Sapiens International Corp NV

Welcome to Sapiens International Corporation's 2024 Fourth 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. It is now my pleasure to introduce your host, Yaffa Coy-Nifrach, Chief Marketing Officer and Head of Investor Relations. Thank you, Yaffa. You may now begin.

Thank you, Operator. I want to welcome you to the SAPIENS conference call to review our fourth quarter and full year results for 2024. With me on the call today are Mr. Ronny Aldor, President and CEO, Mr. Ronny Giladi, CFO, and Mr. Alex Zuckerman, 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. The safe harbor provisions in the press release issued today also apply to the content of this call. Sapiens expressly disclaimed 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 of gap to non-gap result has been provided in our press release, which was 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 Roni Aldor, President and CEO of Sapiens. Roni?

Good morning, everyone, and thank you for joining us today for SAPIEN's fourth quarter 2024 earning call. Our revenue in Q4 was $134 million, a 2.6% increase compared to last year. This quarter showcased solid execution across our key regions and continued expansion of our core life businesses. In quarter four, we signed over 15 deals with new and existing customers across Life and PNC. Since the launch of our insurance platform in June 2024, we successfully closed three platform deals globally, reflecting the positive impact of our insurance platform. Overall, in 2024, we signed 36 deals with new and existing customers, We continue to transition existing customers to the cloud, ending the year with a total of 169 customers on the Sapiens cloud, and we see a great potential to accelerate the cloud transition. Let's drill down into our regional performance. First, as promised, our North America businesses deliver robust growth in 2024. During Q4, we closed five wins with new and existing customers. These wins reinforce insurance, trust in Sapiens to innovate and drive business transformation, enabling them to remain competitive. Our life and annuity businesses continue to expand in quarter after a few successful North America go live and upgrade for our business application. We also continue to grow with new logos. The pipeline for North America life businesses is robust, reaching historical levels. Recognizing our commitment to product innovation, one of our key investment areas and growth driver, Sapiens has been honored for the third consecutive time by Celent. We received the 2024 Excellent Award for Customer Base and support for Underwriting Pro, for life and annuities in North America, reinforcing our leadership in life underwriting solutions. These awards recognize Sapient's exceptional solution that empower insurers to streamline their processes and achieve superior customer outcomes. Let me switch to discuss our course with PNC in North America for 2024. In Q4 of 2024, a leading property and casualty underwriting agency, a provider of solution for specialty insurance need, including flood and fine arts, went live on BillingPro, complementing their core solution of PolicyPro and ClaimsPro already in production. This go live with additional application is an example of how our insurance platform enables customer upselling. Overall, the PNC team in North America completed over 10 upgrades project this year. We see customers upgrading the entire policy suite, billing and claims. Additionally, we execute the cloud transformation for tier two insurance carriers that provide specialty risk solution across North America. This project includes upgrading to our latest Policy Pro release, which will be completed in early 2025. In quarter four, we release version 12.1 of Core Suite of PNC, which include a technology upgrade, significant improvement to operational monitoring, functional enhancement and integration to Sapiens Digital Suite for both the agent and the consumer and several insurtech partners. These enhancements provide our customer with additional capabilities and improvements that enable businesses growth and enhance platform sufficiency, easy to use distribution and automation. Sapiens continue to invest in North America PNC platform with data suite integration set for 2025, which enables AI automation and advanced analytics. The launch of our PNC platform with the product upgrades will help to enhance our competitive position in North America market and aligns with our go-to-market strategy of driving increased connection to our data and digital platform offering. Moving to Europe and to the rest of the world, In Q4, we signed 10 deals across Life and PNC with new logos, as well as existing customers in Europe and the rest of the world. We have had several successful Go-Life projects for customers with our Core Suite Clive solution, EDIT Suite, TIA Suite, and Reinsurance Master. In the European market and the rest of the world, which includes APAC and South Africa, Demand for sapient solutions remains robust, as evidenced by our growing pipeline. There is a continued demand for SaaS platforms across all solution lines and tiers. We are also experiencing increasing demand for AI-driven solutions, as clients increasingly want to leverage AI to enhance operational efficiency and elevate customer experience. In P&C, the demand for Sapiens solutions remains strong despite the extended sales cycle as evidenced by improved deal close momentum at year-end. In the fourth quarter, we signed new P&C deals with both new and existing customers in Europe and the rest of the world. I want to highlight a few new wins this quarter including a leading Sapiens customer in the Nordic region who migrated to the Sapiens Cloud with a significant SaaS agreement, leveraging our Microsoft Cloud strategy and investments. In APAC, we continue our market expansion and strong momentum and close an important PNC platform deal with a leading insurer in the Philippines. This is our first win in this country. Another highlight is Go Live with Sapiens Data Suite for a long-standing customer base in Africa. Having been with Sapiens for nearly two decades, this tier one customer migrated its data platform to the cloud in a consolidated enterprise-wide view to improve performance and productivity while enhancing security and the overall user experience. A few comments on life and pension. This quarter we signed a new platform deal in Europe We also completed several goal lives in the region. The demand for Sapiens Life platform remains strong, as demonstrated by our growing pipeline. We see significant uplift in RFPs coming to the market and to Sapiens, indicating strong market demand across Europe and South Africa. Although sales cycle in the life tend to be more extended than P&C, as the offset deal size are much larger. Moving to reinsurance. We continue to expand in North America, Europe, and APAC with our Reinsurance Master and Reinsurance Pro solution. And in this quarter, we close new deals with new and existing customers. Let me highlight a couple. In North America, an existing customer, a leading global insurance and investment provider for commercial P&C insurance select Sapiens Reinsurance Master. A major European London market insurer selects Sapiens Reinsurance Master to modernize its highly specialized London market operations. This is the first London market insurer to utilize Sapiens' innovative London market operational reporting services and underwriting supporting messages feature for Reinsurance Master. Lastly, we closed an insurance master deal in the Philippines. On the product front, in the third quarter, we rolled out the Sapiens Decision Underwriting Accelerator, a cutting-edge solution designed to enhance underwriting efficiency and significantly improve straight-through processing for property and casualty insurers. As I mentioned earlier, we launched our AI-based Sapiens insurance platform in June 2024. The platform specialize in meeting the unique requirement of each business vertical or domain. We are integrating AI across our core data and digital solution to enhance automation, improve decision making, and drive greater efficiency for insurers. We enable smarter underwriting, more accurate risk assessment, and streamline claims processing by embedding AI-driven capabilities into our core system. Our AI-powered solution leverage advanced data analytics and machine learning to provide actionable insight, optimize workflows, and enhance operational agility. Sapient's intelligent SaaS solution will help insurance modernize their operational improvement, customer experience, and stay ahead in digital and data-driven industry. We are focused on connecting the power of generative AI within our comprehensive vision of using AI to drive business operations. Our latest platform release demonstrates this focus, incorporating powerful AI capabilities that enable both efficiency and decision-making. For agent and broker, our platform delivers a digital portal offering a 360-degree view of customer and prospects, combining GenAI for summarized QA, know your customer, and a suite of machine learning models for strong risk assessment and predictions. Claim handlers and underwriters benefit from our co-pilot GenAI capabilities, which exponentially amplify their ability to manage tasks. Additionally, we have streamlined business rules configuration, enabling the creation of decision trees and rules via GenAI and automated data mapping for documents and later using AI. Looking ahead, we have reached a roadmap to create holistic and GenAI co-pilot experience across the entire platform, further enhancing the value we deliver to our users. Our strategic partnership with Microsoft is instrumental in driving our product innovation, which is cutting-edge AI technology that differentiates our platform's digital transformation capabilities in the insurance industry. In January 2025, we announced the availability of Sapiens SaaS solution in the Microsoft Azure Marketplace. Microsoft Azure customers can purchase Sapiens SaaS solution, enabling them to leverage Azure scalability, reliability, and agility to drive their application development and shape their business strategies. Moving to system integrators. Sapiens continue to make progress this quarter in its collaboration with system integrators. This emerging channel is open doors to insurers that were previously beyond our reach, expanding our market opportunity and our pipeline. In 2024, Sapiens formalized a commitment and internal process to support an SI alignment model for our go-to market and delivery. As a result, in 2024, we closed a significant live platform deal in North America with the SI partner, Also, SI were involved with a meaningful number of opportunities. Sapiens continued to strengthen its existing partnership with Deloitte globally and with LTI Maintree in North America. We also developed new partnership with CoForge, LORIMA, Cognizant, and other regional SI. We are excited about the outcomes our growing SI relationship deliver and will continue to develop this valuable channel as a top strategic initiative in 2025. Before I wrap up, I would like to share our focus for 2025. Our commitment to building a robust pipeline and expanding our client base across all key markets remains solid. To support this commitment and achieve our goals in 2025 and beyond, we have identified the following areas of focus for our teams and our resources. First, platform innovation and advanced AI capabilities. We will continue to invest in Sapiens Intelligent Insurance Platform, focusing on innovation and client success aims to drive sustainable growth globally and improve our competitive position. We will continue to actively integrate AI into into our offering to enhance various aspects of our customer operation. In addition, we are integrating AI tools into our implementation and delivery process to reduce implementational costs. Second, increasing cross-sell to expand with existing customers. Cross-selling to existing customers presents a significant opportunity for growth a specialty considering that most of our customers currently only have one Sapiens product. We have done extensive analysis to validate the cross-selling opportunity for our core business application, data, digital, AI, and decision solution. By identifying and targeting the specific needs of our customers, we can introduce them to additional solutions that complement their existing solution. We are also increasing our investment in the client management and relationship building by expanding our client partners team and our account management team within our divisions. This effort extends across our entire customer base to drive deeper relationship, maximize customer value, and unlock new growth opportunities. Cross-selling as a shorter sales cycle compared to acquiring new customers allow us to achieve faster revenue growth. Third, accelerating cloud adoption for our existing customer through a scalable and efficient SaaS model. This transition supports our long-term customer relationship and will drive sustained growth and value creation. We now have a unique opportunity to accelerate cloud adoption as our new SaaS solution offers exclusive benefits such as AI-driven capabilities that are not available in older versions. Four, we aim to enhance our growth in our life and pension and annuities businesses globally. The demand for life system transformation is strong as insurers seek to modernize legacy infrastructure. This market shift presents a significant opportunity for our life offerings. Sapiens Life solution featuring market leading components seamlessly integrated into a powerful platform provide a strong competitive advantage in differentiation. This position us as a market leader and we are already gaining significant momentum. Our objective is to capitalize our Momentus pipeline, which currently is the highest among all Sapiens products. And lastly, we continue building out our system integrator partnership globally. In 2025, there will be a focus on developing a new pipeline with SI partners, while formalizing enablement, training, certification, and joint delivery models to continue to support the strategy. there will be an increased focus on maturing the model in North America to support the growth plan in the region. In summary, Q4 2024 marked another quarter of growth and operational progress, and we remain committed to delivering long-term growth across all of our key territories. I will turn the call over to our CFO to provide more details on our financial performance.

Thank you, Roni. I will begin my commentary by reviewing the fourth quarter and full year 2024 non-GAAP results, followed by comments on the balance sheet and cash flow. I will wrap up with our guidance for 2025. Revenue in fourth quarter of 2024 totaled $134 million, an increase of 2.6% compared to $131 million in the fourth quarter of 2023. In Q4 2024, we had currency headwind compared to Q3 of 2024. On a constant currency basis, our Q4 revenue were $2 million higher than the reported Q4 revenue. Reported revenues for Q4 and the full year were in line with the update guidance we provided last quarter, despite the currency headwind in Q4. For Q4 2024, our annualized recurring revenue, ARR, reached $175 million, reflecting 6.5% increase from Q4 of last year, higher than the total reported revenue growth during the same period. Our revenue makes sure that revenue from recurring software products and reoccurring post-production services increased year-over-year by 7.7% to $97 million compared to $90 million in Q4 of 2023. Growth of this segment was higher than the overall reported growth, in line with our strategy to increase recurring and reoccurring revenues. I want to emphasize that recurring and reoccurring revenues in Q4 2024 represent 72.5% of total revenue, reflecting 3.4% increase compared to Q4 of last year. Moving on to profitability. Gross profit in the quarter was $63 million compared to $59 million in Q4 of 2023. The gross margin in the quarter was 46.7 percent compared to 45.4 percent in Q4 of 2023, representing an increase of 130 basis points. This increase in gross margin was primarily due to higher recurring and reoccurring revenue ratio of total revenue with higher gross margin than gross margin from one-time implementation. Operating profit in the fourth quarter of 2024 was $24 million, similar to Q4 2023. Net income attributed to SAP and shareholders for the fourth quarter of 2024 was $21 million, up 3.1% from $20 million in Q4 of 2023. Earning per share was $0.37 for the fourth quarter of 2024, up from $0.36 of the fourth quarter of last year. Turning now to full-year results, for the 12 months ended December 31, 2024. 2024 revenues totaled $542 million, up 5.4% compared to $515 million in 2023. We met our full-year updated revenue guidance, which we provided in Q3, despite the currency headwind happened in Q4. Turning to revenue mix. In 2024, revenue from recurrent software product and reoccurring post-production services total $390 million, compared to $342 million in 2023. a 48 million increase or 14.1% growth. This recurring and reoccurring revenue represents 72% of our total revenue in 2024. Moving to geographic breakdown. Revenue in North America represents 42% of total revenue. Our European revenue represents 50% and the rest of the world represents 8% of total revenue. Growth in 2024 was derived from growth of 6.3% in North America, 4.9% in Europe, and 3.7% in the rest of the world. We do not have customer concentration, as evident by the fact that our top 10 customers represent 21.5% of revenue, with no customers representing more than 5% of total revenue. Gross profit increased by $16 million in 2024, while gross profit margin increased by 60 basis points to 45.9%. The main reasons for the gross margin improvement are a better ratio of recurring and reoccurring revenue than last year and improved in-offshore ratio. Our operating profit increased by $5 million or 4.8%. The operating margin was 18.2%, which is in line with our guidance. Despite the increase in gross margin of 60 basis points, our operating margin declined by 10 basis points versus 2023. Due to our strategic decision at the beginning of the year to increase investment in sales and marketing in absolute dollar and as a percentage from total revenue. Net income attributable to SAP and shareholders for 2024 was $83 million, up 10.5 percent from $75 million in 2023. Earnings per diluted share was $1.48, up 9.6 percent from $1.35 in 2023. Turning now to our balance sheet. As of December 31, 2024, we had cash and cash equivalent and short-term deposit totaling $216 million and debt of $40 million. In January 2025, we paid the annual debenture coupon of $20 million. The last and final payment of $20 million is scheduled for January 2026. Turning to adjusted free cash flow. In Q4, 2024, we generated an adjusted free cash flow of $41 million, compared to $37 million in Q4 of 2023. During 2024, we generated adjusted free cash flow of $75 million, compared to $71 million in 2023. Our adjusted free cash flow represents 89.5% of our non-GAAP net income. proving our business model of converting net profit to free cash flow. Let me now introduce our guidance for 2025. Revenues. Non-GAAP revenue in the range of 553 million to 558 million, representing growth of 2.4% at the midpoint. This growth assumes currency headwind on revenue mainly to the euro and pound, which have weakened by 4 and 2% respectively, versus the USA dollar. On a constant currency basis, our growth rate would be 3.4%. Profit. Non-GAAP operating profit in the range of 98 to 102 million, with operating margin of 18% at the midpoint. On a constant exchange rate, our operating profit would be higher and implies an operating margin of 18.7%. The negative currency impact on operating profit is mainly due to the euro and pound weakening versus the USA dollar and the strengthening of the Israeli shekel versus the USA dollar. Let me elaborate on the factors impacting our 2025 guidance. In Q3, 2024, in Earnings Calls, we discussed the factors impacting 2024 and 2025 growth. Transition to SaaS, Core PNC North America, and macroeconomic uncertainty. We will now provide an update on these variables as they relate to our growth outlook. The transition to SaaS. We anticipate a similar impact on growth in 2025, as we mentioned in the earning call of Q3. With the transition of existing customer and the signing of new SaaS contracts, expected to create an estimated 2% to 3% revenue headwind. Core P&C in North America. Ronnie Eldor mentioned in his remarks that we are making a strategic investment in our P&C platform. and are already seeing early positive indicators. We expect this effort to provide contribution starting in 2026 and beyond. Macroeconomic uncertainty continues to persist across global markets, including North America, the Middle East, and other regions. We do not control these factors and cannot predict when they will stabilize. Those macroeconomic factors can lead to delay in signing new deals, which can in turn impact our revenue growth. As mentioned, those three factors that emerged in 2024 will impact our growth in 2025. In late Q4 of 2024, we had a strong deal closing momentum. Even with this strong deal closing momentum, the timing of this closing affects the pace of revenue realization in 2025, and as a result, our overall growth. I want to reiterate that we remain focused on accelerating a growth trajectory. To accelerate our growth beyond 2025, we are taking the following steps. Expanding new logo acquisition globally. We are strengthening our sales team, introducing our comprehensive insurance platform, and deepening our relationship with system integrator. Since we started our initiative to work with SI, we signed two new logos in North America through SI partnership. Driving cross-sell opportunity with existing customer. We are expanding our team and leveraging our pre-integrated insurance platform as a key enabler to cross-sell additional applications and maximize customer value. In 2024, cross-selling grew by 18% compared to last year. Three, advancing the transition of existing customers to cloud and subscription. In 2023, we successfully migrated seven customers to the cloud, followed by additional 10 cloud migration in 2024. The total number of cloud customers at the end of 2024 was 169. And we are focused on accelerating this momentum in the coming years. Currently, 28% of our customers are on the cloud. and our goal is to reach over 60% of our total customer within the next five years, reinforcing our commitment to long-term growth and higher ARR ratio. Before handing the call back to Ronnie Eldor, I want to reiterate that we remain focused on successful execution of our strategy, prioritizing sustainable growth and profitability. I will not turn the call back to Ronnie Eldor.

Ronnie? Thank you, Ronnie. We deliver a solid fourth quarter, reflecting the progress across our key markets. Our continued investment in our insurance platform remains a critical driver for growth. Most importantly, we are committed to deliver long-term growth across all of our key territories and reinforce our position as a trusted provider of intelligent insurance solution. I want to thank our global team for their commitment to excellence and growth and our investor for their ongoing support of Sapiens. I will now ask the operator to please open the call for questions.

Thank you. 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're 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. The first question is from Dylan Becker of William Blair. Please go ahead.

Hey guys, nice job here. Maybe, Ronnie, sticking with some of the 2025 initiatives, you called that kind of cross-selling and obviously accelerating the migration framework. You touched on a lot of the cloud customers landing more wall to wall, having that kind of full suite adoption approach due to the integration of the platform. I wonder how that kind of fuels your confidence in those two initiatives, given you do have a vast ecosystem of customers to migrate. and it seems that their propensity to kind of spend more and adopt more of the core platform continues to grow into the cloud as well.

Yes, hi, this is Ronier. To answer your question about the cloud and the platform, in both areas we feel very comfortable. We are a great many, as we said, but we have a huge potential for both of them. And this is also in our core platform, core system, also the business application as well. For the new clients, this is almost standard, so 99% are going with these two solutions. From the existing, there is still many opportunities ahead of us. At this moment, we are more... try to convince the customer to vote, but we are not pushing and this is our plan for the future for in the upgrade situation that they will have to push them to the cloud. So that's from my side, maybe Alex want to add?

So then just to add to what Roni said, this is Alex. When it comes to the existing customers, so again, reiterate what Roni said, We increased the pace of transferring existing customers from on-prem to cloud. Our plan is to continue and focus on that to reach the 60% level within the next five years. This is one clear target. The second one is the modular notion of the platform allows us to come back to our customer, to the existing customer base. and find their missing solutions that we can provide. So we see a large white space within our customer base and the connectivity of the platform. It means for them that there is a strong economy of scale and usability by taking those modules from us and not from someone else. And this is part of our offerings. Also there we see lots of interest and the plan is to continue in that. In order also to facilitate that, not on the product side, but on the sales side, we increased the team at Sapiens that looks after existing accounts. And we are encouraging them to go stronger after this customer base.

Maybe one more sentence into that. This year, we've been able to transfer 10 existing customers to the cloud. We see also increasing momentum on this opportunity. We've also been able to transfer big accounts that give a confidence that we are being able to do this with many customers of us going forward, and this gives us the notion of reaching 60% in five years.

Got it. Okay, thank you all. That was really helpful. Maybe to the life side seems to be another area of notable strength. Can you kind of give us a sense, maybe the dynamics, obviously, on that space that are pushing for faster modernization now, and maybe how we can kind of reconcile that or look back at some of the trends you've seen play out or you're seeing play out maybe on the life side relative to how the P&C modernization opportunity has played out over the last several years, too. That sounds really exciting as well.

So this is Alex again. So what we've seen on the life insurance space globally, strong focus on North America, but also in the rest, other parts of the world, strong emphasis of carriers to replace systems and to drive modernization on the life side. What we've seen in the past five to seven years in the PNC market is happening now on the life side. The PNC went a bit before the life into this replacement. and into this modernization process in general, now we see strong tendency on the life side. Digital combination of factors, one is the overall digitalization of the world, the strong competition that requires them to be tech savvy. The second part is the macroeconomics, the volatile stock market, the interest rate, the inflation, they all drive to stronger adoption of life insurance, especially on the individual side as it comes as a solution to the individual market. This is a great momentum for us also from timing perspective coming into the North America market with the platform approach that on this case provides a strong differentiation because we managed to combine several leading products and capabilities on a standalone basis to combine them into a holistic combined offering that really tick the boxes for the majority of needs of our customers and we see a great adoption on the platform notion with the customers it's a strong differentiation compared to our competition in the market so we feel very very strong on the combination of we have the right offering to the market powerful platform approach together with the macroeconomics that drives adoption to the life we feel we have a strong opportunity here

Okay, great. Thanks a lot. Really helpful there. Maybe one last clarification one for Ronnie G here. You guys gave out the constant currency revenue number and impact in the 2024, but any sense on constant currency from an ARR perspective in the quarter and how to think about 25 given the post-production strength we continue to see in the business?

Thanks, guys. Thank you. We grew this quarter 6.4% on the ARR versus the lower number 2% or 2.4% in the quarter in total revenue. Obviously, the ARR is going faster. The constant exchange rate obviously impacts the ARR. We need to add additional 1%, so we are 7.4% ARR growth in the company today. We are looking to increase this ratio going forward, going to 2005, 2006, and going onwards. And as we mentioned, we'd like to do a transition to the cloud, which will support this ARR, what we discussed a minute ago. And obviously, all the new customers are automatically on the cloud on subscription-based. So both of these factors will impact the ARR growth and increase the growth rate to 10% and onwards. Great. Thank you, guys.

Appreciate it. The next question is from... Chris Reimer of Barclays. Please go ahead.

Hi, thanks for taking my question. I was wondering if you had been thinking about M&A in the pipeline and if there's anything new around that, seeing as it's been a while since there's been any acquisitions by you guys. Just wondering what you're thinking on that right now, given the environment you're in.

I will start and maybe Roni and Alex will continue. Obviously, M&A is part of our growth hence and therefore we are pursuing for this opportunity. You are right, in the last two to three years we didn't complete any M&A. The main reason two years ago was the valuation and right now we are in, let's say, reasonable market in terms of valuation. We have an internal team that's looking for that, and we are pursuing several opportunities across the globe, North America and Europe. We are focusing on mid to small companies. Potentially, sometimes when there is opportunity, we are looking also for big organizations. I can emphasize that during 2024, we had a big opportunity in the European market. both on PNC and Life. We compete with several competitors to do this acquisition. At the end, came to the final two, and we lost again based on valuation. The price at the last point was unreasonable to us, and we dropped. I'm mentioning this to show the confidence that we are really engaged in this opportunity, and we are looking in 2025 to complete at least one M&A until the end of the year. So fully engaged in this opportunity to execute. We have the cash, and we are ready to do so.

Great. Thanks for that. That's great, Kohler. That's it for me.

The next question is from Alexey Gogolev. of JP Morgan. Please go ahead.

Hello, everyone. Ronnie G, I was wondering if you can elaborate on the comment you made about customer concentration. I've noticed that the top 10 now represent 21.5% versus 18.8% in 2023. And same with largest customer, which used to be just over 3% of sales. So can you maybe talk about what was the dynamics there, maybe reveal those large customer trends?

Hi, Alexei. This is Roni. Obviously, I think we have amazing metrics in terms of customer concentration, and there isn't anyone dependent on customer, as I mentioned. The biggest customer is only 4%. Yes, slightly higher than last year of 3%, but this is not material in terms of the total volume of Sapiens. Going forward, we are looking to keep this momentum of the same level, 21, 20% of the top 10 and less than 5% from the overall. We do not see any risk from this customer and obviously no tricks for Sapiens overall revenue.

Okay, thank you. And then a follow-up on Dylan's question about cloud. So as I understood, you've added 10 customers to Sapiens Cloud in 2024. It sounds like you're looking to add another 200 over the next five years. Can you talk about the pace that you're hoping to accelerate per year and what sort of carrots and sticks you have in mind in order to persuade these customers to migrate to the cloud?

Yes, obviously the growth from 28% to 60% looks a lot, but if you dive in into the figures, we basically came from two verticals. The first one that is ongoing all the time, as Enroni and Alex mentioned, All new deals that we are signing are on the cloud subscription. So this is by itself going to contribute significant amount of percentage to the 60% total volume. The second vertical is that we have almost 450 customers or slightly less customers that we sold several years ago and we are poaching them in order to persuade them to move to the subscription slash cloud over the years. Last year we did 10. We are looking to increase these factors even to 15, 20, and 30 going forward as the adoption for subscription slash cloud is going bigger and bigger as we speak. So coming from two vertical, new customer, and shifting existing one to a cloud.

And Ronnie, just to clarify a comment you made also earlier on the call, so 36 deals total in 2024, similar number to 2023, but could you maybe talk about the contribution to ARR and the average size of those deals? Has it increased year over year?

No, the contribution did not decrease, but in the early years, the contribution to the ARR is slightly smaller than as we continue. The contribution from the ARR is increasing as we're signing them. I think we had a higher number of deals that we signed from CrossSell, and sometimes CrossSell is already in the cloud, but every deal that we are signing, new logo, I contribute to the ARR. Again, in the early years, less than as we continue going forward.

Uh-huh. And are those deals mostly in PNC or in life or broadly equal?

Across the board.

Okay, perfect. Thank you, Ronnie.

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-Nifrach 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 03-9255-938. And internationally, please call 9723. Ms. Cohen-Ifrah, please go ahead.

Thank you for joining our call today. We look forward to discussing our first quarter results on the next earning call. We welcome you to contact us if you have any further questions. Thank you.

Thank you. This concludes the Sapiens International Corporation fourth quarter 2024 results conference call. Thank you for your participation. You may go ahead and disconnect.