EX-99.1 2 f6k0818ex99-1_sapiensinter.htm SAPIENS REPORTS SECOND QUARTER 2018 FINANCIAL RESULTS

Exhibit 99.1

 

 

Sapiens Reports Second Quarter 2018 Financial Results

 

Ongoing Operational Improvements Deliver Margin Expansion

 

Holon, Israel, August 7, 2018 – Sapiens International Corporation, (NASDAQ 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, 2018.

 

Second Quarter 2018 Highlights:

 

  ● Revenue totaled $72.2 million, an increase of 4.5% compared to last year. Non-GAAP revenue increased 4.9% from the same period in the prior year to $72.5 million.

 

  ● Operating income totaled $4.9 million, up from an operating loss of $2.9 million last year. Non-GAAP operating income improved to $9.6 million, up from $3.2 million the same period in the prior year.

 

  ● Operating margin improved to 6.8% as compared to (4.3%) last year. Non-GAAP operating margin improved 850 basis points to 13.2%, compared to 4.7% last year.

 

  ● Net income attributable to Sapiens’ shareholders totaled $2 million, up from a net loss of $3.6 million last year. Non-GAAP net income attributable to Sapiens’ shareholders increased to $6.4 million from $1.9 million in the same period last year.

 

  ● GAAP Diluted earnings per share attributed to Sapiens’ shareholders of $0.04 comparted to $(0.07) per diluted share in the second quarter last year.

 

  ● Non-GAAP diluted earnings per share of $0.13 per diluted share compared to $0.04 per diluted share in the second quarter last year.

 

  ● Cash and cash equivalents of $59.2 million, and total debt of about $78 million as of June 30, 2018.

 

“In the second quarter, we continued to advance towards our key objectives of, expanding our P&C business in EMEA, and North America, while improving profitability,” said Roni Al-Dor, president and CEO, Sapiens. “Our enhanced digital insurance offering along with our proven products and personnel are winning new business, particularly with our P&C platforms, where we are expanding our business with new and existing clients and building our pipeline for future growth. Due to efficiency and cost cutting programs and effectively leveraging our global assets, we expanded margins and improved profitability in the quarter. This quarter’s results demonstrate our ability to expand market leadership, particularly in the areas with the greatest client demand in the insurance market: digitalization, data analytics, and legacy transformation.”

 

 

 

 

Mr. Al-Dor concluded: “Based on the strength of our first half growth and our outlook for the remainder of the year, we are raising our 2018 full year guidance for non-GAAP revenues of $285 to $290 million, up from prior guidance of $280 to $285 million.

 

We now expect full-year 2018 non-GAAP operating margins in the range of 13.0% - 13.2%, compared to our previous guidance of 12.0%-13.0%.”

 

Quarterly Results Conference Call

 

Management will host a conference call and webcast on August 7, 2018 at 9:30 a.m. Eastern Time (4:30 p.m. in Israel) to review and discuss Sapiens’ results. Please call the following numbers (at least 10 minutes before the scheduled time) to participate:

 

  ● North America (toll-free): + 1-888-281-1167

 

  ● International: +972-3-918-0644

 

  ● UK: 0-800-917-9141

 

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

 

If you are unable to join live, a replay of the call will be accessible until August 14, 2018, as follows:

 

  ● North America: 1-888-254-7270; International: +972-3-925-5918

 

  ● A recorded version of the webcast will also be available via the Sapiens website, for three months at the same location.

 

Non-GAAP Financial Measures

 

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

  

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

  

Non-GAAP financial measures consist of GAAP financial measures adjusted to exclude: Valuation adjustment on acquired deferred revenue, amortization of intangible assets, capitalization of software development, stock-based compensation, compensation related to acquisition and acquisition-related costs, restructuring and cost reduction costs, loss on sales of Marketable Securities and tax adjustment regarding non-GAAP adjustments, as well as the impact of one-time adjustment to our deferred taxes as a result of the U.S. Tax Cuts and Job act 2017.

 

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

 

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

 

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

 

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

 

The Company uses Adjusted EBITDA as a measurement of its operating performance, because it assists in comparing the operating performance on a consistent basis by removing the impact of certain non-cash and non-operating items. Adjusted EBITDA reflects an additional way of viewing aspects of the operations that the Company believes, when viewed with the GAAP results and the accompanying reconciliations to corresponding GAAP financial measures, provide a more complete understanding of factors and trends affecting its business.

 

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About Sapiens

 

Sapiens International Corporation is a leading global provider of software solutions for the insurance industry, with a 30-year track record of delivering to more than 400 organizations. The company offers software platforms, solutions and services, including a full digital suite, to satisfy the needs of property and casualty/general insurers, and life, pension and annuity providers. Sapiens also services the reinsurance, workers’ compensation, financial and compliance, and decision management markets.

 

The company’s portfolio includes policy administration, billing and claims, underwriting, illustration and electronic application. The digital suite features customer and agent portals, and a business intelligence platform. For more information: www.sapiens.com.

 

Forward Looking Statement

 

Some of the statements in this press release may constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities and Exchange Act of 1934 and the United States Private Securities Litigation Reform Act of 1995. Words such as “will,” “expects,” “believes” and similar expressions are used to identify these forward-looking statements (although not all forward-looking statements include such words). These forward-looking statements, which may include, without limitation, projections regarding our future performance and financial condition, are made on the basis of management’s current views and assumptions with respect to future events. Any forward-looking statement is not a guarantee of future performance and actual results could differ materially from those contained in the forward-looking statement.

 

These statements speak only as of the date they were made, and we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. We operate in a changing environment. New risks emerge from time to time and it is not possible for us to predict all risks that may affect us. For more information regarding these risks and uncertainties, as well as certain additional risks that we face, please refer to the Risk Factors detailed in Item 3 of Part III of our Annual Report on Form 20-F for the year ended December 31, 2017, and subsequent reports and registration statements filed from time to time with the Securities and Exchange Commission.

  

Investors and Media Contact

 

Yaffa Cohen-Ifrah

Chief Marketing Officer and Head of Corporate Communications

Sapiens International

U.S. Mobile: +1 201-250-9414

Mobile: +972 54-9099039

Email: yaffa.cohen-ifrah@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   Six months ended 
   June 30   June 30 
   2018   2017   2018   2017 
   (unaudited)   (unaudited)   (unaudited)   (unaudited) 
                 
Revenue   72,164    69,049    143,159    125,583 
Cost of revenue   45,305    45,740    89,272    83,128 
                     
Gross profit   26,859    23,309    53,887    42,455 
                     
Operating expenses:                    
Research and development, net   8,633    8,952    17,780    15,147 
Selling, marketing, general and administrative   13,298    17,343    26,482    31,931 
Total operating expenses   21,931    26,295    44,262    47,078 
                     
Operating income (loss)   4,928    (2,986)   9,625    (4,623)
                     
Financial expense, net   1,316    709    2,154    1,147 
Taxes and other expenses (income), net   1,483    (109)   2,514    58 
                     
Net income (loss)   2,129    (3,586)   4,957    (5,828)
                     
Attributable to non-controlling interest   115    (8)   107    (38)
                     
Net income (loss) attributable to Sapiens’ shareholders   2,014    (3,578)   4,850    (5,790)
                     
Basic earnings per share   0.04    (0.07)   0.10    (0.12)
                     
Diluted earnings per share   0.04    (0.07)   0.10    (0.12)
                     
Weighted average number of shares outstanding used to compute basic earnings per share (in thousands)   49,785    49,124    49,779    49,086 
                     
Weighted average number of shares outstanding used to compute diluted earnings per share (in thousands)   49,998    49,124    50,033    49,086 

 

 

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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 
   2018   2017   2018   2017 
   (unaudited)   (unaudited)   (unaudited)   (unaudited) 
                 
Revenue   72,542    69,167    143,627    125,701 
Cost of revenue   42,105    42,778    82,906    78,842 
                     
Gross profit   30,437    26,389    60,721    46,859 
                     
Operating expenses:                    
Research and development, net   9,926    10,802    20,250    18,062 
Selling, marketing, general and administrative   10,936    12,370    22,033    23,882 
Total operating expenses   20,862    23,172    42,283    41,944 
                     
Operating income   9,575    3,217    18,438    4,915 
                     
Financial expense, net   1,316    709    2,154    917 
Taxes and other expenses   1,762    589    3,488    925 
                     
Net income   6,497    1,919    12,796    3,073 
                     
Attributable to non-controlling interest   115    (8)   107    (38)
                     
Net income attributable to Sapiens’ shareholders   6,382    1,927    12,689    3,111 
                     
Basic earnings per share   0.13    0.04    0.25    0.06 
                     
Diluted earnings per share   0.13    0.04    0.25    0.06 
                     
Weighted average number of shares outstanding used to compute basic earnings per share (in thousands)   49,785    49,124    49,779    49,086 
                     
Weighted average number of shares outstanding used to compute diluted earnings per share (in thousands)   49,998    49,887    50,033    49,906 

 

 

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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, 
   2018   2017   2018    2017 
   (unaudited)   (unaudited)   (unaudited)    (unaudited) 
                 
GAAP revenue   72,164    69,049    143,159    125,583 
Valuation adjustment on acquired deferred revenue   378    118    468    118 
Non-GAAP revenue   72,542    69,167    143,627    125,701 
                     
GAAP gross profit   26,859    23,309    53,887    42,455 
Valuation adjustment on acquired deferred revenue   378    118    468    118 
Amortization of capitalized software   1,152    1,235    2,407    2,256 
Amortization of other intangible assets   2,048    1,727    3,959    2,030 
Non-GAAP gross profit   30,437    26,389    60,721    46,859 
                     
GAAP operating income (loss)   4,928    (2,986)   9,625    (4,623)
Gross profit adjustments   3,578    3,080    6,834    4,404 
Capitalization of software development   (1,293)   (1,850)   (2,470)   (2,915)
Amortization of other intangible assets   706    -    1,628    951 
Stock-based compensation   499    456    1,086    911 
Compensation related to acquisition and acquisition-related costs   1,157    617    1,735    2,287 
Restructuring and cost reduction plan   -    3,900    -    3,900 
Non-GAAP operating income   9,575    3,217    18,438    4,915 
                     
GAAP net income (loss) attributable to Sapiens’ shareholders   2,014    (3,578)   4,850    (5,790)
Operating income adjustments   4,647    6,203    8,813    9,538 
Loss on sales of Marketable Securities   -    -    -    230 
Tax and other   (279)   (698)   (974)   (867)
Non-GAAP net income attributable to Sapiens’ shareholders   6,382    1,927    12,689    3,111 

 

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Summary of NON-GAAP Financial Information

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

 

   Three months ended   Six months ended 
   June 30   June 30 
   2018   2017   2018   2017 
   (unaudited)   (unaudited)   (unaudited)   (unaudited) 
                                 
Revenues   72,542    100%   69,167    100%   143,627    100%   125,701    100%
Gross profit   30,437    41.9%   26,389    38.2%   60,721    42.3%   46,859    37.6%
Operating profit   9,575    13.2%   3,217    4.7%   18,438    12.8%   4,915    3.9%
Net income to shareholders   6,382    8.8%   1,927    2.8%   12,689    8.8%   3,111    2.5%
Adjusted EBITDA   10,385    14.3%   4,179    6.0%   20,330    14.1%   6,753    5.4%
                                         
Basic earnings per share   0.13         0.04         0.25         0.06      
Diluted earnings per share   0.13         0.04         0.25         0.06      

  

Non-GAAP Revenues by Geographic Breakdown

U.S. dollars in thousands

 

   Q2 2018   Q1 2018   Q4 2017   Q3 2017   Q2 2017 
                     
North America   34,606    31,035    31,580    32,780    28,544 
Europe   32,518    34,479    29,789    28,984    31,418 
Asia Pacific   3,305    3,439    3,817    5,750    3,912 
South Africa   2,113    2,132    7,262    6,340    5,293 
                          
Total   72,542    71,085    72,448    73,854    69,167 

 

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Adjusted EBITDA Calculation

U.S. dollars in thousands 

 

   Three months ended   Six months ended 
   June 30   June 30 
   2018   2017   2018   2017 
                 
GAAP operating profit (loss)   4,928    (2,986)   9,625    (4,623)
                     
Non-GAAP adjustments:                    
Amortization of capitalized software   1,152    1,235    2,407    2,256 
Amortization of other intangible assets   2,754    1,727    5,587    2,981 
Capitalization of software development   (1,293)   (1,850)   (2,470)   (2,915)
Stock-based compensation   499    456    1,086    911 
Compensation related to acquisition and acquisition-related costs   1,157    617    1,735    2,287 
Restructuring and cost reduction plan   -    3,900    -    3,900 
Valuation adjustment on acquired deferred revenue and long term contract   378    118    468    118 
                     
Non-GAAP operating profit   9,575    3,217    18,438    4,915 
                     
Depreciation   810    962    1,892    1,838 
                     
Adjusted EBITDA   10,385    4,179    20,330    6,753 

  

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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, 
   2018   2017 
   (unaudited)   (unaudited) 
         
ASSETS        
         
CURRENT ASSETS        
Cash and cash equivalents   59,207    71,467 
Trade receivables, net   55,313    53,226 
Other receivables and prepaid expenses   7,723    6,280 
           
Total current assets   122,243    130,973 
           
LONG-TERM ASSETS          
Property and equipment, net   9,228    10,695 
Severance pay fund   4,161    4,547 
Goodwill and intangible assets, net   235,658    223,729 
Other long-term assets   3,957    3,675 
           
Total long-term assets   253,004    242,646 
           
TOTAL ASSETS   375,247    373,619 
           
LIABILITIES AND EQUITY          
           
CURRENT LIABILITIES          
Trade payables   3,696    7,044 
Current maturities of Series B Debentures   9,898    - 
Accrued expenses and other liabilities   43,259    46,612 
Deferred revenue   22,798    16,513 
           
Total current liabilities   79,651    70,169 
           
LONG-TERM LIABILITIES          
Series B Debentures, net of current maturities   68,478    78,281 
Deferred tax liabilities   9,251    9,171 
Other long-term liabilities   8,202    8,271 
Accrued severance pay   5,118    5,500 
           
Total long-term liabilities   91,049    101,223 
           
REDEEMABLE NON-CONTROLLING INTEREST   1,353    1,353 
           
EQUITY   203,194    200,874 
           
TOTAL LIABILITIES AND EQUITY   375,247    373,619 

  

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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,		 
   2018   2017 
   (unaudited)   (unaudited) 

Cash flows from operating activities:

          
Net income (loss)   4,957    (5,828)
Reconciliation of net income (loss) to net cash provided by operating activities:          
Depreciation and amortization   9,886    7,075 
Amortization of premium, accrued interest and loss on sales of marketable securities   -    509 
Stock-based compensation related to options issued to employees   1,086    911 
           
Net changes in operating assets and liabilities, net of amount acquired:          
Trade receivables   (2,416)   (3,236)
Deferred tax assets   (300)   (1,662)
Other operating assets   (886)   928 
Trade payables   (4,853)   (512)
Other operating liabilities   (4,968)   1,595 
Deferred revenues   6,888    7,241 
Severance pay   56    30 
           
Net cash provided by operating activities   9,450    7,051 
           
Cash flows from investing activities:          
Purchase of property and equipment   (879)   (1,102)
Proceeds from sales of marketable securities   -    35,369 
Payments for business acquisition, net of cash acquired   (17,893)   (94,951)
Capitalized software development costs   (2,470)   (2,915)
           
Net cash used in investing activities   (21,242)   (63,599)
           
Cash flows from financing activities:          
Proceeds from employee stock options exercised   128    385 
Loan received, net of repayment of loan   (27)   37,974 
Dividend to non-controlling interest   (47)   - 
           
Net cash provided by financing activities   54    38,359 
           
Effect of exchange rate changes on cash and cash equivalents   (522)   3,697 
           
Decrease in cash and cash equivalents   (12,260)   (14,492)
Cash and cash equivalents at the beginning of period   71,467    60,908 
           
Cash and cash equivalents at the end of period   59,207    46,416 

 

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Debentures Covenants

 

As of June 30, 2018, Sapiens was in compliance with all of its financial covenants under the indenture for the Series B Debentures that it issued in September 2017, based on having achieved the following in its consolidated financial results:

 

Covenant 1

 

  ● Target shareholders’ equity (excluding minority interest): above $120 million.

 

  ● Actual shareholders’ equity equal to $203 million.

 

Covenant 2

 

  ● Target ratio of net financial indebtedness to net capitalization (in each case, as defined under the indenture for the Company’s Series B Debentures) bellow 65%.

 

  ● Actual ratio of net financial indebtedness to net capitalization equal to 8.62%.

  

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