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

Tavy Rosner – Barclays Bhavan Suri – William Blair Avishai Kantor – Cowen.

Ladies and gentlemen, thank you for standing by. Welcome to the Sapiens International Corporation’s Fourth Quarter and Full Year 2017 Results Conference Call. At this time all participants are 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 March 8, 2018. It is now my pleasure to introduce your host, Mrs. Yaffa Cohen-Ifrah, Sapiens’ CMO and Head of Corporate Communications. Ms. Cohen, please begin..

Thank you, and good day, everyone. Our quarterly earning release was issued before the market opened this morning, and it has been posted on the company’s website at www.sapiens.com. Representing the company 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 looking-forward statements, and the safe harbor provision in the press release issued today also apply to the content of the call.

Sapiens expressly disclaim any obligation to update or revise any of these forward-looking statements, whether because of future events, new information, a change in its views or expectations or otherwise. Also, during the course of today’s call, we will refer to 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 website or via the website link, which appear in the earnings release that we published today.

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

Roni?.

continue to deliver double-digit grow in our in P&C lines in EMEA, enhance our North America P&C business by leveraging the Stream and Adaptik solution to grow revenue while we continue to grow our workers’ compensation and single business in the U.S. and maintain life and annuity business.

We are focusing and continue to support our customer base, providing the highest level of support. These customer are critical for our future growth in the market. We have invest in development and enhance our life product and anticipate returning to grow in 2019, focus on cross-sell and up-sell to our existing customer.

I would like now to turn the call to CFO, Roni Giladi, to discuss our financial results and outlook for 2018..

M&A, which will contribute about $21 million to 2018 revenue, however, Adaptik will not contribute the full amount of its acquired revenue due to approximately $5 million of product overlap with StoneRiver. Also, we only have 10 months of consolidated revenue in 2018.

Second, the extension of a project rollout over a longer period than originally forecasted, resulting in reduction of previously forecast revenue of about $10 million in 2018.

Third, continued year-over-year reduction in our revenue of about $5 million in noncore business in Japan; and fourth, a reduction in Indian/Poland local market activities in effort to support our main focus of offshore capabilities.

In summary, the Adaptik acquisition, the reduction of non-core business in Japan and the local market business reduction in Poland and India were driven by our goal to improve the revenue mix for profitable growth.

While they’re negatively impact the top line in the near term, they position us as a more focused and streamlined company for future, long-term growth. I would like to note that on March 5, we completed the acquisition of the Adaptik acquisition.

Looking at Q1 of 2018, our revenue will be impacted by the reduction in India and Poland local market of activity and the extension of a project rollout over the longer period as we mentioned earlier. Therefore, Q1 revenue are expected to be between $67 million to $69 million.

In Q1 of 2018, we continue our cost efficiency program, mainly focused on the integration between Adaptik and Stream. The cost efficiency will impact our operating margin in Q1, and operating margin is expected to be at the level of 10%. We will improve our margin gradually over the year to which the full year operating margin guidance of 12% to 13%.

As for the tax rate, in 2018, following the U.S.A. corporate tax reform, our blended tax rate is expected to reduce from 24% to approximately 22%. I’d like now to turn the call back to Roni Al-Dor for closing comments..

Thank you, Roni. In summary, our 2018 priorities will be to continue to grow organically, drive cross-selling to our customer base and achieve non-GAAP operating margin between 12% to 13%. At the end of 2017, Sapiens significantly enhanced our product offerings by developing and acquiring new solution for core, data and digital to be more competitive.

We doubled our customer base and add talent in key areas. We built up a strong P&C platform for North America and streamlined our overall business to build platform to support our long-term strategy. In 2018, we will be focused on maximizing these strong assets to benefit our existing customer and attract the new ones.

With that said, I would like to close our prepared remarks and open the call for question.

Operator?.

Thank you. Ladies and gentlemen, at this time, we will begin the question-and-answer session. [Operator Instructions] The first question is from Tavy Rosner of Barclays. Please go ahead..

Thanks for taking my question. I was wondering if we could talk a little bit about the life segment. You mentioned in your prepared remarks that you’re expecting stability in this segment in 2018. To me – I recall you guys being a bit more optimistic about life in the past.

So can you maybe run us through what has changed, especially in the underlying markets, which makes you less confident about this growth in 2018?.

we have our core system ALIS, we have run-off business, or Closed Book and we have the complementary solution that we bought from StoneRiver. So altogether, we definitely can see growth on the component level. But on the Closed Book and ALIS, we – it’s a long sales cycle, and we – it’s a sink and delay, and we prefer to take more conservative..

Do you think anything has changed for ALIS on the underlying market? I mean, that insurance company, either is it just sales cycle that are lengthening? Or do you think that they are taking a different approach to using external providers, such as yourself?.

or to go to consolidation with our system or to go to direct offshore. And sometimes, they prefer to go to direct offshore. Again, this is what we can see right now, and this is also where we, as a company, decide to focus..

Thank you..

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

Hey guys.

Can you hear me okay?.

Yes. Hi, Bhavan..

Hey, Roni, hey, Roni, hey, Yaffa. I guess I want to touch on a couple of things quickly. First, can you just talk about the pipeline with Adaptik? It seems like there’s some good opportunities lined up for 2018, but just some sense of size or sort of your confidence and what stage you’re at, close rates, the profits.

I just want to get a little more color on that..

Okay. I will talk in general about Adaptik, and then Roni can try to add the numbers. As I mentioned, we acquired Stingray, we acquired StoneRiver, we acquired Adaptik. What we – in Stingray is the lower tier. We grow 2017. We have a very good pipeline, so we’re very optimistic that we can grow a high double digit in the Stingray.

Now in StoneRiver, StoneRiver, beside the workers’ comp, reinsurance, finance and compliance that was the – that we didn’t do any change, we made a decision – StoneRiver start to develop their Stream system many years ago.

It’s a new technology platform and a very, very, very good on claims, and they also start to develop the billings, but very early stage on the policy. So the main idea is to take the – one of the best policy system in the market today for Adaptik and billing and to combine it with the claim. I just, by the way, came back from U.S.

from client conference Adaptik and Stream together. Adaptik, we – you can see in the near future what the analyst believe. They put us in a very – in a magic quadrant, very, very good in terms of what they believe the product. So we are – we feel that, now together with Stream and Adaptik, we can instead of now wait.

If you remember, there is 50 and 80 vendors in U.S. and we can be – after this acquisition, we can be one of the top five. So we are very optimistic. The client base is very happy. The product is mature and strong.

Now with the all help of us, because they are relatively small company and they started, by the way, with Tier 1 and 2, it’s very difficult for them to – just because the size. So I think together with us, with the claim, with the digital, with the services, so we see a lot of potential growth.

But right now, we are feeling integration mode, and we are just going to the market right now. The pipeline is good, so we are – yes, we are optimistic..

Just to add a small sentence on that. When we completed the due diligence on Adaptik, obviously, we saw a company at the level of $12 million, and we also analyze and review the potential prospect.

We feel confident that they will close with Adaptik-Sapiens in the near term and, therefore, potentially will have an impact on the revenue on terms of growth. In terms of overall size, the Adaptik and Stream claim is altogether, let’s say, between $15 million to $20 million. So this is the area that can grow in the high level.

But right now it’s still not a big number. It’s about $15 million to $20 million..

Got it, got it. That’s really helpful. I think just one other question for you guys generally, and then I might have a quick follow-up there.

But have you guys thought about quantifying the cross-sell opportunity between StoneRiver and Adaptik? If you were to think about sort of – both set of customers, the products they have, the products we could cross-sell, how would that look? Or how should we think about the size and opportunity of what you guys might do there?.

We definitely see we are – already start to – just we feel form from StoneRiver came to the client conference, and again, we are talking about overall StoneRiver has two on this client. I cannot promise that all of them can start to buy but definitely – and by the way, not just Adaptik, also Stingray.

StoneRiver, part of their business is legacy, and this is what we are looking for. We are looking to go to all of them and to come with attractive update – upgrade or new version or we can do something good for them. And one, we can keep them, and one, we can see up-sell opportunity.

I cannot say give you all numbers, but definitely, this is one of the area that we are looking..

Yes, yes. I think at some point, it’s worth thinking about that from actual size perspective, potentially. One last one from me. And I know you gave a little color on a large project. You said a little bit about that.

But sort of as you think about discussions and how they’re progressing, you think about the cadence and the pace of service in that project, so instead of a big one it’s going to be sort of smaller chunks a few weeks later, how are your guys feeling about that, a little more color? And has there been any progress there? Thank you..

Right now, we are – again, we decide to take conservative approach. We have agreement with this large organization but we are – have a lot of stream, a lot of initiative, but we still wants to see how its progress. So we are very optimistic. But in terms of the size – and also, we are taking more conservative approach in terms of 2018..

Okay, thanks guys. I appreciate it. Thank you for taking my questions..

The next question is from Avishai Kantor of Cowen. Please go ahead..

Good afternoon, guys. Thank you for taking my questions. My first question. So it’s a year passed. The acquisition of StoneRiver was a big strategic move. StoneRiver, it’s predominantly P&C, but if I believe – if I am correct, I think it’s about 20% life. Can you talk – and you touched about it in the previous question.

Can you talk a little bit which areas surprised you on the positive side, past – now that the one year anniversary? Which areas specifically remain challenges for 2018? If you can break it down by P&C, of life. I know life is relatively small within StoneRiver, but if you can still break it down by those two segments..

I – we definitely not see any surprise in StoneRiver. We are very happy with this acquisition. We – if you can – just to remind, we have the life piece, we have finance and compliance, we have the reinsurance, we have the workers’ comp and we have the Stream, so all of those. As Roni mentioned, we improved the operational margin.

We are [indiscernible] on the account management to look after up-sell and cross-sell, and this, we look in the future. The only area that we decide to put more engine is on the three parts. And this is relatively small, but that’s one of our – can be one of our growth – main growth engine.

Again, as I mentioned before, if you can know Sapiens from 2011, we acquired IDIT, and now it’s definitely one of the market leader in Europe in every opportunity. We are in the short list compared to Guidewire. This is what we – our expectation now. We see Adaptik and Stream together to be in the same area in the very near future.

And again, just to remind the people that don’t know Sapiens for many years, this is we try to do for many, many years. We decide not to bring the IDIT to the U.S. like what we did in ALIS. We decide to do few acquisition. Now we complete all of them. We start to integrate, and now we concluded with Adaptik.

I think – and again, based on what we overall believe, there is a lot of disruption in the P&C area. So I think we have positioned us one of the very big player on the P&C market..

Okay. And so do you feel like that you can disclose – if any of those areas you’ve added that you expected in terms of winning new deals? For example, the life segment in – within StoneRiver did a little bit better than you expected..

On the life, which I – as Roni mentioned earlier, we are selling their component solution, not the core system solution. And we had several opportunity that we won during this year. They are not big in size, but they are a few hundred thousand each, at least. This was a – in terms of revenue – in revenue size, more than what we expected.

So on the life, on the complementary solution, winning new deals with the StoneRiver. And also it refer to the previous question about the cross-selling opportunity for us to do this. On the overall profitability, Roni mentioned that we have set aside same tools. At the end of 2017, we reached our target to improve the profitability.

We are optimistic about this. We reached this goal. There are small areas that we need to be improved. But overall, they are on the level of Sapiens, and so we are also happy with the overall profitability of StoneRiver. As a reminder, we started the year with 8%, and right now, they are in Sapiens level..

And my last question on the Adaptik acquisition. So it seems like you acquired some tenured IT management capability and C-level executives that are coming from that acquisition.

Do you have any plans to leverage them across the organization?.

Yes, definitely yes. The first thing that we decide to do, we move all the StoneRiver Stream to Adaptik, and we – so the 80% of the management of the new organization, Adaptik and Stream, managed by John, he was the CEO of Adaptik, and all of his management. What we add from Sapiens is the Head of Client and Professional Services, Hagit.

She worked for Sapiens, managing the Professional Services. She take over the clients and all the other thing from operation, financial, legal, HR. All of those, they are getting from clients – so from Sapiens.

So we definitely want to relieve the CEO from doing the financial part and go to the market and take the advantage to bring more business and serve the existing clients..

Thank you so much for taking questions, and the color and strategy..

[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 participants that a replay of this call is scheduled to begin in two hours. In the U.S., please call 1 888 782 4291.

In Israel, please call 03 925 5918, and internationally, please call 9 723 925 5918. Mr. Al-Dor, would you like to make your concluding statement..

Thank you, operator, and thank you for all participants for joining us today. Have a good day..

Thank you. This concludes the Sapiens International Corporation’s fourth quarter 2017 results conference call. Thank you for your participation. You may go ahead and disconnect..