Sapiens International Corp NV

Welcome to Sapiens International Corporation's 2021 Fourth Quarter and Fiscal Year Financial Results Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. For operator assistance during the conference, please press star zero. As a reminder, this conference is being recorded February 23, 2022. It is now my pleasure to introduce your host, Tali Kaplan-Porat, Director of Corporate Marketing. Thank you, Tali. You may now begin.

Thank you, and good day, everyone. Sapiens' fourth quarter and full year 2021 earnings release was issued before the market opened this morning and has been posted on the company's website at www.sapiens.com. Representing Sapiens on the call today are Rony Aldor, President and CEO, and Rony Gilady, our CFO. Before we start, I'd like to remind everyone that this conference call may contain projections or other forward-looking statements. The safe harbor provisions in the press release issued today also apply to the content of the call. Sapiens disclaims any obligation to update or revise any of these forward-looking statements, whether because of future events, new information, a change in its views or expectations, or otherwise. On our call today, we will refer to the non-GAAP financial measures. A reconciliation schedule showing GAAP versus non-GAAP results have been provided in our press release issued before the market opened this morning. A replay of this call will be available after the call on our investor relations section of the Sapiens website or via the website link which is available in the earnings release we published today. I will now turn the call over to Rony Aldor, President and CEO of Sapiens. Rony?

Thank you, Tali. I would like to welcome everyone to our call today to review Sapiens' fourth quarter and full year 2021 financial results. I will begin with highlights from our financial performance and give an overview of our progress in 2021, followed by Roni Gelady, who will review the financial results and our outlook for 2022. Before I begin, I would like to congratulate my global team on the outstanding job they did in 2021, often under challenging global market conditions. The team's efforts result in another year of record revenue and delivery excellence for the benefit of our customers. Starting with a brief comment on the financial results, acceptance finished the year on a strong note, with fourth quarter revenue growing 16.4% to $119.9 million, an operating profit of 18% on par with last year's results. We maintain profitability despite the increase in employee costs and higher than normal attrition in the second half of 2021, which our industry and many sectors continue to face. For the full year, revenue increased by 20.2%. 6% to $463.6 million, and we deliver an operating margin of 17.6%. These record results are a direct outcome of our talented team who, together with the quality and diversity of our product lines, validate our strategy. Sapiens' global customer-centric approach delivers consistent long-term growth, profitability, and cash generation. Our strategic priorities are the platform for our success, continuous product innovation and expansion of our offering, our land and expand approach, both geographically and with existing clients, and providing exceptional value to our customers across their life cycles. All of these strategic elements provide us with numerous growth levels. We continue to execute on our one hand to shake business model. Our approach combines cloud-based digital insurance platform with high quality program delivery, professional services, and cloud managed services. This model brings value to our customer as we are committed to a successful delivery. At the same time, this model brings value to us, allowing us to benefit from a robust, sticky revenue model with a significant percentage of recurrent revenue. We have delivered 17% compound annual revenue growth over the past 10 years and more than doubled our annual operating profit from 8.5% in 2017 to 17.6% in 2021. Part of our long-term success is the result of evaluating strategic additions or change to our business model to fuel future growth. Currently, we are exploring ways to leverage our platform with new distribution relationships that can maximize customer acquisition in key markets. As a result, we are initiating partnerships with a few leading global system integrators for specific segments, of our businesses. We are in the early stage of this conversation and we are encouraged by the level of interest. Looking ahead to 2022, we will continue to execute and grow while navigating the challenges that global businesses face in the current environment. Shifting to our regional performance in 2021, starting with Europe. Europe was the leading growth region for Sapiens in 2021, and it's projected to continue this robust growth in 2022. Revenue increased 38.5%, making 2021 of the best year for Sapiens in the region. We signed multiple new logos across various segments, and we saw substantial increase in our average deal size in the region. Important trends we experienced are in the increase in our engagement with the Tier 1 and 2, and a growing interest in life and P&C transactions. In addition, we are seeing traction from global carriers seeking a single solution that can be deployed across multiple territories. These trends that emphasize Sapiens differentiators in the market. We gain industry analyst recognition and won several key product awards. The continuous recognition of our European offering by Celent and Gartners bring further competitive advantage to Sapiens. In fact, we were the only one vendor recognized as a leader in two Gartner Magic Quadrant in Europe for both Life and PNC. We experienced substantial growth in the Life and Annuity and PNC thanks for the differentiation of our technology, functionality, and product excellence, together with our delivery capabilities. Sapience is successfully building long-term relationships with customers across tiers, including Tier 1 companies in European countries, where we have an established presence. We continue to add excellent references in the region, supporting our future growth. Our business in Europe also accelerates thanks to the recent acquisitions in the Iberia, which includes Spain and Portugal, DACH, which include Germany, Austria, and Switzerland, and the Nordics, which include Denmark, Sweden, Norway, and Finland. These acquisitions are examples of our successful land and expense strategy. Our market expansion brings influential customer reference and benefits of our local presence, promoting robust goals and pipeline build. In 2021, we completed the TI integration across products, employees, and customers. We are enjoying tremendous benefits from the acquisition, which enhance our already strong market presence in the Nordics. TS customers showing increasing interest in Sapiens offering, which we anticipate will contribute to our growth in 2022. As with prior acquisitions, we have improved the profit margin contribution for this business. In German speaking region, we have growing PNC pipeline and have successfully closed new businesses. In this strategic market, the combination of organic investments supported by local presence via the Suncumo acquisition has contributed to growth of our businesses and successful customer delivery, building our pipeline for growth in 2022. Our positive momentum in life and annuities in Europe is a mature and advanced pipeline representing significant engagement with Tier 1 and Tier 2 customers. Sales process with higher tiers can be lengthy, and we expect they will mature to full deals in 2022. Also, the APAC in South Africa regions continue to show growth. In these two markets, we enjoy growing traction and market recognition which we expect to continue well in 2022. In APAC, Sapiens was selected by BKI, a Thailand's leading non-life insurance, for one of the largest digital core transformation in APAC. BKI deployed multiple solutions from Sapiens that lowered their operating costs, improved underwriting and claims decision, and accelerated their product innovation for BKI. In South Africa, Sapiens' cloud-native digital solution was selected by APSA, one of South Africa's largest financial institutions, in their transformation from legacy system to launching its full digital insurance products. Now, let me move to update on North America. In the North America region, we have built a strong foundation for growth across people, product, and practices. Under the leadership of Jamie Uder, we have built a team that is scaling up the organization and accelerating our delivery. The pipeline is growing and we are optimistic that we can deliver improved growth in the second half of 2022. Overall, our PNC business in North America is continuously improving with stronger delivery capabilities and higher caliber professionals who have joined the team. We expect to see new wins and growing revenue in our P&C businesses in North America later 2022. The U.S. workers' core market is starting to recover after being impacted by the employment market slowdown. Our team is re-engaged, and we anticipate regaining traction in the second half of 2022. I'm pleased to say that our life and annuity business is gaining momentum again in North America. Our product and platform investments are producing results across both our core solution and component. Guardian Insurance is an excellent example where SAPIEN's life components were implemented with analytic solution to provide cutting-edge underwriting capabilities. Our pipeline for core suite for life and annuity is also growing, and in Q4, 2021, we were selected to perform a blueprint process with the North American carriers, which is the last stage before full deal closure. We are confident that our life and annuity businesses can deliver revenue growth in 2022 and build a solid pipeline toward 2023. Other parts of our North America business, like insurance and decision, continue to grow steadily, building a solid pipeline for 2022. We announced an important win with decision at guard. Berkshire Hathaway companies, a solid validation of our platform value to carriers and one that enhance our brand in the market. In third quarter of 2021, physician insurance select sapiens to transform insurance process and move to the cloud. Physicians deployed Ransurance Pro to replace their legacy process and automate the Ransurance for efficient processing and management. I'm encouraged to see the team achieving wins on this level. On the product front globally, let's look at how product innovation is lending new businesses. I've stated before that one of SAPIEN's top capital allocation priorities is R&D. Again, in 2021, we saw our commitment to innovations in our ongoing platform improve in return. Our cloud and digital offering, along with our decision platform, were goal levels for Sapiens in 2021, reflecting our investment over the past few years. We have consistently enhanced our cloud proposition. Today, our solutions are increasingly cloud-native, offering our customers greater scalability and performance. As a result, 90% of new deals are now delivered on the cloud, which increases recurrent and reoccurring revenue. We went live with Eastcorp Europe on the cloud to deliver on their vision to build special pan-European insurers. The East Coast Europe Gold Life in Germany is the first multi-phase strategy with five additional European countries to follow. East Coast Europe needed solutions to replace legacy platforms and tools that would allow them to adapt to market evolution quickly. This customer is an excellent example of our ability to deliver our multi-platform product line on the cloud in a global solution for large multinational company. In October of 2021, KW Speciality chose an expense-sapiens relationship, moving reinsurance management delivery on the cloud. KWS is benefiting from 24-7 accessibility and agility of the cloud and benefit of access to many services. This was a significant upgrade from their legacy spreadsheet-driven process and expand KWS competitive age. A primary goal for our product innovation is to assure an excellent customer experience for our clients. Therefore, a key focus is our ongoing development and improvement to advance functionality of our digital offering. Our digital suite includes a wide range of advanced digital solutions. Companies can rapidly deploy our digital solution as a pre-integrated model together with our core solution or agnostically as a standalone module across their existing core system. For example, Copic Insurance selected Sapiens Digital Suite to allow agents and staff to manage its pipeline, sell policies, and provide high-quality customer services in real time. Copic values Sapient's ability to improve the customer experience on multiple fronts while increasing employee efficiency and processes. Another business-lead innovation in our digital platform is our low-code, no-code approach that allows customers to move into the new markets rapidly with a fully configurable process automation. Customers can benefit from our advanced analytics, and machine learning capabilities to create predictive analytics and real-time analysis feature that can enable data-driven businesses' processes. As I mentioned earlier, we announced that Guardian Group selected Sapiens to smartly automate their underwriting process. They chose Sapiens Intelligent to accelerate their life and health underwriting and leverage our best practice, various data sources, and AI. The Atidot Predictive Analytics, a long-term insurance partner of Sapiens, was also part of this solution. Sapiens' extensive InsurTech ecosystem enhance the value proposition we provide to Guardian customers, promoting innovation and disruptive technology to open API architecture that delivers seamless customer integration. Our Sapiens decision is used by Tier 1 financial institutions to modernize traditional business rules management and enable quick response to market regulatory change. In the past few years, we have won several decision contracts with T1 carriers and have substantial growth, the penetration into the insurance market. As part of our increased focus on innovation, technology, and cloud services, we recently announced a new Chief Technology and Information Officer, Ilan Boganim. Ilan brings vast technology experience from his numerous leadership position in both solution provider and client side. At Sapiens, Ilan will lead our cloud journey and digital offering, as well as develop a coherent views across our product offering. Looking ahead to 2022, The global trends of accelerating digital transformation and changing customer expectation means that insurance must continue to modernize their system to remain competitive. Sapiens is well positioned to grow in its primary market. We will leverage our strongest year on record in Europe to continue the momentum in 2022 with a growing pipeline and in a few large deals with higher tier customers moving to closing. In North America, we have done the groundwork to return our PINCIP businesses to growth in the second half of 2022 and into 2023. We are pleased with the improvement in life and annuity that should deliver growth in 2022 and with the ongoing success of reinsurance and decision in North America. Ongoing product innovation continues to earn industry analyst awards and gain traction from the market. In most of our recent deals, we have provided customers with multiple software solutions from Sapiens, and the majority of our new wins are delivered on the cloud. And last, the expanding partner ecosystem collaboration helps our customers stay competitive in a rapidly changing market. We cannot ignore the challenge that 2022 brings. Together with our positive momentum with Tier 1 and 2 customers, the process of closing these deals, which are bigger in scope and size, can be longer. That being said, we are confident that we can close these deals. In digital transformation, insurance talent is critical in order to be able to successfully deliver the project. CEPENT is experiencing the same employment challenges that the global market is facing, with the big resignation in one hand and rise of employment costs on the other hand. We are building mitigation plans to address these challenges, leveraging our global presence, our near-shore and offshore location, and growing partners network we are building. Growth, profitability, and high cash generation are hallmarks of Sapiens. our solid footing in the global insurance market and ongoing recognition of our value proposition position us for continued success. We remain committed to execute our strategy to deliver growth and improve shareholder value. Now I would like to turn the call to Rona Giladi, our CFO. Rony?