SAPIENS REPORTS Q4 AND FULL YEAR 2022 FINANCIAL RESULTS

Cherone Mestel

February 21, 2023

February 21, 2023Sapiens International Corporation, (NASDAQ and TASE: SPNS), a leading global provider of software solutions for the insurance industry, today announced its financial results for the fourth quarter ended December 31, 2022.

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

  GAAP   Non-GAAP  
  Q4 2022 Q4 2021 % Change Q4 2022 Q4 2021 % Change
Revenue $119.5 $119.2  0.2% $119.5 $119.9  -0.3%
Gross Profit $50.3 $48.7  3.4% $53.8 $53.9  -0.3%
Gross Margin 42.1% 40.8%  130 bps 45.0% 45.0% 0 bps
Operating Income $16.5 $15.7  4.8% $21.1 $21.6  -2.5%
Operating Margin 13.8% 13.2%  60 bps 17.6% 18.0%  -40 bps
Net Income (*) $13.4 $13.7  -2.2% $18.0 $17.7 1.9%
Diluted EPS $0.24 $0.25  -4.0% $0.32 $0.32  0.0%

Summary Results for Full Year end 2022 (USD in millions, except per share data)

  GAAP % Change Non-GAAP % Change
  2022 2021   2022 2021  
Revenue $474.7 $461.0 3.0% $474.8 $463.6 2.4%
Gross Profit $200.2 $187.8 6.6% $213.5 $208.3 2.5%
Gross Margin 42.2% 40.7% 150 bps 45.0% 44.9% 10 bps
Operating Income $66.5 $57.5 15.7% $83.5 $81.4 2.5%
Operating Margin 14.0% 12.5% 150 bps 17.6% 17.6% 0 bps
Net income (*) $52.6 $47.2 11.5% $67.2 $65.5 2.5%
Diluted EPS $0.95 $0.85 11.8% $1.21 $1.18 2.5%

 (*) Attributable to Sapiens’ shareholders

“Our revenue in 2022 reached $474.8 million, and on a constant currency basis, we grew by 7.8%. Key accomplishments in 2022 include our continued growth of cloud-based customers with over 90% of new logos delivered on the cloud and the significant increase in our platform deals,” stated Roni Al-Dor, President and CEO of Sapiens. “We continue to fortify our leading position in Europe. We are particularly enthused by our momentum in North America, where we closed a CoreSuite for Life and Annuity deal in addition to business application solutions deals in 2022. Our renewed growth in North America increases our confidence that the region will continue growth in 2023.”

“Operating profit in 2022 reached $83.5 million, representing an operating margin of 17.6%, a great accomplishment despite the macroeconomic environment and currency headwind,” continued Mr. Al-Dor. “Our priorities for 2023 are to build on the improving dynamics in North America to grow our presence in this region, advance our position in Europe, deepening relationships with our existing customers, and continue migrating customers to the cloud.”

“We are introducing 2023 guidance for non-GAAP revenue in a range of $502 million to $507 million, and non-GAAP operating margin in a range of 17.6% to 18.0%,” concluded Mr. Al-Dor. 

Quarterly Results Conference Call

Management will host a conference call and webcast on February 21, 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: 972-3-9180609

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. Backed by more than 35 years of industry expertise, Sapiens offers a complete insurance platform, with pre-integrated, low-code solutions and a cloud-first approach that accelerates customers’ digital transformation. Serving over 600 customers in 30 countries, Sapiens offers insurers across property and casualty, workers compensation and life markets the most comprehensive set of solutions, from core to complementary, including Reinsurance, Financial & Compliance, Data & Analytics, Digital, and Decision Management.  For more information visit www.sapiens.com or follow us on LinkedIn.

 

Investor and Media Contact

Yaffa Cohen-Ifrah
Chief Marketing Officer and Head of Investor Relations, Sapiens
Yaffa.cohen-ifrah@sapiens.com

 

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 Year ended
 December 31,  December 31,
2022 2021 2022 2021
 (unaudited)  (unaudited)  (unaudited)  (unaudited)
 Revenue 119,463   119,225   474,736   461,035
 Cost of revenue 69,158   70,561   274,573   273,191
             
 Gross profit 50,305   48,664   200,163   187,844
             
 Operating expenses:              
 Research and development, net 15,251   13,891   58,656   54,013
 Selling, marketing, general and administrative 18,573   19,041   75,016   76,343
 Total operating expenses 33,824   32,932   133,672   130,356
             
 Operating income 16,481   15,732   66,491   57,488
             
 Financial and other expenses (income), net (1,097)   (311)   941   202
 Taxes on income 4,276   2,404   12,619   9,964
             
             
 Net income 13,302   13,639   52,931   47,322
             
 Attributable to non-controlling interest (65)   (26)   336   151
             
 Net income attributable to Sapiens’ shareholders 13,367   13,665   52,595   47,171
             
             
 Basic earnings per share 0.24   0.25   0.95   0.86
             
 Diluted earnings per share 0.24   0.25   0.95   0.85
             
               
Weighted average number of shares outstanding used to compute basic earnings per share (in thousands) 55,140   54,902   55,117   54,785
                 
Weighted average number of shares outstanding used to compute diluted earnings per share (in thousands) 55,521   55,626   55,570   55,561

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   Year ended
    December 31,   December 31,
    2022   2021   2022   2021
    (unaudited)   (unaudited)   (unaudited)   (unaudited)
                 
GAAP revenue   119,463   119,225   474,736   461,035
Valuation adjustment on acquired deferred revenue   23   629   92   2,519
Non-GAAP revenue   119,486   119,854   474,828   463,554
                 
GAAP gross profit   50,305   48,664   200,163   187,844
Revenue adjustment    23   629    92   2,519
Amortization of capitalized software    1,517   2,084    5,840   7,679
Amortization of other intangible assets    1,929   2,556    7,375   10,253
Non-GAAP gross profit   53,774   53,933   213,470   208,295
                 
GAAP operating income   16,481   15,732   66,491   57,488
Gross profit adjustments   3,469   5,269    13,307   20,451
Capitalization of software development   (1,238)   (2,256)    (6,097)   (7,911)
Amortization of other intangible assets   1,115   1,311    4,783   5,377
Stock-based compensation   759   1,274    3,960   4,801
Acquisition-related costs (*)   472   260    1,033   1,198
Non-GAAP operating income   21,058   21,590   83,477   81,404
                 
  GAAP net income attributable to Sapiens’ shareholders   13,367   13,665   52,595   47,171
  Operating income adjustments   4,577   5,858   16,986   23,916
  Taxes on income   78   (1,842)   (2,411)   (5,550(
  Non-GAAP net income attributable to Sapiens’ shareholders   18,022   17,681   67,170   65,537
                 

  (*) 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   Year ended
 December 31,  December 31,
2022 2021 2022 2021
GAAP operating profit   16,481   15,732   66,491   57,488
                 
Non-GAAP adjustments:                
Valuation adjustment on acquired deferred revenue   23   629   92   2,519
Amortization of capitalized software   1,517   2,084   5,840   7,679
Amortization of other intangible assets   3,044   3,867   12,158   15,630
Capitalization of software development   (1,238)   (2,256)   (6,097)   (7,911)
Stock-based compensation   759   1,274   3,960   4,801
Compensation related to acquisition and acquisition-related costs   472   260   1,033   1,198
                 
Non-GAAP operating profit   21,058   21,590   83,477   81,404
                 
Depreciation   1,034   1,989   4,242   5,360
                 
Adjusted EBITDA   22,092   23,579   87,719   86,764
                 
                 

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

Q4 2022   Q3 2022   Q2 2022   Q1 2022   Q4 2021
                   
Revenues 119,486   119,019   118,605   117,718   119,854
Gross profit 53,774   53,546   53,207   52,943   53,933
Operating income 21,058   20,902   20,747   20,770   21,590
Adjusted EBITDA 22,092   22,036   21,681   21,910   23,579
Net income to Sapiens’ shareholders 18,022   16,871   14,979   17,298   17,681
                   
Diluted earnings per share 0.32   0.30   0.27   0.31   0.32

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

Q4 2022   Q3 2022   Q2 2022   Q1 2022   Q4 2021
                   
North America 50,801   49,555   48,154   49,009   48,872
Europe 56,910   56,887   59,868   59,267   62,416
Rest of the World 11,775   12,577   10,583   9,442   8,566
                   
Total 119,486   119,019   118,605   117,718   119,854

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

Q4 2022   Q3 2022   Q2 2022   Q1 2022   Q4 2021
                   
Cash-flow from operating activities 14,430   4,405   6,615   18,330   27,386
Increase in capitalized software development costs (1,238)   (1,492)   (1,621)   (1,746)   (2,256)
Capital expenditures (400)   (1,047)   (803)   (453)   (801)
Free cash-flow 12,792   1,866   4,191   16,131   24,329
                   
Cash payments attributed to acquisition-related costs(*) (**) 1,100         407
                   
Adjusted free cash-flow 13,892   1,866   4,191   16,131   24,736

(*) Included in cash-flow from operating activities

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

Reconciliation of Revenue Growth as Reported on GAAP Basis to Revenue Growth

on a Constant Currency Basis

Year ended December 31, 2022

Revenue growth % As reported Currency Impact Constant Currency Basis
North America      4.3%  4.3%
Europe   (2.7)% (10.1)% 7.4%
Rest of the world  27.8%   (1.1)% 28.9%
Total    2.4%   (5.4)%  7.8%

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

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

SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEET

U.S. dollars in thousands

December 31, December 31,
2022 2021
 (unaudited)  (unaudited)
 
 ASSETS  
 
 CURRENT ASSETS  
Cash and cash equivalents  160,285   190,243
  Short-term bank deposit    20,000   20,000
Trade receivables, net and unbilled receivables  93,382   76,261
Other receivables and prepaid expenses 11,640   13,841
Total current assets 285,307   300,345
     
 LONG-TERM ASSETS    
Property and equipment, net 12,021   14,458
Severance pay fund 3,996   5,954
Goodwill and intangible assets, net 319,661   343,283
  Operating lease right-of-use assets   33,688   43,665
Other long-term assets 12,078   7,288
Total long-term assets 381,444   414,648
     
 TOTAL ASSETS 666,751   714,993
     
LIABILITIES AND EQUITY    
     
 CURRENT LIABILITIES    
Trade payables  9,415   5,008
  Current maturities of Series B Debentures    19,796   19,796
Accrued expenses and other liabilities  76,962   76,450
  Current maturities of operating lease liabilities    9,063   10,827
Deferred revenue  30,720   39,614
  Total current liabilities   145,956   151,695
     
 LONG-TERM LIABILITIES    
Series B Debentures, net of current maturities    59,275   78,986
  Deferred tax liabilities    11,363   15,360
  Other long-term liabilities    11,719   12,144
  Long-term operating lease liabilities    28,432   38,751
  Redeemable non-controlling interest    89   101
Accrued severance pay  7,063   9,236
Total long-term liabilities 117,941   154,578
     
EQUITY 402,854   408,720
     
TOTAL LIABILITIES AND EQUITY 666,751   714,993
         

 SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOW
U.S. dollars in thousands

For the Twelve months ended December 31,
  2022   2021
  (unaudited)   (unaudited)
Cash flows from operating activities:      
Net income 52,931   47,322
Reconciliation of net income to net cash provided by operating activities:      
Impairment of right of use asset   1,439
Depreciation and amortization 22,240   28,669
Accretion of discount on Series B Debentures 85   106
Capital (gain) loss from sale of property and equipment 26   (60)
Stock-based compensation related to options issued to employees 3,960   4,801
       
Net changes in operating assets and liabilities, net of amount acquired:      
Increase in Trade receivables, net and unbilled receivables (21,860)   (13,937)
Decrease in Deferred tax liabilities, net (8,541)   (1,902)
Decrease in Other operating assets 7,729   17,743
Increase (decrease) in Trade payables 4,634   (529)
Decrease in Other operating liabilities (9,764)   (8,415)
Increase (decrease) in Deferred revenues (7,738)   4,930
Increase in Accrued severance pay, net