Sapiens Reports Solid Improvement in Third Quarter 2017 Financial Results

 

GAAP Revenue up 27.5% and Non-GAAP Revenue up 30.8% compared to the third quarter of 2016

HOLON, Israel, Nov. 9, 2017 /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; TASE: FORTY), today announced its financial results for the third quarter ended September 30, 2017.

 

Third Quarter 2017 Highlights:

 

GAAP

Non-GAAP

Revenue increases 27.5% to $72 million.

Revenue increases 30.8% to $73.9 million.

Operating income totaled $4.5 million, down 31.8%
compared to last year.

Operating profit totaled $9.1 million, up 24.4%.

Operating margin of 6.2%, compared to 11.7% last year
and (4.3%) in prior quarter.

Operating margin of 12.4%, compared to 13.0% last
year and 4.7% in prior quarter.

Net income attributable to Sapiens' shareholders
totaled $2.9 million.

Net income attributable to Sapiens' shareholders
totaled $6.3 million.

EPS of $0.06 per diluted share.

EPS of $0.13 per diluted share.

"Sapiens' third-quarter results show solid improvement, as evidenced by strong revenue growth, a higher non-GAAP operating profit and increased non-GAAP net income," said Roni Al-Dor, president and CEO, Sapiens. "Our quarterly results demonstrate incremental progress. Our non-GAAP operating margin improved from 4.7% in the previous quarter to 12.4%, primarily due to the successful integration of StoneRiver following our acquisition and the implementation of restructuring and cost-saving initiatives. These initiatives were enacted following the halt of the development project that we reported in the first quarter."

"All of StoneRiver's corporate functions and back-office operations have been fully integrated with Sapiens," said Al-Dor. "We are now operating as one cohesive company focused on expanding business with existing customers and growing our global customer base."

"To facilitate our customers' transformations and digital journeys, we have realigned our global operations. Sapiens launched a digital division in the third quarter focused on providing digital products and services across all company divisions," continued Al-Dor. "We also created a product strategy function that is responsible for go-to-market strategy and product innovation across our global insurance product portfolio. This group will work closely with the product, sales, marketing and client relations teams to build and communicate our unique value proposition, while maximizing synergies across products. These changes will enable Sapiens to deliver timely, targeted solutions to satisfy insurance carriers' mission-critical needs."

Al-Dor concluded: "Sapiens is maintaining our guidance for 2017 full-year revenues of $265 to $275 million (on a non-GAAP basis), which we now expect to be on the higher end. We are also maintaining expectations for a full-year operating profit margin between 9-10% (on a non-GAAP basis), which we now expect to be on the lower end of our guidance, but would continue our trend of improving profitability."

Quarterly Results Conference Call

Management will host a conference call and webcast on November 9 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: +972-3-918-0609; 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 November 19, 2017:

North America: +1-888-295-2634; International: +972-3-925-5927

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.

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.

 

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

 

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


  Nine months ended




 September 30


 September 30




2017


2016


2017


2016




 (unaudited)


 (unaudited)


 (unaudited)


 (unaudited)











 Revenue


72,011


56,480


 

197,594


159,077

 Cost of revenue


46,774


34,366


129,902


95,754











 Gross profit


25,237


22,114


67,692


63,323











 Operating expenses:










 Research and development, net


8,381


4,147


23,528


11,401


 Selling, marketing, general and administrative


12,363


11,376


44,294


32,673

 Total operating expenses


20,744


15,523


67,822


44,074











 Operating income (loss)


4,493


6,591


(130)


19,249











 Financial expense (income), net


863


(225)


2,010


(631)

 Taxes and other expenses, net


679


1,463


737


4,389





















 Net income (loss)


2,951


5,353


(2,877)


15,491











 Attributable to non-controlling interest


6


48


(32)


(34)











 Net income (loss) attributable to Sapiens' shareholders


2,945


5,305


(2,845)


15,525





















 Basic earnings (loss) per share


0.06


0.11


(0.06)


0.32











 Diluted earnings (loss) per share


0.06


0.11


(0.06)


0.32




















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


49,182


49,002


49,118


48,922










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


49,859


49,849


49,118


49,722



 

 

Summary of Non-GAAP Financial Information

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



Three months ended


Nine months ended


September 30


September 30


2017


2016


2017


2016


(unaudited)


(unaudited)


(unaudited)


(unaudited)













Revenues

73,854

100%


56,480

100%


199,555

100%


159,077

100%

Gross profit

30,291

41.0%


23,617

41.8%


77,150

38.7%


67,917

42.7%

Operating profit

9,139

12.4%


7,348

13.0%


14,054

7.0%


22,122

13.9%

Net income to shareholders

6,288

8.5%


6,004

10.6%


9,399

4.7%


18,241

11.5%

Adjusted EBITDA

10,100

13.7%


8,115

14.4%


16,859

8.4%


24,152

15.2%













Basic earnings per share

0.13



0.12



0.19



0.37


Diluted earnings per share

0.13



0.12



0.19



0.37


 

 


 

Non-GAAP Revenues by Geographic Breakdown

U.S. dollars in thousands



Q3 2017


Q2 2017


Q1 2017


Q4 2016


Q3 2016











North America

32,780


28,544


19,465


21,107


19,706

Europe & South Africa

35,324


36,711


32,489


28,292


28,675

APAC

5,750


3,912


4,580


7,714


8,099











Total

73,854


69,167


56,534


57,113


56,480

 

 

Adjusted EBITDA Calculation

U.S. dollars in thousands




Three months ended


Nine months ended



 September 30


 September 30



2017


2016


2017


2016










GAAP operating profit (loss)


4,493


6,591


(130)


19,249










Non-GAAP adjustments:









Amortization of capitalized software


1,298


1,172


3,554


3,837

Amortization of other intangible assets


2,198


658


5,179


1,664

Capitalization of software development


(1,416)


(1,674)


(4,331)


(4,454)

Stock-based compensation


469


493


1,380


1,433

Compensation related to acquisition and
acquisition-related costs


254


108


2,541


393

Restructuring and cost reduction plan


-


-


3,900


-

Valuation adjustment on acquired
deferred revenue


1,843


-


1,961


-










Non-GAAP operating profit


9,139


7,348


14,054


22,122










Depreciation


961


767


2,805


2,030










Adjusted EBITDA


10,100


8,115


16,859


24,152


 

 

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


  Nine months ended



 September 30


September 30



2017


2016


2017


2016

GAAP revenue


72,011


56,480


197,594


159,077

Valuation adjustment on acquired deferred revenue


1,843


-


1,961


-

Non-GAAP revenue


73,854


56,480


199,555


159,077



















GAAP gross profit


25,237


22,114


67,692


63,323

Revenue adjustment


1,843


-


1,961


-

Amortization of capitalized software


1,298


1,172


3,554


3,837

Amortization of other intangible assets


1,913


331


3,943


757

Non-GAAP gross profit


30,291


23,617


77,150


67,917



















GAAP operating income (loss)


4,493


6,591


(130)


19,249

Gross profit adjustments


5,054


1,503


9,458


4,594

Capitalization of software development


(1,416)


(1,674)


(4,331)


(4,454)

Amortization of other intangible assets


285


327


1,236


907

Stock-based compensation


469


493


1,380


1,433

Compensation related to acquisition and
acquisition-related costs


254


108


2,541


393

Restructuring and cost reduction plan


-


-


3,900


-

Non-GAAP operating income


9,139


7,348


14,054


22,122



















 GAAP net income (loss) attributable to Sapiens'
shareholders


2,945


5,305


(2,845)


15,525

 Operating income (loss) adjustments


4,646


757


14,184


2,873

 Adjustment to redeemable non-controlling interest


-


38


-


141

 Loss on sales of Marketable Securities


-


-


230


-

 Tax and Other


(1,303)


(96)


(2,170)


(298)

 Non-GAAP net income attributable to Sapiens'
shareholders


6,288


6,004


9,399


18,241



















 Non-GAAP basic earnings per share 


0.13


0.12


0.19


0.37










 Non-GAAP diluted earnings per share


0.13


0.12


0.19


0.37



















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

49,182


49,002


49,118


48,922

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

49,859


49,849


49,891


49,722

 

 

SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

U.S. Dollars in thousands





September 30,


December 31,




2017


2016




 (unaudited)


 (unaudited)







 ASSETS












 CURRENT ASSETS






Cash and cash equivalents


80,493


60,908


Trade receivables, net


54,543


34,684


Other receivables and prepaid expenses


9,830


6,389


Marketable securities


-


18,220








Total current assets


144,866


120,201







 LONG-TERM ASSETS






Marketable securities


-


17,228


Property and equipment, net


9,285


9,807


Severance pay fund


4,421


4,041


Goodwill and intangible assets, net


219,978


101,951


Other long-term assets


3,951


4,623


Total long-term assets


237,635


137,650







 TOTAL ASSETS


382,501


257,851







LIABILITIES AND EQUITY











 CURRENT LIABILITIES






Trade payables


6,816


6,562


Accrued expenses and other liabilities


43,664


32,049


Deferred revenue


20,821


9,137


Total current liabilities


71,301


47,748







 LONG-TERM LIABILITIES






Other long-term liabilities


23,599


9,864


Debenture


78,238


-


Accrued severance pay


5,330


4,940








Total long-term liabilities


107,167


14,804













REDEEMABLE NON-CONTROLLING INTEREST


908


908







EQUITY



203,125


194,391







TOTAL LIABILITIES AND EQUITY


382,501


257,851

 


 

SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOW

U.S. dollars in thousands



For the nine months ended

September 30


2017

2016


(unaudited)

(unaudited)

Cash flows from operating activities:



Net income (loss)

(2,991)

15,491

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



Depreciation and amortization

11,535

7,531

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

509

(380)

Stock-based compensation related to options issued to employees

1,349

1,433




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



Trade receivables

(8,526)

11

Deferred tax assets

(2,366)

366

Other operating assets

(282)

(3,383)

Trade payables

(1,245)

1,231

Other operating liabilities

688

(254)

Deferred revenues

6,521

2,203

Severance pay

(63)

(210)




Net cash provided by operating activities

5,129

24,039




Cash flows from investing activities:



Purchase of property and equipment

(1,687)

(3,732)

Purchase of marketable securities, net of interest received

-

(5,605)

Proceeds from sales of marketable securities

35,369

5,394

Payments for business acquisition, net of cash acquired

(97,672)

(4,861)

Capitalized software development costs

(4,331)

(4,454)

             Restricted cash

-

4

Net cash used in investing activities

(68,321)

(13,254)




Cash flows from financing activities:



Proceeds from employee stock options exercised

438

809

Payment to shareholders in respect of acquisition

-

(1,440)

Loan received net of repayment of loan

-

(642)

Issuance of debenture, net

78,198

-

Distribution of dividend

-

(9,786)




Net cash provided by (used in) financing activities

78,636

(11,059)




Effect of exchange rate changes on cash and cash equivalents

4,141

2,151




Increase in cash and cash equivalents

19,585

1,877

Cash and cash equivalents at the beginning of period

60,908

54,351




Cash and cash equivalents at the end of period

80,493

56,228


 

Debenture Covenants

As of September 30, 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 $202 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 (1.12)%.

On October 2017 Sapiens announces cash Dividend of $0.20 per share and $9.8 million in total. The dividend will be paid on Thursday, December 14, 2017 subject to shareholders approval.
The company will be in compliance with the covenants mentioned above, following the reflection of the announced dividend. 

View original content:http://www.prnewswire.com/news-releases/sapiens-reports-solid-improvement-in-third-quarter-2017-financial-results-300552772.html

SOURCE Sapiens International Corporation



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