Sapiens Reports First Quarter 2024 Financial Results

Cherone Mestel

May 8, 2024

Rochelle Park, NJ, May 8, 2024 – Sapiens International Corporation, (NASDAQ and 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, 2024.

 

Summary Results for First Quarter 2024 (USD in millions, except per share data)

 

    GAAP           Non-GAAP        
    Q1 2024     Q1 2023     % Change     Q1 2024     Q1 2023     % Change  
Revenue   $ 134.2     $ 124.7       7.6 %   $ 134.2     $ 124.8       7.6 %
Gross Profit   $ 57.6     $ 53.0       8.5 %   $ 60.9     $ 56.4       8.0 %
Gross Margin     42.9 %     42.5 %     40 bps       45.4 %     45.2 %     20 bps  
Operating Income   $ 20.5     $ 18.9       8.6 %   $ 24.3     $ 22.5       7.8 %
Operating Margin     15.3 %     15.1 %     20 bps       18.1 %     18.0 %     10 bps  
Net Income (*)   $ 17.4     $ 14.2       22.3 %   $ 20.4     $ 17.3       18.4 %
Diluted EPS   $ 0.31     $ 0.26       19.2 %   $ 0.36     $ 0.31       16.1 %

 

(*) Attributable to Sapiens’ shareholders

 

Roni Al-Dor, President and CEO of Sapiens, stated, “Sapiens delivered a solid first quarter, with year-over-year growth of 7.6% on total revenue of $134 million. The first quarter was highlighted by an impressive 9.5% year-over-year revenue growth in North America. Annualized recurring revenue (ARR) grew year-over-year by 12.7% to $168 million. Operating profit in the first quarter reached $24 million, representing an operating margin of 18.1%.”

 

Mr. Al-Dor continued, “New sales are being structured and priced in a SaaS model while we continue to transition current customers to SaaS. Our pivotal partnership with Microsoft, which is unique to the insurance sector, underpins our SaaS strategy and enables the infusion of GenAI capabilities into our solutions, a key differentiator in the industry.”

 

“We are well-positioned to continue our positive momentum from the first quarter throughout the remainder of the year,” concluded Mr. Al-Dor. “We are reiterating our 2024 guidance for non-GAAP revenues in a range of $550 million to $555 million and for non-GAAP operating margin in a range of 18.1%-18.5%.”

 

1

 

Quarterly Results Conference Call

 

Management will host a conference call and webcast on May 8, 2024, 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: 972-3-918-0644

 

UK: 0-800-917-5108

 

The live webcast of the call can be viewed on Sapiens’ website at: veidan.activetrail.biz/sapiensq1-2024.

 

A replay of the call will be available one business day following the completion of the event, at the same link for 90 days.

 

2

 

Non-GAAP Financial Measures

 

This press release contains the following non-GAAP financial measures: non-GAAP revenue, ARR, 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.

 

3

 

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 Annual Recurring Revenue (“ARR”) as the annualized value of our revenue from customer subscriptions, term licenses, maintenance, application maintenance, and cloud solutions. The ARR run rate is equal to the product of (i) the sum of these revenues in our most recently completed fiscal quarter, multiplied by (ii) four.

 

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.

 

4

 

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

 

 

5

 

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.

 

6

 

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,  
    2024     2023  
    (unaudited)     (unaudited)  
             
Revenue     134,249       124,721  
Cost of revenue     76,689       71,692  
Gross profit     57,560       53,029  
                 
Operating expenses:                
Research and development, net     16,521       15,617  
Selling, marketing, general and administrative     20,517       18,519  
Total operating expenses     37,038       34,136  
                 
Operating income     20,522       18,893  
                 
Financial and other expenses (income), net     (1,092 )     1,197  
Taxes on income     4,113       3,330  
Net income     17,501       14,366  
                 
Attributable to non-controlling interest     141       170  
                 
Net income attributable to Sapiens’ shareholders     17,360       14,196  
Basic earnings per share     0.31       0.26  
                 
Diluted earnings per share     0.31       0.26  
                 
                 
Weighted average number of shares outstanding used to compute basic earnings per share (in thousands)     55,744       55,156  
                 
Weighted average number of shares outstanding used to compute diluted earnings per share (in thousands)     55,981       55,570  

 

7

 

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,  
    2024     2023  
    (unaudited)     (unaudited)  
             
GAAP revenue     134,249       124,721  
Valuation adjustment on acquired deferred revenue           55  
Non-GAAP revenue     134,249       124,776  
                 
GAAP gross profit     57,560       53,029  
Revenue adjustment           55  
Amortization of capitalized software     1,545       1,431  
Amortization of other intangible assets     1,779       1,848  
Non-GAAP gross profit     60,884       56,363  
                 
GAAP operating income     20,522       18,893  
Gross profit adjustments     3,324       3,334  
Capitalization of software development     (1,717 )     (1,658 )
Amortization of other intangible assets     1,233       1,076  
Stock-based compensation     772       863  
Acquisition-related costs (*)     129       6  
Non-GAAP operating income     24,263       22,514  
                 
GAAP net income attributable to Sapiens’ shareholders     17,360       14,196  
Operating income adjustments     3,741       3,621  
Taxes on income     (680 )     (564 )
Non-GAAP net income attributable to Sapiens’ shareholders     20,421       17,253  

 

(*) 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.

 

8

 

Adjusted EBITDA Calculation
U.S. dollars in thousands

 

    Three months ended  
    March 31,  
    2024     2023  
             
GAAP operating profit     20,522       18,893  
                 
Non-GAAP adjustments:                
Valuation adjustment on acquired deferred revenue           55  
Amortization of capitalized software     1,545       1,431  
Amortization of other intangible assets     3,012       2,924  
Capitalization of software development     (1,717 )     (1,658 )
Stock-based compensation     772       863  
Compensation related to acquisition and acquisition-related costs     129       6  
Non-GAAP operating profit     24,263       22,514  
Depreciation     1,097       1,055  
Adjusted EBITDA     25,360       23,569  

 

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

 

    Q1 2024     Q4 2023     Q3 2023     Q2 2023     Q1 2023  
                               
Revenues     134,249       130,914       130,760       128,354       124,776  
Gross profit     60,884       59,370       59,260       57,992       56,363  
Operating income     24,263       24,152       24,058       23,417       22,514  
Adjusted EBITDA     25,360       25,267       24,777       24,393       23,569  
Net income to Sapiens’ shareholders     20,421       20,081       19,080       18,610       17,253  
                                         
Diluted earnings per share     0.36       0.36       0.34       0.33       0.31  

 

Annual Recurring Revenue (“ARR”)

U.S. dollars in thousands

 

    Three months ended  
    March 31,  
    2024     2023  
    167,646       148,729  

 

9

 

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

 

    Q1 2024     Q4 2023     Q3 2023     Q2 2023     Q1 2023  
                               
North America     55,158       54,882       54,848       52,116       50,371  
Europe     68,727       65,239       64,662       62,960       64,572  
Rest of the World     10,364       10,793       11,250       13,278       9,833  
Total     134,249       130,914       130,760       128,354       124,776  

 

Non-GAAP Revenue breakdown

 

U.S. dollars in thousands

 

    Q1 2024     %     Q1 2023     %  
                         
Software products and re-occurring post-production services (*)     94,242       70.2 %     81,842       65.6 %
Pre-production implementation services (**)     40,007       29.8 %     42,934       34.4 %
Total Revenues     134,249       100 %     124,776       100 %

 

    Q1 2024     Q1 2023  
             
Software products and re-occurring post-production services (*)     50,340       44,849  
Pre-production implementation services (**)     10,544       11,514  
Total Gross profit     60,884       56,363  

 

    Q1 2024     Q1 2023  
             
Software products and re-occurring post-production services (*)     53.4 %     54.8 %
Pre-production implementation services (**)     26.4 %     26.8 %
Gross margin     45.4 %     45.2 %

 

(*) Software products and re-occurring post-production services include mainly subscription, term license, maintenance, application maintenance, cloud solutions 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.

 

10

 

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

 

    Q1 2024     Q4 2023     Q3 2023     Q2 2023     Q1 2023  
                               
Cash-flow from operating activities     18,488       38,646       3,988       14,603       22,188  
Increase in capitalized software development costs     (1,717 )     (1,543 )     (1,638 )     (1,679 )     (1,658 )
Capital expenditures     (466 )     (421 )     (696 )     (775 )     (634 )
Free cash-flow     16,305       36,682       1,654       12,149       19,896  
Cash payments attributed to acquisition-related costs(*) (**)     751       221                   30  
Adjusted free cash-flow     17,056       36,903       1,654       12,149       19,926  

 

(*) 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.

 

11

 

SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES

 

CONDENSED CONSOLIDATED BALANCE SHEET

U.S. dollars in thousands

 

    March 31,     December 31,  
    2024     2023  
    (unaudited)     (unaudited)  
             
ASSETS            
             
CURRENT ASSETS            
Cash and cash equivalents     116,689       126,716  
Short-term bank deposit     79,200       75,400  
Trade receivables, net and unbilled receivables     103,735       90,273  
Other receivables and prepaid expenses     19,741       22,514  
Total current assets     319,365       314,903  
                 
LONG-TERM ASSETS                
Property and equipment, net     11,989       12,661  
Severance pay fund     3,381       3,605  
Goodwill and intangible assets, net     311,178       317,352  
Operating lease right-of-use assets     21,524       23,557  
Other long-term assets     16,362       17,546  
Total long-term assets     364,434       374,721  
                 
TOTAL ASSETS     683,799       689,624  
                 
LIABILITIES AND EQUITY                
                 
CURRENT LIABILITIES                
Trade payables     9,767       6,291  
Current maturities of Series B Debentures     19,796       19,796  
Accrued expenses and other liabilities     97,497       77,873  
Current maturities of operating lease liabilities     6,091       6,623  
Deferred revenue     40,608       38,541  
Total current liabilities     173,759       149,124  
                 
LONG-TERM LIABILITIES                
Series B Debentures, net of current maturities     19,756       39,543  
Deferred tax liabilities     9,156       10,820  
Other long-term liabilities     11,474       11,538  
Long-term operating lease liabilities     18,784       21,084  
Accrued severance pay     7,368       7,568  
Total long-term liabilities     66,538       90,553  
                 
EQUITY     443,502       449,947  
                 
TOTAL LIABILITIES AND EQUITY     683,799       689,624  

 

12

 

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,  
    2024     2023  
    (unaudited)     (unaudited)  
Cash flows from operating activities:            
Net income     17,501       14,366  
Reconciliation of net income to net cash provided by operating activities:                
Depreciation and amortization     5,654       5,410  
Accretion of discount on series B debentures     9       14  
Capital gain from sale of property and equipment     (1 )     (10 )
Stock-based compensation related to options issued to employees     772       863  
                 
Net changes in operating assets and liabilities, net of amount acquired:                
Increase in trade receivables, net and unbilled receivables     (14,703 )     (2,039 )
Increase (decrease) in deferred tax liabilities, net     (776 )     25  
Decrease in other operating assets     3,737       1,257  
Increase (decrease) in trade payables     3,547       (7,014 )
Increase in other operating liabilities     721       1,197  
Increase in deferred revenues     1,968       7,936  
Increase in accrued severance pay, net     59       183  
Net cash provided by operating activities     18,488       22,188  
                 
Cash flows from investing activities:                
                 
Purchase of property and equipment     (470 )     (653 )
Investment in deposits     (3,291 )     (45,004 )
Proceeds from sale of property and equipment     4       19  
Capitalized software development costs     (1,717 )     (1,658 )
Acquisition of intellectual property           (177 )
Net cash used in investing activities     (5,474 )     (47,473 )
                 
Cash flows from financing activities:                
        &n