Yaffa Cohen-Ifrah - CMO & Head of Corporate Communications Roni Al-Dor - President & CEO Roni Giladi - CFO.

Mayank Tandon - Needham Tavy Rosner - Barclays Capital Aron Getar - Jupiter Amil Azi - Segut Walter Ramsley - Walrus Partners.

Ladies and gentlemen, thank you for standing by. Welcome to Sapiens International Corporation First Quarter 2016 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded May 10, 2016. It is now my pleasure to introduce your host Ms. Yaffa Cohen-Ifrah, Sapiens' CMO and Head of Corporate Communications.

Thank you Ms. 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 our Company's Web site at www.sapiens.com. Representing the 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 applies to the content of the call.

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

A reconciliation schedule showing GAAP versus non-GAAP results have 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 Relations section of the Company's website or via the Web site link which appears in the earnings release that we published today.

I will turn the call over to Roni Al-Dor, President and CEO of Sapiens, Roni?.

Thank you, Yaffa and good morning to everyone. Thank you for joining the call today. We are pleased to discuss another strong quarter. During this call we will provide the business update and discuss our first-quarter financial results and our outlook for the remainder of 2016.

Today we are reporting the non-GAAP revenue of $49.6 million which is another quarter of double-digit growth and increasing operational profit of 27% or $1.6 million compared to Q1 2015. We saw growth and improvement in performance across all of our offering from all geographic and from both new and existing customers.

The demand for our products and services remaining strong, resulting a number of significant wins which further enhance our competitive market position as in recent quarter we expect this momentum to continue throughout the year.

Looking at our core businesses, during the first quarter we record a number of new wins, for further expand our revenue-base and enhance our competitive position. In one of our larger wins we have expand our businesses with tier I U.S.-based insurance and retirement services company with new contract value at over $30 million over the next two years.

In Europe Dentists' Provident the leading provider of income protection insurance in the UK and Ireland selected our ALIS life solution to replace its current legacy system with modern technology to provide greater functionality and flexible configuration.

The Company will benefit from our external capabilities around ALIS solution and include our agent and client portal and integrated with enterprise content management solutions. On the P&C side, UK insured Iconica has selected the Sapiens IDIT solution, the company in U.S. co-insurance system for general lines of businesses.

Iconica expects to gain several benefits for the deployment of Sapiens' IDIT. With a modern environment and increased automation they will achieve greater effectiveness for services Iconica clientele workers, better underwriting claims in financial process and overall operational improvement. Our U.S.

reinsurance customer RiverStone has extend our relationship to the UK and select to deploy our Reinsurance solution in the UK businesses RiverStone Management Limited. Our long-term relationship with RiverStone U.S. was a major contribution factor to selection of Sapiens in UK.

This is a clear example of how we are leveraging existing relationships with extend our businesses in other geographic markets. Beyond our new businesses wins, we had several very important go-live events in the first quarter.

Royal and Sun Alliances RSA, one of the world's leading multi-national general insurance groups serving customer in 140 countries went live in the first quarter with the phase I of Sapiens reinsurance. Our solution is now managing a large part of RSA reinsurance arrangement.

This was one of Sapiens' largest reinsurance delivery projects to the date and it included extensive historical data migration and fully hosted services. In another go-live event Mutual Trust Life, MTL, a Pan American life insurance company went into production with Sapiens ALIS Solution.

MTL will utilize the Sapiens ALIS Solution to support all MTL product offering including go-live, universal live, term, and fixed annuities for both new and existing policies. We consider this go-live event is a major activities in our relationship with our customer.

We view them as a significant demonstration of our ability to deliver and customers' ability to adapt and rollout these new technologies across the organization. Also during the quarter we announced several major product launches and value proposition.

In the first quarter Sapiens announced its new ALIS Fast Track proposition for the UK protection market. This solution is fit for smaller organization. It is a agile reconfigure offering that accelerates implementation and provides omni-channel customer services either in the cloud or on premises.

Fast Track supports the rapid deployment of new products using best of breed product templates for quick configuration and it will allow UK insurance to design and launch simpler, more personalized products faster.

In addition, Sapiens' launch in advanced analytic solution, Sapiens Intelligence, this platform enabled both life and P&C insurer to produce actionable insight and maximize the value of their data. We believe we have created innovation and fully functionality analytic solution that is easy tailored to meet our client-specific needs.

Last and most recently and in line with the market demand that we experienced, we launched our flagship ALIS Solution as ALIS in the cloud for life annuity and pension provider. This platform runs on Microsoft Azure providing insurer with an attractive deployment option that is agile, scalable, and affordable.

We see several significant advantage to our customer with this offering. It is a cost-effective solution that utilize Azure as a technology infrastructure. It can deployed rapidly, it is high scalable, and it is a strong data security. Sapiens' ALIS customers will now be able to implement their solution on premises or over Microsoft Azure public cloud.

Sapiens' cloud deployment includes full infrastructure of operations, plus the option of choosing cloud-related managed service deliver by Sapiens' professional services team.

Today our offerings are the most comprehensive in our Company's history and they provide a wide range of core and complementary solution, strong delivery capabilities, and modern services enable Sapiens to more effectively compete in the market. In previous years we invested intensively in our R&D program to improve our product offering.

In addition and following last year's acquisition we enhanced our deliver capability with two new regional delivery and development centers in Poland and India to support existing and new customers. This is in line with our strategic goal to be close to our customer and support them.

As a result Sapiens is now positioned to pursue and manage large number of opportunity of increasing size. In the first quarter we ramped up our investment in our sales and marketing effort to further push them to market.

On the sales side we recruit Norman Tutnauer as our new Chief Business Officer, is now responsible for Sapiens' worldwide sales, pre-sales, and sales operational teams. Norman brings more than 20 years of successfully sales management experience in recruiting, managing, and leading global sales team.

Norman already began recruiting and recently hired Mike McCurley as Sapiens' Vice President of Insurance Sales for North America. Mike has extensive experience leading global sales in business development for multimillion dollar technology firms such as Oracle global insurance business unit.

Mike will be responsible for managing Sapiens' US sales and will craft our overall sales strategy in the region in order to extend Sapiens business in North America. Meanwhile, to strengthen our brand and market recognition we participated in UK future protection event and in the leading life insurance conference in the US in Las Vegas recently.

We continue to be recognized by the leading industry research and advisory group for our products and services. In April Sapiens IDIT was recognized as a leading vendor in the excellent technology category for 2015 in APAC region.

I would note that this award follows the awards we won earlier this year including an XCelent award from Celent for Sapiens' ALIS policy administration system and our second straight better functionality distinction for Celent in EMEA.

In addition, Sapiens' IDIT won in two categories, XCelent Technology for Leading Advanced Technologies score and XCelent Functionality for Leading Breadth of Functionality score. In addition, two of our P&C customers were recognized for the business excellence they have achieved towards deployment of Sapiens IDIT solutions.

Direct AXA and L&T General Insurance Company received the Celent Model Insurance Award and were recognized amongst the year top insurance technology initiative in Asia. To conclude my portion I would like to summarize the key highlights. We posted yet another strong quarter highlighted by double-digit revenue growth and margin expansion.

We are winning new customers and extending our business with existing customer across all of our products and geographies. Our products and services are recognized at the highest level in our industry by customer and research firm alike. We are confident that we will continue to achieve double digit growth throughout 2016.

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

Thank you Roni and good morning everyone. Before I jump into our results for the first quarter, as a reminder we are presenting our result on a non-GAAP basis which we believe gives a clear view on the operational state of the business. There is a detailed reconciliation to non-GAAP results in the financial table of the earnings press release.

Non-GAAP revenue in the first quarter was $49.6 million, up 20.9% from the first quarter of 2015. Looking at the geographic break-down of our revenue, in the first quarter we maintained diverse geographic mix. Our revenue in North America represented 32.4% of total revenue. Europe which includes our Israeli revenue represented 57.3% of total revenue.

And APAC represent 10.3% of total revenue. Most of our growth in the first quarter was in North America and in the UK which are the strong territories for Sapiens. Previously we provided a break-down of license versus services and maintenance revenue.

However, license is becoming less irrelevant indicator for our growth and profitability as all of the deals that we have are full solution implementation of license and services rather than just selling the product license on its own which means that the overall negotiation and the deal value as a whole are the key parameter we are looking at and not the license closing itself.

While saying that, in any new project we are focused more on the recurring revenue stream both through life from the customer which reflects our long-term engagement with the customer and our business model.

Turning now to profitability, our non-GAAP gross profit for the first quarter of 2016 was $21.6 million, up from $17.7 million in the first quarter of last year. Our gross margin improved to 43.5%, up from 43.1% in the quarter of last year.

Our investment in R&D non-GAAP in the first quarter of 2016 total $4.6 million compared to $3.9 million in the same quarter of last year. Non-GAAP SG&A expenses totaled $9.6 million in the quarter compared to $8 million in the first quarter of 2015.

As you can see from the above we are continuing our investments in sales and marketing and R&D to support and accelerate our growth. Our non-GAAP operating income for the first quarter of 2016 increased by 27% to $7.4 million from $5.8 million in the first quarter of last year, representing 14.8% of total revenue compared to 14.1% in 2015.

Our adjustment EBITDA for Q1 totaled $8 million, reflecting 16% of total revenue for the quarter. Non-GAAP tax expenses this quarter was $1.5 million, representing an effective tax rate of about 20% which should continue in the future, compared to tax expenses of $0.7 million in the first quarter of 2015.

Non-GAAP net income for the quarter was $6 million, or $0.12 per diluted share, a 26.6% increase compared to $4.7 million or $0.10 per diluted share in the first quarter of last year.

Turning to our balance sheet, as of March 2016 we had cash and cash equivalents and security investments of approximately $98.5 million compared to $94 million as of December 2015.

During this quarter we have announced a cash dividend of $9.8 million or $0.20 per share to our shareholder of record as of May 19, 2016, which should be paid on June 1st this year. Turning to our 2016 outlook, we are reiterating our 2016 full-year revenue and operating margin guidance.

We expect 2016 revenue in the range of $207 million to $211 million revenue, representing a growth in the range of 15.4% to 17.7%. And we expect full-year 2016 non-GAAP operating margin of 15% to 15.5% of total revenue.

At this point I would like to turn the call back to Roni Al-dor for closing comments, Roni?.

Thank you, Roni. Our first quarter was marked by continuous strong financial performance based on business models that would generate revenue from diverse yet complementary suite of solutions across geographics and product lines.

We are well-positioned to achieve our operational and financial target for 2016 while at the same time reinforcing our fundamentals for growth and success beyond that. I would now like to turn the call over to the operator for Q&A. Operator, please poll for the questions..

Thank you. Ladies and gentlemen, at this time we will begin the question-and-answer session. [Operator Instructions] [Sarah Sizin], William Blair & Company..

Nice job on the quarter.

Given the nice top line lead and operating margin lead this quarter, are you just being conservative by not raising guidance and just maintaining it?.

This is Roni G. We just started the year. We feel good with the numbers. We feel good with the potential pipeline that we have in front of us. As the year progress, we'll update the numbers if needed, but currently we stay with the revenue and profitability..

Great. Great. And then another one on just kind of, you seem to have a couple of go-live during the quarter that helped boost revenue.

What are you guys doing, is it just more productiveness of the salesforce that's generating these go-lives that are helping out revenue so much?.

Can you please repeat the question?.

Yes. So you had some pretty good go-lives during the quarter seemed to have helped the top line.

Is this -- what's kind of driving these factors, is this your salesforce that's getting little bit more productive, your continued investment in it?.

So the go-live is the timeline that agreed with the customer, this is schedule potentially 18 months ago. We are just announcing these. To show successful go-lives in our business it's tough implementation and we have been very good at it, additional prospect, it is also, so plus this is a confidence.

There is nothing in the business that change or influence the revenue. Business is the same..

Okay, great.

And then my last one is just about your ALIS cloud, I know it's early, but have you seen any early adoption of this product? Is it mostly newer customers or existing?.

This is for a new customer and we just recently sign it in the -- in going up in the future..

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

Good job on the results, Roni and Roni.

Just wanted to dig into a little bit more on the qualitative side in terms of deals, could you just give us a sense of deal sizes today versus say 12-18 months ago in terms of scope and size, and also maybe just give us a little bit more color in terms of the pipeline, how does that look versus 6 or 12 months ago?.

Yes, I think we don't see any new change in terms of size and pipeline, but as the Company grow and our revenue grow, for sure, we have more pipeline and more revenue and so everything is in terms of the seasonality it's more or less the same, so that means that we need to sign more deals in order to grow..

Right. Okay. Great. And then for Roni G. I had a few financial questions.

One, in terms of the FX impact this quarter and also was all the growth organic or was some impact from past M&A?.

Okay. So let's tackle this [indiscernible], so let's tackle the first one. The FX exchange if I compare Q1 of 2016 to Q4 of 2016, if the currency would stay the same as Q4, we'll be able to show, let's say, 100 basis points on the revenue line additional and I would say 20 basis points on the profitability.

So small impact, but on this line and then regarding the M&A last year 2015 require two companies on a deal size were small, I would say about $4 million and about $10 million we acquire them during the year - one in April, one in August. So it is some impact into this. When we give the guidance beginning of the year we took everything consideration.

As a matter of fact our revenue was a range of growth of 15.4% to 17.7%. So this is already included. And as I said in the beginning we're feeling good about the numbers. We just started the year. As the year progress we'll see if needed to update..

And then in terms of the seasonality of business, can you just remind us the trajectory of growth and margins for the course of the year? Do we see any kind of seasonality or is it fairly linear around the year?.

I would say the linear year over year or quarter over quarter. We see some small impact between Q4 which is I would say more aggressive on the revenue. The reason for that is the customer would like to go live before year-end to start the year fresh or some upside on the revenue. But overall I will say linear with some impact in Q1 profitability.

This is because we see the amount of revenue ahead of us, a good potential pipeline and we accounted significant amount of resource to support this growth. This team are sitting right now on the delivery, some of them are not productive, but in training, and this is one of the reason of the gross margin slightly going down from Q4.

But overall, this is to support the growth that we see right now..

Right. And a couple of housekeeping items, the mix between license and maintenance this quarter and also the tax rate seem to go up quite a bit from last year, so maybe just some color in terms of how we should be thinking about the tax rate going forward..

Okay. So I will tackle the first one. I would say the license and maintenance stay overall the same as last year, no real change. And that what we said earlier, we -- when we acquire a new customer onboard we usually look at this as a full transaction, implemented the product and the implementation of the product.

This is because of the business model that we have, we have the system integration of our product. So obviously what we are measuring is the total revenue from the customer and the profitability as a whole. So we do not see any reason to split this at this point, and matter of fact it's not implicating any growth or profitability of the business.

So overall same as last year. And again we'd like to see this together, license and services together. On the chart we see significant growth from last year or Q1 2015, we are at the level of 20%. What we'd like to see that this is -- probably will continue in the future.

The reason for the low tax rate is tax exemption last year for all of the Israeli territory because of some incentives from the Israeli government. So moving from tax exemption to taxable income, going forward the level will be about 20% going forward..

The next question's from Tavy Rosner of Barclays. Please go ahead..

Maybe just to start a follow-up from Roni G, you talked about looking at licenses and service, professional service together.

Under this new break-down, how much would maintenance represent out of the total revenue? And how much of this is recurring you would say when you look at the new contracts?.

Maintenance is I would say average, I would say starting about 14%-15% of total revenue. Now, regarding the second question about the recurring, we are looking at this as repeatable business from our existing customers.

We are not looking at only signed contract, but we are looking to see what will continue with in the future from customers that are onboard that are first go-live, and we need to give them the maintenance regulation, additional line of business, implementation of new territories. All of that is repeatable revenue that we see.

And because of we are implementing core system solution, we have very much high interaction with our customer and would be able to see what will continue with us.

So us as management we are looking to start the year between 80% to 85% of our revenue, our predictable revenue from existing customer, so we're not looking only on maintenance, but the overall revenue from our existing customer..

Okay. I understand. And just looking at your product updates during the quarter, there was the new IDIT and the new ALIS. And I think both have in common some kind of focus on having cloud-available solution.

Do you see any demand from customer that would be requiring to have their policies on the cloud or is it just kind of a proactive move for you to start looking at new opportunities out there?.

Yes, I think the second issue is that what we are seeing. So we are continue to see the major part of the businesses on premises, but we also want to take care about mainly the Greenfield or the newcomers, small ones that are looking for a cloud solution. We want to make sure that we have a product to offering them.

This is why also we are came with the Fast Track and with the new business in US this is where we are looking, but it's still small part of our business..

Okay, great. And maybe just a last one, you guys mentioned the cash position close to $100 million.

Where does the M&A story fit in, and I was wondering if you guys had any target at the moment, anything on your radar that could close in 2016?.

So I think on the M&A front we mentioned earlier that we increased the team to support our one of our strategy which is to accelerate growth through M&A. I can say that the pipeline is better than what it was a year ago and we're looking at the customer-base, we're looking over geographic expansion, and complementary solution.

And we hope to have a good announcement in the near future..

[Operator Instructions] The next question is from Aron Getar [ph] of Jupiter. Please go ahead..

My question is, do you planning to lower the debt by buying your loans back? My intention is how you see the Company planning to lower the debt to change the cash flow of the Company?.

This is Roni Giladi. At this moment Sapiens is 95 million, almost $95 million at the bank. We do not have any debt, zero debt. So this is the current status. We didn't have any debt in the last several years. We are generating cash, positive cash quarter over quarter.

We mentioned earlier that we are going to pay dividend of $10 million, so overall, no debt, cash positive, and $95 million in the bank..

The next question is from Amil Azi [ph] of Segut. Please go ahead..

I want to ask you.

I wonder if you can point out the revenue break-down this quarter from the Sapiens' portfolio?.

Hi. This is Roni Giladi. We are not providing break-down of our product line. On high level view we can say that 50% of the business is coming from the life, about 30% is coming from the P&C, and rest is technology and decision, basically half and half overall..

Okay.

And the goal of Sapiens is to improve the P&C break-down to make it more even 50-50 I don't know?.

We are in term of the investment we are continue to put a lot of effort in both line of business. So I believe in the future we will see -- you can see increasing on the P&C..

The next question is from Walter Ramsley of Walrus Partners. Please go ahead..

The financial income, there was a negative swing in the quarter.

Could you explain what happened?.

So if I'm looking at the gross positive, if I'm looking at Q1 of 2015 we had the impact of minus 330 million and this quarter was plus 80 million. The interest rate that we're getting on our investment is about 1%, about $40 million investment, this is roughly this amount minus some expenses and hedging expenses.

Previous, so comparable quarter Q1 of 2015 we had some loss due to currency changes, significant currency changes..

Okay, I guess I misread that. So actually it was a positive. Good. And the Company earned about $5 million in the quarter, but the amount of shareholders' equity was essentially unchanged.

So why didn't it go up?.

Okay, so if we look at the change in equity, several thing happened. The first one is we announced a cash dividend of about $10 million. This is obviously reducing the equity, but we have two factors that offset this change.

The first one is obviously the profitability that you mentioned, $5 million up, and additional almost $4.5 million up was due to a exchange that employs our intangible assets. So this is increasing in equity which do not impact at all the P&L, so three factors, one down, two up, basically offset all the changes..

And just one last thing I guess.

The ability to hire more insurance experts, programmers, is that becoming more difficult to get the people that you need and are the price of those people potentially threatening your margins or are you able to get the people you need and able to maintain the margin?.

The answer is yes, meaning to continue to hire people that continue to be challenge. So this is one. As a Company that we are working in different, geographically we are sometimes we try to take the advantage of that, but in terms of margin we continue to increase our offshore capability on the other side so that can help us..

Okay. Well, looks like things are really looking very positive. Thanks for accepting the questions..

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 [indiscernible] that a replay of this call is scheduled to begin in two hours. In the US, please call 1-888-254-7270. In Israel please call 039255940, and internationally, please call 972 39255940. Mr.

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

Yes. Thanks again and see you again in our quarterly results call. Have a good day. Thank you..

Thank you. This concludes Sapiens International Corporation first-quarter 2016 results conference call. Thank you for your participation. You may go ahead and disconnect..