compute diluted earnings per share (in thousands)  55,567   51,083 

 

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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 
  March 31, 
  2021  2020 
  (unaudited)  (unaudited) 
       
Revenue  110,222   90,534 
Cost of revenue  60,993   50,743 
         
Gross profit  49,229   39,791 
         
Operating expenses:        
Research and development, net  14,720   11,963 
Selling, marketing, general and administrative  15,509   13,214 
Total operating expenses  30,229   25,177 
         
Operating income  19,000   14,614 
         
Financial and other expenses, net  515   1,487 
Taxes on income  3,510   2,645 
         
Net income  14,975   10,482 
         
Attributable to non-controlling interest  67   70 
         
Net income attributable to Sapiens’ shareholders  14,908   10,412 
         
Basic earnings per share  0.27   0.21 
         
Diluted earnings per share  0.27   0.20 
         
Weighted average number of shares outstanding used to compute basic earnings per share (in thousands)  54,689   50,175 
         
Weighted average number of shares outstanding used to compute diluted earnings per share (in thousands)  55,567   51,083 

 

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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 
  March 31, 
  2021  2020 
  (unaudited)  (unaudited) 
       
GAAP revenue  109,592   90,534 
Valuation adjustment on acquired deferred revenue  630   - 
Non-GAAP revenue  110,222   90,534 
         
GAAP gross profit  44,256   36,264 
Revenue adjustment  630   - 
Amortization of capitalized software  1,784   1,496 
Amortization of other intangible assets  2,559   2,031 
Non-GAAP gross profit  49,229   39,791 
         
GAAP operating income  12,365   10,278 
Gross profit adjustments  4,973   3,527 
Capitalization of software development  (1,632)  (1,437)
Amortization of other intangible assets  1,366   589 
Stock-based compensation  1,399   622 
Acquisition-related costs *)  529   1,035 
Non-GAAP operating income  19,000   14,614 
         
GAAP net income attributable to Sapiens’ shareholders  9,835   6,820 
Operating income adjustments  6,635   4,336 
Taxes on income  (1,562)  (744)
Non-GAAP net income attributable to Sapiens’   shareholders  14,908   10,412 

 

(*) 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.

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

 

  Q1 2021  Q4 2020  Q3 2020  Q2 2020  Q1 2020 
                
Revenues  110,222   102,936   97,968   93,063   90,534 
Gross profit  49,229   47,044   44,206   41,900   39,791 
Operating income  19,000   18,666   17,859   16,783   14,614 
Net income to Sapiens’ shareholders  14,908   14,461   13,746   13,340   10,412 
Adjusted EBITDA  20,120   20,032   19,010   17,854   15,724 
                     
Basic earnings per share  0.27   0.27   0.27   0.27   0.21 
Diluted earnings per share  0.27   0.27   0.27   0.26   0.20 

 

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

 

  Q1 2021  Q4 2020  Q3 2020  Q2 2020  Q1 2020 
                
North America  44,754   47,303   49,979   46,610   44,567 
Europe  57,642   49,225   42,394   41,030   40,232 
Rest of the world  7,826   6,408   5,595   5,423   5,735 
                     
Total  110,222   102,936   97,968   93,063   90,534 

 

Adjusted Free Cash-Flow

U.S. dollars in thousands

 

  Q1 2021  Q4 2020  Q3 2020  Q2 2020  Q1 2020 
                
Cash-flow from operating activities  11,755   21,030   16,705   14,761   5,759 
Increase in capitalized software development costs  (1,632)  (1,604)  (1,506)  (1,251)  (1,437)
Capital expenditures  (821)  (725)  (963)  (393)  (552)
Free cash-flow  9,302   18,701   14,236   13,117   3,770 
                     
Cash payments attributed to acquisition-related costs(*) (**)  1,280   2,363   242   1,562   737 
                     
Adjusted free cash-flow  10,582   21,064   14,478   14,679   4,507 

 

(*)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.

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Adjusted EBITDA Calculation
U.S. dollars in thousands

 

  Three months ended 
  March 31, 
  2021  2020 
  (unaudited)  (unaudited) 
       
GAAP operating income  12,365   10,278 
         
Non-GAAP adjustments:        
Valuation adjustment on acquired deferred revenue  630   - 
Amortization of capitalized software  1,784   1,496 
Amortization of other intangible assets  3,925   2,620 
Capitalization of software development  (1,632)  (1,437)
Stock-based compensation  1,399   622 
Compensation related to acquisition and acquisition-related costs  529   1,035 
         
Non-GAAP operating income  19,000   14,614 
         
Depreciation  1,120   1,110 
         
Adjusted EBITDA  20,120   15,724 

 

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SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES

 

CONDENSED CONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands

 

  March 31,  December 31, 
  2021  2020 
  (unaudited)  (unaudited) 
       
ASSETS      
       
CURRENT ASSETS      
Cash and cash equivalents  142,184   152,561 
Short-term bank deposit  30,000   30,000 
Trade receivables, net and unbilled receivables  74,762   65,409 
Other receivables and prepaid expenses  16,494   19,388 
         
Total current assets  263,440   267,358 
         
LONG-TERM ASSETS        
Property and equipment, net  16,585   16,970 
Severance pay fund  6,604   6,582 
Goodwill and intangible assets, net  352,130   363,597 
Operating lease right-of-use assets  51,716   54,390 
Other long-term assets  6,078   5,264 
         
Total long-term assets  433,113   446,803 
         
TOTAL ASSETS  696,553   714,161 
         
LIABILITIES AND EQUITY        
         
CURRENT LIABILITIES        
Trade payables  6,057   5,389 
Current maturities of Series B Debentures  19,796   19,796 
Accrued expenses and other liabilities  68,750   75,119 
Current maturities of operating lease liabilities  10,719   9,924 
Deferred revenue  41,470   34,548 
         
Total current liabilities  146,792   144,776 
         
LONG-TERM LIABILITIES        
Series B Debentures, net of current maturities  78,906   98,676 
Deferred tax liabilities  14,704   16,010 
Other long-term liabilities  13,037   12,129 
Long-term operating lease liabilities  46,531   48,773 
Redeemable non-controlling interest  562   517 
Accrued severance pay  9,530   9,586 
         
Total long-term liabilities  163,270   185,691 
         
EQUITY  386,491   383,694 
         
TOTAL LIABILITIES AND EQUITY  696,553   714,161 

 

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SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES

 

CONSOLIDATED STATEMENT OF CASH FLOW
U.S. dollars in thousands

 

  For the three months ended
March 31,
 
  2021  2020 
  (unaudited)  (unaudited) 
Cash flows from operating activities:      
Net income  9,902   6,890 
Reconciliation of net income to net cash provided by operating activities:        
Depreciation and amortization  6,829   5,226 
Accretion of discount on Series B Debentures  26   33 
Stock-based compensation related to options issued to employees  1,399   622 
Capital loss from sale of property and equipment  5   - 
         
Net changes in operating assets and liabilities, net of amount acquired:        
Trade receivables, net and unbilled receivables  (10,541)  (9,009)
Deferred tax assets, net  (1,913)  (1,257)
Other operating assets  6,116   2,260 
Trade payables  609   (52)
Other operating liabilities  (7,774)  (759)
Deferred revenues  6,995   1,655 
Accrued severance pay, net  102   150 
         
Net cash provided by operating activities  11,755   5,759 
         
Cash flows from investing activities:        
Purchase of property and equipment  (821)  (552)
Investment in deposit  -   (665)
Proceeds from restricted deposit used for completed acquisition  -   22,890 
Payments for business acquisitions, net of cash acquired  -   (22,061)
Proceeds from sale of property and equipment  154   - 
Capitalized software development costs  (1,632)  (1,437)
         
Net cash used in investing activities  (2,299)  (1,825)
         
Cash flows from financing activities:        
Proceeds from employee stock options exercised  413   600 
Repayment of Series B Debenture  (19,796)  (9,898)
Receipt of short-term loan  -   20,000 
Payment of contingent considerations  (537)  (538)
Dividend to non-controlling interest  (31)  - 
         
Net cash provided by (used in) financing activities  (19,951)  10,164 
         
Effect of exchange rate changes on cash and cash equivalents  118   (836)
         
Increase (decrease) in cash and cash equivalents  (10,377)  13,262 
Cash and cash equivalents at the beginning of period  152,561   66,295 
         
Cash and cash equivalents at the end of period  142,184   79,557 

 

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Debentures Covenants

 

As of March 31, 2021, 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 (excluding minority interest) equal to $384 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 (22.55)%.

 

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 (0.92).

 

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