Q3 2024 Sapiens International Corp NV Earnings Call
Speaker Change: Welcome to Sapiens International Corporation's 2024 3rd Quarter Financial Results Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation.
Speaker Change: It is now my pleasure to introduce your host, Yaffa Cohen Ifrach, Chief Marketing Officer and Head of Investor Relations.
Thank you. Yaffa, you may now begin.
Speaker Change: Thank you, Operator. I want to welcome you to SAPEN's conference call to review our third quarter results for 2024. With me on the call today are Mr. Roni Al Zohr, President and CEO, Mr. Roni Giladi, CFO, and Mr. Alec Zuckerman, Chief Strategy Officer.
Speaker Change: Following the summary of the results, we will be available to answer any questions.
Speaker Change: Before we start, I would like to remind everyone that this conference call may contain projections or other forward-looking statements.
Speaker Change: The safe harbor provision in the press release issued today also applies to the content of the call.
Speaker Change: They can expressly 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.
Speaker Change: On today's call, we will refer to the non-GAAP financial measure. A reconciliation of GAAP to non-GAAP results has been provided in our press release, which was issued before the market opened this morning.
Speaker Change: A replay of this call will be available after the call on our investor relations section of the company's website or via the website link which is available in the earnings release we published today.
I will now turn the call over to Roni Aldo.
Roni Aldo: President and CEO of Sapiens. Roni? Good morning everyone and thank you for joining us today for Sapiens third quarter 2024 earnings call.
Roni Aldo: Our revenue in the third quarter was $137 million, a 4.8% increase compared to last year. This quarter continues to showcase solid execution across all of our key regions.
Roni Aldo: Let's start with North America, where we secured new business wins during the quarter. I want to highlight a few.
Roni Aldo: Continental General chose the cloud-based Sapiens insurance platform for Latin Unity to improve its capabilities and modernize its platform to future insurance product.
Roni Aldo: These improvements will enhance its ability to scale a new market and streamline implementation of its long-term care insurers specialty while expanding third-party administrator, TPA, services through its affiliate.
Roni Aldo: Another win in the life space was the leading Canadian life and health insurance carrier which selected the cloud-based Sapiens insurance platform to enhance its operational performance
Roni Aldo: Boost Efficiency, Elevate the Client and Advisor Experience, and Drive Digital Transformation and Growth in the Life and Health Markets.
Roni Aldo: Robford Mutual Insurance Company selected a cloud-based Sapiens Reinsurance Pro to automate its reinsurance management process, improve efficiencies and profitability, and mitigate costly claims leakage.
Roni Aldo: Second, automated solution eliminates complexities within treaties by balancing the appropriate coverage with the rising coverage cost.
Roni Aldo: enabling Rockford Mutual to track, bill, recover insurance, and capture valuable data.
Roni Aldo: And lastly, Society Insurance chose Sapient to automate and transform its reinsurance processes.
Speaker Change: Our cloud-based reinsurance system met society's need for an automated, out-of-the-box solution.
Speaker Change: Society can now manage its entire insurance program to centralize data in a consolidated repository that quickly runs queries and access reports.
Speaker Change: Sapien stood out for its broad range of capabilities in reinsurance, accounting, and cash management compliance with auditing and saturity requirements.
Speaker Change: Let me highlight a few successful North America goal lives and upgrades with existing customers in Q3.
Speaker Change: In July, Pan American Life Insurance Group, PELIG, successfully went live with Sapien's Illustration Pro start solution on the Microsoft Azure Cloud.
Speaker Change: A long-time Sapiens customer, Pellic wanted to transform its current system to Sapiens digital web-based solution to integrate across multiple platforms.
Illustration Pro will enable Peleg to consolidate illustrations
on a single platform, ensuring fast time to market.
Speaker Change: Robust new comparisons, client management, and self-sufficient features will allow them to manage multiple product launches more efficiently while improving the agent experience with scalable, flexible solutions.
Speaker Change: Working Compensation is a market where Sapiens is building a momentum in North America and remains a substantial growth opportunity for Sapiens in the year ahead.
Speaker Change: In the third quarter, we completed the Worker Compensation Customer Upgrade with our latest functionally-reached core suite for Worker Compensation version.
Speaker Change: Also, our North America team continues progressing on three major water compensation projects which we expected to go live in 2025.
and the other one.
Speaker Change: The win this quarter reinforced the value and the trust that insurance plays in Sapiens to innovate and drive business transformation, and we are always working to ensure we can deliver the most value to the market.
Speaker Change: In cost with property and casualty, several North American projects went live this quarter and we are working on several customer upgrades.
Speaker Change: We also launched our latest version of SAPIEN's call suite for property and casualty for North America insurance market. The new release delivers, ensures many functionality and performance improvements and enhanced security features.
Speaker Change: The release introduced an integrated AI-based open platform to strengthen the second insurance platform digital layer and expanding its core business capabilities, ensuring it remains future-proof.
Speaker Change: We have improved the consistency of our data to help the insurance overcome the challenges of data migration and ensure the data is consistent and AI ready.
Speaker Change: Moving to system integrators, Sepint is making progress in collaboration with system integrators, which has resulted in promising opportunities in our pipeline that would have been otherwise unattainable.
Speaker Change: These partnerships have unlocked new avenues for growth and development, demonstrating the strategic value and the potential of our SIs in expanding our market reach.
Speaker Change: We are excited about the opportunity and beneficial outcome this relationship could deliver.
Speaker Change: Before we move to the rest of the world, I want to share some highlights from our annual North America Customer Summit.
In September, we held our customer summit in Austin, Texas.
Speaker Change: Austin is the world's largest music capital with the perfect backdrop for an event focused in innovation, collaboration and transformative solutions in the insurance industry.
Speaker Change: The themes of our summit compose your future, express Second's mission to lead the future of insurance technology.
Speaker Change: This year we hosted 545 participants from 135 insurance companies and partners organizations. Industry leaders like Microsoft, Deloitte, Celent and Datos contribute value perspective. We also had 22 partners companies present.
Speaker Change: The Summit provides tremendous value, with the opportunity to develop deeper customer relationships, meet prospects, and generate leads.
Speaker Change: With our partners, companies, and our customers, we identify emerging market trends and gain valuable insight into our customer needs and concerns.
Speaker Change: From this event, we create foundations for growth and success and reinforce our commitment to driving transformative journeys for settings clients.
Speaker Change: Moving to the rest of the world. We are progressing with customer upgrades and go live with our EBIT suite, TIA suite, Reinsurance Master, and Costs with Life solutions, and we have had several successful go live this quarter.
Speaker Change: I want to highlight the Holland group with Go Live in this quarter.
Speaker Change: OLAD went live with SAPEN's data and analytics solution, complementing its core suite for life and pension.
Speaker Change: DataSuite will accelerate the complex migration of whole of businesses and align its process as the company transformation from its core and legacy system to Safem's core suite for life and pension.
Speaker Change: This will reduce operational costs and deliver automated seamless user experience for customers and all our staff.
Speaker Change: Integrated data suites significantly reduce the complexity of whole-out migration process, which require the complicated development of tailored reports and merging them across the legacy and core suite systems.
Speaker Change: Among its many benefits, DataSuite empowers Holard to manage its data and reporting needs while seamlessly operating its business during the migration.
Speaker Change: Demand for Sapiens products remains solid in EMEA and APAC, particularly for our live platform and PNC platform solutions to be sent here.
Speaker Change: There is continued demand for such platforms across all solution lines.
and Pierce.
Speaker Change: We are also experiencing growing demand for AI-driven solutions, as clients increasingly want to leverage AI to enhance operational efficiency and elevate customer experience.
Speaker Change: with regulatory agencies starting to issue guidance on AI sapiens with its local presence in key markets and deep regulatory knowledge.
Speaker Change: is positioned to enable our clients to stay ahead of industry trends and meet regulatory requirements.
Speaker Change: Our digital transformation capabilities tailor for medium to smaller carriers, enable crucial digital strategy over legacy strategies.
Speaker Change: In the European market, demand for second solutions remains robust despite the delay in signing new deals.
Speaker Change: These delays are primarily due to the regulatory approval process for SAS-based models, extended contract timeline due to compliance and security reviews, and protracted business case approval, factors outside of our control.
Speaker Change: Our strategic partner with Microsoft has been instrumental in driving innovation. Leveraging their cutting-edge technology and collaborative support to enhance our market presents and delivers exceptional value to our customers.
Speaker Change: Before I wrap up, I would like to share our 2024 Annual Guidance and Outlook for 2025.
Speaker Change: Roni Giladi will provide the full details, but in brief, we are reducing our full-year 2024 revenue guidance. This revision reflects trends that impact our results this quarter and which we expect to persist in the fourth quarter and into 2025.
Speaker Change: Despite the revenue guidance adjustment, our strong emphasis on expense management enabled us to leave our non-GAAP operating margin guidance unchanged for 2024.
Speaker Change: Let me provide some contents on the external and internal factor influencing revenue.
Speaker Change: One of the key contributors is our strategic shift to SAS-based model, position us to future sustainable high-margin growth.
Speaker Change: While we anticipate some impact from 2024 revenue from this transition, the actual impact has been greater.
Speaker Change: This shift to SAS has also led to extended sales cycles, particularly in Europe, where many insurance carriers are new to SAS and carefully evaluate the benefits before committing.
Speaker Change: As a result, we are experiencing a slightly longer time to close deals in certain regions as they evaluate the SAS model advantage.
Speaker Change: Additionally, our North America Cost with PNC business is facing headwinds with the sector-specific challenges and increased competition. Let me emphasize that our worker compensation and insurance business is progressing as planned.
Speaker Change: And lastly, the broader microeconomic environment is leading insurance carriers to take more time in making investment decisions and finalizing deals.
Speaker Change: We expect this factor to continue to influence growth as we enter to 2025. With that in mind, we anticipate next year's growth will be a low single digit.
Speaker Change: I want to reiterate that our commitment to building a robust pipeline and expanding our client base across all key markets remain unwavering.
Speaker Change: As the business landscape continues to evolve, SEC is determined to execute our strategy to empower insurance carriers with a modern, competitive platform.
Speaker Change: To further enhance our competitive position in the PNC North America market, we are directing investment in a few areas.
Platform Innovation and Advanced AI Capabilities.
Speaker Change: We continue to invest in Sepin's Intelligent Insurance Platform for PNC, which integrated data suites, digital portals, and core processing to provide cohesive end-to-end advanced business experience and streamlined operations.
Speaker Change: Building on the success of the approach used with our life and annuity platform a few years back, which has accelerated seconds growth in this market, we are confident in applying a similar strategy to our core PNC solutions.
Speaker Change: We are also refining our go-to-market strategy and straightening our sales and marketing teams to pursue new opportunities while addressing challenges in the market.
Speaker Change: We are confident that Appian's focus on innovation and client success rules will drive sustainability growth globally and strengthen our position as a trusted partner in the insurance industry.
Speaker Change: To drive return to higher growth, we'll focus on accelerating the expansion of our gross product.
Speaker Change: With a strong establishment, customer base, we also see significant cross-sale opportunity for our data, digital, and decision solution, including our AI-driven offering.
Speaker Change: We will also continue to transition our existing customers to our cloud offering.
Speaker Change: Additionally, we will deepen our penetration in the North America market with our live platform where we hold a leading position and we are gaining momentum while continuing to reinforce our presence in these key markets.
In summary,
Speaker Change: Quarter 3 2024 marked another quarter of growth and operational progress. We are executing our 2024 priorities, including accelerating the shift to SAS model, which is better positioned us for the long term, and delivering solid performance across all of our key regions.
Speaker Change: Now I would like to turn the call over to our CFO to provide more detail on our financial performance.
Thank you, Roni.
Speaker Change: I will begin my commentary by reviewing the third quarter of 2024 long gap results, followed by comments on the balance sheet and cash flow. I will wrap up with our guidance for 2024.
Currency impact on revenue was minimal this quarter.
Speaker Change: As Roni mentioned in his remarks, we are experiencing delay in closing new deals, which resulted in lower revenue compared to our internal expectations.
Speaker Change: For Q3 of 2024, our annualized recurring revenue, ARR, reached $173 million, reflecting a 10% decrease from Q3 of 2023.
Speaker Change: Higher than the reported revenue growth during the same period of 4.8%.
Speaker Change: Looking at the revenue mix, revenue from recurrent software products and reoccurring post-production services increased year-over-year by 15.3% to $101 million, compared to $87 million in Q3 of 2023.
We are pleased with the double digit growth.
Speaker Change: Revenue from pre-production implementation services totaled $36 million, compared to $43 million last year.
Speaker Change: The decline in pre-production implementation revenue was mainly due to delay in signing new deals and the shift to SaaS, as I mentioned in previous quarter.
Switching now to geographic breakdown.
Speaker Change: Revenue in North America was $56 million, compared to $55 million in the year-ago quarter, an increase of 1.7%.
Speaker Change: Revenue in Europe was $69 million, a year-over-year increase of 7.1%.
Speaker Change: Revenue in the rest of the world, which includes South Africa and APAC, was $12 billion, an increase of 6.6% compared to prior year quarter.
Speaker Change: Moving to profitability, gross profit this quarter was $63 million, compared to $59 million in Q3 of 2023.
Speaker Change: Gross margin this quarter was 45.8% compared to 45.3%, an increase of 50 basis points compared to Q3 of 2023.
and Roni Giladi.
Speaker Change: This increase is mainly due to higher ratio of recurrent and reoccurring revenue versus one-time revenue for implementation.
Speaker Change: Operating profit and margin in the third quarter of 2024 was $25 million and 18.3% of total revenue.
Speaker Change: compared to 24 million and 18.4 percent in the third quarter of 2023.
Speaker Change: Operating profit in Q3 grew by 4.3% or by $1 million.
Speaker Change: We maintain an operating margin within our target range of 18.3%, despite the increased investment in sales and marketing in the third quarter.
Speaker Change: Net income attributed to Sapley and shareholders was $21 million or 10% increase from $19 million of Q3 of 2023.
and Roni Giladi.
Bennington Baraditte
Speaker Change: As of September 30th, 2024, we had cash-in-cash equivalents and short-term deposits totaling $186 million, and debt of $40 million.
Speaker Change: During the quarter, we distributed dividends in the amount of $16.2 million, or $0.29 per share, to our shareholders.
Speaker Change: The dividend represents 39% of net income for the first half of 2024.
Speaker Change: Turning to our adjusted free cash flow, in the third quarter of 2024, we generated $10 million in free cash flow, compared to $2 million in Q3 of 2023. For the first nine months of 2024, we generated adjusted free cash flows of $33 million.
Similar to the first nine months of 2023.
Speaker Change: In the third quarter, Maalot S&P Global, a part of the global rating firm Standard & Goods Financial Services,
confirm the long-term issue rating for Sapiens is WLA-.
Speaker Change: with stable outlook, while also confirming the rating for Saken Series B debenture as AA-.
Speaker Change: Let me switch gears to discuss our guidance for the remainder of 2024 and our preliminary look at 2025.
Speaker Change: Today, we are revising our 2024 Annual Non-GAAP Revenue Guidance to $541 million to $546 million from a previous rank of $550 to $555 million.
A reduction of about 1.6%.
Speaker Change: While it's too early to discuss our 2025 expectations in detail, we expect revenue growth to be in the low single digits.
Speaker Change: The reasons for the 2024 reduced guidance and the low growth rate for 2025 compared to previous year are similar and are as follows.
One.
Speaker Change: At the beginning of the year, we took a strategic decision to transition to SaaS all our products across all territories.
Speaker Change: Initially, we estimated this transition would have revenue combination impact of approximately 1% headwind on our revenue. However,
Speaker Change: The actual has been greater, totaling between 2 to 3 percent. We anticipate this trend, we see, in 2024 will carry over into 2025.
Speaker Change: Additionally, another factor of this transition to SAS is the extended decision-making process among insurance carriers, mainly in Europe.
Speaker Change: This delay has affected new deal signing and therefore our revenue.
Speaker Change: 2. Our North American Coastal Property and Casualty business is facing headwinds, with sector-specific challenges and heightened competition.
Speaker Change: As a result, revenue from new deals has decreased. In addition, following the go-live of certain projects, we are experiencing overall decline in revenue.
Speaker Change: 3. We are witnessing the same macroeconomic uncertainty that impacted many global enterprise software companies. In our market, this is materializing as longer decision cycles, or in some cases, delayed decisions by our insurance carrier.
As a result, fewer new deals were signed in 2024.
which negatively impact our 2024 revenues.
This effect is expected to be more pronounced in 2025.
Speaker Change: When this new deal, that we anticipated to be signed in 2024, will support to generate high revenue in 2025, particularly due to full year of implementation and recurring revenue.
Speaker Change: On a positive note, we expect an annual 2025 non-GAAP operating margin of 18.2%, which is within our range.
Speaker Change: While these challenges will impact the next federal quarter, the market opportunities ahead of us continue to remain strong as we are still in the mindset of a multi-decade replacement cycle across the PNC and live markets.
Speaker Change: Looking at the past 10 years, sapiens organic growth has high single digits, growing globally both in PNC and life. And together with MNA we reported double digit growth.
Speaker Change: Also, in the past two years, revenue from recurrent software products and reoccurring post-production services represented between 65% to 73% of total revenue.
Speaker Change: Highlighting the stability, visibility, and stickiness of revenue from existing customers.
Sapiens has a solid foundation of 600 customers.
Speaker Change: and a comprehensive suite of products, including core, business applications, data and digital solutions, both for PNC and live.
Speaker Change: With a broad geographic reach across North America, Europe, and APAC.
Speaker Change: We believe in our ability to retain to a similar growth level as we continue executing our long-term growth strategy, keep in investing in our solution and offer a competitive platform to insurance carriers.
Speaker Change: I will now turn the call back to Roni Aldo. Roni?
Roni Aldo: Thank you, Roni. We deliver a solid third quarter, reflecting continued progress across our key markets. Our continued investment in our insurance platform remains a critical deliver for growth.
Roni Aldo: Most importantly, we are committed to delivering long-term growth across all of our key territories and reinforce our position as a trusted provider for the intelligent insurance solution.
Roni Aldo: I want to thank our global team for their commitment to excellence and growth and our investor for their ongoing support of Sapiens.
Roni Aldo: I will now ask the operator to please open the call for questions.
Thank you.
Speaker Change: Ladies and gentlemen, at this time we will begin the question and answer session.
Speaker Change: If you have a question, please press star 1. 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 questions 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.
Sam Savos of Needham and Company. Please go ahead.
Sam Savos: Great, thanks. Hey guys, thanks for taking the questions today. I'm just hopping on from Myunk. First off, I wanted to touch more on the competitive pressures you guys call about. Can you talk more about what exactly you're seeing, which market you're in, and maybe the steps you guys are taking to mitigate some of these impacts?
Yes, sure, this is Alex speaking.
Alex: So, when we look at the competitive landscape, I think we feel that the highest pressure on the competitive side is on the PNC, our PNC operation in North America.
This is where we feel
Alex: This is not new in terms of the crowdness of the market, you know, it's a very...
Alex: Very competitive landscape for a few years now on the PNC side.
But the combination of that...
Alex: together with a bit of the point market conditions we see in the North America market on the PNC side, which is a combination of the geographical catastrophe that happened in 2024, the reinsurance rates that are spiking high, the inflation. So the combination of those...
Alex: specifically for this year's economical situation, plus the high competition over the deals, the combination of them creates a very competitive landscape for us.
Now
Alex: Our plan to mitigate it and our offering to the market is based on our platform proposition. We talked about it in our previous talk. We launched in the middle of this year, in 2024, our platform proposition. We see a great feedback from the market. This is both for PMC and LIFE.
But where we started to focus...
Alex: where we started to focus our efforts of the platform and launched it substantially more on the live side.
and on the European side.
Alex: Our plan to launch the Platform for North America course with PNC is planned for 2025 and this will provide us very strong capabilities and differentiation to cope with competition. And that's our plan for the market.
Alex: This is Roni Giladi, I just would like to emphasize when Alex talks about PNC North America, only to the core system, not including reinsurance or work compensation, there we feel stronger.
and Roni Giladi.
Speaker Change: Got it. Okay, that's helpful. Makes sense. And then just a quick follow-up, just on the preliminary 25 guide you guys gave, did you guys talk about some of the macro assumptions you have as you got to that revenue target?
Speaker Change: Hi Sam, this is Roni G. Basically the assumption or the reason for this is coming from Emily in 2024 and continuing with us into 2023, 2025.
Speaker Change: The second item is transition to SAS. Early in the year, we took a strategic decision.
Speaker Change: to move all Sapiens products globally, North America and Europe APAC, to the cloud. We needed before, a year before, only North America specific products.
Speaker Change: What we see is the transition has impact on two levels. The first one is the delay of decision making from the insurance carrier, mainly in the European side. The reason for that, the deal became longer and embedded into a traditional factor that wasn't in the past.
Speaker Change: Therefore, the decision process and the approval has taken us more time and obviously delayed on the revenue. So this is one factor.
Speaker Change: The second factor is the implication on the revenue of the commission. Earlier this year we mentioned and estimated this to be a 1% impact on the revenue growth, and now as we have revisited this, we see this as two items on top.
Speaker Change: or different, one is misestimate in the first year, and the second one is the transition of existing customer, post-production to the cloud.
Roni Al, Roni Giladi
Speaker Change: All of the items here, implication, have revenue impact of between 2-3% versus 1% that we mentioned earlier.
Speaker Change: And the PC course with North America, Alex mentioned, I will just emphasize only on the reinsurance, not in the reinsurance, but in the compensation.
have also impacted into 2025. One factor to take in...
when we see the new deals in 2024.
Speaker Change: All of this came us to the conclusion that based on what we see today, the estimate of the revenue will come at no single digit growth.
and Roni Giladi. Thank you.
All right, thanks guys, I'll jump back in queue.
Speaker Change: The next question is from Dylan Becker of William Blair. Please go ahead.
Roni Giladi, Roni Giladi
Speaker Change: Hey guys, appreciate the question. Maybe Roni G with you sticking on that last point
Speaker Change: You could argue that that accelerated headwind from the the SAS transition is a net positive and maybe some some partner components within that but
Speaker Change: As you talk about elongation, I guess, can you give us a general sense in your confidence around that it's more kind of timing in nature versus anything falling out of the pipeline? I'd assume a lot of these customers are already having a Sapiens relationship and it's just kind of a matter of contract timing and getting the resources allocated, but a general sense and kind of the confidence here in what you're seeing from a pipeline perspective.
Speaker Change: So, for sure, we see the impact in the long term where we see more repeatable business coming and much more visibility, ARR revenue.
Speaker Change: In the macroeconomic, as we mentioned Alex earlier, this is a one-time period that will disappear in, let's say, a year from now, something like that. But this is not something which will stay because we see the demand. So moving to the SAS, for sure, will give us upside.
Speaker Change: Year No. 2, 3 and going forward from the recurring revenue after the implementation.
Speaker Change: Okay, great. And then maybe kind of a segue with that to the initial 25 outlook of low single digits. Maybe give us a sense, kind of breaking down, if we look at obviously the post-production piece and some of the AR components still growing.
Speaker Change: nicely kind of in that double-digit clip, assuming that moving to the cloud has some services impact as well, too. So maybe if we can kind of dissect within those components, given the fact that, again, you called out some incremental visibility on the subscription front once those customers are implemented in live. Thanks.
Speaker Change: I will try to answer this from a different but very similar angle. If we look at the revenue reported between two sectors, the first one is the revenue which is recurring and reoccurring versus the one time, we see the ratio of the recurring and reoccurring growing.
Speaker Change: Today, more than 70% of the revenue of the company. We see the gross margin, which is significantly higher than the implementation. All of this is a good trend.
Speaker Change: We saw the growth rate, which is much higher than the revenue growth of the company, this quarter was 15% versus 5%. So I'm not sure that we'll beat the exact number, but I'm sure that this type of nature will continue with us going forward into 2025.
Okay, thanks, Ryan.
Speaker Change: The next question is from Surinder Thind of Jeffries. Please go ahead.
Speaker Change: Thank you. Just another follow-up on the transition of clients to this ops model here. Is the idea that most of these headings should be done through 2025 or are we talking about an extended time frame to get everybody into the product display?
Speaker Change: I'm not sure I got the question clearly. The impact of transition to SAS is not only for 2024 and 2025. Remember that we are going two steps. First of all, any new deal is on the SAS. And usually the implication of the new deal is between two to three years, the period of the implementation.
Speaker Change: And there is another factor which is transferring existing customers that we sold several years ago also to SAS.
Speaker Change: And this time period is around five years, because it takes time to convert existing customer that we sold several years ago to the cloud. So it's between two to five years, this is the time frame of the impact.
Speaker Change: Again, with different percentage of impact, but this is a time frame.
Speaker Change: So I guess my question to clarify that is, is the actual revenue headwind, in fact, is that going to be continuing for the next two to five years?
That was the question.
Speaker Change: Yes, but not at the same ratio, meaning that we see more impact in 2025 and potentially in 2026, but lower and going forward.
Understood. And then in terms of just...
Speaker Change: because of the margins are going to be relatively intact at this point in light of the lighter revenues.
Keynote Address
Can you please repeat the question?
and Roni Giladi.
Speaker Change: The investment in the... Okay, so until now SAP has been able to grow revenue and profit over a year or two years. And if we look at our competitors, their profitability level is lower than us.
Speaker Change: We took a strategic decision to stop the increase of the percentage, but to grow on the profit level.
and Roni Giladi.
Speaker Change: You can see from the report, the investment in sales and marketing grew very significantly over the last year, I think $2 million compared to quarter, and we maintain the profit margin what we mentioned at the beginning of the year, between $18.1 to $18.5.
We see right now 18.3% in Q3 of 2018.
Speaker Change: So we'd like to remain with the same percentage but grow the profit level.
Thank you. Thank you.
Speaker Change: The next question is from Alexei Gogolov of JP Morgan. Please go ahead.
Speaker Change: Hi, this is Elise Tanner on for Aleski Gogolev. Maybe this is in the press release, but what is the constant currency growth, or did you break that out this quarter?
Speaker Change: The impact of the currency exchange was very minimal and we do not see additional impact in terms of positive or downside from this revenue reported.
Speaker Change: So this is Alex here. We look, we invest in the platform concept globally at Sapiens. So it's a, it's a, it's an approach and a technology framework that allows us to promote multiple products.
and bring value to multiple offerings.
Speaker Change: As I said, we chose to focus first of all the spearhead of this investment in realization is on our life solution that grows very rapidly and on our PNC in EMEA and APAC, which also we see the growth there.
Speaker Change: The second stage of taking this investment and implementing it into the offering is for our course with PNC North America. And we intend to do it through the first half of the year in 2025, and we do foresee that this will bring us additional competitive power and differentiation in the market.
Speaker Change: We already launched this proposition. We got a very strong market feed, positive market feed, from customers and prospects on the notion, and the plan is to implement it in North America in the first half of 2025.
Got it. Thank you very much.
The next question is from Tabby Rosner of Barclays
Please go ahead.
Speaker Change: Hi, good afternoon. Most of my questions have been asked already. I just wanted to follow up on one of your comments, Roni, in the prepared remarks.
Speaker Change: We talked about investment decisions being delayed due to regulatory impact and I just wanted to dig a little further, is that at a company level or at a regulatory level, any type of geography specifically, any customer size?
Any caller would be helpful here.
I'm going to be a good one.
This is again Alex here.
Speaker Change: I think the main cautious that we see and maybe the extended effort that our customers are doing on the due diligence and checking all the details before signature is mainly around first of all the cloud in Europe.
The main thing is that we provide a SaaS offering.
Speaker Change: which is very common in the U.S. It's also common in Europe, but not in the same place. And there is a lot of cautiousness around embracing a full-staff position in Europe because actually the companies transfer their full management of the business as usual into a vendor, into us.
Speaker Change: So, for many of them, it's the first time ever that they do it, and this takes them higher level of checks. They need to get the confidence.
Speaker Change: This is one major thing that we see around the South, and this is mainly a European thing. What we see is these companies who already experienced that before, it's much easier. But a lot of them, it's the first time that they move to South.
Speaker Change: And the second part that we see on delays in decision is because we provide now the platform proposition which entails not only calls.
But also digital front-end, digital processes, data warehouse, reporting AI.
Thank you very much.
Thank you. I appreciate the call. That's all for me.
and Roni Giladi.
and Roni Giladi.
Speaker Change: 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 your questions.
Speaker Change: Thank you for joining our call today. We look forward to discussing our Q4 results on our next earnings call. As always, we welcome you to contact us if you have any further questions.
Thank you again.
and Roni Giladi.
Speaker Change: Thank you. This concludes the Sapiens International Corporation third quarter 2024 results conference call. Thank you for your participation. You may go ahead and disconnect.