Sapiens Reports Third Quarter 2021 Financial Results

Rhea-AI Summary

Sapiens International Corporation (NASDAQ: SPNS) reported strong Q3 2021 results, showing a 21% revenue increase to $118.4 million year-over-year. Non-GAAP operating income reached $21.0 million, translating to a 17.7% operating margin. Net income rose 42.1% to $13.3 million, and diluted EPS increased to $0.24. The company reiterated its full-year non-GAAP revenue guidance of $461-$466 million, and raised operating margin expectations to 17.4%-17.5%. Management credits these results to successful execution of its strategy and commitment to growth.

Positive

• Revenue increased by 21% to $118.4 million, a record for non-GAAP quarterly revenue.
• Non-GAAP operating income rose to $21.0 million with an operating margin of 17.7%.
• Net income increased by 42.1% to $13.3 million.
• Diluted EPS increased to $0.24, up 33.3% year-over-year.
• Raised guidance for annual non-GAAP operating margin to 17.4%-17.5%.

Negative

• Operating margin decreased by 50 bps from the previous year.

HOLON, Israel, Nov. 3, 2021 /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 third quarter ended September 30, 2021.

 

Summary Results for Third Quarter 2021 (USD in millions, except per share data)

	GAAP			Non-GAAP
	September 30, 2021	September 30, 2020	% Change	September 30, 2021	September 30, 2020	% Change
Revenue	$117.8	$97.6	20.7%	$118.4	$98.0	20.9%
Gross Profit	$48.3	$40.1	20.5%	$53.4	$44.2	20.8%
Gross Margin	41.0%	41.0%	-	45.1%	45.1%	-
Operating Income	$16.2	$12.1	34.1%	$21.0	$17.9	17.7%
Operating Margin	13.8%	12.4%	140 bps	17.7%	18.2%	(50) bps
Net Income (*)	$13.3	$9.3	42.1%	$17.0	$13.7	23.5%
Diluted EPS	$0.24	$0.18	33.3%	$0.31	$0.27	14.8%

(*) Attributable to Sapiens' shareholders

"Revenue in the third quarter increased by 21% year-over-year, reaching a non-GAAP quarterly record of $118.4 million, and non-GAAP operating profit increased to a record $21.0 million for an operating margin of 17.7%," stated Roni Al-Dor, President and CEO of Sapiens.

"We continue to reinforce Sapiens' leadership position in the evolving insurance software industry, across all tiers, both in P&C and Life & Annuities/Pension. We are landing new business and expanding by upselling and cross-selling to existing customers, while focusing on further advancing our product offerings and our commitment to customer success. The solid results we achieved in the third quarter were the direct outcome of successfully executing our strategy and our commitment to achieving consistent growth and improving operating margin," continued Mr. Al-Dor.

"We are reiterating our 2021 non-GAAP revenue guidance of $461 million to $466 million, expecting to reach approximately the midpoint of the range, and increasing our annual non-GAAP operating margin from 17.2%-17.5% to the range of 17.4%-17.5%," concluded Mr. Al-Dor.

Quarterly Results Conference Call
Management will host a conference call and webcast today, November 3, 2021 at 9:30 am. Eastern Time (3:30 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://www.sapiens.com/investor-relations/ir-events-presentations. A replay of the call will be available one business day following the completion of the event, at the same link for 90 days.

Non-GAAP Financial Measures

This press release contains the following non-GAAP financial measures: non-GAAP revenue, non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating income, non-GAAP operating margin, non-GAAP net income attributed to Sapiens shareholders, non-GAAP basic and diluted earnings per share, Adjusted EBITDA and Adjusted Free Cash-Flow.

Sapiens believes that these non-GAAP measures of financial results provide useful information to management and investors regarding certain financial and business trends relating to Sapiens' financial condition and results of operations. The Company's management uses these non-GAAP measures to compare the Company's performance to that of prior periods for trend analyses, for purposes of determining executive and senior management incentive compensation and for budgeting and planning purposes. These measures are used in financial reports prepared for management and in quarterly financial reports presented to the Company's board of directors. The Company believes that the use of these non-GAAP financial measures provides an additional tool for investors to use in evaluating ongoing operating results and trends, and in comparing the Company's financial measures with other software companies, many of which present similar non-GAAP financial measures to investors.

Non-GAAP financial measures consist of GAAP financial measures adjusted to exclude: Valuation adjustment on acquired deferred revenue, amortization of capitalized software development and other intangible assets, capitalization of software development, stock-based compensation, compensation related to acquisition and acquisition-related costs, restructuring and cost reduction costs, and tax adjustments related to non-GAAP adjustments.

Management of the Company does not consider these non-GAAP measures in isolation, or as an alternative to financial measures determined in accordance with GAAP. The principal limitation of these non-GAAP financial measures is that they exclude significant expenses and income that are required by GAAP to be recorded in the Company's financial statements. In addition, they are subject to inherent limitations, as they reflect the exercise of judgment by management about which expenses and income are excluded or included in determining these non-GAAP financial measures.

To compensate for these limitations, management presents non-GAAP financial measures in connection with GAAP results. Sapiens urges investors to review the reconciliation of its non-GAAP financial measures to the comparable GAAP financial measures, which it includes in press releases announcing quarterly financial results, including this press release, and not to rely on any single financial measure to evaluate the Company's business.

Reconciliation tables of the most comparable GAAP financial measures to the non-GAAP financial measures used in this press release are included with the financial tables of this release.

The Company defines Adjusted EBITDA as net profit, adjusted 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 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.

Media Contact Shay Assaraf Chief Marketing Officer, Sapiens Shay.assaraf@sapiens.com

Investors Contact 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 that are incorporated herein by reference 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, that 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, 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				Nine months ended
			September 30				September 30
			2021		2020		2021		2020
			(unaudited)		(unaudited)		(unaudited)		(unaudited)
Revenue			117,812		97,645		341,810		281,242
Cost of revenue			69,512		57,567		202,630		166,641
Gross profit			48,300		40,078		139,180		114,601
Operating expenses:
	Research and development, net		13,767		10,375		40,122		30,229
	Selling, marketing, general and administrative		18,316		17,606		57,302		49,594
Total operating expenses			32,083		27,981		97,424		79,823
Operating income			16,217		12,097		41,756		34,778
Financial and other expenses (income), net			(72)		1,042		512		2,593
Taxes on income			2,923		1,520		7,560		6,430
Net income			13,366		9,535		33,684		25,755
Attributable to non-controlling interest			97		196		177		299
Net income attributable to Sapiens' shareholders			13,269		9,339		33,507		25,456
Basic earnings per share			0.24		0.19		0.61		0.51
Diluted earnings per share			0.24		0.18		0.60		0.50
Weighted average number of shares outstanding used to compute basic earnings per share (in thousands)			54,787		50,625		54,732		50,367
Weighted average number of shares outstanding used to compute diluted earnings per share (in thousands)			55,611		51,581		55,564		51,280

 

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,
		2021		2020		2021		2020
		(unaudited)		(unaudited)		(unaudited)		(unaudited)
GAAP revenue		117,812		97,645		341,810			281,242
Valuation adjustment on acquired deferred revenue		630		323		1,889			323
Non-GAAP revenue		118,442		97,968		343,699			281,565
GAAP gross profit		48,300		40,078		139,180			114,601
Revenue adjustment		630		323		1,889			323
Amortization of capitalized software		1,920		1,600		5,595			4,627
Amortization of other intangible assets		2,563		2,205		7,697			6,346
Non-GAAP gross profit		53,413		44,206		154,361			125,897
GAAP operating income		16,217		12,097		41,756			34,778
Gross profit adjustments		5,113		4,128		15,181			11,296
Capitalization of software development		(2,064)		(1,506)		(5,655)			(4,194)
Amortization of other intangible assets		1,342		825		4,066			2,112
Stock-based compensation		657		1,361		3,527			2,747
Acquisition-related costs (*)		(246)		954		938			2,517
Non-GAAP operating income		21,019		17,859		59,813			49,256
GAAP net income attributable to Sapiens'   shareholders		13,269		9,339		33,507			25,456
Operating income adjustments		4,802		5,762		18,057			14,478
Tax effect on NON-GAAP adjustment		(1,095)		(1,355)		(3,707)			(2,436)
Non-GAAP net income attributable to   Sapiens' shareholders		16,976		13,746		47,857			37,498

^(*) 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				Nine months ended
		September 30				September 30
		2021		2020		2021		2020
GAAP operating profit		16,217		12,097		41,756		34,778
Non-GAAP adjustments:
Valuation adjustment on acquired deferred revenue		630		323		1,889		323
Amortization of capitalized software		1,920		1,600		5,595		4,627
Amortization of other intangible assets		3,905		3,030		11,763		8,458
Capitalization of software development		(2,064)		(1,506)		(5,655)		(4,194)
Stock-based compensation		657		1,361		3,527		2,747
Compensation related to acquisition and acquisition-related costs		(246)		954		938		2,517
Non-GAAP operating profit		21,019		17,859		59,813		49,256
Depreciation		1,125		1,151		3,371		3,332
Adjusted EBITDA		22,144		19,010		63,184		52,588

 

Summary of NON-GAAP Financial Information 
U.S. dollars in thousands (except per share amounts)

	Q3 2021		Q2 2021		Q1 2021		Q4 2020		Q3 2020
Revenues	118,442		115,036		110,222		102,936		97,968
Gross profit	53,413		51,720		49,229		47,044		44,206
Operating income	21,019		19,795		19,000		18,666		17,859
Net income to Sapiens' shareholders	16,976		15,975		14,908		14,461		13,746
Adjusted EBITDA	22,144		20,920		20,120		20,032		19,010
Basic earnings per share	0.31		0.29		0.27		0.27		0.27
Diluted earnings per share	0.31		0.29		0.27		0.27		0.27

 

Non-GAAP Revenues by Geographic Breakdown 
U.S. dollars in thousands

	Q3 2021		Q2 2021		Q1 2021		Q4 2020		Q3 2020
North America	48,952		46,767		44,754		47,303		49,979
Europe	59,707		59,718		57,642		49,225		42,394
Rest of the World	9,783		8,551		7,826		6,408		5,595
Total	118,442		115,036		110,222		102,936		97,968

 

Adjusted Free Cash-Flow
U.S. dollars in thousands

	Q3 2021		Q2 2021		Q1 2021		Q4 2020		Q3 2020
Cash-flow from operating activities	14,556		26,845		11,755		21,030		16,705
Increase in capitalized software development costs	(2,064)		(1,959)		(1,632)		(1,604)		(1,506)
Capital expenditures	(1,082)		(1,082)		(821)		(725)		(963)
Free cash-flow	11,410		23,804		9,302		18,701		14,236
Cash payments attributed to acquisition-related costs(*) (**)	477		-		1,280		2,363		242
Adjusted free cash-flow	11,887		23,804		10,582		21,064		14,478

^(*) 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

			September 30,		December 31,
			2021		2020
			(unaudited)		(unaudited)
ASSETS
CURRENT ASSETS
	Cash and cash equivalents		144,714		152,561
	Short-term bank deposit		40,000		30,000
	Trade receivables, net and unbilled receivables		76,031		65,409
	Other receivables and prepaid expenses		14,670		19,388
	Total current assets		275,415		267,358
LONG-TERM ASSETS
	Property and equipment, net		15,481		16,970
	Severance pay fund		7,054		6,582
	Goodwill and intangible assets, net		345,893		363,597
	Operating lease right-of-use assets		48,356		54,390
	Other long-term assets		7,685		5,264
	Total long-term assets		424,469		446,803
TOTAL ASSETS			699,884		714,161
LIABILITIES AND EQUITY
CURRENT LIABILITIES
	Trade payables		8,983		5,389
	Current maturities of Series B Debentures		19,796		19,796
	Accrued expenses and other liabilities		78,045		75,119
	Current maturities of operating lease liabilities		10,973		9,924
	Deferred revenue		33,634		34,548
	Total current liabilities		151,431		144,776
LONG-TERM LIABILITIES
	Series B Debentures, net of current maturities		78,956		98,676
	Deferred tax liabilities		12,925		16,010
	Other long-term liabilities		12,772		12,129
	Long-term operating lease liabilities		42,958		48,773
	Redeemable non-controlling interest		97		517
	Accrued severance pay		9,980		9,586
	Total long-term liabilities		157,688		185,691
EQUITY			390,765		383,694
TOTAL LIABILITIES AND EQUITY			699,884		714,161

 

SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOW
U.S. dollars in thousands

	For the nine months ended September 30,
	2021		2020
	(unaudited)		(unaudited)
Cash flows from operating activities:
Net income	33,684		25,755
Reconciliation of net income to net cash provided by operating activities:
Depreciation and amortization	20,729		16,417
Accretion of discount on Series B Debentures	76		91
Capital loss from sale of property and equipment	(60)		4
Stock-based compensation related to options issued to employees	3,527		2,747
Net changes in operating assets and liabilities, net of amount acquired:
Trade receivables, net and unbilled receivables	(14,673)		(10,225)
Deferred tax liabilities, net	(3,777)		(391)
Other operating assets	12,122		3,653
Trade payables	3,520		(778)
Other operating liabilities	(1,292)		(294)
Deferred revenues	(810)		(194)
Accrued severance pay, net	110		440
Net cash provided by operating activities	53,156		37,225
Cash flows from investing activities:
Purchase of property and equipment	(2,985)		(1,908)
Investment in deposits	(9,989)		(379)
Proceeds from sale of property and equipment	1,112		12
Proceeds from restricted deposit used for completed acquisition	-		22,890
Proceeds from (payments for) business acquisitions, net of cash acquired	831		(35,395)
Capitalized software development costs	(5,655)		(4,194)
Net cash used in investing activities	(16,686)		(18,974)
Cash flows from financing activities:
Proceeds from employee stock options exercised	1,028		4,919
Distribution of dividend	(20,255)		(7,044)
Repayment of Series B Debenture	(19,796)		(9,898)
Issuance of Series B Debentures, net of issuance expenses of $863	-		60,386
Receipt of short-term loan	-		20,000
Repayment of loan	-		(20,000)
Payment of contingent considerations	(926)		(538)
Acquisition of non-controlling interests	(990)		-
Dividend to non-controlling interest	(31)		-
Net cash provided by (used in) financing activities	(40,970)		47,825
Effect of exchange rate changes on cash and cash equivalents	(3,347)		(704)
Increase (decrease) in cash and cash equivalents	(7,847)		65,372
Cash and cash equivalents at the beginning of period	152,561		66,295
Cash and cash equivalents at the end of period	144,714		131,667

Debentures Covenants

As of September 30, 2021, 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 $389 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 (27.21)%.

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 (1.00).

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SOURCE Sapiens International Corporation

FAQ

What were Sapiens' Q3 2021 revenue results?

In Q3 2021, Sapiens reported revenue of $118.4 million, a 21% increase year-over-year.

What is Sapiens' diluted EPS for Q3 2021?

Sapiens achieved a diluted EPS of $0.24 in Q3 2021, a 33.3% increase compared to the previous year.

What is the updated revenue guidance for Sapiens in 2021?

Sapiens reiterated its revenue guidance for 2021, expecting between $461 million and $466 million.

What is the operating margin for Sapiens in Q3 2021?

Sapiens reported a non-GAAP operating margin of 17.7% for Q3 2021.

How much did Sapiens' net income grow in Q3 2021?

Sapiens' net income grew by 42.1% year-over-year to $13.3 million in Q3 2021.