EX-99.1 2 f6k080619ex99-1_sapiensinter.htm PRESS RELEASE DATED AUGUST 5, 2019 ANNOUNCING THE FINANCIAL RESULTS OF SAPIENS INTERNATIONAL CORPORATION N.V. FOR THE QUARTER AND SIX MONTHS ENDED JUNE 30, 2019

Exhibit 99.1

 

 

 

Sapiens Reports Second Quarter 2019 Financial Results

 

Holon, Israel, August 5, 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 second quarter ended June 30, 2019.

 

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

 

   GAAP       Non-GAAP     
   June 30,
2019		   June 30,
2018		   %
Change		   June 30,
2019		   June 30,
2018		   %
Change		 
Revenue  $79.5   $72.2    10.2%  $79.5   $72.5    9.6%
Gross Profit  $31.5   $26.9    17.1%  $34.8   $30.4    14.3%
Gross Margin   39.6%   37.2%   240bps    43.8%   42.0%   180bps
Operating Income  $9.5   $4.9    91.8%  $12.6   $9.6    31.4%
Operating Margin   11.9%   6.8%   510bps   15.8%   13.2%   260bps
Net income (*)  $6.8   $2.0    239.6%  $9.5   $6.4    49.5%
Diluted EPS  $0.14   $0.04    236%  $0.19   $0.13    45.4%

 

(*) Attributable to Sapiens’ shareholders

 

“Sapiens priorities for 2019 are growth and margin expansion. In the second quarter we delivered on both of these goals. Top line non-GAAP revenue increased 9.6% and non-GAAP operating margin improved 260 basis points. Growth and profitability in the quarter tie directly to executing on our key objectives to win new customers, cross sell to existing customers, leverage our offshore capabilities, and scale revenue over our efficient cost structure. Our improving margins support our build-out of sales and customer support teams and our investment in our offshore capabilities, particularly in India. As we head into the second half of the year, our sustained performance gives us confidence that our strategy is working, and we are dedicated to further improving shareholder value through long-term, sustainable growth.” said Roni Al-Dor, president and CEO, Sapiens.

 

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“Looking out to the remainder of 2019, I’m encouraged by our pipeline of business and anticipate annual growth of over 10%. We are forecasting non-GAAP revenue in a range of $318 - $323 million, however we now expect revenues to be on the higher end of this range” concluded Roni Al-Dor. “The increase in revenue and the leverage from improved economies of scale allows us to increase the guidance for non-GAAP operating margin in a range of 15.6% - 15.8%, compared to our previous guidance of 15.2% - 15.6%”

 

Quarterly Results Conference Call

 

Management will host a conference call and webcast on August 5, 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): + 1-888-668-9141; International: +972-3- 9180610; 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 August 13, 2019, as follows:

 

North America: 1-877-456-0009; International: +972-3-925-5921

 

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.

 

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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, restructuring and cost reduction costs, tax adjustments related to non-GAAP adjustments, and acquisition-related costs, which pertain to charges on behalf of M&A agreements related to future performance targets and retention criteria as determined upon acquisition date of the respective acquired company, as well as third-party services, such as, tax, accounting and legal rendered until the acquisition date.

 

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.

 

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The Company uses Adjusted EBITDA as a measurement of its operating performance, and reconciles Non-GAAP Operating Income to Adjusted EBITDA, adjusted for amortization and capitalization of capitalized software and amortization other intangible assets, stock-based compensation and acquisition-related costs, and valuation adjustment on acquired deferred revenues. The Company uses Adjusted EBITDA, 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 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, and 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 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.

 

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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

 

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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 
   2019   2018   2019   2018 
   (unaudited)   (unaudited)   (unaudited)   (unaudited) 
                 
Revenue   79,529    72,164    156,316    143,159 
Cost of revenue   48,075    45,305    95,055    89,272 
                     
Gross profit   31,454    26,859    61,261    53,887 
                     
Operating expenses:                    
Research and development, net   8,923    8,633    17,700    17,780 
Selling, marketing, general and administrative   13,077    13,298    26,030    26,482 
Total operating expenses   22,000    21,931    43,730    44,262 
                     
Operating income   9,454    4,928    17,531    9,625 
                     
Financial expense, net   434    1,316    1,488    2,154 
Taxes and other expenses, net   2,154    1,483    4,001    2,514 
                     
Net income   6,866    2,129    12,042    4,957 
                     
Attributable to non-controlling interest   26    115    47    107 
                     
Net income attributable to Sapiens' shareholders   6,840    2,014    11,995    4,850 
                     
Basic earnings per share   0.14    0.04    0.24    0.10 
                     
Diluted earnings per share   0.14    0.04    0.24    0.10 
                     
Weighted average number of shares outstanding used to compute basic earnings per share (in thousands)   50,002    49,785    49,994    49,779 
                     
Weighted average number of shares outstanding used to compute diluted earnings per share (in thousands)   50,530    49,998    50,430    50,033 

  

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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 
   2019   2018   2019   2018 
   (unaudited)   (unaudited)   (unaudited)   (unaudited) 
                 
Revenue   79,529    72,542    156,316    143,627 
Cost of revenue   44,735    42,105    88,418    82,906 
                     
Gross profit   34,794    30,437    67,898    60,721 
                     
Operating expenses:                    
Research and development, net   10,493    9,926    20,662    20,250 
Selling, marketing, general and administrative   11,720    10,936    22,905    22,033 
Total operating expenses   22,213    20,862    43,567    42,283 
                     
Operating income   12,581    9,575    24,331    18,438 
                     
Financial expense, net   434    1,316    1,488    2,154 
Taxes and other expenses   2,580    1,762    4,865    3,488 
                     
Net income   9,567    6,497    17,978    12,796 
                     
Attributable to non-controlling interest   26    115    47    107 
                     
Net income attributable to Sapiens' shareholders   9,541    6,382    17,931    12,689 
                     
Basic earnings per share   0.19    0.13    0.36    0.25 
                     
Diluted earnings per share   0.19    0.13    0.36    0.25 
                     
Weighted average number of shares outstanding used to compute basic earnings per share (in thousands)   50,002    49,785    49,994    49,779 
                     
Weighted average number of shares outstanding used to compute diluted earnings per share (in thousands)   50,530    49,998    50,430    50,033 

 

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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, 
   2019   2018   2019   2018 
   (unaudited)   (unaudited)   (unaudited)   (unaudited) 
                 
GAAP revenue   79,529    72,164    156,316    143,159 
Valuation adjustment on acquired deferred revenue   -    378    -    468 
Non-GAAP revenue   79,529    72,542    156,316    143,627 
                     
GAAP gross profit   31,454    26,859    61,261    53,887 
Valuation adjustment on acquired deferred revenue   -    378    -    468 
Amortization of capitalized software   1,390    1,152    2,731    2,407 
Amortization of other intangible assets   1,950    2,048    3,906    3,959 
Non-GAAP gross profit   34,794    30,437    67,898    60,721 
                     
GAAP operating income   9,454    4,928    17,531    9,625 
Gross profit adjustments   3,340    3,578    6,637    6,834 
Capitalization of software development   (1,570)   (1,293)   (2,962)   (2,470)
Amortization of other intangible assets   540    706    1,075    1,628 
Stock-based compensation   288    499    741    1,086 
Acquisition-related costs *)   529    1,157    1,309    1,735 
Non-GAAP operating income   12,581    9,575    24,331    18,438 
                     
GAAP net income attributable to Sapiens' shareholders   6,840    2,014    11,995    4,850 
Operating income adjustments   3,127    4,647    6,800    8,813 
Tax and other   (426)   (279)   (864)   (974)
Non-GAAP net income attributable to Sapiens' shareholders   9,541    6,382    17,931    12,689 

 

(*) 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 2019   Q1 2019   Q4 2018   Q3 2018   Q2 2018 
                     
Revenues   79,529    76,787    73,433    73,237    72,542 
Gross profit   34,794    33,104    31,320    30,903    30,437 
Operating income   12,581    11,750    10,849    10,273    9,575 
Net income to Sapiens' shareholders   9,541    8,390    7,826    7,548    6,382 
Adjusted EBITDA   13,358    12,524    11,797    11,236    10,385 
                          
Basic earnings per share   0.19    0.17    0.16    0.15    0.13 
Diluted earnings per share   0.19    0.17    0.16    0.15    0.13 

 

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

 

   Q2 2019   Q1 2019   Q4 2018   Q3 2018   Q2 2018 
                     
North America   39,216    38,149    34,974    36,734    34,606 
Europe   33,881    32,193    30,850    30,611    32,518 
Asia Pacific   3,515    3,670    3,140    3,480    3,305 
South Africa   2,917    2,775    4,469    2,412    2,113 
                          
Total   79,529    76,787    73,433    73,237    72,542 

 

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

 

   Q2 2019   Q1 2019   Q4 2018   Q3 2018   Q2 2018 
                     
Cash-flow from operating activities   15,507    10,550    11,509    6,370    658 
Increase in capitalized software development costs   (1,570)   (1,392)   (1,382)   (1,308)   (1,293)
Capital expenditures   (1,079)   (641)   (204)   (831)   (402)
Free cash-flow   12,858    8,517    9,923    4,231    (1,037)
                          
Cash payments attributed to acquisition-related costs(*) (**)   1,692    1,608    790    -    256 
                          
Adjusted free cash-flow   14,550    10,125    10,713    4,231    (781)

 

(*) 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 
   2019   2018   2019   2018 
                 
GAAP operating profit   9,454    4,928    17,531    9,625 
                     
Non-GAAP adjustments:                    
Amortization of capitalized software   1,390    1,152    2,731    2,407 
Amortization of other intangible assets   2,490    2,754    4,981    5,587 
Capitalization of software development   (1,570)   (1,293)   (2,962)   (2,470)
Stock-based compensation   288    499    741    1,086 
Acquisition-related costs   529    1,157    1,310    1,735 
Valuation adjustment on acquired deferred revenue   -    378    -    468 
                     
Non-GAAP operating profit   12,581    9,575    24,332    18,438 
                     
Depreciation   777    810    1,550    1,892 
                     
Adjusted EBITDA   13,358    10,385    25,882    20,330 

 

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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, 
   2019   2018 
   (unaudited)   (unaudited) 
         
ASSETS          
           
CURRENT ASSETS          
Cash and cash equivalents   77,282    64,628 
Trade receivables, net and unbilled receivables   58,827    59,159 
Other receivables and prepaid expenses   7,615    6,224 
           
Total current assets   143,724    130,011 
           
LONG-TERM ASSETS          
Property and equipment, net   9,264    8,515 
Severance pay fund   4,941    4,699 
Goodwill and intangible assets, net   230,069    231,348 
Operating lease right-of-use assets   54,106    - 
Other long-term assets   4,885    4,292 
           
Total long-term assets   303,265    248,854 
           
TOTAL ASSETS   446,989    378,865 
           
LIABILITIES AND EQUITY          
           
CURRENT LIABILITIES          
Trade payables   6,491    6,149 
Current maturities of Series B Debentures   9,898    9,898 
Accrued expenses and other liabilities   49,390    46,999 
Current maturities of operating lease liabilities   8,107    - 
Deferred revenue   22,782    18,057 
           
Total current liabilities   96,668    81,103 
           
LONG-TERM LIABILITIES          
Series B Debentures, net of current maturities   58,763    68,577 
Deferred tax liabilities   9,692    11,681 
Other long-term liabilities   7,723    9,398 
Long-term operating lease liabilities   48,105    - 
Accrued severance pay   5,946    5,622 
           
Total long-term liabilities   130,229    95,278 
           
EQUITY   220,092    202,484 
           
TOTAL LIABILITIES AND EQUITY   446,989    378,865 

 

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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,		 
   2019   2018 
   (unaudited)   (unaudited) 
         
Cash flows from operating activities:        
Net income   12,042    4,957 
Reconciliation of net income (loss) to net cash provided by operating activities:          
Depreciation and amortization   9,262    9,886 
Accretion of discount on Series B Debentures   84    94 
Capital gain from sale of property and equipment   (129)   - 
Stock-based compensation related to options issued to employees   741    1,086 
           
Net changes in operating assets and liabilities, net of amount acquired:          
Trade receivables, net and unbilled receivables   712    (2,416)
Deferred tax assets   (1,435)   (300)
Other operating assets   (356)   (886)
Trade payables   190    (4,853)
Other operating liabilities   152    (4,691)
Deferred revenues   4,760    6,888 
Severance pay   34    56 
           
Net cash provided by operating activities   26,057    9,821 
           
Cash flows from investing activities:          
Purchase of property and equipment   (1,720)   (879)
Investment in deposit   (1,119)   - 
Payments for business acquisition, net of cash acquired   -    (18,203)
Proceeds from sale of property and equipment   821    - 
Capitalized software development costs   (2,962)   (2,470)
           
Net cash used in investing activities   (4,980)   (21,552)
           
Cash flows from financing activities:          
Proceeds from employee stock options exercised   78    128 
Repayment of Series B Debentures   (9,898)   - 
Repayment of loan   (4)   (27)
Payment of contingent considerations   (120)   (61)
Dividend to non-controlling interest   (66)   (47)
           
Net cash provided by financing activities   (10,010)   (7)
           
Effect of exchange rate changes on cash and cash equivalents   1,587    (522)
           
Increase (decrease) in cash and cash equivalents   12,654    (12,260)
Cash and cash equivalents at the beginning of period   64,628    71,467 
           
Cash and cash equivalents at the end of period   77,282    59,207 

 

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Debentures Covenants

 

As of June 30, 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 $219 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 -3.51%.

 

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 -0.15.

 

 

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