Q2 2022 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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Ladies and gentlemen, thank you for standing by and welcome to the Sapiens International Corporation 2022 second quarter financial results Conference call Sapiens second quarter 2022 earnings release.
<unk> was issued before the market opened this morning, and it has been posted on the company's website at Www Dot sapiens Dot com.
Participants are present in listen only mode. Following management's formal presentation instructions will be given for the question and answer session.
Now I'd like to hand, the call to MS dinner Ninja sapiens <unk> head of Investor Relations.
Would you like to begin thank you operator, I would like to welcome all of you to second conference call to review, our second quarter of 2022 result.
With me on the call today are Mr. Roni Al Dor, President and CEO , Mr running <unk>, CFO and Mr. Alex Silverman Chief strategy Officer.
Following the summary of the results, we will all be available to answer any questions.
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 disclaim any obligation to update or revise any of this forward looking statements, whether because of future events, new information a change in that sphere 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 often 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 published today.
I will now turn the call over to Mr. Roni Al Dor, President and CEO of sapiens Ronnie.
Thank you Dana.
Like to welcome everyone to our call today.
This quarter marks for us is steady and a confident step forward.
Our revenue in the second quarter revenue grew 3.1%, you wont really year to $118.6 million or 8.9% on a constant currency basis.
This reflects our ongoing growth from existing and new customers.
In line with solar strategy, we continue to grow our employee base offshore to support these goals, while improving our brokerage.
We now have over 2000 employees in India to support our future growth and scale.
These prudent actions increased our second quarter operating profit and lifted the operating margin to 17, 5% an improvement of 30 basis points year over year.
Let's dive into the business the market sentiment in the insurance software market continues to be solid.
There is a sense of longer decision process the market need for digital transformation and this cannot be held back too long.
Sapiens is well positioned we sell a broad product offering and global presence to be the vendor of choice for this large transformations.
In addition, our large base of existing customer gave us a solid ground for upselling and expanding our revenue and help us gain revenue visibility and confidence.
We continue our R&D investments to maintain our leadership position and we have increased our investment in sales and marketing which results in our growing pipeline.
The positive feedback from both our existing and new customers confirms that our strategy is delivering the walgreens outcome.
We continue to see new opportunities and win new businesses. We currently have multiple blueprint as well as contract negotiations underway.
Let's switch now to our regional performance.
New York our market recognition is growing is easy.
Is our pipeline we are seeing bigger deals that include more products in the regions than in the past, we are gaining more traction with higher tier carriers.
As we mentioned on previous calls we have a potential European tier one customer currently walking with us on the large multi company a multi product deal.
This is moved to the blueprint phase and recently added another country to the blueprint.
However, the recent change in the customer management is impact the closing of this deal.
As a result in 2022, we do not expect to recognize substantial revenues from this customer with.
We continue our deep engagement with C level managers of these customer and the tone is positive and productive.
In the U K, our P&C pipeline in this market is expected to contribute already in the second half of 2022.
One opportunity is completed the blueprint.
And there's more into take contracting.
I can't pension in the U K, we have a growing pipeline that will generate new businesses in 2022 and onwards.
We have a solid P&C pipelines in the dark region, where we see demand in all areas right.
Right now they are.
A few important opportunity that is moving into the first blueprint stage and contractual discussion.
In addition, we stopped building pipeline in life and pension.
The local presence we have built in this lovely German speaking market and the local references we have are proving to be the great baselines for future growth.
In the Nordic region, where we have become the dominate player we have some significant opportunities in life and pension.
They are in contractual discussion.
These deals where we originally planned to close in the second quarter, but now we've shifted to the second half of 2022.
In the meantime, we are walking together based on the statement of work, which we have signed with this prospect.
These give us confidence in our ability to close these new logos.
There are also several other attractive P&C opportunity in this region that are also progressing well.
In <unk>, we are advancing with new opportunities in all stages and expanding on our pipeline.
The other European countries, we are working on new opportunities in various maturity levels.
Overall in Europe , we have a strong and growing pipeline and the deal sizes are increasing as a function of our luxury product offering.
Our core digital and managed services offering with our global footprint is appealing to both mid tier and high tier regional and multinational carriers.
As I mentioned some of the deals that are currently in the process are likely to take longer to close than initially expected.
Especially with the scope of the deal is in cases and requires more time and additional approvals.
The most significant impact on European revenue was FX.
Mainly to the strong dollar we remain very confident based on our product position European leadership and strong pipeline that Europe will continue to be strong growth region going forward.
In North America, we continue to reap the benefits of our investments.
In our life and annuity business, we are growing demand for our product offerings.
<unk> and core solution.
In the component based on our investment and market recognition, we have closed deals and we have a very strong pipeline in late stages.
This quarter, we announce equity trust, a new logo for all North America life business application.
Equity draws is partnering with sapiens when our next generation digital agent experience.
Our end to end solution empowers equity trust team to increase sales with small intuitive and engaging experience.
Our award winning suite of Yep illustration, and digital solutions will provide equity to us agent with smaller customer acquisition and service capabilities.
And coal suite, we have invested heavily to re enter the U S market and we are achieving notable pogos.
We have posted blueprint and are walking together based on the statements of walks towards.
Towards signing the contract also we have made significant progress with an additional floor space.
Currently we are in the contract Finalization process. This gives us confidence in our ability to close these new logos.
In reinsurance we are a dominate global player we have been expanding in our existing businesses as well as closing new businesses. During the first half of 2022, we have a strong pipeline ahead of us.
Our high and mid tier customers.
The workers compensation market is showing signs of improving following the downturn during COVID-19.
We now have a growing pipeline for our workers competition platform and expect to sign new businesses in 2023 in the second quarter and cover insurance sapiens customer upgrade each offering we sell of course suites for the workers compensation platform.
Our North America P&C pipeline has grown and is maturing across several opportunities. We anticipate closing some new deals we've seen in the next six months.
Turning to the investment in the product the team and the partners in our ecosystem. We are turning the corner in P&C in this key market.
In the second quarter, we announced a partnership with <unk> to support insurance system implementations and help drive digital transformation.
Monetary brings extensive domain technology and consulting expertise and will focus initially on enhancing our delivery capabilities in our P&C business.
Africa continues to contribute to our board.
In the region, we have step up we see significant traction in both wholesale and new businesses we.
We still have a substantial existing accounts over the last six months, we have made significant postal deal expanding into digital additional core sistema and et cetera.
Another Great example of our land and expense strategy is the deal we sell existing customer old mutual a leading insurance company in the region.
Turning to offerings.
Elliptic solution and the reinsurance solution. This customer originally joined sapiens through the Ti acquisition.
In APAC, we continue to see growing interest in the P&C offerings.
We have completed the blueprint with prospects in the region and we are focusing with several other opportunities.
Or does it remain a key competitive differentiator for sapiens.
Our ongoing investment in product development is continuously improve our competitive position in the insurance software market and gain to a combination of industry analyst.
This quarter <unk> recognized sapiens claims solution for PNC and walkers competition on a 2022 reports for North America for sending out in functionality.
We keep investing and focusing in our insurance platform proposition, combining our core data digital and cloud offering into complete platform solution. We.
We see a strong acceptance and higher interest from the market from the proposition.
This is being reflected in selling multiple products per deal and our ability to cross sell our digital and data solutions for existing customer.
This includes deploying sapiens digital suite as a standalone offering and over non sapiens co product.
We keep investing heavily in advancing our native cloud capabilities of our leading products and constantly maturing and enhancing the benefit of our cloud proposition.
That's majority of all of our recent deal fully deployed in the public cloud AWS and as you can without taking advantage of our cloud services.
Our marketing activities give us helpful feedback and confidence in our strategy.
In May we hosted an executive considering Nashville, where we met L. P. C level executives from our North America customer base and engage in productive discussion.
Feedback from these events was positive and confirm that we are overcoming the challenges we face in the market.
In June we had an executive session in Spain, with 70 C level executives from prospective and existing customers to discuss our product and hortman.
We returned to participate in multiple industry events face to face both in North America and Europe . In addition, we are back to our Mega clients confidence in North America, which will taking place in November this year in Washington D C.
Okay.
Our M&A practice help us accelerate our goals now that we have completed integration of recent strategic acquisition in Duffy barrier in the Nordics.
As well as the market valuation of starting to come back to original the levers we are carefully reviewing a few prospects, but not yet ready to pull the trigger on the deal.
Looking ahead to the remainder of 2022.
In this environment, we benefit from our product leadership, our large customer base and our ability to balance growth and expenses, we sell offshore capabilities.
Our pipeline is materializing in our diversity gives us a solid spread of opportunities there.
These there are delayed not canceled and will close we maintain deep discussion at the most senior levels with all potential prospects.
I will conclude with a general comment on the markets, we operate in a market in which digital transformation is essential now.
Now more than ever carriers must have the agility and efficiency, while keeping customer satisfaction level high in a very competitive industry.
Underlying demand is not disappearing.
Formation project are they must've, not a nice to have somebody that might be more cautious in their decision process, but the deal remain ascension.
<unk> business model enable us to navigate the current macroeconomic environment with added stability.
Today, 85% of our revenue comes from existing clients, giving us steady and high visible source of cash from operation.
Our confidence in the insurance market and in our ability to address the market needs and maintain our leadership position remains high.
We can confidently continue to execute our strategy to deliver growth and generate cash now I would like to turn the call to <unk> our CFO .
Thank you Ronnie.
I will begin with a review of the second quarter of 2022 non-GAAP results.
All comparisons are year over year versus Q2 of 2021, unless otherwise stated.
I will follow up with comments on the balance sheet and cash flow and wrap up with our guidance for 2022.
Is there a significant change in the quarterly result, due to the currency headwinds.
A significant part of the review will be dedicated to that.
Just to note.
The European currencies weakened versus the USA dollar gradually quarter over quarter since Q4 of 2021 to date.
Revenue in the second quarter of 2022 increased to $118 6 million.
Up three 1% from the second quarter of 2021.
The currency headwind on the revenue is significant compared to the second quarter of last year on a constant currency base, our organic growth rate compared to Q2 of 2021 was eight 9% in addition.
Even when compared to the previous quarter of this year on a constant currency basis. Our revenue in Q2 would have been $3 3 million high.
Higher than the reported one reaching $121 9 million.
Our revenue in North America amounted to $48 2 million.
3% higher than Q2 of 2021.
<unk> 0.8 million lower compared to Q1 of 2020 group, mainly due to the time to close new logos.
Our European revenue amounted to $59 9 million.
The same level of Q2 of last year.
The impact of the <unk>.
Weaknesses in European currencies versus the USA dollar was material to our European revenues.
On a constant currency basis compared to Q2 revenue.
Revenue was higher by $6 7 million, reaching $66 6 million, reflecting growth rate of 11, 5%.
This demonstrates our strong performance in the region.
Revenue from rest of World, which includes South Africa, and APAC grew 23, 8% to $10 6 million in Q2 of 2022.
Compared to the same quarter of last year, mainly from P&C deals in South Africa.
Gross profit in Q2 of 2022 was $53 2 million.
Up from $51 7 million in Q2 of last year.
An increase of two 9%.
Our gross margin this quarter was 44, 9% at the same level of Q2 of 2021.
We were able to maintain our gross margin percentage, despite the currency headwind and the increase of labor cost.
Operating profit this quarter increased to $20 7 million.
Up four 8% from $19 8 million in Q2 of 2021.
Operating margin amounted to 17, 5% this quarter.
30 basis points higher compared to 17, 2% in the second quarter of last year on a constant currency basis compared to Q1 of this year, our operating profit margin amounted to 17, 8%.
Showing continued improvement quarter over quarter.
This quarter, we celebrated our India operation passing the milestone of 2000 employees and we continue our investment to grow it even further.
We experienced a low attrition rate and even being able to increase those stuff at an accelerated pace in the region compared to the last few months. This factor is a crucial element to continuously improving our profit margin interest expenses in Q2 of 2022 amounted to $2 5 million.
Sort of 0.7 million debenture into.
And the remaining of one $8 million of expenses, which were mainly due to hedging transaction expenses.
Compared to hedging income open average of about $1 million on each of the last three quarters.
Net income attributable to stop N shareholders for the quarter amounted to $15 million compared to $16 million in Q2 of 2021.
EPS for the quarter amounted to 27 cents per diluted share compared to 29 cents per diluted share in the second quarter of last year.
It's like Jack discussed the low net income and EPS is due to higher interest expenses in the quarter.
EBITDA increased by three 6% to $21 7 million in the second quarter of 2022.
Adjusted EBITA margin amounted to 18, 3%.
Turning to our balance sheet as of June 32022, we had cash and cash equivalents and short term deposits totaling 176 million and total debt of $80 million.
Which will mature in four equal annual trenches until January 2026.
During the second quarter of 2022, we generated adjusted free cash flow of $4 2 million.
The lower free cash flow in the quarter is mainly due to the following reason.
Low net operating profit.
Bonus payments with regards to 2021 result.
Timing of contractual payments milestone as well as deferred payments paid by our customary in previous quarter, which were recognized as they are.
Revenue this quarter in June essence, B global right in my notes.
It's up in series B debenture waiting for Israel, eight plus with a stable outlook too.
<unk>, Israel double a minus with a stable outlook on a local scale.
The rating upgrade represent another vote of confidence in sapiens business model and strategy.
Following our recently introduced dividend policy to distribute dividend all semi annual basis, our board of directors declared a dividend of 23 cents per share.
Electing a total dividend of $12 7 million for the first six months of 2022. The ex dividend date is August 16, 2022, and the dividend will be paid on August 32022.
I would like to turn now to our guidance for 2022.
Our revenue guidance considers the two main items one the.
The impact of foreign exchange headwinds and two the timing of the significant deal in Europe , which we have previously discussed.
With regards to FX turbulence.
Witnessing a significant weakness of all European currencies versus the USA Golar, which begin at the end of last year and has been continuously detail you'll rating ever since.
The impact on our yearly revenue guidance from the previous guidance in May of this year amounts to 8 million.
With regards to the anticipated European significant transaction, which is still underway as we actively continue deep discussion based on the only update we decided to reduce the focus at revenue level until the end of the year.
The impact on our guidance it was two 7 million.
As a result, we are updating our revenue guidance from a range of 495 to 500 million to a new range of wallet and 82 $485 million.
We anticipate that Q3 will be the same level of Q2 of this year we.
We still have an additional $10 million of go get revenue for new logos that will need to materialize in H two.
We are confident that we can achieve this revenue due to the advanced stage with multiply prospects, where the commercial terms have been agreed upon and we are in the contracting phase and additional opportunities with customers paying us buyers who contract finalization to start the work.
In addition, because of our business model, we can offset new logos opportunity with additional revenue from existing customers their existing lease.
Global macroeconomic condition.
Rory from today, which will impact our revenue guidance accordingly.
Moving to operational margin guidance.
We are revising our profit margin guidance upwards from a range of $17 four to 17, 6% to a range of $17 five to 17, 7%.
The main reason of improving profitability, despite the currency headwind and the higher labor cost is mainly our offshore strategic cooperation with supports happens across the board, including delivery R&D and corporate expenses to emphasize during the last year, we have made tremendous progress in India in Q.
Two of 2021 with 1500 33 employees and today, we have 2153 employees.
One form of total offshore ratio.
45, 3% to 49, 7%.
As mentioned earlier the currency headwind is significant I would like to update you on a constant currency basis for the full year of 2022.
The your British pound, Dennis corn, Swedish krona and Israeli shekel.
If all weekend versus the USA dollar between 10% to 13% since the fourth quarter of 2021.
50% of SAP and so revenues are derived from European countries and therefore, the impact on the revenue level was significant.
Oh, usually revenue from the European region is expected to be $240 million, therefore on a constant currency basis.
We would have had an additional $27 million.
I'll deal with Premier agent.
So once we built into our mid range revenue as a result, the total revenue for the year would have amounted to a mid range of $575 million.
These represent nine 5% globally on a constant currency basis in line with our long term business model.
On the profit margin.
The Indian rupee, Polish zloty, which our main offshore region as well.
Well as the Israeli shekel, which also support our global operation is more cost than revenue in the local currency market.
Therefore, when all currency weakened versus the USA dollar where natural partial hedge resulting in an impact of one 1% Oh no margin.
To summarize on a constant currency basis, we are guiding nine 5% revenue growth with operational profit margin of 18, 7%.
This emphasizes one of our biggest strength.
Continuing to grow while improving our profit.
We did.
I'm turning it over to Ronnie.
Thank you Tony we have a strong pipeline last customer base. This is mature for expansion and vast geographic presence I would like to emphasize our strengths in our business model one balancing between Boston proceeds.
Let's mitigation due to numerous geographic operations across the world.
Sorry.
<unk> core offering and many business application full we have a direct and long lasting relationship with our customer.
Life more than 85% of our business is driven by existing customer and seeks solid and strong balance sheet.
I think the market is facing microeconomic challenges with sapiens viewed this as an opportunity in several areas.
Improvement in the field of <unk> and the retention of talent lower M&A valuations and more.
I am proud of our global team and their ongoing commitment to achieving our goals, we remain committed to executing our strategy to deliver the growth and improve shareholder value.
Operator, we are ready to open the call for Q&A.
Thank you.
Ladies and gentlemen at this time, we will begin the question and answer session.
A question. Please press star one if you wish to cancel your request please press star two.
Using speaker equipment time, we lift the handset before pressing the numbers.
Ask your question in a loud and clear. Your question is will be pulled in the order. They are received please stand by while we poll for your questions. The first question is from Surinder <unk> of Jefferies. Please go ahead.
Thank you.
I'd like to start with.
Our conversation around.
The conversations that you were actually having with clients in terms of can you talk a little bit about.
The impact in terms of the deals being pushed out.
How should we really think about where clients are in that in that part of their journey.
Versus where they were three months ago, and where they're sort of trending how much risk is there that we should think about this I understand the long term.
<unk> is still going to be there but.
How should we think about the nearer term.
Hi, This is roni al Dor.
Is there just too.
So shall we see always solar fuel.
Yeah, we work with this client for a longer journey is starting the blueprint as I mentioned entering to a new country, we say another blueprint.
And the symptoms was very very very close to close the deals.
And then and that it was the reorganization in D. C. In these clients.
And right now we believe this adjusted measure of time, a new hope everybody in holiday in this time. So we believe in some tenda the new new people can start to talk with US and then and only then it will be more clear when we will continue.
And what will be the size of the deal.
Just would like to update that in terms of the guidance. We took out the revenue from these customers until the end of the deal.
Understood.
And then more broadly in terms of.
The clients.
<unk>.
What is the source of the.
What I would call pushing out of the contract negotiation I understand that the macro concerns.
But if they need these solutions is it a matter of being comfortable with their budgets do they need better visibility into the macro environment, meaning it's we're thinking they want to wait six months for them.
It should be more comfortable about where the environment is going how should we think about the big picture and the broader conversations with the remainder of your clients.
I don't think the issue is the budget and the microeconomic I think these clients is they're big enough and made the decision and the only question is there.
Is there you know wind changes people wants to understand we've pulled a signing.
These types of deals and maybe change of priority and this is the we call. It multi products include our life and P&C reinsurance decision Charles not decision led to a digital data and so on so it's more about priority also play only T between.
There's a difference.
Defense area and so on so I don't think the challenge is the budget.
Understood. So I apologize I'll clarify my question. The second question that I asked was more about other clients.
And Terry that deals are being pushed out and so it's a question of what will get the clients to sign those deals to they need better visibility and so does that mean, we're waiting three months were waiting six months, how long do you how does that work.
In the pipeline that we have today.
Yeah.
Let's call it the deal that we plan to signing this year.
I think there is two areas of challenges besides the microeconomic the challenge that we sapiens is growing and they have more product and more solution.
And we are going towards the higher tiers.
Each contract has become more complicated because it includes the suite of products include the cloud services for sometimes 3567 years. So the complex of the deals have become big and bigger it will still take time.
That's one second as I shall we say thank all of you we shared with you that the way that we we are going to all of these deals after they select us.
Before we are signing the entire contract we entered to a blueprint phase. The blueprint is the time that we are doing design.
Getting older requirement and making sure that both sides understand the commitment and this is also take time and then we have the all the contract negotiation. So I think the.
Again in my view the majority maybe 80% of the delays coming not just because microeconomic is because the situation.
The deal sizes and they will take explain now that is the 20% I believe still microeconomic people are thinking.
And this is sometimes there are multifold.
Just on the LC tuition, but in our case.
At this moment I think the small the 80% that's a shame.
So then if I need to add additional comment I think on you mentioned we are talking about this is the core system solution. After a very long sales cycle.
The prospects are very engaged with us and even recently paying us in the meantime, we call. It mobilization before the contract signed so this is another evidence that we'd like to continue with that.
Yes, there is still a risk that you mentioned.
About the macroeconomics that can change a change in decision I think we mentioned this earlier about $10 million level, which is right now.
Glen.
Understood and then one final quick question about just acquisitions it sounds like the private markets.
Are starting to reset expectations.
Any color there you talked about.
Your deal pipeline Youre looking at potentially deals now, but valuations aren't quite at the level you would like them to be how much of a gap is there at this point.
Hi, This is oney, so as we start to see and not to the full degree evaluation squeezing down.
We are building a pipeline right now we are talking with potential prospect by the way globally.
But I must say that the public market the people, who decided about valuation is the public and if we're talking about private ones utilities, the owner and there is more difficult to downgrade the devaluation from he sells so we see start of evaluation not significantly.
We are building the pipeline.
Thank you.
The next question is from.
Dylan Becker of William.
The next question is from my tendon.
Of need him.
Please go ahead.
Thank you.
Ronnie and Ronnie Congrats on the strength at least on a constant currency basis totally understand the FX issues.
My question really is more on the supply side given that you do have such a strong services.
Segment, how are you coping with the wage inflation pressures that.
Many companies are dealing with and how are you able to manage the impact on margins.
And this is the only.
So obviously, we have a compensation review every year.
We did the this year something which we are different from previous year, we did it twice already.
Focusing on the key people that is most of our super sales.
Making sure that the one that we cannot do the salary increase is promoting them to another level, giving them another opportunity Avenue of growth in the company and being able to maintain in the company.
The pressure is still there I think it will continue there also will be shift to customer we have been able to shift this slightly to a customer but not the full degree.
So this is the way that we are handling the site no.
In Germany.
Understood and then just staying on the same team if.
Let's say the.
Economic climate does worsen and there is an impact on the pipeline and the pace of deal conversions.
What levers do you have to manage the profitability and ensure.
Your margins and earnings are still are well protected.
So obviously when the company only or basically you started this process we are.
Carefully monitoring the potential deal that we need to sign until the end of the year and how we build the team to support this with several opportunities supported some R&D support for.
On the monitor in the recruitment more carefully to making sure that we have the deal and then are equal to men.
Focusing on the area or incorporate that are flexible expenses that we can monitor.
So obviously we are looking at these.
Got it thanks, so much.
Thank you Ryan.
The next question is from Dylan Becker of William Blair.
William Blair. Please go ahead.
Hey, guys. Good morning, Thanks for taking the question.
Maybe wanted to start out in a different way of kind of asking the macro dynamics to here. So you guys emphasize a lot on recurring projects with that existing customer base as.
As you think about your current pipeline activity and what you are seeing have you noticed any change in cadence or pace of discussion relative to the net new customer acquisition versus.
The ongoing projects.
Existing customer base, whether that's blueprinting are starting now actual implementation because effectively our.
The existing more willing to continue to progress and Youre seeing a little bit more hesitation from the net new is that hesitation from both sides I guess any sense of the dynamic between the customer segments would be helpful.
I did and this is oney.
Yeah.
Our business model is basically say build strongly although existing custody away of about 85% to 88% of our revenue.
Revenue coming from customer that's been with US we have a relationship with them, we know what they need and we are supporting the ecosystem in the lifecycle of the business, we do not see any change today for them.
Those customers.
We are continuing to engage and as we mentioned earlier potentially this is also ability to compensate for the delay in new deals to come.
Okay very helpful.
And then I guess, maybe too as we talked about sounds like a lot of strength in our lifestyle and then obviously in Europe with P&C as well.
Can you talk about the benefit maybe of the conversations with the customers you guys have talked about growing full suite emphasis in the past, but how much does that <unk>.
Globalization or the cross line of business kind of capability play in here effectively our companies may be looking to standardize systems. If they have both life and P&C businesses does it come up as a driver of adoption.
Especially maybe in some of your newer markets, where you do have an existing life relationship that can serve as a wedge to to sell more P&C vice versa. I guess does that come into play to any extent and the cross sell dynamics you guys are seeing.
Yes.
And then Alex can continue first of all about your previous question about the existing only give the answer but I would like to again.
Again about the new deals we.
Sapiens.
We believe that in order to grow we can continue and do a lot of work with our existing customer and generating cross sell upsell additional services additional product.
And the huge investment that we are doing in our product also coming with you really generate more demand for <unk> and so on but.
But we have it.
Relatively big organization, they'll wake up in the morning, and then looking after the new deals.
I think I mentioned that we a lot of marketing activity a lot of.
A lot of faith says presale sales support all of these.
And in the old.
All them head that we're getting from the analyst.
There is many analyst I'll, just say the customers and calling them and asking them who has the best vendor with this area and they are sending declined to us.
The new type of business is part of <unk>, and we see it and it's growing.
Definitely I mean, the area that we have.
Good blend so thats one on sale day about the life P&C that you asked we have more and more.
See advantage of sapiens. So this is something unique in sapiens versus our competitors.
These two main call system life, and P&C and we have all the other component digital and so on so we are at least every is a one or two hopefully more clients that we have cross sell upsell cross sell between two of them and we are also clients new clients does see the advantage that.
We have two product.
So again, but it depends on the territory it depends on the area.
Got it one last one if I may too we've talked about I think a little bit of the offshoring dynamics as well as kind of a little bit of potential margin installation, but how do you think about.
That gradual mix shift sounds like a lot more of the new deals are kind of moving to the cloud I think we've talked about.
You mentioned as well, adding some some new partnerships to focus on the implementation side.
Going forward in some instances as well, but how do you think about the gradual mix shift in the business as well, but essentially providing an uplift on the on the margin front over time as well and maybe when that could start to play into the model as well. Thank you.
I always start with the.
They are actually from the revenue and the margin and maybe Alex will also talk about the.
The sudden the cloud solution.
Obviously.
I would say in the last two years right. Now we are most of the deal pretty much all of them more than 90% today of.
Being on the cloud this provide us additional revenue lever that we didn't have in the past for example, the infrastructure do you want AWS, Microsoft Azure and to support this with the number two.
The margin level on the tier one is very small because basically this is an infrastructure from a service quality.
But the margin on the second deal is significant.
LLS is very similar to our ongoing business.
So mix of them.
So both the revenue and I'm sure that it can continue further Alex.
Thanks, Toni. So this is Alex just to complete the ammonia as mentioned the majority of our business.
And in the cloud with full managed services cloud services.
Plenty of them that increases the not only the revenue, but also the stickiness and the closeness with the with the customers.
Top of what he said about the <unk>.
Providing the first two layers of the cloud services, which are the technical hosting.
And the technical services around the cloud that we provide today as part of our cloud services and we are in the process of building also the application support into the cloud services, and thus providing 100% of full cloud services full outsource to us to our customers and this would be.
Definitely another level of our revenue.
The type of it is long term sticky and in fixed across the long term.
And our plans to add to our cloud services.
Got it thank you guys for answering the questions.
Okay.
The next question is from Tavy Rosner of Barclays. Please go ahead.
Hi, This is Chris Reimer on for Katy.
Thank you for taking my questions actually most of my question has been.
Asked already.
Wanted to clarify regarding the year end guidance, you mentioned $7 million.
Due to just one European deal correct, just the one deal.
Yes, we are.
Talking about this opportunity in the open market tier one customer a multi country multi product.
Currently in our guidance, although a continued discussion with the customer deep engagement.
Our revenue in the guidance.
But that doesn't include any other.
Deals that werent.
Also been delayed.
We have as already mentioned earlier, we have the existing and on top of that a significant pipeline all of that is the support and the rest of the revenue.
And because <unk> mentioned this does longer deal cycles because of the macro and also the deal sizes should we be assuming that sales cycles will be longer.
For the near term.
I think the only mentioned that right now on the deals that we are doing we are adding additional.
Services managed services component.
Making the deal volume <unk> and therefore, the sales cycle long ago. This is something that we are hoping to continue because it will provide significant value to the company.
Okay got it.
That's it for me thank you.
Thank you thank.
Thank you.
If there are any additional questions. Please press star one if you wish to cancel your request. Please press star two.
Please stand by while we poll for more questions.
There are no further questions at this time.
I ask Mr. Hallett, though 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 two hours in the U S. Please call one 888 to 69000 site in Israel. Please call zero 390 55938.
Internationally. Please call 970, 239 to 55938, Mr. Al Dor would you like to make your concluding statement, yes for sure.
Thank you for all of you that joined.
Joining us today, we welcome any follow on questions feel free to reach out.
Denying roni.
Thank you for today.
Yeah.
No.
Thank you. This concludes the sapiens International Corporation second quarter 2022 results Conference call. Thank you for your participation you May go ahead and disconnect.
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