UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 6-K

 

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16 OF

THE SECURITIES EXCHANGE ACT OF 1934

 

For the month of October 2020

 

Commission File Number 000-20181

 

SAPIENS INTERNATIONAL CORPORATION N.V.

(Translation of Registrant’s name into English)

 

Azrieli Center

26 Harokmim St.

Holon, 5885800

(Address of Principal Executive Office)

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F ☒ Form 40-F ☐

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐

 

 

 

 

 

 

CONTENTS

 

This Report of Foreign Private Issuer on Form 6-K (this “Form 6-K”) is being furnished by Sapiens International Corporation N.V. (“Sapiens” or the “Company”) to the Securities and Exchange Commission (the “SEC”) for the purposes of: (i) furnishing, as Exhibit 99.1 to this Form 6-K, interim unaudited consolidated financial statements as of, and for the six month period ended, June 30, 2020; (ii) furnishing, as Exhibit 99.2 to this Form 6-K, Operating and Financial Review and Prospects, which reviews Sapiens’ results of operations and financial condition as of, and for the six month period ended, June 30, 2020; and (iii) furnishing Interactive Data File disclosure as Exhibit 101 in accordance with Rule 405 of Regulation S-T promulgated by the SEC.

 

Exhibits 99.1 and 99.2 to this Report on Form 6-K shall be deemed to be incorporated by reference into Sapiens’ registration statement on Form F-3 (SEC File No. 333-232599).

 

Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files in Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

 

Third Quarter 2020 Preliminary Financial Results

 

In addition, while complete financial information and operating data are not yet available, Sapiens is providing preliminary estimates of the results of operations that it expects to report for the quarter ended September 30, 2020 disclosed in good faith based upon Sapiens’ internal estimates for the quarter ended September 30, 2020. The Company’s actual results may differ materially from these estimates due to the completion of its quarter-end closing procedures, final adjustments and other developments that may arise between now and the time the consolidated financial results for its third quarter are finalized. As a result, these estimates are preliminary and unaudited, may change and constitute forward-looking information and, as a result, are subject to risks and uncertainties. All percentage comparisons to the same period in the prior year are based on the midpoint of the range provided below.

 

Subject to the above, the following are Sapiens’ preliminary estimates for the three months ended September 30, 2020:

 

GAAP revenue between $96.1 million and $97.3 million.

 

Non-GAAP revenue between $96.5 million and $97.5 million, representing a 17.4% increase to the mid point of this range from $82.6 million in revenue in the corresponding prior year period.

 

GAAP operating profit between $10.9 million and $12.1 million.

 

Non-GAAP operating profit between $16.6 million and $17.2 million, representing a 24.8% increase to the mid-point of this range from $13.5 million in operational profit in the corresponding prior year period.

 

Reconciliation of revenue and operating profit between GAAP and Non-GAAP are shown in the table below.

 

  

Range of Estimates

(in $ millions)

 
   Quarter ended September 30,
2020
 
     
GAAP revenues   $96.1 – 97.3 
      
Valuation adjustment on acquired deferred revenues   $0.4 – 0.2 
      
Non-GAAP revenues   $96.5 - $97.5 

 

1

 

 

  

Range of Estimates

(in $ millions)

 
   Quarter ended September 30,
2020
 
     
GAAP operating profit   $10.9 – 12.1 
      
Valuation adjustment on acquired deferred revenues   $0.4 – 0.2 
Amortization of other intangible assets   $3.0 – 2.9 
Capitalization of software development, net of amortization   $0.1 – 0 
Stock-based compensation   $1.4 – 1.3 
Compensation related to acquisition and acquisition-related costs   $0.8 – 0.7 
      
Non-GAAP operating profit   $16.6 – 17.2 

 

The estimates above represent the most current information available to Sapiens’ management and do not present all necessary information for an understanding of the Company’s financial condition as of and the results of operations for the three months ended September 30, 2020. The Company has provided a range for the preliminary results described above primarily because its financial closing procedures for the three months ended September 30, 2020 are not yet complete. As a result, there is a possibility that the Company’s final results for such period will vary from these preliminary estimates. The Company currently expects that its final results will be within the ranges described above. It is possible, however, that the Company’s final results will not be within the ranges we currently estimate. The estimates for the three months ended September 30, 2020 are not necessarily indicative of any future period and should be read together with “Risk Factors,” “Forward-Looking Statements,” “Operating and Financial Review and Prospects” and the Company’s consolidated financial statements included in the Company’s most recent Annual Report on Form 20-F for the year ended December 31, 2019, as well as the interim unaudited consolidated financial statements as of, and for the six month period ended, June 30, 2020 included as Exhibit 99.1 hereto and Operating and Financial Review and Prospects, which reviews Sapiens’ results of operations and financial condition as of, and for the six month period ended, June 30, 2020 included as Exhibit 99.2 hereto.

 

The foregoing preliminary consolidated financial data has been prepared by, and is the responsibility of, the Company’s management and has not been reviewed or audited by the Company’s independent registered public accounting firm. Accordingly, the Company’s independent auditors do not express an opinion or any other form of assurance with respect to this preliminary data.

 

The Company expects its closing procedures with respect to the three months ended September 30, 2020 to be completed in November 2020. Accordingly, the Company’s consolidated financial statements as of and for the three months ended September 30, 2020 will not be available until November 2020.

 

The Company believes that it has navigated the difficult economic conditions posed by the COVID-19 pandemic in a manner that has enabled it to continue to successfully grow its business on the revenue and profit level through the first nine months of 2020. While difficult economic conditions remain, the Company believes that the positive tailwinds and momentum on revenue and profit in its business will continue further. The Company expects to provide guidance for the full year 2020 in its third quarter earnings release.

 

2

 

 

Forward-Looking Statements

 

Some of the statements in this Form 6-K may constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities and Exchange Act of 1934 and the United States Private Securities Litigation Reform Act of 1995. Words such as “will,” “expects,” “believes” and similar expressions are used to identify these forward-looking statements (although not all forward-looking statements include such words). These forward-looking statements, are made on the basis of management’s current views and assumptions with respect to future events. Any forward-looking statement is not a guarantee of future performance and actual results could differ materially from those contained in the forward-looking statement. There are important factors that could cause Sapiens’ actual results to differ materially from the results expressed or implied by the forward-looking statements, including, but not limited to risks associated with market conditions; the COVID-19 (coronavirus) pandemic, which may last longer than expected and materially adversely affect Sapiens’ results of operations; the degree of Sapiens’ success in Sapiens’ plans to leverage Sapiens’ global footprint to grow Sapiens’ sales; the degree of Sapiens’ success in integrating the companies that Sapiens has acquired through the implementation of Sapiens’ M&A growth strategy; the lengthy development cycles for Sapiens’ solutions, which may frustrate Sapiens’ ability to realize revenues and/or profits from Sapiens’ potential new solutions; Sapiens’ lengthy and complex sales cycles, which do not always result in the realization of revenues; the degree of Sapiens’ success in retaining Sapiens’ existing customers or competing effectively for greater market share; difficulties in successfully planning and managing changes in the size of Sapiens’ operations; the frequency of the long-term, large, complex projects that Sapiens performs that involve complex estimates of project costs and profit margins, which sometimes change mid-stream; the challenges and potential liability that heightened privacy laws and regulations pose to Sapiens’ business; occasional disputes with clients, which may adversely impact Sapiens’ results of operations and Sapiens’ reputation; various intellectual property issues related to Sapiens’ business; potential unanticipated product vulnerabilities or cybersecurity breaches of Sapiens’ or Sapiens’ customers’ systems; risks related to the insurance industry in which Sapiens’ clients operate; risks associated with Sapiens’ global sales and operations, such as changes in regulatory requirements, wide-spread viruses and epidemics like the recent novel coronavirus outbreak, or fluctuations in currency exchange rates; and risks related to Sapiens’ principal location in Israel and Sapiens’ status as a Cayman Islands company.

 

While Sapiens believes such forward-looking statements are based on reasonable assumptions, should one or more of the underlying assumptions prove incorrect, or these risks or uncertainties materialize, Sapiens’ actual results may differ materially from those expressed or implied in this Form 6-K. Other important factors that could cause actual results, performance or achievements to differ materially from those contemplated in this Form 6-K can be found under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Sapiens’ Annual Report on Form 20-F for the year ended December 31, 2019, and in subsequent reports and registration statements filed from time to time with the Securities and Exchange Commission.

 

Although Sapiens believes that the expectations reflected in the forward-looking statements are reasonable, Sapiens cannot guarantee that future results, levels of activity, performance and events and circumstances reflected in the forward-looking statements will be achieved or will occur. Except as required by law, Sapiens’ undertakes no obligation to update publicly any forward-looking statements for any reason after the date of this annual report, to conform these statements to actual results or to changes in Sapiens’ expectations.

 

3

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  Sapiens International Corporation N.V.
   
  By: /s/ Roni Giladi                 
  Name:  Roni Giladi
  Title: Chief Financial Officer

 

Dated: October 13, 2020

 

4

 

 

EXHIBIT INDEX

 

The following exhibits are furnished as part of this Form 6-K:

 

Exhibit No.   Description
     
99.1   Unaudited condensed consolidated financial statements of Sapiens as of, and for the six month period ended, June 30, 2020
     
99.2   Operating and Financial Review and Prospects with respect to Sapiens’ results of operations and financial condition as of, and for the six month period ended, June 30, 2020
     
101   Interactive data files pursuant to Rule 405 of Regulation S-T: (i) Unaudited Interim Consolidated Balance Sheets, (ii) Unaudited Interim Consolidated Statements of Operations, (iii) Unaudited Interim Consolidated Statements of Comprehensive Loss, (iv) Unaudited Consolidated Statements of Redeemable Convertible Preferred Shares and Changes in Shareholders’ Equity (v) Unaudited Consolidated Statements of Cash Flows and (vi) related notes to these consolidated financial statements

 

 

5

 

 Exhibit 99.1

  

SAPIENS INTERNATIONAL CORPORATION N.V.

 

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

AS OF JUNE 30, 2020

 

UNAUDITED

 

IN U.S. DOLLARS

 

INDEX

 

  Page
   
Consolidated Balance Sheets F-2 – F-3
   
Consolidated Statements of Income F-4
   
Consolidated Statements of Comprehensive Income F-5
   
Consolidated Statements of Changes in Equity F-6
   
Consolidated Statements of Cash Flows F-7 – F-8
   
Notes to the Condensed Interim Consolidated Financial Statements F-9 – F-25

 

- - - - - - - -

 

F-1

 

 

SAPIENS INTERNATIONAL CORPORATION N.V.

 

CONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands

 

   December 31,
2019
  

June 30,

2020

 
       Unaudited 
         
ASSETS          
           
CURRENT ASSETS:          
Cash and cash equivalents  $66,295   $127,978 
Trade receivables (net of allowance for credit losses of $ 543 and $ 1,317 at December 31, 2019 and June 30, 2020 (unaudited), respectively)   34,615    45,943 
Unbilled receivables and contract assets   15,606    17,026 
Investment in restricted deposit   22,890    - 
Other receivables and prepaid expenses   7,817    9,041 
           
Total current assets   147,223    199,988 
           
LONG-TERM ASSETS:          
Capitalized software development costs, net   23,953    23,543 
Other intangible assets, net   34,035    39,096 
Property and equipment, net   16,601    16,486 
Operating lease right-of-use assets   49,539    50,231 
Goodwill   170,703    186,094 
Severance pay fund   5,106    5,839 
Other long-term assets   5,261    6,017 
           
Total long-term assets   305,198    327,306 
           
Total assets  $452,421   $527,294 

 

The accompanying notes are an integral part of the condensed interim consolidated financial statements.

 

F-2

 

 

SAPIENS INTERNATIONAL CORPORATION N.V.

 

CONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands (except share and per share data)

 

   December 31, 2019  

June 30,

2020

 
       Unaudited 
LIABILITIES AND EQUITY        
         
CURRENT LIABILITIES:        
Trade payables  $5,107   $5,738 
Employees and payroll accruals   26,710    29,282 
Accrued expenses and other liabilities   33,864    35,161 
Current maturities of Series B Debentures   9,898    19,796 
Current maturities of operating lease liabilities   8,312    9,073 
Deferred revenues   21,021    25,061 
           
Total current liabilities   104,912    124,111 
           
LONG-TERM LIABILITIES:          
Series B Debentures, net of current maturities   58,850    98,434 
Deferred tax liabilities   5,082    7,235 
Other long-term liabilities   8,321    8,312 
Long-term operating lease liabilities   43,394    44,319 
Accrued severance pay   6,364    7,367 
           
Total long-term liabilities   122,011    165,667 
           
COMMITMENTS AND CONTINGENT LIABILITIES          
           
REDEEMABLE NON-CONTROLLING INTEREST   -    458 
           
EQUITY:          
Sapiens International Corporation N.V. Shareholders’ equity:          
Share capital:          
Common shares of € 0.01 par value:
Authorized: 70,000,000 shares at December 31, 2019 and June 30, 2020 (unaudited), respectively; Issued: 52,488,172 and 52,737,428 shares at December 31, 2019 and June 30, 2020 (unaudited), respectively; Outstanding: 50,159,876 and 50,409,132 shares at December 31, 2019 and June 30, 2020 (unaudited), respectively
   697    700
Additional paid-in capital   217,014    220,725 
Treasury shares, at cost - 2,328,296 Common shares at December 31, 2019 and June 30, 2020 (unaudited)   (9,423)   (9,423)
Accumulated other comprehensive loss   (2,381)   (3,712)
Retained earnings   17,912    26,980 
           
Total Sapiens International Corporation N.V. shareholders’ equity   223,819    235,270 
Non-controlling interests   1,679    1,788 
           
Total equity   225,498    237,058 
           
Total liabilities and equity  $452,421   $527,294 

 

The accompanying notes are an integral part of the condensed interim consolidated financial statements.

 

F-3

 

 

SAPIENS INTERNATIONAL CORPORATION N.V.

 

CONSOLIDATED STATEMENTS OF INCOME

U.S. dollars in thousands

 

  

Six months ended

June 30,

 
   2019   2020 
   Unaudited 
         
Revenues  $156,316   $183,597 
           
Cost of revenues   95,055    109,074 
           
Gross profit   61,261    74,523 
           
Operating expenses:          
Research and development   17,700    19,854 
Selling, marketing, general and administrative   26,030    31,988 
           
Total operating expenses   43,730    51,842 
           
Operating income   17,531    22,681 
Financial expense, net   1,488    1,550 
           
Income before taxes on income   16,043    21,131 
Taxes on income   4,001    4,911 
           
Net income   12,042    16,220 
           
Attributed to non-controlling interests   47    103 
           
Net income attributable to Sapiens’ shareholders  $11,995   $16,117 
           
Net earnings per share attributable to Sapiens’ shareholders:          
           
Basic  $0.24   $0.32 
           
Diluted  $0.24   $0.32 

  

The accompanying notes are an integral part of the condensed interim consolidated financial statements.

 

F-4

 

 

SAPIENS INTERNATIONAL CORPORATION N.V.

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

U.S. dollars in thousands

 

  

Six months ended

June 30,

 
   2019   2020 
   Unaudited 
         
Net income  $12,042   $16,220 
           
Other comprehensive income (loss):          
           
Foreign currency translation adjustments   4,813    (1,331)
           
Total comprehensive income   16,855    14,889 
           
Comprehensive income attributed to non-controlling interests   85    103 
           
Comprehensive income attributable to Sapiens’ shareholders  $16,770   $14,786 

 

The accompanying notes are an integral part of the condensed interim consolidated financial statements.

 

F-5

 

 

SAPIENS INTERNATIONAL CORPORATION N.V.

 

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

U.S. dollars in thousands (except share and per share data)

 

   Common stock   Additional paid-in   Treasury   Accumulated other comprehensive   Retained earnings (Accumulated   Non-controlling   Total 
   Shares   Amount   capital   shares   income (loss)   deficit)   interests   equity 
                                 
Balance as of December 31, 2018   49,982,004   $695   $214,918   $(9,423)  $(7,820)  $2,674   $1,440   $202,484 
                                         
Stock-based compensation   -    -    666    -    -    -    75    741 
Employee stock options exercised (cash and cashless)   22,584    *)    78    -    -    -    -    78 
Distribution of dividend   -    -    -    -    -    -    (66)   (66)
Other comprehensive income   -    -    -    -    4,775    -    38    4,813 
Net income   -    -    -    -    -    11,995    47    12,042 
                                         
Balance as of June 30, 2019 (unaudited)   50,004,588    695    215,662    (9,423)   (3,045)   14,669    1,534    220,092 
                                         
Balance as of December 31, 2019   50,159,876    697    217,014    (9,423)   (2,381)   17,912    1,679    225,498 
                                         
Stock-based compensation   -    -    1,380    -    -    -    6    1,386 
Employee stock options exercised (cash and cashless)   249,256    3    2,331    -    -    -    -    2,334 
Distribution of dividend   -    -    -    -    -    (7,049)   -    (7,049)
Other comprehensive loss   -    -    -    -    (1,331)   -    -    (1,331)
Net income   -    -    -    -    -    16,117    103    16,220 
                                         
Balance as of June 30, 2020 (unaudited)   50,409,132   $700   $220,725   $(9,423)  $(3,712)  $26,980   $1,788   $237,058 

 

*) Represents an amount lower than $1.

 

The accompanying notes are an integral part of the condensed interim consolidated financial statements.

 

F-6

 

 

SAPIENS INTERNATIONAL CORPORATION N.V.

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

U.S. dollars in thousands

 

  

Six months ended

June 30,

 
   2019   2020 
   Unaudited 
         
Cash flows from operating activities:          
           
Net income  $12,042   $16,220 
Reconciliation of net income to net cash provided by operating activities:          
Depreciation and amortization   9,262    10,637 
Stock-based compensation   741    1,386 
Accretion of discount on Series B Debentures   84    77 
Capital gain from sale of property and equipment   (129)   - 
           
Net changes in operating assets and liabilities          
Trade receivables, net and unbilled receivables   712    (11,554)
Other operating assets   (356)   3,286 
Deferred tax assets, net   (1,435)   (1,146)
Trade payables   190    (275)
Other operating liabilities   152    (2,187)
Deferred revenues   4,760    4,008 
Accrued severance pay, net   34    68 
           
Net cash provided by operating activities   26,057    20,520 
           
Cash flows from investing activities:          
           
Purchase of property and equipment   (1,720)   (945)
Proceeds from sale of property and equipment   821    - 
Net cash paid for acquisitions   -    (22,483)
Proceeds from restricted deposit used for completed acquisition   -    22,890 
Investment in deposit   (1,119)   (379)
Capitalized software development costs   (2,962)   (2,688)
           
Net cash used in investing activities   (4,980)   (3,605)

 

The accompanying notes are an integral part of the condensed interim consolidated financial statements.

 

F-7

 

 

SAPIENS INTERNATIONAL CORPORATION N.V.

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

U.S. dollars in thousands

 

  

Six months ended

June 30,

 
   2019   2020 
   Unaudited 
         
Cash flows from financing activities:        
         
Proceeds from employee stock options exercised   78    2,334 
Distribution of dividend   -    (6,632)
Repayment of loan   (4)   (20,000)
Repayment of Series B Debentures   (9,898)   (9,898)
Issuance of Series B Debentures, net of issuance expenses   -    60,155 
Receipt of short-term loan   -    20,000 
Payments of contingent consideration   (120)   (538)
Dividend to non-controlling interest   (66)   - 
           
Net cash provided by (used in) financing activities   (10,010)   45,421 
           
Effect of exchange rate changes on cash and cash equivalents   1,587    (653)
           
Increase in cash, and cash equivalents   12,654    61,683 
Cash, cash equivalents at beginning of period   64,628    66,295 
           
Cash and cash equivalents at end of period  $77,282   $127,978 
           
Supplemental cash flow activities:          
           
(a)       Non-cash transactions:          
Right-of-use assets obtained in the exchange for operating lease liabilities  $22,089   $1,861 
Unpaid withholding taxes in respect of dividend   -    417 
Property and equipment purchase incurred but unpaid at period end  $1,006   $403 

 

The accompanying notes are an integral part of the condensed interim consolidated financial statements.

 

F-8

 

 

SAPIENS INTERNATIONAL CORPORATION N.V.

 

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

 

NOTE 1:GENERAL

 

Sapiens International Corporation N.V. (“Sapiens”) and its subsidiaries (collectively, the “Company”), a member of the Formula Systems (1985) Ltd. Group, is a global provider of software solutions for the insurance industry, with an emerging focus on the broader financial services sector. The Company’s offerings include policy administration, billing and claims; underwriting, illustration and electronic application; reinsurance; and decision management software. Sapiens’ digital suite features customer and agent portals, and an advanced analytics solution.

 

Sapiens global services include program management, project delivery and implementation of the Company’ software solutions, business services and managed services.

 

The Company operates in North America, Europe, Asia Pacific and South Africa.

 

In March 2020, the World Health Organization categorized the novel coronavirus (“COVID-19”) as a pandemic. The COVID-19 pandemic has rapidly changed market and economic conditions globally, impacting the Company's customers, employees, as well the Company' s business results of operations, although the COVID-19 has not had a material negative impact on the Company's business to date. The Company remains focused on protecting the health and wellbeing of its employees and the communities in which it operates, while assuring the continuity of the Company's business operations.

  

NOTE 2:SIGNIFICANT ACCOUNTING POLICIES

 

The accompanying unaudited interim consolidated balance sheet as of June 30, 2020, and consolidated statements of operations, the consolidated statements of comprehensive income and the consolidated statements of cash flows for the six months ended June 30, 2019 and 2020, as well as the statement of changes in shareholders’ equity for the six months ended June 30, 2020, are unaudited. These unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 2020, are not necessarily indicative of the results that may be expected for the year ended December 31, 2020.

 

These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and accompanying notes for the year ended December 31, 2019. The significant accounting policies applied in the annual financial statements of the Company as of December 31, 2019, are applied consistently in these consolidated financial statements except for the policies noted below which changed as a result of the adoption of Topic 326.

 

F-9

 

 

SAPIENS INTERNATIONAL CORPORATION N.V.

 

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

 

NOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)

 

Trade Receivables and Allowances

 

Accounts receivable are recorded and carried at the original invoiced amount less an allowance for any potential uncollectible amounts. The Company makes estimates of expected credit losses for the allowance for doubtful accounts in respect of trade receivables and unbilled receivables based upon our assessment of various factors, including historical experience, the age of the accounts receivable balances, credit quality of our customers, current economic conditions, reasonable and supportable forecasts of future economic conditions, and other factors that may affect our ability to collect from customers. Estimated credit loss allowance is recorded as general and administrative expenses on our condensed consolidated statements of income. As of June 30, 2020, $45,943 of trade receivables is presented net of an allowance of $1,317.

 

a.Recently adopted accounting pronouncements:

 

On January 1, 2020, the Company adopted Accounting Standards Update No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, using the modified retrospective transition method. Upon adoption, the Company changed its impairment model to utilize a forward-looking current expected credit losses (CECL) model in place of the incurred loss methodology for financial instruments measured at amortized cost, including trade receivables.

 

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 eliminates Step 2 of the goodwill impairment test, which requires the calculation of the implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination. Instead, an entity will compare the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. ASU 2017-04 is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The Company adopted ASU 2017-04 as of January 1, 2020 with no material impact on its condensed interim consolidated financial statements.

 

b.Principles of consolidation:

 

The consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries. All intercompany balances and transactions have been eliminated upon consolidation.

 

Non-controlling interests of subsidiaries represent the non-controlling shareholders’ share of the total comprehensive income (loss) of the subsidiaries and fair value of the net assets upon the acquisition of the subsidiaries. The non-controlling interests are presented in equity separately from the equity attributable to the equity holders of the Company.

 

F-10

 

 

SAPIENS INTERNATIONAL CORPORATION N.V.

 

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

 

NOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)

 

c.Use of estimates:

 

The preparation of the condensed interim consolidated financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions. The Company’s management believes that the estimates, judgments and assumptions used are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

 

NOTE 3:CERTAIN TRANSACTIONS

 

a.Acquisition of sum.cumo

 

On February 6, 2020 (the “Acquisition Date”), Sapiens completed the acquisition of all outstanding shares of sum.cumo GmbH (“sum.cumo”), a German company. sum.cumo services insurers in the DACH region, helping them to achieve digital transformation of set up their existing business models or to design entirely new business models based on pure digital processes. sum.cumo’s experts in consulting, user experience, marketing and technology enable the region’s insurers to launch highly automated platforms well suited for e-commerce and real-time processing of transactions.

 

In connection with the Company’s acquisition of sum.cumo, on February 6, 2020, the Company issued an aggregate of 173,005 RSUs to ten employees of sum.cumo in connection with the acquisition. The value of these grants was not included in the purchase price of sum.cumo, since their vesting is subject to both continued employment and other performance criteria. In addition, sum.cumo’s senior executives have retention-based payments over three years (2020-2023) of up to EUR 2,350. These payments are subject to continued employment, and therefore were not included in the purchase price. Acquisition related costs amounted to $540, and are presented under selling, marketing, general and administrative in the Company’s consolidated statements of income. The results of sum.cumo’s operations have been included in the consolidated financial statements from the acquisition date.

 

F-11

 

 

SAPIENS INTERNATIONAL CORPORATION N.V.

 

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

 

NOTE 3:CERTAIN TRANSACTIONS (Cont.)

 

The table below presents the preliminary fair value that was allocated to sum.cumo’s assets and liabilities based upon fair values as determined by the Company. The valuation process to determine the fair values is not yet complete. The Company estimated the preliminary fair value of acquired assets and liabilities as of the effective time of the acquisition of sum.cumo based on information currently available, and continues to adjust those estimates upon refinement of market participant assumptions for integrating businesses, among other relevant considerations.

 

Net assets (including cash of $ 981)  $1,447 
Intangible assets   9,730 
Deferred taxes   (3,211)
Goodwill   15,068 
      
Net assets acquired  $23,034 

 

The goodwill resulted from the acquisition of sum.cumo is primarily attributable to sales growth from future products, new customers and potential synergy with Sapiens, as well as certain intangible assets that do not qualify for separate recognition.

 

Revenues and net income of sum.cumo included in the Company’s consolidated statements of income for the six months ended June 30, 2020 (unaudited) amounted to $9,750 and $385, respectively.

 

b.Other acquisition

 

During the six months ended June 30, 2020, we completed an additional acquisition for a total consideration of approximately $1.7 million. The valuation process to determine the fair values of the acquired intangibles as part of this acquisition is not yet complete.

 

Revenues and net income attributed to this certain acquisition included in the Company’s consolidated statements of income for the six months ended June 30, 2020 (unaudited) were immaterial.

  

F-12

 

 

SAPIENS INTERNATIONAL CORPORATION N.V.

 

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

 

NOTE 4:REVENUE RECOGNITION

 

The Company implements the provisions of Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”).

 

On most occasions, the Company generates revenues from sales of software licenses which include significant implementation and customization services. Such software licenses and implementation and customization services are not considered distinct performance obligations and are accounted for as one performance obligation. In addition, the Company generates revenues from post implementation consulting services and maintenance services.

 

Remaining performance obligations represent contracted revenue that has not yet been recognized, which includes deferred revenue and amounts that will be invoiced and recognized as revenue in future periods. The aggregate amount of consideration allocated to performance obligations either not satisfied or partially unsatisfied from fixed price projects and post contract support services was approximately $179 million as of June 30, 2020. The Company expects to recognize approximately 47% in the remainder of 2020 from remaining performance obligations as of June 30, 2020 and the remainder in 2021 and thereafter. Remaining performance obligations include the remaining non-cancelable, committed and fixed portion of these contracts for their entire duration. The remaining performance obligations related to post-production professional services contracts that are on a Time and Materials (“T&M”) basis were excluded, as the Company elected to apply the relevant practical expedient in accordance with ASC 606.

 

Disaggregation of revenue:

 

The following table provides information about disaggregated revenue by type of contract, and timing of revenue recognition (in thousands):

 

  

Six months ended

June 30,

 
   2019   2020 
   Total 
   Unaudited 
         
Type of contract          
T&M contracts  $89,706   $119,594 
Fixed-priced contracts   66,610    64,003 
           
Total   156,316    183,597 
           
Timing of revenue recognition          
Products transferred at a point in time   5,003    5,200 
Products and services transferred over time   151,313    178,397 
           
Total  $156,316   $183,597 

  

F-13

 

 

SAPIENS INTERNATIONAL CORPORATION N.V.

 

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

 

NOTE 4:REVENUE RECOGNITION (Cont.)

 

Contract balances:

 

The following table provides information about trade receivables, contract assets (unbilled receivables) and contract liabilities (deferred revenues) from contracts with customers (in thousands):

 

   December 31,
2019
  

June 30,

2020

 
       Unaudited 
         
Trade receivables   34,615    45,943 
Contract assets *)   6,095    6,161 
Short-term unbilled receivables **)   9,511    10,865 
Long-term unbilled receivables **)   362    782 
Deferred revenues (short-term contract liabilities)   21,021    25,061 
Long-term deferred revenues (long-term contract liabilities) ***)   216    - 
           

 

(*)Contract assets relate to unbilled receivables, which represent revenue recognized on arrangements for which billings have not yet been presented to customers because the amounts were earned but not contractually billable as of the balance sheet date, and the right to consideration is generally subject to milestone completion, client acceptance or factors other than the passage of time.

 

(**)Unbilled receivables relate to revenue recognized in excess of amounts invoiced as the Company has an unconditional right to invoice and receive payment in the future related to its fulfilled obligations.

 

***)Included in other long-term liabilities in the consolidated balance sheets

 

F-14

 

 

SAPIENS INTERNATIONAL CORPORATION N.V.

 

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

 

NOTE 4:REVENUE RECOGNITION (Cont.)

 

Trade receivable are recorded when the right to consideration becomes unconditional, and an invoice is issued to the customer. Unbilled receivables related to the Company’s contractual right to consideration for services performed and not yet invoiced.

Billing terms and conditions generally vary by contract type. Amounts are billed as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals (e.g., monthly or quarterly) or upon achievement of contractual milestones.

 

Deferred revenues represent contract liabilities, and include unearned amounts received under contracts with customers and not yet recognized as revenues.

 

During the year ended six months ended June 30, 2020, the Company recognized $ 14,996 of revenues that were included in deferred revenues (short-term contract liabilities) balance at January 1, 2020.

 

NOTE 5:LEASES

 

The Company leases substantially all of its office space and vehicles under operating leases. The Company’s leases have original lease periods expiring between 2020 and 2029. Some leases include one or more options to renew. The Company does not assume renewals in its determination of the lease term unless the renewals are deemed to be reasonably certain at lease commencement. Lease payments included in the measurement of the lease liability comprise the following: the fixed non-cancellable lease payments, payments for optional renewal periods where it is reasonably certain the renewal period will be exercised, and payments for early termination options unless it is reasonably certain the lease will not be terminated early.

 

Under Topic 842, all leases with durations greater than 12 months, including non-cancellable operating leases, are now recognized on the balance sheet. The aggregated present value of lease agreements is recorded as a long-term asset titled Right of Use (“ROU”) assets. The corresponding lease liabilities are split between operating lease liabilities between and long-term liabilities.

 

The components of operating lease costs were as follows:

 

   Six months ended June 30, 
   2019   2020 
   Unaudited 
         
Operating lease cost  $2,449   $3,923 
Variable lease cost   1,937    1,955 
Short-term lease cost   101    114 
           
Total lease costs  $4,487   $5,992 
           

 

The following is a summary of weighted average remaining lease terms and discount rates for all of the Company’s operating leases:

 

  

June 30,

2020

 
   Unaudited 
     
Weighted average remaining lease term (years)   7.9 
Weighted average discount rate   4.74%

 

Cash paid for amounts included in the measurement of operating lease liabilities for the six months ended June 30, 2020 and 2019 (unaudited) was $4,608 and 3,740, respectively.

 

F-15

 

 

SAPIENS INTERNATIONAL CORPORATION N.V.

 

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

 

NOTE 5:LEASES (Cont.)

 

Maturities of lease liabilities are as follows:

 

The remainder of 2020  $5,464 
2021   8,280 
2022   8,268 
2023   7,503 
2024   6,688 
2025 and thereafter   29,015 
      
Total undiscounted cash flows   65,218 
Less imputed interest   11,826 
      
Present value of lease liabilities  $53,392 

  

NOTE 6:CAPITALIZED SOFTWARE DEVELOPMENT COSTS, NET

 

The changes in capitalized software development costs during the six months ended June 30, 2020 and the year ended December 31, 2019 were as follows:

 

   Year ended December 31,   Six months ended
June 30,
 
   2019   2020 
       Unaudited 
         
Balance at the beginning of the year  $22,434   $23,953 
           
Capitalization   5,665    2,688 
Amortization   (5,668)   (3,027)
Functional currency translation adjustments   1,522    (71) 
           
Balance at year end  $23,953   $23,543 

 

Amortization of capitalized software development costs for the six months ended June 30, 2020 and the year ended December 31, 2019 was $3,027 and $5,668, respectively, and is included in cost of revenues.

 

F-16

 

  

SAPIENS INTERNATIONAL CORPORATION N.V.

  

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

 

NOTE 7:-OTHER INTANGIBLE ASSETS, NET

 

a.Other intangible assets, net, are comprised of the following:

  

   Weighted average
remaining useful life
(years)
  December 31,   Six months
ended June 30,
 
      2019   2020 
          Unaudited 
Original amounts:           
            
Customer relationships  7.2  $23,409   $32,407 
Technology  3.6   53,944    55,319 
              
       77,353    87,726 
              
Accumulated amortization:             
              
Customer relationships      14,673    15,905 
Technology      28,645    32,725 
              
       43,318    48,630 
              
Other intangible assets, net     $34,035   $39,096 

 

b.Amortization of other intangible assets was $5,428 and $4,981 for the six months ended June 30, 2020 and 2019, respectively.

 

c.Estimated amortization expense for future periods as of June 30, 2020:

 

Remainder of 2020  $5,719 
2021   10,401 
2022   7,047 
2023   6,715 
2024   3,869 
2025 and thereafter   5,345 
      
   $39,096 

 

F-17

 

 

SAPIENS INTERNATIONAL CORPORATION N.V.

  

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

 

NOTE 8:-GOODWILL

 

The changes in the carrying amount of goodwill for the six months ended June 30, 2020 and the year ended December 31, 2019 are as follows:

 

   Year ended
December 31,
   Six months
ended June 30,
 
       Unaudited 
         
Balance at the beginning of the period  $166,094   $170,703 
           
Acquisitions   622    15,715 
Functional currency translation adjustments   3,987    (324)
           
   $170,703   $186,094 

  

NOTE 9:FAIR VALUE MEASUREMENT

 

FASB ASC No. 820, “Fair Value Measurements and Disclosures” defines fair value, establishes a framework for measuring fair value. Fair value is an exit price, representing the amount that would be received for selling an asset or paid for the transfer of a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. A three-tier fair value hierarchy is established as a basis for considering such assumptions and for inputs used in the valuation methodologies in measuring fair value:

 

Level 1Unadjusted quoted prices in active markets that are accessible on the measurement date for identical, unrestricted assets or liabilities;

 

Level 2Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and

 

Level 3Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

 

The Company measures its foreign currency derivative contracts. Derivative contracts are classified within Level II as the valuation inputs are based on quoted prices and market observable data of similar instruments. 

 

The carrying amounts of cash and cash equivalents, accounts receivable, and trade payables approximates their fair value, due to the short-term maturities of such instruments.

  

F-18

 

 

SAPIENS INTERNATIONAL CORPORATION N.V.

  

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

 

NOTE 9:FAIR VALUE MEASUREMENT (Cont.)

 

The following table presents assets and liabilities measured at fair value on a recurring basis as of June 30, 2020 and December 31, 2019 :

 

   December 31,
2019
   June 30,
2020
 
       Unaudited 
   Fair value measurement using
input Level 2
 
         
Other receivables and prepaid expenses        
         
Derivative instruments  $-   $607 
           
Total assets  $-   $607 
           
Other accrued expenses          
           
Derivative instruments  $(67)  $- 
           
Total liabilities  $(67)  $- 

  

NOTE 10:DERIVATIVE INSTRUMENTS

 

The Company’s option and forward contracts do not qualify as hedging instruments under ASC 815, “Derivatives and hedging”. Changes in the fair value of option strategies are reflected in the consolidated statements of income as financial income or expense.

 

During the six months ended June 30, 2020 and 2019, the Company entered into option contracts in the notional amounts of $2,310 (unaudited) and $41,348 (unaudited), respectively, and during the six months ended June 30, 2020 and 2019, the Company entered into forward contracts in the notional amounts of $71,000 (unaudited) and $43,602 (unaudited), respectively, in order to protect against foreign currency fluctuations.

 

As of June 30, 2020, and December 31, 2019, the Company had outstanding options and forward contracts, in the notional amount of $44,760 and $15,384 (unaudited), respectively.

 

During the six months ended June 30, 2020 and 2019, the Company recorded income (expense) of $(637) (unaudited), and $55 (unaudited), respectively, with respect to the above transactions, presented in the statements of income as financial income.

 

F-19

 

 

SAPIENS INTERNATIONAL CORPORATION N.V.

  

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

 

NOTE 11:SERIES B DEBENTURES, NET OF CURRENT MATURITIES

 

   December 31,
2019
   June 30,
2020
 
       Unaudited 
         
Series B Debentures  $69,287   $118,778 
Less: Current maturities   (9,898)   (19,796)
Less: Unamortized debt premium, discount and issuance costs   (539)   (548)
           
   $58,850   $98,434 

 

In September 2017, the Company issued Series B Debentures in the aggregate principal amount of NIS 280 million (approximately $79.2 million), linked to the US dollars, payable in eight equal annual payments of $9,898, on January 1 of each of the years 2019 through 2026. The outstanding principal amount of the Series B Debentures will bear a fixed interest rate of 3.37% per annum, payable on January 1 and July 1 of each of the years 2018 through 2025, with one final interest payment on January 1, 2026. Debt discount and issuance costs were approximately $956, allocated to the Series B Debentures discount and are amortized as financial expenses over the term of the Series B Debentures due in 2026. In June 2020, the Company extended the Series B Debentures and raised an additional NIS 210 million (approximately $60.2 million) linked to US dollars, payable in six equal annual payments of $9,898, on January 1 of each of the years 2021 through 2026. The outstanding principal amount of the Series B Debentures will bear a fixed interest rate of 3.37% per annum, payable on January 1 and July 1 of each of the years 2020 through 2025, with one final interest payment on January 1, 2026. Debt premium and issuance costs, net were approximately $83, allocated to the Series B Debentures discount and are amortized as financial expenses over the term of the Series B Debentures due in 2026.

 

Following the raise of the additional NIS 210 million in Series B Debentures, a $20,000 short-term bank loan which taken on March 18, 2020 from a commercial bank. was fully repaid on June 9, 2020.

 

The Series B Debentures are listed for trading on the Tel-Aviv Stock Exchange.

 

The Series B Debentures are unsecured and non-convertible. The Series B Debentures interest may be increased in the event that the debentures’ rating is downgraded below a certain level. The Company has undertaken to maintain a number of conditions and limitations on the manner in which it operates its business, including limitations on its ability to undergo a change of control, distribute dividends, incur a floating charge on the Company’s assets, or undergo an asset sale or other change that results in a fundamental change in the Company’s operations.

 

F-20

 

  

SAPIENS INTERNATIONAL CORPORATION N.V.

  

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

 

NOTE 11:-SERIES B DEBENTURES, NET OF CURRENT MATURITIES (Cont.)

 

In accordance with the indenture for the Series B Debentures, the Company is required to meet the following financial covenants: (1) Target shareholders’ equity (excluding minority interest)- above $120 million – as of June 30, 2020, total shareholders’ equity was $237 million; and (2) Target ratio of net financial indebtedness to net capitalization (in each case, as defined under the indenture for the Company’s Series B Debentures) below 65% - as of June 30, 2020 the ratio of net financial indebtedness to net capitalization was (3.4)%. (3) Target ratio of net financial indebtedness to EBITDA (accumulated calculation for the four last quarters) is below 5.5. As of June 30, 2020, the Target ratio of net financial indebtedness to EBITDA was (0.1). As of June 30, 2020, Sapiens is in compliance with all of its financial covenants.

 

During the six months ended June 30, 2020 and 2019, the Company recorded $1,147 (unaudited) and $1,159 (unaudited), respectively of interest expense and $77 and $84, respectively as amortization of debt issuance costs and, premium and discount in respect of the Series B Debentures.

  

NOTE 12:COMMITMENTS AND CONTINGENT LIABILITIES

 

a.Sapiens Technologies (1982) Ltd. (“Sapiens Technologies”), a subsidiary incorporated in Israel, was partially financed under programs sponsored by the Israel Innovation Authority (“IIA”), formerly the Office of the Chief Scientist, for the support of certain research and development activities conducted in Israel. In exchange for participation in the programs by the IIA, the Company agreed to pay 3.5% of total net consolidated license and maintenance revenue and 0.35% of the net consolidated consulting services revenue related to the software developed within the framework of these programs based on an understanding with the IIA reached in January 2012.

 

The royalties will be paid up to a maximum amount equalling 100%-150% of the grants provided by the IIA, linked to the dollar, and for grants received after January 1, 1999, bear annual interest at a rate based on LIBOR.

 

Royalty expense amounted to $238 (unaudited) and $232 (unaudited) in the six months ended June 30, 2020 and 2019, respectively, and are included in cost of revenues.

 

As of June 30, 2020, the Company had a contingent liability to pay royalties of $6,110 (unaudited).

 

b.As of June 30, 2020, the Company provided bank guarantees in the amount of $834 (unaudited) as security for the rent to be paid for its leased offices. The bank guarantees are valid through February 2021 and thereafter will be renewed for the same amount through March 2022. As of June 30, 2020, the Company provided bank guarantees of $203 (unaudited) as security for the performance of various contracts with customers and suppliers.

 

In addition, as of June 30, 2020 (unaudited), the Company had no restricted bank deposits in favour of the bank guarantees.

  

F-21

 

 

SAPIENS INTERNATIONAL CORPORATION N.V.

  

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

 

NOTE 12:COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)

 

d.In accordance with the indenture for the Series B Debentures, the Company is required to meet certain financial covenants. See Note 11 above.

  

NOTE 13:EQUITY

 

a.Stock option plans:

 

In 2011, the Company’s board of directors approved its 2011 Share Incentive Plan (the “2011 Plan”) pursuant to which the Company’s employees, directors, officers, consultants, advisors, suppliers, business partners, customers and any other person or entity whose services are considered valuable are eligible to receive awards of share options, restricted shares, restricted share units and other share-based awards. Options granted under the 2011 Plan may be exercised for a period of up to six years from the date of grant and become exercisable in four equal, annual instalments, beginning with the first anniversary of the date of the grant, or pursuant to such other schedule as may provide in the option agreement.

 

The total number of Common Shares available under the 2011 Plan was set at 8,000,000. Upon the approval of the 2011 Plan, the board of directors determined that no further awards would be issued under the Company’s previously existing share incentive plans.

 

As of June 30, 2020, 2,682,217 (unaudited) common shares of the Company were available for future grant under the 2011 Plan. Any options granted under the 2011 Plan which are forfeited, cancelled, terminated or expired, will become available for future grant under the 2011 Plan.

 

A summary of the stock option activities in the six months ended June 30, 2020 (unaudited) is as follows:

  

   Six months ended June 30, 2020 (unaudited) 
   Amount of
options
   Weighted
average
exercise
   Weighted
average
remaining
contractual life
(in years)
   Aggregate
intrinsic
value
 
                 
Outstanding at January 1, 2020   1,869,412    10.25    3.21   $23,838 
Granted   235,000    25.12           
Exercised   (249,256)   9.75           
Expired and forfeited   (110,492)   11.30           
                     
Outstanding at June 30, 2020   1,744,664    12.12    3.03   $27,667 
                     
Vested and expected to vest   1,744,664    12.12    3.03   $27,667 
                     
Exercisable at June 30, 2020   1,040,450    9.62    2.17   $19,101 

 

The weighted average grant date fair values of the options granted during the six months ended June 30, 2020 (unaudited) was $8.50.

  

F-22

 

 

SAPIENS INTERNATIONAL CORPORATION N.V.

  

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

 

NOTE 13:EQUITY (Cont.)

 

The total intrinsic value of options exercised during the six months ended June 30, 2020 (unaudited) was $3,481.

 

The total equity-based compensation expense related to all of the Company’s equity-based awards, recognized for the six months ended June 30, 2020 and 2019 was $1,386 (unaudited) and $741 (unaudited), respectively, and were included in Selling, marketing, general and administrative expenses in the Company’s condensed consolidated statements of income.

 

A summary of the RSU activities in the six months ended June 30, 2020 (unaudited) is as follows:

 

   Amount of
options
   Weighted
Average Grant-
Date Fair Value
 
         
Unvested at January 1, 2020   -    - 
Granted   238,005    24.45 
           
Unvested at June 30, 2020   238,005    24.45 

 

In connection with the Company’s acquisition of sum.cumo, on February 6, 2020 (see Note 3), the Company issued an aggregate of 173,005 RSUs to certain employees of sum.cumo in connection with the acquisition. The value of these grants was not included in the purchase price of sum.cumo, since their vesting is subject to both continued employment and other performance criteria.

 

The Company recorded compensation costs related to RSUs of $602 (unaudited) for the six months ended June 30, 2020, which were included in Selling, marketing, general and administrative expenses in the Company’s condensed consolidated statements of income.

 

b.As of June 30, 2020, there was $8,617 (unaudited) of total unrecognized compensation cost related to non-vested options and RSUs, which is expected to be recognized over a period of 2.7 years.

 

c.Dividend

 

On May 14, 2020, the Company’s extraordinary general meeting of shareholders approved the distribution of a cash dividend of $0.14 per common share for a total amount of $7,049 (unaudited). Of that amount, $6,632 (unaudited) was paid on June 10, 2020. The remainder, which represents withheld taxes on the dividend of $417 (unaudited), was paid during July 2020.

 

F-23

 

 

SAPIENS INTERNATIONAL CORPORATION N.V.

  

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

 

NOTE 14:BASIC AND DILUTED NET INCOME PER SHARE

 

   Six months ended
June 30,
 
   2019   2020 
   Unaudited 
Numerator (thousands):        
         
Net income used for earnings per share  $11,995   $16,117 
           
Denominator (thousands):          
           
Denominator for basic earnings per share - weighted average number of common shares, net of treasury stock   49,994    50,236 
Stock option and RSUs   436    892 
           
Denominator for diluted net earnings per share - adjusted weighted average number of shares   50,430    51,128 

  

The weighted average number of shares related to outstanding anti-dilutive options excluded from the calculations of diluted net earnings per share was 306,141 (unaudited) and 0 (unaudited) for the six months June 30, 2020 and 2019, respectively.

  

NOTE 15:GEOGRAPHIC INFORMATION

 

a.The Company operates in a single reportable segment as a provider of software solutions. See Note 1 for a brief description of the Company’s business. The data below is presented in accordance with ASC 280, “Segment Reporting”.

 

b.Geographic information:

 

The following table sets forth revenues by country based on the billing address of the customer. Other than as shown below, no other country accounted for more than 10% of the Company’s revenues during the six months ended June 30, 2020 and 2019 (unaudited):

 

   Six months ended
June 30,
 
   2019   2020 
   Unaudited 
Revenues:        
         
North America *)  $77,365   $91,177 
Europe   66,074    81,262 
Rest of the world   12,877    11,158 
           
   $156,316   $183,597 

  

*) Revenue derived from North America consist primarily of revenues from the United States, except for approximately $280 (unaudited) and $351 (unaudited) of revenues derived from Canada during the six months ended June 30, 2020 and 2019, respectively.

 

F-24

 

 

SAPIENS INTERNATIONAL CORPORATION N.V.

  

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

 

NOTE 15:GEOGRAPHIC INFORMATION (Cont.)

 

 

c.Major customer data:

 

During the six months ended June 30, 2020 and 2019 (unaudited), the Company has not generated revenues from a single customer exceeding 10% of its total revenues.

  

NOTE 16:SUBSEQUENT EVENT

 

a.Acquisition of Delphi Technology Inc.

 

On July 27, 2020, the Company completed the acquisition of Delphi Technology Inc. (“Delphi”), a software vendor focused on the medical professional liability insurance carrier markets in the United States. The total purchase price was $19.6 million in cash. 

  

- - - - - - - - - - - - - - - - - - - - -

 

 

F-25

 

 

 

Exhibit 99.2 

 

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

 

Forward Looking Statements

 

Certain matters discussed in this “Operating and Financial Review and Prospects” are forward-looking statements, within the meaning of Section 27A of the Securities Act, Section 21E of the Exchange Act and the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995, that are based on our beliefs, assumptions and expectations, as well as information currently available to us. Such forward-looking statements may be identified by the use of the words “anticipate,” “believe,” “estimate,” “expect,” “may,” “will,” “plan” and similar expressions. Such statements reflect our current views with respect to future events and are subject to certain risks and uncertainties. There are important factors that could cause our actual results, levels of activity, performance or achievements to differ materially from the results, levels of activity, performance or achievements expressed or implied by the forward-looking statements, including, but not limited to:

 

·the COVID-19 (coronavirus) pandemic, which may last longer than expected and materially adversely affect our results of operations;
·the degree of our success in our plans to leverage our global footprint to grow our sales;
·the degree of our success in integrating the companies that we have acquired through the implementation of our M&A growth strategy;
·the lengthy development cycles for our solutions, which may frustrate our ability to realize revenues and/or profits from our potential new solutions;
·our lengthy and complex sales cycles, which do not always result in the realization of revenues;
·the degree of our success in retaining our existing customers or competing effectively for greater market share;
·difficulties in successfully planning and managing changes in the size of our operations;
·the frequency of the long-term, large, complex projects that we perform that involve complex estimates of project costs and profit margins, which sometimes change mid-stream;
·the challenges and potential liability that heightened privacy laws and regulations pose to our business;
·occasional disputes with clients, which may adversely impact our results of operations and our reputation;
·various intellectual property issues related to our business;
·potential unanticipated product vulnerabilities or cybersecurity breaches of our or our customers’ systems;
·risks related to the insurance industry in which our clients operate;
·risks associated with our global sales and operations, such as changes in regulatory requirements, wide-spread viruses and epidemics like the recent novel coronavirus outbreak, or fluctuations in currency exchange rates; and
·risks related to our principal location in Israel and our status as a Cayman Islands company.

 

While we believe such forward-looking statements are based on reasonable assumptions, should one or more of the underlying assumptions prove incorrect, or these risks or uncertainties materialize, our actual results may differ materially from those expressed or implied by the forward-looking statements. Please read the risks discussed under the heading “Risk Factors” in this prospectus supplement and in the accompanying prospectus, and under the heading “Risk Factors” in our most recent Annual Report on Form 20-F and in our other filings with the United States Securities and Exchange Commission, or SEC, in order to review conditions that we believe could cause actual results to differ materially from those contemplated by the forward-looking statements.

 

 

You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that future results, levels of activity, performance and events and circumstances reflected in the forward-looking statements will be achieved or will occur. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this prospectus supplement, to conform these statements to actual results or to changes in our expectations.

 

The terms “Sapiens,” “Company,” “we,” “us” or “ours” in this Operating and Financial Review and Prospects refer to Sapiens International Corporation N.V. and its subsidiaries, unless the context otherwise requires.

 

Overview

 

We are a leading global provider of software solutions for the insurance industry. Our extensive expertise is reflected in our innovative software platforms, suites, solutions and services for property & casualty (P&C); life, pension & annuity (L&A); reinsurance; financial and compliance (F&C); workers’ compensation (WC); and financial markets. Our company offers a full digital suite that facilitates an innovative, holistic and seamless digital experience for carriers, agents, customers and assorted insurance personnel, across multiple devices and technologies. Our offerings enable our customers to effectively manage their core business functions, including policy administration, claims and billing, and offer support during an insurer’s journey to becoming a digital insurer. Our portfolio also covers underwriting, illustration and electronic applications. We also supply a complete reinsurance offering for providers and a decision management platform tailored to a variety of financial services providers, so business users can quickly deploy business logic and comply with policies and regulations across their organizations.

 

Our platforms possess modern, modular architecture and are digital-driven. They empower customers to respond to the rapidly changing insurance market and frequent regulatory changes, while improving the efficiency of their core operations. These process enhancements increase revenue and reduce costs.

 

Recent Developments

 

COVID-19

 

In March 2020, the World Health Organization categorized the novel coronavirus (“COVID-19”) as a pandemic. The COVID-19 pandemic has rapidly changed market and economic conditions globally, impacting our customers, employees, as well as our business results of operations, although the COVID 19 has not had a material negative impact on our business so far. We remain focused on protecting the health and wellbeing of our employees and the communities in which we operate, while assuring the continuity of our business operations.

 

As a result of several cost saving initiatives, as well as our experienced management team, we have been able to respond quickly to our customers’ changing business demands in connection with the COVID-19 pandemic. While we continue to assess the impact from the pandemic, we are unable to accurately predict the full impact of the pandemic on our business, results of operations, financial position and cash flows due to numerous uncertainties, including the severity of the disease, the duration of the outbreak, additional actions that may be taken by governmental authorities, the further impact on the business of our customers and partners, and other factors described in “Risk Factors” in our annual report on Form 20-F for the year ended December 31, 2019 filed with the SEC on April 7, 2020 and this report Operating and Financial Review and Prospects.

 

Raising of $60m in Non-Convertible Debentures

 

In June 2020, we extended the Series B Debentures and raised an additional NIS 210 million (approximately $60.2 million) in principal amount linked to US dollars, payable in six equal annual payments of approximately $9.9 million, on January 1 of each of the years 2021 through 2026. The outstanding principal amount of the Series B Debentures will bear a fixed interest rate of 3.37% per annum, payable on January 1 and July 1 of each of the years 2020 through 2025, with one final interest payment on January 1, 2026.

 

Following the raise of the additional NIS 210 million in Series B Debentures, a $20 million bank loan which was taken on March 18, 2020 from a commercial bank. was fully repaid on June 9, 2020.

 

Acquisition of Delphi Technology Inc.

 

In July 2020, we consummated the acquisition of Delphi Technology Inc., or Delphi, a leading vendor of software solutions for property & casualty (P&C) carriers, with a focus on the medical professional liability (MPL)/healthcare professional liability (HCPL) markets (sometimes referred to as “medical malpractice”) for a total consideration of up to $19.6 million in cash.

 

 

1

 

Results of Operations

 

The following tables set forth certain data from our results of operations for the six-month periods ended June 30, 2019 and 2020, as well as such data as a percentage of our revenues for those periods. The data has been derived from the unaudited condensed interim consolidated financial statements appended to our report of foreign private issuer on Form 6-K furnished to the Securities and Exchange Commission, or SEC, to which this “Operating and Financial Review and Prospects” is also appended as an exhibit. In the opinion of our management, those unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial position and results of operations for the interim periods presented. The operating results for any period should not be considered indicative of results for the year ending December 31, 2020 or for any other future period. This information should be read in conjunction with the audited consolidated financial statements and notes thereto included in our annual report on Form 20-F for the year ended December 31, 2019 filed with the SEC on April 7, 2020. 

 

Operating expenses:
Statement of Income Data
(U.S. dollars, in thousands, except share and per share data)
   

Six months ended

June 30,

 
    2019     2020  
    Unaudited     Unaudited  
Revenues   $ 156,316     $ 183,597  
Cost of revenues     95,055       109,074  
Gross profit     61,261       74,523  
                 
Operating expenses:              
Research and development, net     17,700       19,854  
Selling, marketing, general and administrative     26,030       31,988  
Total operating expenses     43,730       51,842  
                 
Operating income     17,531       22,681  
Financial expenses, net     1,488       1,550  
                 
Income before taxes on income     16,043       21,131  
Taxes on income     4,001       4,911  
                 
Net income     12,042       16,220  
                 
Attributed to non-controlling interests     47       103  
                 
Net income attributable to Sapiens' shareholders   $ 11,995     $ 16,117  

 

Operating expenses:
Statement of Income Data as a Percentage of Revenues
   

Six months ended

June 30,

 
    2019     2020  
    Unaudited     Unaudited  
Revenues     100 %     100 %
Cost of revenues     60.8 %     59.4 %
Gross profit     39.2 %     40.6 %
Operating expenses:              
Research and development, net     11.3 %     10.8 %
Selling, marketing, general and administrative     16.7 %     17.4 %
Total operating expenses     28.0 %     28.2 %
Operating income     11.2 %     12.4 %
Financial expenses, net     0.9 %     0.9 %
Income before taxes on income     10.3 %     11.5 %
Taxes on income     2.6 %     2.7 %
Net income     7.7 %     8.8 %
Attributed to non-controlling interests     0.0 %     0.0 %
Net income attributable to Sapiens' shareholders     7.7 %     8.8 %

 

 

2

 

Revenues

 

Please refer to Item 5. “Operating and Financial Review and Prospects—Critical Accounting Policies and Estimates” in our annual report on Form 20-F for the year ended December 31, 2019 for a description of our accounting policies related to revenue recognition.

 

The overall revenues increased by $27.3 million, or 17.5%, to $183.6 million for the six months ended June 30, 2020 from $156.3 million for the corresponding period of 2019.

 

  Six months ended
June 30, 2019
    Period-over- period change     Six months ended
June 30, 2020
($ in thousands)  $ 156,316       17.5 %    $ 183,597
                     

 

Revenues are derived primarily from implementation of our solutions and post-implementation services such as ongoing support and maintenance and professional services as part of an overall solution that we offer to our customers. The increase in revenues was primarily attributable to both our organic business growth, as well as our acquisitions. Our acquisitions contributed a total of $12.1 million towards that increase, whereas the remainder of the increase was contributed by our organic business growth, primarily in the P&C business.

 

Revenues by geographical region

 

The dollar amount and percentage share of our revenues attributable to each of the geographical regions in which we conduct our operations for the six months ended June 30, 2019 and 2020, respectively, as well as the percentage change between such periods, were as follows:

 

    Six months ended           Six months ended  
    June 30, 2019     Period-over-     June 30, 2020  
($ in thousands)   Revenues     Percentage     period change     Revenues     Percentage  
Geographical region                                        
North America*   $ 77,365       49.5 %     17.8 %   $ 91,177       49.7 %
Europe**     66,074       42.3 %     23.0 %     81,262       44.3 %
Rest of the world     12,877       8.2 %     (13.3) %     11,158       6.0 %
                                         
Total   $ 156,316       100 %     17.5 %   $ 183,597       100 %

 

*Revenue amounts for North America that are shown in the above table consist of revenues from the United States, except for approximately $0.4 million and $0.3 million of revenues generated in Canada for the six month periods ended June 30, 2019 and 2020, respectively.

 

**Revenues from Europe include revenues from the United Kingdom, or UK, Israel and other European countries. Revenues from the UK amounted to $20.5 million and $19.4 million for the six months ended June 30, 2019 and 2020, respectively. 

 

Our revenues in North America increased by $13.8 million, or 17.8%, to $91.2 million for the six months ended June 30, 2020 from $77.4 million for the six months ended June 30, 2019. The increase is attributable to our organic business growth, mainly in the P&C business in North America.

 

Our revenues in Europe increased by $15.2 million, or 23.0%, to $81.3 million for the six months ended June 30, 2020 from $66.1 million for the six months ended June 30, 2019. The increase is primarily attributable to acquired entities, which contributed a total of $12.1 million towards that increase. The remainder of the increase is attributable to our organic business growth.

 

3

 

Our revenues in the rest of the world decreased by $1.7 million, to $11.2 million for the six months ended June 30, 2020 from $12.9 million in the six months ended June 30, 2019, constituting a non-material change.

 

Cost of Revenues

 

Our cost of revenues for the six months ended June 30, 2019 and 2020, respectively (both in absolute terms and as a percentage of our overall revenues), as well as the percentage change between those periods, are provided in the below table:

 

($ in thousands)   Six months ended
June 30, 2019
    Period-over-
period change
    Six months ended
June 30, 2020
 
Cost of revenues   $ 95,055       14.7 %   $ 109,074  
Cost of revenues as a percentage of revenues     60.8 %             59.4 %

 

Cost of revenues consist primarily of costs associated with providing services to customers, including compensation expense to employees and subcontractors, travel expenses, as well as amortization of acquired technologies and depreciation. Our cost of revenues increased by $14.0 million, or 14.7%, to $109.1 million for the six months ended June 30, 2020, as compared to $95.1 million for the corresponding period of 2019. The increase in absolute cost of revenues was primarily attributable to business acquisitions. The remainder of the increase is attributed to our need to support our current and future overall organic business growth. Cost of revenues decreased as a percentage of our revenues for the six months ended June 30, 2020, to 59.4%, as compared to 60.8% during the corresponding period of 2019. The 1.4% decrease in the cost of revenues as a percentage of our revenues was primarily attributable to the impact of COVID-19, which resulted in a decrease in our cost of revenues, which is mainly attributable to a reduction in our compensation-related expenses to employees (primarily accrual for vacation), subcontractor expenses, as well as travel expenses, which was offset by excess facility lease costs. The decrease in our cost of revenues as a percentage of our revenues can further be attributed to a continuous increase in our offshore activities during the past several years.

 

Gross profit

 

Our gross profit for the six months period ended June 30, 2019 and 2020, respectively (both in absolute terms and as a percentage of our overall revenues), as well as the percentage change between those periods, are provided in the below table:

 

($ in thousands)  

Six months ended

June 30, 2019

    Period-over-
period change
   

Six months ended

June 30, 2020

 
Gross profit   $ 61,261       21.6 %   $ 74,523  
Gross profit as a percentage of revenues     39.2 %             40.6 %

 

Our gross profit increased by $13.2 million, or 21.6%, to $74.5 million for the six months ended June 30, 2020, as compared to $61.3 million for the corresponding period of 2019. This increase was primarily attributable to the absolute increase in our revenues by $27.3 million for the six months ended June 30, 2020 compared to the corresponding period of 2019, as well as due to the factors described above.

 

Operating expenses

 

The amount of each category of operating expense for the six months ended June 30, 2019 and 2020, respectively, as well as the percentage change in each such expense category between such periods, and the percentage of our revenues constituted by our total operating expenses in each such period, is provided in the below table:

 

($ in thousands)  

Six months ended

June 30, 2019

    Period-over-
period change
    Six months ended
June 30, 2020
 
Research and development, net   $ 17,700       12.2 %   $ 19,854  
Selling, marketing, general and administrative     26,030       22.9 %     31,988  
Total operating expenses   $ 43,730       18.6 %   $ 51,842  
Percentage of total revenues     28.0 %             28.2 %

 

4

 

Research and development, or R&D, are primarily comprised of compensation expense to employees and subcontractors, net of capitalization of software development costs. Our gross R&D expenses (before capitalization of eligible software development costs), increased by 9.1% for the six months ended June 30, 2020 compared to the corresponding period in 2019. That increase of $1.9 million, or 9.1%, was attributable to the increase in costs incurred with respect to R&D for the six months ended June 30, 2020 as compared to the corresponding period of 2019, particularly in our digital offerings. Capitalization of software development costs accounted for $2.7 million of our R&D expenses, net for the six months ended June 30, 2020 compared to $3.0 million in the corresponding period of 2019, constituting a non-material change from one such period to the other.

 

Selling, marketing, general and administrative, or SG&A, expenses, which are primarily comprised of compensation expenses for employees and subcontractors, were $32 million for the six months ended June 30, 2020 compared to $26.0 in the corresponding period of 2019, representing an increase of $6 million. The increase in our SG&A expenses can be attributed mainly to business acquisitions, which contributed a total of $3.6 million towards that increase. An additional increase in our SG&A expenses can be attributed to recruitments made in our global sales team during the six months ended June 30, 2020. As a percentage of total revenues, our SG&A increased from 16.7% in the six months ended June 30, 2019 to 17.4% for the six months ended June 30, 2020, which can be attributed to the various factors described above.

 

Operating income

 

Operating income and operating income as a percentage of total revenues for the six months ended June 30, 2019 and 2020, respectively, as well as the percentage change in operating income between such periods, were as follows:

 

($ in thousands)   Six months ended
June 30, 2019
    Period-over-
period change
    Six months ended
June 30, 2020
 
Operating income   $ 17,531       29.4 %   $ 22,681  
Percentage of total revenues     11.2 %             12.4 %

 

The increase in our operating income during the six months ended June 30, 2020 relative to the corresponding period of 2019, and the increase in operating income as a percentage of our revenues, as reflected in the above table, were attributable to the various gross profit and operating expenses trends described above, most significantly the increase in our revenues, as well as the increase in our offshore activities and several costs savings related to COVID-19, as described above, during the first six months of 2020, which contributed to our increased profitability in 2020.

 

Financial expenses, net

 

The amount of our financial expenses, net, for the six months ended June 30, 2019 and 2020, respectively, and the percentage of our revenues for those respective periods constituted by such amounts, as well as the percentage change in such amounts between such periods, were as follows:

 

($ in thousands)   Six months ended
June 30, 2019
    Period-over-
period change
    Six months ended
June 30, 2020
 
Financial expenses, net   $ 1,488       4.2 %   $ 1,550  
Percentage of total revenues     0.9 %             0.9 %

 

Financial expenses, net, were $1.6 million for the six months ended June 30, 2020 compared to $1.5 million in the corresponding period in 2019, constituting a non-material change from one such period to the other.

 

Taxes on income

 

Taxes on income, both as a dollar value and as a percentage of income before taxes on income, for the six months ended June 30, 2019 and 2020, respectively, as well as the percentage change in the amount of taxes on income between such periods, were as follows:

 

($ in thousands)   Six months ended
June 30, 2019
    Period-over-
period change
    Six months ended
June 30, 2020
 
Taxes on income   $ 4,001       22.7 %   $ 4,911  
As a percentage of income before taxes on income     24.9 %             23.2 %

 

5

 

For the six months ended June 30, 2020, we recognized a net tax on income of $4.9 million, compared to $4.0 million in 2019. The increase in taxes on income is attributable to a higher taxable income for the six months ended June 30, 2020 compared to the corresponding period of 2019.

 

Our effective income tax rate varies from period to period as a result of the various jurisdictions in which we operate, as each jurisdiction has its own system of taxation (not only with respect to the nominal rate, but also with respect to the allowance of deductions, credits and other benefits). We record a valuation allowance if we believe that it is more likely than not that the deferred income taxes regarding the loss carry forwards and other temporary differences, on which a valuation allowance has been provided, will not be realized in the foreseeable future. We do not recognize certain of the deferred tax assets relating to the net operating losses of certain of our subsidiaries worldwide due to the uncertainty of the realization of such tax benefits in the foreseeable future.

 

Net income attributable to Sapiens shareholders

 

The amount of net income attributable to Sapiens shareholders and such amount as a percentage of revenues for the six months ended June 30, 2019 and 2020, respectively, as well as the percentage change in net income attributable to Sapiens shareholders between such periods, were as follows:

 

($ in thousands)   Six months ended
June 2019
    period-over-
period change
    Six months ended
June 2020
 
Net income attributable to Sapiens shareholders   $ 11,995       34.4 %   $ 16,117  
Percentage of total revenues     7.7 %             8.8 %

 

As a percentage of total revenues, our net income attributable to Sapiens shareholders increased from 7.7% for the six months ended June 30, 2019 to 8.8% for the six months ended June 30, 2020, reflecting the cumulative effect of all of the above described line items from our statements of income.

 

Liquidity and Capital Resources

 

To date, we have substantially satisfied our capital and liquidity needs through cash flows from operations. From time to time, we further satisfied our liquidity needs through issuance of our equity and debt securities, and bank loans.

 

Cash flows provided from operations were $26.1 million and $20.5 million during the six months ended June 30, 2019 and 2020, respectively. We used $3.6 million and $5.0 million of cash in investing activities during the six months ended June 30, 2019 and 2020, respectively. We used $10.0 million and generated $45.4 million of cash in financing activities for the six months ended June 30, 2019 and 2020, respectively. As of December 31, 2019 and June 30, 2020, we had $66.3 million and $128.0 million, respectively, of cash and cash equivalents, and $42.3 million and $75.9 million, respectively, of working capital.

 

We expect that we will continue to generate positive cash flows from operations on an annual basis, although this may fluctuate on a quarterly basis. We believe that based on our current operating forecast, the combination of existing working capital and expected cash flows from operations will be sufficient to finance our ongoing operations for the next twelve months.

 

In June 2020, the Company extended the Series B Debentures and raised an additional NIS 210 million (approximately $60.2 million) in principal amount linked to US dollars, payable in six equal annual payments of approximately $9.9 million, on January 1 of each of the years 2021 through 2026. The outstanding principal amount of the Series B Debentures will bear a fixed interest rate of 3.37% per annum, payable on January 1 and July 1 of each of the years 2020 through 2025, with one final interest payment on January 1, 2026.

 

On March 18, 2020, we entered into a loan agreement with HSBC Bank plc. Pursuant to the loan agreement, we borrowed $20 million. Following the raise of the additional Series B Debentures, the loan was fully repaid on June 9, 2020.

 

6

 

Cash Flows

 

The following summary of cash flows for the periods indicated has been derived from our unaudited, consolidated financial statements appended to our Report of Foreign Private Issuer on Form 6-K furnished to the SEC on October 13, 2020, to which this “Operating and Financial Review and Prospects” is appended:

 

 

   Six months ended June 30,  
   2019   2020  
    (in thousands)  
Net cash provided by operating activities  $26,057   $20,520 
Net cash used in investing activities   (4,980)   (3,605) 
Net cash provided by (used in) financing activities  (10,010)   45,421  

  

Operating Activities

 

We derived positive cash flows from operating activities of $26.1 million and $20.5 million during the six months ended June 30, 2019 and 2020, respectively. This decrease in cash flows provided by operating activities for the six months ended June 30, 2020 relative to the corresponding period of 2019 resulted primarily from a change in our trade and unbilled receivables balance in the amount of $12.3, partially offset by an increase in net income of $4.2 million, from $12 million to $16.2 million, which was due to the factors described above, as well as an increase in depreciation and amortization of $1.4 million and an increase in stock-based compensation expenses of $0.6 million.

 

 Investing Activities

 

Our investing activities consist of capitalized software development as well as capital expenditures to purchase property and equipment, and payments for business acquisitions.

 

Net cash used in investing activities increased to $3.6 million for the six months ended June 30, 2020, compared to $5.0 million in the corresponding period ended June 30, 2019, constituting a non-material change from one such period to the other.

  

Financing Activities

 

We derived positive cash flows from financing activities of $45.4 million of cash during the six months ended June 30, 2020, as compared to using $10.0 million of cash in the corresponding period of 2019. Cash generated in the six months ended June 30, 2020 was primarily attributable to the additional issuance of Series B Debentures in the amount of $60.2 million and proceeds from employee stock options exercised in the amount of $2.3 million, offset by cash used for distribution of dividend in the amount of $6.6 million.

 

7

 

v3.20.2
Document And Entity Information
6 Months Ended
Jun. 30, 2020
Document Information Line Items  
Entity Registrant Name SAPIENS INTERNATIONAL CORP N V
Document Type 6-K
Current Fiscal Year End Date --12-31
Amendment Flag false
Entity Central Index Key 0000885740
Document Period End Date Jun. 30, 2020
Document Fiscal Year Focus 2020
Document Fiscal Period Focus Q2
v3.20.2
Consolidated Balance Sheets - USD ($)
$ in Thousands
Jun. 30, 2020
Dec. 31, 2019
CURRENT ASSETS:    
Cash and cash equivalents $ 127,978 $ 66,295
Trade receivables (net of allowance for credit losses of $ 543 and $ 1,317 at December 31, 2019 and June 30, 2020 (unaudited), respectively) 45,943 34,615
Unbilled receivables and contract assets 17,026 15,606
Investment in restricted deposit   22,890
Other receivables and prepaid expenses 9,041 7,817
Total current assets 199,988 147,223
LONG-TERM ASSETS:    
Capitalized software development costs, net 23,543 23,953
Other intangible assets, net 39,096 34,035
Property and equipment, net 16,486 16,601
Operating lease right-of-use assets 50,231 49,539
Goodwill 186,094 170,703
Severance pay fund 5,839 5,106
Other long-term assets 6,017 5,261
Total long-term assets 327,306 305,198
Total assets 527,294 452,421
CURRENT LIABILITIES:    
Trade payables 5,738 5,107
Employees and payroll accruals 29,282 26,710
Accrued expenses and other liabilities 35,161 33,864
Current maturities of Series B Debentures 19,796 9,898
Current maturities of operating lease liabilities 9,073 8,312
Deferred revenues 25,061 21,021
Total current liabilities 124,111 104,912
LONG-TERM LIABILITIES:    
Series B Debentures, net of current maturities 98,434 58,850
Deferred tax liabilities 7,235 5,082
Other long-term liabilities 8,312 8,321
Long-term operating lease liabilities 44,319 43,394
Accrued severance pay 7,367 6,364
Total long-term liabilities 165,667 122,011
COMMITMENTS AND CONTINGENT LIABILITIES
REDEEMABLE NON-CONTROLLING INTEREST 458  
Share capital:    
Common shares of € 0.01 par value: Authorized: 70,000,000 shares at December 31, 2019 and June 30, 2020 (unaudited), respectively; Issued: 52,488,172 and 52,737,428 shares at December 31, 2019 and June 30, 2020 (unaudited), respectively; Outstanding: 50,159,876 and 50,409,132 shares at December 31, 2019 and June 30, 2020 (unaudited), respectively 700 697
Additional paid-in capital 220,725 217,014
Treasury shares, at cost - 2,328,296 Common shares at December 31, 2019 and June 30, 2020 (unaudited) (9,423) (9,423)
Accumulated other comprehensive loss (3,712) (2,381)
Retained earnings 26,980 17,912
Total Sapiens International Corporation N.V. shareholders’ equity 235,270 223,819
Non-controlling interests 1,788 1,679
Total equity 237,058 225,498
Total liabilities and equity $ 527,294 $ 452,421
v3.20.2
Consolidated Balance Sheets (Parentheticals)
$ in Thousands
Jun. 30, 2020
USD ($)
shares
Jun. 30, 2020
€ / shares
Dec. 31, 2019
USD ($)
shares
Dec. 31, 2019
€ / shares
Statement of Financial Position [Abstract]        
Net of allowance for credit losses (in Dollars) | $ $ 1,317   $ 543  
Common shares, par value (in Euro per share) | € / shares   € 0.01   € 0.01
Common shares, authorized 70,000,000   70,000,000  
Common shares, issued 52,737,428   52,488,172  
Common shares, outstanding 50,409,132   50,159,876  
Treasury shares, shares 2,328,296   2,328,296  
v3.20.2
Consolidated Statements of Income - USD ($)
$ in Thousands
6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Income Statement [Abstract]    
Revenues $ 183,597 $ 156,316
Cost of revenues 109,074 95,055
Gross profit 74,523 61,261
Operating expenses:    
Research and development 19,854 17,700
Selling, marketing, general and administrative 31,988 26,030
Total operating expenses 51,842 43,730
Operating income 22,681 17,531
Financial expense, net 1,550 1,488
Income before taxes on income 21,131 16,043
Taxes on income 4,911 4,001
Net income 16,220 12,042
Attributed to non-controlling interests 103 47
Net income attributable to Sapiens’ shareholders $ 16,117 $ 11,995
Net earnings per share attributable to Sapiens’ shareholders:    
Basic (in Dollars per share) $ 0.32 $ 0.24
Diluted (in Dollars per share) $ 0.32 $ 0.24
v3.20.2
Consolidated Statements of Comprehensive Income (Unaudited) - USD ($)
$ in Thousands
6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Statement of Comprehensive Income [Abstract]    
Net income $ 16,220 $ 12,042
Other comprehensive income (loss):    
Foreign currency translation adjustments (1,331) 4,813
Total comprehensive income 14,889 16,855
Comprehensive income attributed to non-controlling interests 103 85
Comprehensive income attributable to Sapiens’ shareholders $ 14,786 $ 16,770
v3.20.2
Consolidated Statements of Changes in Equity - USD ($)
$ in Thousands
Common stock
Additional paid-in capital
Treasury shares
Accumulated other comprehensive income (loss)
Retained earnings (Accumulated deficit)
Non-controlling interests
Total
Balance at Dec. 31, 2018 $ 695 $ 214,918 $ (9,423) $ (7,820) $ 2,674 $ 1,440 $ 202,484
Balance (in Shares) at Dec. 31, 2018 49,982,004            
Stock-based compensation 666 75 741
Employee stock options exercised (cash and cashless) [1] 78 78
Employee stock options exercised (cash and cashless) (in Shares) 22,584            
Distribution of dividend (66) (66)
Other comprehensive income (loss) 4,775 38 4,813
Net income 11,995 47 12,042
Balance at Jun. 30, 2019 $ 695 215,662 (9,423) (3,045) 14,669 1,534 220,092
Balance (in Shares) at Jun. 30, 2019 50,004,588            
Balance at Dec. 31, 2019 $ 697 217,014 (9,423) (2,381) 17,912 1,679 225,498
Balance (in Shares) at Dec. 31, 2019 50,159,876            
Stock-based compensation 1,380 6 1,386
Employee stock options exercised (cash and cashless) $ 3 2,331 2,334
Employee stock options exercised (cash and cashless) (in Shares) 249,256            
Distribution of dividend (7,049) (7,049)
Other comprehensive income (loss) (1,331) (1,331)
Net income 16,117 103 16,220
Balance at Jun. 30, 2020 $ 700 $ 220,725 $ (9,423) $ (3,712) $ 26,980 $ 1,788 $ 237,058
Balance (in Shares) at Jun. 30, 2020 50,409,132            
[1] Represents an amount lower than $1.
v3.20.2
Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Cash flows from operating activities:    
Net income $ 16,220 $ 12,042
Reconciliation of net income to net cash provided by operating activities:    
Depreciation and amortization 10,637 9,262
Stock-based compensation 1,386 741
Accretion of discount on Series B Debentures 77 84
Capital gain from sale of property and equipment (129)
Net changes in operating assets and liabilities    
Trade receivables, net and unbilled receivables (11,554) 712
Other operating assets 3,286 (356)
Deferred tax assets, net (1,146) (1,435)
Trade payables (275) 190
Other operating liabilities (2,187) 152
Deferred revenues 4,008 4,760
Accrued severance pay, net 68 34
Net cash provided by operating activities 20,520 26,057
Cash flows from investing activities:    
Purchase of property and equipment (945) (1,720)
Proceeds from sale of property and equipment 821
Net cash paid for acquisitions (22,483)
Proceeds from restricted deposit used for completed acquisition 22,890
Investment in deposit (379) (1,119)
Capitalized software development costs (2,688) (2,962)
Net cash used in investing activities (3,605) (4,980)
Cash flows from financing activities:    
Proceeds from employee stock options exercised 2,334 78
Distribution of dividend (6,632)
Repayment of loan (20,000) (4)
Repayment of Series B Debentures (9,898) (9,898)
Issuance of Series B Debentures, net of issuance expenses 60,155
Receipt of short-term loan 20,000
Payments of contingent consideration (538) (120)
Dividend to non-controlling interest (66)
Net cash provided by (used in) financing activities 45,421 (10,010)
Effect of exchange rate changes on cash and cash equivalents (653) 1,587
Increase in cash, and cash equivalents 61,683 12,654
Cash, cash equivalents at beginning of period 66,295 64,628
Cash and cash equivalents at end of period 127,978 77,282
Supplemental cash flow activities:    
Right-of-use assets obtained in the exchange for operating lease liabilities 1,861 22,089
Unpaid withholding taxes in respect of dividend 417
Property and equipment purchase incurred but unpaid at period end $ 403 $ 1,006
v3.20.2
General
6 Months Ended
Jun. 30, 2020
Accounting Policies [Abstract]  
GENERAL
NOTE 1:GENERAL

Sapiens International Corporation N.V. (“Sapiens”) and its subsidiaries (collectively, the “Company”), a member of the Formula Systems (1985) Ltd. Group, is a global provider of software solutions for the insurance industry, with an emerging focus on the broader financial services sector. The Company’s offerings include policy administration, billing and claims; underwriting, illustration and electronic application; reinsurance; and decision management software. Sapiens’ digital suite features customer and agent portals, and an advanced analytics solution.


Sapiens global services include program management, project delivery and implementation of the Company’ software solutions, business services and managed services.


The Company operates in North America, Europe, Asia Pacific and South Africa.


In March 2020, the World Health Organization categorized the novel coronavirus (“COVID-19”) as a pandemic. The COVID-19 pandemic has rapidly changed market and economic conditions globally, impacting the Company's customers, employees, as well the Company' s business results of operations, although the COVID-19 has not had a material negative impact on the Company's business to date. The Company remains focused on protecting the health and wellbeing of its employees and the communities in which it operates, while assuring the continuity of the Company's business operations.


v3.20.2
Significant Accounting Policies
6 Months Ended
Jun. 30, 2020
Accounting Policies [Abstract]  
SIGNIFICANT ACCOUNTING POLICIES
NOTE 2:SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited interim consolidated balance sheet as of June 30, 2020, and consolidated statements of operations, the consolidated statements of comprehensive income and the consolidated statements of cash flows for the six months ended June 30, 2019 and 2020, as well as the statement of changes in shareholders’ equity for the six months ended June 30, 2020, are unaudited. These unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 2020, are not necessarily indicative of the results that may be expected for the year ended December 31, 2020.


These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and accompanying notes for the year ended December 31, 2019. The significant accounting policies applied in the annual financial statements of the Company as of December 31, 2019, are applied consistently in these consolidated financial statements except for the policies noted below which changed as a result of the adoption of Topic 326.


Trade Receivables and Allowances


Accounts receivable are recorded and carried at the original invoiced amount less an allowance for any potential uncollectible amounts. The Company makes estimates of expected credit losses for the allowance for doubtful accounts in respect of trade receivables and unbilled receivables based upon our assessment of various factors, including historical experience, the age of the accounts receivable balances, credit quality of our customers, current economic conditions, reasonable and supportable forecasts of future economic conditions, and other factors that may affect our ability to collect from customers. Estimated credit loss allowance is recorded as general and administrative expenses on our condensed consolidated statements of income. As of June 30, 2020, $45,943 of trade receivables is presented net of an allowance of $1,317.


a.Recently adopted accounting pronouncements:

On January 1, 2020, the Company adopted Accounting Standards Update No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, using the modified retrospective transition method. Upon adoption, the Company changed its impairment model to utilize a forward-looking current expected credit losses (CECL) model in place of the incurred loss methodology for financial instruments measured at amortized cost, including trade receivables.


In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 eliminates Step 2 of the goodwill impairment test, which requires the calculation of the implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination. Instead, an entity will compare the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. ASU 2017-04 is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The Company adopted ASU 2017-04 as of January 1, 2020 with no material impact on its condensed interim consolidated financial statements.


b.Principles of consolidation:

The consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries. All intercompany balances and transactions have been eliminated upon consolidation.


Non-controlling interests of subsidiaries represent the non-controlling shareholders’ share of the total comprehensive income (loss) of the subsidiaries and fair value of the net assets upon the acquisition of the subsidiaries. The non-controlling interests are presented in equity separately from the equity attributable to the equity holders of the Company.


c.Use of estimates:

The preparation of the condensed interim consolidated financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions. The Company’s management believes that the estimates, judgments and assumptions used are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.


v3.20.2
Certain Transactions
6 Months Ended
Jun. 30, 2020
Nonmonetary Transactions [Abstract]  
CERTAIN TRANSACTIONS
NOTE 3:CERTAIN TRANSACTIONS

a.Acquisition of sum.cumo

On February 6, 2020 (the “Acquisition Date”), Sapiens completed the acquisition of all outstanding shares of sum.cumo GmbH (“sum.cumo”), a German company. sum.cumo services insurers in the DACH region, helping them to achieve digital transformation of set up their existing business models or to design entirely new business models based on pure digital processes. sum.cumo’s experts in consulting, user experience, marketing and technology enable the region’s insurers to launch highly automated platforms well suited for e-commerce and real-time processing of transactions.


In connection with the Company’s acquisition of sum.cumo, on February 6, 2020, the Company issued an aggregate of 173,005 RSUs to ten employees of sum.cumo in connection with the acquisition. The value of these grants was not included in the purchase price of sum.cumo, since their vesting is subject to both continued employment and other performance criteria. In addition, sum.cumo’s senior executives have retention-based payments over three years (2020-2023) of up to EUR 2,350. These payments are subject to continued employment, and therefore were not included in the purchase price. Acquisition related costs amounted to $540, and are presented under selling, marketing, general and administrative in the Company’s consolidated statements of income. The results of sum.cumo’s operations have been included in the consolidated financial statements from the acquisition date.


The table below presents the preliminary fair value that was allocated to sum.cumo’s assets and liabilities based upon fair values as determined by the Company. The valuation process to determine the fair values is not yet complete. The Company estimated the preliminary fair value of acquired assets and liabilities as of the effective time of the acquisition of sum.cumo based on information currently available, and continues to adjust those estimates upon refinement of market participant assumptions for integrating businesses, among other relevant considerations.


Net assets (including cash of $ 981)  $1,447 
Intangible assets   9,730 
Deferred taxes   (3,211)
Goodwill   15,068 
      
Net assets acquired  $23,034 

The goodwill resulted from the acquisition of sum.cumo is primarily attributable to sales growth from future products, new customers and potential synergy with Sapiens, as well as certain intangible assets that do not qualify for separate recognition.


Revenues and net income of sum.cumo included in the Company’s consolidated statements of income for the six months ended June 30, 2020 (unaudited) amounted to $9,750 and $385, respectively.


b.Other acquisition

During the six months ended June 30, 2020, we completed an additional acquisition for a total consideration of approximately $1.7 million. The valuation process to determine the fair values of the acquired intangibles as part of this acquisition is not yet complete.


Revenues and net income attributed to this certain acquisition included in the Company’s consolidated statements of income for the six months ended June 30, 2020 (unaudited) were immaterial.


v3.20.2
Revenue Recognition
6 Months Ended
Jun. 30, 2020
Deferred Revenues Disclosure [Abstract]  
REVENUE RECOGNITION
NOTE 4:REVENUE RECOGNITION

The Company implements the provisions of Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”).


On most occasions, the Company generates revenues from sales of software licenses which include significant implementation and customization services. Such software licenses and implementation and customization services are not considered distinct performance obligations and are accounted for as one performance obligation. In addition, the Company generates revenues from post implementation consulting services and maintenance services.


Remaining performance obligations represent contracted revenue that has not yet been recognized, which includes deferred revenue and amounts that will be invoiced and recognized as revenue in future periods. The aggregate amount of consideration allocated to performance obligations either not satisfied or partially unsatisfied from fixed price projects and post contract support services was approximately $179 million as of June 30, 2020. The Company expects to recognize approximately 47% in the remainder of 2020 from remaining performance obligations as of June 30, 2020 and the remainder in 2021 and thereafter. Remaining performance obligations include the remaining non-cancelable, committed and fixed portion of these contracts for their entire duration. The remaining performance obligations related to post-production professional services contracts that are on a Time and Materials (“T&M”) basis were excluded, as the Company elected to apply the relevant practical expedient in accordance with ASC 606.


Disaggregation of revenue:


The following table provides information about disaggregated revenue by type of contract, and timing of revenue recognition (in thousands):


  

Six months ended

June 30,

 
   2019   2020 
   Total 
   Unaudited 
         
Type of contract          
T&M contracts  $89,706   $119,594 
Fixed-priced contracts   66,610    64,003 
           
Total   156,316    183,597 
           
Timing of revenue recognition          
Products transferred at a point in time   5,003    5,200 
Products and services transferred over time   151,313    178,397 
           
Total  $156,316   $183,597 

Contract balances:


The following table provides information about trade receivables, contract assets (unbilled receivables) and contract liabilities (deferred revenues) from contracts with customers (in thousands):


   December 31,
2019
  

June 30,

2020

 
       Unaudited 
         
Trade receivables   34,615    45,943 
Contract assets *)   6,095    6,161 
Short-term unbilled receivables **)   9,511    10,865 
Long-term unbilled receivables **)   362    782 
Deferred revenues (short-term contract liabilities)   21,021    25,061 
Long-term deferred revenues (long-term contract liabilities) ***)   216    - 
           

(*)Contract assets relate to unbilled receivables, which represent revenue recognized on arrangements for which billings have not yet been presented to customers because the amounts were earned but not contractually billable as of the balance sheet date, and the right to consideration is generally subject to milestone completion, client acceptance or factors other than the passage of time.

(**)Unbilled receivables relate to revenue recognized in excess of amounts invoiced as the Company has an unconditional right to invoice and receive payment in the future related to its fulfilled obligations.

***)Included in other long-term liabilities in the consolidated balance sheets

Trade receivable are recorded when the right to consideration becomes unconditional, and an invoice is issued to the customer. Unbilled receivables related to the Company’s contractual right to consideration for services performed and not yet invoiced.


Billing terms and conditions generally vary by contract type. Amounts are billed as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals (e.g., monthly or quarterly) or upon achievement of contractual milestones.


Deferred revenues represent contract liabilities, and include unearned amounts received under contracts with customers and not yet recognized as revenues.


During the year ended six months ended June 30, 2020, the Company recognized $ 14,996 of revenues that were included in deferred revenues (short-term contract liabilities) balance at January 1, 2020.


v3.20.2
Leases
6 Months Ended
Jun. 30, 2020
Disclosure Text Block [Abstract]  
Leases
NOTE 5:LEASES

The Company leases substantially all of its office space and vehicles under operating leases. The Company’s leases have original lease periods expiring between 2020 and 2029. Some leases include one or more options to renew. The Company does not assume renewals in its determination of the lease term unless the renewals are deemed to be reasonably certain at lease commencement. Lease payments included in the measurement of the lease liability comprise the following: the fixed non-cancellable lease payments, payments for optional renewal periods where it is reasonably certain the renewal period will be exercised, and payments for early termination options unless it is reasonably certain the lease will not be terminated early.


Under Topic 842, all leases with durations greater than 12 months, including non-cancellable operating leases, are now recognized on the balance sheet. The aggregated present value of lease agreements is recorded as a long-term asset titled Right of Use (“ROU”) assets. The corresponding lease liabilities are split between operating lease liabilities between and long-term liabilities.


The components of operating lease costs were as follows:


   Six months ended June 30, 
   2019   2020 
   Unaudited 
         
Operating lease cost  $2,449   $3,923 
Variable lease cost   1,937    1,955 
Short-term lease cost   101    114 
           
Total lease costs  $4,487   $5,992 
           

The following is a summary of weighted average remaining lease terms and discount rates for all of the Company’s operating leases:


  

June 30,

2020

 
   Unaudited 
     
Weighted average remaining lease term (years)   7.9