Sapiens Reports Fourth Quarter and Full Year 2017 Financial Results

HOLON, Israel, March 8, 2018 /PRNewswire/ -- Sapiens International Corporation, (NASDAQ: SPNS) (TASE: SPNS), a leading global provider of software solutions for the insurance industry, with a growing presence in the financial services sector, and a member of the Formula Group (NASDAQ: FORTY and TASE: FORT), today announced its financial results for the fourth quarter and full year ended December 31, 2017.

Fourth Quarter 2017 Highlights:

  • Revenue increases 25.4% to $71.6 million. Non-GAAP revenue increased 26.9% from the same period in the prior year to $72.4 million.
  • Operating income totaled $1.1 million, down 79.8% compared to last year. Non-GAAP operating income totaled $9.1 million, up 20.9% compared to the same period in the prior year.
  • Operating margin of 1.6%, compared to 9.8% last year. Non-GAAP operating margin of 12.5%, compared to 13.1% last year.
  • Net income attributable to Sapiens' shareholders totaled $3.2 million. Non-GAAP net income attributable to Sapiens' shareholders totaled $6.1 million, compared to $6.0 in the same period last year.
  • Diluted earnings per share of $0.07 per diluted share. Non-GAAP diluted earnings per share of $0.12 per diluted share, flat compared to the same period in the prior year.

Full Year 2017 Highlights:

  • Revenue increases 24.5% to $269.2 million. Non-GAAP revenue increased 25.8% from the same period in the prior year to $272.0 million.
  • Operating income totaled $1.0 million, down 96.0% from the same period in the prior year. Non-GAAP operating profit totaled $23.1 million, a decrease of 22.0% from last year.
  • Operating margin of 0.4%, compared to 11.5% in the same period in the prior year. Non-GAAP operating margin of 8.5%, compared to 13.7% last year.
  • Net income attributable to Sapiens' shareholders totaled $0.4 million. Non-GAAP net income attributable to Sapiens' shareholders totaled $15.5 million, a decrease of 35.8% from the same period in the prior year.
  • Diluted earnings per share of $0.01 per diluted share. Non-GAAP diluted earnings per share of $0.31 per diluted share.

"We made progress in 2017 executing to our long-term strategy of becoming a leading global provider of insurance software solutions and services. We invested in acquisitions to gain rapid entrance into the US market where we acquired products and solutions, clients, personnel and resources, and strong brands in focused geographies and market segments, as well as R&D to improve our competitive advantages through internal development of products and solutions," said Roni Al-Dor, president and CEO, Sapiens. "From a growth and profitability perspective 2017 was a mixed year. We reported full year Non-GAAP revenue of $272 million, near the top of our revised 2017 guidance range, a year-over-year increase of 25.8%, primarily due to the acquisition of StoneRiver. However, we did not fully meet our 2017 expectations for profitability, with adjusted non-GAAP operating margin for the year of 8.5%."

Al-Dor concluded: "Sapiens is reiterating prior guidance for 2018 full-year revenues in the range of $280-$285 million (on a non-GAAP basis), an increase of approximately 3% to 5%. Growth is anticipated to be below prior year levels due to the elimination of certain non-core revenue, extension of the rollout time-line for a large client, certain projects that came through an acquisition that will not renew, and the loss of some revenue due to product duplication between StoneRiver and Adaptik. We are also maintaining expectations for adjusted operating margin a range of 12% to 13% (on a non-GAAP basis), based on integration, restructuring benefits, and maximizing our acquired talent."

Quarterly Results Conference Call

Management will host a conference call and webcast today, March 8 at 9:00 a.m. Eastern Time (4:00 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: +972-3-918-0609; UK: 0-800-917-5108

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 March 18, 2017, as follows:
North America: 1-888-782-4291; 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.

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, 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, 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.

About Sapiens

Sapiens International Corporation (NASDAQ and TASE: SPNS) is a leading global provider of software solutions for the insurance industry, with a growing presence in the financial services sector. We offer integrated core software solutions and business services, and a full digital suite for the property and casualty/general insurance; life, pension and annuities; and reinsurance markets. Sapiens also services the workers' compensation and financial and compliance markets.

Our portfolio includes policy administration, billing and claims; underwriting, illustration and electronic application; reinsurance and decision management software. Sapiens' digital platform features customer and agent portals, and a business intelligence platform. With a 30-year track record of delivering to more than 400 organizations, Sapiens' team of over 2,500 operates through our fully-owned subsidiaries in North America, the United Kingdom, EMEA and Asia Pacific. 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, 2016, and subsequent reports and registration statements filed from time to time with the Securities and Exchange Commission.

 


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


  Year ended




December 31,


 December 31,




2017


2016


2017


2016




 (unaudited)


 (unaudited)


 (unaudited)


 (unaudited)











 Revenue


71,600


57,113


269,194


216,190

 Cost of revenue


45,776


34,648


175,678


130,402











 Gross profit


25,824


22,465


93,516


85,788











 Operating expenses:










 Research and development, net


8,427


5,087


31,955


16,488


 Selling, marketing, general and administrative


16,265


11,787


60,559


44,460

 Total operating expenses


24,692


16,874


92,514


60,948











 Operating income


1,132


5,591


1,002


24,840











 Financial expense (income), net


1,000


98


3,010


(533)

 Taxes and other expenses, net


(3,301)


1,383


(2,564)


5,772





















 Net income


3,433


4,110


556


19,601











 Attributable to non-controlling interest


(157)


(9)


(189)


(43)

Attributed to redeemable non-controlling interest


43


7


43


(134)

Adjustment to redeemable non-controlling interest  


350


301


350


442











 Net income attributable to Sapiens' shareholders


3,197


3,811


352


19,336

 Basic earnings per share


0.07


0.08


0.01


0.40











 Diluted earnings per share


0.07


0.08


0.01


0.40




















Weighted average number of shares outstanding used to
compute basic earnings per share (in thousands)


49,325


49,021


49,170


48,947










Weighted average number of shares outstanding used to
compute diluted earnings per share (in thousands)


50,032


49,935


49,926


49,780

  

 

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


  Year ended




December 31,


 December 31,




2017


2016


2017


2016




 (unaudited)


 (unaudited)


 (unaudited)


 (unaudited)











 Revenue


72,448


57,113


272,003


216,190

 Cost of revenue


42,931


33,263


165,336


124,423











 Gross profit


29,517


23,850


106,667


91,767











 Operating expenses:










 Research and development, net


9,663


6,178


37,522


22,033


 Selling, marketing, general and administrative


10,795


10,179


46,032


40,119

 Total operating expenses


20,458


16,357


83,554


62,152











 Operating income


9,059


7,493


23,113


29,615











 Financial expense (income), net


1,000


(9)


2,780


(640)

 Taxes and other expenses


2,033


1,533


4,940


6,179





















 Net income


6,026


5,969


15,393


24,076











 Attributable to non-controlling interest


115


(11)


147


123











 Net income attributable to Sapiens' shareholders


6,141


5,958


15,540


24,199





















 Basic earnings per share


0.12


0.12


0.32


0.49











 Diluted earnings per share


0.12


0.12


0.31


0.49




















Weighted average number of shares outstanding used to
compute basic earnings per share (in thousands)


49,325


49,021


49,170


48,947










Weighted average number of shares outstanding used to
compute diluted earnings per share (in thousands)


50,032


49,935


49,926


49,780

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


  Year ended



December 31,


December 31,



2017


2016


2017


2016

GAAP revenue


71,600


57,113


269,194


216,190

Valuation adjustment on acquired deferred revenue


848


-


2,809


-

Non-GAAP revenue


72,448


57,113


272,003


216,190






















GAAP gross profit


25,824


22,465


93,516


85,788


Revenue adjustment


848


-


2,809


-


Amortization of capitalized software


1,270


1,092


4,824


4,929


Amortization of other intangible assets


1,575


293


5,518


1,050


Non-GAAP gross profit


29,517


23,850


106,667


91,767






















GAAP operating income (loss)


1,132


5,591


1,002


24,840


Gross profit adjustments


3,693


1,385


13,151


5,979


Capitalization of software development


(1,236)


(1,091)


(5,567)


(5,545)


Amortization of other intangible assets


489


300


1,725


1,207


Stock-based compensation


655


522


2,035


1,955


Compensation related to acquisition and acquisition-related costs


144


786


2,685


1,179


Restructuring and cost reduction plan


4,182


-


8,082


-


Non-GAAP operating income


9,059


7,493


23,113


29,615






















 GAAP net income (loss) attributable to Sapiens' shareholders


3,197


3,811


352


19,336


 Operating income (loss) adjustments


7,927


1,902


22,111


4,775


 Adjustment to redeemable non-controlling interest


350


302


350


443


 Loss on sales of Marketable Securities


-


-


230


-


 Tax and Other *


(5,333)


(57)


(7,503)


(355)


 Non-GAAP net income attributable to Sapiens' shareholders


6,141


5,958


15,540


24,199












*Includes $3.8M US tax Cuts and Job Act Effect in 2017

 

Summary of Non-GAAP Financial Information

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






Three months ended


Twelve months ended


December 31,


December 31,


2017


2016


2017


2016


(unaudited)


(unaudited)


(unaudited)


(unaudited)













Revenues

72,448

100%


57,113

100%


272,003

100%


216,190

100%

Gross profit

29,517

40.7%


23,850

41.8%


106,667

39.2%


91,767

42.4%

Operating profit

9,059

12.5%


7,493

13.1%


23,113

8.5%


29,615

13.7%

Net income to shareholders

6,141

8.5%


5,958

10.4%


15,540

5.7%


24,199

11.2%

Adjusted EBITDA

10,076

13.9%


8,298

14.5%


26,935

9.9%


32,450

15.0%













Basic earnings per share

0.12



0.12



0.32



0.49


Diluted earnings per share

0.12



0.12



0.31



0.49


 

 

Non-GAAP Revenues by Geographic Breakdown

U.S. dollars in thousands












Q4 2017


Q3 2017


Q2 2017


Q1 2017


Q4 2016











North America

31,580


32,780


28,544


19,465


21,107

Europe & South Africa

37,051


35,324


36,711


32,489


28,292

APAC

3,817


5,750


3,912


4,580


7,714











Total

72,448


73,854


69,167


56,534


57,113

 

 

Adjusted EBITDA Calculation

U.S. dollars in thousands








Three months ended


Year ended



 December 31,


December 31,



2017


2016


2017


2016










GAAP operating profit (loss)


1,132


5,591


1,002


24,840










Non-GAAP adjustments:









Amortization of capitalized software


1,270


1,092


4,824


4,929

Amortization of other intangible assets


2,064


593


7,243


2,257

Capitalization of software development


(1,236)


(1,091)


(5,567)


(5,545)

Stock-based compensation


655


522


2,035


1,955

Compensation related to acquisition and
acquisition-related costs


144


786


2,685


1,179

Restructuring and cost reduction plan


4,182


-


8,082


-

Valuation adjustment on acquired
deferred revenue


848


-


2,809


-










Non-GAAP operating profit


9,059


7,493


23,113


29,615










Depreciation


1,017


805


3,822


2,835










Adjusted EBITDA


10,076


8,298


26,935


32,450

 

 

SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES


CONDENSED CONSOLIDATED BALANCE SHEETS

U.S. Dollars in thousands





December 31,


December 31,




2017


2016




 (unaudited)


 (unaudited)







 ASSETS












 CURRENT ASSETS






Cash and cash equivalents


71,467


60,908


Trade receivables, net


53,226


34,684


Other receivables and prepaid expenses


6,280


6,389


Marketable securities


-


18,220








Total current assets


130,973


120,201







 LONG-TERM ASSETS






Marketable securities


-


17,228


Property and equipment, net


10,695


9,807


Severance pay fund


4,547


4,041


Goodwill and intangible assets, net


221,403


101,951


Other long-term assets


3,675


4,623


Total long-term assets


240,320


137,650







 TOTAL ASSETS


371,293


257,851







LIABILITIES AND EQUITY











 CURRENT LIABILITIES






Trade payables


7,044


6,562


Accrued expenses and other liabilities


46,277


32,049


Deferred revenue


16,513


9,137


Total current liabilities


69,834


47,748







 LONG-TERM LIABILITIES






Other long-term liabilities


15,451


9,864


Debenture


78,281


-


Accrued severance pay


5,500


4,940








Total long-term liabilities


99,232


14,804













REDEEMABLE NON-CONTROLLING INTEREST


1,353


908







EQUITY



200,874


194,391







TOTAL LIABILITIES AND EQUITY


371,293


257,851

 

 

SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES


CONSOLIDATED STATEMENT OF CASH FLOW

U.S. dollars in thousands



Year ended


December 31,


2017

2016


(unaudited)

(unaudited)

Cash flows from operating activities:



Net income (loss)

556

19,601

Reconciliation of net income (loss) to net cash provided by operating activities:



Depreciation and amortization

15,871

10,021

Amortization of premium, accrued interest and loss on sales of marketable
securities

509

(516)

Stock-based compensation related to options issued to employees

2,270

1,955




Net changes in operating assets and liabilities, net of amount acquired:



Trade receivables

(5,253)

(5,435)

Deferred tax assets

(8,840)

1,664

Other operating assets

3,688

(3,309)

Trade payables

(1,388)

1,101

Other operating liabilities

118

2,223

Deferred revenues

1,249

(1,035)

Severance pay

(37)

(231)




Net cash provided by operating activities

8,743

26,039




Cash flows from investing activities:



Purchase of property and equipment

(2,622)

(4,664)

Purchase of marketable securities, net of interest received

-

(9,017)

Proceeds from sales of marketable securities

35,369

13,898

Payments for business acquisition, net of cash acquired

(103,103)

(4,382)

Capitalized software development costs

(5,567)

(5,545)

             Restricted cash

-

1,393




Net cash used in investing activities

(75,923)

(8,317)




Cash flows from financing activities:



Proceeds from employee stock options exercised

1,823

890

Payment to shareholders in respect of acquisition

-

(1,440)

Loan received net of repayment of loan

-

(9,786)

Issuance of debenture, net

78,173

-

Repayment of loan

-

(824)

Distribution of dividend

(9,851)

(73)




Net cash provided by (used in) financing activities

70,145

(11,233)




Effect of exchange rate changes on cash and cash equivalents

7,594

68




Increase in cash and cash equivalents

10,559

6,557

Cash and cash equivalents at the beginning of period

60,908

54,351




Cash and cash equivalents at the end of period

71,467

60,908




Debenture Covenants

As of December 31, 2017, 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 $200 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 (3.28)%.

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

 

Cision View original content:http://www.prnewswire.com/news-releases/sapiens-reports-fourth-quarter-and-full-year-2017-financial-results-300610599.html

SOURCE Sapiens International Corporation



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