Sapiens Reports Second Quarter 2022 Financial Results

Rhea-AI Summary

Sapiens International Corporation (NASDAQ: SPNS) reported Q2 2022 financial results, highlighting a 3.7% increase in revenue, reaching $118.6 million, compared to Q2 2021. Gross profit rose 7.6% to $50.2 million, with a gross margin improvement of 150 bps. Operating income jumped 28.4% to $16.9 million. However, net income dipped 6.2% to $11.9 million. Sapiens revised its revenue guidance down to $480 - $485 million for 2022, primarily due to FX headwinds. The board approved a cash dividend of $0.23 per share.

Positive

• Revenue increased by 3.7% year-over-year to $118.6 million.
• Gross profit rose by 7.6% to $50.2 million.
• Operating income grew by 28.4% to $16.9 million.
• Improved gross margin by 150 bps to 42.3%.
• Announced a cash dividend of $0.23 per share.

Negative

• Net income fell by 6.2% to $11.9 million.
• Diluted EPS decreased by 6.9% to $0.21.
• Revenue guidance lowered from $495 - $500 million to $480 - $485 million.

HOLON, Israel, Aug. 3, 2022 /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 second quarter ended June 30, 2022.

 

Summary Results for Second Quarter 2022 (USD in millions, except per share data)
	GAAP			Non-GAAP
	Q2 2022	Q2 2021	% Change	Q2 2022	Q2 2021	% Change
Revenue	$118.6	$114.4	3.7 %	$118.6	$115.0	3.1 %
Gross Profit	$50.2	$46.6	7.6 %	$53.2	$51.7	2.9 %
Gross Margin	42.3 %	40.8 %	150 bps	44.9 %	45.0 %	-10 bps
Operating Income	$16.9	$13.2	28.4 %	$20.7	$19.8	4.8 %
Operating Margin	14.3 %	11.5 %	280 bps	17.5 %	17.2 %	30 bps
Net Income (*)	$11.9	$10.4	14.5 %	$15.0	$16.0	-6.2 %
Diluted EPS	$0.21	$0.19	10.53 %	$0.27	$0.29	-6.9 %

 

(*) Attributable to Sapiens' shareholders

"Revenue in the second quarter of 2022 on a non-GAAP basis, amounted to $118.6 million, up 3.1% from the second quarter of 2021. On a constant currency basis, our organic growth rate compared to Q2 of 2021 was 8.9%. Sapiens unique business model is proven to be strong and especially now. Our strength is continuously growing while improving profit, with core offerings across the board as well as our direct and long-lasting relationships with our strong customer base," stated Roni Al-Dor, President and CEO of Sapiens.

"We see an increase in our pipeline in North America, and we have a very strong pipeline in Europe and rest of the world," continued Roni Al Dor. "Sapiens lowered today its revenue guidance range from $495 – $500 million to $480 - $485 million for 2022 along with an increase in profit margin from a range of 17.4% - 17.6%, to a range of 17.5% - 17.7%. This revenue change is primarily due to FX headwinds as well as the shift with a of a major European deal. Based on a constant currency basis of the year 2021, our revenue growth rate for the year 2022 would have been 9.5%."

"We announced today that the board of directors has approved the distribution of a cash dividend of $0.23 per share, or $12.7 million in total for the first six months of 2022." concluded Mr. Al-Dor. 

The dividend is in line with the Company's revised policy of distributing on a semi annual basis up to 40% of its annual non-GAAP net income. The dividend will be paid on August 30, 2022 to Sapiens' shareholders of record as of August 17, 2022.

The dividend is subject to withholding of Israeli tax at source at the rate of 25% of the dividend amount payable to Israeli individual, and non-Israeli, shareholders of record.

Management will host a conference call and webcast today, August 3rd, 2022 at 9:30 a.m. Eastern Time (4:30 pm in Israel) to review and discuss Sapiens' results.

Please call the following numbers (at least 10 minutes before the scheduled time) to participate:

North America (toll-free): + 1-888-642-5032; International: +972-3-918-0609; UK: 0-800-917-5108

The live webcast of the call can be viewed on Sapiens' website at: https://veidan.activetrail.biz/sapiensq2-2022 . 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 and 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 Contact Dina Vince Head of Investor Relations Dina.Vince@sapiens.com

Media Contact Shay Assaraf Chief Marketing Officer Shay.assaraf@sapiens.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				Six months ended
			June 30,				June 30,
			2022		2021		2022		2021
			(unaudited)		(unaudited)		(unaudited)		(unaudited)
Revenue			118,582		114,406		236,277		223,998
Cost of revenue			68,416		67,782		136,694		133,118
Gross profit			50,166		46,624		99,583		90,880
Operating expenses:
	Research and development, net		14,451		13,267		28,601		26,355
	Selling, marketing, general and administrative		18,805		20,183		37,524		38,986
Total operating expenses			33,256		33,450		66,125		65,341
Operating income			16,910		13,174		33,458		25,539
Financial and other expenses, net			2,467		69		2,119		584
Taxes on income			2,512		2,688		5,450		4,637
Net income			11,931		10,417		25,889		20,318
Attributable to non-controlling interest			21		13		53		80
Net income attributable to Sapiens' shareholders			11,910		10,404		25,836		20,238
Basic earnings per share			0.22		0.19		0.47		0.37
Diluted earnings per share			0.21		0.19		0.46		0.36
Weighted average number of shares outstanding used to compute basic earnings per share (in thousands)			55,110		54,754		55,101		54,722
Weighted average number of shares outstanding used to compute diluted earnings per share (in thousands)			55,572		55,548		55,602		55,558

 

 

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,
		2022		2021		2022		2021
		(unaudited)		(unaudited)		(unaudited)		(unaudited)
GAAP revenue		118,582		114,406		236,277			223,998
Valuation adjustment on acquired deferred revenue		23		630		45			1,260
Non-GAAP revenue		118,605		115,036		236,322			225,258
GAAP gross profit		50,166		46,624		99,583			90,880
Revenue adjustment		23		630		45			1,260
Amortization of capitalized software		1,410		1,891		2,881			3,675
Amortization of other intangible assets		1,608		2,575		3,640			5,134
Non-GAAP gross profit		53,207		51,720		106,149			100,949
GAAP operating income		16,910		13,174		33,458			25,539
Gross profit adjustments		3,041		5,096		6,566			10,069
Capitalization of software development		(1,621)		(1,959)		(3,367)			(3,591)
Amortization of other intangible assets		1,155		1,358		2,399			2,724
Stock-based compensation		1,129		1,471		2,060			2,870
Acquisition-related costs *)		133		655		400			1,184
Non-GAAP operating income		20,747		19,795		41,516			38,795
GAAP net income attributable to Sapiens' shareholders		11,910		10,404		25,836			20,238
Operating income adjustments		3,837		6,621		8,058			13,256
Taxes on income		(768)		(1,050)		(1,618)			(2,612)
Non-GAAP net income attributable to Sapiens' shareholders		14,979		15,975		32,276			30,882

 

 ^(*) 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				Six months ended
		June 30,				June 30,
		2022		2021		2022		2021
GAAP operating profit		16,910		13,174		33,458		25,539
Non-GAAP adjustments:
Valuation adjustment on acquired deferred revenue		23		630		45		1,260
Amortization of capitalized software		1,410		1,891		2,881		3,675
Amortization of other intangible assets		2,763		3,933		6,039		7,858
Capitalization of software development		(1,621)		(1,959)		(3,367)		(3,591)
Stock-based compensation		1,129		1,471		2,060		2,870
Compensation related to acquisition and acquisition-related costs		133		655		400		1,184
Non-GAAP operating profit		20,747		19,795		41,516		38,795
Depreciation		934		1,125		2,075		2,245
Adjusted EBITDA		21,681		20,920		43,591		41,040

 

 

	Q2 2022		Q1 2022		Q4 2021		Q3 2021		Q2 2021
Summary of NON-GAAP Financial Information
U.S. dollars in thousands (except per share amounts)
Revenues	118,605		117,718		119,854		118,442		115,036
Gross profit	53,207		52,943		53,933		53,413		51,720
Operating income	20,747		20,770		21,590		21,019		19,795
Adjusted EBITDA	21,681		21,910		23,579		22,144		20,920
Net income to Sapiens' shareholders	14,979		17,298		17,681		16,976		15,975
Diluted earnings per share	0.27		0.31		0.32		0.31		0.29

 

	Q2 2022		Q1 2022		Q4 2021		Q3 2021		Q2 2021
Non-GAAP Revenues by Geographic Breakdown
U.S. dollars in thousands
North America	48,154		49,009		48,872		48,952		46,767
Europe	59,868		59,267		62,416		59,707		59,718
Rest of the World	10,583		9,442		8,566		9,783		8,551
Total	118,605		117,718		119,854		118,442		115,036

 

 

	Q2 2022		Q1 2022		Q4 2021		Q3 2021		Q2 2021
Adjusted Free Cash-Flow
U.S. dollars in thousands
Cash-flow from operating activities	6,615		18,330		27,386		14,556		26,845
Increase in capitalized software development costs	(1,621)		(1,746)		(2,256)		(2,064)		(1,959)
Capital expenditures	(803)		(453)		(801)		(1,082)		(1,082)
Free cash-flow	4,191		16,131		24,329		11,410		23,804
Cash payments attributed to acquisition-related costs(*) (**)	-		-		407		477		-
Adjusted free cash-flow	4,191		16,131		24,736		11,887		23,804

 

^(*) 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.

 

 

SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
U.S. dollars in thousands
			June 30,		December 31,
			2022		2021
			(unaudited)		(unaudited)
ASSETS
CURRENT ASSETS
	Cash and cash equivalents		141,129		190,243
	Short-term bank deposit		35,000		20,000
	Trade receivables, net and unbilled receivables		81,409		76,261
	Other receivables and prepaid expenses		12,440		13,841
	Total current assets		269,978		300,345
LONG-TERM ASSETS
	Property and equipment, net		13,295		14,458
	Severance pay fund		4,552		5,954
	Goodwill and intangible assets, net		322,827		343,283
	Operating lease right-of-use assets		36,689		43,665
	Other long-term assets		8,072		7,288
	Total long-term assets		385,435		414,648
TOTAL ASSETS			655,413		714,993
LIABILITIES AND EQUITY
CURRENT LIABILITIES
	Trade payables		11,844		5,008
	Current maturities of Series B Debentures		19,796		19,796
	Accrued expenses and other liabilities		71,732		76,450
	Current maturities of operating lease liabilities		9,844		10,827
	Deferred revenue		35,571		39,614
	Total current liabilities		148,787		151,695
LONG-TERM LIABILITIES
	Series B Debentures, net of current maturities		59,232		78,986
	Deferred tax liabilities		14,409		15,360
	Other long-term liabilities		11,127		12,144
	Long-term operating lease liabilities		31,663		38,751
	Redeemable non-controlling interest		90		101
	Accrued severance pay		7,448		9,236
	Total long-term liabilities		123,969		154,578
EQUITY			382,657		408,720
TOTAL LIABILITIES AND EQUITY			655,413		714,993

 

 

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,
	2022		2021
	(unaudited)		(unaudited)
Cash flows from operating activities:
Net income	25,889		20,318
Reconciliation of net income to net cash provided by operating activities:
Depreciation and amortization	10,995		13,778
Accretion of discount on Series B Debentures	42		55
Capital loss from sale of property and equipment	36		36
Stock-based compensation related to options issued to employees	2,060		2,870
Net changes in operating assets and liabilities, net of amount acquired:
Trade receivables, net and unbilled receivables	(10,758)		(8,655)
Deferred tax liabilities, net	(607)		(2,822)
Other operating assets	4,151		9,453
Trade payables	7,035		1,230
Other operating liabilities	(10,662)		(5,449)
Deferred revenues	(3,090)		7,682
Accrued severance pay, net	(146)		104
Net cash provided by operating activities	24,945		38,600
Cash flows from investing activities:
Purchase of property and equipment	(1,265)		(1,903)
Proceeds from (Investment in) deposits	(15,160)		10,000
Proceeds from sale of property and equipment	9		1,011
Proceeds from (payments for) business acquisitions, net of cash acquired	(3,467)		831
Capitalized software development costs	(3,367)		(3,591)
Net cash provided by (used in) investing activities	(23,250)		6,348
Cash flows from financing activities:
Proceeds from employee stock options exercised	-		659
Distribution of dividend	(25,900)		(20,253)
Repayment of Series B Debenture	(19,796)		(19,796)
Payment of contingent considerations	-		(537)
Dividend to non-controlling interest	-		(31)
Net cash used in financing activities	(45,696)		(39,958)
Effect of exchange rate changes on cash and cash equivalents	(5,113)		(1,746)
Decrease in cash and cash equivalents	(49,114)		3,244
Cash and cash equivalents at the beginning of period	190,243		152,561
Cash and cash equivalents at the end of period	141,129		155,805

 

 

Debentures Covenants

As of June 30, 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 $380.6 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 (32.67)%.

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 (1.05).

Contact:
Shay Assaraf
Chief Marketing Officer
Shay.assaraf@sapiens.com

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SOURCE Sapiens International Corporation

FAQ

What were Sapiens' Q2 2022 earnings results?

Sapiens reported revenue of $118.6 million, a 3.7% increase from Q2 2021, with a net income of $11.9 million.

How much is Sapiens' cash dividend for 2022?

Sapiens announced a cash dividend of $0.23 per share.

What is Sapiens' revised revenue guidance for 2022?

The revenue guidance has been lowered to $480 - $485 million.

What is the reason for Sapiens' revenue guidance reduction?

The reduction is primarily due to FX headwinds and a shift in a major European deal.

How did Sapiens' operating income perform in Q2 2022?

Operating income increased by 28.4% to $16.9 million.