Sapiens International Corporation NV (SPNS) 2004 Q4 法說會逐字稿

Good morning everyone, and welcome to the Sapiens Quarterly Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question and answer session. [OPERATOR INSTRUCTIONS]. Today's call is being recorded.

Hosting today's conference call is Sapien's President and CEO, Yitzhak Sharir. Yitzhak is joined by Yuval Hadari, Sapien's Chief Financial Officer.

Before I turn the call over to Sapien's management, I'd like to say that except for historical information, the matters discussed this morning include forward-looking statements that may involve a number of risk and uncertainties. Actual results may differ significantly due to a number of factors and risk, which are detailed in the Company's most recent annual report and at the 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, and thank you for joining the call. The results of the fourth quarter show a positive trend in both revenue and all aspects of our operational performance. They've only unfortunately been spoiled by a one-time write-off. I will of course come back to describe in more detail the business and the operational aspects. But first I would like to turn the call over to Yuval, our Chief Financial Officer, who will review the financial results for the fourth quarter in 2004. Yuval, please.

Thank you, Yitzhak. Reporting quarter 4 and year end results, the Company recorded a one-time write-off of software development costs totaling $0.9m, which significantly affected our results for both the quarter and the full year. The fourth quarter showed growth of over 6% in revenue compared with the previous quarter and with the exclusion of the one-time write-off, as Yitzhak has mentioned before.

Improved gross profit of [$5.3m] compared with $4.8m in the previous quarter. Operating profit of [$0.08m] compared with an operating loss of $0.2m in the previous quarter. Without the one-time write-off, the full-year operational loss showed significant improvement over last year - $0.75m loss versus $1.47m loss last year. The growth in the net loss on last year is therefore primarily attributable to an increase in financial expenses as a result of our successful issuance of convertible debentures, raising approximately $20m at the end of 2003.

With the inclusion of the one-time write-off, as decided by management, compared to the previous quarter of 2004, the Company's revenue increased 6.2% from $11.3m to $12m. And gross profit in the fourth quarter was $4.4m compared with $4.8m. And the gross profit margin in Q4 was 36.4% compared with 42.3%. The Company reported an operating loss of $0.8m compared with an operating loss of $0.2m in the previous quarter, and a net loss of $1.7m compared with a net loss of $1m in the previous quarter.

Total revenues for 2004 were $47.8m compared with $52.3m in 2003. The Company's gross profit margin was 42.1% compared with 45.3% in 2003. The operating loss was [$1.64m] compared with $1.47m last year. And the net loss was $5.1m compared with a net loss of $2.2m of last year.

The yearly operating cash flow for the year 2004 was negative by only $800,000 as a result of successful deliverance in [inaudible]. And that enabled us to remain with strong cash on the balance sheet moving forward into 2005.

That concludes the financial review, and back to you, Yitzhak.

Yuval, thank you. 2004 was a year of disappointing results, where we experienced a continued decline in our traditional business and where our penetration of the insurance industry, our strategic focus, was delayed. We continued to make significant progress in the development of our Sapiens Insight suite of products for the global Life & Pension and Property & Casualty insurance sectors. Our insurance solutions are being recognized by the leading industry analysts, and our sales pipeline is developing steadily.

As Yuval mentioned, we recorded a one-time write-off of software development costs, which significantly affected our results both for the quarter and the year. We recorded a growth in revenues during the fourth quarter, and turned operationally profitable if it wasn't for the write-off. This was the objective set early in the year, and we are proud to be there.

In spite of the declining revenues from last year, as explained about, we have succeeded in improving our annual operational performance. We continue to make significant progress in the development of the Insight suites of products. In addition, we continue to develop our core image technologies, and as we have previously announced, we will be bringing to our customers full cross-platform portability and reduced cost of ownership.

Our insurance solutions are rich in functionality, and unique in their flexibility and business value. As I said before, being recognized by the leading industry analysts. We have been ranked by data monitor among the 7 leading companies in the world for Life & Pension. Our pipeline is expanding in various territories. In the U.S. we have promising leads in the Property & Casualty domain, where in the U.K. we are focusing on Life & Pension domain, and move forward in our bids in the business process, outsourcing developing market.

In Europe, primarily in France, Germany and Switzerland, we are currently working with potential customers in the Life & Pension Domain, and have promising leads for the future. In Israel we are continuing our deployment of existing projects for customers in the Life & Pension, and hope to strengthen our hold in its Insurance, Pensions and other financial services market.

We have recently completed a restructuring plan, which included moving our headquarters back to Israel and changes in management. I would like to outline the recent changes put in place. Ruvik Barkan, who's been with us for many years, was appointed as Chief Operating Officer of the Company, with a strong mandate to focus on sales and to strengthen the sales teams worldwide. As part of this effort, we have moved the Insurance Business analysts and our professional specialists to support the sales effort.

Yuval Hadari, our CFO, will be leaving the Company. Yair Spitzer, Managing Director for Sapiens U.K., has left the Company, and David Ofek, our EVP for Business Development and Marketing, has also left the Company. I would like to take this opportunity and thank all 3 members, precious members - Yari, Yuval and David - for their extraordinary efforts and to wish each one of them good luck in their future.

Kali Bagary, a 14-year-old veteran of the Company has already replaced Yair as the managing director in the U.K., and we will announce the name of our new CFO next week.

Rounding out the management changes, 3 new individuals have joined the management team. [Mika Kudish] is VP Technology, [Malil Erman] is VP Life & Pension Insurance, and [Debul Erman] is VP Property & Casualty. We congratulate the new members of management and wish them all the best of luck.

Recently undergoing significant cost reductions worldwide through the unfortunate lay-off of employees, and scaling down the various activities in order to strengthen the Company on its way forward. As detailed above, our restructuring plan that has recently completed will be expensed early in the year. So we hope to return to operational profitability as early as quarter 2, and believe that we will deliver in 2005 both on our operational profitability and on growing our backlog.

Entering 2005, we will continue with our strategic plan and expect to further penetrate the insurance marketplace, where we are beginning engagements with several new customers, which we will formally announce later this year.

I would like to take the opportunity and express my personal gratitude and appreciation to my fellow employees at Sapiens for their outstanding efforts and strong belief in our success and future growth. We are strong and committed to turn the Company around, and are thankful to our customers, shareholders and all other friends of the family for unlimited confidence and support.

And at this point we would like to take your questions.

Thank you, sir. [OPERATOR INSTRUCTIONS]. There are no questions at this time. I'd like to remind participants the replay of this call is scheduled to begin 2 hours after the conference. In the U.S. and Canada, please call 1866 276 1485. International callers please call 9723 925 5944. Mr. Sharir, would you like to make your concluding statement?

Again, thanking everybody for joining the call and good luck for all of us in 2005. Thanks.