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Sapiens Reports First Quarter 2023 Financial Results

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HOLON, Israel, May 3, 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 first quarter ended March 31, 2023.

 

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


GAAP


Non-GAAP



Q1 2023

Q1 2022

% Change

Q1 2023

Q1 2022

% Change

Revenue

$124.7

$117.7

6.0 %

$124.8

$117.7

6.0 %

Gross Profit

$53.0

$49.4

7.3 %

$56.4

$52.9

6.5 %

Gross Margin

42.5 %

42.0 %

 50 bps

45.2 %

45.0 %

 20 bps

Operating Income

$18.9

$16.5

14.2 %

$22.5

$20.8

8.4 %

Operating Margin

15.1 %

14.1 %

 100 bps

18.0 %

17.6 %

 40 bps

Net Income (*)

$14.2

$13.9

1.9 %

$17.3

$17.3

-0.3 %

Diluted EPS

$0.26

$0.25

4.0 %

$0.31

$0.31

0.0 %

(*) Attributable to Sapiens' shareholders

"Sapiens delivered a strong first quarter, with operating profit increasing year-over-year by 8.4% on revenue growth of 6%, which resulted in an operating margin of 18.0%," stated Roni Al-Dor, President and CEO of Sapiens. "Our diligence and extensive groundwork in North America are now paying off as the region returns to growth. In the first quarter revenue in North America increased by 2.8% compared to last year.  We ended 2022 with significant enhancements in our products, delivery, and talent that helped us build a momentum that has carried over into 2023.  We have already signed new deals for P&C, Life, and Reinsurance since the beginning of the year, and are optimistic by the quality of our new business pipeline.

Mr. Al-Dor continued, "Revenue growth in the first quarter was driven by a year-over-year increase of 9.0% in Europe. Our customer-centric model, implemented globally, has consistently driven growth and profitability while generating cash flow."

We are well-positioned to continue our positive momentum from the first quarter throughout the remainder of the year. We are increasing our full-year 2023 non-GAAP revenues to $507 million to $512 million compared to our previous guidance of $502 million to $507 million. We are also increasing the guidance for the full year 2023 non-GAAP operating margin to 17.8%-18.2%, compared to our previous guidance of 17.6% to 18.0%. These revised targets demonstrate our commitment to delivering outstanding results and driving sustained growth," concluded Mr. Al-Dor.

Quarterly Results Conference Call

Management will host a conference call and webcast on May 3, 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: 972-3-918-0609
  • 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 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 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

 

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 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





 March 31,





2023


2022





 (unaudited)


 (unaudited)









 Revenue


124,721


117,695


 Cost of revenue


71,692


68,278









 Gross profit


53,029


49,417









 Operating expenses:







 Research and development, net


15,617


14,150



 Selling, marketing, general and administrative


18,519


18,719


 Total operating expenses


34,136


32,869









 Operating income


18,893


16,548









 Financial and other expenses (income), net


1,197


(348)


 Taxes on income


3,330


2,938
















 Net income


14,366


13,958









 Attributable to non-controlling interest


170


32









 Net income attributable to Sapiens' shareholders


14,196


13,926
















 Basic earnings per share


0.26


0.25









 Diluted earnings per share


0.26


0.25















Weighted average number of shares outstanding
used to compute basic earnings per share (in
thousands)


55,156


55,093








Weighted average number of shares outstanding
used to compute diluted earnings per share (in
thousands)


55,570


55,630


 

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




March 31,




2023


2022




(unaudited)


(unaudited)








GAAP revenue


124,721


117,695


Valuation adjustment on acquired deferred
revenue


55


23


Non-GAAP revenue


124,776


117,718








GAAP gross profit


53,029


49,417


Revenue adjustment


55


23


Amortization of capitalized software


1,431


1,471


Amortization of other intangible assets


1,848


2,032


Non-GAAP gross profit


56,363


52,943








GAAP operating income


18,893


16,548


Gross profit adjustments


3,334


3,526


Capitalization of software development


(1,658)


(1,746)


Amortization of other intangible assets


1,076


1,244


Stock-based compensation


863


931


Acquisition-related costs (*)


6


267


Non-GAAP operating income


22,514


20,770








GAAP net income attributable to Sapiens'
shareholders


14,196


13,926


Operating income adjustments


3,621


4,222


Taxes on income


(564)


(850)


Non-GAAP net income attributable to Sapiens'
shareholders


17,253


17,298








 (*) 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




 March 31,




2023


2022








GAAP operating profit


18,893


16,548








Non-GAAP adjustments:






Valuation adjustment on acquired deferred revenue


55


23


Amortization of capitalized software


1,431


1,471


Amortization of other intangible assets


2,924


3,276


Capitalization of software development


(1,658)


(1,746)


Stock-based compensation


863


931


Compensation related to acquisition and acquisition-related costs


6


267








Non-GAAP operating profit


22,514


20,770








Depreciation


1,055


1,140








Adjusted EBITDA


23,569


21,910














 

Summary of NON-GAAP Financial Information 

U.S. dollars in thousands (except per share amounts)


Q1 2023


Q4 2022


Q3 2022


Q2 2022


Q1 2022











Revenues

124,776


119,486


119,019


118,605


117,718

Gross profit

56,363


53,774


53,546


53,207


52,943

Operating income

22,514


21,058


20,902


20,747


20,770

Adjusted EBITDA

23,569


22,092


22,036


21,681


21,910

Net income to Sapiens' shareholders

17,253


18,022


16,871


14,979


17,298











Diluted earnings per share

0.31


0.32


0.30


0.27


0.31

 

Non-GAAP Revenues by Geographic Breakdown

U.S. dollars in thousands


Q1 2023


Q4 2022


Q3 2022


Q2 2022


Q1 2022











North America

50,371


50,801


49,555


48,154


49,009

Europe

64,572


56,910


56,887


59,868


59,267

Rest of the World

9,833


11,775


12,577


10,583


9,442











Total

124,776


119,486


119,019


118,605


117,718

 

Non-GAAP Revenue breakdown





U.S. dollars in thousands






Q1 2023


%


Q1 2022



%












Software products and re-occurring post-production services (*)

81,842


65.6 %


75,625



64.2 %


Pre-production implementation services (**)

42,934


34.4 %


42,093



35.8 %












Total Revenues

124,776


100 %


117,718



100 %













Q1 2023



Q1 2022








Software products and re-occurring post-production services (*)

44,849



40,446


Pre-production implementation services (**)

11,514



12,497








Total Gross profit

56,363



52,943









Q1 2023




Q1 2022












Software products and re-occurring post-production services (*)

54.8 %




53.5 %





Pre-production implementation services (**)

26.8 %




29.7 %












Gross margin

45.2 %




45.0 %





(*) 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


Q1 2023


Q4 2022


Q3 2022


Q2 2022


Q1 2022











Cash-flow from operating activities

22,188


14,430


4,405


6,615


18,330

Increase in capitalized software development costs

(1,658)


(1,238)


(1,492)


(1,621)


(1,746)

Capital expenditures

(634)


(400)


(1,047)


(803)


(453)

Free cash-flow

19,896


12,792


1,866


4,191


16,131











Cash payments attributed to acquisition-related
costs(*) (**)

30


1,100


-


-


-











Adjusted free cash-flow

19,926


13,892


1,866


4,191


16,131

(*) 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




March 31,


December 31,




2023


2022




 (unaudited)


 (unaudited)







 ASSETS












 CURRENT ASSETS






Cash and cash equivalents


116,654


160,285


Short-term bank deposit


65,000


20,000


Trade receivables, net and unbilled receivables


94,833


93,382


Other receivables and prepaid expenses


11,624


11,640


Total current assets


288,111


285,307







 LONG-TERM ASSETS






Property and equipment, net


11,612


12,021


Severance pay fund


3,672


3,996


Goodwill and intangible assets, net


316,865


319,661


Operating lease right-of-use assets


27,439


33,688


Other long-term assets


15,619


13,671


Total long-term assets


375,207


383,037







 TOTAL ASSETS


663,318


668,344







LIABILITIES AND EQUITY











 CURRENT LIABILITIES






Trade payables


2,467


9,415


Current maturities of Series B Debentures


19,796


19,796


Accrued expenses and other liabilities


80,911


76,962


Current maturities of operating lease liabilities


6,883


9,063


Deferred revenue


38,920


30,720


Total current liabilities


148,977


145,956







 LONG-TERM LIABILITIES






Series B Debentures, net of current maturities


39,493


59,275


Deferred tax liabilities


12,193


11,363


Other long-term liabilities


13,097


13,312


Long-term operating lease liabilities


24,686


28,432


Redeemable non-controlling interest


87


89


Accrued severance pay


6,903


7,063


Total long-term liabilities


96,459


119,534







EQUITY



417,882


402,854







TOTAL LIABILITIES AND EQUITY


663,318


668,344






 

 

SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOW

U.S. dollars in thousands


For the three months ended March 31,


2023


2022


               (unaudited)


(unaudited)

Cash flows from operating activities:




Net income

14,366


13,958

Reconciliation of net income to net cash provided by operating activities:




Depreciation and amortization

5,410


5,887

Accretion of discount on series B debentures

14


18

Capital (gain) loss from sale of property and equipment

(10)


7

Stock-based compensation related to options issued to employees

863


931





Net changes in operating assets and liabilities, net of amount acquired:




Increase in trade receivables, net and unbilled receivables

(2,039)


(7,357)

Increase (decrease) in deferred tax liabilities, net

25


(471)

Decrease in other operating assets

1,257


959

Decrease in trade payables

(7,014)


(34)

Increase (decrease) in other operating liabilities

1,197


(1,136)

Increase in deferred revenues

7,936


5,526

Increase in accrued severance pay, net

183


42

Net cash provided by operating activities

22,188


18,330





Cash flows from investing activities:








Purchase of property and equipment

(653)


(453)

Investment in deposits

(45,004)


(15,033)

Proceeds from sale of property and equipment

19


-

Capitalized software development costs

(1,658)


(1,746)

Acquisition of intellectual property

(177)


-

Net cash used in investing activities

(47,473)


(17,232)





Cash flows from financing activities:








Repayment of series B debenture

(19,796)


(19,796)

Dividend to non-controlling interest

(47)


-

Net cash used in financing activities

(19,843)


(19,796)





Effect of exchange rate changes on cash and cash equivalents

1,497


(236)





Increase (Decrease) in cash and cash equivalents

(43,631)


(18,934)

Cash and cash equivalents at the beginning of period

160,285


190,243





Cash and cash equivalents at the end of period

116,654


171,309

 

Debentures Covenants

As of March 31, 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 $415.4 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 (41.17)%.

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 (1.36).

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SOURCE Sapiens International Corporation

Sapiens International Corporation N.V.

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