Sapiens International Corp NV

Welcome to Sapiens International Corporation's 2025 First 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, Yafa Kohani-Frah, Chief Marketing Officer and Head of Investor Relations. Thank you, Yafa. You may now begin.

Thank you, Operator. I want to welcome you to the Sapiens Conference Call to review our first quarter of 2025 results. With me on the call today are Mr. Rony Aldor, President and CEO, Mr. Rony Dinadi, CFO, and Mr. Alec 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 provision in the press release issued today also applies to the content of the call. Statements expressly disclaim any obligation to update or revise any of these forward-looking statements, whether because of future events, new information, a change in viewer expectations, or otherwise. On today's call, we will refer to the non-GAAP financial measures. The reconciliation of GAAP to non-GAAP results 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 infrastructure relations section of the company website or via the website link, which is available in the early 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 Sapiens' first quarter 2025 Earning Call. This quarter showcased solid operational execution across our key regions, led by continued momentum in our last business with notable strength in North America. Demand is building for our solution and we believe we are well positioned with Robust Portfolio to meet the growing needs of our clients and capture new opportunities in the market. I would like to begin by discussing two exciting strategic M&A transactions that Sapiens recently announced. Sapiens has implemented a growth strategy that includes several levers to accelerate our businesses. an important one of which is acquisitions. Our approach is to explore strategic M&A opportunity and target that with assist sapiens to reach its strategic objectives, typically around the following areas. Adding complementary solutions to our portfolio that strengthen our value proposition and adding new capabilities to our platform offerings. Accelerate customer acquisition, attract top insurance talent, and drive scalable geographic expansion. On April 22nd, we announced the acquisition of Cadela, a leading intelligent automation company serving blue-chip life insurance clients in APAC market. This acquisition enhances the capabilities of our life platform and expands our footprint in APAC. Candela offers an end-to-end smart insurance automation platform along with digital services and solutions. The company brings 23 customers to seconds, primarily in the rapidly growing market of Singapore, Malaysia, Thailand, and Hong Kong, and South Africa. With an expanded physical presence in the region, we are better positioned to accelerate penetration gains in the APAC market. With nearly 30 years of deep industry expertise and teams of over 100 employees, Candela's strong track record will serve as an important catalyst to support Sapiens' strategy in APAC, while providing innovating new capabilities to Sapiens' global customer base. Candela's solutions are complementary to Sapiens' life insurance platform, which we intend to leverage to enhance our life offering globally. In addition to Candela, on April 28th, we announced the acquisition of Advantage Go, a leading commercial insurance software provider specializing in underwriting broadband solutions for both London market and broader global specialty and commercial markets. This strategic acquisition significantly enhanced September's global P&T proposition Adding cutting-edge underwriting workbench capabilities that address one of the most critical challenges in the P&C industry today. Managing, assessing, and writing risk more effectively. Our analysis shows that this market segment is rapidly growing across both North America and EMEA in correlation with insurers' need to improve their risk management. With Advantage Go, servants will expand across the London specialty market and other specialty hubs such as Bermuda and Singapore, and in the specialty and commercial markets across Kenya, APAC, and North America. Our vision is to integrate Advantage Go's solution into servants' insurance platform for PNC while also offering them as a standalone product. This approach enables us to address both new prospects and existing customers, enhancing our value proposition across multiple markets. This acquisition aligns with certain strategies to accelerate penetration to the London specialty market, enhance its value proposition to the P&C insurers, and strengthen its support for the insurance market. The London specialty market is a global hub for complex and high-risk insurance and reinsurance, where brokers and underwriters negotiate bespoke coverage primarily through London and London company markets. The London specialty market is one of the largest in the world and represents a significant opportunity for Sapiens to expand its footprint. The underwriting workbench segment is growing significantly as insurers recognize the value of sophisticated decision support tools. The demand for underwriting workbench is growing, and according to the research firm Celent, the number of workbench deals is expected to rise in 2025 and 2026. Advantage Go will also strengthen safety and value proposition in North America P&C market by enhancing its capability for insurers operating in the complex specialty and commercial lines. Now, moving on discuss the first quarter of 2025. Revenue in the first quarter of 2025 total $136 million compared to $134 million in the first quarter of 2024. In Q1 2025, we had a negative currency impact compared to Q1 2024. On a constant currency basis, our revenue would have been $2 million higher. In Q1, we continue to sign new deals and extend relationships with existing customers across both light and pink sea segments. Less than one year since the launch of our insurance platform, we are already seeing promising customer adoption, a clear indication that our strategic investments are resonating with the market and delivering results. We are continuing with transition of existing customers to the cloud, while also onboarding all new customers to Satan's cloud. Let's drill down into our original performance. First, our North America businesses continue its growth trajectory this quarter with accelerating demand for lifetime annuity solutions. Our lifetime annuity business has benefited from strategic investment we have made to drive growth, and our new business wins reflect the success of this initiative. In the first quarter, we have multiple wins with new and existing customers. which underscore insurers' confidence in settings to innovate, support businesses' transformation, and help solidify their competitive positions. During the first quarter, we signed a new life platform deal in North America, which is incremental to the two life platform deals signed in North America last year. As we reported this quarter, a major U.S. multi-line insurer expanded its partnership with us by selecting Sapiens' insurance platform for life and annuities, which includes Sapiens Core Suite for life and annuities, Sapiens Data Suite, and Sapiens Cloud Services. For nearly decades, this existing customer has successfully utilized Sapiens Underacting Pro, and the implementation of Sapiens' insurance platform will further accelerate its digital transformation. In addition, this quarter we had several goal lights across our last solution, course with Illustration Pro and Underwriting Pro, while also making innovative progress with several important project updates. During the first quarter of 2025, we announced the release of StepN's Underwriting Pro version 14, which has our award-winning, most advanced automated underwriting and new business case management system for life and annuities insurers. The release delivers significant technical enhancements, accelerates greater operational efficiency, seamless communication, and advanced AI-driven capabilities. Also, during this quarter, we announced the latest release of Sapiens Illustration Pro and Sapiens Application Pro, featuring enhanced automation, risk intelligence, and operational efficiency, empowering agents and advisors to illustrate policies, manage users, and integrate seamlessly with underwriting and sales platforms. Turning to work and compensation, this market continues to hold strong potential for statements throughout the US and Canada over the coming years. Over the course of the first quarter, our workers' compensation team has demonstrated the progress in the implementation of several key projects, as evidenced by the completion of two goal lines we see in Coreswift for critical workers' compensation upgrades. Let me switch to discussing the performance of our Coreswift PNC in North America. Sapiens continues to invest in North America's PNC platform with data suite integration set for 2025, which enables AI information and advanced analytics. I need to share that we signed a new PMC deal for client processing with North America-based customers in this quarter. With continued diligent investment in our platform, we are seeing initial positive trends in 2025, And as I mentioned before, the acquisition of Advantage Gold will enhance our P&C platform for North America market. Moving to Europe and the rest of the world. In European market and the rest of the world, which includes APAC and South Africa, demand for second solution remains solid. In quarter one, we secure multiple deals across Light and P&C with new logos, as well as existing customers in the region. We had a numerous successful go-live projects for customers with our EDITH Suite, ScoreSuite for Life, TIA Suite and Reinsurance Master Upgrades. A significant highlight in the quarter is the go-live with our existing P&C Customer Inbox as a leading insurance in the UK and second partner for over a decade. eSports provides tailored solutions for businesses and high-net-worth private clients. This importance sets forward indicative of eSports' commitment to enhancing business performance, resilience, and customer satisfaction. I want to highlight that eSports UK, with relation to Setem's latest cloud-native architecture, delivered an immediate average improvement of 30% in application speed along with improved operations productivity and more consistent services delivery. P&C expansion is a top priority for Settance, and the recent acquisition of Advantage Go strengthened our value proposition in specialty and commercial P&C markets while providing immediate access to the London specialty market. Moving to the life and pension segments. This quarter, we signed new deals with Universal Life, a living life and health insurance based in Cyprus. As part of the conditional agreement, Unilife will leverage second-course rates for life and pension to modernize its core insurance process and drive strategic growth initiatives. Following an extensive evaluation process, Unilab chose Sapiens, which validates our superior digital SaaS solution for both individual and group life pension projects. Also this quarter, one of the largest global life insurers has selected Sapiens' insurance platform for life and pension to drive digital transformation for its Czech Republic business, modernize its core insurance process, and accelerate its growth strategy. The insurer was looking to replace its legacy platform with innovative core systems that would empower the company to integrate new technologies and expand functionalities as it scales. Sapiens' robust cloud-based digital platform will optimize efficiency, simplify policy and trends management, and improve digital engagement for both customers and brokers. This collaboration expands Sapiens' presence in Central and Eastern Europe, reinforcing our commitment to delivering innovative insurance solutions worldwide. Moving to reinsurance, we are seeing growing demand for insurers across all tiers, high, medium, and low, as they look modernized and streamlined reinsurance operations. We continue to expand across North America, Europe, and APA with our reinsurance master and reinsurance store solutions. Moving to APAC region. The momentum at the end of last year has continued into the first quarter of 2025. The region remains a priority for us and will continue to focus on accelerating growth, which the Candela acquisition supports. In the quarter, we secure a new APAC win for PMC with Pioneer Insurers and Surety Corporation. The leading insurance provider in Philippines, Pioneer chose Sapient's insurance platform to drive its digital transformation and UX enhancement. This is an important new win in the region that reinforces our strategy to improving core processing throughout our advanced technology, enabling our customers to navigate evolving market trends with precision. Innovation remains a cornerstone of our playbook. Our AI-based acceptance insurance platform continues to evolve with specializations in addressing the unique requirements of each business vertical or domain. We are integrating AI across our core data digital solution to enhance automation, improve decision-making, and drive greater efficiencies for insurers. By embedding AI-driven capability into our core system, we enable smarter underwriting, more accurate risk assessments, and streamlined claims processing. Our roadmap is robust as we continue to develop a holistic, Gen-AI-based co-pilot experience across the entire platform, further enhancing the value we deliver to our customers. Before I wrap up, I would like to reiterate our focus for 2025. We are committed to building a robust pipeline and expanding our client base across all key markets. To support this commitment and achieve our goals, we are focusing our teams and resources on, first, platform innovation and advanced AI capabilities. we will continue investing in Sapiens Intelligent Insurance Platform to drive sustainable growth globally and improving our competitive position. Second, increase cross-sell to expand relationships with existing customers. Cross-selling to existing customers represents a significant opportunity for growth. Third, accelerating cloud adoption for our existing customers through a scalable, efficient SaaS model. Our advanced solutions are experiencing strong momentum in customer utilization and we remain on pace to achieve our target penetration rate over 60% within the next five years. Four, enhance growth in our life businesses globally. The demand for life system transformation is strong as insurers seek To modernize legacy infrastructure, the market shifts present a significant opportunity for our life offerings. Fifth, we will continue building out our system integration partnership globally. Our partner is strong standing and we are enthusiastic about the new opportunity resulting from our collaboration with system integrators throughout the global market we are operating in. And lastly, following the Advantage Goals position, we see an opportunity to expand our global P&C platform with underactive workbench and risk management capability and strengthen Sapiens' value proposition across global commercial specialty and London market segments. I will turn the call over to our CFO to provide more detail on our financial performance, Rony.

Thank you, Rony. I will begin my commentary by reviewing the first quarter, 2025, non-GAAP results, followed by comments on the balance sheet and cash flow. I will wrap up with our updated guidance for 2025. Revenue in the first quarter of 2025 totaled $136 million, an increase of 1.4% compared to $134 million in the first quarter of 2024. In Q1 2025, we had a negative currency impact compared to Q1 of 2024. On a constant currency basis, our revenue would have been $2 million higher. Looking at our revenue by geography, revenue in North America totaled $57 million and in terms of 3.1% compared to last year. Revenue in Europe totaled $67 million, a decrease of 1.8% compared to last year. On a constant currency basis, our revenue in Europe would have been 0.6% higher. Revenue in rest of the world, that includes South Africa and APAC, totaled $12 million, a 13.4% decrease compared to last year. For Q1 2025, our annualized recovering revenue, ARR, totaled $187 million, reflecting 11.8% increase from Q1 of 2024, coming mainly due to new logo we signed last quarter. Our revenue mix showed that revenue from recurring software products and reoccurring product and services increased year-over-year by 14.7%. to $108 million compared to $94 million in Q1 of 2024. Recurring and reoccurring revenue in Q1 2025 represents 79% of total revenue. Revenue complementation in total $28 million compared to $40 million in Q1 of 2024. This reflects the completion of several go-live projects and the expansion of existing implementation projects over longer time frames. Additionally, revenue from day we signed in Q4 of last year is expected to materialize and ramp up starting Q2 of this year. Moving on to profitability. Gross profit in the quarter was $63 million compared to $61 million in Q1 of 2024. The gross margin in the quarter was 46.3% compared to 45.4% in Q1 of 2024, representing an increase of 90 basis points. The increase in gross margin was preliminary due to higher recurrent and reoccurrent revenue ratios. Operating profit in the first quarter of 2025 was $25 million, compared to $24 million in Q1 of 2024. Operating margin was 18%, slightly lower than the 18.1% margin in Q1 2024, and in line with our targets. Net income attributable to staff and shareholders for the first quarter of 2025 was $21 million, an increase of 1.3% compared to Q1 of 2024. Earnings for diluted shares was $0.37 for the first quarter of 2025, compared to $0.36 for the comparable period. Turning to our balance sheet. As of March 31, 2025, we had cash and cash equivalents and short-term deposits totaling $206 million and debts of $20 million. In April 2025, we paid a cash dividend of $16.8 million, or $0.30 per share, for the second half of 2024. The dividend is in line with the company policy of distributing on semi-annual basis up to 40% of its annual non-draft net income. In addition, the Board of Directors has approved distribution of a special cash dividend of $0.36 per share, or $20.1 million in total. In declaring the special dividend, the Board of Directors evaluated Tatian's financial stability and determined that issuing the special dividend was both prudent and an appropriate way to reward our long-standing shareholders. A drafted free cash flow for the first quarter of 2025 was $23 million compared to $17 million in Q1 of 2024. Let me now review our revised guidance for 2025. Revenues. Today, we are raising our long-term revenue guidance to a range of $574 million to $578 million, from previous range of $553 to $558 million, representing growth of 6% at the midpoint. Profit. We are also revising our non-GAAP operating profit to a range of $94 million to $96 million, with operating margin of $16.5 at the midpoint. From a range of $98 to $102 million, with operating margin of 15% at the midpoint. We expect Q2 2025 operating profit to bring the range of $20 to $21 million. The revised revenue and operating profits guidance assumes the following. Revenues. Currency fluctuations are expected to impact our revenue going forward, primarily driven by the strengthening of euro and British pound against the USA dollar. In addition, in April, we signed an agreement to acquire Candela and APAC, an advantage goal in the UK, and we expect both transactions to close towards the end of the second quarter. We currently anticipate the aggregate impact on revenue to be approximately $21 million at the midpoint. Profits. Profit and exchange movements are expected to have positive effects on our profitability, offset by the impact of recent acquisitions. While Candela is expected to contribute positively to profit in QPO, Advantage Go will remain loss-making throughout the year. Please also note that Candela and Advantage Go were subsidiaries of a larger organization, and not all their assets and functions were consolidated under a single legal entity. This adds complexity to the integration process, including areas such as cloud migration, legal entity closure, and infrastructure. we anticipate that the aggregate impact on profits to be approximately negative of $5 million at the midpoint. In summary, while we see short-term dips in our profits and margins due to acquisition, the strategic value and recurring revenue stream from this acquisition position us for robust growth and enhanced profitability in the future. Looking ahead to 2026, we expect our revenue growth to be in the mid to high single digit range. And we are also looking to improve profitability as we have proven successfully in past years. Please note that the recent proposed tariff changes currently do not have direct impact on Sapiens. However, they may pose a risk if they affect our customer, which could, in turn, impact our result. We did not include TARIF's impact on our KM guidance. Before I turn the call back to Anil Do, I would like to reiterate that we remain fully committed to disciplined execution of our strategy, driven growth, and long-term profitability. Thank you. I will now turn the call back to Anil Do. Anil?

Thank you, Roni. We delivered a solid first quarter, reflecting the progress across our key markets. Our continued investment in our insurance platform remains a critical driver of growth. In summary, Q1 2025 marked another quarter of operational progress. We remain committed to deliver long-term growth across all our key territories, We are continuously exploring M&A opportunity, and our most recent acquisition of Advantage Go and Candela will serve as a channel to enhance our go-to-market strategy in key regions we are targeting in order to accelerate our growth trajectory. 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 1. If you wish to cancel your request, please press star 2. If you're using speaker equipment, kindly lift a handset before pressing the numbers. Please ask your question in a loud and clear voice. Please stand by while we poll for your questions. The first question is from Dylan Becker of William Blair. Please go ahead.

Hey, everyone. Nice to be out here. Hope everyone's well. Maybe Ronnie A or Alex, starting with you. On the underwriting workbench side, this is an area we've continued to hear kind of positive momentum around in the P&C space. And you kind of touched on it in the prepared remarks. But wondering how you think about that acquisition in particular, the opportunity to kind of accelerate some of the traction and momentum you're pushing forward on in North America as well as globally. And then for Ronnie G, how do you think about the benefits to the model from that transaction as well as it relates to kind of the growth profile of that business, the gross margin component, the recurring mix as a part of this kind of ongoing model evolution?

Hey, Dylan. This is Alex speaking. So first, let's talk on the market acceleration points. We've seen the underwriting space rising very substantially over the past year, a lot of pressure in the market, the need of the PNC industry to run better risk assessments and to connect it with processes. We saw great traction on this, and this is very much in line with our strategic approach to the market and with our platform offering. We see the Advantage Go acquisition serve us across multiple aspects of our business. When we look, we can speak about the support that it's going to bring us in the U.S. market. We see many, many deals of underwriting in the U.S. market, and connecting it to our platform is definitely answering the market needs. Similar approach in Europe on the P&C side. I'd like to uniquely add also the London market, which is close to $60 billion dollar GWP market that we today are not active in, but it allows us to go straight into this market with a strong product. And this is also helping us, we expect it to help us on the cross-sell, because we can take it back to all our existing customers based on the P&C side globally, both US and Europe, and enhance our offering to them.

Even regarding the metrics of the model implication of this acquisition, so obviously, as we mentioned, we expect with this transaction that overall staff parents grow next year from mid-single digits to mid-to-high single digits. Specifically, if I'm going to Advantage Grow, they are expecting to grow next year, double-digit growth. And in terms of metrics, their growth margin is higher than Sapien today, about 60%. If we look at tapience overall, we have about 33% of our revenues coming from ARR, and they are slightly above 50%. Obviously, from a profit perspective, they are today losing money, but as we mentioned, we expect to move gradually over this year in 2026 and be profitable in 2027. So a lot of upside in terms of growth, growth margin in ARR, and as we've been able to successfully do transition of other companies to profit, we expect to do this also with Advantage Group.

Okay, fantastic. Very helpful. Thank you there. Also, it seems like the life side is continuing to see healthy kind of broad-based momentum. We've talked about kind of competitive dynamics there in the past, But how should we think about that kind of step up in the L&A business today, kind of the share of the mix that it currently represents, maybe its growth profile, and how you think about kind of the evolution on the L&A side of the house as well?

So from Alex again, from the business perspective, definitely we see continuation of the trend that we reported over the last couple of quarters. Strong demand on the light side. across, again, North America and Europe. In North America, we see the platform proposition combining core suites together with the underwriting illustration and application connected to digital and data as a whole. It makes a huge market differentiation. It brings a lot of traction in the market. The pipeline keeps on growing. and the business keeps on growing, we expect to continue this trend. And similar trend in Europe and UK, where we also start to enter into sales processes on pension and retirement. If we focus most of our business in Europe on protection and risk, we are also stepping into the wealth and the investment management and the pension. So both sides, we see and expect to continue the growth.

Also from, this is Ronny G, also from the metrics perspective, we see a gradual increase of overall life on overall revenue of sapiens. So if we ended, usually we are providing this metric by the end of the year, right, for 25. This was already 26%. And if we compare to Q1 of 2024, we are almost 380 points more. So from 33% to 26%.

Okay, great. Thank you, guys.

Thanks.

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

Hi, thanks for taking my questions and congratulations on Strong Quarter. I was wondering if you could talk about how you see the revenue progressing, playing out through the rest of the year, if there'll be any kind of heaviness towards the end of the year, or if it will be evenly dispersed. And then if you could just talk about some of the drivers contributing to your outlook.

Hello. Yes, I will answer. I think I heard the first section. So if we look at the revenue stream going forward this year, 2025, We didn't close the two acquisitions that we mentioned, neither the advantage go or candela, but we expect them to close during the end of this quarter. So we see gradual increase in Q2, but then jump into Q3 and Q4, between them slightly higher in Q4 versus Q3. So gradual increase in Q2 depends on the closing date, and then higher in Q3 and Q4, higher than Q3.

Got it. Yeah, and Ben, could you just mention any of the drivers you are seeing behind the outlook?

In terms of overall growth of the company, nothing has changed from the previous outlook that we gave. The growth is the continuation of the organic growth that we mentioned, plus some currency tailwind that affects the revenue and, of course, the acquisition. We are not sure about the exact consolidation date, so this is the reason that this is the number that we provided, but mainly continue of the organic growth, currency tailwind, and the M&A.

Got it. Thanks. That's it for me.

Thank you. Thanks.

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

Hi, this is Elise Kenner on for Alexey Gogolev. Thank you for clarifying the guide. Is there any further detail you can provide on how much exactly is a currency tailwind versus how much you contribute to inorganic growth? Thank you.

Hi, this is Roni G. As we mentioned, we do not know the closing date, and therefore we are not providing the split of the currency and versus the M&A impact. We will provide this by the end of the year, the exact amount as we have done all the time in terms of currency and M&A. The currency that landed is the amount that we are providing, $21 million incremental. What I can say, vast majority is coming from the M&A and slightly on the currency payment.

Got it. Thank you. And then in terms of getting the 60% of customers to the cloud, Should we expect that to look like a bell curve and are we still kind of on the left side, maybe approaching the peak where you'll see the most transitions to cloud?

Thanks. We are seeing the trend that we mentioned last quarter and prior to that. We are continuing moving to the cloud existing and new. As we mentioned all the time, almost 100% of the deals, if not 100, are on the cloud, the new logo. And every quarter we are shifting some existing customers to the cloud. We provide the exact percentage by the end of this year.

Got it. Thank you so much.

Thank you.

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. Cohen Ifrah 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 1-888-269-005. In Israel, please call 039255938. And internationally, please call 9723-9255938. Ms. Cohen Ifrah, please Go ahead.

Thank you, Yoni. And thank you, everyone, for joining our call today. We really look forward to discussing our first quarter results on our next – our second quarter results on our next earning call. And, of course, as usual, we welcome you to contact us if you have any further questions. Thank you all for joining.

Thank you. This concludes the State Inns International Corporation First Quarter 2025 Results Conference Call. Thank you for your participation. You may go ahead and disconnect.