Sapiens Reports Third Quarter 2022 Financial Results

Rhea-AI Summary

Sapiens International Corporation (NASDAQ: SPNS) reported a 1% increase in revenue for Q3 2022, reaching $119 million, alongside a 4.1% rise in gross profit to $50.3 million. Operating income also rose to $16.6 million, up 2.1% year-over-year. However, the company revised its 2022 revenue guidance downward to a range of $472-$478 million from $480-$485 million, citing macroeconomic impacts. Despite these challenges, Sapiens maintained its operating margin guidance between 17.5%-17.7%.

Positive

• Q3 2022 revenue increased 1% to $119 million.
• Gross profit rose 4.1% to $50.3 million.
• Operating income grew 2.1% to $16.6 million.

Negative

• 2022 revenue guidance revised down to $472-$478 million from $480-$485 million.
• Operating margin decreased to 17.6% from 17.7%.

HOLON, Israel, Nov. 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 third quarter ended September 30, 2022.

Summary Results for Third Quarter 2022 (USD in millions, except per share data)

	GAAP			Non-GAAP
	Q3 2022	Q3 2021	% Change	Q3 2022	Q3 2021	% Change
Revenue	$119	$117.8	1.0 %	$119	$118.4	0.5 %
Gross Profit	$50.3	$48.3	4.1 %	$53.5	$53.4	0.2 %
Gross Margin	42.2 %	41.0 %	120 bps	45.0 %	45.1 %	-10 bps
Operating Income	$16.6	$16.2	2.1 %	$20.9	$21.0	-0.6 %
Operating Margin	13.9 %	13.8 %	10 bps	17.6 %	17.7 %	-10 bps
Net Income (*)	$13.4	$13.3	0.9 %	$16.9	$17.0	-0.6 %
Diluted EPS	$0.24	$0.24	0.0 %	$0.30	$0.31	-3.2 %

(*) Attributable to Sapiens' shareholders

Roni Al-Dor, President and CEO of Sapiens, stated, "Our revenue reached $119 million, and on a constant currency basis, we grew by 8%. Operating profit this quarter reached $20.9 million, representing an operating margin of 17.6%. This quarter, we delivered solid results excluding the currency headwind. Sapiens' business model proves itself with continued growth and improved profitability, with a diversified product platform containing core systems in P&C, Life & Annuity and various business applications delivered on the cloud. We have a global presence with both onshore and offshore operations."

Mr. Al-Dor continued, "Today, we are revising our 2022 revenue guidance to a new range of $472 to $478 million from $480 to $485 million, primarily due to delays in signing new deals caused by macroeconomics and the impact of foreign exchange. The new revenue guidance reflects annual growth of 2.5%, and on a constant currency basis a growth of 8.4%. Despite the continuous weakening of the European currencies versus the dollar, we are reaffirming our profit margin guidance range of 17.5%-17.7%."

Management will host a conference call and webcast today, November 3rd, 2022, at 9:30 a.m. 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://veidan.activetrail.biz/sapiensq3-2022. 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 Tally Kaplan Porat   Director of Corporate Marketing  tally.kaplanporat@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				Nine months ended
			September 30,				September 30,
			2022		2021		2022		2021
			(unaudited)		(unaudited)		(unaudited)		(unaudited)
Revenue			118,996		117,812		355,273		341,810
Cost of revenue			68,721		69,512		205,415		202,630
Gross profit			50,275		48,300		149,858		139,180
Operating expenses:
	Research and development, net		14,804		13,767		43,405		40,122
	Selling, marketing, general and administrative		18,919		18,316		56,443		57,302
Total operating expenses			33,723		32,083		99,848		97,424
Operating income			16,552		16,217		50,010		41,756
Financial and other expenses, net			(82)		(72)		2,038		512
Taxes on income			2,893		2,923		8,342		7,560
Net income			13,741		13,366		39,630		33,684
Attributable to non-controlling interest			348		97		401		177
Net income attributable to Sapiens' shareholders			13,393		13,269		39,229		33,507
Basic earnings per share			0.25		0.24		0.72		0.61
Diluted earnings per share			0.24		0.24		0.71		0.60
Weighted average number of shares outstanding used to compute basic earnings per share (in thousands)			55,124		54,787		55,109		54,732
Weighted average number of shares outstanding used to compute diluted earnings per share (in thousands)			55,581		55,611		55,595		55,564

 

 

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,
		2022		2021		2022		2021
		(unaudited)		(unaudited)		(unaudited)		(unaudited)
GAAP revenue		118,996		117,812		355,273			341,810
Valuation adjustment on acquired deferred revenue		23		630		69			1,889
Non-GAAP revenue		119,019		118,442		355,342			343,699
GAAP gross profit		50,275		48,300		149,858			139,180
Revenue adjustment		23		630		69			1,889
Amortization of capitalized software		1,442		1,920		4,323			5,595
Amortization of other intangible assets		1,806		2,563		5,446			7,697
Non-GAAP gross profit		53,546		53,413		159,696			154,361
GAAP operating income		16,552		16,217		50,010			41,756
Gross profit adjustments		3,271		5,113		9,838			15,181
Capitalization of software development		(1,492)		(2,064)		(4,859)			(5,655)
Amortization of other intangible assets		1,269		1,342		3,668			4,066
Stock-based compensation		1,141		657		3,201			3,527
Acquisition-related costs *)		161		(246)		561			938
Non-GAAP operating income		20,902		21,019		62,419			59,813
GAAP net income attributable to Sapiens' shareholders		13,393		13,269		39,229			33,507
Operating income adjustments		4,350		4,802		12,408			18,057
Taxes on income		(872)		(1,095)		(2,489)			(3,707)
Non-GAAP net income attributable to Sapiens' shareholders		16,871		16,976		49,148			47,857

 

 ^(*) 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,
		2022		2021		2022		2021
GAAP operating profit		16,552		16,217		50,010		41,756
Non-GAAP adjustments:
Valuation adjustment on acquired deferred revenue		23		630		69		1,889
Amortization of capitalized software		1,442		1,920		4,323		5,595
Amortization of other intangible assets		3,075		3,905		9,114		11,763
Capitalization of software development		(1,492)		(2,064)		(4,859)		(5,655)
Stock-based compensation		1,141		657		3,201		3,527
Compensation related to acquisition and acquisition-related costs		161		(246)		561		938
Non-GAAP operating profit		20,902		21,019		62,419		59,813
Depreciation		1,134		1,125		3,208		3,371
Adjusted EBITDA		22,036		22,144		65,627		63,184

 

 

Summary of NON-GAAP Financial Information
U.S. dollars in thousands (except per share amounts)
	Q3 2022		Q2 2022		Q1 2022		Q4 2021		Q3 2021
Revenues	119,019		118,605		117,718		119,854		118,442
Gross profit	53,546		53,207		52,943		53,933		53,413
Operating income	20,902		20,747		20,770		21,590		21,019
Adjusted EBITDA	22,036		21,681		21,910		23,579		22,144
Net income to Sapiens' shareholders	16,871		14,979		17,298		17,681		16,976
Diluted earnings per share	0.30		0.27		0.31		0.32		0.31

 

Non-GAAP Revenues by Geographic Breakdown
U.S. dollars in thousands
	Q3 2022		Q2 2022		Q1 2022		Q4 2021		Q3 2021
North America	49,555		48,154		49,009		48,872		48,952
Europe	56,887		59,868		59,267		62,416		59,707
Rest of the World	12,577		10,583		9,442		8,566		9,783
Total	119,019		118,605		117,718		119,854		118,442

 

Adjusted Free Cash-Flow
U.S. dollars in thousands
	Q3 2022		Q2 2022		Q1 2022		Q4 2021		Q3 2021
Cash-flow from operating activities	4,405		6,615		18,330		27,386		14,556
Increase in capitalized software development costs	(1,492)		(1,621)		(1,746)		(2,256)		(2,064)
Capital expenditures	(1,047)		(803)		(453)		(801)		(1,082)
Free cash-flow	1,866		4,191		16,131		24,329		11,410
Cash payments attributed to acquisition-related costs(*) (**)	-		-		-		407		477
Adjusted free cash-flow	1,866		4,191		16,131		24,736		11,887

 

^(*) 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.

 

 

Reconciliation of Revenue Growth as Reported on GAAP Basis to Revenue Growth
on a Constant Currency Basis
Three months ended September 30, 2022
Revenue growth %		As reported	Currency Impact	Constant Currency Basis
North America		1.2 %	-	1.2 %
Europe		(4.7) %	(14.8) %	10.0 %
Rest of the world		28.6 %	(0.9) %	29.5 %
Total		0.5 %	(7.5) %	8.0 %

 

Nine months ended September 30, 2022
Revenue growth %		As reported	Currency Impact	Constant Currency Basis
North America		4.4 %	-	4.4 %
Europe		(0.6) %	(10.4) %	9.8 %
Rest of the world		24.6 %	(0.6) %	25.2 %
Total		3.4 %	(5.4) %	8.8 %

* Constant currency revenue results are calculated by translating current period revenues in local currency into U.S dollars at the weighted average exchange rates of the comparable prior period.

 * Due to the significant impact of the currencies fluctuations this year on our reported revenues, we are providing the above information by region on a constant currency basis for this quarter and the remaining of 2022. We are not committing at this time to continue providing such information in the future. 

 

 

 

SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
U.S. dollars in thousands
			September 30,		December 31,
			2022		2021
			(unaudited)		(unaudited)
ASSETS
CURRENT ASSETS
	Cash and cash equivalents		146,916		190,243
	Short-term bank deposit		20,000		20,000
	Trade receivables, net and unbilled receivables		89,992		76,261
	Other receivables and prepaid expenses		12,231		13,841
	Total current assets		269,139		300,345
LONG-TERM ASSETS
	Property and equipment, net		12,421		14,458
	Severance pay fund		4,267		5,954
	Goodwill and intangible assets, net		315,454		343,283
	Operating lease right-of-use assets		34,267		43,665
	Other long-term assets		6,607		7,288
	Total long-term assets		373,016		414,648
TOTAL ASSETS			642,155		714,993
LIABILITIES AND EQUITY
CURRENT LIABILITIES
	Trade payables		11,772		5,008
	Current maturities of Series B Debentures		19,796		19,796
	Accrued expenses and other liabilities		70,412		76,450
	Current maturities of operating lease liabilities		9,161		10,827
	Deferred revenue		32,110		39,614
	Total current liabilities		143,251		151,695
LONG-TERM LIABILITIES
	Series B Debentures, net of current maturities		59,251		78,986
	Deferred tax liabilities		14,000		15,360
	Other long-term liabilities		11,903		12,144
	Long-term operating lease liabilities		29,338		38,751
	Redeemable non-controlling interest		88		101
	Accrued severance pay		7,166		9,236
	Total long-term liabilities		121,746		154,578
EQUITY			377,158		408,720
TOTAL LIABILITIES AND EQUITY			642,155		714,993

 

 

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,
	2022		2021
	(unaudited)		(unaudited)
Cash flows from operating activities:
Net income	39,630		33,684
Reconciliation of net income to net cash provided by operating activities:
Depreciation and amortization	16,645		20,729
Accretion of discount on Series B Debentures	61		76
Capital (gain) loss from sale of property and equipment	27		(60)
Stock-based compensation related to options issued to employees	3,201		3,527
Net changes in operating assets and liabilities, net of amount acquired:
Trade receivables, net and unbilled receivables	(21,386)		(14,673)
Deferred tax liabilities, net	(978)		(3,777)
Other operating assets	5,475		12,122
Trade payables	7,527		3,520
Other operating liabilities	(15,122)		(1,292)
Deferred revenues	(5,686)		(810)
Accrued severance pay, net	(44)		110
Net cash provided by operating activities	29,350		53,156
Cash flows from investing activities:
Purchase of property and equipment	(2,334)		(2,985)
Proceeds from (Investment in) deposits	(133)		(9,989)
Proceeds from sale of property and equipment	31		1,112
Proceeds from (payments for) business acquisitions, net of cash acquired	(3,467)		831
Capitalized software development costs	(4,859)		(5,655)
Net cash provided by (used in) investing activities	(10,762)		(16,686)
Cash flows from financing activities:
Proceeds from employee stock options exercised	-		1,028
Distribution of dividend	(38,579)		(20,255)
Repayment of Series B Debenture	(19,796)		(19,796)
Payment of contingent considerations	-		(926)
Acquisition of non-controlling interests	-		(990)
Dividend to non-controlling interest	-		(31)
Net cash used in financing activities	(58,375)		(40,970)
Effect of exchange rate changes on cash and cash equivalents	(3,540)		(3,347)
Decrease in cash and cash equivalents	(43,327)		(7,847)
Cash and cash equivalents at the beginning of period	190,243		152,561
Cash and cash equivalents at the end of period	146,916		144,714

 

 

 

Debentures Covenants

As of September 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 $374.8 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 (29.38)%.

Covenant 3

• Target ratio of net financial indebtedness to EBITDA (accumulated calculation for the three last quarters) is below 5.5.
• Actual ratio of net financial indebtedness to EBITDA (accumulated calculation for the three last quarters) is equal to (0.96).

Logo - http://mma.prnewswire.com/media/585787/Sapiens_Logo.jpg

View original content:https://www.prnewswire.com/news-releases/sapiens-reports-third-quarter-2022-financial-results-301667553.html

SOURCE Sapiens International Corporation

FAQ

What are the Q3 2022 financial results for Sapiens (SPNS)?

Sapiens reported Q3 2022 revenue of $119 million, a 1% increase year-over-year, with a gross profit of $50.3 million.

How did Sapiens revise its 2022 revenue guidance?

Sapiens revised its 2022 revenue guidance to a range of $472-$478 million from the previous range of $480-$485 million.

What was Sapiens' operating margin in Q3 2022?

Sapiens' operating margin for Q3 2022 was 13.9%, a slight increase from 13.8% in the previous year.

What is the diluted EPS for Sapiens in Q3 2022?

The diluted EPS for Sapiens in Q3 2022 remained at $0.24, unchanged from Q3 2021.

What are the key factors impacting Sapiens' financial performance?

Key factors include delays in signing new deals due to macroeconomic conditions and currency fluctuations.