Q2 2024 Sapiens International Corp NV Earnings Call
Speaker Change: Ladies and gentlemen, thank you for standing by. Welcome to the Sapiens International Corporation's second quarter 2024 financial results conference call.
Operator: Welcome to the Sapiens International Corporation, 2nd quarter, 2024 financial results conference call. Sapiens issued a press release before the market opened this morning, and it has been posted on the company's website at www.sapiens.com. All participants are presently in a listen-only mode. Following management's formal presentation, instructions will be given for the question-and-answer session.
Operator: All participants are presently in a listen-only mode. Following management's formal presentation, instructions will be given for the question and answer session. I would now like to hand the call to Ms. Yaffa Cohen, Sapiens' Chief Marketing Officer and Head of Investor Relations. Yaffa, would you like to begin?
Yaffa Cohen: I would now like to hand the call to Ms. Yaffa Cohen, Sapiens' Chief Marketing Officer and head of Investor Relations.
Yaffa Cohen: I would now like to hand the call to Ms. Yaffa Cohen, Sapiens Chief Marketing Officer.
Yaffa Cohen: Yaffa, would you like to begin?
Yaffa Cohen: Thank you, Operator. I would like to welcome all of you to Sapiens conference call to review our 2nd quarter, 2024 results. With me on the call today, our Mr. Roni Azor, President and CEO, Mr. Roni Giladi, our CEO, and Mr. Alex Zukerman, Chief Strategy Officer.
Yaffa Cohen: Yaffa, would you like to begin?
Yaffa Cohen: Thank you, Operator. I would like to welcome all of you to Sapiens Conference Call to review our second quarter 2024 results.
Yaffa Cohen: With me on the call today are Mr. Roni Al Dorr, President and CEO; Mr. Roni Giladi, our CFO; and Mr. Alex Zukerman, Chief Strategy Officer. Following the summary of the results, we will 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. 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.
Yaffa Cohen: Following the summary of the results, we will 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 expressing disclaim, 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.
Yaffa Cohen: 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.
Yaffa Cohen: 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.
Yaffa Cohen: On today's call, we will refer to non-GAAP financial measures. A reconciliation of GAAP to non-GAAP results has been provided in our press release issued before the market opened this morning.
Yaffa Cohen: On today's call, we will refer to non-GAAP financial measures. A reconciliation of GAAP to non-GAAP results has been provided in our press release issue before the market opened this morning.
Yaffa Cohen: 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.
Yaffa Cohen: 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 earning release we published today.
Roni Azor: I will turn the call over to Roni Azor, President and CEO of Sapiens.
I will turn the call over to Roni Aldor, President and CEO of Sapiens. Roni? Thank you, Yaffa. Thank you for joining us today. Let's start by reviewing the second quarter results.
Roni Azor: Roni?
Roni Al: Thank you, Yaffa. Thank you for joining us today. Let's start by reviewing the second quarter results. This quarter showcased solid execution, with North America delivering double-digit growth and Europe delivering mid-single-digit growth. The platform represents the next generation of our insurance solutions and uses AI to help our customers drive growth and efficiency. It incorporates digital engagement, data intelligence, and core business process solutions with machine learning and JAI capabilities. Designed to help insurers seamlessly innovate their offering and processes, the Plateau enables them to stay competitive in a dynamic market with intelligent, data-driven business decisions and hyper-automation of business processes.
Roni Azor: Thank you, Alpha. Thank you for joining us today. Let's start by reviewing the 2nd quarter results. Revenue totaled $137 million, marking a 6.6% increase compared to last year, while operating profit reached $25 million, representing 18.2% of total revenue. This quarter showcased solid execution, with North America deliver double digit growth and Europe delivering mid-single digit growth. Our profitability performance was notable this quarter with an operating margin in the target range and a 13% growth in net income.
Speaker Change: Revenue total $137 million, marking a 6.6% increase compared to last year, while operating profit reached $25 million.
Yaffa Cohen: representing 18.2% of total revenue.
Speaker Change: This quarter showcased solid execution with North America delivering double-digit growth and Europe delivering mid-single-digit growth.
Speaker Change: Our profitability performance was notable this quarter with an operating margin in the target range and a 13% growth in net income.
Roni Azor: Before I discuss the business details, I would like to remind everyone of our 2024 priorities. The first is to transition our solution to such model with Sapiens Insurance platform and the second is to leverage our investment to drive performance in all of our key regions. Let me explain how we are doing this, starting with Sapiens Insurance platform. The second is to leverage our investment to drive performance in all of our key regions. Sapiens' recent collaboration with Microsoft and accelerate the use of AI in our platform, enanting it with advanced Gen-AI capabilities and providing tailored unique solutions.
Speaker Change: Before I discuss the business details, I would like to remind everyone of our 2024 priorities.
Speaker Change: The first is to transition our solution to SaaS model with Sapiens Insurance Platform. And the second is to leverage our investment to drive performance in all of our key regions.
Speaker Change: Let me explain how we are doing this.
Speaker Change: Starting with Sapiens Insurance Platform.
Speaker Change: Sapiens' recent collaboration with Microsoft can accelerate the use of AI in our platform, enhancing it with advanced Gen-AI capabilities and providing tailored, unique solutions.
Roni Azor: I am happy to share that we are successful launch our intelligence insurance platform in the second quarter, the significant and exciting milestone for Sapiens. The platform represents the next generation of our insurance solutions and uses AI to help our customers drive growth and efficiency. It incorporates digital engagement, data intelligent, and core business process solution with machine learning and J.I. capabilities. Designed to help insurers seamlessly innovate their offering and process, the platform enables them to stay competitive in a dynamic market with intelligent data-driven business decision and hyper automation of business process. For our customers, the platforms pre-integrated design insurers, record deployment and seamless implementation, accelerating growth by supporting end-to-end insurance process across all lines of businesses.
Speaker Change: I'm happy to share that we have successfully launched our Intelligent Insurance Platform in the second quarter, a significant and exciting milestone for Sapiens.
Speaker Change: The platform represents the next generation of our insurance solutions and uses AI to help our customers drive growth and efficiency.
Speaker Change: It incorporates digital engagement, data intelligence, and core business process solutions with machine learning and JAI capabilities.
Roni Al: For our customers, the platform's pre-integrated design ensures rapid deployment and seamless implementation, accelerating growth by supporting end-to-end insurance processes across all lines of business. In North America, our strategic investment in research and development, product innovation, and employees, together with our new partnership with System Integrator, have created a robust, effective platform to support our ambitious goals in this region. Customers can acquire life insurance policies with point-of-sale decisions and manage their policies throughout an innovative customer portal, providing an enhancement first-of-its-kind experience in this region. Also, this quarter, PEN America Life Insurance Group, PENIG, went live with Sapiens Illustration Pro Solution on Microsoft Azure Cloud. Sapiens empowers Pelig to consolidate its enterprise illustration standards, streamline processes, and extend product offerings.
Speaker Change: For our customers, the platform's pre-integrated design ensures rapid deployment and seamless implementation, accelerating growth by supporting end-to-end insurance process across all lines of business.
Roni Azor: The platform is delivered throughout start-to-creation model with smooth build structure and price accordingly, pivoting now to our second priority for 2024. Let me highlight how we leverage our investment in all of our key regions to drive the performance. In North America, our strategic investment in research and development, product innovation and employees, together with our new partnership with Silicon Integrator, have created a robust effective platform to support our ambitious goals in this region. The positive momentum in the life business continues. In the second quarter, we sign a new platform build with a leading life, accident, and health insurance company.
Speaker Change: Pivoting now to our second priority for 2024. Let me highlight how we leverage our investment in all of our key regions to drive the performance.
Speaker Change: In North America, our strategic investment in research and development, product innovation and employees, together with our new partnership with System Integrator, have created a robust, effective platform to support our ambitious goals in this region.
Speaker Change: The positive momentum in the life business continues. In the second quarter we signed a new platform deal with a leading life accident and health insurance company.
Roni Azor: The insurance carrier selected the second platform for life to modernize its platform, expand its TPA services, and enable it to scale quickly as it enters the new market. The platform also enables the insurance to implement its long-term care insurance specialty. We are pleased to deliver the end-to-end solution the carrier was looking for and to accommodate its long-term care market needs. Additionally, our life solution had several North America goal-life in the quarter, including course with illustration pool underwriting pool, and we continue to progress with customer upgrades. One of the goal-life that we would like to highlight is the public life insurance.
Speaker Change: The insurance carrier selected the Sapiens platform for life to modernize its platform, expand its TPA services, and enable it to scale quickly as it enters the new market.
Speaker Change: The platform also enables the insurance to implement its long-term care insurance specialty.
Speaker Change: We are pleased to deliver the end-to-end solution the carrier was looking for and to accommodate its long-term care market needs.
Speaker Change: Additionally, our live solution had several North America Go Live in the quarter, including Call Suite, Illustration Pro, Underwriting Pro, and we continue to progress with customer upgrades.
Speaker Change: One of the goal lines that we would like to highlight is the public life insurance.
Roni Azor: This is a Caribbean third-digital direct-to-consumer insurance made possible by SAP and SPORCY for lack of an annuity and second-digit and suite deployed on Microsoft Azure Cloud. Customer can acquire life insurance policies with point-of-set decision and manage their policies without innovating customer portal, providing an announcement first of its kind experience in this region. Also, this quarter, Ken America, Life Insurance Group, Pellig went back with Sapiens Illustration Pro, Satsurvation, or Microsoft Azure Cloud. Sapiens empower Pellig to consolidate its enterprise illustration standard, streamlined process, and extent product offering. After extensive competitive analysis, Pellig selected Sapiens to consolidate illustration and single platform, and enable their insurance with a faster time to market within North America market, et cetera.
Speaker Change: This is a Caribbean Fair Digital Direct-to-Consumer insurer made possible by Sapiens Core Suite for Life and Annuity and Sapiens Digital Suite deployed on Microsoft Azure Cloud.
Speaker Change: Customer can acquire life insurance policies with point-of-sale decision and manage their policies throughout an innovating customer portal, providing an enhancement first-of-its-kind experience in this region.
Speaker Change: Also, this quarter, PEN America Life Insurance Group, PENIG, went live with Sapiens Illustration Pro Solution on Microsoft Azure Cloud.
Speaker Change: Sapiens empowers Pelig to consolidate its enterprise illustration standards, streamline process, and extend product offerings.
Roni Azor: Second illustration Pro will accelerate and streamline process, providing an exceptional user and agent experience. In property in casualty, several North America projects went like this quarter, and we are progressing with customer upgrade. We continue to invest in our core suite for MPL solution to promote growth innovation in the medical professional liability industry. By extending and augmenting our MPL capability and product for policy administration, finance, claims, and risk management, and seamless integration with value-added vendor solution, Sapiens meets the needs of MPL insurers in the rapidly consolidating MPL market. We are proud of our leadership in the MPL ecosystem and are committed to this market.
Alex Zukerman: In Poverty and Casualty, several North America projects went live this quarter, and we are progressing with customer upgrade. We continue to invest in our core suite for MPL solutions to promote growth innovation in the medical professional liability industry. By extending and augmenting our MPL capability and product for policy administration, finance, claims, and risk management, and seamless integration with value-added vendor solutions, Sapiens meets the needs of MPL insurers in the rapidly consolidating MPL market.
Speaker Change: In poverty and casualty, several North America projects went live this quarter, and we are progressing with customer upgrades.
Speaker Change: We continue to invest in our core suite for NPL solutions to promote growth, innovation in the medical professional liability industry by expanding and augmenting our NPL capability and products for policy administration, finance, claims and risk management.
Speaker Change: and Seamless Integration with Value-Added Vendor Solution, Sapiens meets the needs of NPL insurers in the rapidly consolidation NPL market.
Alex Zukerman: We are proud of our leadership in the NPL ecosystem and are committed to this market. Our advanced solutions unburden insurers from complex business problems and enable business users to take control of the process. We created synergy between those two worlds, giving NPL insurers a clean bill of health to empower them to succeed. Our worker compensation team made significant progress during the second quarter and implemented the three projects signed in 2023.
Speaker Change: We are proud of our leadership in the NPL ecosystem and are committed to this market. Our advanced solutions unburden insurers from complex business problems and enable business users to take control of the process.
Roni Azor: Our advanced solution unburdened insurers from complex business problems and have a business user to take control of the process. We create a synergy between those two worlds, giving MPL insurers a clean bill of health to empower them to succeed.
Speaker Change: We create a synergy between those two worlds, giving NPL insurers a clean bill of health to empower them to succeed.
Roni Azor: Our local competition team has made significant progress during the second quarter in the implemented three projects in 2023. As mentioned in our previous call, we see this market as a significant opportunity for Sapiens in the US and Canada in the years to come.
Speaker Change: As mentioned in our previous call, we see this market as a significant opportunity for Sapiens in the U.S. and Canada in the years to come.
Roni Azor: Moving to EMEA and rest of the world. We had a few successful goal-life with our reduced suite, tier suite, skip suite, and rent insurance matter with quarter. I would like to highlight one of the largest, most complex, PINC goal-life with Bangkok Insurance BKI, a living insurer in Thailand. BKI went live with certain property in casualty platform, including reduced suite for PINC, rent insurance matter, and second data suite. We were chosen for our integration capability into end solution and proven ability to meet regional regulations. Overall, we see continuous demand in the market for our PINC platform solution.
Speaker Change: Moving to EMEA and the rest of the world. We had a few successful go-live with our EDIT suite, TS suite, SKIP suite, and RENTUANCE master this quarter.
Roni Al: I would like to highlight one of the largest, most complex twin-seat gold lies with Bangkok Insurance BKI, a leading insurer in Thailand. We were chosen for our integration capability, end-to-end solution, and proven ability to meet regional regulations. Insurance in the EMEA region wants the ability to roll out platforms in multiple countries, which may have different languages, currencies, and regulations.
Speaker Change: I would like to highlight one of the largest, most complex, principle goal lies with Bangkok Insurance BKI, a leading insurer in Thailand.
Speaker Change: We were chosen for our integration capability, end-to-end solution, and proven ability to meet regional regulations.
Speaker Change: Overall, we see continuous demand in the market for our PNC platform solution.
Roni Azor: AI is becoming a focus point in this market with its generative AI model. The second insurance platform can support the insurance value chain to provide customers in this region with a higher effectiveness and support achievements. We see an appetite for an insurance platform as we are offering the course all solution line and tiers. The majority of our new business needs are now such platform-based. As we said in our previous call, digital over legacy is also theme for Sapiens in the e-mail region. This particular effect is for smaller cares and tier organizations. Insurance in the e-mail region won the ability to roll out cloud 4 in multiple countries, which may have different languages, currencies, and regulations. This global footprint Sapiens has built this capability into each offering and is uniquely positioned to support clients in successful multi-country implementation.
Speaker Change: We see an appetite for an insurance platform as an offering across all solution lines and tiers. The majority of our new business leads are now SaaS platform based.
Speaker Change: As we said in our previous call, digital over legacy is also a theme for Sapiens in the EMEA region. This is particularly effective for smaller carriers and peer organizations.
Alex Zukerman: With its global footprint, Sapiens has built this capability into its offering and is uniquely positioned to support clients in successful multi-country implementation. This capability is an important differentiator for us in EMEA. In the reinsurance space, we also see a growing interest for platforms across EMEA, APAC, and North America to enable capacity and manage solvency as a business loop to grow and diversify. Driven by the reassessment of natural catastrophe risk due to climate change and a recent surge in inflation rates, which elevate risk liability.
Roni Azor: This capability is an important differentiator for us in e-mail. In case demand we have seen for our PINC platform in a various region, including Europe, South Africa and APAC, is reflected in our growth for our partner in this market. In the lack in pension space, demand is growing across e-mail and APAC, which includes appetite for more business automation and AI-enabled solutions to drive new business to market and improve services. We are seeing business channels wider to retail, white labeling, specialty for bankers' wars. We are seeing large life and pension players looking at platform transformation in group and individual investment, pension and immunity, in addition to protection in the simpler line of business such as terminals.
Speaker Change: The increased demand we have seen for our PNC platform in various regions, including Europe , South Africa and APAC, is reflected in our growth for our pipeline in this market.
Speaker Change: In the life and pension space, demand is growing across email networks.
Roni Azor: Those trends are reflected in the strengthening of our pipeline for our life and pension platform across Europe, South Africa, and APAC. In the range on space, we also see a growing interest for platforms across e-mail, and APAC is North America to enable capacity and manage solvency as a business look to grow and diversify. In short phase, growing pressure to increase capital to sustain their operations, driven by reassessment of natural catastrophe risk due to climate change and recent surge in inflation rates, which elevate risk liability. Accordingly, the demand for rain chowers is on the rise, creating a favorable market for rain chowers.
Speaker Change: Accordingly, the demand for reinsurers is on the rise, creating a favorable market for reinsurers.
Roni Azor: The current trends we see in the range on the market are in the increase of rain chowers rate and costs for rain chowers and strict underwriting terms and conditions in rain chowers contract. In chowers, mass compliance with the rain chowers requirement and therefore mass adapt and fine-tune their underrated guidelines and practices. Second, rain chowers solution enable rain chowers to automate and manage end-to-end programs covering both seeded and assumed. Second is the world-leading software vendor for rain chowers, with over 100 customers using our rain chowers solutions.
Alex Zukerman: The current trends we see in the reinsurance market are an increase in reinsurance rates and cost for reinsurers and strict underwriting terms and conditions in reinsurance contracts. 14 in North America, 4 in Europe, and 2 in APAC.
Speaker Change: The current trends we see in the reinsurance market are in the increase of reinsurance rate and cost for reinsurers and strict underwriting terms and conditions in reinsurance contracts.
Speaker Change: Insurers must comply with their insurance requirements and therefore must adapt and fine-tune their underwriting guidelines and practices.
Roni Azor: Moving to our marketing activity, the second quarter is typically our wind season, and this quarter will participate in 20 trade shows globally. 14 in North America, 4 in Europe, and 2 in April. We are encouraged by the feedback received from traditional participants and the potential new businesses' needs that will generate.
Speaker Change: Moving to our marketing activity, the second quarter is typically our event season. In this quarter we participate in 20 trade shows globally, 14 in North America, 4 in Europe , and 2 in APAC.
Speaker Change: We are encouraged by the feedback we received from Threadshow participants and the potential new businesses leads that were generated.
Roni Azor: Our North America client summit is scheduled for September in Austin, Texas. We look forward to updating you on this exciting event at our next investor call.
Speaker Change: Our North America Client Summit is scheduled for September in Austin, Texas. We look forward to updating you on this exciting event at our next investor call.
Roni Azor: In conclusion, the second quarter demonstrates strong financial and operating performance marked by solid revenue growth and profitability. We are effectively executing our 2024 priorities, including transitioning to SaaS model with Seconds insurance platform and leveraging our investment across key regions. Our success in North America, our positive momentum in our life, pension and a new T-line of business, and our ongoing innovations in all of our product lines demonstrate our commitment to delivering innovative, comprehensive solutions globally.
Roni Al: In conclusion, the second quarter demonstrates strong financial and operating performance marked by solid revenue growth and profitability. We are effectively executing our 2024 priorities, including transitioning to the SAAS model with the Secure Insurance Platform and leveraging our investment across key regions. Our success in North America, our positive momentum in our life, pension, and annuity line of business, and our ongoing innovations in all of our product lines demonstrate our commitment to deliver innovative, comprehensive solutions globally. Thank you, Roni.
Speaker Change: In conclusion, the second quarter demonstrates strong financial and operating performance marked by solid revenue growth and profitability.
Speaker Change: We are effectively executing our 2024 priorities, including transitioning to SAS model with Sapiens Insurance Platform and leveraging our investment across key regions.
Speaker Change: Our success in North America, our positive momentum in our life, pension and annuity line of business, and our ongoing innovations in all of our product lines demonstrate our commitment to deliver innovative, comprehensive solutions globally.
Roni Azor: Now I would like to turn the call to Roni Giladi. I will see for Roni.
Roni Giladi: Now I would like to turn the call to Roni Giladi, our CFO . Roni. Thank you, Roni. I will begin my commentary by reviewing the second quarter 2024 non-GAAP results, followed by comments on the balance sheet and cash flow. I will wrap up with our guidance for 2024.
Roni Giladi: Thank you, Roni. On a constant currency basis, our revenue grew by 7.1%, reaching total revenue of $138 million.
Roni Giladi: Revenue in the second quarter of 2024 was $137 million, an increase of 6.6% compared to $128 million in the second quarter of 2023. On a constant currency basis, our revenue grew by 7.1%, reaching total revenue of $138 million. Avenue Meek.
Roni Giladi: Revenue in the second quarter of 2024 was $137 million, an increase of 6.6% compared to $128 million in the second quarter of 2023.
Speaker Change: On a constant currency basis, our revenue grew by 7.1%, reaching total revenue of $138 million.
Roni Giladi: Error for Q2 of 2024 total $169 million, reflecting loss of 12.1% compared to Q2 of $20,000. We continue our journey of shifting revenue to subscription from recurring and non-recurring revenues. Revenue mix, revenue from recurring software product and real-care and post-production services totaled $98 million compared to $83 million in the same quarter of last year. A 15 million increase of 18.7% growth from Q2 of 2023, geographic breakdown, revenue in North America was $58 million compared to $52 million in the comparable quarter, an increase of $11.1% for $6 million. Revenue in Europe was $66 million, a year-over-year increase of 5%.
Speaker Change: Error for Q2 of 2024 total $169 million, reflecting growth of 12.1% compared to Q2 of 2023.
Speaker Change: We continue our journey of shifting revenue to subscription from recurring and non-recurring revenues.
Roni Giladi: Revenue from recurring software products and recurring post-production services totaled $98 million, compared to $83 million in the same quarter of last year, a 15 million increase or 18.7% growth from Q2 of 2023. Revenue in North America was $58 million compared to $52 million in the comparable quarter, an increase of 11.1%, or $6 million. Revenue in Europe was $66 billion, a year-over-year increase of 5%. On a constant currency basis, revenue in Europe grew by 6%, reaching $67 billion.
Ebony Meeks: Ebony Meeks
Ebony Meeks: Revenue from recurring software products and reoccurring post-production services totaled $98 million, compared to $83 million in the same quarter of last year.
Speaker Change: A 15 million increase or 18.7% growth from Q2 of 2023.
Speaker Change: Geographic, Bragado.
Speaker Change: Revenue in North America was $58 million, compared to $52 million in the comparable quarter, an increase of 11.1%, or $6 million.
Speaker Change: Revenue in Europe was $66 million, a year-over-year increase of 5%.
Roni Giladi: On a constant currency basis, revenue in Europe grew by 6%, reaching $67 million. Revenue in North Ford, which includes South African APEC, was $13 million, a decrease of $0.5 million, or $2 million increase compared to previous quarter. North margin this quarter was 45.7%, compared to 45.2% in Q2 of 2023, an increase of 50. This increase is steady improvement in the last several quarters and was mainly due to higher ratio of recurring and reoccurring revenue versus one-time revenue and increase in the offshore ratio by 1% to 52.2% from overall company. 1.2% of total revenue compared to $23 million and 18.2% in Q2 of 2023.
Speaker Change: On a constant currency basis, revenue in Europe grew by 6%, reaching $67 million.
Speaker Change: Revenue in the rest of the world, which includes South Africa and APAC, was $13 million, a decrease of $0.5 million, or $2 million increase compared to previous quarter.
Speaker Change: Gross margin this quarter was 45.7% compared to 45.2% in Q2 of 2023, an increase of 50 basis points.
Roni Giladi: This increase is a steady improvement in the last several quarters and was mainly due to a higher ratio of recurring and reoccurring revenue versus one-time revenue and an increase in the offshore ratio by 1% to 52.2% from the overall company. Profitability, Although gross margin improved, the operating margin remained at the same level due to a strategic decision to increase our sales and marketing investment to further accelerate growth into 2025 and beyond, as mentioned earlier this year, and Ilper Dei Lucet's share was $0.37 for the second quarter of 2024.
Speaker Change: This increase is steady improvement in the last several quarters and was mainly due to higher ratio of recurring and reoccurring revenue versus one-time revenue and increase in the offshore ratio by 1% to 52.2% from overall company.
Speaker Change: Profitability
Speaker Change: Operating profit and margin in the second quarter of 2024 was $25 million and 18.2% of total revenue.
Speaker Change: compared to $23 million and 18.2% in Q2 of 2023.
Roni Giladi: Although gross margin improved, the operating margin remained at the same level due to strategic decision to increase our sales and marketing investment to further accelerate growth into 2025 and beyond, as mentioned earlier this year. Net income attributed to Sapiens shareholders for the second quarter of 2024 was $21 million. Up, 13.1% from $19 million in Q2 of 2023. Any per day limited share was 37 cents for the second quarter of 2024. Up, 12% from 33 cents for the second quarter of 2023.
Speaker Change: Although gross margin improved, the operating margin remained at the same level, due to strategic decision to increase our sales and marketing investment to further accelerate growth into 2025 and beyond, as mentioned earlier this year.
Speaker Change: Net income attributed to Sapland shareholders for the second quarter of 2024 was $21 million, up 13.1% from $19 million in Q2 of 2023.
Speaker Change: And his per diluted share was $0.37 for the second quarter of 2024.
Roni Giladi: 12% from 33% for the second quarter of 2023, mainly due to the temporary time difference between revenue commission and payment milestone. Also, in this quarter, Maalot S&P Global, a part of the global rating firm Standard & Poor's Financial Services, has confirmed a long-term issue rating for Sapiens as AA-. The rating confirmation reflects the ongoing confidence of the market and experts in SAP. I will now turn the call back to Roni Aldo. Roni?
Speaker Change: Up 12% from $0.33 for the second quarter of 2023.
Roni Giladi: Turning to our balance sheet, as of June 30, 2024, with cash and cash equivalents and short and deposit totaling $186 million in debt of $40 million. On April 18, 2024, we paid a cash dividend of $16 million or $0.28 per share for the second half of 2023. Adjusted free cash flow for the second quarter of 2024 was $60 million compared to $20 million in Q2 of 2023. Mainly, due to terrible return difference between revenue cognition and payment milestone.
Speaker Change: Turning to our balance sheet, as of June 30th, 2024, we had cash and cash equivalent and short-term deposits totaling $186 million and debt of $40 million.
Speaker Change: On April 18, 2024, we paid cash dividend of $16 million or $0.28 per share for the second half of 2023.
Speaker Change: Adjusted free cash flow for the second quarter of 2024 was $6 million compared to $12 million in Q2 of 2023.
Speaker Change: Mainly, due to temporary time difference between heaven cognition and payment milestone.
Roni Giladi: Also, in this quarter, Mahalot S&P Global, a part of the global rating firm Standard and POOS Financial Services, has confirmed the long-term issue rating for Sapiens as WL-A-minus, which stable outlook, while also confirming the rating for Sapiens' irreventure as WL-A-minus. The rating confirmation reflects the ongoing confidence of the market and experts in Sapiens.
Speaker Change: Also in this quarter, Maalot S&P Global, a part of the global rating firm Standard & Poor's Financial Services, has confirmed a long-term issue rating for Sapiens as AA-.
Speaker Change: with stable outlook, while also confirming the rating for Sapiens Series B debenture as AA-.
Speaker Change: The rating confirmation reflects the ongoing confidence of the market and experts in Sapiens.
Roni Giladi: Moving to our guidance, we are reiterating our 2024 guidelines, which expect non-DAP revenue and operating margin in the range of $550 to $550 million and 18.1 to 18.5% on profits, respectively.
Speaker Change: Moving to our guidance. We are reiterating our 2024 guidance. We expect non-GAAP revenue and operating margin in the range of $550 to $555 million and 18.1 to 18.5% on profits, respectively.
Roni Giladi: I will now turn the call back to all of you, Rolly.
Roni Al: Thank you, Roni. This quarter demonstrates solid execution, highlighted by double-digit growth in North America and mid-single-digit growth in Europe. Our profitability performance was particularly impressive, with our 13% growth in net income. Given our performance to date and the outlook for the remainder of the year, we remain confident in meeting our 2024 guidance.
Speaker Change: I will now turn the call back to Roni Aldo. Roni?
Roni Azor: Thank you, Rolly. This quarter demonstrates solid execution, highlighted by double-digit growth in North America and mid-single-digit growth in Europe. Our profitability performance was particularly impressive, with our 13% growth in net income. Given our performance to date and the outlook for the remainder of the year, we will remain confident in meeting our 2024 guidance.
Speaker Change: Thank you, Roni. This quarter demonstrates solid execution, highlighted by double-digit growth in North America and mid-single-digit growth in Europe .
Speaker Change: Our profitability performance was particularly impressive with our 13% growth in net income. Given our performance to date and the outlook for the remainder of the year, we remain confident in meeting our 2024 guidance.
Operator: This ends our prepared remarks, operator. We are ready to open the call for Q&A. Thank you.
Speaker Change: This ends our prepared remarks. Operator, we are ready to open the call for Q&A.
Operator: Thank you. Ladies and gentlemen, at this time, we will begin the question and answer session. If you have a question, please press star 1.
Operator: Ladies and gentlemen, at this time we will 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, kindly lift the handset before pressing the numbers. Please ask your question and allow it in clear voice. Your questions will be pulled in the order they are received.
Speaker Change: Thank you. Ladies and gentlemen, at this time, we will begin the question and answer session. If you have a question, please press star 1.
Speaker Change: If you wish to cancel your request, please press star 2. If you are using speaker equipment, kindly lift the handset before pressing the numbers. Please ask your question in a loud and clear voice. Your questions will be polled in the order they are received. Please stand by while we poll for your questions.
Operator: Please send by while we pull for your questions.
Dylan Becker: The first question is from Dylan Becker of William Blair. Please go ahead.
Speaker Change: The first question is from Dylan Becker of William Blair. Please go ahead.
Dylan Becker: Ladies and gentlemen, this job here, maybe Roni, starting with you, you called out the Microsoft partnership, the intelligence insurance platform. Maybe you give us a sense of a really receptivity customer feedback, how they are looking to leverage that embedded intelligence in their core systems to drive better decisioning. But maybe Roni, G for you on the first side of that, what this can mean for that broader business mix given some of the ongoing strength we've seen in close production in an era.
Dylan Becker: Hey gentlemen, nice job here. Maybe Roni, starting with you, you called out the Microsoft partnership, the intelligence insurance platform.
Dylan Becker: Can you give us a sense of employee receptivity, customer feedback, how they're looking to leverage kind of that embedded intelligence in their core systems to drive better decisioning?
Speaker Change: It's going to be Roni G for you on the flip side of that, what this can mean for that broader business mix given some of the ongoing strength we've seen in post-production and in ARR.
Roni Azor: I didn't see your permission.
Yaffa Cohen: Hi Dylan. With your permission, I will ask Alex to answer a question about Microsoft, okay? To Haydn, and this is Alex speaking.
Alex Zukerman: I will ask Alex to answer about question about Microsoft. Of course, of course.
Speaker Change: Hi Dylan, with your permission, I will ask Alex to answer questions about Microsoft, okay?
Alex Zukerman: So hey, Dylan, this is Alex speaking. So we have a strategic partnership with Microsoft around not only general AI, the NAI in other way, but in general across the cloud and the Power BI as well. And as Roni mentioned, we released our intelligence platform. The part of this intelligence platform is the massive usage of Gen AI and algorithm AI within the business processes. We see a tremendous interest in the market. We get really, really good feedback both from our customer base and from the analyst community. And we're already running the POC with the customer in order to put the first go that into production, and then the feedback software quite encouraging.
Dylan Becker: Of course, of course, yeah.
Alex Zukerman: So we have a strategic partnership with Microsoft around not only general AI, Gen AI, and other AI, but in general across the cloud and Power BI as well. And as Roni mentioned, we released our Intelligent Platform. The part of this intelligent platform is the massive usage of Gen AI and algorithmic AI within business processes. We see tremendous interest in the market. We get really, really good feedback, both from our customer base and from the analyst community.
Dylan Becker: Hi Dylan, this is Alex speaking. So, we have a strategic partnership with Microsoft around not only general AI, gen AI and other AI, but in general across the cloud and the Power BI as well.
Dylan Becker: And as Roni mentioned, we released our Intelligent Platform. The part of this Intelligent Platform is the massive usage of Gen AI and Algorithmic AI within the business processes.
Speaker Change: We see a tremendous interest in the market, we get really, really good feedback.
Speaker Change: both from
Alex Zukerman: And we're already running a POC with the customer in order to put the first go of that into production, and the feedback so far is quite encouraging. The market is very, very looking into how Gen AI can be used to enhance efficiency and to provide better service to the customer.
Speaker Change: from our customer base and from the analyst community.
Speaker Change: And we're already running a POC with the customer in order to put the first go of that into production.
Speaker Change: And the feedback so far are quite encouraging. The market is very, very looking into how can Gen-AI be used to enhance efficiency and to provide better service to the customers.
Alex Zukerman: This is the market is very, very looking into how can Gen AI be used to enhance efficiency and to provide better service to the customers.
Alex Zukerman: Thanks, Alex.
Dylan Becker: I will follow up regarding the second question.
Dylan Becker: Thanks, Alex. I will follow up regarding the second question. This is Roni Gil. Obviously, the partnership with Microsoft is significant for Sapiens and also for our customers and prospects.
Roni Azor: This is only the obviously the partnership with Microsoft is significant for Staffians and also for our customer in both states. We see this every new first of all to bring new logo on board again with the support of Microsoft to feel more powerful when we are offering our product. So additional new logo down the road. And as Alex mentioned, we are going to conferences to get that with Microsoft globally.
Roni Al: We see this as an avenue, first of all, to bring a new logo on board. Again, with the support of Microsoft, we feel more powerful when we are offering our product. So, additional new logos down the road.
Speaker Change: We see this as an avenue, first of all, to bring new logo on board.
Speaker Change: Again, with the support of Microsoft, we feel more powerful when we are offering our products. So, additional new logo down the road, and as Alex mentioned, we are doing conferences together with Microsoft globally.
Alex Zukerman: And, as Alex mentioned, we are doing conferences together with Microsoft globally. The second one is the existing customer base. As all of you know, we have today about 150 customers that are already in the cloud. But we have many others that we sold the product to many years ago, and we'd like to transition them to the cloud in the coming years. This can generate additional revenue streams, which are recurring in nature, ARR, and accelerate the growth of this line. However, obviously, we do not expect this to happen in one year or two years. This is a trend over the next five years but can create a significant revenue stream going forward.
Roni Azor: The second one is the existing customer base. As all of you know, we have to be about 150 customers that are already in the cloud. But we have many others that we saw the product many years ago and we'd like to transition them to the cloud in the coming years. This can generate additional revenue stream, which is recurring nature a radar and accelerate the growth of this a line. Obviously, we do not expect this to happen in one year or two years. This is a trend over the next five years, but can get a significant revenue stream going for significance.
Alex: The second one is the existing customer base, as all of you know, we have today about 150 customers that are already in the cloud.
Speaker Change: But we have many others that we sold the product many years ago, and we'd like to transition them to the cloud.
Speaker Change: in the coming years.
Speaker Change: This can generate additional revenue streams, which is recurring in nature, ARR.
Roni Giladi: and Roni Giladi.
Dylan Becker: Okay, great. That's really helpful. Thank you.
Speaker Change: Okay, great, that's really helpful. Thank you, Doug.
Kevin Kumar: Maybe two going back to Roni A or maybe Roni G here. We could just see North America revenue accelerate again. I know you guys have made some strong investments and have pushed there.
Roni G.: And maybe, too, going back to Roni Hay or maybe even Roni G. here.
Speaker Change: We could just see North America revenue accelerating again. I know you guys have made some strong investments and a push there. Any type or sense of the types of wins that you are seeing here? Has that kind of shifted at all, maybe what Microsoft can unlock?
Roni Azor: Any types or sense of the types of lens that you're seeing here, has that kind of shifted at all? Maybe what Microsoft can unlock and removing its market there.
Roni Azor: The broader kind of pipeline transformation, if you will, and North America would be great. Yes, I will take it. As I looked, you know, in North America, we have almost five different types of business. Just to remind you, we have the life, including our course suite and what we call component. And then we have the PNC, we have our course suite, and the work has come. And then we have our decision management, and then we have the range ones. So overall, we are continue to grow on the life, very good on both component and course suite.
Speaker Change: The broader kind of pipeline transformation, if you will, in North America would be great.
Speaker Change: Yes, I will take it.
Speaker Change: As a lot of you know, in North America we have almost five different types of businesses.
Speaker Change: Just to remind you, we have the lights, including our core suite and what we call component.
Speaker Change: And then we have the PNC, we have our core suite and the workers' com, and then we have our decision management, and then we have the reinsurance.
Speaker Change: So overall, we are continuing to grow on the life, very good on both components and core suite.
Roni Azor: Work has come, as we mentioned last year; we found the three deals. We see we extended these deals that we are looking forward to new ones. And the same in range ones. So those are the areas that we signal in the course suite PNC. It's more stable right now.
Speaker Change: Workers Forum, as we mentioned last year, we signed the three deals, we see we extended these deals, but we are looking forward to new ones.
Speaker Change: and the same in reinsurance. So those are the areas that we see grow. In the crossfit field, it's more stable right now.
Roni Azor: And so the overall, those are the areas that you are seeing the growth. And just to remind all of you, in a course suite life, we just brought them back in the last two to three years. And based on the contract with the three sign, and we plan to sign its youth growth. And I think the combination that we are coming now is continue course suite and the component. Class of digital and we are including on the platform looks very positive. Okay, great. Thank you.
Speaker Change: And so overall, those are the areas that we are seeing good growth. And just to remind all of you, in CoSuite Life, we just brought them back in the last two to three years.
Speaker Change: and based on the contract that we signed and we plan to sign, it's a huge growth. And I think the combination that we are coming now with Continuum Core Suite and the component plus all digital and we are including on the platform looks very positive.
Kevin Kumar: I appreciate it.
Speaker Change: Okay, great. Thanks, guys. Appreciate it.
Kevin Kumar: The next question is from Kevin Kumar of Goldman Sachs. Please go ahead.
Speaker Change: The next question is from Kevin Kumar of Goldman Sachs. Please go ahead.
Kevin Kumar: All right. Thanks for taking my questions. I wanted to ask about kind of the revenue segments and the trends you're seeing there. The pre-production revenue is continuing to kind of decline, and you're seeing kind of strengthen the software production side.
Kevin Kumar: Alright, thanks for taking my questions.
Speaker Change: I wanted to ask about kind of the revenue segments and the trends you're seeing there. Pre-production revenue is continuing to kind of decline and you're seeing kind of strength in the software post-production side.
Roni Giladi: So, you know, maybe you can talk a little bit about kind of the drivers there that you know. How do you think that kind of shakes out for the remainder of the year? That would be helpful. Thanks.
Speaker Change: So, you know, maybe can you talk a little bit about kind of the drivers there of that and, you know, how do you think that kind of shapes out for the remainder of the year? That would be helpful. Thanks.
Roni Giladi: Hi, Kevin. I will take this. This is the only G.
Roni Giladi: Yes, we can see this at the end of the implementation or reproduction implementation service likely going down. If you remember early in the year, we announced that we are moving to subscription, globally, all products of the company and the idea is a shift from two line items. One is from the implementation, the other one is from the reoccurring services into the subscription revenue line. So, obviously, this has impact also on the pre-production implementation services, and we see the trend of growing up on the post-production services and software products. So, this is one phenomenon that impacts our revenue stream on that.
Roni Gil: Hi Kevin, I will take this, this is Roni Gil. Yes, we can see this trend of implementation or pre-production implementation service slightly going down.
Speaker Change: If you remember, early in the year, we announced that we are moving to subscription, globally, all products of the company.
Roni Gil: And the idea is a shift from two line items, one is from the implementation, the other one is from the reoccurring services, into the subscription revenue line.
Roni Giladi: and Roni Giladi.
Roni Giladi: The second one is we have some delay in signing new logo deals in early in the first half of the year. We are very encouraging on early Q3 of the existing significantly with prospective customer that will fulfill this revenue line item. Good, thank you for that.
Roni Al: The second one is we had some delay in signing new logo deals early in the first half of the year. We are very encouraged by early Q3 progress with prospective customers that will fulfill this revenue line item order.
Roni Gil: The second one is we had some delay in signing new logo deals in early in the first half of the year. We are very encouraged on early Q3 of progress in significantly with prospective customers that will fulfill this revenue line item also.
Kevin Kumar: And then maybe one on just kind of where you're allocating new resources. Roni, I think you talked about increases in sales and marketing investment. What segment of the market do you see the most opportunity, where are you allocating some of these new resources? Any color there would be helpful.
Roni Giladi: [inaudible]
Operator: Where you're allocating new resources.
Roni Giladi: We're allocating new resources.
Speaker Change: Roni, I think you talked about increases in sales and marketing investments, you know, what segments of the market do you see the most opportunity? Where are you allocating some of these?
Roni: New Resource.
Roni Gil: or Roni Giladi. Any color there would be helpful.
Roni Giladi: Hi, first thing, we already made the majority of the investment, so many hiring, organizing, management, and so on. So we are; it took us time, but right now we are on board. And the majority, first of all, we say it's in North America and in Europe. The challenge in Europe that we are, because we are working in many territories and we have languages, issues, and so on. So it's almost like a seven different region, including South Africa and Asia, so in terms of the investment. And I can share overall we are doing within the, in all the, all the segments in marketing, gross marketing, sales and also existing customers.
Speaker Change: Hi, firstly, we...
Roni Giladi: and Roni Giladi.
Roni Giladi: The challenge in Europe , because we are working in many territories and we have language issues and so on, so it's almost like seven different regions including South Africa and Asia, so in terms of the investment.
Roni Gil: and I can share, overall we are doing it in all the segments, in marketing, gross marketing, sales and also existing customers.
Roni Giladi: In terms of a line system, SI, we hired the last year we hire a dedicated design manager in North America and the last half years we hire the same position in Europe. So all the, all the idea of start to work with line system is reporting the also investment there.
Operator: In terms of alliances and SI, last year we hired a dedicated SI manager in North America and the last half year we hired the same position in Europe .
Roni Gil: So all the idea of to start to work with alliances is putting also investment there.
Kevin Kumar: Great. Thanks for taking my questions.
Chris Reimer: The next question is from Chris Rimer of Barclays. Please go ahead. Hi, congratulations on the strong results, and thanks for taking my questions. I was wondering if you could talk about how carriers today are prioritizing their, their large core system modernizations.
Chris Reimer: And if there's any one point that leads that decision-making process and then following on that, are you seeing any changes in timeline, sales timelines due to the transition or people who want to not transition, you know, anything about the timeline? So this is a, this is our experience.
Operator: due to the transition or people who want to not transition, or anything about the timeline.
Alex Zukerman: So, this is Alex speaking. So, in general, we still see a high interest from carriers in core replacements. And the main drivers are, first of all, operational efficiency, especially in a volatile market financially-wise. And some players are all looking to how they can improve their operation, reduce their operating costs, and be more efficient. This is mixed up a lot today with the capabilities of data management, including AI and digital capabilities and cloud capabilities. A lot of them in order to both drive operational efficiency and also growth in particular areas.
Roni Azor: So, in general, we still keep seeing high interest of carriers in the core placement. And the main drivers are, first of all, operation and efficiency, especially in a volatile market financially wise. And carriers are all looking to, how can they improve the operation, reduce the operating cost, and be more efficient. This is a lot today with the capabilities of data management, including AI and digital capabilities and cloud capabilities, the loss of them and over, we're going to, to both drive operational efficiency and also growth in particular areas. And the trend is still as strong in terms of a core placement interest.
Roni Giladi: and ten players are all looking for how can they improve their operation, reduce their operating cost and be more efficient.
Alex Zukerman: This will boost up a lot today with the capabilities of data management, including AI and digital capabilities and cloud capabilities, a lot of them in order eventually to both drive operational efficiency.
Alex Zukerman: The trend is still strong in terms of core placement interest. Sometimes we see a bit longer time.
Roni Azor: Sometimes we see a bit, a longer time that the carriers take to perform the ability, and they, they'll be the processes, especially in our case, since we move into a larger deal with the platform. We're not selling only the core; actually, selling a certain key solution with digital, with data capabilities, with AI and the core together with our software. So there's multiple aspects for them to really take a bit more time. Sometimes in the review and analysis, but a strong trend of interest in core placement in legacy, legacy solution, those are more and more prohibiting the business to, from, from going all the way through, using this operating.
Alex Zukerman: [inaudible]
Operator: So the sales cycle... You would say it's still...
Chris Reimer: So the sales cycle, you would say, it's still pretty long: one and a half, two years. Great, thanks.
Operator: is not changing compared to the last.
Operator: That's it for me. If there are any additional questions, please press star one. If you wish to cancel your request, please press star two.
Speaker Change: Great, thanks. That's it for me.
Operator: If there are any additional questions, please press star 1. If you wish to cancel your request, please press star 2. Please stand by while we poll for more questions. There are no further questions at this time. Before I ask Ms. Yaffa Cohen to go ahead with her 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 1-888-269-0005. In Israel, please call 03-9255.
Operator: Please then buy what we pull for more questions.
Operator: There are no further questions at this time.
Operator: Before I ask Ms. Yaffa Cohen to go ahead with her closing statement, I would like to remind participants that a replay of this call is scheduled to begin in two hours. In the US, please call 1-888-269-005. In Israel, please call 0-3-9255-938. And internationally, please call 9723-9255-938.
Operator: 269-0005
Yaffa Cohen: Ms. Cohen, would you like to make your concluding statement? Yes, thank you everyone for joining our call today. We look forward to discussing our third quarter results on our next earning call. We welcome you to contact us if you have any further questions. Thank you.
Operator: This concludes the Sapiens International Corporation's second quarter 2024 results conference call. Thank you for your participation. You may go ahead and disconnect.