Sapiens Reports Q4 and Full Year 2020 Financial Results

February 25, 2021 6:37 AM EST

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HOLON, Israel, Feb. 25, 2021 /PRNewswire/ -- Sapiens International Corporation, (NASDAQ: SPNS) (TASE: SPNS), a leading global provider of software solutions for the insurance industry, and a member of the Formula Group (NASDAQ: FORTY)  (TASE: FORT), today announced its financial results for the fourth quarter and full year ended December 31, 2020.

 

Summary Results for Fourth Quarter 2020 (USD in millions, except per share data)

GAAP

Non-GAAP

Q4 2020

Q4 2019

% Change

Q4 2020

Q4 2019

% Change

Revenue

$101.7

$86.7

17.2%

$102.9

$86.7

18.7%

Gross Profit

$41.4

$34.9

18.4%

$47.0

$38.4

22.5%

Gross Margin

40.7%

40.3%

40 bps

45.7%

44.3%

140bps

Operating Income

$10.2

$10.2

-

$18.7

$14.3

30.1%

Operating Margin

10.1%

11.8%

(170)bps

18.1%

16.5%

160 bps

Net Income (*)

$8.3

$6.8

21.7%

$14.5

$10.6

37.0%

Diluted EPS

$0.15

$0.13

15.4%

$0.27

$0.21

28.6%

 

Summary Results for Full Year 2020 (USD in millions, except per share data)

 

GAAP

% Change

Non-GAAP

% Change

2020

2019

2020

2019

Revenue

$382.9

$325.7

17.6%

$384.5

$325.7

18.1%

Gross Profit

$156.0

$129.5

20.4%

$172.9

$143.0

20.9%

Gross Margin

40.7%

39.8%

90 bps

45.0%

43.9%

110 bps

Operating Income

$45.0

$37.9

18.8%

$67.9

$52.2

30.1%

Operating Margin

11.8%

11.6%

20 bps

17.7%

16.0%

170 bps

Net income (*)

$33.8

$26.2

28.7%

$52.0

$38.9

33.6%

Diluted EPS

$0.65

$0.52

25.0%

$1.00

$0.77

29.9%

 

(*) Attributable to Sapiens' shareholders.

 

"The financial results Sapiens reported today demonstrate how well we are executing our strategy. Sapiens ended the year on a strong note with record fourth quarter revenue and a strong operating margin. Despite COVID-19, we crossed the $100 million-dollar-mark in quarterly Non-GAAP revenues, coming in at $103 million, 19% higher than last year. Non-GAAP Operating margin was 18.1%, 164 basis points, or 29% improvement from fourth quarter 2019, validating our operating leverage. For the full year, 2020 Non-GAAP revenue increased by 18% to $384 million and we delivered Non-GAAP operating margin of 17.7%. The global Sapiens team executed extremely well in 2020, and I want to thank everyone for their outstanding work in a year that presented unique challenges and required tremendous adaptability," stated Roni Al-Dor, President and CEO of Sapiens.

"We have proven repeatedly that our "Land and Expand" strategy is an efficient and effective way to grow in the highly regulated and regionally diverse global insurance markets. In addition to our global advantage, we offer customers a one-stop-shop in P&C and Life, along with complimentary and digital solutions. With hundreds of customers around the world, Sapiens is making a significant impact with our broad portfolio of solutions and one-hand-to-shake business model. We entered 2021 with a positive momentum and are planning to leverage our recent acquisitions," continued Mr. Al-Dor. Mr. Al-Dor concluded: "We are introducing 2021 guidance for Non-GAAP revenue in a range of $457 million to $463 million, and Non-GAAP operating margin in a range of 17.7% to 18.0%, reflecting the likelihood that certain cost savings related to COVID 19 diminish in the second half of 2021. With a focused growth strategy, global diversity and an even stronger balance sheet, Sapiens is well positioned for success and growth."

Quarterly Results Conference Call

Management will host a conference call and webcast today, February 25, 2021 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- 642-5032; International: +972-3-918-0609; 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 March 4, 2020, as follows:

North America: +1-877-456-0009; International: +972-3-925-5900.

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.

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.

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. The Company 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, which 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 more than 600 organizations globally, Sapiens has a proven ability to satisfy customers' core, data and digital requirements. For more information: www.sapiens.com.

Forward Looking Statements

Certain matters discussed in this prospectus supplement, the accompanying prospectus and the other documents we have filed with the SEC that are incorporated herein and therein by reference are forward-looking statements within the meaning of Section 27A of the Securities Act, Section 21E of the Exchange Act and the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995, that are based on our beliefs, assumptions and expectations, as well as information currently available to us. Such forward-looking statements may be identified by the use of the words "anticipate," "believe," "estimate," "expect," "may," "will," "plan" and similar expressions. Such statements reflect our current views with respect to future events and are subject to certain risks and uncertainties. There are important factors that could cause our actual results, levels of activity, performance or achievements to differ materially from the results, levels of activity, performance or achievements expressed or implied by the forward-looking statements, including, but not limited to: the COVID-19 (coronavirus) pandemic, which may last longer than expected and materially adversely affect our results of operations; the degree of our success in our plans to leverage our global footprint to grow our sales; the degree of our success in integrating the companies that we have acquired through the implementation of our M&A growth strategy; the lengthy development cycles for our solutions, which may frustrate our ability to realize revenues and/or profits from our potential new solutions; our lengthy and complex sales cycles, which do not always result in the realization of revenues; the degree of our success in retaining our existing customers or competing effectively for greater market share; difficulties in successfully planning and managing changes in the size of our operations; the frequency of the long-term, large, complex projects that we perform that involve complex estimates of project costs and profit margins, which sometimes change mid-stream; the challenges and potential liability that heightened privacy laws and regulations pose to our business; occasional disputes with clients, which may adversely impact our results of operations and our reputation; various intellectual property issues related to our business; potential unanticipated product vulnerabilities or cybersecurity breaches of our or our customers' systems; risks related to the insurance industry in which our clients operate; risks associated with our global sales and operations, such as changes in regulatory requirements, wide-spread viruses and epidemics like the recent novel coronavirus outbreak, or fluctuations in currency exchange rates; and risks related to our principal location in Israel and our status as a Cayman Islands company.

While we believe such forward-looking statements are based on reasonable assumptions, should one or more of the underlying assumptions prove incorrect, or these risks or uncertainties materialize, our actual results may differ materially from those expressed or implied by the forward-looking statements. Please read the risks discussed under the heading "Risk Factors" in this prospectus supplement and in the accompanying prospectus, and under the heading "Risk Factors" in our most recent Annual Report on Form 20-F and in our other filings with the SEC that are incorporated by reference in this prospectus supplement and the accompanying prospectus, in order to review conditions that we believe could cause actual results to differ materially from those contemplated by the forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that future results, levels of activity, performance and events and circumstances reflected in the forward-looking statements will be achieved or will occur. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this prospectus supplement, to conform these statements to actual results or to changes in our expectations.

Investors and Media Contact

Sapiens Daphna GoldenVice President, Head of Investor RelationsEmail: ir@sapiens.com

Hayden IRBrett MassManaging PartnerPhone: +1 646-536-7331Email: Brett.Masss@HaydenIR.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

  Year ended

 December 31

December 31,

2020

2019

2020

2019

 (unaudited)

 (unaudited)

 (unaudited)

 (unaudited)

 Revenue

101,661

86,715

382,903

325,674

 Cost of revenue

60,288

51,782

226,929

196,153

 Gross profit

41,373

34,933

155,974

129,521

 Operating expenses:

 Research and development, net

11,129

10,233

41,358

37,378

 Selling, marketing, general and administrative

20,019

14,477

69,613

54,274

 Total operating expenses

31,148

24,710

110,971

91,652

 Operating income

10,225

10,223

45,003

37,869

 Financial and other expenses, net

1,212

1,019

3,805

2,768

 Taxes on income

611

2,260

7,041

8,610

 Net income

8,402

6,944

34,157

26,491

 Attributable to non-controlling interest

83

110

382

244

 Net income attributable to Sapiens' shareholders

8,319

6,834

33,775

26,247

 Basic earnings per share

0.16

0.14

0.67

0.53

 Diluted earnings per share

0.15

0.13

0.65

0.52

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

53,715

50,109

51,208

50,031

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

54,541

51,009

52,159

50,653

 

              

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,

2020

2019

2020

2019

 (unaudited)

 (unaudited)

 (unaudited)

 (unaudited)

 Revenue

102,936

86,715

384,501

325,674

 Cost of revenue

55,892

48,313

211,560

182,662

 Gross profit

47,044

38,402

172,941

143,012

 Operating expenses:

 Research and development, net

12,733

11,395

47,156

43,043

 Selling, marketing, general and administrative

15,645

12,662

57,863

47,763

 Total operating expenses

28,378

24,057

105,019

90,806

 Operating income

18,666

14,345

67,922

52,206

 Financial and other expenses, net

1,212

1,019

3,805

2,768

 Taxes on income

2,910

2,663

11,776

10,298

 Net income

14,544

10,663

52,341

39,140

 Attributable to non-controlling interest

83

110

382

244

 Net income attributable to Sapiens' shareholders

14,461

10,553

51,959

38,896

 Basic earnings per share

0.27

0.21

1.01

0.78

 Diluted earnings per share

0.27

0.21

1.00

0.77

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

53,715

50,109

51,208

50,031

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

54,541

51,009

52,159

50,653

 

 

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,

2020

2019

2020

2019

(unaudited)

(unaudited)

(unaudited)

(unaudited)

GAAP revenue

101,661

86,715

382,903

325,674

Valuation adjustment on acquired deferred revenue

1,275

-

1,598

-

Non-GAAP revenue

102,936

86,715

384,501

325,674

GAAP gross profit

41,373

34,933

155,974

129,521

Revenue adjustment

1,275

-

1,598

-

Amortization of capitalized software

1,931

1,499

6,558

5,668

Amortization of other intangible assets

2,465

1,970

8,811

7,823

Non-GAAP gross profit

47,044

38,402

172,941

143,012

GAAP operating income

10,225

10,223

45,003

37,869

Gross profit adjustments

5,671

3,469

16,967

13,491

Capitalization of software development

(1,604)

(1,162)

(5,798)

(5,665)

Amortization of other intangible assets

1,204

563

3,316

2,177

Stock-based compensation

1,240

282

3,987

1,405

Acquisition-related costs *)

1,930

970

4,447

2,929

Non-GAAP operating income

18,666

14,345

67,922

52,206

  GAAP net income attributable to Sapiens'   shareholders

8,319

6,834

33,775

26,247

  Operating income adjustments

8,441

4,122

22,919

14,337

  Taxes on income

(2,299)

(403)

(4,735)

(1,688)

  Non-GAAP net income attributable to   Sapiens' shareholders

 

14,461

 

10,553

 

51,959

 

38,896

 

(*) 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.

 

 

Summary of NON-GAAP Financial Information 

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

Q4 2020

Q3 2020

Q2 2020

Q1 2020

Q4 2019

Revenues

102,936

97,968

93,063

90,534

86,715

Gross profit

47,044

44,206

41,900

39,791

38,402

Operating income

18,666

17,859

16,783

14,614

14,345

Net income to Sapiens' shareholders

14,461

13,746

13,340

10,412

10,553

Adjusted EBITDA

20,032

19,010

17,854

15,724

15,271

Basic earnings per share

0.27

0.27

0.27

0.21

0.21

Diluted earnings per share

0.27

0.27

0.26

0.20

0.21

 

 

Non-GAAP Revenues by Geographic Breakdown 

U.S. dollars in thousands

Q4 2020

Q3 2020

Q2 2020

Q1 2020

Q4 2019

North America

47,303

49,979

46,610

44,567

41,787

Europe

49,225

42,394

41,030

40,232

37,504

Rest of the world

6,408

5,595

5,423

5,735

7,424

Total

102,936

97,968

93,063

90,534

86,715

 

 

Adjusted Free Cash-Flow

U.S. dollars in thousands

Q4 2020

Q3 2020

Q2 2020

Q1 2020

Q4 2019

Cash-flow from operating activities

21,030

16,705

14,761

5,759

21,429

Increase in capitalized software development costs

(1,604)

(1,506)

(1,251)

(1,437)

(1,162)

Capital expenditures

(725)

(963)

(393)

(552)

(2,456)

Free cash-flow

18,701

14,236

13,117

3,770

17,811

Cash payments attributed to acquisition-related costs(*) (**)

2,363

242

1,562

737

200

Adjusted free cash-flow

21,064

14,478

14,679

4,507

18,011

 

(*) 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.

 

 

 

Adjusted EBITDA Calculation 

U.S. dollars in thousands

Three months ended

Year ended

 December 31,

 December 31,

2020

2019

2020

2019

GAAP operating profit

10,225

10,223

45,003

37,869

Non-GAAP adjustments:

Valuation adjustment on acquired deferred revenue

1,275

-

1,598

-

Amortization of capitalized software

1,931

1,499

6,558

5,668

Amortization of other intangible assets

3,669

2,533

12,127

10,000

Capitalization of software development

(1,604)

(1,162)

(5,798)

(5,665)

Stock-based compensation

1,240

282

3,987

1,405

Compensation related to acquisition and acquisition-related costs

 

1,930

970

4,447

2,929

Non-GAAP operating profit

18,666

14,345

67,922

52,206

Depreciation

1,366

926

4,698

3,470

Adjusted EBITDA

20,032

15,271

72,620

55,676

 

 

SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands

December 31,

December 31,

2020

2019

 (unaudited)

 (unaudited)

 ASSETS

 CURRENT ASSETS

Cash and cash equivalents

152,561

66,295

Short-term bank deposit

30,000

-

Trade receivables, net and unbilled receivables

65,409

50,221

Investment in restricted deposit

-

22,890

Other receivables and prepaid expenses

19,388

7,817

Total current assets

267,358

147,223

 LONG-TERM ASSETS

Property and equipment, net

16,970

16,601

Severance pay fund

6,582

5,106

Goodwill and intangible assets, net

363,597

228,691

Operating lease right-of-use assets

54,390

49,539

Other long-term assets

5,264

5,261

Total long-term assets

446,803

305,198

 TOTAL ASSETS

714,161

452,421

LIABILITIES AND EQUITY

 CURRENT LIABILITIES

Trade payables

5,389

5,107

Current maturities of Series B Debentures

19,796

9,898

Accrued expenses and other liabilities

75,119

60,574

Current maturities of operating lease liabilities

9,924

8,312

Deferred revenue

34,548

21,021

Total current liabilities

144,776

104,912

 LONG-TERM LIABILITIES

Series B Debentures, net of current maturities

98,676

58,850

Deferred tax liabilities

16,010

5,082

Other long-term liabilities

12,129

8,321

Long-term operating lease liabilities

48,773

43,394

Accrued severance pay

9,586

6,364

Total long-term liabilities

185,174

122,011

REDEEMABLE NON-CONTROLLING INTEREST

517

-

EQUITY

383,694

225,498

TOTAL LIABILITIES AND EQUITY

714,161

452,421

 

 

SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOW

U.S. dollars in thousands

For the twelve months ended December 31,

2020

2019

(unaudited)

(unaudited)

 

Cash flows from operating activities:

Net income

34,157

26,491

Reconciliation of net income to net cash provided by operating

activities:

Impairment of right of use asset

351

-

Depreciation and amortization

23,383

19,138

Accretion of discount on Series B Debentures

134

171

Capital loss (gain) from sale of property and equipment

44

(40)

Stock-based compensation related to options issued to employees

3,987

1,405

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

Trade receivables, net and unbilled receivables

(5,168)

10,514

Deferred tax assets, net

(16)

(6,441)

Other operating assets

(2,049)

6,726

Trade payables

(1,344)

(1,476)

Other operating liabilities

1,435

6,667

Deferred revenues

2,992

2,747

Accrued severance pay, net

349

255

Net cash provided by operating activities

58,255

66,157

Cash flows from investing activities:

Purchase of property and equipment

(2,633)

(11,474)

Investment in deposit

(30,397)

(1,119)

Proceeds from sale of property and equipment

12

834

Proceeds from (investment in) restricted deposit used for completed acquisition

22,890

(22,890)

Payments for business acquisitions, net of cash acquired

(95,866)

(1,554)

Capitalized software development costs

(5,798)

(5,665)

Acquisition of intellectual property

(2,810)

-

Net cash used in investing activities

(114,602)

(41,868)

Cash flows from financing activities:

Proceeds from employee stock options exercised

5,050

780

Distribution of dividend

(7,044)

(11,009)

Repayment of Series B Debenture

(9,898)

(9,898)

Proceeds from issuance of Series B Debentures

60,346

-

Receipt of short-term loan

20,000

-

Repayment of loan

(20,000)

(4)

Payment of contingent considerations

(538)

(374)

Acquisition of minority interests

(147)

-

Dividend to non-controlling interest

-

(149)

Repayment of loan of acquired subsidiary

(13,186)

-

Proceeds from issuance of ordinary shares, net of issuance expenses

108,737

-

Net cash provided by (used in) financing activities

143,320

(20,654)

Effect of exchange rate changes on cash and cash equivalents

(707)

(1,968)

Increase in cash and cash equivalents

86,266

1,667

Cash and cash equivalents at the beginning of period

66,295

64,628

Cash and cash equivalents at the end of period

152,561

66,295

 

Debentures Covenants

As of December 31, 2020, Sapiens was in compliance with all of its financial covenants under the indenture for the Series B Debentures, 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 (excluding minority interest) equal to $382 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) below 65%.
  • Actual ratio of net financial indebtedness to net capitalization equal to (9.75)%.

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 (0.47).

 

Cision View original content to download multimedia:http://www.prnewswire.com/news-releases/sapiens-reports-q4-and-full-year-2020-financial-results-301235473.html

SOURCE Sapiens International Corporation



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