Sapiens Reports First Quarter 2021 Financial Results

Rhea-AI Summary

Sapiens International Corporation (NASDAQ: SPNS) reported strong Q1 2021 results with revenues of $109.6 million, up 21.1% from Q1 2020. Non-GAAP revenue reached a record $110.2 million, reflecting a 21.7% increase. Gross profit rose to $44.3 million, a 22.0% year-over-year growth, with an operating income of $12.4 million (20.3% growth). The company raised its 2021 revenue guidance to $459-$464 million, while adjusting its operating margin forecast to 17.0%-17.4% due to increased labor costs stemming from COVID-19 in India.

Positive

• Non-GAAP revenue reached a record $110.2 million, up 21.7%.
• Gross profit increased to $44.3 million, reflecting a 22.0% year-over-year growth.
• Increased 2021 revenue guidance to a range of $459 to $464 million.

Negative

• Operating margin guidance adjusted down to 17.0%-17.4% from 17.7%-18.0%.

HOLON, Israel, May 4, 2021 /PRNewswire/ -- Sapiens International Corporation, (NASDAQ: SPNS) (TASE: SPNS), a leading global provider of software solutions for the insurance industry, today announced its financial results for the first quarter ended March 31, 2021.

 

Summary Results for First Quarter 2021 (USD in millions, except per share data)
	GAAP			Non-GAAP
	Q1 2021	Q1 2020	% Change	Q1 2021	Q1 2020	% Change
Revenue	$109.6	$90.5	21.1%	$110.2	$90.5	21.7%
Gross Profit	$44.3	$36.3	22.0%	$49.2	$39.8	23.7%
Gross Margin	40.4%	40.1%	30 bps	44.7%	44.0%	70 bps
Operating Income	$12.4	$10.3	20.3%	$19.0	$14.6	30.0 %
Operating Margin	11.3%	11.4%	(10) bps	17.2%	16.1%	110 bps
Net Income (*)	$9.8	$6.8	44.2%	$14.9	$10.4	43.2%
Diluted EPS	$0.18	$0.13	38.5%	$0.27	$0.20	35.0%

(*) Attributable to Sapiens' shareholders.

"Our revenue growth in the first quarter validates our strategy of building global diversity with a broad business portfolio, which provides the foundation for Sapiens' performance and growth. Solid execution in the first quarter delivered 22% non-GAAP revenue growth, with non-GAAP revenues reaching a record $110 million and non-GAAP operating margin increasing to 17.2% from 16.1%. Our growth in the first quarter originated primarily from Europe and Rest-of-the-World. Operating a global company across multiple insurance markets and deploying a diversified product offering allows us to balance our growth, resources, investments, and risks across regions and markets. With a strategic focus and the increasing global market demand for digital insurance solutions and transformations, Sapiens is well positioned for continued financial performance," said Roni Al-Dor, Sapiens president and CEO.

"We are increasing our 2021 revenue guidance to a range of $459 to $464 million from our prior range of $457 to $463 million. We are also updating our operating profit margin guidance, due to our plan initiated this quarter to manage our growth and investment in delivery capabilities in the North American P&C CoreSuite business, and following the recent spike in COVID-19 in India, which will increase our labor costs in the short term. As a result of these two factors, operating margin in 2021 is expected to be in the range of 17.0% to 17.4%, compared to the previous range of 17.7% to 18.0%. I would like to highlight that Sapiens remains committed to increasing its profitability and margins, as we have done year after year."

 Quarterly Results Conference Call
Management will host a conference call and webcast today, May 4, 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 accessed on Sapiens' website at https://www.sapiens.com/investor-relations/ir-events-presentations/. A replay of the call will be available one business day following the completion of the event at the same location for 90 days.

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 press release 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 our most recent Annual Report on Form 20-F, 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, to conform these statements to actual results or to changes in our expectations.

Investors and Media Contact
Sapiens
Daphna Golden
Vice President, Head of Investor Relations
Email: ir@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
			March 31,
			2021		2020
			(unaudited)		(unaudited)
Revenue			109,592		90,534
Cost of revenue			65,336		54,270
Gross profit			44,256		36,264
Operating expenses:
	Research and development, net		13,088		10,526
	Selling, marketing, general and administrative		18,803		15,460
Total operating expenses			31,891		25,986
Operating income			12,365		10,278
Financial and other expenses, net			515		1,487
Taxes on income			1,948		1,901
Net income			9,902		6,890
Attributed to non-controlling interest			67		70
Net income attributable to Sapiens' shareholders			9,835		6,820
Basic earnings per share			0.18		0.14
Diluted earnings per share			0.18		0.13
Weighted average number of shares outstanding used   to compute basic earnings per share (in thousands)			54,689		50,175
Weighted average number of shares outstanding used  to compute diluted earnings per share (in thousands)			55,567		51,083

 

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
			March 31,
			2021		2020
			(unaudited)		(unaudited)
Revenue			110,222		90,534
Cost of revenue			60,993		50,743
Gross profit			49,229		39,791
Operating expenses:
	Research and development, net		14,720		11,963
	Selling, marketing, general and administrative		15,509		13,214
Total operating expenses			30,229		25,177
Operating income			19,000		14,614
Financial and other expenses, net			515		1,487
Taxes on income			3,510		2,645
Net income			14,975		10,482
Attributable to non-controlling interest			67		70
Net income attributable to Sapiens' shareholders			14,908		10,412
Basic earnings per share			0.27		0.21
Diluted earnings per share			0.27		0.20
Weighted average number of shares outstanding used to compute basic earnings per share (in thousands)			54,689		50,175
Weighted average number of shares outstanding used to compute diluted earnings per share (in thousands)			55,567		51,083

 

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
		March 31,
		2021		2020
		(unaudited)		(unaudited)
GAAP revenue		109,592		90,534
Valuation adjustment on acquired deferred revenue		630		-
Non-GAAP revenue		110,222		90,534
GAAP gross profit		44,256		36,264
Revenue adjustment		630		-
Amortization of capitalized software		1,784		1,496
Amortization of other intangible assets		2,559		2,031
Non-GAAP gross profit		49,229		39,791
GAAP operating income		12,365		10,278
Gross profit adjustments		4,973		3,527
Capitalization of software development		(1,632)		(1,437)
Amortization of other intangible assets		1,366		589
Stock-based compensation		1,399		622
Acquisition-related costs *)		529		1,035
Non-GAAP operating income		19,000		14,614
GAAP net income attributable to Sapiens' shareholders		9,835		6,820
Operating income adjustments		6,635		4,336
Taxes on income		(1,562)		(744)
Non-GAAP net income attributable to Sapiens'   shareholders		14,908		10,412

(*) 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)
	Q1 2021		Q4 2020		Q3 2020		Q2 2020		Q1 2020
Revenues	110,222		102,936		97,968		93,063		90,534
Gross profit	49,229		47,044		44,206		41,900		39,791
Operating income	19,000		18,666		17,859		16,783		14,614
Net income to Sapiens' shareholders	14,908		14,461		13,746		13,340		10,412
Adjusted EBITDA	20,120		20,032		19,010		17,854		15,724
Basic earnings per share	0.27		0.27		0.27		0.27		0.21
Diluted earnings per share	0.27		0.27		0.27		0.26		0.20
Non-GAAP Revenues by Geographic Breakdown
U.S. dollars in thousands
	Q1 2021		Q4 2020		Q3 2020		Q2 2020		Q1 2020
North America	44,754		47,303		49,979		46,610		44,567
Europe	57,642		49,225		42,394		41,030		40,232
Rest of the world	7,826		6,408		5,595		5,423		5,735
Total	110,222		102,936		97,968		93,063		90,534
Adjusted Free Cash-Flow
U.S. dollars in thousands
	Q1 2021		Q4 2020		Q3 2020		Q2 2020		Q1 2020
Cash-flow from operating activities	11,755		21,030		16,705		14,761		5,759
Increase in capitalized software development costs	(1,632)		(1,604)		(1,506)		(1,251)		(1,437)
Capital expenditures	(821)		(725)		(963)		(393)		(552)
Free cash-flow	9,302		18,701		14,236		13,117		3,770
Cash payments attributed to acquisition-related costs(*) (**)	1,280		2,363		242		1,562		737
Adjusted free cash-flow	10,582		21,064		14,478		14,679		4,507

(*) 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
		March 31,
		2021		2020
		(unaudited)		(unaudited)
GAAP operating income		12,365		10,278
Non-GAAP adjustments:
Valuation adjustment on acquired deferred revenue		630		-
Amortization of capitalized software		1,784		1,496
Amortization of other intangible assets		3,925		2,620
Capitalization of software development		(1,632)		(1,437)
Stock-based compensation		1,399		622
Compensation related to acquisition and acquisition-related costs		529		1,035
Non-GAAP operating income		19,000		14,614
Depreciation		1,120		1,110
Adjusted EBITDA		20,120		15,724

 

SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands
			March 31,		December 31,
			2021		2020
			(unaudited)		(unaudited)
ASSETS
CURRENT ASSETS
	Cash and cash equivalents		142,184		152,561
	Short-term bank deposit		30,000		30,000
	Trade receivables, net and unbilled receivables		74,762		65,409
	Other receivables and prepaid expenses		16,494		19,388
	Total current assets		263,440		267,358
LONG-TERM ASSETS
	Property and equipment, net		16,585		16,970
	Severance pay fund		6,604		6,582
	Goodwill and intangible assets, net		352,130		363,597
	Operating lease right-of-use assets		51,716		54,390
	Other long-term assets		6,078		5,264
	Total long-term assets		433,113		446,803
TOTAL ASSETS			696,553		714,161
LIABILITIES AND EQUITY
CURRENT LIABILITIES
	Trade payables		6,057		5,389
	Current maturities of Series B Debentures		19,796		19,796
	Accrued expenses and other liabilities		68,750		75,119
	Current maturities of operating lease liabilities		10,719		9,924
	Deferred revenue		41,470		34,548
	Total current liabilities		146,792		144,776
LONG-TERM LIABILITIES
	Series B Debentures, net of current maturities		78,906		98,676
	Deferred tax liabilities		14,704		16,010
	Other long-term liabilities		13,037		12,129
	Long-term operating lease liabilities		46,531		48,773
	Redeemable non-controlling interest		562		517
	Accrued severance pay		9,530		9,586
	Total long-term liabilities		163,270		185,691
EQUITY			386,491		383,694
TOTAL LIABILITIES AND EQUITY			696,553		714,161

 

SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOW
U.S. dollars in thousands
		For the three months ended March 31,
		2021		2020
		(unaudited)		(unaudited)
Cash flows from operating activities:
Net income		9,902		6,890
Reconciliation of net income to net cash provided by operating activities:
Depreciation and amortization		6,829		5,226
Accretion of discount on Series B Debentures		26		33
Stock-based compensation related to options issued to employees		1,399		622
Capital loss from sale of property and equipment		5		-
Net changes in operating assets and liabilities, net of amount acquired:
Trade receivables, net and unbilled receivables		(10,541)		(9,009)
Deferred tax assets, net		(1,913)		(1,257)
Other operating assets		6,116		2,260
Trade payables		609		(52)
Other operating liabilities		(7,774)		(759)
Deferred revenues		6,995		1,655
Accrued severance pay, net		102		150
Net cash provided by operating activities		11,755		5,759
Cash flows from investing activities:
Purchase of property and equipment		(821)		(552)
Investment in deposit		-		(665)
Proceeds from restricted deposit used for completed acquisition		-		22,890
Payments for business acquisitions, net of cash acquired		-		(22,061)
Proceeds from sale of property and equipment		154		-
Capitalized software development costs		(1,632)		(1,437)
Net cash used in investing activities		(2,299)		(1,825)
Cash flows from financing activities:
Proceeds from employee stock options exercised		413		600
Repayment of Series B Debenture		(19,796)		(9,898)
Receipt of short-term loan		-		20,000
Payment of contingent considerations		(537)		(538)
Dividend to non-controlling interest		(31)		-
Net cash provided by (used in) financing activities		(19,951)		10,164
Effect of exchange rate changes on cash and cash equivalents		118		(836)
Increase (decrease) in cash and cash equivalents		(10,377)		13,262
Cash and cash equivalents at the beginning of period		152,561		66,295
Cash and cash equivalents at the end of period		142,184		79,557

Debentures Covenants

As of March 31, 2021, 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 $384 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 (22.55)%.

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 (0.92).

 

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SOURCE Sapiens International Corporation

FAQ

What were Sapiens' Q1 2021 earnings results?

Sapiens reported Q1 2021 revenues of $109.6 million, a 21.1% increase year-over-year, and a net income of $9.8 million.

What is Sapiens' revenue guidance for 2021?

Sapiens increased its 2021 revenue guidance to a range of $459 to $464 million.

How did Sapiens' operating margin change in Q1 2021?

Operating margin guidance was adjusted down to 17.0%-17.4% for 2021, lower than the previous range.

What drove Sapiens' revenue growth in Q1 2021?

Revenue growth primarily originated from Europe and the Rest-of-the-World.