Sapiens International Corp NV

Ladies and gentlemen, thank you for standing by. Welcome to the Sapiens International Corporation's 2022 Second Quarter Financial Results Conference Call. Sapiens' second quarter 2022 earnings release was issued before the market opened this morning, and it has been posted on the company's website at www.sapiens.com. All participants are present in listen-only mode. Following management's formal presentations, instructions will be given for the question and answer session. I would now like to hand the call to Ms. Dina Vinci, Sapien's Head of Investor Relations. Dina, would you like to begin?

Thank you, Operator. I would like to welcome all of you to Sapien's conference call to review our second quarter of 2022 results. With me on the call today are Mr. Rony Aldor, President and CEO, Mr. Rony Givadis, CFO, and Mr. Alex Zuckerman, Chief Strategy Officer. Following the summary of the results, we will all be available to answer any questions. Before we start, I would like to remind everyone that this conference call may contain projections or other forward-looking statements. The safe harbor provisions in the press release issued today also apply to the content of the call. PRECI disclaims any obligation to update or revise any of these forward-looking statements, whether because of future events, new information, a change in its views, or expectations, or otherwise. On today's call, we will refer to the non-GAAP financial measures. A reconciliation schedule showing GAF versus non-GAF results has been provided in our press release issued before the market opened this morning. A replay of this call will be available after the call on our Investor Relations section of the company website or via the website link which is available in the earnings release we published today. I will now turn the call over to Mr. Ronnie Aldor, President and CEO of Sapiens.

Thank you, Dina. I would like to welcome everyone to our call today. This quarter marks for us a steady and a confident step forward. Our revenue in the second quarter revenue grew 3.1% year over year to $118.6 million, or 8.9% on the constant currency basis. This reflects our ongoing growth from existing and new customers. In line with our strategy, we continue to grow our employee base offshore to support this growth while improving our profits. We now have over 2,000 employees in India to support our future growth and scale. These prudent actions increase our second quarter operating profit and lifted operating margin to 17.5%, an improvement of 30 basis points year over year. Let's dive into the business. The market sentiment in the insurance software market continues to be solid. While there is a sense of longer decision process, the market is need for digital transformation and this cannot be held back too long. Sapiens is well positioned with our broad product offering and global presence to be the vendor of choice for these large transformations. In addition, our large base of existing customers give us a solid ground for upselling and expanding our revenue and help us gain revenue visibility and confidence. We continue our R&D investment to maintain our leadership position, and we have increased our investment in sales and marketing, which results in our growing pipeline. The positive feedback from both our existing and new customers confirm that our strategy is delivering rewarding outcomes. We continue to see new opportunities and win new businesses. We currently have multiple blueprints as well as contract negotiations underway. Let's switch now to our regional performance. In Europe, our market recognition is growing, as is our pipeline. We are seeing bigger deals that include more products and regions than in the past. We are gaining more traction with higher-tier carriers. As we mentioned on previous calls, we have a potential European Tier 1 customer currently working with us on a large multi-company, multi-product deal. This has moved through the blueprint phase and recently added another country to the blueprint. However, a recent change in the customer management has impacted the closing of this deal. As a result, in 2022, we do not expect to recognize substantial revenues from this customer. We continue our deep engagement with C-level managers of this customer, and the tone is positive and productive. In the UK, our PNC pipeline in this market is expected to contribute already in the second half of 2022. One opportunity has completed the blueprint and has moved into the contracting. In life and pension in the UK, we have a growing pipeline that will generate new businesses in 2022 and onwards. We have a solid PNC pipeline in the DACH region where we see demand in all areas. Right now, there are a few important opportunities that are moving into the post-blueprint stage and contractual discussion. In addition, we start building pipeline in life and pension. The local presence we have built in this large German-speaking market and the local references we have are proving to be the great baselines for future growth. In the Nordic region, where we have become the dominant player, we have some significant opportunities in life and pension that are in contractual discussion. These deals where we originally planned to close in the second quarter, but now have shifted to the second half of 2022. In the meantime, we are working together based on the statement of work which we have signed with this prospect. This gives us confidence in our ability to close these new logos. There are also several attractive P&C opportunities in this region that are also progressing well. In the area region, we are advancing with new opportunities in all stages and expanding on our pipeline. In other European countries, we are working on new opportunities in various maturity levels. Overall, in Europe, we have a strong and growing pipeline, and the deal sizes are increasing as a function of our larger product offering. Our core digital and managed services offering with our global footprint is appealing to both mid-tier and high-tier regional and multinational carriers. As I mentioned, some of the deals that are currently in the process are likely to take longer to close than initially expected, especially where the scope of the deal has increased and requires more time and additional approvals. The most significant impact on European revenue was FX. mainly to the strong dollar. We remain very confident based on our product position, European leadership, and strong pipeline that Europe will continue to be strong growth region going forward. In North America, we continue to reap the benefits of our investments. In our life and annuity business, we have growing demand for our product offerings, components, and core solution. In the component, based on our investment and market recognition, we have close deals and we have a very strong pipeline in late stages. This quarter, we announced Equitrust, a new logo for our North America life business application. Equitrust is partnering with Sapiens on our next generation digital agent experience. Our end-to-end solution empowers Equitrust's team to increase sales, with more intuitive and engaging experience. Our award-winning suite of e-app, illustration, and digital solutions will provide Equitrust agents with smaller customer acquisition and service capabilities. In Core Suite, we have invested heavily to re-enter the U.S. market, and we are achieving notable progress. We are post-blueprint and are working together based on the statement of works towards signing the contract. Also, we have made significant progress with an additional prospect. Currently, we are in a contract finalization process. This gives us confidence in our ability to close these new logos. In reinsurance, we are a dominant global player. We have been expanding in our existing businesses as well as closing new businesses during the first half of 2022. we have a strong pipeline ahead of us of high and mid-tier customers. The workers' compensation market is showing signs of improving following the downturn during COVID. We now have a growing pipeline for our workers' compensation platform and expect to sign new businesses in 2023. In the second quarter, in COVID insurance, a Sapiens customer upgraded its offering with our core suite for the workers' compensation platform. Our North America PNC pipeline has grown and is maturing across several opportunities. We anticipate closing some new deals within the next six months. Thanks to the investment in the product, the team, and the partners in our ecosystem, we are turning the corner in PNC in this key market. In the second quarter, we announced a partnership with Mindtree to support insurance system implementations and help drive digital transformation. Mindtree brings extensive domain, technology, and consulting expertise and will focus initially on enhancing our delivery capabilities in our PNC business. South Africa continues to contribute to our growth. In the region, we have stepped up with a significant traction in both cross-sells and new businesses. With two of our substantial existing accounts, over the last six months, we have made significant cross-sell deals, expanding into digital, additional core systems, and et cetera. Another great example of our land and expense strategy is the deal with our existing customer, AllMutual, a leading insurance company in the region, combining two offerings, our analytics solution, and the reinsurance solution. This customer originally joined Sapiens through the TI acquisition. In APAC, we continue to see growing interest in the P&C offerings. We have completed the blueprint with the prospect in the region, and we are progressing with several other opportunities. Product remains a key competitive differentiator for Sapiens. Our ongoing investment in product development has continuously improved our competitive position in the insurance software market and gained the recognition of industry analysts. This quarter, CELENT recognized Sapiens' claims solution for P&C and workers' compensation on its 2022 reports for North America for standing out in functionality. We keep investing and progressing in our insurance platform proposition combining our core data, digital, and cloud offering into a complete platform solution. We see a strong acceptance and high interest from the market from the proposition. This has been reflected in selling multiple products per deal and our ability to cross-sell our digital and data solutions for existing customers. This includes deploying Sapiens Digital Suite as a standalone offering, and over non-Sapiens core product. We keep investing heavily in advancing our native cloud capabilities of our leading product and constantly maturing and enhancing the benefit of our cloud proposition. The vast majority of all of our recent deals are fully deployed in a public cloud, AWS and Azure, and we are taking advantage of our cloud services. Our marketing activities gave us helpful feedback and confidence in our strategy. In May, we hosted an executive council in Nashville where we met 30 C-level executives from our North America customer base and engaged in productive discussion. The feedback from this event was positive and confirmed that we are overcoming the challenges we face in the market. In June, we had an executive session in Spain with 70 C-level executives from prospective and existing customers to discuss our product and roadmap. We returned to participate in multiple industry events face-to-face both in North America and Europe. In addition, we are back to our Mega Clients Conference in North America, which will be taking place in November this year in Washington, D.C., Our M&A practice helped us accelerate our growth. Now that we have completed integration of recent strategic acquisition in DACH, Iberia, and the Nordics, as well as the market valuation are starting to come back to reasonable levels, we are carefully reviewing a few prospects, but not yet ready to pull the trigger on the deal. Looking ahead to the remainder of 2022, In this environment, we benefit from our product leadership, our large customer base, and our ability to balance growth and expenses with our offshore capabilities. Our pipeline is materializing, and our diversity gives us a solid spread of opportunities. Those deals that are delayed are not canceled and will close. We maintain deep discussion at the most senior levels with all potential prospects. I will conclude with a general comment on the market. We operate in a market in which digital transformation is essential. Now more than ever, carriers must have the agility and efficiency while keeping customer satisfaction level high in a very competitive industry. Underlining demand is not disappearing. Transformation projects are a must-have, not a nice-to-have. Customers might be more cautious in their decision process but the deal remained essential. Sapien's business model enabled us to navigate the current macroeconomic environment with added stability. Today, 85% of our revenue comes from existing clients, giving us steady and high-visible source of cash from operation. Our confidence in the insurance market and in our ability to address the market needs and maintain our leadership position remains high. We can confidently continue to execute our strategy to deliver growth and generate cash. Now I would like to turn the call to Roni Giladi, our CFO.