Sapiens Reports Second Quarter 2023 Financial Results

HOLON, Israel, Aug. 2, 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 second quarter ended June 30, 2023.

 

 

Summary Results for Second Quarter 2023 (USD in millions, except per share data)

	GAAP			Non-GAAP
	Q2 2023	Q2 2022	% Change	Q2 2023	Q2 2022	% Change
Revenue	$128.3	$118.6	8.2 %	$128.4	$118.6	8.2 %
Gross Profit	$54.7	$50.2	9.0 %	$58.0	$53.2	9.0 %
Gross Margin	42.6 %	42.3 %	30 bps	45.2 %	44.9 %	30 bps
Operating Income	$19.6	$16.9	16.0 %	$23.4	$20.7	12.9 %
Operating Margin	15.3 %	14.3 %	100 bps	18.2 %	17.5 %	70 bps
Net Income (*)	$15.4	$11.9	29.3 %	$18.6	$15.0	24.2 %
Diluted EPS	$0.28	$0.21	33.3 %	$0.33	$0.27	22.2 %
(*) Attributable to Sapiens' shareholders

 

"Sapiens achieved a strong second quarter, with 8.2% revenue growth and 18.2% operating margin, driven by significant growth in North American and European markets," stated Roni Al-Dor, President and CEO of Sapiens. "In the second quarter, our North American revenue growth exceeded 8%, and EMEA revenue increased by over 5%. Our Life business is globally successful, fueled by strategic investments in CoreSuite for Life. Sapiens CoreSuite for Life recently won the 2023 Celent XCelent Award in the EMEA region and was recognized as a "Luminary" Policy Administration Solution in EMEA and North America. We recently announced that Sapiens will integrate Microsoft Azure OpenAI and Azure Power Virtual Agents to provide generative AI solutions for insurance companies."

"Today, we are raising our full-year Non-GAAP revenue guidance for 2023 from $507 - $512 million to $511 - $516 million. We are also increasing the lower range of our operating margin from 17.8% to 18%. Our full-year Non-GAAP operating margin guidance for 2023 is 18.0% - 18.2%," added Mr. Al-Dor.

"We announced today that the board of directors has approved the distribution of a cash dividend of $0.26 per share, or $14.4 million in total for the first six months of 2023." concluded Mr. Al-Dor.

The dividend will be paid on August 30, 2023, to Sapiens' shareholders of record as of August 16, 2023.

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."

Quarterly Results Conference Call

Management will host a conference call and webcast on August 2, 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: veidan.activetrail.biz/sapiensq2-2023. 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. With more than 40 years of industry expertise, Sapiens' cloud-based SaaS insurance platform offers pre-integrated, low-code capabilities across core, data and digital domains to accelerate our customers' digital transformation. Serving over 600 customers in more than  30 countries, Sapiens offers insurers across property and casualty, workers' compensation, and life insurance 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 +1 917-533-4782

Investor Contacts Brett Maas Managing Partner, Hayden IR +1 646-536-7331 Brett.Maas@HaydenIR.com Kimberly Rogers Managing Director, Hayden IR +1 541-904-5075 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				Six months ended
			June 30,				June 30,
			2023		2022		2023		2022
			(unaudited)		(unaudited)		(unaudited)		(unaudited)
Revenue			128,299		118,582		253,020		236,277
Cost of revenue			73,635		68,416		145,327		136,694
Gross profit			54,664		50,166		107,693		99,583
Operating expenses:
	Research and development, net		15,746		14,451		31,363		28,601
	Selling, marketing, general and administrative		19,297		18,805		37,816		37,524
Total operating expenses			35,043		33,256		69,179		66,125
Operating income			19,621		16,910		38,514		33,458
Financial and other expenses, net			562		2,467		1,759		2,119
Taxes on income			3,587		2,512		6,917		5,450
Net income			15,472		11,931		29,838		25,889
Attributable to non-controlling interest			69		21		239		53
Net income attributable to Sapiens' shareholders			15,403		11,910		29,599		25,836
Basic earnings per share			0.28		0.22		0.54		0.47
Diluted earnings per share			0.28		0.21		0.53		0.46
Weighted average number of shares outstanding used to compute basic earnings per share (in thousands)			55,196		55,110		55,176		55,101
Weighted average number of shares outstanding used to compute diluted earnings per share (in thousands)			55,582		55,572		55,576		55,602

 

 

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,
		2023		2022		2023		2022
		(unaudited)		(unaudited)		(unaudited)		(unaudited)
GAAP revenue		128,299		118,582		253,020			236,277
Valuation adjustment on acquired deferred revenue		55		23		110			45
Non-GAAP revenue		128,354		118,605		253,130			236,322
GAAP gross profit		54,664		50,166		107,693			99,583
Revenue adjustment		55		23		110			45
Amortization of capitalized software		1,425		1,410		2,856			2,881
Amortization of other intangible assets		1,848		1,608		3,696			3,640
Non-GAAP gross profit		57,992		53,207		114,355			106,149
GAAP operating income		19,621		16,910		38,514			33,458
Gross profit adjustments		3,328		3,041		6,662			6,566
Capitalization of software development		(1,679)		(1,621)		(3,337)			(3,367)
Amortization of other intangible assets		1,084		1,155		2,160			2,399
Stock-based compensation		1,059		1,129		1,922			2,060
Acquisition-related costs *)		4		133		10			400
Non-GAAP operating income		23,417		20,747		45,931			41,516
GAAP net income attributable to Sapiens' shareholders		15,403		11,910		29,599			25,836
Operating income adjustments		3,796		3,837		7,417			8,058
Taxes on income		(589)		(768)		(1,153)			(1,618)
Non-GAAP net income attributable to Sapiens' shareholders		18,610		14,979		35,863			32,276
(*) 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,
		2023		2022		2023		2022
GAAP operating profit		19,621		16,910		38,514		33,458
Non-GAAP adjustments:
Valuation adjustment on acquired deferred revenue		55		23		110		45
Amortization of capitalized software		1,425		1,410		2,856		2,881
Amortization of other intangible assets		2,932		2,763		5,856		6,039
Capitalization of software development		(1,679)		(1,621)		(3,337)		(3,367)
Stock-based compensation		1,059		1,129		1,922		2,060
Compensation related to acquisition and acquisition- related costs		4		133		10		400
Non-GAAP operating profit		23,417		20,747		45,931		41,516
Depreciation		976		934		2,031		2,075
Adjusted EBITDA		24,393		21,681		47,962		43,591

 

 

Summary of NON-GAAP Financial Information
U.S. dollars in thousands (except per share amounts)
	Q2 2023		Q1 2023		Q4 2022		Q3 2022		Q2 2022
Revenues	128,354		124,776		119,486		119,019		118,605
Gross profit	57,992		56,363		53,774		53,546		53,207
Operating income	23,417		22,514		21,058		20,902		20,747
Adjusted EBITDA	24,393		23,569		22,092		22,036		21,681
Net income to Sapiens' shareholders	18,610		17,253		18,022		16,871		14,979
Diluted earnings per share	0.33		0.31		0.32		0.30		0.27

 

 

Non-GAAP Revenues by Geographic Breakdown
U.S. dollars in thousands
	Q2 2023		Q1 2023		Q4 2022		Q3 2022		Q2 2022
North America	52,116		50,371		50,801		49,555		48,154
Europe	62,960		64,572		56,910		56,887		59,868
Rest of the World	13,278		9,833		11,775		12,577		10,583
Total	128,354		124,776		119,486		119,019		118,605

 

 

Non-GAAP Revenue breakdown
U.S. dollars in thousands
	Three months ended				Six months ended
	June 30,				June 30,
	2023		2022		2023		2022
Software products and re-occurring post-production services (*)	82,559		71,965		164,401		147,589
Pre-production implementation services (**)	45,795		46,640		88,729		88,733
Total Revenues	128,354		118,605		253,130		236,322

 

 

	Three months ended				Six months ended
	June 30,				June 30,
	2023		2022		2023		2022
Software products and re-occurring post-production services (*)	42,437		37,599		87,286		78,045
Pre-production implementation services (**)	15,555		15,608		27,069		28,104
Total Gross profit	57,992		53,207		114,355		106,149

 

 

	Three months ended				Six months ended
	June 30,				June 30,
	2023		2022		2023		2022
Software products and re-occurring post-production services (*)	51.4 %		52.2 %		53.1 %		52.9 %
Pre-production implementation services (**)	34.0 %		33.5 %		30.5 %		31.7 %
Gross Margin	45.2 %		44.9 %		45.2 %		44.9 %

^{(*) Software products and re-occurring post-production services include mainly term license, maintenance, cloud solutions, subscription, and post-production services. This revenue stream is a mix of recurring and re-occurring in nature.}

^{(**) Pre-production implementation services include mainly implementation services before go-live, which are one-time in nature.}

 

 

Adjusted Free Cash-Flow
U.S. dollars in thousands
	Q2 2023		Q1 2023		Q4 2022		Q3 2022		Q2 2022
Cash-flow from operating activities	14,603		22,188		14,430		4,405		6,615
Increase in capitalized software development costs	(1,679)		(1,658)		(1,238)		(1,492)		(1,621)
Capital expenditures	(775)		(634)		(400)		(1,047)		(803)
Free cash-flow	12,149		19,896		12,792		1,866		4,191
Cash payments attributed to acquisition-related costs(*) (**)	-		30		1,100		-		-
Adjusted free cash-flow	12,149		19,926		13,892		1,866		4,191
(*) 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,
			2023		2022
			(unaudited)		(unaudited)
ASSETS
CURRENT ASSETS
	Cash and cash equivalents		89,417		160,285
	Short-term bank deposit		90,000		20,000
	Trade receivables, net and unbilled receivables		89,338		93,382
	Other receivables and prepaid expenses		14,539		11,640
	Total current assets		283,294		285,307
LONG-TERM ASSETS
	Property and equipment, net		11,453		12,021
	Severance pay fund		3,696		3,996
	Goodwill and intangible assets, net		312,474		319,661
	Operating lease right-of-use assets		25,264		33,688
	Other long-term assets		16,864		13,671
	Total long-term assets		369,751		383,037
TOTAL ASSETS			653,045		668,344
LIABILITIES AND EQUITY
CURRENT LIABILITIES
	Trade payables		8,475		9,415
	Current maturities of Series B Debentures		19,796		19,796
	Accrued expenses and other liabilities		68,553		76,962
	Current maturities of operating lease liabilities		7,463		9,063
	Deferred revenue		36,275		30,720
	Total current liabilities		140,562		145,956
LONG-TERM LIABILITIES
	Series B Debentures, net of current maturities		39,511		59,275
	Deferred tax liabilities		12,218		11,363
	Other long-term liabilities		12,728		13,312
	Long-term operating lease liabilities		22,037		28,432
	Redeemable non-controlling interest		85		89
	Accrued severance pay		7,223		7,063
	Total long-term liabilities		93,802		119,534
EQUITY			418,681		402,854
TOTAL LIABILITIES AND EQUITY			653,045		668,344

 

 

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,
	2023		2022
	(unaudited)		(unaudited)
Cash flows from operating activities:
Net income	29,838		25,889
Reconciliation of net income to net cash provided by operating activities:
Depreciation and amortization	10,743		10,995
Accretion of discount on Series B Debentures	32		42
Capital (gain) loss from sale of property and equipment	86		36
Stock-based compensation related to options issued to employees	1,922		2,060
Net changes in operating assets and liabilities, net of amount acquired:
Decrease (increase) in trade receivables, net and unbilled receivables	2,351		(10,758)
Increase (decrease) in deferred tax liabilities, net	45		(607)
Decrease (increase) in other operating assets	(390)		4,151
Increase (decrease) in trade payables	(1,014)		7,035
Increase (decrease) in other operating liabilities	(12,572)		(10,662)
Increase in deferred revenues	5,284		(3,090)
Increase in accrued severance pay, net	466		(146)
Net cash provided by operating activities	36,791		24,945
Cash flows from investing activities:
Purchase of property and equipment	(1,439)		(1,265)
Investment in deposits	(70,002)		(15,160)
Proceeds from sale of property and equipment	30		9
Proceeds from (payments for) business acquisitions, net of cash acquired	-		(3,467)
Capitalized software development costs	(3,337)		(3,367)
Acquisition of intellectual property	(177)		-
Net cash provided by (used in) investing activities	(74,925)		(23,250)
Cash flows from financing activities:
Distribution of dividend	(13,796)		(25,900)
Repayment of Series B Debenture	(19,796)		(19,796)
Dividend to non-controlling interest	(47)		-
Net cash used in financing activities	(33,639)		(45,696)
Effect of exchange rate changes on cash and cash equivalents	905		(5,113)
Decrease in cash and cash equivalents	(70,868)		(49,114)
Cash and cash equivalents at the beginning of period	160,285		190,243
Cash and cash equivalents at the end of period	89,417		141,129

 

Debentures Covenants

As of June 30, 2023, 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 $416.2 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 (39.76)%.

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 (1.29).

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SOURCE Sapiens International Corporation