Sapiens International Corporation NV (SPNS) 2003 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to Sapiens' third-quarter 2003 results conference call. All participants are present in a listen-only mode. Following management's formal presentation, instructions will be given for the question-and-answer session. As a reminder, this conference is being recorded Monday, November 3rd, 2003. Hosting today's conference call is Sapiens' President and CEO, Yitzhak Sharir. Yitzhak is joined by Yuval Hadari, Sapiens' Chief Financial Officer.

I would like to state that, except for historical information, the matters discussed today include forward-looking statements that may involve a number of risks and uncertainties. Actual results may differ significantly, due to a number of factors and risks which are detailed in the Company's most recent annual report, and in its filings with the Securities and Exchange Commission.

I would now like to turn the call over to Yitzhak Sharir. Please go ahead, sir.

Hello, everybody. Quarter three showed small overall improvement in comparison with quarter three and quarter one, including regaining operating profitability of $0.2 million, and net breakeven for the quarter. I am proud of this achievement, and I expect the fourth quarter to reflect a continued improvement in our financial results.

We are starting to see the fruits of our long-term strategy. Our new offering to the insurance industry, the Sapiens INSIGHT Solutions Suite, has generated a high degree of interest on the part of insurance companies that need to control costs and modernize their systems. We are gaining market awareness and recognition. We're expanding our offering, and beginning to see new customers joining our established customer base.

I would like now to turn the call over to Yuval Hadari, our Chief Financial Officer, who will review the financial results of quarter three 2003. I will then discuss our business operations and review our progress going forward. Yuval, please?

Thank you, Yitzhak. As mentioned by Yitzhak, our financial results for Q3 show overall improvement. Compared to the second quarter of 2003, revenues remained at $13.4 million, while gross profit decreased 6.7 percent, from $6 million to 6.4 million, and the gross profit margin improved 6.7 percent, from 44.7 percent to 47.7 percent. The Company reported operating income of $0.3 million in the third quarter of 2003, compared with operating loss of $0.2 million in the previous quarter, and net income of $42,000, compared with a net loss of $0.4 million in the previous quarter.

Comparing with the results of the third quarter of last year, revenues in the third quarter of 2003 decreased from $16.6 million to $13.4 million. Gross profit were $6.4 million in the third quarter, compared with $7.4 million in the same period of last year, while gross profit margin increased to 47.7 percent, compared to 44.6 percent in the same period of last year. Operating income amounted to $0.3 million, compared with operating loss of $0.2 million in the same period of last year. The Company recorded net income of $0.04 million, compared with a net loss of $0.6 million in the same period of last year. Revenues for the nine months ended September 30, 2003 decreased to $38.8 million from $48.9 million in the same period of 2002. Gross profit in the first nine months of 2003 was $17 million, compared with $21.9 million in the first nine months of 2002. Gross profit margin was 43.8 percent, compared with 44.8 percent in the same period of last year. The Company's operating loss in the first nine months of 2003 was $2 million, compared with operating income of $0.8 million in the same period of last year. Net loss in the first nine months of 2003 was $2.3 million, compared with net loss of $0.3 million in the same period of last year. The backlog at the end of the quarter amounts to $52.8 million, a mild increase over the backlog of the previous quarters.

Cash on the balance sheet amounts to $20.2 million, compared with 24.6 million in the previous quarter. The decrease is mainly due to the final repayment of 10-year convertible notes amounting to $4 million.

That concludes the financial review. Back to you, Yitzhak.

Thank you very much, Yuval. As I have indicated, our financial results for quarter three of 2003 reflect small overall improvement over the previous quarters. The ability, at this point, to regain profitability lies primarily on the tight control and realignment of our expense structure, while transitioning from low-margin revenues to solutions. We are gaining recognition in the insurance industry, and that's a very important statement for us. We have been recently awarded, in Israel, a contract for our life and pension INSIGHT solutions to implement the clients' new and comprehensive life and pension system, including health insurance and wealth management. This is already the third site where this eMerge-based life and pension system will be in operation, following Alianz (ph) and Patrielaviserung (ph), both in Switzerland. This multimillion dollar project will allow our customers to offer integrated financial products, shorten time to market, increase cost efficiencies and enable customer-centric management. I honestly believe that Life and Pension INSIGHT is one of the most comprehensive modular and flexible solutions available today to the life and pension sector.

We have been recently awarded another contract for our closed books INSIGHT solutions in the UK. This multi-million deal follows a successful implementation of closed books policies which allowed our customers to fundamentally restructure their business processes and reduce significantly their cost base. Additionally, the changing economics and regulation follows a challenge on life and pension carriers and outsourcing providers, while dealing with growing numbers of books and policies that are no longer sold. Sapiens has delivered a proven solution that allows the carrier to reduce dramatically the basic cost of maintaining and administering the closed books of business, making it a positive asset. This is a new business avenue for companies, already at high interest level in the UK and growing interest in mainland Europe, primarily in Germany and France.

We have also enriched our INSIGHT Solutions Suite with an automated life, health and disability medical underwriting solution. Following the successful implementation of MediRisk INSIGHT into insurance companies in Israel, we have launched MediRisk INSIGHT in the UK, and generated a lot of interest within the insurance underwriting community there. We're now taking MediRisk INSIGHT to continental Europe and the U.S. Our business development efforts, especially with IBM, are gaining momentum. Following the collaboration with IBM in the U.S. and the UK, we received recently positive feedback for our INSIGHT Solutions Suite from the IBM business consulting services sector, both in Germany and France. In Israel, IBM and Sapiens are setting the grounds for a large-scale cooperation in servicing the insurance and financial services markets. We believe that our strengthened cooperation with IBM and other potential partners at all levels will lead to joint sales opportunities in the near future, and forward during year 2004.

In summary, we are committed to continue the execution of our long-term business plan. We spare no effort to achieve the challenging goals we have set for ourselves in the months and years ahead. The unique line of the Sapiens offering is gaining momentum, and we're looking forward to see the related improvements in our future financial results.

At this point, I would like to conclude my presentation and open the question-and-answer session, and I return the call back to the operator.

(OPERATOR INSTRUCTIONS). Marty Elbi (ph), Rise Network (ph).

I'm very happy to see that the Company is turning around. But one of the things that I am really a little disappointed in is that we haven't done any publicity; we really haven't hired a PR firm. I think now is the time to do this, and I'm wondering if we have plans to do this and go and get some more exposure from the financial community, because right now, your stock is just laying there; it's unknown. So I'd like to know what's going to be happening in the future.

This is Yitzhak. In trying to respond to your suggestion -- first of all, on a personal level, you sound to have a cold.

Yes, I do.

So I wish you to regain health as soon as possible.

Thank you.

You are right in the fact that we have not hired a publicity firm, and that we are not hyping in the past, nor we are still today. And the main reason for that is that we wanted to make sure that we have significant and maintainable successes before we turn out and become PR-driven. It's really -- you know, you have one good win, you go out with PR, you gain what you can gain. And then, if results are not sustainable, you might create more damage than success. So we're trying to be careful, we're trying to be conservative. I believe that in the near future, we will get to that point where we see sustainable success, and at that point, we will definitely get back and hopefully get on-screen and regenerate interest of all investors, and I hope that that satisfied your request.

Could you give us some idea, some type of projections for next year, and also for the next quarter? What's going to happen next year, in terms of projection?

Again, one of the things that I have tried to do since joining Sapiens, which is almost three years ago, is not to provide -- not to disclose projections. And this is primarily as a result of the low visibility that we have in transitioning the business, and under the terms and conditions that the world has gone through in recent years. We are, in fact, still in that position. We do not have analysts that cover the Company, and as a result, we use the opportunity to stay shy and do the work, and avoid giving the analyst community projections.

At this point, we do not have clear projections for 2004. I did, both in the PR and the conversation today, hinted to the fact that we believe that quarter four is going to maintain the trend that quarter three demonstrated. And so, both in revenues and profitability, I believe that we're going to see improvement in quarter four. But again, we're trying to keep on in this way, as long as we would have better visibility in running our business.

(OPERATOR INSTRUCTIONS). There are no further questions at this time. I would like to remind participants that a replay of this call is scheduled to begin two hours after the conference. In the U.S. and Canada, please call 1-866-500-4964. In Israel, please call 039255936. Internationally, call 97239255936. Mr. Sharir, would you like to make a concluding statement?

Yes. I would like to think all the participants, and I hope that we will be able to maintain the trend set forth in quarter three. Thank you very much.