Sapiens Reports Second Quarter 2020 Financial Results

Rhea-AI Summary

Sapiens International Corporation (NASDAQ: SPNS) reported a strong financial performance for Q2 2020, with revenue increasing by 17.0% to $93.1 million compared to Q2 2019. Gross profit rose 21.6% to $38.3 million, and net income attributable to shareholders jumped 35.9% to $9.3 million, resulting in a diluted EPS of $0.18. The company cites growth in North America and Europe as key drivers, alongside improved cost management during COVID-19. Sapiens has raised its 2020 revenue guidance to between $376 million and $381 million.

Positive

• Revenue increased by 17.0% to $93.1 million.
• Gross profit rose by 21.6% to $38.3 million.
• Net income increased by 35.9% to $9.3 million.
• Diluted EPS grew by 28.6% to $0.18.
• Operating income improved by 31.2%, with a margin of 13.3%.
• Raised 2020 revenue guidance to $376 million - $381 million.

Negative

• Delphi acquisition currently in a loss position.

HOLON, Israel, Aug. 4, 2020 /PRNewswire/ -- Sapiens International Corporation, (NASDAQ: SPNS) and (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 second quarter ended June 30, 2020.

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

	GAAP			Non-GAAP
	June 30, 2020	June 30, 2019	% Change	June 30, 2020	June 30, 2019	% Change
Revenue	$93.1	$79.5	17.0%	$93.1	$79.5	17.0%
Gross Profit	$38.3	$31.5	21.6%	$41.9	$34.8	20.4%
Gross Margin	41.1%	39.6%	150 bps	45.0%	43.8%	120 bps
Operating Income	$12.4	$9.5	31.2%	$16.8	$12.6	33.4%
Operating Margin	13.3%	11.9%	140 bps	18.0%	15.8%	220 bps
Net Income (*)	$9.3	$6.8	35.9%	$13.3	$9.5	39.8%
Diluted EPS	$0.18	$0.14	28.6%	$0.26	$0.19	36.8%

(*) Attributable to Sapiens' shareholders.

"Our second quarter growth was driven by North America and Europe and reached a growth rate of  17.0%. Non-Gaap Operating income grew 33.4%, lifting operating margin by 220 basis points to a record 18.0%, primarily due to cost saving steps we implemented as COVID-19 appeared," said Roni Al-Dor, Sapiens president and CEO.

"Our outlook for  2020 has improved despite COVID-19. We continue to sign new business and increase our revenue from existing customers  with upselling opportunities. "In addition the recent Delphi acquisition enhances our position as a leading solutions provider in the MPL market in North America As such, we are raising our 2020 revenue guidance range," concluded Roni Al-Dor. "Our revised 2020 revenue range is now $376 million to $381 million, as compared to our prior range of $368 million to $377 million. The Delphi business acquisition which we completed at the end of July is currently in loss position, partially offsetting our operational improvement in 2020. That being said we are increasing our guidance to 16.5% to 16.9% from prior range of 16.0% to 16.5%."

Quarterly Results Conference Call

Management will host a conference call and webcast on August 4, 2020 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: 0-800-917-9141

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 August 13, 2020, as follows:

North America: +1-877-456-0009; International: +972-3-9255901

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 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 payments related to investment in the new campus in India, 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 over 500 organizations globally, Sapiens has a proven ability to satisfy customers' core, data and digital requirements. For more information: www.sapiens.com

Forward Looking Statements

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, 2019, and subsequent reports and registration statements filed from time to time with the Securities and Exchange Commission.

Investors and Media Contact
Brett Mass
Managing Partner
Hayden IR
Phone: +1-646-536-7331
Email: 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				Six months ended
			June 30				June 30
			2020		2019		2020		2019
			(unaudited)		(unaudited)		(unaudited)		(unaudited)
Revenue			93,063		79,529		183,597		156,316
Cost of revenue			54,804		48,075		109,074		95,055
Gross profit			38,259		31,454		74,523		61,261
Operating expenses:
	Research and development, net		9,328		8,923		19,854		17,700
	Selling, marketing, general and administrative		16,528		13,077		31,988		26,030
Total operating expenses			25,856		22,000		51,842		43,730
Operating income			12,403		9,454		22,681		17,531
Financial and other expenses, net			63		434		1,550		1,488
Taxes on income			3,010		2,154		4,911		4,001
Net income			9,330		6,866		16,220		12,042
Attributable to non-controlling interest			33		26		103		47
Net income attributable to Sapiens' shareholders			9,297		6,840		16,117		11,995
Basic earnings per share			0.19		0.14		0.32		0.24
Diluted earnings per share			0.18		0.14		0.32		0.24
Weighted average number of shares outstanding used to compute basic earnings per share (in thousands)			50,297		50,002		50,236		49,994
Weighted average number of shares outstanding used to compute diluted earnings per share (in thousands)			51,173		50,530		51,128		50,430

          

 

	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				Six months ended
			June 30				June 30
			2020		2019		2020		2019
			(unaudited)		(unaudited)		(unaudited)		(unaudited)
Revenue			93,063		79,529		183,597		156,316
Cost of revenue			51,163		44,735		101,906		88,418
Gross profit			41,900		34,794		81,691		67,898
Operating expenses:
	Research and development, net		10,579		10,493		22,542		20,662
	Selling, marketing, general and administrative		14,538		11,720		27,752		22,905
Total operating expenses			25,117		22,213		50,294		43,567
Operating income			16,783		12,581		31,397		24,331
Financial and other expenses, net			63		434		1,550		1,488
Taxes on income			3,347		2,580		5,992		4,865
Net income			13,373		9,567		23,855		17,978
Attributable to non-controlling interest			33		26		103		47
Net income attributable to Sapiens' shareholders			13,340		9,541		23,752		17,931
Basic earnings per share			0.27		0.19		0.47		0.36
Diluted earnings per share			0.26		0.19		0.46		0.36
Weighted average number of shares outstanding used to compute basic earnings per share (in thousands)			50,297		50,002		50,236		49,994
Weighted average number of shares outstanding used to compute diluted earnings per share (in thousands)			51,173		50,530		51,128		50,430

 

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				Six months ended
		June 30,				June 30,
		2020		2019		2020		2019
		(unaudited)		(unaudited)		(unaudited)		(unaudited)
GAAP gross profit		38,259		31,454		74,523			61,261
Amortization of capitalized software		1,531		1,390		3,027			2,731
Amortization of other intangible assets		2,110		1,950		4,141			3,906
Non-GAAP gross profit		41,900		34,794		81,691			67,898
GAAP operating income		12,403		9,454		22,681			17,531
Gross profit adjustments		3,641		3,340		7,168			6,637
Capitalization of software development		(1,251)		(1,570)		(2,688)			(2,962)
Amortization of other intangible assets		698		540		1,287			1,075
Stock-based compensation		764		288		1,386			741
Acquisition-related costs *)		528		529		1,563			1,309
Non-GAAP operating income		16,783		12,581		31,397			24,331
GAAP net income attributable to Sapiens' shareholders		9,297		6,840		16,117			11,995
Operating income adjustments		4,380		3,127		8,716			6,800
Taxes on income		(337)		(426)		(1,081)			(864)
Non-GAAP net income attributable to Sapiens' shareholders		13,340		9,541		23,752			17,931

(*) 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)
	Q2 2020		Q1 2020		Q4 2019		Q3 2019		Q2 2019
Revenues	93,063		90,534		86,715		82,643		79,529
Gross profit	41,900		39,791		38,402		36,712		34,794
Operating income	16,783		14,614		14,345		13,530		12,581
Net income to Sapiens' shareholders	13,340		10,412		10,553		10,412		9,541
Adjusted EBITDA	17,854		15,724		15,271		14,523		13,358
Basic earnings per share	0.27		0.21		0.21		0.21		0.19
Diluted earnings per share	0.26		0.20		0.21		0.21		0.19

 

Non-GAAP Revenues by Geographic Breakdown  U.S. dollars in thousands
	Q2 2020		Q1 2020		Q4 2019		Q3 2019		Q2 2019
North America	46,610		44,567		41,787		44,413		39,216
Europe	41,030		40,232		37,504		30,273		33,881
Rest of the world	5,423		5,735		7,424		7,957		6,432
Total	93,063		90,534		86,715		82,643		79,529

 

Adjusted Free Cash-Flow U.S. dollars in thousands
	Q2 2020		Q1 2020		Q4 2019		Q3 2019		Q2 2019
Cash-flow from operating activities	14,761		5,759		21,429		18,671		15,507
Increase in capitalized software development costs	(1,251)		(1,437)		(1,162)		(1,541)		(1,570)
Capital expenditures	(393)		(552)		(2,456)		(973)		(1,079)
Capital expenditures related to new campus in India	-		-		-		(6,325)		-
Free cash-flow	13,117		3,770		17,811		9,832		12,858
Capital expenditures related to new campus in India	-		-		-		6,325		-
Cash payments attributed to acquisition-related costs(*) (**)	1,562		737		200		100		1,692
Adjusted free cash-flow	14,679		4,507		18,011		16,257		14,550
(*) 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				Six months ended
		June 30				June 30
		2020		2019		2020		2019
GAAP operating profit		12,403		9,454		22,681		17,531
Non-GAAP adjustments:
Amortization of capitalized software		1,531		1,390		3,027		2,731
Amortization of other intangible assets		2,808		2,490		5,428		4,981
Capitalization of software development		(1,251)		(1,570)		(2,688)		(2,962)
Stock-based compensation		764		288		1,386		741
Compensation related to acquisition and acquisition-related costs		528		529		1,563		1,310
Non-GAAP operating profit		16,783		12,581		31,397		24,332
Depreciation		1,071		777		2,182		1,550
Adjusted EBITDA		17,854		13,358		33,579		25,882

 

SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands
			June 30,		December 31,
			2020		2019
			(unaudited)		(unaudited)
ASSETS
CURRENT ASSETS
	Cash and cash equivalents		127,978		66,295
	Trade receivables, net and unbilled receivables		62,969		50,221
	Investment in restricted deposit		-		22,890
	Other receivables and prepaid expenses		9,041		7,817
	Total current assets		199,988		147,223
LONG-TERM ASSETS
	Property and equipment, net		16,486		16,601
	Severance pay fund		5,839		5,106
	Goodwill and intangible assets, net		248,733		228,691
	Operating lease right-of-use assets		50,231		49,539
	Other long-term assets		6,017		5,261
	Total long-term assets		327,306		305,198
TOTAL ASSETS			527,294		452,421
LIABILITIES AND EQUITY
CURRENT LIABILITIES
	Trade payables		5,738		5,107
	Current maturities of Series B Debentures		19,796		9,898
	Accrued expenses and other liabilities		64,443		60,574
	Current maturities of operating lease liabilities		9,073		8,312
	Deferred revenue		25,061		21,021
	Total current liabilities		124,111		104,912
LONG-TERM LIABILITIES
	Series B Debentures, net of current maturities		98,434		58,850
	Deferred tax liabilities		7,235		5,082
	Other long-term liabilities		8,312		8,321
	Long-term operating lease liabilities		44,319		43,394
	Accrued severance pay		7,367		6,364
	Total long-term liabilities		165,667		122,011
REDEEMABLE NON-CONTROLLING INTEREST			458		-
EQUITY			237,058		225,498
TOTAL LIABILITIES AND EQUITY			527,294		452,421

 

SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOW U.S. dollars in thousands
	For the six months ended June 30,
	2020	2019
	(unaudited)	(unaudited)
Cash flows from operating activities:
Net income	16,220	12,042
Reconciliation of net income to net cash provided by operating activities:
Depreciation and amortization	10,637	9,262
Accretion of discount on Series B Debentures	77	84
Capital gain from sale of property and equipment	-	(129)
Stock-based compensation related to options issued to employees	1,386	741
Net changes in operating assets and liabilities, net of amount acquired:
Trade receivables, net and unbilled receivables	(11,554)	712
Deferred tax assets, net	(1,146)	(1,435)
Other operating assets	3,286	(356)
Trade payables	(275)	190
Other operating liabilities	(2,187)	152
Deferred revenues	4,008	4,760
Accrued severance pay, net	68	34
Net cash provided by operating activities	20,520	26,057
Cash flows from investing activities:
Purchase of property and equipment	(945)	(1,720)
Investment in deposit	(379)	(1,119)
Proceeds from restricted deposit used for completed acquisition	22,890	-
Payments for business acquisitions, net of cash acquired	(22,483)	821
Capitalized software development costs	(2,688)	(2,962)
Net cash used in investing activities	(3,605)	(4,980)
Cash flows from financing activities:
Proceeds from employee stock options exercised	2,334	78
Distribution of dividend	(6,632)	-
Repayment of Series B Debenture	(9,898)	(9,898)
Issuance of Series B Debentures, net of issuance expenses of $863	60,155	-
Receipt of short-term loan	20,000	-
Repayment of loan	(20,000)	(4)
Payment of contingent considerations	(538)	(120)
Dividend to non-controlling interest	-	(66)
Net cash provided by (used in) financing activities	45,421	(10,010)
Effect of exchange rate changes on cash and cash equivalents	(652)	1,587
Increase in cash and cash equivalents	61,684	12,654
Cash and cash equivalents at the beginning of period	66,295	64,628
Cash and cash equivalents at the end of period	127,979	77,282

 

Debentures Covenants

As of June 30, 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 equal to $237 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 (3.4)%.

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 (0.1).

View original content:http://www.prnewswire.com/news-releases/sapiens-reports-second-quarter-2020-financial-results-301105459.html

SOURCE Sapiens International Corporation

FAQ

What is Sapiens' revenue for Q2 2020?

Sapiens reported revenue of $93.1 million for Q2 2020.

How did Sapiens' net income change in Q2 2020?

Net income attributable to shareholders increased by 35.9% to $9.3 million in Q2 2020.

What is the updated revenue guidance for Sapiens in 2020?

Sapiens increased its 2020 revenue guidance range to $376 million to $381 million.

What drove Sapiens' growth in Q2 2020?

Growth was driven primarily by North America and Europe, along with cost-saving measures.

What was the diluted EPS for Sapiens in Q2 2020?

The diluted EPS for Q2 2020 was $0.18, a 28.6% increase from the previous year.