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      Sapiens Reports Second Quarter 2021 Financial Results

      Sapiens International Corporation Logo (PRNewsfoto/Sapiens International)

      News provided by

      Sapiens International Corporation

      Aug 04, 2021, 05:53 ET

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      HOLON, Israel, Aug. 4, 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 second quarter ended June 30, 2021.

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


      GAAP

      Non-GAAP


      June 30, 2021

      June 30, 2020

      % Change

      June 30, 2021

      June 30, 2020

      % Change

      Revenue

      $114.4

      $93.1

      22.9%

      $115.0

      $93.1

      23.6%

      Gross Profit

      $46.6

      $38.3

      21.9%

      $51.7

      $41.9

      23.4%

      Gross Margin

      40.8%

      41.1%

      (30) bps

      45.0%

      45.0%

      -

      Operating Income

      $13.2

      $12.4

      6.2%

      $19.8

      $16.8

      17.9%

      Operating Margin

      11.5%

      13.3%

      (180) bps

      17.2%

      18.0%

      (80) bps

      Net Income (*)

      $10.4

      $9.3

      11.9%

      $16.0

      $13.3

      19.7%

      Diluted EPS

      $0.19

      $0.18

      5.6%

      $0.29

      $0.26

      11.5%

      (*) Attributable to Sapiens' shareholders.

      "Sapiens second quarter results demonstrate the success of our strategy, as we continue to expand our global market presence in both P&C and L&A, and provide insurers of all tiers the broadest product portfolio and services offering in the market. This unique value proposition enables insurers to benefit from our pre-integrated, cloud-first, low-code "insurance-in-a-box" approach across the majority of our products, empowering them to choose between deploying our end-to-end solution, or any combination of its components, to meet their evolving needs," stated Roni Al-Dor, President and CEO of Sapiens. 

      "In the second quarter Sapiens delivered a strong, year-over-year non-GAAP revenue growth of 24%, reaching a record high of $115 million. Non-GAAP operating margin reached 17.2%. In North America, we continue to make progress and have achieved sequential growth, as we execute our plan to continue to enhance our delivery capabilities. In Europe, we have been winning new business and have successfully completed new transformation projects, including with Tier-1 carriers. The Rest-of-the-World, which includes APAC and South Africa, continues on a path of growth. We are leveraging our global presence and rich product portfolio to further increase market share," continued Mr. Al-Dor.

      "We are increasing our 2021 revenue guidance for the second time. The new revenue guidance ranges from $461 to $466 million. We are also increasing our operating margin guidance to a range of 17.2% to 17.5%. Our strong performance reflects the important role Sapiens plays in our customers' lifecycle and transformation journeys in the growing and evolving insurance industry." 

      Quarterly Results Conference Call

      Management will host a conference call and webcast today, August 4, 2021 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 operating income, non-GAAP net income attributed to Sapiens shareholders, non-GAAP basic and diluted earnings per share, Adjusted EBITDA and Adjusted Free Cash-Flow.

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

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

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

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

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

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

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

      About Sapiens

      Sapiens International Corporation empowers insurers to succeed in an evolving industry. The company offers digital software platforms, solutions and services for the property and casualty, life, pension and annuity, reinsurance, financial and compliance, workers' compensation and financial markets. With more than 35 years of experience delivering to more than 600 organizations globally, Sapiens has a proven ability to satisfy customers' core, data and digital requirements. For more information: www.sapiens.com.

      Investors and Media Contact
      Sapiens
      Daphna Golden
      Vice President, Head of Investor Relations
      Email: [email protected] 

      Hayden IR
      Brett Mass
      Managing Partner
      Phone: +1 646-536-7331
      Email: [email protected]

      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 pandemic 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 STATEMENTS OF INCOME  
                     
      U.S. dollars in thousands (except per share amounts)





        Three months ended


        Six months ended




       June 30


       June 30




      2021


      2020


      2021


      2020




       (unaudited)


       (unaudited)


       (unaudited)


       (unaudited)











       Revenue


      114,406


      93,063


      223,998


      183,597

       Cost of revenue


      67,782


      54,804


      133,118


      109,074











       Gross profit


      46,624


      38,259


      90,880


      74,523











       Operating expenses:










       Research and development, net


      13,267


      9,328


      26,355


      19,854


       Selling, marketing, general and administrative


      20,183


      16,528


      38,986


      31,988

       Total operating expenses


      33,450


      25,856


      65,341


      51,842











       Operating income


      13,174


      12,403


      25,539


      22,681











       Financial and other expenses, net


      69


      63


      584


      1,550

       Taxes on income


      2,688


      3,010


      4,637


      4,911





















       Net income


      10,417


      9,330


      20,318


      16,220











       Attributable to non-controlling interest


      13


      33


      80


      103











       Net income attributable to Sapiens' shareholders


      10,404


      9,297


      20,238


      16,117





















       Basic earnings per share


      0.19


      0.19


      0.37


      0.32











       Diluted earnings per share


      0.19


      0.18


      0.36


      0.32




















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


      54,754


      50,297


      54,722


      50,236










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


      55,548


      51,173


      55,558


      51,128

      SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES                   

      CONDENSED CONSOLIDATED NON-GAAP STATEMENTS OF INCOME
                             
      U.S. dollars in thousands (except per share amounts)





        Three months ended


        Six months ended




       June 30


       June 30




      2021


      2020


      2021


      2020




       (unaudited)


       (unaudited)


       (unaudited)


       (unaudited)











       Revenue


      115,036


      93,063


      225,258


      183,597

       Cost of revenue


      63,316


      51,163


      124,309


      101,906











       Gross profit


      51,720


      41,900


      100,949


      81,691











       Operating expenses:










       Research and development, net


      15,226


      10,579


      29,946


      22,542


       Selling, marketing, general and administrative


      16,699


      14,538


      32,208


      27,752

       Total operating expenses


      31,925


      25,117


      62,154


      50,294











       Operating income


      19,795


      16,783


      38,795


      31,397











       Financial and other expenses, net


      69


      63


      584


      1,550

       Taxes on income


      3,738


      3,347


      7,249


      5,992





















       Net income


      15,988


      13,373


      30,962


      23,855











       Attributable to non-controlling interest


      13


      33


      80


      103











       Net income attributable to Sapiens' shareholders


      15,975


      13,340


      30,882


      23,752





















       Basic earnings per share


      0.29


      0.27


      0.56


      0.47











       Diluted earnings per share


      0.29


      0.26


      0.56


      0.46




















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


      54,754


      50,297


      54,722


      50,236










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


      55,548


      51,173


      55,558


      51,128

      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


      Six months ended



      June 30,


      June 30,



      2021


      2020


      2021


      2020



      (unaudited)


      (unaudited)


      (unaudited)


      (unaudited)










      GAAP revenue


      114,406


      93,063


      223,998


      183,597

      Valuation adjustment on acquired deferred revenue


      630


      -


      1,260


      -

      Non-GAAP revenue


      115,036


      93,063


      225,258


      183,597










      GAAP gross profit


      46,624


      38,259


      90,880


      74,523

      Revenue adjustment


      630


      -


      1,260


      -

      Amortization of capitalized software


      1,891


      1,531


      3,675


      3,027

      Amortization of other intangible assets


      2,575


      2,110


      5,134


      4,141

      Non-GAAP gross profit


      51,720


      41,900


      100,949


      81,691

      GAAP operating income


      13,174


      12,403


      25,539


      22,681

      Gross profit adjustments


      5,096


      3,641


      10,069


      7,168

      Capitalization of software development


      (1,959)


      (1,251)


      (3,591)


      (2,688)

      Amortization of other intangible assets


      1,358


      698


      2,724


      1,287

      Stock-based compensation


      1,471


      764


      2,870


      1,386

      Acquisition-related costs *)


      655


      528


      1,184


      1,563

      Non-GAAP operating income


      19,795


      16,783


      38,795


      31,397










      GAAP net income attributable to Sapiens'
      shareholders


      10,404


      9,297


      20,238


      16,117

      Operating income adjustments


      6,621


      4,380


      13,256


      8,716

      Taxes on income


      (1,050)


      (337)


      (2,612)


      (1,081)

      Non-GAAP net income attributable to
      Sapiens' shareholders


      15,975


      13,340


      30,882


      23,752











      (*) Acquisition-related costs pertain to charges on behalf of M&A agreements related to future performance targets and
      retention criteria, as well as third-party services, such as, tax, accounting and legal rendered until the acquisition date.


       

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



      Q2 2021


      Q1 2021


      Q4 2020


      Q3 2020


      Q2 2020











      Revenues

      115,036


      110,222


      102,936


      97,968


      93,063

      Gross profit

      51,720


      49,229


      47,044


      44,206


      41,900

      Operating income

      19,795


      19,000


      18,666


      17,859


      16,783

      Net income to Sapiens' shareholders

      15,975


      14,908


      14,461


      13,746


      13,340

      Adjusted EBITDA

      20,920


      20,120


      20,032


      19,010


      17,854











      Basic earnings per share

      0.29


      0.27


      0.27


      0.27


      0.27

      Diluted earnings per share

      0.29


      0.27


      0.27


      0.27


      0.26

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



      Q2 2021


      Q1 2021


      Q4 2020


      Q3 2020


      Q2 2020











      North America

      46,767


      44,754


      47,303


      49,979


      46,610

      Europe

      59,718


      57,642


      49,225


      42,394


      41,030

      Rest of the world

      8,551


      7,826


      6,408


      5,595


      5,423











      Total

      115,036


      110,222


      102,936


      97,968


      93,063

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



      Q2 2021


      Q1 2021


      Q4 2020


      Q3 2020


      Q2 2020











      Cash-flow from operating activities

      26,845


      11,755


      21,030


      16,705


      14,761

      Increase in capitalized software development costs

      (1,959)


      (1,632)


      (1,604)


      (1,506)


      (1,251)

      Capital expenditures

      (1,082)


      (821)


      (725)


      (963)


      (393)

      Free cash-flow

      23,804


      9,302


      18,701


      14,236


      13,117











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

      -


      1,280


      2,363


      242


      1,562











      Adjusted free cash-flow

      23,804


      10,582


      21,064


      14,478


      14,679











      (*) Included in cash-flow from operating activities


      (**) Acquisition-related payments pertain to payments on behalf of M&A agreements related to future performance targets
      and retention criteria, as well as third-party services, such as, tax, accounting and legal rendered until the acquisition date.

      Adjusted EBITDA Calculation
      U.S. dollars in thousands




      Three months ended


      Six months ended



       June 30


       June 30



      2021


      2020


      2021


      2020










      GAAP operating profit


      13,174


      12,403


      25,539


      22,681










      Non-GAAP adjustments:









      Valuation adjustment on acquired deferred revenue


      630


      -


      1,260


      -

      Amortization of capitalized software


      1,891


      1,531


      3,675


      3,027

      Amortization of other intangible assets


      3,933


      2,808


      7,858


      5,428

      Capitalization of software development


      (1,959)


      (1,251)


      (3,591)


      (2,688)

      Stock-based compensation


      1,471


      764


      2,870


      1,386

      Compensation related to acquisition and acquisition-related costs


      655


      528


      1,184


      1,563










      Non-GAAP operating profit


      19,795


      16,783


      38,795


      31,397










      Depreciation


      1,125


      1,071


      2,245


      2,182










      Adjusted EBITDA


      20,920


      17,854


      41,040


      33,579

      SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES
      CONDENSED CONSOLIDATED BALANCE SHEETS
      U.S. dollars in thousands





      June 30,


      December 31,




      2021


      2020




       (unaudited)


       (unaudited)







       ASSETS












       CURRENT ASSETS






      Cash and cash equivalents


      155,805


      152,561


      Short-term bank deposit


      20,000


      30,000


      Trade receivables, net and unbilled receivables


      70,214


      65,409


      Other receivables and prepaid expenses


      15,842


      19,388








      Total current assets


      261,861


      267,358







       LONG-TERM ASSETS






      Property and equipment, net


      15,640


      16,970


      Severance pay fund


      6,733


      6,582


      Goodwill and intangible assets, net


      352,224


      363,597


      Operating lease right-of-use assets


      49,777


      54,390


      Other long-term assets


      8,269


      5,264








      Total long-term assets


      432,643


      446,803







       TOTAL ASSETS


      694,504


      714,161







      LIABILITIES AND EQUITY











       CURRENT LIABILITIES






      Trade payables


      6,762


      5,389


      Current maturities of Series B Debentures


      19,796


      19,796


      Accrued expenses and other liabilities


      73,003


      75,119


      Current maturities of operating lease liabilities


      11,790


      9,924


      Deferred revenue


      42,573


      34,548








      Total current liabilities


      153,924


      144,776







       LONG-TERM LIABILITIES






      Series B Debentures, net of current maturities


      78,935


      98,676


      Deferred tax liabilities


      13,872


      16,010


      Other long-term liabilities


      12,847


      12,129


      Long-term operating lease liabilities


      43,586


      48,773


      Redeemable non-controlling interest


      483


      517


      Accrued severance pay


      9,676


      9,586








      Total long-term liabilities


      159,399


      185,691







      EQUITY



      381,181


      383,694







      TOTAL LIABILITIES AND EQUITY


      694,504


      714,161

       

      SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES

      CONSOLIDATED STATEMENT OF CASH FLOW

      U.S. dollars in thousands



      For the six months ended June 30,


      2021


      2020


      (unaudited)


      (unaudited)

      Cash flows from operating activities:




      Net income

      20,318


      16,220

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




      Depreciation and amortization

      13,778


      10,637

      Accretion of discount on Series B Debentures

      55


      77

      Capital loss from sale of property and equipment

      36


      -

      Stock-based compensation related to options issued to employees

      2,870


      1,386





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




      Trade receivables, net and unbilled receivables

      (8,655)


      (11,554)

      Deferred tax assets, net

      (2,822)


      (1,146)

      Other operating assets

      9,453


      3,286

      Trade payables

      1,230


      (275)

      Other operating liabilities

      (5,449)


      (2,187)

      Deferred revenues

      7,682


      4,008

      Accrued severance pay, net

      104


      68





      Net cash provided by operating activities

      38,600


      20,520





      Cash flows from investing activities:




      Purchase of property and equipment

      (1,903)


      (945)

      Withdrawal of (investment in) deposit

      10,000


      (379)

      Proceeds from sale of property and equipment

      1,011


      -

      Proceeds from restricted deposit used for completed acquisition

      -


      22,890

      Proceeds from (payments for) business acquisitions, net of cash acquired

      831


      (22,483)

      Capitalized software development costs

      (3,591)


      (2,688)





      Net cash provided by (used in) investing activities

      6,348


      (3,605)





      Cash flows from financing activities:




      Proceeds from employee stock options exercised

      659


      2,334

      Distribution of dividend

      (20,253)


      (6,632)

      Repayment of Series B Debenture

      (19,796)


      (9,898)

      Issuance of Series B Debentures, net of issuance expenses of $863

      -


      60,155

      Receipt of short-term loan

      -


      20,000

      Repayment of loan

      -


      (20,000)

      Payment of contingent considerations

      (537)


      (538)

      Dividend to non-controlling interest

      (31)


      -





      Net cash provided by (used in) financing activities

      (39,958)


      45,421





      Effect of exchange rate changes on cash and cash equivalents

      (1,746)


      (652)





      Increase in cash and cash equivalents

      3,244


      61,684

      Cash and cash equivalents at the beginning of period

      152,561


      66,295





      Cash and cash equivalents at the end of period

      155,805


      127,979

      Debentures Covenants

      As of June 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 $379 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 (24.03)%.

      Covenant 3

      • Target ratio of net financial indebtedness to EBITDA (accumulated calculation for the four last quarters) is below 5.5.
      • Actual ratio of net financial indebtedness to EBITDA (accumulated calculation for the four last quarters) is equal to (0.92).

      SOURCE Sapiens International Corporation

      Modal title

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