Yaffa Cohen-Ifrah – Chief Marketing Officer, Head of Corporate Communications Roni Al-Dor – President and Chief Executive Officer Roni Giladi – Chief Financial Officer.

Chris Reimer – Barclays Mayank Tandon – Needham and Company Bhavan Suri – William Blair.

Ladies and gentlemen, thank you for standing-by. Welcome to the Sapiens International Corporation Fourth Quarter and Full Year 2015 Results Conference Call. All participants are at present in a listen-only mode. A brief question-and-answer session will follow the formal presentation.

[Operator Instructions] As a reminder, this conference is being recorded, February 17, 2016. It is now my pleasure to introduce your host, Mrs. Yaffa Cohen-Ifrah, Sapiens’ Chief Marketing Officer and Head of Corporate Communications. Mrs. Cohen, you may now begin..

Thank you and good day everyone. Our quarterly earnings release was issued before the market opened this morning, and it has been posted on the company’s website at www.sapiens.com. Representing our company on the call today are Roni Al-Dor, President and CEO; and Roni Giladi, our CFO.

Before we start, I would like to remind everyone that this conference call may contain projections or other forward-looking statements and the Safe Harbor provisions in the press release issued today also apply to the content of the call.

Sapiens expressly disclaims any obligations to update or revise any of these forward-looking statements, whether because of future events, new information, a change in its view or expectations or otherwise. Also, during the course of the today’s call, we will refer to certain non-GAAP financial measures.

A reconciliation schedule showing GAAP versus non-GAAP 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 Relation section of the company’s website or via the webcast link, which appears in the earnings release that we published today.

I will turn now the call over to Roni Al-Dor, our President and CEO.

Roni?.

Thank you Yaffa and good morning everyone. Thank you for joining the call today. We are pleased to discuss another strong quarter providing an exciting finish to a record year. During this call, we will provide the business update and discuss our 2015 fourth quarter financial results and our outlook for 2016.

Reporting the non-GAAP revenue of $48.7 million, which is another quarter of double-digit growth, and increasing operational profit of 48.4% or $7.4 million. We saw growth and improved performance across all of our offering, from all geographies and from both new and existing customers. The demand for our products and services remain strong.

This is a result in a number of important win which had boosted our living market position. Our investment in technology over the past few years have led to a development of an advanced and innovation products, helping us to expand our business with both new and existing customer. We expect this momentum to continue in the near future.

Our acquisitions of IBEXI in India and Insseco in Poland are clearly paying off, allowing us to increase our global presence by entering a new territories, acquiring existing customer base, and enhance our offerings. Following the acquisitions, we established new regional delivery and development centers in those markets to support our customer.

This is in line with our strategic goal to be close to our customer and support them by investing in onsite employee with local experience and technical expertise. As a result of the acquisition, Sapiens is now position to pursue and manage a larger opportunity of increasing size.

Today, Sapiens has a diverse portfolio of market leading product across BNC in the life and annuity in our selected territories. In addition, we have a variety of services, plans for implementation.

As a global, one-stop-shop for both for the conservative with a long-term relationship with our customer, we are well position to leverage our blend and extend business model. We consistently grow our business by adding new logos every year.

We also aggressively look for growth opportunity within our existing client base by extending with new products, technology capabilities, new line of business and an end services. We also seek to expand in new geographic to grow our market reach and addressable markets.

We further accelerate our goal, we plan to continue to look for additional merger acquisition that are along with our overall growth strategy. We are looking for opportunities to expand our market penetration through acquisition of company that will provide us a complementary insurance solution, new market presence or legacy customer base.

We have a proven history of making important acquisition at share price and successfully integrated the acquired companies into our business. We’ve leveraged our experience to pursue additional acquisition.

That being said we will remain highly selective thus in the M&A opportunities we pursue, our ongoing financial performance healthy balance sheet and strong product portfolio are primary factor in our evaluation and pursue of potential contraction.

Now back to our core businesses, during the fourth quarter we recorded a number of new wins to further expand our revenue base and enhance our competitive position. One of the fourth quarter win was the Medical Protection Society or MPS, the world’s leading protection organization for doctors, dentists and healthcare professionals.

They selected Sapiens IDIT Software Suite as the new insurance membership system that will enable them to continue to provide world-class services to over 300,000 members worldwide. MPS is our fourth IDIT customer in the UK, a strategic growth market for Sapiens. Also during the quarter, a top-tier U.S.

insurer selected Sapiens DECISION for its retirement in Investment Service Group. This win was expansion of a long-term existing relationship between the insurance, where the adopted DECISION Model as a standout in Sapiens.

We believe that the insurance industry is a good fit for Sapiens DECISIONs expansion, because of our relationship with the leading tiers all of whom around the significant volume of complex business goals. More recently, RiverStone Management Limited, a UK-based company that is part of RiverStone Europe Group selected Sapiens Reinsurance.

We believe that the maturity and flexibility of Sapiens Reinsurance product offering were a key to RiverStone decision. Sapiens and RiverStone have a ongoing successful relationship in the U.S., a contribution factor to the selection of Sapiens in UK.

As we mentioned in previous calls and earlier on this one, our global blend and extend strategy involved leveraging customer relationships in geographic presence to core sell our solutions. RiverStone is an example of how our existing relationship in the U.S., can help us sign new deals with affiliate in UK operations.

Also, after the end of the quarter, we announced a huge contract win, a $70 million business expansion with a leading North American Insurance and Retirement Services company. The latest agreement extends our existing partnership with this customer for the second phase of multi-year multi-based technology in core system of digitalization program.

We continue to maintain an intense R&D program to improve our product offering to further enhance our heavy investment in our technology platform in the recent years.

Last month, we announced the expansion of our business decision management solution, Sapiens DECISION suite, with an introduction of Sapiens DECISIONs InfoHub software and Sapiens DECISION STEP services. With the addition of these new software and services components, Sapiens can offer a complete business efficient management solution.

This investment in technology have lead to some of the most advanced solution in the market and we continue to be recognized by the analyst firms such as Celent. In fact, last month we won Celent’s, XCelent award in Breadth of Functionality category for our ALIS Policy Administration System, for life and pension in EMEA region in 2015.

This is our second straight Breadth of Functionality recognition by Celent in EMEA, which is award every other year.

In a report that was just released yesterday by Celent, the EMEA Policy Administration Solution 2015, Sapiens IDIT won two categories, XCelent technology for living advanced technology score and XCelent functionality for living Breadth of Functionality score. Each vendor was position according to these two categories, the Sapiens the leader in each.

At the same time we continue to investment in sales and marketing, our largest sales organization will help us manage a larger number of opportunity than we were capable of previously and increase our win rate. Our marketing efforts are focused on regeneration and breadth awareness. In 2015 we have participate in 18 industry events in U.S.

and Europe, and also the events in UK, Australia and U.S. We also held our 2015 insurance client conference in Paris for our European and Asia-Pacific customer. We consider this investment to be a critical to our long growth strategy.

The investments we have made in R&D sales and marketing have already helped us win new customer and successful deploy the new system. To-date over 190 customers are using Sapiens solutions. We work and continue to walk closely with these customers to help them maintain their system and maximize efficiency.

We support them with the introduction of new capabilities or the expansions of their businesses. During 2015 more than 15 customers have gone live and moved into production, which mean our solution is being used as a core portion of system. As I said in the past, go-live is a major event for both Sapiens and customer.

It is a major demonstration of our ability to deliver and of customers’ ability to adapt a rollout of new technology across the organization. Sapiens offers today the most comprehensive in our company history with a wide range of solutions, strong delivery capability and modern services.

This will enable us effectively cross sell within our existing customer base. To conclude my portion, I would like to summarize the key highlights.

Yet another fine quarter highlighted by double-digit revenue growth and margin expansion, we are winning new customer and expanding our business with existing customers across all of our products in geographies.

Our acquisition are paying off by enabling us to increase our presence and support customer through new regional delivery and development center in these new geographies. We are confident that we will continue to achieve double-digit growth in 2016.

I would now like to turn the call over Sapiens CFO, Roni Giladi to discuss our financial situation and outlook..

Thank you, Roni, and good morning, everyone. Our momentum continued in 2015 with four quarter non-GAAP revenue of $48.7 million and non-GAAP operating profit of $7.4 million achieving both record high-level. As a reminder, we are presenting our result on a non-GAAP basis, which we believe gives a clear view into the operational state of the business.

There is a detailed reconciliation to non-GAAP results in the financial tables of the earnings press release. Non-GAAP revenue in the fourth quarter was $48.7 million, up 16.5% from the fourth quarter of 2014. Our revenue for the quarter by type breakdown as follows.

License revenue totaled $2.8 million or 5.8% of total revenue during the quarter, compared to $2.4 million or 5.8% of total revenue in the fourth quarter of last year. Service revenue which includes maintenance grew to $45.9 million or 94.2% of total revenues during the quarter up from $39.3 million in the fourth quarter of last year.

We usually sale our total license as part of our overall solution offered to our customer that combined the sale of total license and services. Our licenses revenue are typically perpetual and generated from new customer recognizing of all the implementation period.

Our services revenue are comprised of implementation services related to our solutions and post-implementation services in our generated from existing customer over many years.

Since we maintain long-term relationship with our customer and we will generate revenue over the long period, we know how to find the balance in our revenue mix while continuing to improve our profitability. Let me now turn to geographic breakdown of our revenues. In the fourth quarter, we maintain our geographic mix.

Our revenue in North America represents 34.4% of total revenue. Europe, which includes our Israeli revenues, represents 54.3% of total revenue, and APAC represents 11.3% of total revenue. Most of our growth in the fourth quarter was in North America and in the UK, which are the strong territories for Sapiens.

Turning now to profitability, our non-GAAP growth profit for the fourth quarter of 2015 was $21.5 million up from $17.5 million in the fourth quarter of last year. Our gross margin improves to 44.2%, up from 41.8% in the quarter of last year, improvement of 240 basis points. Our gross margin improvement is a result of few factors.

First, continued improvement in the growth margin of our largest division life and pension and retirement. Second, the erosion of New Israeli Shekel versus a dollar, which reduced our cost of revenue as the majority of our delivering peers are based in Israel. And the positive impact of our offshore operation with the lower cost.

Our investment in R&D in the fourth quarter of 2015 totaled $4.4 million, compared to $4.3 million in the same quarter of last year. Non-GAAP SG&A expenses totaled $9.8 million this quarter, compared to $8.2 million in the fourth quarter of last year.

The increase in non-GAAP SG&A was the result of our ongoing increase in sales and marketing investment over the last quarter to accelerate our future growth. And the full quarter consolidation of our recent acquisition in Poland and India.

Our non-GAAP operating income for the fourth quarter of 2015 increased by 48.4% to $7.4 million from $5 million in the fourth quarter of last year, representing 15.1% of total revenue, compared to 11.9% of last year. We have seen trends of improvement in operating margin throughout the year.

Our adjusted EBITDA this quarter totaled $7.9 million, reflecting 16.3% of total revenue for the quarter. Non-GAAP tax expenses this quarter was $1.4 million, representing an effective tax rate of 18.6%, compared to tax benefits of $4,000 in the fourth quarter of last year.

Non-GAAP net income for the quarter was $6.3 million or $0.13 per diluted share, a 28% increase compared to $4.9 million or $0.10 per diluted share in the fourth quarter of last year. Turning now to the full year results for the 12 months ended December 2015. We improve our financial performance in all of our parameters.

Revenue totaled $179.3 million, up 13.9%, compared to $157.5 million in the prior year. Our revenue were in line with our guidance range, reaching the high-end of our guidance. Please note, that excluding the impact of foreign currency exchange rates, revenue growth exceeded 20%.

In addition, our organic growth excluding M&A and the impact of currency exchange rates was at a level of our mid-term growth plans of 15%. Total non-GAAP operating profit in the full-year was $26.5 million compared to $17 million in 2014. Our operating margin was 14.8%, an improvement of 400 basis points, compared to 10.8% in 2014.

We had a positive impact of currency exchange rates during 2015 on our operating margin of 60 basis points. Again, please note that our operating margin was in line with our guidance range. Our fully diluted earnings per share totaled $0.45, up 36.2% compared to $0.33 in 2014.

Turning to our balance sheet, as of December 2015, we had cash and cash equivalents and security investment of approximately $94 million compared to $80.5 million, as of December 2014.

I would like to remind you that this amount is both the payment of $7.2 million dividend to our shareholders and the partial payment of the acquisition of IBEXI and Insseco. Turning to our 2016 guidance, revenue, we expect 2016 full-year revenue in the range of $207 million to $211 million, representing a growth in the range of 15.4% to 17.7%.

Profitability, we expect full-year 2016 non-GAAP operating margin of 15% to 15.5% of total revenues. At this point, I would like to turn the call back to Roni Al-Dor for closing comments.

Roni?.

Thank you, Roni. Overall 2015 was marked by strong financial performance to acquisition and new business signing to build our foundation for future growth in 2016 and beyond. We have built a business model that generates revenue from a diverse, yet complementary suite of solutions across geographies.

We have invested in our innovating products and in certain marketing program to properly support and deliver them to the marketplace. I would now like to turn the call over to the operator for Q&A. Operator, please pull for questions..

Thank you. [Operator Instructions] The first question is from Chris Reimer of Barclays. Please go ahead..

Hi. Thanks for taking my question. Just on operating margins, you’ve raised sequentially your expectations. Is this a result from the move to offshore operations? And on that, you mentioned last quarter that you could get up to 20% operations offshore.

Could you mention what percentage you think you are around about now?.

Hi, this is Roni Giladi. Today we are – our offshore operation that was started only this year, at the end of the year is about 10% of – slightly below 10% of total headcount of the company.

Again, this is I think that right now join you in the year we are in planning mode and need to level our product and eventually we’ll be able to produce delivery at low cost. And the 20% that we mentioned will be out of time, it will not be one year but total time would be able to achieve this..

Okay. Also, if you could give some color on any regional strengths you saw? Europe was a little up.

Was that just because it’s the deals that came in this quarter, or is something else involved there?.

Mainly to geographic, as of today our USA and UK and I separate UK out of total Europe. This is a strong presence that we have significant customer facing, facing and delivery that we have in these territories. And they are basically having today the highest growth rate.

Looking forward we’d like to penetrate additional territories but this again will be over time..

Okay.

And of course, about M&A, anything in the pipeline? Anything you can mention?.

Sapiens has a strategy increase the team that is working on the M&A side. This is part of the strategy and therefore this is what we did. We are looking at the company’s, again across the geographic complementary solution and customer base. And we have a pipeline at different level of degree we cannot indicate any thing currently.

I must say that the valuation today of the market are quite high and we are as a conservative company, we’d like to find something which we believe is the right value. So, again we have a pipeline at different level of degrees..

Okay. Thank you. That’s it from me..

The next question is from Mayank Tandon of Needham and Company. Please go ahead..

Thank you. Hi, guys. Great job once again. So just at a very high level, I think this question, maybe for Roni Al-Dor.

Roni, in terms of – given all the concerns about the global economic climate, what are you hearing in terms of feedback from your core clients, both in Europe and the U.S., in terms of their pipeline to spend? Even though I know it’s imperative that they upgrade their technology platforms, just given the environment, are you seeing any hesitation on their part or is it business as usual from your standpoint?.

Hey, hi, Roni Al-Dor. I think for a long-term people – the insurance companies are looking to invest and they need to prepare themselves for the difficulties, people are looking for more efficient, people are looking for a way to do more analytic on the data that they have.

They’re looking for direct connection to the client – to their client, and not to a broker. So there’s a lot of need, again, I cannot say where there are customers are not talking about the economy, but they are still continue to invest and we don’t see any change right now..

Okay. I mean, obviously your guidance is very good, so that would suggest that you’re obviously pretty confident for the next several quarters. Actually, moving on to the guidance question, I just wanted to get a sense, in terms of the sequential trends you expect, both on the top line and in terms of margin expansion.

Will it be fairly linear across the year or will there be maybe a couple of quarters that may be more seasonally stronger versus the others? Just remind us of the seasonality in the business..

Hi Mayank, this is Roni Giladi. We basically anticipate linear growth quarter-over-quarter. I must say that we do not have seasonality but Q4 basically is the highest. The main reason for that is customer would like to go-live by the end of the year or the following year.

And therefore because of the revenue cognition, a percent of a completion, most of the time this is higher revenue than the previous quarter. So, overall linear but it’s a bit higher on Q4 of 2016..

Okay, that’s helpful. And then a couple of quick ones here. In terms of – you gave us the breakdown on the fiscal 2015 numbers for both constant-currency organic growth and in terms of the margin impact from currency.

What are you building in, in terms of currency impact, and on the organic growth side for fiscal 2016?.

So we current – took the current exchange rate that we have based on that, we did the analysis, and based on that we gave the guidance. I must say that we have also some inherent I would say protection or hedging because we all diverse in revenue mix.

And on the cost side we are much more heavier on the shekel, so anytime the shekel weakens against the dollar, we have additional profit on that side. And so, this is on the currency.

What was the other question, Mayank?.

Well, also, just related to that was – what is the organic growth you’re reflecting in your guidance for FY16, of that 15.4% to 17.7%? How much of that is organic versus the bought revenue? Just remind us of that, please?.

So basically I think we mentioned this, we can see for the mid or short-term, we would like to see something around 15%. This is the organic growth that we are seeing year-over-year. So we can anticipate this amount going forward..

Okay. And then, one last question on the tax rate. I think, if my model is correct here, you ended up with a tax rate of about 14.6% – sorry, 15.5% for fiscal 2015.

What kind of tax rate would you expect to see in fiscal 2016 on a non-GAAP basis?.

Okay. So just on the tax rate that we finished 2015, the non-GAAP tax rate is about 17% and this is in line with what anticipated beginning of the year between 16% to 18%. And we continue to increase our profitability and utilizing our carry forward of losses that were from the past, some legal entities.

We anticipate the legal tax rate will go up at the range of 19% to 20%..

Got it. Great, thanks guys..

The next question is from Bhavan Suri of William Blair. Please go ahead..

Hey, Roni and Roni, congratulations..

Thank you..

Just to get back to fundamentals for a second here – let’s start off with IDIT. Obviously, nice traction in Europe.

Can you just comment a little bit about how IDIT is doing in the U.S., and just contrast that to, and given Europe’s relatively nascent for that business, what’s driving the growth in Europe for the product?.

You are asking about the U.S.

or you are asking about Europe right now?.

I’m asking about the strengths – you had some European wins in IDIT, right?.

Yes, yes. We – just to remind….

Was it the new functionality or was it sort of new sales hires? What sort of driving the growth there?.

I think, can give you some indication. When we acquire IDIT like four years ago, IDIT more focused on central Europe and Asia-Pac. We leveraged the acquisition at Sapiens and for years very strong in UK. So we brought them to UK and we see a huge growth in this area based on our resource to represent personal debt and we invest specific on that.

That’s one of the reasons. The other reason, we continue to invest in Europe, if the customer likes our model which we are doing both product and system integration, and we add few more services all the time. We also start to talk to them about new feature like total new UI. We are investing in the analytic and we’re also entering to the portal.

All of this together, give us advantage in the market, I share with all of you that just yesterday morning we just got a new recognition from Celent that we are the number one in the functionality and technology. And again, just to remind you that Guidewire and all the rest are – they’re behind them. They’re all behind that authority..

Great. And then, when you look at the retirement pipeline, obviously the U.S. a year ago was an interesting pipeline. It was starting to get to points of where you could see some deal activity.

Maybe some update on how the retirement offering is going, and how that pipeline or customer growth has been over the last year?.

We have continued to invest heavily in the retirement. We also hired a very senior person for this business. We plan to go-live soon and we are also – and we also invest heavily on the customer that we have right now.

And we believe that we will see the fruits of all of this huge investment that we did in the last few years hopefully soon, nothing in the next few quarters, but I believe in the end of the year or next year..

Great.

And then just a couple more from me, one, on the $39 million win, maybe this is for Roni Giladi, maybe just explain how that $30 million rolls out over the next 12, 24 months? And sort of how do those contracts typically play out in terms of deployments?.

Hi, Bhavan, so this is a biggest deal that the company signed $30 million basically complied from two, I would say, segment implementation and development of second phase of the platform. The implementation and development will take about 24 months about two years and our revenue commission method is a little bit of completion.

So we’ll see these fruits coming over the next two years, slightly we got in Q4 of 2015, but most of the significant part over the next two years over time. I would say on a linear pace..

Got it. And then turning lastly to DECISION, obviously, it’s nice to see the insurance business and you guys know my opinion about bringing DECISION to the insurance market. Nice to see that win, just little bit about what the pipeline looks like given the strength you have in insurance for the DECISION product.

And then just to reaffirm that’s still sold on a term license basis, right?.

So about your comment we start to listen to you and – I’m joking. So we signed a few contract in the insurance and we also put a lot of investment right now in the insurance phase. So again I hope besides all the investment bank and the bank that we are focusing we will see some growth also the insurance.

Again, DECISION is mainly term license and the again we are fully committed for this and we can see there is a lot of noise around this, but it will take time to grow..

And given it’s term, so it’s recurring Roni.

Could you share what the percent of revenue DECISION makes up today?.

We are not splitting this amount, but I would say about – around 10% this is the total revenue of the company – of the division..

Fabulous. Thanks so much guys, congratulations. Thanks for taking my question..

Okay. Thank you, Bhavan..

[Operator Instructions] There are no further questions at this time. Before I ask Mr. Al-Dor to go ahead with his closing statement, I would like to remind the participants that a replay of this call is scheduled to begin in 2 hours.

In the U.S., please call 1-888-782-4291; in Israel, please call 03-925-5901; and internationally, please call 972-3-925-5901. Mr.

Al-Dor, would you like to make your concluding statement?.

Yes. Thank you, everybody and we will talk to you again next quarter. Thank you..

Thank you. This concludes the Sapiens International Corporation’s fourth quarter 2015 results conference call. Thank you for your participation. You may go ahead and disconnect..