Q1 2021 Sapiens International Corporation NV Earnings Call
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Ladies and gentlemen, thank you for standing by the conference will begin shortly.
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Welcome to Sapiens International Corporation 2021 first quarter of results call. At this time all participants are in a listen only mode of question and answer session.
Will follow the formal presentation for operator assistance during the conference. Please press Star Zero as a reminder, this conference is being recorded may 4th 2021.
It is now my pleasure to introduce your host off an adult in sapiens VP head of Investor Relations.
You may now begin.
Thank you and good day, everyone. Our earnings release was issued before the market opened this morning kind of as posted on the company's website at Www Dot sapiens dotcom.
Here with me today, representing sapiens Roni Al Dor, President and CEO and the long again of the CFO.
Before we start I would like to remind everyone that this conference call may contain projections or other forward looking statements.
The safe Harbor provisions in the press release issued today also apply to the content of the call.
Sapiens expressly disclaims any obligation to update or revise any of these forward looking statements, whether because of the future events, new information of change in its views or expectations or otherwise.
On today's call, we will refer to the non-GAAP financial measures.
A reconciliation schedule showing GAAP versus non-GAAP results has been provided in our press release issued before the market opened this morning.
A replay of this call will be available one business day after the call on our Investor Relations section of the company website or via the website link which is available in the earnings release, we published today.
I will turn the call over tornado president and CEO of sapiens Roni.
Thank you, Doug and Hello to everyone joining us today to the views of sapiens first quarter 2021 financial results I will review highlights from the quarter, one results and provide an overview of our achievements al.
Therefore, the goal of D will discuss the financial and the outlook for 2021.
What's the one was the good start to deal the phone revenue shows.
Our continued focus on the execution of our growth, but did you which contains several pillows.
Fares to establish long term customer relationships with the best solution to solve the the need and to support the digital transformation initiatives.
Not to go out of business in our key geographies, we saw of lend on expense strategy to gain market coverage and become closer with our customers.
And so the invest in our products to maintain our market leadership position and competitive advantage in quarter. One revenue climbed once again, reaching a record of $110 million.
22% higher than last year. This achievement the lethal at 30% decrease in operating income with operating margin reached 17.2%.
Up from 16, 1% last year.
So the P&C, the global company operating across multiple insurance market and deploy it.
The diversified product offering these strategies allow us to balance our growth resource investment and risk of course region. The markets over the past quarter, we continued to experience strong.
The industry demand of our go on digital offering globally. The North America, we have grown our business in recent years from strategic M&A and organic growth, including investment in the integration and R&D.
In the life and annuity space in North America, we are starting to see growth in our pipeline for gold suites of life and annuity.
To support these pipeline into 2020 tool, we're initiating of partnership or gum, we said leading system integrators to all such boarded.
Our lives components continue to demonstrate growth year over year in the market.
Our insurance offerings, which include reinsurance boy and girl continued to grow and reinsurance myself continues to attract interest from top tier carriers in North America and globally.
On the call sweep P&C front, we have experienced rapid growth in the recent years.
Living multiple transformation projects require a substantial resource of knowledge.
Of course with P&C business is facing growing pains, which resulted in delivery challenges.
We are currently increasing the resource in order to support existing of transformation project as well as new business towards the end of the year.
In parallel we are executing a plan to carefully manage and control of the growth.
The advance our growth in North America I'm excited to welcome Jamie Odell, who joined US last week as the President and general manager of our North America business.
Jimmy will have overall responsibility for all of our end to end business in this region.
Jeremy brings extensive leadership experience in both the P&C and life, including launching sauce, and cloud native businesses and holding senior position with the global insurance system integrators.
Most recently, Jamie was president of snap sheet of leading technology innovator in the insurance claim space before debt. He was the insurance advisory lead there for Pwc, both in the U S and globally.
Advising clients and of course, P&C and life on the management and transformation initiatives before of Pwc. Jimmy also led the insurance practice and serve on the management Committee of Diamond management, and technology consultants, which Pwc acquired in 'twenty then.
The few objective for sapiens is to further increase our presence in this region build strong customer relationships and expand our market share. We are confident the Jimmy has experience in a lot of scale transformations, along we see the relationship with the top tier of insurance carriers and system integrators.
We will be an asset for sapiens he the.
The insurance expertise can significantly contribute to our roadmap and the erection, while our model remains one hand to shake we also aim to expand our partnerships with system integrators.
The market demand.
I'm confident that we will resume growth in North America towards the end of 2021.
Moving now to European market, our investment in Europe over the last several years, the spangles bolstering our market presence and our product portfolio position, we have achieved revenue growth across the board and the pipeline is robust we.
We entered the year with positive momentum in all European markets. We are currently operating in and have delivered strong results.
Our position in a very young in the region have already achieved strong results, helping us execute our lend and expense strategy and accelerates our growth in this high potential markets. We see on our most recent acquisition we are investing to fully integrated the companies of M D.
On the services sales and operation into sapiens debt.
Its value we offer to the 70 customer of the joined sapiens with the acquisition includes a broad digital and data offering and managed services via in cases of our market presence and deep knowledge in this region.
I'm pleased to share that we already see tremendous synergies between the companies. This has resulted in the new cross sell and upsell busies in future opportunities looking at the rest of the world APAC and South Africa of showing positive momentum and we continue to expand our business.
Offering our customers in the region additional value in exploring new opportunities since the eye is the strong presence also in South Africa, we benefit from the acquisition in the region as well in two weeks, we are hosting our 2021 virtual European and the rest of the world customer events.
I'm looking forward to this event in which we will host many new customers that have joined us in the last two years, including doors that became part of the sapiens family through acquisitions in summary, our quarter, one solid results validate our strategy of building global diversity.
We see broad business portfolio to provide the foundation to sapiens continued performance in both.
Of course, the various region and market segment, we owe pointing in the global sapiens team has delivered the new wins and the ups is let me share with you some of the wins, we have announced during the quarter.
The one South African financial services institution, and existing life and annuity customer of sapiens chose to expand its relationship with us the customer which offers banking and insurance services of selected sapiens <unk> suite for property and casualty to support its personal and commercial lines of the <unk>.
This is just one example of demand mainly by large carriers for solution for both P&C and life position sapiens with the significant advantage in the market.
The us based clear Blue insurance group is also select sapiens reinsurance book in quarter, one reinsurance pool was created and design for the reinsurance needs for P&C carriers. This board of give clear blue of strong platform to manage complex reinsurance transactions and quickly respond to new range.
The <unk> needs on the life side, we expanded our partnership with <unk> to deliver transformational life and pension business process outsourcing services to one of these customers interest is one of the largest system integrators. The newell the selection of sapiens <unk> solution, which fully.
The greatest to a wide range of.
Digital and customer experience services validate our leadership position. This leads me to the product phone sapiens focus on R&D investment delivers consistent returns provide product distinction and competitive age the growing interest in our life offering support.
Prestigious industry Awards that we won in late 2020 is reflected in strong bookings expected to translate the revenue in the coming quarters. We released the new version of our core suite for life and annuities last months. This latest version takes the cloud base open architecture, one step further.
The.
It features an enhanced library of pre configured life insurance product building digital and analytics and low code no code tools empowering users to tailor and launch new product rapidly. This announcement ensure faster implementation the rapid go to market.
Kit for our customer and even greater self sufficiency, we continued to see strong and growing interest in our <unk> suite for P&C of course, EMEA and APAC. This include interest in the deep suite is the standalone as well as in combination we sell the digital suite and sapiens intelligence.
Including the managed services and cloud deployment approach, we also see increasing interest in our recently launched proposition of it did go designed to serve the low of peers and Greenfield.
Our portfolio continues to win the recognition in February 2021 at the Sweet received the length excellent awards for the breadth of functionality for P&C policy administration system in the email.
<unk> 2021 select chose our client East Coast insurance goal for the model Insurance award the coordination of the business value the gain should the deployment of sapiens decision on top of it. The suite sapiens decision is now driving Isaacs U K based decision, making and customers.
Journeys for claims.
This is an excellent example of a customer of the two regionally deploying one of our product in this case the sapiens P&C the suite for which caused the same later to be followed by a very successful deployment of decision to enhance the digital transformation, our digital solutions are attracting high.
The demand as the market evolves and we continue to advance the functionality of our digital offering we have recently announced a new version of our digital suite. This cloud native module of solution empowers insurance to leverage digital opportunities and enhanced customer engagement.
Our digital suite can be deployed together, we sapiens co product to provide the full digital experience. It can also be deployed as a standalone suite over the legacy of other co products. We continue to see strong traction for our cloud based and managed services proposition of course life.
P&C and digital most of the deals signed over the last 18 months include cloud deployment and managed services I'm happy to share that our customer keep providing positive feedback on recognizing the high level of services. We offer them. Another area. We continue to focus on is our partner in <unk>.
<unk> ecosystems are plateau feature of open API capabilities, enabling our customers to enjoy seamless integration with additional solutions. We recently announced the partnership we started to offer AI base predictive insights and personalization to life insurance provider the power.
The ship create new ways for insurers to generate revenue to analytics and actionable insights. We also announced a new partnership with <unk> to offer a complete digital payment solution for insurance carriers, our integrated offering will empower insurers to achieve the.
Immediately total electronic adoption, ensuring payment efficiency with minimal requirements together with sapiens school solutions echoes payment processing solution will enable <unk> to eliminate complex manual payment processes. We also partners with the rising medical who simplified process.
<unk> reduced costs for workers' compensation and property casualty carriers, our diversified portfolio and market presence continued to allow sapiens to enjoy the different trends in the various markets and at the same times to mitigate these across the board looking ahead to 2021.
Since the outbreak of COVID-19, sapiens has been dedicated to business continuity and mitigating the pandemic impact on the company, while maintaining our growth momentum life is returning to normal in many of the region in which we operate yet in the last few weeks the pandemic in India.
<unk> has increased substantially impacting about 8% of sapiens employees in India and the rest of the employee in India continued to work remotely without disruption. We are currently walking on the initiative to mitigate potential of these while keeping our coating plant in India impact. This plan also.
Includes expanding our partnerships with system integrators the quota.
<unk> from other region and potentially shifting resources from R&D.
While the situation obviously has impact on our short term outlook sapiens committed to balancing our business responsibility with the peso non health and wellbeing of our employees to summarize several achievements and trends in the various market sapiens operates in the demand in the P&C market.
As expected to continue in all regions in EMEA and the rest of the world. We have already expanded our presence to meet the growing demand in North America, we have of scaling up our delivery capabilities. All the insurance platform continued to gain momentum mainly with large carriers in the life and annuity markets we see.
Demand for our platform supporting by recent wins, the solid pipeline and continue analyst recognition. In addition, we also see growing demand for multiple lines of business because of both life and P&C, which makes sapiens the vendor of choice. In addition, multinational carrier of recognized sapiens.
The value is the global player I am proud of the successes, we've continued to demonstrate from our organic growth complemented by strong results from our investment in Iberia. The nobody can South Africa. We saw the 600 global customers sapiens is making a significant impact we sell.
The broad portfolio of solutions, and one hand to shake business model with nearly 4000 of industry. The most talented employees spread globally. We of all the tools in place to continue to growth the disruptors of COVID-19, and rapidly industry shift to digital driving the insurer.
To speed up the digital transformation projects. We are looking ahead to land new customers and expand existing customer business now.
And I would like to turn the call to one of <unk>, our CFO Roni.
Thank you Ronnie.
I will begin my commentary with the review of the first quarter 2021, non-GAAP results on a comparison of year over year versus Q1 of 2020, unless otherwise stated this will be followed by comments on the balance sheet and Cardinal I will wrap up we can update of our two.
In 'twenty, one outlook revenue in the first quarter of 2021 increased to $110 2 million.
Up 21, 7% from the first quarter of 2020.
Our revenue in North America reached $44 8 million go low.
Miller to last year.
During Q4 of 2020, we successfully completed the go lives of large transformation implementation, which resulted in low revenue in Q1 of 2021.
An additional effect on the Q1, you'll see the real was the negative impact of COVID-19, or know of Walker compensation business, which is highly correlated to implement rates.
And is the only already mentioned the delivery challenges in the course with being seen of America impact you on revenue.
I would like to redo it debt with the clear plan in place, we anticipate returning to growth in the region towards the end of 2021.
Revenue in Europe reached a record of $57 7 million.
Up 43, 3% driven by combination of organic growth and the M&A is the only.
Mind you. This was the first full quarter contribution from PR to our results to complete the revenue growth preacher or revenue in rest of the fraud, South Africa, and APAC reached seven 8 million.
36% higher than last year.
Moving to gross profit gross profit in Q1 of 2021 was $49 2 million.
Up from $39 8 million in Q1 of last year.
Our gross margin this quarter increased by 70 basis points to $44 seven from 44 in Q1 of 2020 operating profit this quarter was $19 million.
30% increase from $14 6 million going on in Q1 of 2020 and slightly higher than the $18 7 million.
Loaded in Q4 of 2020.
Operating margin rose by 110 basis points to 17, 2% from 16, 1% of last year. This year over year increase in operating margin was achieved despite the fact that R&D and SG&A were about $5 million or higher.
Additionally, as I shared last quarter tier profitability is lower the insipience. Since this was the first quarter in which Dr was consolidated on a full quarter of bases.
Impact on profitability was higher than our Q4 of 2020 results. The upper foot. The ability is expected to improve towards the end of the U interest expenses in Q1 of 2021 on debenture was <unk> 8 million.
And will continue throughout the year. It was offset by income from hedging transaction, which lowered the interest costs incurred in Q1 of 2021 total interest expenses for the quarter were <unk> 5 million.
Net income attributable to SAP in the shareholders for the quarter was $14 9 million.
Up 43, 2% from the $10 4 million dollar of net income in Q1 of 2020 EPS for the quarter was 27 cents per diluted share up from 20 cents per diluted share in the first quarter of last year, reflecting 35% increase please note that the EPS.
The full share count following the public Corporation, we have completed in Q4, turning to our balance sheet as of March 31, 2021, we had cash and cash equivalents and short term deposits totaling $172 2 million.
Total debt stood at 101 million.
Reflecting the $20 million debenture of payment in the first quarter of 2021. The debt term is five years and it will be paid in equal installments until January one 2026 touching the phone adjusted free cash flow.
In the first quarter of 2021, we reached an adjusted free cash flow of 10.
<unk> 6 million.
A 135% increase from Q1 of 2020. In addition, we recently announced a cash dividend of 37 cents per share, which amount to $22 million. This year, we returned to our normal pre COVID-19 distribution rate of up to 40% of al <unk>.
Non-GAAP net income the cycle of dividend distribution reflects up and solid performance and our ability to generate free cash flow quarter over quarter.
But we'd like to turn now to our guidance for 2021.
In Europe, we are seeing organic growth in P&C as well as life and annuities. We are also benefiting from the acquisition in the Bay area the end.
The regions.
All of which clearly demonstrates the success of our land and expand strategy.
We expect to continue to reap the fruits of this investment in 2021 and in the coming years.
In North America. They came to accounts are blaine to carefully manage and control the growth, we anticipate that the golf with zoom towards the end of 2021.
Given the high growth in Europe, and rest of world and taking into account logo in North America, we are increasing our revenue guidance from the range of $457 million to $463 million to the range of $459 million to $464 million.
Turning to our operating profit guidance.
Our updated profitability guidance for 2021 has been influenced mainly by the following.
First our plan initiated to manage on golf and investment and delivery capabilities in North America being seacoast with business.
The recent spike in COVID-19 in India, which will increase our labor costs in the short term.
We assume these two factors are only temporary.
In Q2, 2021, we expect operating margin to be at least 16, 5%.
As to operating margin for the full year of 2021.
Now expected to be in the range of 17% of 17, 4% compared to previous range of $17, 7% to 18%.
On the M&A front, we have added several companies to SAPIEN family in 2020.
And we intend to focus efforts on the integration and supporting the customer of the new companies.
We are still evaluating M&A targets in 2021, and the act on them. If we find the right opportunities I will now turn the call back to on the adult Bonnie.
Thank you on we should focus of growth strategy global diversity, and increasing market demand sapiens is well positioned for additional success and growth on a personal note I would like to express.
The deepest concern for all of sapiens family in India the hedge.
Health and wellbeing of our employees is our highest priority and consume we are making every effort to provide support.
I'd like now to close our prepared remarks and open the call for questions. Please.
Thank you ladies and gentlemen at this time, we will begin the question and answer session.
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