Sapiens Reports Third Quarter 2020 Financial Results

Rhea-AI Summary

Sapiens International Corporation (NASDAQ: SPNS) reported strong financial results for Q3 2020, with revenues up 18.5% to $98.0 million, driven by strategic growth in Europe and North America. Gross profit rose by 20.4% to $44.2 million, reflecting a 45.1% gross margin. Operating income increased by 32.0% to $17.9 million, achieving an operating margin of 18.2%. Net income attributable to shareholders grew 32.0% to $13.7 million, resulting in an EPS of $0.27. The company raised its 2020 revenue guidance to $381-$383 million, showcasing resilience despite COVID-19.

Positive

• Q3 2020 revenue increased 18.5% to $98.0 million.
• Gross profit rose 20.4% to $44.2 million, with a gross margin of 45.1%.
• Operating income reached $17.9 million, an increase of 32.0%.
• Net income attributable to shareholders increased 32.0% to $13.7 million.
• Revised 2020 revenue guidance raised to $381-$383 million.

Negative

• None.

HOLON, Israel, Nov. 5, 2020 /PRNewswire/ -- Sapiens International Corporation, (NASDAQ: SPNS) (TASE: SPNS), a leading global provider of software solutions for the insurance industry, and a member of the Formula Group (NASDAQ: FORTY) (TASE: FORT), today announced its financial results for the third quarter ended September 30, 2020.

 

Summary Results for Third Quarter 2020 (USD in millions, except per share data)
	GAAP			Non-GAAP
	September 30, 2020	September 30, 2019	% Change	September 30, 2020	September 30, 2019	% Change
Revenue	$97.6	$82.6	18.2%	$98.0	$82.6	18.5%
Gross Profit	$40.1	$33.3	20.3%	$44.2	$36.7	20.4%
Gross Margin	41.0%	40.3%	70 bps	45.1%	44.4%	70 bps
Operating Income	$12.1	$10.1	19.6%	$17.9	$13.5	32.0%
Operating Margin	12.4%	12.2%	20 bps	18.2%	16.4%	180 bps
Net Income (*)	$9.3	$7.4	25.9%	$13.7	$10.4	32.0%
Diluted EPS	$0.18	$0.15	20.0%	$0.27	$0.21	28.6%

(*) Attributable to Sapiens' shareholders.

 

"Sapiens delivered strong execution across key geographies and product lines to grow third quarter non-GAAP revenue by 18.5%, fueled by outstanding strategic performance in Europe and North America and leveraging existing customer relationships to upsell products and services. Non-GAAP Operating margin increased to a record of 18.2%, an increase of 180 basis points year-over-year," said Roni Al-Dor, Sapiens president and CEO.

• Lately our products received excellent recognition from the analysts and research community across both Life and P&C, and in North America and Europe: 
• In Europe, we have been recognized as Leaders in the 2 Gartner Magic Quadrant for policy administration and insurance platform for both our Life and P&C solutions

In North America, we have received the Excellent award by Celent in the Life New Business and Underwriting report  

"Our outlook for 2020 has improved despite COVID-19. We continue to sign new business and increase our revenue from existing customers. In addition, the 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 non-GAAP revenue range is now $381 million to $383 million, as compared to our prior range of $376 million to $381 million., we are also increasing the range of our non-GAAP operating margin for 2020 to 17.6% to 17.7% from prior range of 16.5% to 16.9%." 

Quarterly Results Conference Call

Management will host a conference call and webcast on November 5, 20202 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 November 14, 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.

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 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 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				Nine months ended
			September 30				September 30
			2020		2019		2020		2019
			(unaudited)		(unaudited)		(unaudited)		(unaudited)
Revenue			97,645		82,643		281,242		238,959
Cost of revenue			57,567		49,316		166,641		144,371
Gross profit			40,078		33,327		114,601		94,588
Operating expenses:
	Research and development, net		10,375		9,445		30,229		27,145
	Selling, marketing, general and administrative		17,606		13,767		49,594		39,797
Total operating expenses			27,981		23,212		79,823		66,942
Operating income			12,097		10,115		34,778		27,646
Financial and other expenses, net			1,042		261		2,593		1,749
Taxes on income			1,520		2,349		6,430		6,350
Net income			9,535		7,505		25,755		19,547
Attributable to non-controlling interest			196		87		299		134
Net income attributable to Sapiens' shareholders			9,339		7,418		25,456		19,413
Basic earnings per share			0.19		0.15		0.51		0.39
Diluted earnings per share			0.18		0.15		0.50		0.38
Weighted average number of shares outstanding used to compute basic earnings per share (in thousands)			50,625		50,027		50,367		50,005
Weighted average number of shares outstanding used to compute diluted earnings per share (in thousands)			51,581		50,742		51,280		50,534

 

 

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				Nine months ended
			September 30				September 30
			2020		2019		2020		2019
			(unaudited)		(unaudited)		(unaudited)		(unaudited)
Revenue			97,968		82,643		281,565		238,959
Cost of revenue			53,762		45,931		155,668		134,349
Gross profit			44,206		36,712		125,897		104,610
Operating expenses:
	Research and development, net		11,881		10,986		34,423		31,648
	Selling, marketing, general and administrative		14,466		12,196		42,218		35,101
Total operating expenses			26,347		23,182		76,641		66,749
Operating income			17,859		13,530		49,256		37,861
Financial and other expenses, net			1,042		261		2,593		1,749
Taxes on income			2,875		2,770		8,866		7,635
Net income			13,942		10,499		37,797		28,477
Attributable to non-controlling interest			196		87		299		134
Net income attributable to Sapiens' shareholders			13,746		10,412		37,498		28,343
Basic earnings per share			0.27		0.21		0.74		0.57
Diluted earnings per share			0.27		0.21		0.73		0.56
Weighted average number of shares outstanding used to compute basic earnings per share (in thousands)			50,625		50,027		50,367		50,005
Weighted average number of shares outstanding used to compute diluted earnings per share (in thousands)			51,581		50,742		51,280		50,534

 

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				Nine months ended
		September 30,				September 30,
		2020		2019		2020		2019
		(unaudited)		(unaudited)		(unaudited)		(unaudited)
GAAP revenue		97,645		82,643		281,242		238,959
Valuation adjustment on acquired deferred revenue		323		-		323		-
Non-GAAP revenue		97,968		82,643		281,565		238,959
GAAP gross profit		40,078		33,327		114,601		94,588
Revenue adjustment		323		-		323		-
Amortization of capitalized software		1,600		1,438		4,627		4,169
Amortization of other intangible assets		2,205		1,947		6,346		5,853
Non-GAAP gross profit		44,206		36,712		125,897		104,610
GAAP operating income		12,097		10,115		34,778		27,646
Gross profit adjustments		4,128		3,385		11,296		10,022
Capitalization of software development		(1,506)		(1,541)		(4,194)		(4,503)
Amortization of other intangible assets		825		539		2,112		1,614
Stock-based compensation		1,361		382		2,747		1,123
Acquisition-related costs *)		954		650		2,517		1,959
Non-GAAP operating income		17,859		13,530		49,256		37,861
GAAP net income attributable to Sapiens' shareholders		9,339		7,418		25,456		19,413
Operating income adjustments		5,762		3,415		14,478		10,215
Taxes on income		(1,355)		(421)		(2,436)		(1,285)
Non-GAAP net income attributable to Sapiens' shareholders		13,746		10,412		37,498		28,343

(*) 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)
	Q3 2020		Q2 2020		Q1 2020		Q4 2019		Q3 2019
Revenues	97,968		93,063		90,534		86,715		82,643
Gross profit	44,206		41,900		39,791		38,402		36,712
Operating income	17,859		16,783		14,614		14,345		13,530
Net income to Sapiens' shareholders	13,746		13,340		10,412		10,553		10,412
Adjusted EBITDA	19,010		17,854		15,724		15,271		14,523
Basic earnings per share	0.27		0.27		0.21		0.21		0.21
Diluted earnings per share	0.27		0.26		0.20		0.21		0.21

 

Non-GAAP Revenues by Geographic Breakdown U.S. dollars in thousands
	Q3 2020		Q2 2020		Q1 2020		Q4 2019		Q3 2019
North America	49,979		46,610		44,567		41,787		44,413
Europe	42,394		41,030		40,232		37,504		30,273
Rest of the world	5,595		5,423		5,735		7,424		7,957
Total	97,968		93,063		90,534		86,715		82,643

 

Adjusted Free Cash-Flow U.S. dollars in thousands
	Q3 2020		Q2 2020		Q1 2020		Q4 2019		Q3 2019
Cash-flow from operating activities	16,705		14,761		5,759		21,429		18,671
Increase in capitalized software development costs	(1,506)		(1,251)		(1,437)		(1,162)		(1,541)
Capital expenditures	(963)		(393)		(552)		(2,456)		(973)
Capital expenditures related to new campus in India	-		-		-		-		(6,325)
Free cash-flow	14,236		13,117		3,770		17,811		9,832
Capital expenditures related to new campus in India	-		-		-		-		6,325
Cash payments attributed to acquisition-related costs(*) (**)	242		1,562		737		200		100
Adjusted free cash-flow	14,478		14,679		4,507		18,011		16,257

(*) 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				Nine months ended
		September 30				September 30
		2020		2019		2020		2019
GAAP operating profit		12,097		10,115		34,778		27,646
Non-GAAP adjustments:
Valuation adjustment on acquired deferred revenue		323		-		323		-
Amortization of capitalized software		1,600		1,438		4,627		4,169
Amortization of other intangible assets		3,030		2,486		8,458		7,467
Capitalization of software development		(1,506)		(1,541)		(4,194)		(4,503)
Stock-based compensation		1,361		382		2,747		1,123
Compensation related to acquisition and acquisition-related costs		954		650		2,517		1,959
Non-GAAP operating profit		17,859		13,530		49,256		37,861
Depreciation		1,151		993		3,332		2,544
Adjusted EBITDA		19,010		14,523		52,588		40,405

 

 

SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS U.S. dollars in thousands
			September 30,		December 31,
			2020		2019
			(unaudited)		(unaudited)
ASSETS
CURRENT ASSETS
	Cash and cash equivalents		131,667		66,295
	Trade receivables, net and unbilled receivables		63,805		50,221
	Investment in restricted deposit		-		22,890
	Other receivables and prepaid expenses		10,399		7,817
	Total current assets		205,871		147,223
LONG-TERM ASSETS
	Property and equipment, net		16,744		16,601
	Severance pay fund		5,377		5,106
	Goodwill and intangible assets, net		266,696		228,691
	Operating lease right-of-use assets		49,300		49,539
	Other long-term assets		6,095		5,261
	Total long-term assets		344,212		305,198
TOTAL ASSETS			550,083		452,421
LIABILITIES AND EQUITY
CURRENT LIABILITIES
	Trade payables		5,306		5,107
	Current maturities of Series B Debentures		19,796		9,898
	Accrued expenses and other liabilities		67,465		60,574
	Current maturities of operating lease liabilities		9,558		8,312
	Deferred revenue		26,450		21,021
	Total current liabilities		128,575		104,912
LONG-TERM LIABILITIES
	Series B Debentures, net of current maturities		98,681		58,850
	Deferred tax liabilities		6,395		5,082
	Other long-term liabilities		10,847		8,321
	Long-term operating lease liabilities		44,934		43,394
	Accrued severance pay		7,274		6,364
	Total long-term liabilities		168,131		122,011
REDEEMABLE NON-CONTROLLING INTEREST			477		-
EQUITY			252,900		225,498
TOTAL LIABILITIES AND EQUITY			550,083		452,421

 

 

SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOW U.S. dollars in thousands
	For the Nine months ended June 30,
	2020	2019
	(unaudited)	(unaudited)
Cash flows from operating activities:
Net income	25,755	19,547
Reconciliation of net income to net cash provided by operating activities:
Depreciation and amortization	16,417	14,180
Accretion of discount on Series B Debentures	91	124
Capital gain from sale of property and equipment	4	(129)
Stock-based compensation related to options issued to employees	2,747	1,123
Net changes in operating assets and liabilities, net of amount acquired:
Trade receivables, net and unbilled receivables	(10,225)	3,642
Deferred tax assets, net	(391)	(2,664)
Other operating assets	3,653	1,425
Trade payables	(778)	(1,534)
Other operating liabilities	(294)	4,562
Deferred revenues	(194)	4,419
Accrued severance pay, net	440	33
Net cash provided by operating activities	37,225	44,728
Cash flows from investing activities:
Purchase of property and equipment	(1,908)	(9,018)
Investment in deposit	(379)	(1,119)
Proceeds from sale of property and equipment	12	821
Proceeds from restricted deposit used for completed acquisition	22,890	-
Payments for business acquisitions, net of cash acquired	(35,395)	(1,572)
Capitalized software development costs	(4,194)	(4,503)
Net cash used in investing activities	(18,974)	(15,391)
Cash flows from financing activities:
Proceeds from employee stock options exercised	4,919	435
Distribution of dividend	(7,044)	(10,362)
Repayment of Series B Debenture	(9,898)	(9,898)
Issuance of Series B Debentures	60,386	-
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	47,825	(20,015)
Effect of exchange rate changes on cash and cash equivalents	(704)	(812)
Increase in cash and cash equivalents	65,372	8,510
Cash and cash equivalents at the beginning of period	66,295	64,628
Cash and cash equivalents at the end of period	131,667	73,138

 

Debentures Covenants

As of September 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 $251 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 (5.05)%.

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 (0.18).

In October 2020, the company completed a capital raise of $100M.

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SOURCE Sapiens International Corporation

FAQ

What were Sapiens' Q3 2020 financial results?

Sapiens reported Q3 2020 revenue of $98.0 million, a 18.5% increase year-over-year, with a net income of $13.7 million.

What is the adjusted EPS for Sapiens for Q3 2020?

The diluted EPS for Sapiens in Q3 2020 was $0.27, reflecting a 28.6% increase from the previous year.

What is Sapiens' updated revenue guidance for 2020?

Sapiens increased its revenue guidance for 2020 to a range of $381-$383 million, up from the previous $376-$381 million.

How did Sapiens perform in terms of gross profit in Q3 2020?

Sapiens achieved a gross profit of $44.2 million in Q3 2020, representing a 20.4% increase from the prior year.

What impact did COVID-19 have on Sapiens' outlook?

Despite COVID-19, Sapiens reported improved business operations and continued to sign new contracts, leading to a positive outlook.