EX-99.1 2 f6k050619ex99-1_sapiens.htm SAPIENS REPORTS FIRST QUARTER 2019 FINANCIAL RESULTS

Exhibit 99.1

 

 

Sapiens Reports First Quarter 2019 Financial Results

 

Holon, Israel, May 6, 2019 – 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 first quarter ended March 31, 2019.

 

Summary Results for First Quarter 2019 (USD in millions, except per share data)

 

   GAAP       Non-GAAP     
   March 31,
2019		   March 31,
2018		   % Change   March 31,
2019		   March 31,
2018		   % Change 
Revenue   76.8    71.0    8.2%   76.8    71.1    8%
Gross Profit   29.8    27.0    10.3%   33.1    30.3    9.3%
Gross Margin   38.8%   38.1%   70 bps    43.1%   42.6%   50 bps 
Operating Income   8.1    4.7    72%   11.8    8.9    32.6%
Operating Margin   10.5%   6.6%   390 bps    15.3%   12.5%   280 bps 
Net income (*)   5.2    2.8    81.8%   8.4    6.3    33%
Diluted EPS  $0.10   $0.06    66.7%   0.17    0.13    30.8%

 

(*) Attributable to Sapiens’ shareholders

 

“Sapiens continues to execute on our strategy to increase top line growth and profitability. I am pleased to see continued momentum in the first quarter of 2019, as we focused on achieving our key objectives for this year. In the quarter our revenue growth was driven by an acceleration in our North American segment, which grew 23% off a very strong gains in our P&C business. In addition, our best-in-class digital P&C platform in EMEA is winning new business with its ability to offer an improved customer experience and highly configurable solutions. Non-GAAP Gross margin expanded by 50 basis points, and we leveraged our off-shore capabilities to lower our operational cost. These gains helped offset our planned expenditures on key sales hires and customer success personnel. As a result, non-GAAP operating margin increased by 280 basis points to 15.3%, and non-GAAP net income grew 33% this quarter”, said Roni Al-Dor, president and CEO, Sapiens.

 

1

 

 

“Looking out to the remainder of 2019, our primary drivers of growth are continued expansion of our P&C segment, a stable outlook for our L&A segment, and increased cross-selling to our current customer base.”

 

“With revenues growth and improvement in our operating margin in the first quarter, we are confident in our ability to deliver full-year 2019 guidance”, concluded Roni Al-Dor. “We are maintaining 2019 full year non-GAAP revenues in the range of $318 to $323 million, with non-GAAP operating margins in the range of 15.2% to 15.6%, however we now expect operating margin to be on the higher end of this range”.

 

Quarterly Results Conference Call

 

Management will host a conference call and webcast on May 6, 2019 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): + 1-888-407-2553; International: +972-3-918-0610; 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/

 

If you are unable to join live, a replay of the call will be accessible until May 13, 2019, as follows:

 

North America: 1-888-295-2634; 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, 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.

 

2

 

 

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.

 

3

 

 

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, and eliminating retention payments and other acquisition costs, which are included in the cash-flow from operating activities.

 

About Sapiens

 

Sapiens International Corporation empowers insurers to succeed in an evolving industry. The company offers digital software platforms, solutions and services for the property and casualty, life, pension and annuity, reinsurance, financial and compliance, workers’ compensation and financial markets. With more than 35 years of experience delivering to over 450 organizations globally, Sapiens has a proven ability to satisfy customers’ core, data and digital requirements. 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.

 

4

 

 

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, 2018, 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

 

5

 

 

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, 
   2019   2018 
   (unaudited)   (unaudited) 
         
Revenue   76,787    70,995 
Cost of revenue   46,980    43,967 
           
Gross profit   29,807    27,028 
           
Operating expenses:          
Research and development, net   8,777    9,147 
Selling, marketing, general and administrative   12,953    13,184 
Total operating expenses   21,730    22,331 
           
Operating income   8,077    4,697 
           
Financial expense, net   1,054    838 
Taxes and other expenses, net   1,847    1,031 
           
Net income   5,176    2,828 
           
Attributed to non-controlling interest   21    (8)
           
Net income attributable to Sapiens’ shareholders   5,155    2,836 
           
Basic earnings per share   0.10    0.06 
           
Diluted earnings per share   0.10    0.06 
           
Weighted average number of shares outstanding used to compute basic earnings per share (in thousands)   49,986    49,773 
           
Weighted average number of shares outstanding used to compute diluted earnings per share (in thousands)   50,329    50,070 

 

 

6

 

 

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, 
   2019   2018 
   (unaudited)   (unaudited) 
         
Revenue   76,787    71,085 
Cost of revenue   43,683    40,801 
           
Gross profit   33,104    30,284 
           
Operating expenses:          
Research and development, net   10,169    10,324 
Selling, marketing, general and administrative   11,185    11,097 
Total operating expenses   21,354    21,421 
           
Operating income   11,750    8,863 
           
Financial expense, net   1,054    838 
Taxes and other expenses   2,285    1,726 
           
Net income   8,411    6,299 
           
Attributable to non-controlling interest   21    (8)
           
Net income attributable to Sapiens’ shareholders   8,390    6,307 
           
Basic earnings per share   0.17    0.13 
           
Diluted earnings per share   0.17    0.13 
           
Weighted average number of shares outstanding used to compute basic earnings per share (in thousands)   49,986    49,773 
           
Weighted average number of shares outstanding used to compute diluted earnings per share (in thousands)   50,329    50,070 

 

7

 

 

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, 
   2019   2018 
   (unaudited)   (unaudited) 
         
GAAP revenue   76,787    70,995 
Valuation adjustment on acquired deferred revenue   -    90 
Non-GAAP revenue   76,787    71,085 
           
GAAP gross profit   29,807    27,028 
Valuation adjustment on acquired deferred revenue   -    90 
Amortization of capitalized software   1,341    1,255 
Amortization of other intangible assets   1,956    1,911 
Non-GAAP gross profit   33,104    30,284 
           
GAAP operating income   8,077    4,697 
Gross profit adjustments   3,297    3,256 
Capitalization of software development   (1,392)   (1,177)
Amortization of other intangible assets   535    922 
Stock-based compensation   453    587 
Compensation related to acquisition and acquisition-related costs   780    578 
Non-GAAP operating income   11,750    8,863 
           
GAAP net income attributable to Sapiens’ shareholders   5,155    2,836 
Operating income adjustments   3,673    4,166 
Tax and other   (438)   (695)
Non-GAAP net income attributable to Sapiens’   shareholders   8,390    6,307 

 

8

 

 

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

 

   Three months ended 
   March 31, 
   2019   2018 
   (unaudited)   (unaudited) 
                 
Revenues   76,787    100%   71,085    100%
Gross profit   33,104    43.1%   30,284    42.6%
Operating income   11,750    15.3%   8,863    12.5%
Net income attributable to Sapiens’ shareholders   8,390    10.9%   6,307    8.9%
Adjusted EBITDA   12,523    16.3%   9,945    14.0%
                     
Basic earnings per share   0.17         0.13      
Diluted earnings per share   0.17         0.13      

 

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

 

   Q1 2019   Q4 2018   Q3 2018   Q2 2018   Q1 2018 
                     
North America   38,149    34,974    36,734    34,606    31,035 
Europe   32,193    30,850    30,611    32,518    34,479 
Asia Pacific   3,670    3,140    3,480    3,305    3,439 
South Africa   2,775    4,469    2,412    2,113    2,132 
                          
Total   76,787    73,433    73,237    72,542    71,085 

 

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

 

   Q1 2019   Q4 2018   Q3 2018   Q2 2018   Q1 2018 
                     
Cash-flow from operating activities   10,550    11,509    6,370    658    9,163 
Increase in capitalized software development costs   (1,392)   (1,382)   (1,308)   (1,293)   (1,177)
Capital expenditures   (641)   (204)   (831)   (402)   (477)
Retention payments and acquisition costs*   1,608    790    -    256    1,149 
                          
Adjusted free cash-flow   10,125    10,713    4,231    (781)   8,658 

 

* Included in cash-flow from operating activities

 

9

 

 

Adjusted EBITDA Calculation

U.S. dollars in thousands

 

   Three months ended 
   March 31, 
   2019   2018 
   (unaudited)   (unaudited) 
         
GAAP operating income   8,077    4,697 
           
Non-GAAP adjustments:          
Valuation adjustment on acquired deferred revenue   -    90 
Amortization of capitalized software   1,341    1,255 
Amortization of other intangible assets   2,491    2,833 
Capitalization of software development   (1,392)   (1,177)
Stock-based compensation   453    587 
Compensation related to acquisition and acquisition-related costs   780    578 
           
Non-GAAP operating income   11,750    8,863 
           
Depreciation   773    1,082 
           
Adjusted EBITDA   12,523    9,945 

 

10

 

 

SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands

 

   March 31,   December 31, 
   2019   2018 
   (unaudited)   (unaudited) 
         
ASSETS        
         
CURRENT ASSETS        
Cash and cash equivalents   63,384    64,628 
Trade receivables, net and unbilled receivables   64,201    59,159 
Other receivables and prepaid expenses   7,993    6,224 
           
Total current assets   135,578    130,011 
           
LONG-TERM ASSETS          
Property and equipment, net   8,603    8,515 
Severance pay fund   4,754    4,699 
Goodwill and intangible assets, net   231,223    231,348 
Operating lease right-of-use assets   32,317    - 
Other long-term assets   5,301    4,292 
           
Total long-term assets   282,198    248,854 
           
TOTAL ASSETS   417,776    378,865 
           
LIABILITIES AND EQUITY          
           
CURRENT LIABILITIES          
Trade payables   5,814    6,149 
Current maturities of Series B Debentures   9,898    9,898 
Accrued expenses and other liabilities   50,910    46,999 
Current maturities of operating lease liabilities   4,830    - 
Deferred revenue   22,259    18,057 
           
Total current liabilities   93,711    81,103 
           
LONG-TERM LIABILITIES          
Series B Debentures, net of current maturities   58,718    68,577 
Deferred tax liabilities   10,724    11,681 
Other long-term liabilities   7,464    9,398 
Long-term operating lease liabilities   29,637    - 
Accrued severance pay   5,716    5,622 
           
Total long-term liabilities   112,259    95,278 
           
EQUITY   211,806    202,484 
           
TOTAL LIABILITIES AND EQUITY   417,776    378,865 

 

11

 

 

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,
   2019  2018
   (unaudited)  (unaudited)
Cash flows from operating activities:          
Net income   5,176    2,828 
Reconciliation of net income to net cash provided by operating activities:          
Depreciation and amortization   4,605    5,170 
Accretion of discount on Series B Debentures   39    44*
Stock-based compensation related to options issued to employees   453    587 
           
Net changes in operating assets and liabilities, net of amount acquired:          
Trade receivables, net and unbilled receivables   (4,194)   1,664 
Deferred tax assets, net   (855)   (1,163)
Other operating assets   328    (1,000)
Trade payables   (426)   (3,013)
Other operating liabilities   1,247    (810)*
Deferred revenues   4,167    4,729 
Accrued severance pay, net   10    127 
           
Net cash provided by operating activities   10,550    9,163 
           
Cash flows from investing activities:          
Purchase of property and equipment   (641)   (477)
Investment in deposit   (1,106)   —   
Payments for business acquisition, net of cash acquired   —      (18,203)*
Capitalized software development costs   (1,392)   (1,177)
           
Net cash used in investing activities   (3,139)   (19,857)
           
Cash flows from financing activities:          
Proceeds from employee stock options exercised   17    10 
Repayment of Series B Debenture   (9,898)   —   
Loan received, net of repayment of loan   (2)   (18)
Payment of contingent considerations   (58)   (61)*
Dividend to non-controlling interest   (66)   (47)
           
Net cash used in financing activities   (10,007)   (116)
           
Effect of exchange rate changes on cash and cash equivalents   1,352    1,092 
           
Decrease in cash and cash equivalents   (1,244)   (9,718)
Cash and cash equivalents at the beginning of period   64,628    71,467 
           
Cash and cash equivalents at the end of period   63,384    61,749 

 

* Reclassification 

 

12

 

 

Debentures Covenants

 

As of March 31, 2019, 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 $210 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 2.67%.

 

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 0.13.

 

 

13