Q1 2022 Sapiens International Corporation NV Earnings Call
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Welcome to the sapiens International Corporation's 2022 first quarter financial results call. At this time, all participants are in a listen only mode.
A question and answer session will follow the formal presentation.
Operator assistance during the conference. Please press Star Zero has a reminder, this conference is being recorded May 3rd 2022. It is now my pleasure to introduce your host Pali capital.
Director of corporate marketing. Thank you tally you may now begin.
Thank you and good day, everyone sapiens first quarter 2022 earnings release was issued before the market opened this morning and its been posted on the company's website at Www sapiens dotcom, representing sapiens on the call today are Roni al Dor, President and CEO and Roni Gila D G.
Financial Officer before we start I'd 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 future events, new information a change in its views or expectations or otherwise.
On today's call, we will refer to the non-GAAP financial measures a reconciliation schedule shows 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 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 now turn the call over to Roni Al Dor, President and Chief Executive Officer of Sapiens Roni.
Thank you Charlie I would like to welcome everyone to our call today to review sapiens sales quarter of 2022 financial results.
So as they leave the good start to 2022 with first quarter revenue increased by 7% it won't be $218 million in line with the guidance. We gave on our last earning calls operating profit increased to $28 million for an operating margin.
Of 17.6%, we maintain profitability unfair with full year 2021, despite increased employee cost the global sapiens team is successful they leave them on multiple fronts in quarter, one with notable wins in all geographics efficient delivery.
And continued investment in the innovation capabilities and expansion of our offering.
Global customer centric model continued to achieve consistent growth and profitability and generating cash sapiens success is built upon three key elements.
The first key element is our commitment to innovation and product excellence, reflecting our meaningful R&D strategy. This drive the continuous improvement and then in front of our offering which is being recognized by the analyst community and by all customers.
Second is our lend and expense strategy.
Which we successfully execute to allow us to go with new and existing clients and penetrate new markets.
So that element is our ores as a trusted partner, while we support our customers on long term engagement model in their digital transformation and their ongoing continuous evolution of their business. These key elements are tightly coupled and provide us with several levels of glass evolving we saw.
Our customers need and advancing things so innate drive for excellence and success.
Europe continues to deliver growth for sapiens.
On the heels of our outstanding performance in 'twenty or 'twenty, one you'll have continual and is expected to continue to be an exciting region for us in 2022.
We have successfully expanded our European presence by combining organic goals. We saw robust acquisition now fully integrated used in influential customer restaurant and local presence that we gain organic and two out our acquisitions to build a robust pipeline for P&C and life.
And pension and European market, which includes several key region, we see excellent ball August maturity of this pipeline, particularly in the Spanish speaking at various age in the German speaking dosage in the Nordic region, as well as UK and Ireland and few other car.
Trees in Central Europe and.
Such progress demonstrate today, the fruits of our investment over the last few years in this region, we have accelerated our business ramp up with the local customer base and fog local team.
Today, we are well positioned as a market leader and this will allow us to continue and how this market share in these regions. One. Great example is our progress in the German market in P&C, we have established a strong presence and successful leverage the cultural knowledge restaurant.
<unk> and regulatory expertise, we acquire to rapidly close of our business in the German market is there.
Results, we see increased pipeline in the region at several stages.
We recently announced two new P&C wins in your walk that I would like to highlight it.
One is a build of insurance holdings, a leading multinational provider for P&C insurance and reinsurance services with headquarter in Luxembourg.
They chose sapiens to transform their legacy system and multiple countries, we sell into ankle solution. We were selected as their partner not only for leading call solution industry knowledge and expertise, but also because we can accompany them on the entire journey of course.
T per market.
Bill their insurance operates in Germany, Belgium, Luxemburg, Norway, and UK and sapiens global footprint and industry expertise in this region makes us valuable partner and able to support these type of multinational digital transformation journeys.
Another key win in Europe is a leading multinational insurance company in Portugal, mostly in the life and non life that selected sapiens to implement a reinsurance solution.
This solution will enable the insurer to better manage it globally diversified insurance product sales network of reinsurance business for life and non life sectors.
<unk> competitive advantage is our ability to offer global carriers, a single solution that can be implemented across multiple regions.
These complex multi region deals with tier one insurers will be valuable reference as we expand our leadership position in New York.
In the UK, we invest in our product and partner ecosystem to expand our offering and address the specific needs of fluids and London market business.
<unk> partners with Albany Group, two integrated it's called <unk> connect with sapiens core system and provide end to end performance regulatory and operational control of supply chains.
So partners with W. C. L. A solution provider that delivers b to b gateway to manage connectivity and data exchange for Lloyds of London below services together with sapiens core digital insurance platform W. C. L Bureau messaging integration will open this solution too.
Lloyd Syndicate for sapiens Global 600 insurance customer base that can leverage for expansion in the dynamic UK market.
On the life and annuity font industry analyst <unk> awarded sapiens core suite for life in 2021 excellent Walt in EMEA and the breadth of functionality category and I recognize it is.
The luminary solution excelling in both advanced technology and breadth of functionality.
This recognition.
<unk> illustrates sapiens, therefore impact, but that is the knowledge and keen understanding of the life and pension insurance industry.
This marks the second time sapiens core suite for life and pension in EMEA.
Was recognized by Celent after winning the 2019 Atlanta Excellent Award. This award also Echo nice safe and strong team of deep domain expertise we have.
These awards validate our product strategy is on trend and cited the Q2, our continued investment in our platform with a sharper focus on user experience improvement. The current sapiens user interface, we still head of many of its peers.
Recognize the sapiens core suite for life continued to be primary system, we've seen the email marketplace for the insurers in North America, we see positive and tangible improvements.
A highlight in North America is a new business closing in life and annuities. Thanks to the investment in our core solution and business application components. One of those deals is guardian insurers, we chosen sapiens cloud native customer acquisition solution integrating sapiens illustration and.
Application product for enhancing the digital operation this isn't a causal following the successful implementation of accelerated underwriting solution by sapiens in quarter. Four of 2021, we were selected to perform a blueprint process with North America carriers.
<unk> life, which has been successfully completed.
We are now in the last stage of discussion with these customer, adding our digital suite to the solution mix, we expect to initiate the project implementation sooner.
Overall, we see improvement in the pipeline for life and annuity with progress in the funnel moving to contract negotiation and the opportunity started in the previous quarter are advancing we are confident that our life and annuity business in North America will grow in 2020 tool and build a solid path.
Plan towards 2023.
Our North America pipeline for P&C is progressing with several deals moving to advanced stage and the sales process.
In addition, our existing customer, adding additional product and notably the leisure is improved with existing projects, we continue to accelerate investment in product and delivery methods.
And we plan to grow our P&C core businesses by year end.
The insurance continues to grow steadily building a solid pipeline for 2022 in North America. After years of using sapiens financial and compliant solution applied underwriting select sapiens to also automate the insurance administration accounting analysis and reporting the <unk>.
Russia and allowed them to replace their legacy process and automate complex accounting task to eliminate manual process.
We have confidence with our product for North America and have additional opportunity in late stage in the pipeline.
APAC and South Africa region were strong again in Q1 hour.
Our increased production and market recognition sustain our momentum in this region in the first quarter.
In South Africa sapiens expand our business with the whole of the insurance company with our cloud native local digital suite.
Although these already a long term customer for sapiens previously deploying our solution for both the life insurance businesses.
In addition, another customer and one of South Africa's largest financial institution select to expand relation with us following a successful experience with SAPIEN transformation, the P&C core system to implement sapiens life and annuity solution.
These are two examples of upselling to our customer base, who both chose sapiens once again for the next phase for the digital transformation.
APAC and South Africa offer growth potential with high demand for our offerings sapiens product offering is progressing with cloud and digital across the board sapiens is prioritize innovation and our R&D investments have both as really gain and competitive advantage.
Where we have focused our R&D budget like our cloud and digital and local no-code offerings.
With decision platform, our key growth levers that continue to deliver wins all of the new deals I mentioned this quarter, except one will deliver on the cloud one major R&D priority is to continuously enhance the cloud native capabilities of our product portfolio.
We also collaborate with both Microsoft Azure and Amazon Web services to ensure using innovative and cutting edge cloud capabilities.
Many opportunity such as Guardian, and whole loss mentioned above combined with digital component and Nicole module for sapiens to allow our customer to progress in digital journey.
Our product strategy is based on providing a digital insurance platform offering.
D C really integrated connect rich insurance floods, covering co processing digital experience and data analytics and decision management that can be deployed in a phone or module minez. All in was following the cloud. One example is embedding decision with.
Our co insurance to enhance the value proposition for P&C insurers.
We're also looking to further continue to development.
<unk> machine learning and predictive analytics use cases.
Lastly, we continuously expand our ecosystem to ensure tech partners. This increasing the scope of solutions, we can bring to our customers.
With this innovative insure tech partners bring value to our clients and help us to improve our value proposition to our clients and even enter two new markets as I shared earlier our mark.
Kitting activities in Q1, it has been such a pleasure to engage with colleagues industry expert and customer in person events and host face to face meetings with our clients in the first quarter alone. We attained six events in North America and in Europe , we are exciting to us.
It's an intimate and engagement event, we selected executive for North America customer base and the upcoming Executive Council being held in Nashville, Tennessee next week.
In person and attending live events is critical to creating deeper engagement with prospects and customers and key to build a robust pipeline of prospects.
While there may be related increase in travel expenses. These can be offset by booths, we can get to our business from the large number of meetings, we efficiency <unk> with many customers. It's one industry trade show.
And marketing event.
Marketing team has a full schedule for the remainder of the year and we look forward to increase exposure it will bring to sapiens.
Looking ahead to reminder of 2022.
To summarize our first quarter performance show, how the core elements of our strategy of delivering growth due to our ongoing commitment and advanced innovation, our product offering continue to be recognized for its excellence in functionality and performance.
To remain a dynamic market for sapiens and cause our life life and annuity and P&C businesses.
Wherever we have a significant runway to take market share in North America. Following our focused investment we see solid progress in our life reinsurance businesses goes and are encouraged by the futures blowing in P&C.
APAC and South Africa was another bright spot in the first quarter in this region showed promise.
Sapiens is establish a track record of growth profitability and high cash generation.
Two our strategic M&A and organic goal, we have a high standing in the global insurance market. The sapiens team worldwide is committed to executing our strategy to deliver growth and improve our shareholder value.
Now I would like to turn the call to Juan <unk>, our CFO Bonnie.
Thank you Ronnie.
I will begin my commentary with a review of the first quarter 2022 non-GAAP results.
All comparisons are year over year versus Q1, 2021, unless otherwise stated.
I will follow up with comments on the balance sheet and cash flow and we'll wrap up with our guidance for 2022.
Revenue in the first quarter of 2022 increased to $117 7 million up six 8% from the first quarter of 2021.
Currency headwind versus Q1, 2021 was two 7% our organic growth rate without currency headwind was nine 5%.
Our revenue in North America was $49 million compared to $44 8 million a year.
Year ago.
On a sequential basis North America revenue was up modestly from $48 $9 million in Q4 of 2021.
Revenue in Europe reached $59 3 million up two 8% compared to a year ago quarter.
Europe region was significantly affected by currency headwind as you walk pound, they only grown and thick weakened against the dollar on a constant currency basis, our Gulf would be 8%.
Revenue from the rest of world, which represent APAC and South Africa grew 26% to $9 4 million in Q1 of 2022 compared to $7 8 million.
In the year ago quarter, mainly due to new logo.
On the global view, the Russia, and Ukraine will did not affect our revenue as we did not have customer or employee in that region.
The situation can be escalated and affecting global economy, and obviously sapiens.
Gross profit in Q1, 2022 was $52 9 million.
<unk> from $49 2 million in Q1 of last year.
An increase of seven 5%.
Our gross margin this quarter was 45% higher than 44, 7% in the comparable quarter.
This result is despite currency headwinds and increase of labor costs.
Operating profit this quarter increased to $20 8 million up nine 3% from $19 million in Q1 of 2021.
Operating margin was 17, six this quarter 40 basis points higher compared to $17 two in the first quarter of 2021.
Interest income in Q1 was 348000 due to income from hedging transaction compared to interest expenses of 575000 in Q1 of 2021.
Tax rate for the quarter was 17, 9%.
Net income attributable to <unk> shareholders for the quarter was $17 3 million up 16% from $14 9 million in Q1 of 2021.
EPS for the quarter was 31 cents per diluted share compared to 27 cents per diluted share in the first quarter of last year.
Reflecting EPS growth of 14, 8%.
EBITDA increased by eight 9% to 21 9 million in the first quarter.
Our adjusted EBITDA margin was 18, 6%.
Turning to our balance sheet as of March 31, 2022, with cash and cash equivalents and short term deposits totaling $206 million.
And total debt of $80 million.
Which will mature in full yearly equal installments until January 2026.
During the first quarter of 2022, we generated adjusted free cash flow of $16 1 million compared to $10 6 million in Q1 of 2021.
I would like to turn now to our guidance for 2022.
We are reiterating our revenue guidance of 495 to 500 million.
2022 on.
On the profit side, we are increasing our non-GAAP operating profit for the range of 17% to 17, 3% to higher range of $17 four to 17, 6%.
The increase in employee attrition rates and increasing labor costs and additional currency headwinds are offset by our offshore rates and efficiency measures.
We are confident in our ability to grow while improving profits.
We continue to convert our profitability to strong solid free cash flow at <unk>.
Turning to our policy, we are declaring a cash dividend of <unk>, 40% of our annual non-GAAP net income, which represent 47 cents per share totaling to approximately 26 million compared to <unk> 36 per share or $20 million in 2021.
Moving forward, we'd like to change our policy to semi annual dividend payout.
To reflect our confidence in the business of recurring positive cash flow generation.
We'd like now to turn back the call to O'neil go Oni.
Thank you Melanie sapiens is well established and a multibillion market that provides macro tailwind is insurance moved from legacy salt sales to digital and cloud solutions. We have established a global presence and look forward to our prospective opportunity there in the late stage in the pipeline we are taking in.
Active role in shaping the evolving insurance software industry, and our focused growth strategy and increased market demand position us for further success.
Operator, we are ready to open the call for Q&A.
Thank you, ladies and gentlemen at this time well begin the question and answer session. If you have a question. Please press star one if you wish to cancel your request. Please press star two if you are using speaker equipment. It kind of a handset before pressing the numbers. Please ask your question in a loud and clear voice any questions I'll be involved in the order they RSC.
Please stand by while we poll for your questions.
The first question is from surrenders of Jefferies. Please go ahead.
Good morning, gentlemen.
<unk>.
Congratulations on what looks like a fairly solid quarter.
I'd actually like to start a question about.
The gross margins.
Can you provide a little bit more color on.
The quality of course.
Gross margins this quarter, they came in well above or better than I was anticipating and then maybe to sustainability estimate at this point.
Hi, this is <unk>.
The gross margin this quarter was 45%.
Slightly higher than Q1 of 2021.
And basically the same level of the previous quarter.
We see improvement.
Almost 12%, if we need to realize the currency headwind versus Q1 of 2021.
The reason for the improvement of a so.
I will start with the offshore ratio as we continue growing the company the offshore ratio is increasing and obviously, helping us and supporting us during todays gross margin.
The attrition rate that went up in recent quarters is not supporting us to deliver the revenue, but eventually if we report more in the offshore locations also increased offshore ratio. So this is one area.
The second area is we continue to sell our product in the same location as the thing more and more obviously profitability of each of the implementation is higher. So this is second elements and obviously its third element is.
In parallel measure that we are working on them.
On an ongoing basis to improve the profit margin.
Got it and then just a clarification on the offshoring components.
Would you characterize that as an acceleration in the process at which point you are able to offshore.
The delivery of services.
I would say that in the last few quarters the answer for the Dcs. Obviously, we are focusing this is ongoing basis.
The attrition rate that went up on a global basis, all sorts of both of us to increase the offshore <unk>.
Got it.
And then in terms of.
As I think about the commentary.
It sounds like.
The business environment remains fairly strong.
Can you provide any color there if we were to think about.
Your views from.
A quarter ago to where they are now in terms of the conversations youre, having with clients.
Are you seeing any hesitation it just seems that things.
Are looking quite good at this point just any differences in the margin on the margin in terms of just.
Those conversations from a quarter ago versus what you are having now.
Okay. So if the question is on the margin.
I don't see any pressure on the margin in terms of customer I apologize I didn't mean I didn't mean operating margins what I meant is just.
The difference between the conversations you are having a quarter ago with clients versus the conversations youre, having now how should we think about.
Your clients.
And what's impacting their decisions in the current macro environment.
Versus a quarter ago, because obviously theres been a big change in the macro environment. Okay. So I will split the answer into two I would say Europe and APAC together, we do not see.
Even the states, we do not see any macro environment change.
As of today versus the previous quarter.
Internally in the state we see change in the position of Sofia.
In Europe and in APAC, we continue to be strong and we have some shifts going up in the USA market. This is internally on our global markets, we do not see any change.
Understood and then just one clarification question here My last question.
In terms of is the reiteration of guidance.
How much of that revenue is already locked in meaning that it.
It will come from existing projects and then how much of that revenue has yet will come from projects that have yet to start or projects that have yet to be won.
So we are starting the business model of stop guns that alone 10% of our revenues coming from new logo year over year and above 90% of it is coming from existing testing.
E mail customer of theirs and ready both go lives.
All customers that are in.
Implementation phase.
If you ask about obviously, we are past few one so the thing is look if we are going forward.
The number was of course lessened that first 10%.
We already sold or signed that several customers. We are engaging several customers that we are very close to sign.
So the number is less than 10% of total revenue in seconds.
Thank you that's it for me.
The next question is from my young Tandon of Needham <unk> Company. Please go ahead.
Thank you Ronnie and Ronnie congrats on the quarter.
I wanted to start with the question around just demand and really my question. There is in terms of clients are they now more likely to buy the entire core from sapiens in other words are there doing policy billing and claims or Theres still.
Buying maybe one solution from say of sapiens and then they might go to another vendor for <unk>.
The other products on the core side and then I wanted to get your thoughts on just overall sort of momentum versus the competition that are playing in the same up tiers of the market, whether it's a duck Creek, and Guidewire and Majesco and others. Thanks.
Hey, this is Alex Zuckerman.
Head of strategy.
So for your question, we see them.
There is a bit of a difference between the European and APAC market in between the North America market. When we look at the European market. It's much more tending towards full suite deals encompassing policy billing claims together and this is the majority of the deals we are signing in Europe first.
Sweet what I would like to add on top of that a big part of those deals we don't sell only the call, but we said at least another component from a product portfolio on top of the call can be an API layer of digital managed services and data and analytics at least one of those components typically will join the.
When you look at the North America market on P&C I would say, it's a split of roughly 50 50 in terms of the deals. We are looking at some of them a full suite of some of those specific components. Although policy all billing all claims mainly policy and claims we see less fewer billing.
In this but we compete on the two types of data and we see demand on the of the two sites.
Got it and then on competition I sort of combine that question, but just in terms of your win rates versus some of the other players on the cloud.
Ross the tiers, where you play are you seeing more competition or your win rates still keeping up just maybe any context, there would be helpful. Sure. So again I think here.
From our perspective, there is a difference between Europe and the U S. When we look at the European market or the win rate is very high.
And we are continuing the trend that we saw last year.
Both on the life side and in the P&C side, we're progressing very nice on the deals.
Going to.
To the leading stages and continuing a very a high win rate in the North America market.
It's more of a mix the type of what we all were returned to the market last year with a life proposition was of course with life and in the year, Let's say five quarters. That's passed since then we see tremendous progress in our pipeline.
And getting closer to close the deal we just completed the blueprint with one major customer which means it's only app.
Basically, creating the scope for the implementation, which we foresee to start soon with <unk>.
<unk> was selected for another customer in North America, So definitely.
Strong improvement on the life side on the P&C side, we see initial initial signs of improvement of our pipeline and the ability to progress the pipeline at the moment. We are shortlisted for a few days in North America P&C Shortlisted means it's us.
And another vendor and.
So we see that improvement, but we and we hope to see stronger implement towards the end of these.
Great. That's very helpful. Thank you so much.
Thank you.
The next question is from Tavy Rosner of Barclays. Please go ahead.
Hi, This is Chris Reimer on for Kathy. Thank you for taking my questions and congratulations on a strong quarter.
<unk> had to just touch on the previous caller's question regarding the competition.
Do you feel that you are seeing any.
Linkedin deal processes or delayed decision, making as a result of increased costs that may be.
Insurers are having on themselves.
And just how that how does the how does that relate to the uptake we're seeing in North America was that already baked in is that what you were already expecting versus.
What you were saying in previous quarters.
About the debt.
The heavier.
Second half of the year.
So I think.
The question was a little too about competition about the uptick in the states, obviously Q1 versus Q1.
2021 that we had.
Growing up living in quarter over quarter, and staying flat from Q3 to Q4 into Q1 2022, we will have a belief in the revenue level in the state towards the end of the year, but it's not significant.
It will be in APAC will be the strongest area of Gulf of sapiens, a USA North America DC will be single digit growth look significant but we expect because of all the stuff that we're doing that will fall off in 2023.
It is double digit growth for North America also so this was the second part.
Regarding a competition and customers at the station.
Delays et cetera, we don't see any material change from previous quarters in terms of customer behavior, and we don't see at the moment any real impact of the macroeconomic situation on on decisions on the bi we see strong demand in the market.
And if we see delays there are practical case by case, depending on the deal and not something that we can.
Look at a phenomenal rate trend.
Great. Thanks, and just one follow up regarding the increase to the operating margin guidance.
Can you give some color around likely driving that is there anything else other than what you've already mentioned regarding to off shoring.
I think we mentioned that on top of offshoring and the escalating the offshoring base. There is some efficiency measures that were taken in place in the company and the third element obviously the economy of scale.
We are a year behind the integration of recent acquisition that we have that obviously, we can improve a portion of efficiency all of this altogether and make us to provide these guidance.
Oh, great. Thank.
Thank you very much. Thanks, that's it for me.
The next question is from Dawn Becker of William Blair. Please go ahead.
Hey, Ronny and Ronnie I appreciate you guys, taking the questions and a nice job here in the quarter I guess, maybe first since we've talked about in the past as well leveraging some of these ancillary components. I know you mentioned the decision solution you talked about re insurance and maybe maybe looking more to leverage partners and that higher tier segment, especially in north.
America is well how.
How much of that kind of plays into.
The investments you're making the benefits of some of these live events you talked about in establishing some of that brand awareness right and then as well.
Some of the cross sell conversations as you as you look to transition maybe some of those those larger customers to more core based decision makings or discussions as well.
Okay.
So let's stop several components in your question I'll try to break it so on the first part.
<unk>.
We are definitely seeing an increase in the demand in deals to provide more than one component from sapiens.
As I mentioned in the majority of the cases, we sell out of new deals in the cloud, which as a company to buy a component of managed services that we provide in the cloud.
The majority of the deals include API layer that we provide on top of the call.
And either component from our digital solution decision or our analytics solution.
So definitely this platform approach that they that we promote and this is this is the spirit of our R&D how to actually to make those different components work together insurance with P&C, the digital and data and we see the positive market reaction to.
To this segment in terms of partnerships when we look at our ecosystem ensure that cosmos.
Earnestly, keeping and the work to increase that.
Partner base today I believe we are around 70.
A partner ecosystem partners that we operate with globally and we have a dedicated team that looks after this segment of the market Carlos is at an end.
And signed new deals or new partnerships with such companies as needed to progress our penetration to different markets.
In terms of our system integration collaboration and we chose to look at it for specific segments of our business unfolds specific level.
Specific areas, we are working sporadically at the moment with some partners still doesn't have a major impact on our revenue.
I would like to.
More more light on the cross sell.
As Alex mentioned, obviously, we have this all business application on CDN reported that you mentioned, we see a trend that is starting from the I would say the last two years and going up that all the new deals that we're selling is coming from additional application on top of this.
And this is not only ancillary product, which is this is also sometimes also called product P&C to life or vice versa. So this is good trends and we are trying to duplicate. This also for existing customers and this is an additional initiative that we are looking into two duties.
Got it.
Helpful color. Thank you, both and maybe around <unk> again here too.
The margin expansion again, it's being driven by some a scaling of that offshore operations right.
Where where do we sit today relative to kind of the mix of those resources.
And we're again, what's the kind of steady state potential.
Where can we see kind of further expansion as we continue to allocate more heads.
To those offshore offshore areas.
Hey.
At the end of Q1 2022, we're sitting at about 47% LCR ratio. This is a combination of R&D and delivery.
Team members.
Almost for all product of Stephens company, R&D and delivery, we see additional potential drawing this number in the coming years.
They can add additional a.
Few 100 basis points.
Two our operating margin I would say this is a meet them goal not immediate one.
Because we need to keep the knowledge 20 people. So over time, we can do this today. We are operating says locational Shaw I mentioned few for example, India, Poland, Lithuania, and we're thinking also potentially down the road to open additional locations to support this growth.
<unk> profit margins.
Got it very helpful. Thank you guys for taking my questions.
Any additional questions. Please press star one if you wish to cancel your request. Please press star two please standby, while we poll for questions.
There is a follow up question.
During this thing of Jefferies. Please go ahead.
Thank you.
In terms of just the M&A environment valuations any color you can add there in terms of your pipeline or just what youre seeing in the marketplace and beautiful.
Yes, it's a good question as you know we are we'd like to do M&A, but we still see a high valuation for the for the company that we are looking for.
We did the fuel.
Almost due diligence like early stage, but we are.
Walks away because the high valuation.
Mainly those are few things happening in Europe , but.
Yeah, it's still devaluation is very high.
If I add more color.
We see the private companies following the public market probably in delay we still see them on high valuation has already mentioned, but down the road I would say few months, let's say six months, we think do we see decrease in valuation also.
Private company and they will both these adjacencies.
Got it that's helpful.
That was my one follow up thank you.
The next question is from Homeaway Lepidote of Leumi partners. Please go ahead.
Yeah, Hi, I also wanted to ask about the M&A front. So I guess you answered for them.
Thanks.
Thank you Emily Thank you.
There are no further questions at this time before I ask Mr. Al Dor to go ahead with his closing statement I would like to remind participants that a replay of this call is scheduled to begin in two hours in the U S. Please call 18882690005 in Israel. Please call.
039 to 55938 and internationally. Please call 970 239 to 55938.
Al Dor would you like to make your concluding statement.
Yes definitely.
Thank you for joining us today, we look forward to speaking with you again in our next earning calls.
Please note that we are hosting virtual Wan and on meetings at Needham Technology and media conference on Monday May 16, and reach out to your Needham representative to schedule and one on one meeting so thank you.
Thank you. This concludes the sapiens International Corporation first quarter 2022 results Conference call. Thank you for your participation you May go ahead and disconnect.
Okay.
[music].