Sapiens Reports Third Quarter 2018 Financial Results
HOLON, Israel, Nov. 7, 2018 /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 and TASE: FORT), today announced its financial results for the third quarter ended September 30, 2018.
Third Quarter 2018 Summary (comparisons are to the third quarter of 2017: amounts are in thousands, except per share amounts):
GAAP | Non-GAAP |
Revenue totaled $73.2 million an increase of 1.7% compared to $72.0 million. | Revenue totaled $73.2 million, a decrease of 0.8% compared to $73.9 million. |
Operating income totaled $6.8 million an increase of 51.7% compared to $ 4.5 million. | Operating income totaled $10.3 million an increase of 12.4% compared to $9.1 million. |
Operating margin of 9.3% compared to 6.2%. | Operating margin of 14.0% compared to 12.4%. |
Net income attributable to Sapiens' shareholders totaled $5.2 million, an increase of 76.0% compared to $2.9. million. | Net income attributable to Sapiens' shareholders increased 20.0% to $7.5 million compared to $6.3 million. |
EPS of $ 0.1 per diluted share compared to $0.06. | EPS of $ 0.15 per diluted share versus $0.13. |
"In the third quarter, we expanded our P&C business in the US and EMEA markets by leveraging our solutions and customers relationships, while continuing to improve our operational performance. As a result, we delivered solid performance in the quarter, with a 160 basis point increase in non-GAAP operating margin year-over-year. We grew our North America business by 12%, and we have recently announced several important wins and go-lives in this key market," stated Roni Al-Dor, president and CEO, Sapiens.
"We are increasing customer touch points globally through our client summits in the U.S. and EMEA, where we showcase our product capabilities and our outstanding teams. In addition, to maintain momentum with our clients, we are building a new global customer success operation that will be tasked with customers management as well as sales responsibilities, including cross selling and upselling, and increasing our 400 customers awareness of the entire Sapiens' platforms," continued Mr. Al-Dor.
"In order to extend our competitive advantage and further grow our business, we are partnering with InsurTech and fintech start-up to complement our core offering while enabling our customers to improve their platforms and provide the highest level of service to their clients."
Mr. Al-Dor concluded: "Based on the strength of our year-to-date results and our outlook for the fourth quarter, we are maintaining our guidance to 2018 full year non-GAAP revenues of $285 to $290 million, which we now expect to be on the higher end and we are increasing our non-GAAP operating margins in the range of 13.3% to 13.5% compared to our previous guidance of 13.0% - 13.2%."
Quarterly Results Conference Call
Management will host a conference call and webcast on November 7, 2018 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 14, 2018, as follows: North America: 1-888-295-2634; International: +972-3-925-5918
A recorded version of the webcast will also be available via the Sapiens website, for three months at the same location.
Non-GAAP Financial Measures
This press release contains the following non-GAAP financial measures: non-GAAP revenue, non-GAAP gross profit, non-GAAP operating income, non-GAAP net income attributed to Sapiens shareholders, 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 and 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 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.
About Sapiens
Sapiens International Corporation is a leading global provider of software solutions for the insurance industry, with a 30-year track record of delivering to more than 400 organizations. The company offers software platforms, solutions and services, including a full digital suite, to satisfy the needs of property and casualty/general insurers, and life, pension and annuity providers. Sapiens also services the reinsurance, workers' compensation, financial and compliance, and decision management markets.
The company's portfolio includes policy administration, billing and claims, underwriting, illustration and electronic application. The digital suite features customer and agent portals, and a business intelligence platform. 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, 2017, 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 | Nine months ended | ||||||||
September 30, | September 30, | ||||||||
2018 | 2017 | 2018 | 2017 | ||||||
(unaudited) | (unaudited) | (unaudited) | (unaudited) | ||||||
Revenue | 73,237 | 72,011 | 216,396 | 197,594 | |||||
Cost of revenue | 45,438 | 46,774 | 134,710 | 129,902 | |||||
Gross profit | 27,799 | 25,237 | 81,686 | 67,692 | |||||
Operating expenses: | |||||||||
Research and development, net | 8,350 | 8,381 | 26,130 | 23,528 | |||||
Selling, marketing, general and administrative | 12,635 | 12,363 | 39,117 | 44,294 | |||||
Total operating expenses | 20,985 | 20,744 | 65,247 | 67,822 | |||||
Operating income (loss) | 6,814 | 4,493 | 16,439 | (130) | |||||
Financial expense, net | 974 | 863 | 3,128 | 2,010 | |||||
Taxes and other expenses, net | 629 | 679 | 3,143 | 737 | |||||
Net income (loss) | 5,211 | 2,951 | 10,168 | (2,877) | |||||
Attributable to non-controlling interest | 28 | 6 | 135 | (32) | |||||
Net income (loss) attributable to Sapiens' shareholders | 5,183 | 2,945 | 10,033 | (2,845) | |||||
Basic earnings per share | 0.1 | 0.06 | 0.2 | (0.06) | |||||
Diluted earnings per share | 0.1 | 0.06 | 0.2 | (0.06) | |||||
Weighted average number of shares outstanding used to compute basic earnings per share (in thousands) | 49,826 | 49,182 | 49,795 | 49,118 | |||||
Weighted average number of shares outstanding used to compute diluted earnings per share (in thousands) | 50,143 | 49,859 | 50,070 | 49,118 | |||||
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 | Nine months ended | ||||||||
September 30, | September 30, | ||||||||
2018 | 2017 | 2018 | 2017 | ||||||
(unaudited) | (unaudited) | (unaudited) | (unaudited) | ||||||
Revenue | 73,237 | 73,854 | 216,864 | 199,555 | |||||
Cost of revenue | 42,334 | 43,563 | 125,240 | 122,405 | |||||
Gross profit | 30,903 | 30,291 | 91,624 | 77,150 | |||||
Operating expenses: | |||||||||
Research and development, net | 9,658 | 9,797 | 29,908 | 27,859 | |||||
Selling, marketing, general and administrative | 10,972 | 11,355 | 33,005 | 35,237 | |||||
Total operating expenses | 20,630 | 21,152 | 62,913 | 63,096 | |||||
Operating income | 10,273 | 9,139 | 28,711 | 14,054 | |||||
Financial expense, net | 974 | 863 | 3,128 | 1,780 | |||||
Taxes and other expenses | 1,723 | 1,982 | 5,211 | 2,907 | |||||
Net income | 7,576 | 6,294 | 20,372 | 9,367 | |||||
Attributable to non-controlling interest | 28 | 6 | 135 | (32) | |||||
Net income attributable to Sapiens' shareholders | 7,548 | 6,288 | 20,237 | 9,399 | |||||
Basic earnings per share | 0.15 | 0.13 | 0.41 | 0.19 | |||||
Diluted earnings per share | 0.15 | 0.13 | 0.40 | 0.19 | |||||
Weighted average number of shares outstanding used to compute basic earnings per share (in thousands) | 49,826 | 49,182 | 40,795 | 49,118 | |||||
Weighted average number of shares outstanding used to compute diluted earnings per share (in thousands) | 50,143 | 49,859 | 50,070 | 49,891 | |||||
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, | |||||||||
2018 | 2017 | 2018 | 2017 | |||||||
(unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||
GAAP revenue | 73,237 | 72,011 | 216,396 | 197,594 | ||||||
Valuation adjustment on acquired deferred revenue | - | 1,843 | 468 | 1,961 | ||||||
Non-GAAP revenue | 73,237 | 73,854 | 216,864 | 199,555 | ||||||
GAAP gross profit | 27,799 | 25,237 | 81,686 | 67,692 | ||||||
Valuation adjustment on acquired deferred revenue | - | 1,843 | 468 | 1,961 | ||||||
Amortization of capitalized software | 1,205 | 1,298 | 3,612 | 3,554 | ||||||
Amortization of other intangible assets | 1,899 | 1,913 | 5,858 | 3,943 | ||||||
Non-GAAP gross profit | 30,903 | 30,291 | 91,624 | 77,150 | ||||||
GAAP operating income (loss) | 6,814 | 4,493 | 16,439 | (130) | ||||||
Gross profit adjustments | 3,104 | 5,054 | 9,938 | 9,458 | ||||||
Capitalization of software development | (1,308) | (1,416) | (3,778) | (4,331) | ||||||
Amortization of other intangible assets | 739 | 285 | 2,367 | 1,236 | ||||||
Stock-based compensation | 384 | 469 | 1,470 | 1,380 | ||||||
Compensation related to acquisition and acquisition-related costs | 540 | 254 | 2,275 | 2,541 | ||||||
Restructuring and cost reduction plan | - | - | - | 3,900 | ||||||
Non-GAAP operating income | 10,273 | 9,139 | 28,711 |
14,054 | ||||||
GAAP net income (loss) attributable to Sapiens' shareholders | 5,183 | 2,945 | 10,033 |
(2,845) | ||||||
Operating income adjustments | 3,459 | 4,646 | 12,272 | 14,184 | ||||||
Loss on sales of Marketable Securities | - | - | - | 230 | ||||||
Tax and other | (1,094) | (1,303) | (2,068) | (2,170) | ||||||
Non-GAAP net income attributable to Sapiens' shareholders | 7,548 | 6,288 | 20,237 | 9,399 | ||||||
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, | ||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||
(unaudited) | (unaudited) | (unaudited) | (unaudited) | ||||||||
Revenues | 73,237 | 100% | 73,854 | 100% | 216,864 | 100% | 199,555 | 100% | |||
Gross profit | 30,903 | 42.2% | 30,291 | 41.0% | 91,624 | 42.2% | 77,150 | 38.7% | |||
Operating profit | 10,273 | 14.0% | 9,139 | 12.4% | 28,711 | 13.2% | 14,054 | 7.0% | |||
Net income to shareholders | 7,548 | 10.3% | 6,288 | 8.5% | 20,237 | 9.3% | 9,399 | 4.7% | |||
Adjusted EBITDA | 11,236 | 15.3% | 10,100 | 13.7% | 31,566 | 14.6% | 16,859 | 8.4% | |||
Basic earnings per share | 0.15 | 0.13 | 0.41 | 0.19 | |||||||
Diluted earnings per share | 0.15 | 0.13 | 0.40 | 0.19 | |||||||
Non-GAAP Revenues by Geographic Breakdown | |||||||||
U.S. dollars in thousands | |||||||||
Q3 2018 | Q2 2018 | Q1 2018 | Q4 2017 | Q3 2017 | |||||
North America | 36,734 | 34,606 | 31,035 | 31,580 | 32,780 | ||||
Europe | 30,611 | 32,518 | 34,479 | 29,789 | 28,984 | ||||
Asia Pacific | 3,480 | 3,305 | 3,439 | 3,817 | 5,750 | ||||
South Africa | 2,412 | 2,113 | 2,132 | 7,262 | 6,340 | ||||
Total | 73,237 | 72,542 | 71,085 | 72,448 | 73,854 | ||||
Adjusted EBITDA Calculation | ||||||||
U.S. dollars in thousands | ||||||||
Three months ended | Nine months ended | |||||||
September 30, | September 30, | |||||||
2018 | 2017 | 2018 | 2017 | |||||
GAAP operating profit (loss) | 6,814 | 4,493 | 16,439 | (130) | ||||
Non-GAAP adjustments: | ||||||||
Amortization of capitalized software | 1,205 | 1,298 | 3,612 | 3,554 | ||||
Amortization of other intangible assets | 2,638 | 2,198 | 8,225 | 5,179 | ||||
Capitalization of software development | (1,308) | (1,416) | (3,778) | (4,331) | ||||
Stock-based compensation | 384 | 469 | 1,470 | 1,380 | ||||
Compensation related to acquisition and acquisition-related costs | 540 | 254 | 2,275 | 2,541 | ||||
Restructuring and cost reduction plan | - | - | - | 3,900 | ||||
Valuation adjustment on acquired deferred revenue and long term contract | - | 1,843 | 468 | 1,961 | ||||
Non-GAAP operating profit | 10,273 | 9,139 | 28,711 | 14,054 | ||||
Depreciation | 963 | 961 | 2,855 | 2,805 | ||||
Adjusted EBITDA | 11,236 | 10,100 | 31,566 | 16,859 | ||||
SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES | |||||
CONDENSED CONSOLIDATED BALANCE SHEETS | |||||
U.S. dollars in thousands | |||||
September 30, | December 31, | ||||
2018 | 2017 | ||||
(unaudited) | (unaudited) | ||||
ASSETS | |||||
CURRENT ASSETS | |||||
Cash and cash equivalents | 64,079 | 71,467 | |||
Trade receivables, net | 63,177 | 53,226 | |||
Other receivables and prepaid expenses | 7,637 | 6,280 | |||
Total current assets | 134,893 | 130,973 | |||
LONG-TERM ASSETS | |||||
Property and equipment, net | 9,039 | 10,695 | |||
Severance pay fund | 4,197 | 4,547 | |||
Goodwill and intangible assets, net | 235,980 | 223,729 | |||
Other long-term assets | 4,631 | 3,675 | |||
Total long-term assets | 253,847 | 242,646 | |||
TOTAL ASSETS | 388,740 | 373,619 | |||
LIABILITIES AND EQUITY | |||||
CURRENT LIABILITIES | |||||
Trade payables | 10,012 | 7,044 | |||
Current maturities of Series B Debentures | 9,898 | - | |||
Accrued expenses and other liabilities | 57,345 | 46,612 | |||
Deferred revenue | 18,347 | 16,513 | |||
Total current liabilities | 95,602 | 70,169 | |||
LONG-TERM LIABILITIES | |||||
Series B Debentures, net of current maturities | 68,523 | 78,281 | |||
Deferred tax liabilities | 10,895 | 9,171 | |||
Other long-term liabilities | 8,089 | 8,271 | |||
Accrued severance pay | 5,157 | 5,500 | |||
Total long-term liabilities | 92,664 | 101,223 | |||
REDEEMABLE NON-CONTROLLING INTEREST | - | 1,353 | |||
EQUITY | 200,474 | 200,874 | |||
TOTAL LIABILITIES AND EQUITY | 388,740 | 373,619 | |||
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, | ||
2018 | 2017 | |
(unaudited) | (unaudited) | |
Cash flows from operating activities: | ||
Net income (loss) | 10,168 | (2,877) |
Reconciliation of net income (loss) to net cash provided by operating activities: | ||
Depreciation and amortization | 14,694 | 11,535 |
Amortization of premium, accrued interest and loss on sales of marketable securities | - | 509 |
Stock-based compensation related to options issued to employees | 1,462 | 1,349 |
Net changes in operating assets and liabilities, net of amount acquired: | ||
Trade receivables | (10,654) | (8,526) |
Deferred tax assets | (2,448) | (2,366) |
Other operating assets | (1,233) | (282) |
Trade payables | 1,657 | (1,245) |
Other operating liabilities | 185 | 574 |
Deferred revenues | 1,937 | 6,521 |
Severance pay | 52 | (63) |
Net cash provided by operating activities | 15,820 | 5,129 |
Cash flows from investing activities: | ||
Purchase of property and equipment | (1,710) | (1,687) |
Proceeds from sales of marketable securities | - | 35,369 |
Payments for business acquisition, net of cash acquired | (17,893) | (97,672) |
Capitalized software development costs | (3,778) | (4,331) |
Net cash used in investing activities | (23,381) | (68,321) |
Cash flows from financing activities: | ||
Loan received net of loan repayments | (41) | - |
Dividend to non-controlling interest | (47) | - |
Proceeds from employee stock options exercised | 532 | 438 |
Issuance of debenture, net | - | 78,198 |
Net cash provided by financing activities | 444 | 78,636 |
Effect of exchange rate changes on cash and cash equivalents | (271) | 4,141 |
Increase (decrease) in cash and cash equivalents | (7,388) | 19,585 |
Cash and cash equivalents at the beginning of period | 71,467 | 60,908 |
Cash and cash equivalents at the end of period | 64,079 | 80,493 |
Debentures Covenants
As of September 30, 2018, 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 6.68%.
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 0.34.
Investors and Media Contact Yaffa Cohen-IfrahChief Marketing Officer and Head of Corporate CommunicationsSapiens InternationalU.S. Mobile: +1-201-250-9414Mobile: +972-54-909-9039Email: [email protected]
View original content to download multimedia:http://www.prnewswire.com/news-releases/sapiens-reports-third-quarter-2018-financial-results-300745598.html
SOURCE Sapiens International Corporation