Sapiens Reports Fourth Quarter 2022 Financial Results

Rhea-AI Summary

Sapiens International Corporation (NASDAQ: SPNS) announced its Q4 2022 financial results, revealing revenue of $119.5 million, a slight increase of 0.2% year-over-year. Despite this, non-GAAP revenue showed a slight decline of 0.3%. Gross profit rose to $50.3 million, yielding a gross margin of 42.1%. The operating income was $16.5 million, with a margin of 13.8%. For the full year 2022, revenue reached $474.8 million, a 3.0% increase, while gross profit rose by 6.6% to $200.2 million. The company announced 2023 guidance, projecting non-GAAP revenue between $502 million and $507 million. Sapiens aims to expand its North American market presence and increase cloud customer migration.

Positive

• 2022 revenue increased to $474.8 million, up 3.0% year-over-year.
• Gross profit grew by 6.6% to $200.2 million in 2022.
• Operating income for 2022 rose to $66.5 million, a 15.7% increase.

Negative

• Q4 2022 revenue of $119.5 million was only a marginal increase of 0.2% year-over-year.
• Q4 2022 net income decreased by 2.2% to $13.4 million.
• Q4 diluted EPS fell by 4.0% to $0.24.

HOLON, Israel, Feb. 21, 2023 /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 fourth quarter ended December 31, 2022.

 

Summary Results for Fourth Quarter 2022 (USD in millions, except per share data)
	GAAP			Non-GAAP
	Q4 2022	Q4 2021	% Change	Q4 2022	Q4 2021	% Change
Revenue	$119.5	$119.2	0.2 %	$119.5	$119.9	-0.3 %
Gross Profit	$50.3	$48.7	3.4 %	$53.8	$53.9	-0.3 %
Gross Margin	42.1 %	40.8 %	130 bps	45.0 %	45.0 %	0 bps
Operating Income	$16.5	$15.7	4.8 %	$21.1	$21.6	-2.5 %
Operating Margin	13.8 %	13.2 %	60 bps	17.6 %	18.0 %	-40 bps
Net Income (*)	$13.4	$13.7	-2.2 %	$18.0	$17.7	1.9 %
Diluted EPS	$0.24	$0.25	-4.0 %	$0.32	$0.32	0.0 %

 

Summary Results for Full Year end 2022 (USD in millions, except per share data)
	GAAP		% Change	Non-GAAP		% Change
	2022	2021		2022	2021
Revenue	$474.7	$461.0	3.0 %	$474.8	$463.6	2.4 %
Gross Profit	$200.2	$187.8	6.6 %	$213.5	$208.3	2.5 %
Gross Margin	42.2 %	40.7 %	150 bps	45.0 %	44.9 %	10 bps
Operating Income	$66.5	$57.5	15.7 %	$83.5	$81.4	2.5 %
Operating Margin	14.0 %	12.5 %	150 bps	17.6 %	17.6 %	0 bps
Net income (*)	$52.6	$47.2	11.5 %	$67.2	$65.5	2.5 %
Diluted EPS	$0.95	$0.85	11.8 %	$1.21	$1.18	2.5 %
(*) Attributable to Sapiens' shareholders

 

"Our revenue in 2022 reached $474.8 million, and on a constant currency basis, we grew by 7.8%. Key accomplishments in 2022 include our continued growth of cloud-based customers with over 90% of new logos delivered on the cloud and the significant increase in our platform deals," stated Roni Al-Dor, President and CEO of Sapiens. "We continue to fortify our leading position in Europe. We are particularly enthused by our momentum in North America, where we closed a CoreSuite for Life and Annuity deal in addition to business application solutions deals in 2022. Our renewed growth in North America increases our confidence that the region will continue growth in 2023." 

"Operating profit in 2022 reached $83.5 million, representing an operating margin of 17.6%, a great accomplishment despite the macroeconomic environment and currency headwind," continued Mr. Al-Dor. "Our priorities for 2023 are to build on the improving dynamics in North America to grow our presence in this region, advance our position in Europe, deepening relationships with our existing customers, and continue migrating customers to the cloud."

"We are introducing 2023 guidance for non-GAAP revenue in a range of $502 million to $507 million, and non-GAAP operating margin in a range of 17.6% to 18.0%," concluded Mr. Al-Dor.

Quarterly Results Conference Call

Management will host a conference call and webcast on February 21, 2023, 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: 972-3-9180609

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. A replay of the call will be available one business day following the completion of the event, at the same link 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 gross margin, non-GAAP operating income, non-GAAP operating margin, 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 to eliminate valuation adjustment on acquired deferred revenue, stock-based compensation expense, depreciation and amortization, capitalization 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 as well, in order 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 (NASDAQ: SPNS) (TASE: SPNS) empowers the financial sector, with a focus on insurance, to transform and become digital, innovative and agile. Backed by more than 35 years of industry expertise, Sapiens offers a complete insurance platform, with pre-integrated, low-code solutions and a cloud-first approach that accelerates customers' digital transformation. Serving over 600 customers in 30 countries, Sapiens offers insurers across property and casualty, workers compensation and life markets the most comprehensive set of solutions, from core to complementary, including Reinsurance, Financial & Compliance, Data & Analytics, Digital, and Decision Management.  For more information visit www.sapiens.com or follow us on LinkedIn.

Investor and Media Contact Yaffa Cohen-Ifrah Chief Marketing Officer and Head of Investor Relations, Sapiens Yaffa.cohen-ifrah@sapiens.com

Investors Contact Brett Maas Managing Partner, Hayden IR Brett.Maas@HaydenIR.com Kimberly Rogers Managing Director, Hayden IR kim@HaydenIR.com

Forward Looking Statements

Certain matters discussed in this press release 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, and 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 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 pandemic, which adversely affected our results of operations, 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, which we filled with the SEC on March 31, 2022, 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.

	SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES
	CONDENSED CONSOLIDATED STATEMENT OF INCOME
	U.S. dollars in thousands (except per share amounts)
			Three months ended				Year ended
			December 31,				December 31,
			2022		2021		2022		2021
			(unaudited)		(unaudited)		(unaudited)		(unaudited)
Revenue			119,463		119,225		474,736		461,035
Cost of revenue			69,158		70,561		274,573		273,191
Gross profit			50,305		48,664		200,163		187,844
Operating expenses:
	Research and development, net		15,251		13,891		58,656		54,013
	Selling, marketing, general and administrative		18,573		19,041		75,016		76,343
Total operating expenses			33,824		32,932		133,672		130,356
Operating income			16,481		15,732		66,491		57,488
Financial and other expenses (income), net			(1,097)		(311)		941		202
Taxes on income			4,276		2,404		12,619		9,964
Net income			13,302		13,639		52,931		47,322
Attributable to non-controlling interest			(65)		(26)		336		151
Net income attributable to Sapiens' shareholders			13,367		13,665		52,595		47,171
Basic earnings per share			0.24		0.25		0.95		0.86
Diluted earnings per share			0.24		0.25		0.95		0.85
Weighted average number of shares outstanding used to compute basic earnings per share (in thousands)			55,140		54,902		55,117		54,785
Weighted average number of shares outstanding used to compute diluted earnings per share (in thousands)			55,521		55,626		55,570		55,561

 

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,
		2022		2021		2022		2021
		(unaudited)		(unaudited)		(unaudited)		(unaudited)
GAAP revenue		119,463		119,225		474,736			461,035
Valuation adjustment on acquired deferred revenue		23		629		92			2,519
Non-GAAP revenue		119,486		119,854		474,828			463,554
GAAP gross profit		50,305		48,664		200,163			187,844
Revenue adjustment		23		629		92			2,519
Amortization of capitalized software		1,517		2,084		5,840			7,679
Amortization of other intangible assets		1,929		2,556		7,375			10,253
Non-GAAP gross profit		53,774		53,933		213,470			208,295
GAAP operating income		16,481		15,732		66,491			57,488
Gross profit adjustments		3,469		5,269		13,307			20,451
Capitalization of software development		(1,238)		(2,256)		(6,097)			(7,911)
Amortization of other intangible assets		1,115		1,311		4,783			5,377
Stock-based compensation		759		1,274		3,960			4,801
Acquisition-related costs (*)		472		260		1,033			1,198
Non-GAAP operating income		21,058		21,590		83,477			81,404
GAAP net income attributable to Sapiens' shareholders		13,367		13,665		52,595			47,171
Operating income adjustments		4,577		5,858		16,986			23,916
Taxes on income		78		(1,842)		(2,411)			(5,550(
Non-GAAP net income attributable to Sapiens' shareholders		18,022		17,681		67,170			65,537
(*) 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.

 

Adjusted EBITDA Calculation
U.S. dollars in thousands
		Three months ended				Year ended
		December 31,				December 31,
		2022		2021		2022		2021
GAAP operating profit		16,481		15,732		66,491		57,488
Non-GAAP adjustments:
Valuation adjustment on acquired deferred revenue		23		629		92		2,519
Amortization of capitalized software		1,517		2,084		5,840		7,679
Amortization of other intangible assets		3,044		3,867		12,158		15,630
Capitalization of software development		(1,238)		(2,256)		(6,097)		(7,911)
Stock-based compensation		759		1,274		3,960		4,801
Compensation related to acquisition and acquisition- related costs		472		260		1,033		1,198
Non-GAAP operating profit		21,058		21,590		83,477		81,404
Depreciation		1,034		1,989		4,242		5,360
Adjusted EBITDA		22,092		23,579		87,719		86,764

 

Summary of NON-GAAP Financial Information
U.S. dollars in thousands (except per share amounts)
	Q4 2022		Q3 2022		Q2 2022		Q1 2022		Q4 2021
Revenues	119,486		119,019		118,605		117,718		119,854
Gross profit	53,774		53,546		53,207		52,943		53,933
Operating income	21,058		20,902		20,747		20,770		21,590
Adjusted EBITDA	22,092		22,036		21,681		21,910		23,579
Net income to Sapiens' shareholders	18,022		16,871		14,979		17,298		17,681
Diluted earnings per share	0.32		0.30		0.27		0.31		0.32

 

Non-GAAP Revenues by Geographic Breakdown
U.S. dollars in thousands
	Q4 2022		Q3 2022		Q2 2022		Q1 2022		Q4 2021
North America	50,801		49,555		48,154		49,009		48,872
Europe	56,910		56,887		59,868		59,267		62,416
Rest of the World	11,775		12,577		10,583		9,442		8,566
Total	119,486		119,019		118,605		117,718		119,854

 

Adjusted Free Cash-Flow
U.S. dollars in thousands
	Q4 2022		Q3 2022		Q2 2022		Q1 2022		Q4 2021
Cash-flow from operating activities	14,430		4,405		6,615		18,330		27,386
Increase in capitalized software development costs	(1,238)		(1,492)		(1,621)		(1,746)		(2,256)
Capital expenditures	(400)		(1,047)		(803)		(453)		(801)
Free cash-flow	12,792		1,866		4,191		16,131		24,329
Cash payments attributed to acquisition-related costs(*) (**)	1,100		-		-		-		407
Adjusted free cash-flow	13,892		1,866		4,191		16,131		24,736
(*) 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.

 

Reconciliation of Revenue Growth as Reported on GAAP Basis to Revenue Growth on a Constant Currency Basis

Year ended December 31, 2022

Revenue growth %		As reported	Currency Impact	Constant Currency Basis
North America		4.3 %	-	4.3 %
Europe		(2.7) %	(10.1) %	7.4 %
Rest of the world		27.8 %	(1.1) %	28.9 %
Total		2.4 %	(5.4) %	7.8 %

* Constant currency revenue results are calculated by translating current period revenues in local currency into U.S dollars at the weighted average exchange rates of the comparable prior year period.

* Due to the significant impact of the currencies fluctuations this year on our reported revenues, we are providing the above information by region on a constant currency basis for this year. We are not committing at this time to continue providing such information in the future.

SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
U.S. dollars in thousands
			December 31,		December 31,
			2022		2021
			(unaudited)		(unaudited)
ASSETS
CURRENT ASSETS
	Cash and cash equivalents		160,285		190,243
	Short-term bank deposit		20,000		20,000
	Trade receivables, net and unbilled receivables		93,382		76,261
	Other receivables and prepaid expenses		11,640		13,841
	Total current assets		285,307		300,345
LONG-TERM ASSETS
	Property and equipment, net		12,021		14,458
	Severance pay fund		3,996		5,954
	Goodwill and intangible assets, net		319,661		343,283
	Operating lease right-of-use assets		33,688		43,665
	Other long-term assets		12,078		7,288
	Total long-term assets		381,444		414,648
TOTAL ASSETS			666,751		714,993
LIABILITIES AND EQUITY
CURRENT LIABILITIES
	Trade payables		9,415		5,008
	Current maturities of Series B Debentures		19,796		19,796
	Accrued expenses and other liabilities		76,962		76,450
	Current maturities of operating lease liabilities		9,063		10,827
	Deferred revenue		30,720		39,614
	Total current liabilities		145,956		151,695
LONG-TERM LIABILITIES
	Series B Debentures, net of current maturities		59,275		78,986
	Deferred tax liabilities		11,363		15,360
	Other long-term liabilities		11,719		12,144
	Long-term operating lease liabilities		28,432		38,751
	Redeemable non-controlling interest		89		101
	Accrued severance pay		7,063		9,236
	Total long-term liabilities		117,941		154,578
EQUITY			402,854		408,720
TOTAL LIABILITIES AND EQUITY			666,751		714,993

 

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,
	2022		2021
	(unaudited)		(unaudited)
Cash flows from operating activities:
Net income	52,931		47,322
Reconciliation of net income to net cash provided by operating activities:
Impairment of right of use asset	-		1,439
Depreciation and amortization	22,240		28,669
Accretion of discount on Series B Debentures	85		106
Capital (gain) loss from sale of property and equipment	26		(60)
Stock-based compensation related to options issued to employees	3,960		4,801
Net changes in operating assets and liabilities, net of amount acquired:
Increase in Trade receivables, net and unbilled receivables	(21,860)		(13,937)
Decrease in Deferred tax liabilities, net	(8,541)		(1,902)
Decrease in Other operating assets	7,729		17,743
Increase (decrease) in Trade payables	4,634		(529)
Decrease in Other operating liabilities	(9,764)		(8,415)
Increase (decrease) in Deferred revenues	(7,738)		4,930
Increase in Accrued severance pay, net	78		375
Net cash provided by operating activities	43,780		80,542
Cash flows from investing activities:
Purchase of property and equipment	(2,757)		(3,786)
Proceeds from deposits	26		10,031
Proceeds from sale of property and equipment	54		1,111
Proceeds from (payments for) business acquisitions, net of cash acquired	(3,466)		831
Capitalized software development costs	(6,097)		(7,911)
Acquisition of intellectual property	(200)		(151)
Net cash provided by (used in) investing activities	(12,440)		125
Cash flows from financing activities:
Proceeds from employee stock options exercised	-		2,038
Distribution of dividend	(38,579)		(20,255)
Repayment of Series B Debenture	(19,796)		(19,796)
Payment of contingent considerations	-		(926)
Acquisition of non-controlling interests	-		(990)
Dividend to non-controlling interest	-		(31)
Net cash used in financing activities	(58,375)		(39,960)
Effect of exchange rate changes on cash and cash equivalents	(2,923)		(3,025)
Increase (Decrease) in cash and cash equivalents	(29,958)		37,682
Cash and cash equivalents at the beginning of period	190,243		152,561
Cash and cash equivalents at the end of period	160,285		190,243

 

Debentures Covenants

As of December 31, 2022, 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 non-controlling interest): above $120 million.
• Actual shareholders' equity (excluding non-controlling interest) equal to $400.5 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 (32.96)%.

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 (1.14).

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SOURCE Sapiens International Corporation

FAQ

What were Sapiens' Q4 2022 financial results?

Sapiens reported Q4 2022 revenue of $119.5 million, a 0.2% increase year-over-year, with a net income of $13.4 million.

What is the guidance for Sapiens in 2023?

Sapiens projects 2023 non-GAAP revenue between $502 million and $507 million.

How did Sapiens perform in 2022?

Sapiens achieved $474.8 million in revenue for 2022, marking a 3.0% increase from 2021.

What factors contributed to Sapiens' operating income increase in 2022?

Operating income rose to $66.5 million in 2022 due to increased revenue and operational efficiencies.

What was the trend in Sapiens' gross profit for Q4 2022?

In Q4 2022, gross profit increased to $50.3 million, yielding a gross margin of 42.1%, up from 40.8% in Q4 2021.