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SPNS Sapiens International

Filed: 4 Aug 21, 6:08am

Exhibit 99.1

 

 

Sapiens Reports Second Quarter 2021 Financial Results

 

Holon, Israel, August 4, 2021 – Sapiens International Corporation, (NASDAQ and TASE: SPNS), a leading global provider of software solutions for the insurance industry, today announced its financial results for the second quarter ended June 30, 2021.

 

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

 

  GAAP     Non-GAAP    
  June 30,
2021
  June 30,
2020
  % Change  June 30,
2021
  June 30,
2020
  % Change 
Revenue $114.4  $93.1   22.9% $115.0  $93.1   23.6%
Gross Profit $46.6  $38.3   21.9% $51.7  $41.9   23.4%
Gross Margin  40.8%  41.1%  (30) bps   45.0%  45.0%  - 
Operating Income $13.2  $12.4   6.2% $19.8  $16.8   17.9%
Operating Margin  11.5%  13.3%  (180) bps   17.2%  18.0%  (80) bps 
Net Income (*) $10.4  $9.3   11.9% $16.0  $13.3   19.7%
Diluted EPS $0.19  $0.18   5.6% $0.29  $0.26   11.5%

 

(*)Attributable to Sapiens’ shareholders.

 

“Sapiens second quarter results demonstrate the success of our strategy, as we continue to expand our global market presence in both P&C and L&A, and provide insurers of all tiers the broadest product portfolio and services offering in the market. This unique value proposition enables insurers to benefit from our pre-integrated, cloud-first, low-code “insurance-in-a-box” approach across the majority of our products, empowering them to choose between deploying our end-to-end solution, or any combination of its components, to meet their evolving needs,” stated Roni Al-Dor, President and CEO of Sapiens.

 

“In the second quarter Sapiens delivered a strong, year-over-year non-GAAP revenue growth of 24%, reaching a record high of $115 million. Non-GAAP operating margin reached 17.2%. In North America, we continue to make progress and have achieved sequential growth, as we execute our plan to continue to enhance our delivery capabilities. In Europe, we have been winning new business and have successfully completed new transformation projects, including with Tier-1 carriers. The Rest-of-the-World, which includes APAC and South Africa, continues on a path of growth. We are leveraging our global presence and rich product portfolio to further increase market share,” continued Mr. Al-Dor.

 

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“We are increasing our 2021 revenue guidance for the second time. The new revenue guidance ranges from $461 to $466 million. We are also increasing our operating margin guidance to a range of 17.2% to 17.5%. Our strong performance reflects the important role Sapiens plays in our customers’ lifecycle and transformation journeys in the growing and evolving insurance industry.”

 

Quarterly Results Conference Call

 

Management will host a conference call and webcast today, August 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 viewed 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 link for 90 days.

 

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.

 

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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 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.

 

Investors and Media Contact

 

Sapiens

Daphna Golden

Vice President, Head of Investor Relations

Email: ir@sapiens.com

 

Hayden IR
Brett Mass
Managing Partner
Phone: +1 646-536-7331
Email: Brett.Maas@HaydenIR.com

 

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Forward Looking Statements

 

Certain matters discussed in this press release that are incorporated herein 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 pandemic 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 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 pandemic, which adversely affected our results of operations, 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.

 

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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  Six months ended 
  June 30  June 30 
  2021  2020  2021  2020 
  (unaudited)  (unaudited)  (unaudited)  (unaudited) 
             
Revenue  114,406   93,063   223,998   183,597 
Cost of revenue  67,782   54,804   133,118   109,074 
                 
Gross profit  46,624   38,259   90,880   74,523 
                 
Operating expenses:                
Research and development, net  13,267   9,328   26,355   19,854 
Selling, marketing, general and administrative  20,183   16,528   38,986   31,988 
Total operating expenses  33,450   25,856   65,341   51,842 
                 
Operating income  13,174   12,403   25,539   22,681 
                 
Financial and other expenses, net  69   63   584   1,550 
Taxes on income  2,688   3,010   4,637   4,911 
                 
Net income  10,417   9,330   20,318   16,220 
                 
Attributable to non-controlling interest  13   33   80   103 
                 
Net income attributable to Sapiens’ shareholders  10,404   9,297   20,238   16,117 
                 
Basic earnings per share  0.19   0.19   0.37   0.32 
                 
Diluted earnings per share  0.19   0.18   0.36   0.32 
                 
Weighted average number of shares outstanding used to compute basic earnings per share (in thousands)  54,754   50,297   54,722   50,236 
                 
Weighted average number of shares outstanding used to compute diluted earnings per share (in thousands)  55,548   51,173   55,558   51,128 

 

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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  Six months ended 
  June 30  June 30 
  2021  2020  2021  2020 
  (unaudited)  (unaudited)  (unaudited)  (unaudited) 
             
Revenue  115,036   93,063   225,258   183,597 
Cost of revenue  63,316   51,163   124,309   101,906 
                 
Gross profit  51,720   41,900   100,949   81,691 
                 
Operating expenses:                
Research and development, net  15,226   10,579   29,946   22,542 
Selling, marketing, general and administrative  16,699   14,538   32,208   27,752 
Total operating expenses  31,925   25,117   62,154   50,294 
                 
Operating income  19,795   16,783   38,795   31,397 
                 
Financial and other expenses, net  69   63   584   1,550 
Taxes on income  3,738   3,347   7,249   5,992 
                 
Net income  15,988   13,373   30,962   23,855 
                 
Attributable to non-controlling interest  13   33   80   103 
                 
Net income attributable to Sapiens’ shareholders  15,975   13,340   30,882   23,752 
                 
Basic earnings per share  0.29   0.27   0.56   0.47 
                 
Diluted earnings per share  0.29   0.26   0.56   0.46 
                 
Weighted average number of shares outstanding used to compute basic earnings per share (in thousands)  54,754   50,297   54,722   50,236 
                 
Weighted average number of shares outstanding used to compute diluted earnings per share (in thousands)  55,548   51,173   55,558   51,128 

 

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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  Six months ended 
  June 30,  June 30, 
  2021  2020  2021  2020 
  (unaudited)  (unaudited)  (unaudited)  (unaudited) 
             
GAAP revenue 114,406  93,063  223,998  183,597 
Valuation adjustment on acquired deferred revenue 630  -  1,260  - 
Non-GAAP revenue 115,036  93,063  225,258  183,597 
             
GAAP gross profit  46,624   38,259   90,880   74,523 
Revenue adjustment  630   -   1,260   - 
Amortization of capitalized software  1,891   1,531   3,675   3,027 
Amortization of other intangible assets  2,575   2,110   5,134   4,141 
Non-GAAP gross profit  51,720   41,900   100,949   81,691 
                 
GAAP operating income  13,174   12,403   25,539   22,681 
Gross profit adjustments  5,096   3,641   10,069   7,168 
Capitalization of software development  (1,959)  (1,251)  (3,591)  (2,688)
Amortization of other intangible assets  1,358   698   2,724   1,287 
Stock-based compensation  1,471   764   2,870   1,386 
Acquisition-related costs *)  655   528   1,184   1,563 
Non-GAAP operating income  19,795   16,783   38,795   31,397 
                 
GAAP net income attributable to Sapiens’ shareholders  10,404   9,297   20,238   16,117 
Operating income adjustments  6,621   4,380   13,256   8,716 
Taxes on income  (1,050)  (337)  (2,612)  (1,081)
Non-GAAP net income attributable to Sapiens’ shareholders  15,975   13,340   30,882   23,752 

 

(*)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)

 

  Q2 2021  Q1 2021  Q4 2020  Q3 2020  Q2 2020 
                
Revenues  115,036   110,222   102,936   97,968   93,063 
Gross profit  51,720   49,229   47,044   44,206   41,900 
Operating income  19,795   19,000   18,666   17,859   16,783 
Net income to Sapiens’ shareholders  15,975   14,908   14,461   13,746   13,340 
Adjusted EBITDA  20,920   20,120   20,032   19,010   17,854 
                     
Basic earnings per share  0.29   0.27   0.27   0.27   0.27 
Diluted earnings per share  0.29   0.27   0.27   0.27   0.26 

 

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

 

  Q2 2021  Q1 2021  Q4 2020  Q3 2020  Q2 2020 
                
North America  46,767   44,754   47,303   49,979   46,610 
Europe  59,718   57,642   49,225   42,394   41,030 
Rest of the world  8,551   7,826   6,408   5,595   5,423 
                     
Total  115,036   110,222   102,936   97,968   93,063 

 

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

 

  Q2 2021  Q1 2021  Q4 2020  Q3 2020  Q2 2020 
                
Cash-flow from operating activities  26,845   11,755   21,030   16,705   14,761 
Increase in capitalized software development costs  (1,959)  (1,632)  (1,604)  (1,506)  (1,251)
Capital expenditures  (1,082)  (821)  (725)  (963)  (393)
Free cash-flow  23,804   9,302   18,701   14,236   13,117 
                     
Cash payments attributed to acquisition-related costs(*) (**)  -   1,280   2,363   242   1,562 
                     
Adjusted free cash-flow  23,804   10,582   21,064   14,478   14,679 

 

(*)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  Six months ended 
  June 30  June 30 
  2021  2020  2021  2020 
             
GAAP operating profit  13,174   12,403   25,539   22,681 
                 
Non-GAAP adjustments:                
Valuation adjustment on acquired deferred revenue  630   -   1,260   - 
Amortization of capitalized software  1,891   1,531   3,675   3,027 
Amortization of other intangible assets  3,933   2,808   7,858   5,428 
Capitalization of software development  (1,959)  (1,251)  (3,591)  (2,688)
Stock-based compensation  1,471   764   2,870   1,386 
Compensation related to acquisition and acquisition-related costs  655   528   1,184   1,563 
                 
Non-GAAP operating profit  19,795   16,783   38,795   31,397 
                 
Depreciation  1,125   1,071   2,245   2,182 
                 
Adjusted EBITDA  20,920   17,854   41,040   33,579 

 

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SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES

 

CONDENSED CONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands

 

  June 30,  December 31, 
  2021  2020 
  (unaudited)  (unaudited) 
       
ASSETS      
       
CURRENT ASSETS      
Cash and cash equivalents  155,805   152,561 
Short-term bank deposit  20,000   30,000 
Trade receivables, net and unbilled receivables  70,214   65,409 
Other receivables and prepaid expenses  15,842   19,388 
         
Total current assets  261,861   267,358 
         
LONG-TERM ASSETS        
Property and equipment, net  15,640   16,970 
Severance pay fund  6,733   6,582 
Goodwill and intangible assets, net  352,224   363,597 
Operating lease right-of-use assets  49,777   54,390 
Other long-term assets  8,269   5,264 
         
Total long-term assets  432,643   446,803 
         
TOTAL ASSETS  694,504   714,161 
         
LIABILITIES AND EQUITY        
         
CURRENT LIABILITIES        
Trade payables  6,762   5,389 
Current maturities of Series B Debentures  19,796   19,796 
Accrued expenses and other liabilities  73,003   75,119 
Current maturities of operating lease liabilities  11,790   9,924 
Deferred revenue  42,573   34,548 
         
Total current liabilities  153,924   144,776 
         
LONG-TERM LIABILITIES        
Series B Debentures, net of current maturities  78,935   98,676 
Deferred tax liabilities  13,872   16,010 
Other long-term liabilities  12,847   12,129 
Long-term operating lease liabilities  43,586   48,773 
Redeemable non-controlling interest  483   517 
Accrued severance pay  9,676   9,586 
         
Total long-term liabilities  159,399   185,691 
         
EQUITY  381,181   383,694 
         
TOTAL LIABILITIES AND EQUITY  694,504   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 six months ended
June 30,
 
  2021  2020 
  (unaudited)  (unaudited) 

Cash flows from operating activities:

      
Net income  20,318   16,220 
Reconciliation of net income to net cash provided by operating activities:        
Depreciation and amortization  13,778   10,637 
Accretion of discount on Series B Debentures  55   77 
Capital loss from sale of property and equipment  36   - 
Stock-based compensation related to options issued to employees  2,870   1,386 
         
Net changes in operating assets and liabilities, net of amount acquired:        
Trade receivables, net and unbilled receivables  (8,655)  (11,554)
Deferred tax assets, net  (2,822)  (1,146)
Other operating assets  9,453   3,286 
Trade payables  1,230   (275)
Other operating liabilities  (5,449)  (2,187)
Deferred revenues  7,682   4,008 
Accrued severance pay, net  104   68 
         
Net cash provided by operating activities  38,600   20,520 
         
Cash flows from investing activities:        
Purchase of property and equipment  (1,903)  (945)
Withdrawal of (investment in) deposit  10,000   (379)
Proceeds from sale of property and equipment  1,011   - 
Proceeds from restricted deposit used for completed acquisition  -   22,890 
Proceeds from (payments for) business acquisitions, net of cash acquired  831   (22,483)
Capitalized software development costs  (3,591)  (2,688)
         
Net cash provided by (used in) investing activities  6,348   (3,605)
         
Cash flows from financing activities:        
Proceeds from employee stock options exercised  659   2,334 
Distribution of dividend  (20,253)  (6,632)
Repayment of Series B Debenture  (19,796)  (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)
Payment of contingent considerations  (537)  (538)
Dividend to non-controlling interest  (31)  - 
         
Net cash provided by (used in) financing activities  (39,958)  45,421 
         
Effect of exchange rate changes on cash and cash equivalents  (1,746)  (652)
         
Increase in cash and cash equivalents  3,244   61,684 
Cash and cash equivalents at the beginning of period  152,561   66,295 
         
Cash and cash equivalents at the end of period  155,805   127,979 

 

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Debentures Covenants

 

As of June 30, 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 non-controlling interest): above $120 million.
Actual shareholders’ equity (excluding non-controlling interest) equal to $379 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 (24.03)%.

 

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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