HOLON, Israel, May 4, 2021 /PRNewswire/ -- Sapiens International Corporation, (NASDAQ: SPNS) (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.

Sapiens International Corporation Logo

 

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%

 30 bps

44.7%

44.0%

 70 bps

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%

 110 bps

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.

Non-GAAP Financial Measures

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

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

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

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

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

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

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

The Company uses Adjusted EBITDA as a measurement of its operating performance, because it assists in comparing the operating performance on a consistent basis by removing the impact of certain non-cash and non-operating items. Adjusted EBITDA reflects an additional way of viewing aspects of the operations that the Company believes, when viewed with the GAAP results and the accompanying reconciliations to corresponding GAAP financial measures, provide a more complete understanding of factors and trends affecting its business. The Company uses Adjusted Free Cash-Flow as a measurement of its operating performance, and reconciles cash-flow from operating activities to Adjusted Free Cash-Flow, while reducing the amounts for capitalization of software development costs and capital expenditures. The Company adds back 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.

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 

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

 

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

 

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.

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.

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

 

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

 

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

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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