Sapiens Reports Fourth Quarter and Full Year 2021 Financial Results

HOLON, Israel, Feb. 23, 2022 /PRNewswire/ — 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 fourth quarter and full year ended December 31, 2021.

 

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


GAAP


Non-GAAP



Q4 2021

Q4 2020

% Change

Q4 2021

Q4 2020

% Change

Revenue

$119.2

$101.7

17.3%

$119.9

$102.9

16.4%

Gross Profit

$48.7

$41.4

17.6%

$53.9

$47.0

14.6%

Gross Margin

40.8%

40.7%

10 bps

45.0%

45.7%

 (70) bps

Operating Income

$15.7

$10.2

53.9%

$21.6

$18.7

15.7%

Operating Margin

13.2%

10.1%

 310 bps

18.0%

18.1%

(10) bps

Net Income (*)

$13.7

$8.3

64.3%

$17.7

$14.5

22.3%

Diluted EPS

$0.25

$0.15

66.7%

$0.32

$0.27

18.5%

 

 

Summary Results for Full Year 2021 (USD in millions, except per share data)


GAAP

% Change

Non-GAAP

% Change


2021

2020


2021

2020


Revenue

$461.0

$382.9

20.4%

$463.6

$384.5

20.6%

Gross Profit

$187.8

$156.0

20.4%

$208.3

$172.9

20.4%

Gross Margin

40.7%

40.7%

44.9%

45.0%

(10) bps

Operating Income

$57.5

$45.0

27.7%

$81.4

$67.9

19.8%

Operating Margin

12.5%

11.8%

70 bps

17.6%

17.7%

(10) bps

Net income (*)

$47.2

$33.8

39.7%

$65.5

$52.0

26.1%

Diluted EPS

$0.85

$0.65

30.8%

$1.18

$1.00

18.0%

(*) Attributable to Sapiens’ shareholders

“Sapiens finished the year strong, with fourth quarter non-GAAP revenue growing 16.4% to $119.9 million and non-GAAP operating profit margin of 18.0%, reflecting our ability to maintain profitability despite the cost increases that our industry and many sectors are facing,” stated Roni Al-Dor, President and CEO of Sapiens. “Europe was the leading growth region for Sapiens in 2021 with revenue growth organically and with M&A of 38.5% year-over-year. We signed multiple new logos across various segments and experienced a substantial increase in average European deal size. In North America region we delivered mixed results in ’21, Life, DECISION, and Reinsurance continued growing steadily, building a solid pipeline for ’22. We are pursuing new opportunities and developing a growing pipeline positioning Sapiens to deliver improved total growth in North America by the second half of ’22.” 

“Today, the majority of our new wins are delivered on the cloud,” continued Mr. Al-Dor. “We have recently announced a new Chief Technology and Information Officer, Ilan Buganim, who brings vast technology experience from his numerous leadership positions. Ilan will lead our cloud journey and is responsible for developing a coherent view across all of our product offering. Sapiens’ emphasis on product innovation continues to earn industry analysts’ awards and recognition from the market.”

“We are introducing 2022 guidance for non-GAAP revenue in a range of $495 million to $500 million, and non-GAAP operating margin in a range of 17.0% to 17.3%,” which on constant currency base represent organic growth of 9.1% and profitability level of 18.2% at the mid- point range of our guidance concluded Mr. Al-Dor.

Quarterly Results Conference Call

Management will host a conference call and webcast today, February 23, 2022 at 9:30 am. Eastern Time (4:30 pm. in Israel) to review and discuss Sapiens’ results.

Please call the following numbers (at least 10 minutes before the scheduled time) to participate:

North America (toll-free): + 1-888-642-5032; International: +972-3-918-0609; UK: 0-800-917-5108

The live webcast of the call can be 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 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 (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.

Media Contact

Investors Contact

Shay Assaraf

Brett Maas

Chief Marketing Officer, Sapiens

Managing Partner, Hayden IR

Shay.assaraf@sapiens.com

+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 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; 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 STATEMENT OF INCOME

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





  Three months ended


  Year ended




December 31,


December 31,




2021


2020


2021


2020




 (unaudited)


 (unaudited)


 (unaudited)


(unaudited)











 Revenue


119,225


101,661


461,035


382,903

 Cost of revenue


70,561


60,288


273,191


226,929











 Gross profit


48,664


41,373


187,844


155,974











 Operating expenses:










 Research and development, net


13,891


11,129


54,013


41,358


 Selling, marketing, general and administrative


19,041


20,019


76,343


69,613

 Total operating expenses


32,932


31,148


130,356


110,971











 Operating income


15,732


10,225


57,488


45,003











 Financial and other expenses (income), net


(311)


1,212


202


3,805

 Taxes on income


2,404


611


9,964


7,041





















 Net income


13,639


8,402


47,322


34,157











 Attributable to non-controlling interest


(26)


83


151


382











 Net income attributable to Sapiens’ shareholders


13,665


8,319


47,171


33,775





















 Basic earnings per share


0.25


0.16


0.86


0.67











 Diluted earnings per share


0.25


0.15


0.85


0.65




















Weighted average number of shares outstanding used

to compute basic earnings per share (in thousands)


54,902


53,715


54,785


51,208










Weighted average number of shares outstanding used

to compute diluted earnings per share (in thousands)


55,626


54,541


55,561


52,159

 

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,



2021


2020


2021


2020



(unaudited)


(unaudited)


(unaudited)


(unaudited)










GAAP revenue


119,225


101,661


461,035


382,903

Valuation adjustment on acquired deferred revenue


629


1,275


2,519


1,598

Non-GAAP revenue


119,854


102,936


463,554


384,501










GAAP gross profit


48,664


41,373


187,844


155,974

Revenue adjustment


629


1,275


2,519


1,598

Amortization of capitalized software


2,084


1,931


7,679


6,558

Amortization of other intangible assets


2,556


2,465


10,253


8,811

Non-GAAP gross profit


53,933


47,044


208,295


172,941










GAAP operating income


15,732


10,225


57,488


45,003

Gross profit adjustments


5,269


5,671


20,451


16,967

Capitalization of software development


(2,256)


(1,604)


(7,911)


(5,798)

Amortization of other intangible assets


1,311


1,204


5,377


3,316

Stock-based compensation


1,274


1,240


4,801


3,987

Acquisition-related costs (*)


260


1,930


1,198


4,447

Non-GAAP operating income


21,590


18,666


81,404


67,922










  GAAP net income attributable to 

  Sapiens’ shareholders


13,665


8,319


47,171


33,775

  Operating income adjustments


5,858


8,441


23,916


22,919

  Tax effect on NON-GAAP adjustment


(1,842)


(2,299)


(5,550)


(4,735)

  Non-GAAP net income attributable to

  Sapiens’ shareholders


17,681


14,461


65,537


51,959










Diluted earnings per share


0.32


0.27


1.18


1.00










Weighted average number of shares

outstanding used to compute diluted earnings

per share (in thousands)


55,626


54,541


55,561


52,159










 (*) 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,



2021


2020


2021


2020










GAAP operating profit


15,732


10,225


57,488


45,003










Non-GAAP adjustments:









Valuation adjustment on acquired deferred

revenue


 

629


1,275


 

2,519


1,598

Amortization of capitalized software


2,084


1,931


7,679


6,558

Amortization of other intangible assets


3,867


3,669


15,630


12,127

Capitalization of software development


(2,256)


(1,604)


(7,911)


(5,798)

Stock-based compensation


1,274


1,240


4,801


3,987

Compensation related to acquisition and

acquisition-related costs


260


 

1,930


1,198


4,447










Non-GAAP operating profit


21,590


18,666


81,404


67,922










Depreciation


1,989


1,366


5,360


4,698










Adjusted EBITDA


23,579


20,032


86,764


72,620










 

Summary of NON-GAAP Financial Information 

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




Q4 2021


Q3 2021


Q2 2021


Q1 2021


Q4 2020











Revenues

119,854


118,442


115,036


110,222


102,936

Gross profit

53,933


53,413


51,720


49,229


47,044

Operating income

21,590


21,019


19,795


19,000


18,666

Adjusted EBITDA

23,579


22,144


20,920


20,120


20,032

Net income to Sapiens’ shareholders

17,681


16,976


15,975


14,908


14,461











Diluted earnings per share

0.32


0.31


0.29


0.27


0.27

 

Non-GAAP Revenues by Geographic Breakdown 

U.S. dollars in thousands



Q4 2021


Q3 2021


Q2 2021


Q1 2021


Q4 2020











North America

48,872


48,952


46,767


44,754


47,303

Europe

62,416


59,707


59,718


57,642


49,225

Rest of the World

8,566


9,783


8,551


7,826


6,408











Total

119,854


118,442


115,036


110,222


102,936

 

Adjusted Free Cash-Flow

U.S. dollars in thousands



Q4 2021


Q3 2021


Q2 2021


Q1 2021


Q4 2020











Cash-flow from operating activities

27,386


14,556


26,845


11,755


21,030

Increase in capitalized software development costs

(2,256)


(2,064)


(1,959)


(1,632)


(1,604)

Capital expenditures

(801)


(1,082)


(1,082)


(821)


(725)

Free cash-flow

24,329


11,410


23,804


9,302


18,701











Cash payments attributed to acquisition-related

costs(*) (**)

407


477



1,280


2,363











Adjusted free cash-flow

24,736


11,887


23,804


10,582


21,064

(*) Included in cash-flow from operating activities

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

 

SAPIENS INTERNATIONAL CORPORATION N.V. AND ITS SUBSIDIARIES


CONDENSED CONSOLIDATED BALANCE SHEET

U.S. dollars in thousands





December 31,


December 31,




2021


2020




 (unaudited)


 (unaudited)







 ASSETS












 CURRENT ASSETS






Cash and cash equivalents


190,243


152,561


Short-term bank deposit


20,000


30,000


Trade receivables, net and unbilled receivables


76,261


65,409


Other receivables and prepaid expenses


13,841


19,388








Total current assets


300,345


267,358







 LONG-TERM ASSETS






Property and equipment, net


14,458


16,970


Severance pay fund


5,954


6,582


Goodwill and intangible assets, net


343,283


363,597


Operating lease right-of-use assets


43,665


54,390


Other long-term assets


7,288


5,264








Total long-term assets


414,648


446,803







 TOTAL ASSETS


714,993


714,161







LIABILITIES AND EQUITY











 CURRENT LIABILITIES






Trade payables


5,008


5,389


Current maturities of Series B Debentures


19,796


19,796


Accrued expenses and other liabilities


76,450


75,119


Current maturities of operating lease liabilities


10,827


9,924


Deferred revenue


39,614


34,548








Total current liabilities


151,695


144,776







 LONG-TERM LIABILITIES






Series B Debentures, net of current maturities


78,986


98,676


Deferred tax liabilities


15,360


16,010


Other long-term liabilities


12,144


12,129


Long-term operating lease liabilities


38,751


48,773


Redeemable non-controlling interest


101


517


Accrued severance pay


9,236


9,586








Total long-term liabilities


154,578


185,691







EQUITY



408,720


383,694







TOTAL LIABILITIES AND EQUITY


714,993


714,161

 

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,


2021


2020


(unaudited)


(unaudited)

Cash flows from operating activities:




Net income

47,322


34,157

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




Impairment of right of use asset

1,439


351

Depreciation and amortization

28,669


23,383

Accretion of discount on Series B Debentures

106


134

Capital loss from sale of property and equipment

(60)


44

Stock-based compensation related to options issued to employees

4,801


3,987





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




Trade receivables, net and unbilled receivables

(13,937)


(5,168)

Deferred tax liabilities, net

(1,902)


(16)

Other operating assets

17,743


(2,049)

Trade payables

(529)


(1,344)

Other operating liabilities

(8,415)


1,435

Deferred revenues

4,930


2,992

Accrued severance pay, net

375


349





Net cash provided by operating activities

80,542


58,255





Cash flows from investing activities:




Purchase of property and equipment

(3,786)


(2,633)

Proceeds from (Investment in) deposits

10,031


(30,397)

Proceeds from sale of property and equipment

1,111


12

Proceeds from restricted deposit used for completed acquisition


22,890

Net cash paid for acquisitions

831


(109,052)

Capitalized software development costs

(7,911)


(5,798)

Acquisition of intellectual property

(151)


(2,810)





Net cash provided by (used in) investing activities

125


(127,788)





Cash flows from financing activities:




Proceeds from employee stock options exercised

2,038


5,050

Distribution of dividend

(20,255)


(7,044)

Repayment of Series B Debenture

(19,796)


(9,898)

Issuance of Series B Debentures, net of issuance expenses


60,346

Receipt of short-term loan


20,000

Repayment of loan


(20,000)

Payment of contingent considerations

(926)


(538)

Acquisition of non-controlling interests

(990)


(147)

Dividend to non-controlling interest

(31)


Proceeds from issuance of ordinary shares, net of issuance expenses


108,737





Net cash provided by (used in) financing activities

(39,960)


156,506





Effect of exchange rate changes on cash and cash equivalents

(3,025)


(707)





Increase in cash and cash equivalents

37,682


86,266

Cash and cash equivalents at the beginning of period

152,561


66,295





Cash and cash equivalents at the end of period

190,243


152,561

Debentures Covenants

As of December 31, 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 $406.5 million.

Covenant 2

  • Target ratio of net financial indebtedness to net capitalization (in each case, as defined under the indenture for the Company’s Series B Debentures) below 65%.
  • Actual ratio of net financial indebtedness to net capitalization equal to (36.78)%.

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 (1.27).

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SOURCE Sapiens International Corporation

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