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Sapiens Reports Third Quarter 2024 Financial Results

ROCHELLE PARK, N.J., Nov. 11, 2024 /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, 2024.

 

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

GAAP

Non-GAAP

Q3 2024

Q3 2023

% Change

Q3 2024

Q3 2023

% Change

Revenue

$137.0

$130.7

4.8 %

$137.0

$130.8

4.8 %

Gross Profit

$60.3

$56.0

7.8 %

$62.8

$59.3

6.0 %

Gross Margin

44.0 %

42.8 %

 120 bps

45.8 %

45.3 %

50 bps

Operating Income

$21.7

$20.3

7.3 %

$25.1

$24.1

4.3 %

Operating Margin

15.9 %

15.5 %

 40 bps

18.3 %

18.4 %

-10 bps

Net Income (*)

$18.3

$15.9

15.5 %

$21.1

$19.1

10.5 %

Diluted EPS

$0.33

$0.28

17.9 %

$0.37

$0.34

8.8 %

(*) Attributable to Sapiens’ shareholders

 

Roni Al-Dor, President and CEO of Sapiens, stated, “This quarter showcased solid performance in our key regions. We are pleased to report that revenue reached $137 million this quarter, reflecting a 4.8% increase over the same period last year. Revenue growth was driven by 7.1% growth in our European region, 1.7% growth in North America and 6.6% growth in ROW regions. This quarter’s non-GAAP operating profit totaled $25 million, representing 18.3% of total revenue.” 

Mr. Al-Dor continued, “Revenue fell short of our targets in the third quarter, and the challenges we encountered are expected to impact revenue in the fourth quarter. Today, we are revising our 2024 non-GAAP revenue guidance to a range of $541 million to $546 million, down from the previous range of $550 million to $555 million – a 1.6% reduction at the midpoint. However, we expect our non-GAAP operating margin to be within our guidance range at 18.2%. Looking into 2025, we anticipate a low single-digit revenue growth.” 

Quarterly Results Conference Call

Management will host a conference call and webcast on November 11, 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: 972-3-9180644
     UK: 0-800-917-5108

The live webcast of the call can be viewed on Sapiens’ website at: https://veidan.activetrail.biz/sapiensq2-2024. A replay of the call will be available one business day following the completion of the event at the same link for 90 days.

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.

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, which may not be the same as the timing and amount of revenue recognized. 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.

About Sapiens

Sapiens International Corporation (NASDAQ and TASE: SPNS) is a global leader in intelligent insurance software solutions. With Sapiens’ robust platform, customer-driven partnerships, and rich ecosystem, insurers are empowered to future-proof their organizations with operational excellence in a rapidly changing marketplace. We help insurers harness the power of AI and advanced automation to support core solutions for property and casualty, workers’ compensation, and life insurance, including reinsurance, financial & compliance, data & analytics, digital, and decision management. Sapiens boasts a longtime global presence, serving over 600 customers in more than 30 countries with its innovative SaaS offerings. Recognized by industry experts and selected for the Microsoft Top 100 Partner program, Sapiens is committed to partnering with our customers for their entire transformation journey and is continuously innovating to ensure their success.

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

 

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 that are incorporated herein and therein 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 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; the global macroeconomic environment, including headwinds caused by inflation, relatively high interest rates, potentially unfavorable currency exchange rate movements, and uncertain economic conditions, and their impact on our revenues, profitability and cash flows; 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 coronavirus epidemic,  and 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 Annual Report on Form 20-F for the year ended December 31, 2023, to be filed in the near future, 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,

2024

2023

2024

2023

 (unaudited)

 (unaudited)

 (unaudited)

 (unaudited)

 Revenue

137,025

130,705

408,074

383,725

 Cost of revenue

76,729

74,753

230,114

220,080

 Gross profit

60,296

55,952

177,960

163,645

 Operating expenses:

 Research and development, net

16,449

16,028

49,779

47,391

 Selling, marketing, general and administrative

22,101

19,659

64,030

57,475

 Total operating expenses

38,550

35,687

113,809

104,866

 Operating income

21,746

20,265

64,151

58,779

 Financial and other (income) expenses, net

(913)

551

(3,114)

2,310

 Taxes on income

4,324

3,710

12,812

10,627

 Net income

18,335

16,004

54,453

45,842

 Attributable to non-controlling interest

132

141

371

 Net income attributable to Sapiens’ shareholders

18,335

15,872

54,312

45,471

 Basic earnings per share

0.33

0.29

0.97

0.82

 Diluted earnings per share

0.33

0.28

0.97

0.82

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

55,854

55,397

55,799

55,251

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

56,308

55,813

56,151

55,657

 

 

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,

2024

2023

2024

2023

(unaudited)

(unaudited)

(unaudited)

(unaudited)

GAAP revenue

137,025

130,705

408,074

383,725

Valuation adjustment on acquired deferred
revenue

55

165

Non-GAAP revenue

137,025

130,760

408,074

383,890

GAAP gross profit

60,296

55,952

177,960

163,645

Revenue adjustment

55

165

Amortization of capitalized software

1,470

1,418

4,584

4,274

Amortization of other intangible assets

1,043

1,835

3,630

5,531

Non-GAAP gross profit

62,809

59,260

186,174

173,615

GAAP operating income

21,746

20,265

64,151

58,779

Gross profit adjustments

2,513

3,308

8,214

9,970

Capitalization of software development

(1,834)

(1,638)

(5,374)

(4,975)

Amortization of other intangible assets

1,276

1,074

3,732

3,234

Stock-based compensation

646

1,038

2,229

2,960

Acquisition-related costs *)

754

11

1,248

21

Non-GAAP operating income

25,101

24,058

74,200

69,989

  GAAP net income attributable to Sapiens’
shareholders

18,335

15,872

54,312

45,471

  Operating income adjustments

3,355

3,793

10,049

11,210

  Taxes on income

(599)

(585)

(1,808)

(1,738)

  Non-GAAP net income attributable to Sapiens’
shareholders

21,091

19,080

62,553

54,943

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

 

 

Adjusted EBITDA Calculation

U.S. dollars in thousands

Three months ended

Nine months ended

 September 30,

 September 30,

2024

2023

2024

2023

GAAP operating profit

21,746

20,265

64,151

58,779

Non-GAAP adjustments:

Valuation adjustment on acquired deferred revenue

55

165

Amortization of capitalized software

1,470

1,418

4,584

4,274

Amortization of other intangible assets

2,319

2,909

7,362

8,765

Capitalization of software development

(1,834)

(1,638)

(5,374)

(4,975)

Stock-based compensation

646

1,038

2,229

2,960

Compensation related to acquisition and acquisition-related costs

754

11

1,248

21

Non-GAAP operating profit

25,101

24,058

74,200

69,989

Depreciation

1,288

719

3,480

2,750

Adjusted EBITDA

26,389

24,777

77,680

72,739

 

 

Summary of NON-GAAP Financial Information 

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

Q3 2024

Q2 2024

Q1 2024

Q4 2023

Q3 2023

Revenues

137,025

136,800

134,249

130,914

130,760

Gross profit

62,809

62,481

60,884

59,370

59,260

Operating income

25,101

24,836

24,263

24,152

24,058

Adjusted EBITDA

26,389

25,931

25,360

25,267

24,777

Net income to Sapiens’ shareholders

21,091

21,041

20,421

20,081

19,080

Diluted earnings per share

0.37

0.37

0.36

0.36

0.34

 

 

Annual Recurring Revenue (“ARR”)

U.S. dollars in thousands 

Three months ended

September 30,

2024

2023

Annual Recurring Revenue

173,414

157,589

 

 

Non-GAAP Revenues by Geographic Breakdown

U.S. dollars in thousands

Q3 2024

Q2 2024

Q1 2024

Q4 2023

Q3 2023

North America

55,755

57,918

55,158

54,882

54,848

Europe

69,281

66,072

68,727

65,239

64,662

Rest of the World

11,989

12,810

10,364

10,793

11,250

Total

137,025

136,800

134,249

130,914

130,760

 

 

Non-GAAP Revenue breakdown

 U.S. dollars in thousands

 

Three months ended

Nine months ended

September 30,

September 30,

2024

2023

2024

2023

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

100,707

87,356

292,992

251,757

Pre-production implementation services (**)

36,318

43,404

115,082

132,133

Total Revenues

137,025

130,760

408,074

383,890

Three months ended

Nine months ended

September 30,

September 30,

2024

2023

2024

2023

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

53,809

46,053

156,386

133,339

Pre-production implementation services (**)

9,000

13,207

29,788

40,276

Total Gross profit

62,809

59,260

186,174

173,615

Three months ended

Nine months ended

September 30,

September 30,

2024

2023

2024

2023

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

53.4 %

52.7 %

53.4 %

53.0 %

Pre-production implementation services (**)

24.8 %

30.4 %

25.9 %

30.5 %

Gross Margin

45.8 %

45.3 %

45.6 %

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.

 

 

Adjusted Free Cash-Flow

U.S. dollars in thousands

Q3 2024

Q2 2024

Q1 2024

Q4 2023

Q3 2023

Cash-flow from operating activities

13,083

8,545

18,488

38,646

3,988

Increase in capitalized software development costs

(1,834)

(1,823)

(1,717)

(1,543)

(1,638)

Capital expenditures

(1,125)

(666)

(466)

(421)

(696)

Free cash-flow

10,124

6,056

16,305

36,682

1,654

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

124

134

751

221

Adjusted free cash-flow

10,248

6,190

17,056

36,903

1,654

(*) Included in cash-flow from operating activities
(**) Acquisition-related payments pertain to charges on behalf of M&A agreements related to future performance targets and retention criteria, as well as completed or prospective third-party services, such as tax, accounting and legal rendered.

 

 

 

SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEET

U.S. dollars in thousands

September 30,

December 31,

2024

2023

 (unaudited)

 (unaudited)

 ASSETS

 CURRENT ASSETS

Cash and cash equivalents

146,152

126,716

Short-term bank deposit

39,800

75,400

Trade receivables, net and unbilled receivables

109,670

90,273

Other receivables and prepaid expenses

25,769

22,514

Total current assets

321,391

314,903

 LONG-TERM ASSETS

Property and equipment, net

11,431

12,661

Severance pay fund

3,446

3,605

Goodwill and intangible assets, net

310,533

317,352

Operating lease right-of-use assets

20,502

23,557

Other long-term assets

15,993

17,546

Total long-term assets

361,905

374,721

 TOTAL ASSETS

683,296

689,624

LIABILITIES AND EQUITY

 CURRENT LIABILITIES

Trade payables

8,224

6,291

Current maturities of Series B Debentures

19,796

19,796

Accrued expenses and other liabilities

80,610

77,873

Current maturities of operating lease liabilities

5,861

6,623

Deferred revenue

32,810

38,541

Total current liabilities

147,301

149,124

 LONG-TERM LIABILITIES

Series B Debentures, net of current maturities

19,778

39,543

Deferred tax liabilities

7,938

10,820

Other long-term liabilities

11,399

11,538

Long-term operating lease liabilities

17,532

21,084

Accrued severance pay

8,039

7,568

Total long-term liabilities

64,686

90,553

EQUITY

471,309

449,947

TOTAL LIABILITIES AND EQUITY

683,296

689,624

 

 

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,

2024

2023

(unaudited)

(unaudited)

Cash flows from operating activities:

Net income

54,453

45,842

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

Depreciation

3,480

2,750

Amortization of capitalized software and other intangible assets

11,946

13,039

Accretion of discount on Series B Debentures

32

47

Capital loss from sale of property and equipment

13

83

Stock-based compensation related to options issued to employees

2,229

2,960

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

Increase in trade receivables, net and unbilled receivables

(20,640)

(8,698)

Decrease in deferred tax liabilities, net

(2,280)

(1,410)

Increase in other operating assets

(908)

(4,107)

Increase (decrease) in trade payables

1,989

(616)

Decrease in other operating liabilities

(5,154)

(10,110)

Increase (decrease) in deferred revenues

(5,684)

363

Increase in accrued severance pay, net

640

636

Net cash provided by operating activities

40,116

40,779

Cash flows from investing activities:

Purchase of property and equipment

(2,306)

(2,145)

Proceeds from (investment in) deposits

36,360

(55,379)

Proceeds from sale of property and equipment

49

40

Payments for business acquisitions, net of cash acquired

(375)

Capitalized software development costs

(5,374)

(4,975)

Acquisition of intellectual property

(177)

Net cash provided by (used in) investing activities

28,354

(62,636)

Cash flows from financing activities:

Proceeds from employee stock options exercised

98

4,755

Distribution of dividend

(29,789)

(28,144)

Repayment of Series B Debenture

(19,796)

(19,796)

Acquisition of non-controlling interest

(4,131)

Dividend to non-controlling interest

(47)

Net cash used in financing activities

(53,618)

(43,232)

Effect of exchange rate changes on cash and cash equivalents

4,584

1,865

Increase (decrease) in cash and cash equivalents

19,436

(63,224)

Cash and cash equivalents at the beginning of period

126,716

160,285

Cash and cash equivalents at the end of period

146,152

97,061

 

Debentures Covenants

As of September 30, 2024, 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 $471.3 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 (44.90)%.

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 (1.42).

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