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Sapiens Reports Third Quarter 2023 Financial Results

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Sapiens International Corporation (SPNS) Announces Strong Q3 2023 Financial Results with Revenue Growth of 10%, Operating Margin Expansion, and Reiteration of 2023 Full-Year Guidance
Positive
  • Strong revenue growth of 10% to reach $130.8 million in Q3 2023
  • Operating margin expanded to 18.4% with an operating profit of $24.1 million
  • Increased full year 2023 Non-GAAP operating margin guidance to a range of 18.2% - 18.3%
Negative
  • None.

HOLON, Israel , Nov. 8, 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 third quarter ended September 30, 2023.

Sapiens Logo



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


GAAP

 


Non-GAAP

 



Q3 2023

 

Q3 2022

 

% Change

 

Q3 2023

 

Q3 2022

 

% Change

 

Revenue

 

$130.7

 

$119.0

 

9.8 %

 

$130.8

 

$119.0

 

9.9 %

 

Gross Profit

 

$56.0

 

$50.3

 

11.3 %

 

$59.3

 

$53.5

 

10.7 %

 

Gross Margin

 

42.8 %

 

42.2 %

 

60 bps

 

45.3 %

 

45.0 %

 

30 bps

 

Operating Income

 

$20.3

 

$16.6

 

22.4 %

 

$24.1

 

$20.9

 

15.1 %

 

Operating Margin

 

15.5 %

 

13.9 %

 

160 bps

 

18.4 %

 

17.6 %

 

80 bps

 

Net Income (*)

 

$15.9

 

$13.4

 

18.5 %

 

$19.1

 

$16.9

 

13.1 %

 

Diluted EPS

 

$0.28

 

$0.24

 

16.7 %

 

$0.34

 

$0.30

 

13.3 %

 


(*) Attributable to Sapiens' shareholders


Roni Al-Dor, President and CEO of Sapiens, stated, "In the third quarter, we delivered strong revenues growth, of 10% to reach $130.8 million, driven by growth in our European and North America regions.

New logo win momentum has been strong throughout the year and existing customer product expansion has also been healthy.

This quarter also saw further expansion in our operating margin to 18.4%, resulting in an operating profit of $24.1 million. As we have consistently done throughout 2023, we remained committed to executing our growth strategy across diverse regions and product categories. With a multitude of growth drivers at our disposal, including regional and product diversification, Sapiens is strategically positioned for both future growth and profitability."

Mr. Al-Dor continued, "We are heartbroken by the war taking place in Israel, and our thoughts are with all who are impacted by these brutal terror attacks. Despite the recent tragic events in Israel, our global business has continued to run smoothly, thanks to our dedicated global employee base. During this period, we have received support from our customers, prospects, the investment community, partners, and employees.  We deeply appreciate the support during this challenging time."

In commenting on the company's outlook, Mr. Al-Dor stated, "Today, we are reiterating our 2023 full-year Non-GAAP revenue guidance of $511$516 million and increasing our full year 2023 Non-GAAP operating margin guidance from 18.0% – 18.2% to a range of 18.2% - 18.3%."

Management will host a conference call and webcast today, November 8, 2023 at 9:30 a.m. Eastern Time (4:30 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 accessed at: https://veidan.activetrail.biz/sapiensq3-2023. A replay of the call will be available one business day following the completion of the event at the same link for 90 days.

Non-GAAP Financial Measures

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

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

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

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

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

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

The Company defines Adjusted EBITDA as net profit, adjusted to eliminate valuation adjustment on acquired deferred revenue, stock-based compensation expense, depreciation and amortization, capitalization of software development costs, compensation expenses related to acquisition and acquisition-related costs, restructuring and cost reduction costs, financial expense (income), provision for income taxes and other income (expenses). These amounts are often excluded by other companies as well, in order to help investors understand the operational performance of their business.

The Company uses Adjusted EBITDA as a measurement of its operating performance, because it assists in comparing the operating performance on a consistent basis by removing the impact of certain non-cash and non-operating items. Adjusted EBITDA reflects an additional way of viewing aspects of the operations that the Company believes, when viewed with the GAAP results and the accompanying reconciliations to corresponding GAAP financial measures, provide a more complete understanding of factors and trends affecting its business. The Company uses Adjusted Free Cash-Flow as a measurement of its operating performance, and reconciles cash-flow from operating activities to Adjusted Free Cash-Flow, while reducing the amounts for capitalization of software development costs and capital expenditures. The Company adds back cash payments made for former acquisitions in respect of future performance targets and retention criteria as determined upon acquisition date of the respective acquired company, which were included in the cash-flow from operating activities. We believe that Adjusted Free Cash-Flow is useful in evaluating our business, because Adjusted Free Cash-Flow reflects the cash surplus available to fund the expansion of our business.

About Sapiens

Sapiens International Corporation (NASDAQ and TASE: SPNS) empowers the financial sector, with a focus on insurance, to transform and become digital, innovative, and agile. With more than 40 years of industry expertise, Sapiens' cloud-based SaaS insurance platform offers pre-integrated, low-code capabilities across core, data and digital domains to accelerate our customers' digital transformation. Serving over 600 customers in more than 30 countries, Sapiens offers insurers across property and casualty, workers' compensation, and life insurance markets the most comprehensive set of solutions, from core to complementary, including Reinsurance, Financial & Compliance, Data & Analytics, Digital, and Decision Management.  For more information visit www.sapiens.com or follow us on LinkedIn.

Investor and Media Contact

Yaffa Cohen-Ifrah

Chief Marketing Officer and Head of Investor Relations, Sapiens

Yaffa.cohen-ifrah@sapiens.com

+1 917-533-4782

Investor Contacts

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


  Nine months ended




 September 30,


 September 30,




2023


2022


2023


2022




 (unaudited)


 (unaudited)


 (unaudited)


 (unaudited)











 Revenue


130,705


118,996


383,725


355,273

 Cost of revenue


74,753


68,721


220,080


205,415











 Gross profit


55,952


50,275


163,645


149,858











 Operating expenses:










 Research and development, net


16,028


14,804


47,391


43,405


 Selling, marketing, general and administrative


19,659


18,919


57,475


56,443

 Total operating expenses


35,687


33,723


104,866


99,848











 Operating income


20,265


16,552


58,779


50,010











 Financial and other expenses (income), net


551


(82)


2,310


2,038

 Taxes on income


3,710


2,893


10,627


8,342





















 Net income


16,004


13,741


45,842


39,630











 Attributable to non-controlling interest


132


348


371


401











 Net income attributable to Sapiens' shareholders


15,872


13,393


45,471


39,229





















 Basic earnings per share


0.29


0.25


0.82


0.72











 Diluted earnings per share


0.28


0.24


0.82


0.71




















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


55,397


55,124


55,251


55,109










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


55,813


55,581


55,657


55,595



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,



2023


2022


2023


2022



(unaudited)


(unaudited)


(unaudited)


(unaudited)










GAAP revenue


130,705


118,996


383,725


355,273

Valuation adjustment on acquired deferred revenue


55


23


165


69

Non-GAAP revenue


130,760


119,019


383,890


355,342










GAAP gross profit


55,952


50,275


163,645


149,858

Revenue adjustment


55


23


165


69

Amortization of capitalized software


1,418


1,442


4,274


4,323

Amortization of other intangible assets


1,835


1,806


5,531


5,446

Non-GAAP gross profit


59,260


53,546


173,615


159,696










GAAP operating income


20,265


16,552


58,779


50,010

Gross profit adjustments


3,308


3,271


9,970


9,838

Capitalization of software development


(1,638)


(1,492)


(4,975)


(4,859)

Amortization of other intangible assets


1,074


1,269


3,234


3,668

Stock-based compensation


1,038


1,141


2,960


3,201

Acquisition-related costs *)


11


161


21


561

Non-GAAP operating income


24,058


20,902


69,989


62,419










  GAAP net income attributable to Sapiens' shareholders


15,872


13,393


45,471


39,229

  Operating income adjustments


3,793


4,350


11,210


12,408

  Taxes on income


(585)


(872)


(1,738)


(2,489)

  Non-GAAP net income attributable to Sapiens' shareholders


19,080


16,871


54,943


49,148











 (*) 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,



2023


2022


2023


2022










GAAP operating profit


20,265


16,552


58,779


50,010










Non-GAAP adjustments:









Valuation adjustment on acquired deferred revenue


55


23


165


69

Amortization of capitalized software


1,418


1,442


4,274


4,323

Amortization of other intangible assets


2,909


3,075


8,765


9,114

Capitalization of software development


(1,638)


(1,492)


(4,975)


(4,859)

Stock-based compensation


1,038


1,141


2,960


3,201

Compensation related to acquisition and acquisition-related costs


11


161


21


561










Non-GAAP operating profit


24,058


20,902


69,989


62,419










Depreciation


719


1,134


2,750


3,208










Adjusted EBITDA


24,777


22,036


72,739


65,627



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


Q3 2023


Q2 2023


Q1 2023


Q4 2022


Q3 2022











Revenues

130,760


128,354


124,776


119,486


119,019

Gross profit

59,260


57,992


56,363


53,774


53,546

Operating income

24,058


23,417


22,514


21,058


20,902

Adjusted EBITDA

24,777


24,393


23,569


22,092


22,036

Net income to Sapiens' shareholders

19,080


18,610


17,253


18,022


16,871











Diluted earnings per share

0.34


0.33


0.31


0.32


0.30



Non-GAAP Revenues by Geographic Breakdown

U.S. dollars in thousands


Q3 2023


Q2 2023


Q1 2023


Q4 2022


Q3 2022











North America

54,848


52,116


50,371


50,801


49,555

Europe

64,662


62,960


64,572


56,910


56,887

Rest of the World

11,250


13,278


9,833


11,775


12,577











Total

130,760


128,354


124,776


119,486


119,019



Non-GAAP Revenue breakdown
U.S. dollars in thousands


Three months ended


Nine months ended


September 30,


September 30,


2023


2022


2023


2022









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

87,356


74,950


251,757


222,539

Pre-production implementation services (**)

43,404


44,069


132,133


132,803









Total Revenues

130,760


119,019


383,890


355,342










Three months ended


Nine months ended


September 30,


September 30,


2023


2022


2023


2022









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

46,053


41,369


133,339


119,414

Pre-production implementation services (**)

13,207


12,177


40,276


40,282









Total Gross profit

59,260


53,546


173,615


159,696


 

 

Three months ended


Nine months ended


September 30,


September 30,


2023


2022


2023


2022









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

52.7 %


55.2 %


53.0 %


53.7 %

Pre-production implementation services (**)

30.4 %


27.6 %


30.5 %


30.3 %









Gross Margin

45.3 %


45.0 %


45.2 %


44.9 %


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

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



Adjusted Free Cash-Flow

U.S. dollars in thousands


Q3 2023


Q2 2023


Q1 2023


Q4 2022


Q3 2022











Cash-flow from operating activities

3,988


14,603


22,188


14,430


4,405

Increase in capitalized software development costs

(1,638)


(1,679)


(1,658)


(1,238)


(1,492)

Capital expenditures

(696)


(775)


(634)


(400)


(1,047)

Free cash-flow

1,654


12,149


19,896


12,792


1,866











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

-


-


30


1,100


-











Adjusted free cash-flow

1,654


12,149


19,926


13,892


1,866


(*) 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,




2023


2022




 (unaudited)


 (unaudited)







 ASSETS












 CURRENT ASSETS






Cash and cash equivalents


97,061


160,285


Short-term bank deposit


75,400


20,000


Trade receivables, net and unbilled receivables


98,833


93,382


Other receivables and prepaid expenses


19,093


11,640








Total current assets


290,387


285,307







 LONG-TERM ASSETS






Property and equipment, net


11,046


12,021


Severance pay fund


3,383


3,996


Goodwill and intangible assets, net


305,225


319,661


Operating lease right-of-use assets


23,713


33,688


Other long-term assets


16,399


13,671








Total long-term assets


359,766


383,037







 TOTAL ASSETS


650,153


668,344







LIABILITIES AND EQUITY











 CURRENT LIABILITIES






Trade payables


8,508


9,415


Current maturities of Series B Debentures


19,796


19,796


Accrued expenses and other liabilities


73,258


76,962


Current maturities of operating lease liabilities


6,919


9,063


Deferred revenue


31,120


30,720








Total current liabilities


139,601


145,956







 LONG-TERM LIABILITIES






Series B Debentures, net of current maturities


39,526


59,275


Deferred tax liabilities


10,716


11,363


Other long-term liabilities


12,499


13,312


Long-term operating lease liabilities


21,006


28,432


Redeemable non-controlling interest


82


89


Accrued severance pay


7,004


7,063








Total long-term liabilities


90,833


119,534







EQUITY



419,719


402,854







TOTAL LIABILITIES AND EQUITY


650,153


668,344








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,


2023


2022


(unaudited)


(unaudited)

Cash flows from operating activities:




Net income

45,842


39,630

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




Depreciation and amortization

15,789


16,645

Accretion of discount on Series B Debentures

47


61

Capital loss from sale of property and equipment

83


27

Stock-based compensation related to options issued to employees

2,960


3,201





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




Increase in trade receivables, net and unbilled receivables

(8,698)


(21,386)

Decrease in deferred tax liabilities, net

(1,410)


(978)

Decrease (increase) in other operating assets

(4,107)


5,475

Increase (decrease) in trade payables

(616)


7,527

Decrease in other operating liabilities

(10,110)


(15,122)

Increase (decrease) in deferred revenues

363


(5,686)

Increase in accrued severance pay, net

636


(44)





Net cash provided by operating activities

40,779


29,350





Cash flows from investing activities:




Purchase of property and equipment

(2,145)


(2,334)

Investment in deposits

(55,379)


(133)

Proceeds from sale of property and equipment

40


31

Payments for business acquisitions, net of cash acquired

-


(3,467)

Capitalized software development costs

(4,975)


(4,859)

Acquisition of intellectual property

(177)


-





Net cash used in investing activities

(62,636)


(10,762)





Cash flows from financing activities:




Proceeds from employee stock options exercised

4,755


-

Distribution of dividend

(28,144)


(38,579)

Repayment of Series B Debenture

(19,796)


(19,796)

Dividend to non-controlling interest

(47)


-





Net cash used in financing activities

(43,232)


(58,375)





Effect of exchange rate changes on cash and cash equivalents

1,865


(3,540)





Decrease in cash and cash equivalents

(63,224)


(43,327)

Cash and cash equivalents at the beginning of period

160,285


190,243





Cash and cash equivalents at the end of period

97,061


146,916



Debentures Covenants

As of September 30, 2023, Sapiens was in compliance with all of its financial covenants under the indenture for the Series B Debentures, based on having achieved the following in its consolidated financial results:

Covenant 1 

  • Target shareholders' equity (excluding non-controlling interest): above $120 million.
  • Actual shareholders' equity (excluding non-controlling interest) equal to $417.2 million.

Covenant 2

  • Target ratio of net financial indebtedness to net capitalization (in each case, as defined under the indenture for the Company's Series B Debentures) below 65%.
  • Actual ratio of net financial indebtedness to net capitalization equal to (36.68) %.

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 (1.19).

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SOURCE Sapiens International Corporation

Sapiens International Corporation reported strong Q3 2023 financial results with a 10% revenue growth to reach $130.8 million, an operating margin expansion to 18.4%, and an operating profit of $24.1 million.

Sapiens International Corporation reiterated its 2023 full-year Non-GAAP revenue guidance of $511 – $516 million and increased its full year 2023 Non-GAAP operating margin guidance from 18.0% – 18.2% to a range of 18.2% - 18.3%.

Sapiens International Corporation uses non-GAAP financial measures to provide useful information to management and investors regarding certain financial and business trends. These measures are used for trend analyses, executive compensation, and evaluating ongoing operating results and trends.
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About SPNS

sapiens international corporation (nasdaq and tase: spns) is a leading global provider of software solutions for the insurance industry, with an emerging focus on the broader financial services sector. sapiens offers core, end-to-end solutions to the global general insurance, property and casualty, life, pension and annuities, reinsurance and retirement markets, as well as business decision management software. the company has a track record of over 30 years in delivering superior software solutions to more than 170 financial services organizations. the sapiens team of over 1,500 professionals operates through our fully-owned subsidiaries in north america, the united kingdom, emea and asia pacific. website: www.sapiens.com twitter: www.twitter.com/sapiensins google+: plus.google.com/105050978322218084480/about