Sapiens International Corporation N.V. (NASDAQ:SPNS) Q3 2020 Earnings Conference Call November 5, 2020 9:30 AM ET

Company Participants

Roni Al-Dor – President & Chief Executive Officer

Roni Giladi – Chief Financial Officer

Conference Call Participants

Sterling Auty – JPMorgan

Mayank Tandon – Needham & Company

Bhavan Suri – William Blair

Omri Velvart – Legacy Value Partners

Ethan Etzioni – Etzioni Portfolio Management

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Sapiens International Corporation Third Quarter 2020 Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded, November 5, 2020. With us on the line today are Mr. Roni Al-Dor, President and CEO; and Mr. Roni Giladi, CFO.

Before I turn the call over to Mr. Roni Al-Dor, I would like to remind participants that this conference call may contain projections or other forward-looking statements and the Safe Harbor provisions and the press release issued today also apply to the content of the call. Sapiens expressly disclaims any obligation to update or revise any of these forward-looking statements whether because of future events, new information, a change in its views, or expectations, or otherwise. During the course of the call today, we will refer to non-GAAP financial measures. A reconciliation schedule showing GAAP versus non-GAAP results has been provided in our press release issued before the market opened this morning. A replay of this call will be available after the call on our Investor Relations section of the Company’s website or via the website link, which is available in the earning release that we published today. As a reminder, the quarterly earnings release was issued before the market opened this morning and it has been posted on the Company’s website at www.sapiens.com.

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

Roni Al-Dor

Thank you, operator. Welcome to review our third quarter financial results. I will begin with an overview of the quarter followed by an update on the business. Following my comments, Roni Giladi will provide a detailed review of the third quarter financial results, the recent secondary offering, and discuss the key metrics in our guidance for the remainder of 2020.

Sapiens continues to deliver strong execution across key geographies and product lines. In the third quarter, revenue grew by 18.5%, driven by our solid strategic performance to expand in Europe and North America, and leverage our existing customer relationships which upsell additional products and services. This quarter we increased our revenue from North America by 12.5% and in Europe by 40%, mostly due to the P&C revenue. Our European revenue growth was supported by recent acquisitions, particularly from sum.cumo in DACH region. We made our first step in DACH region through winning new customer and then supported these with the acquisition of sum.cumo which helped us to establish a strong local base and will support the efforts for further expanding the market.

We have also enhanced the sales and pre-sales team in DACH region to support the goal. This approach allows Sapiens to embed into the regional culture and succeed the regional regulatory framework. Our land and expand strategy is an efficient and effective way to go in highly regulated and regionally diverse global insurance market. Sapiens’ global presence and comprehensive product offering support by the local professional team is significant competitive advantage. In Iberia since acquiring Calculo, we have started gaining momentum in the region, and enhanced our sales pipeline and sales team to support these new opportunities. We continue to make substantial gains in North America as well. This summer, we acquired Boston-based Delphi, a leading vendor of software solution for P&C carriers, focused on medical and healthcare professional liability, also known as a MPL market. As we sold a prior acquisition, Delphi will enhance our value proposition to the medical insurance market and reach our P&C Core Suite with MPL content, increase our MPL domain knowledge, as well as expand our North American customer base.

Combined with Sapiens solutions, relationships, and resources, this acquisition enhance our position as the leading solution provider in the US insurance market. The global Sapiens team deliver several new wins and go lives in the third quarter. Let me highlight a few. Petplan, the pet insurance provider with the most comprehensive coverage in North America, select our CoreSuite for profit and casualty to provide a cloud-based, fully digital experience for the customer and expand their product offering. After an extensive search, they chose Sapiens for both our insurance knowledge and technology that allows them to define their business needs and requirements quickly. Western Financial Group select Sapiens PolicyPro for property and casualty. The Canadian insurance provider needed a modern solution that could solve challenges in their quote to issuance process and allow enterprise-wide delivery for the white-labeled products.

Last week, we announced a go-live with Harford Mutual Insurance Group with the Sapiens PolicyPro platform. This fully configurable solution enhanced Harford Mutual Insurance Group to rollout a new innovative products, automated business processes, and enhance operational efficiencies to quickly launch new products to market and generate new revenue stream. Sapiens continuously invests to improve our product functionality and advance our technology. In the third quarter, we launched several upgrades and enhancements. We launched our P&C and reinsurance core platform for the DACH region, after acquiring sum.cumo in early 2020. We adapted the Sapiens IDITSuite for profit and casualty and Sapiens ReinsuranceMaster to the DACH region. IDITSuite and ReinsuranceMaster are end-to-end cloud-based platform that are fundamental components of Sapiens platform for P&C and offer a wealth of digital features. Sapiens CoreSuite for life is now available on Microsoft app stores. This platform combines coinsurance functionality with data analytics and digital suite that can now deploy on the Microsoft Azure Cloud.

To keep pace with evolving needs and customer needs, we launched a new version of our cloud-based P&C CoreSuite for EMEA and APAC to facilitate a digital customer experience and enhance process automation. This new version of Sapiens IDITSuite for property and casualty bring strong enhancement and provide value in numerous domains. Our DECISION platform to manage business logic in the organization is gaining momentum and we see a growing opportunity from both large Tier 1 banks, as well as insurance carriers across all tiers. DECISION is strategic platform for any organization that is getting ready for the future, aiming to have a clear visibility in the business logic and decision processes.

We continue to expand our partner ecosystem to support our customers, and again this quarter, we add several innovative partners to our ecosystems. To improve our workers’ compensation platform, we partner with AssureSign to incorporate electronic signature technology into our workers’ compensation platform. And Gradient AI to apply predictive insight to workers’ compensation, handwriting and claims processes. Sapiens also partnered with GreenRoad Technology, the recognized leader in advanced driving risk analysis for the automotive industry. GreenRoad provide a new level of driver risk assessment data for automotive insurance carrier on a dynamic basis, making it possible to provide more competitive personal driver insurance premiums.

Our one-hand to shake model where we build long-term relationship with our customer and provide them with our software implementation services and long-term maintenance engagement is a strong driver to our proven land and expand model. This Sapiens portfolio of products and services is going, this put us in a strong position to enhance upsell and cross-sell opportunities. We have examples of customer lending in P&C and then expanding into Life and Annuity and vice versa while expanding digital engagement and data analytics. In addition, we have a multiple example of course geographies expansion given the nature of some of our global customers. We see an increased demand for managed services across all of our products and the region in terms of services model. Our managed services offering brought tremendous value to our customer during COVID-19, which has increased customer communication and needs and allowed the carriers to focus on their businesses, while we manage their platform.

According to the insurance industry analysis, the insurance sector is trying to normalize anything starting to develop after the initial impact of COVID-19. The technology spend is being re-prioritized as insurers recognize that they need to transform digitally in chief digital channels and product with end-to-end automation of processes across their entire offering, both internally and customer-facing. There is increased acceptance to cloud implementation to enable fast and responsive access from anywhere, more and more insurers see that to remain competitive, they need to be agile, secure, connected, and digital-enabled. Sapiens is well-positioned globally to deliver these products and services across all product lines and [indiscernible]. Our digital offering enables customers to achieve digital transformation as they look to enhance their services and offerings. We help insurance close to get between customers’ expectation, insurance readiness, and help them to digitalize their businesses.

Our 2020 virtual summit which was held in early October was a key event to highlight these capabilities and showcase our strong product offering. Around 600 participants represented near 200 US customer as well as eight partners and seven leading research analyst participate in our three-day summit. The event featured 70 sessions led by Sapiens experts, leading industry analysts, Insure Tech partners, and include user group on technology, product, and strategy, with a specific focus on digital transformation. The summit provide an excellent opportunity to enhance our market presence, showcase our latest innovations, and strengthen our customer connection, and we did it virtually.

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Lastly, we recently received valuable recognition by Celent and Gartner. We continue to invest heavily in innovation technology and ensure that we offer our customers the most modem and functionality-rich solution. Sapiens UnderwritingPro won Celent North America XCelent Award for New Business and Underwriting functionality in life insurance. This is the 11th XCelent Award Sapiens has received to-date. Sapiens was the only insurance solution provider positioned as a leader in two Gartner reports for both Life platforms and P&C platforms in Europe.

Sapiens CoreSuite for life and pension was recognized as a leader Gartner Magic Quadrant for life insurance policy administration system in Europe. Sapiens IDITSuite for property and casualty received the leader recognition for the second year in a row in Gartner’s Magic Quadrant for non-life insurance platform in Europe. As we close out the year, we are in a strong position. We are growing with existing customer, winning new customers, and building our pipeline for next year.

In closing, Sapiens recently price a $100 million secondary led by Tier 1 investment banks and we were pleased to see that the deal was oversubscribed. The proceeds from the offering will be used for general corporate purposes and mainly M&A. Sapiens enjoy close relationship with over 500 global customers. We have built a broad portfolio of insurance software solution across P&C and life and pension. We continue to enjoy consistent organic growth with an excellent track record of augmenting our growth with strategic M&A.

Before handing the call to Roni Giladi, I would like to say I am extremely pleased with our global team performance and proud of the success they’ve deliver in an unusual, challenging business environment. Thanks to the team focus and execution we had into the close of the year with a solid outlook for 2021. Now, with even stronger balance sheet, we are well positioned for continued growth in the long run.

I will now turn the call over to our CFO, Roni Giladi. Please go ahead, Roni.

Roni Giladi

Thank you, Roni. I will review the third quarter non-GAAP result, followed by comments on the balance sheet and cash flow. And end with our updated guidance for the remainder of 2020. Q3 was the second quarter which was influenced by COVID-19. As such many technology companies have been able to adjust to the new way of doing business, including Sapiens.

The adjustment is translated into improvement of our topline revenue and operational margin actual and guidance. This quarter, we consolidated Delphi in our result of operation for two months. Revenue in the third quarter of 2020 increased by 18.5% to $98 million from $82.6 million in the third quarter of 2019. Our revenue in North America totaled $50 million, an increase of 12.5% compared to last year, mainly due to strong growth in P&C. Europe revenue totaled $42.4 million, a 40% increase since last year, generating from P&C and Life and Annuities. Revenue in APAC in South Africa decreased from $8 million to $5.6 million in Q3 of 2020. The decrease is due to few projects going live. Revenue from North America and Europe combined represent 94.3% of our business. Gross profit this quarter totaled $44.2 million compared to $36.7 million in the third quarter of last year, an increase of 20.4%. Our gross margin this quarter increased by 70 basis points to 45.1% from 44.4% in the third quarter of last year.

As a reminder, due to our business model of one hand to shake, economically our gross margin should be higher by an estimated of 7% due to the fact that we are enhancing our product is part of our delivery mechanism. Operational expenses, R&D and SG&A, including the attribution of Calculo, sum.cumo, and Delphi, increased by 13.7% from $23.2 million to $26.3 million. Moving to operational profit. Operating profit totaled $17.9 million this quarter compared to $13.5 million in Q2 of 2019, and $16.8 million in the prior quarter and represent 32% improvement. Operating margin increase in the third quarter to 18.2%, a 180 basis point improvement from Q3 of 2019. Our ability to improve margin in Q3 resulted from the new normal with respect to COVID-19 and associated level of reduced expenses, past integration with Delphi which impacted September result, continuous improvement with our offshore program, which today represent 40% of our workforce.

Tax and interest expenses; this quarter, we had $1 million interest expenses mainly related to our debentures. Our tax expense was $2.9 million reflecting effective tax rate of 17.1%. We estimate that these tax rates will continue also in Q4 of this year, and is a result of the new tax benefit program we implemented, which has led to active effect. We estimate that we will benefit from this program also for the years to come. And it will reduce our ongoing effective average tax rate to a range of 18.5% to 20%, starting from 2021.

Net income attributable to certain shareholders for the quarter was $13.7 million compared to $10.4 million in the third quarter of last year. Diluted EPS increased to $0.27 from $0.21 last year, representing a growth of 28.6%. Turning to our balance sheet. As of September 30, we had a cash and cash equivalent of $131.7 million and total debt of $120 million, spread evenly until January 1, 2016. To strengthen our balance sheet, on October 20, we closed the public offering of $100 million without the impact of [indiscernible]. The main reason for the capitalized was to allow us to grow the Company and continue with our M&A strategy. Two other important objectives were to increase our liquidity and to broaden our investor base. Both of these objectives have successfully been met.

In the third quarter, we achieved $14.5 million in adjusted free cash flow. We continue to have high conversion from net profit to adjusted free cash flow. Q3 represent 105% conversion and the accumulated last nine months represent 90% conversion from net profit to adjusted free cash flow. In closing, I would like to turn to our guidance for the full year of 2020. We are raising our 2020 guidance for both revenue and operating margin. On the revenue side, we increased the range of $381 million to $383 million from the prior range of $376 million to $381 million, reflecting yearly growth from 2018 of 17.3% to the midpoint of the range.

Our guidance represents 8.5% organic growth and the rest is driven by M&A. On the profit level, we increased the range from 17.6% to 17.7% on a full year basis, reflecting 165 basis point improvement from last year operating margin of 16%. As a result of the capital raise, as of today, additional 3.4 million shares were issued. We estimate that the share count for calculating EPS for Q4 will be approximately 55 million shares. To summarize, Sapiens business model give us multiple levers of growth, organically and through M&A because existing and new customers, geographies, product lines, and services. In addition, our efficiency program in offshore operation allow us to continue to expand margin constantly.

COVID-19 had a slight, short-term negative revenue impact. We believe that the COVID-19 revenue impact on the mid and long-term could be positive to our growth as it can drive insurance carrier to invest more on digital and core system transformation. On the profit level, COVID-19 had a positive improvement on our operating margin.

Now, I would like to turn the call back to Roni Al-Dor. Roni?

Roni Al-Dor

Thank you, Roni. Sapiens customer success team is doing an outstanding job providing a critical support to our customers globally. Sapiens global sales team continues to focus on signing new business in this challenging market condition. Our leadership team remains focused on delivering growth and margin expansion as we execute against our long-term objective of improving shareholder value with a focus on growth strategy, a strong team, and improved balance sheet. Sapiens is well positioned for success and growth.

I would like now to close our prepared remarks and open the call for questions, please.

Question-and-Answer Session

Operator

Ladies and gentlemen, at this time we’ll begin the question-and-answer session. [Operator Instructions] The first question is from Sterling Auty with JPMorgan. Please go ahead.

Sterling Auty

Yes, thanks. Hi, guys. So, wondering if you could maybe give us a little bit more color around the appetite for these digital transformation projects in Europe versus North America, in particular, in light of some of the recent changes with COVID-19, with some of the European countries looking to potentially lock back down.

Roni Al-Dor

Hi, this is Roni Al-Dor. In terms of digital, we see a big demand in COVID-19. As we say COVID-19 did some what we call a wake-up call for the insurance company to expand and to invest in digital. And we see the same level of interest from North America and US. At the beginning, it was mainly on the P&C, but right now, we also see on the life side as well. So right now, it’s close to equal. As you know Sapiens is heavy invest in the last year. We did what we call leapfrog in this area. We plan to announce our — a new version, a new upgrade in this area. So, it all looks positive.

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Sterling Auty

All right, great. And then, with the acquisitions that you’ve made, what type of integration road map are you planning across the product portfolio for these acquired technologies?

Roni Al-Dor

It’s very depend of the acquisition that we are doing. As you know we did 15 acquisition in the last — it’s almost 10 years. So, it’s sometimes we are — if we are acquiring technology company, so we are fully integrate them. If we are buying legacy, it’s mainly for the customer base, and then we are bringing Sapiens products, and there is a few acquisitions that we made around digital. So, we are taking the best from each company and we build the best solution from the two.

Sterling Auty

Great, thank you.

Roni Al-Dor

Thank you.

Operator

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

Mayank Tandon

Thank you. Hi, Roni and Roni. Just a few questions. First, congrats on the quarter. Yet again, good results. So, I just wanted to get a feel for ’21, I get that it’s probably too early to give guidance, but maybe just anecdotally given the pipeline, the pace of conversion, deal closings, new logo wins, etc. What is your best guestimate at this point on how ’21 might shape up versus ’20, again, adjusting for M&A, obviously.

Roni Giladi

Hi, Mayank. This is Roni G. And obviously, we’ll provide guidance after we announce Q4 results, which will beginning of 2021. But, if we see the trend right now, we talked about this year is up and it’s going to grow organically at a pace of 8.5%. So, I would say, this will be the baseline. I mean COVID-19 came, obviously some insurance carriers put on hold some of the investments that they had, globally in the States and also in Europe. But as we continue and right now companies understand that they need to adjust to the new normal, we see some release on the investment and we are starting to build a bigger pipeline, again both on P&C and Life, USA and Europe. But currently, this is the framework or this is the trend that we see. We’ll provide full guidance into next year.

Mayank Tandon

That’s helpful, Roni. Just to clarify, did you say 8.5% organic growth in fiscal ’20?

Roni Giladi

Correct. Based on the guidance that we provided today for this year, this is the number.

Mayank Tandon

Right. And then how much contribution from M&A do you expect at this point in fiscal ‘ 21?

Roni Giladi

Currently, the additional impact will be about — probably about $6 million to $7 million coming from Delphi at this point of time.

Mayank Tandon

Got it. That’s helpful. And one final question on margins. Obviously, you guys have been doing a tremendous job on the margin front, quarter after quarter. I just want to get a feel for how much of some of these savings that you implemented in response to the pandemic will start to run off? So what is maybe a good baseline to think of margins for this year, adjusting for those expenses. And then, maybe some qualitative commentary on ’21 would be helpful as well.

Roni Giladi

So, we did the analysis internally about this and we see that probably COVID-19 somehow or somewhat slow the revenue base, but have a contribution on the profit level. We estimate this south to 1% and we think that when COVID-19 will be passed, potentially, we’ll have a higher profit, but with more expenses, I would say half of the savings will continue and half not.

Mayank Tandon

Roni, sorry, just one final point, not to put you on the spot, but just given the margin performance this year, I just want to get a feel for next year. I mean should we at least expect margins to be flat or maybe do you think you could still leverage up if growth does accelerate from that 8.5% organic level?

Roni Giladi

I would say that given the current state and if it stayed the current state of COVID-19, we will be able to improve margin constantly on a moderate pace. We think that 50 basis point, year-over-year, this is something doable for us, taking in consideration what we are doing with offshore program and efficiency in the Company.

Mayank Tandon

Great. Thank you so much and congrats on the quarter.

Roni Giladi

Thank you very much.

Roni Al-Dor

Thank you.

Operator

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

Bhavan Suri

Thanks for taking my questions and a nice job on the quarter there. I wanted to touch first, but just a little bit on the competitive environment. You’ve seen obviously another competitor go public and one get acquired by private equity. Just love to understand sort of has that impacted you with some better front at all in North America, more specifically on other markets, and have you seen any changes in competitor behavior?

Roni Al-Dor

Hi Bhavan, it’s Roni Al-Dor. And as you know, you’re talking about the pub — the other vendor is Duck Creek. So, we don’t really see them. Yes, you’re right; Majesco was public, it just took over by the private equity. So what we — so as you — just to remind you, where half of our business is Europe [ph], or what we call, rest of the world, so we don’t see both of them in the territory. So, it’s still the main competitor is Guidewire and some local. So, we’d say again, we are in competitive environment, but not as difficult as in US. If we are talking in US, right now we are in particular in Duck Creek, there are more going to the higher tier. We don’t see them in the mid-tier and low-tier. And that we are also, in this area, at this moment, and Majesco is gone. We don’t really see them on the P&C. We are more see them on the life side. So overall, we don’t really see change. We believe that in the next year or two, we will start to see Duck Creek in Europe.

But just to remind you, we become stronger and stronger in Europe. We — Gartner put us in a leading position, second than Guidewire in Europe. So, let’s assume that it will do the best they can do. It will take them a few years. So — and we are putting a lot of effort. We see barrier with the DACH, with other region. So we, from Sapiens, do the best we can do in order to keep our position, and hopefully, can be number 1. In terms of US, we have our what we call CoreSuite adapting, we see more momentum, we put many clients on productions at scale for May, last year sales. We are out now building our sales. In terms of the reinsurance, it’s also part of the P&C. We don’t see all the company that you mentioned. The real competition is coming from SAP and we are competing head-to-head with them; sometimes win, sometimes lose. But again, this is the area that we see more and more demand as well.

Bhavan Suri

Got it. That’s really helpful. And then, you talked about sort of that — you mentioned in your comments — you mentioned the pressure in sort of customer upsell. I guess, let’s start with new customers. I’d love to listen how the conversations with the customers are going? Are you seeing them convert faster because of COVID, are you seeing they’re being slower, and then as you cross or upsell, while you had to [indiscernible]. How you think those conversations progressed? Are they improving from a few months ago? Are they not at the same pace? How should we think about the pace of both new and existing customers?

Roni Al-Dor

At the beginning of COVID, everything — everybody was shocked so it was a lot of companies put things on hold. Like a few of our project, that’s all of them are a big contract. So which, right now, I think the main area that most of the company are looking for digital transformation and they also — any kind of digital solution and we believe that we will see more and more demand. There is more or less the same. Still we see some slowdown. People are take time to make decision, to do more check, but again we see — we continue to see opportunity as well.

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Bhavan Suri

Got it. That’s very helpful. Thanks, guys. Congrats.

Roni Al-Dor

Thank you.

Operator

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

Unidentified Analyst

Hi, this is [indiscernible]. Thank you for taking my questions. I’d like to — just continuing on the previous caller’s question regarding how you’re seeing pre-COVID versus now? Would you say that the pipeline has expanded as compared to pre-pandemic?

Roni Giladi

Hi, this is Roni G. No, the answer is no. I think COVID-19 reduced the pipeline that we had because the change of the behavior of our existing customer and new prospect. But as we continue, right now, we are at — I’ll say there are good months in this environment. People are more understanding this is the situation and we are starting to build a pipeline, uphill again. Not same as what we had before COVID-19, but it’s uphill now.

Unidentified Analyst

I see, okay. And also touching on also another question that was brought up regarding competition. We’ve been getting a lot of interest around Sapiens, so I wanted to ask, what — how do you see your software as a service offering and how does it compare to some of your larger competitors? And is that an area of focus for you?

Roni Giladi

Hi, this is Roni G. So basically, we are competing on two front with our competitors. First of all on the software side and the other one is on the services side. Most of our competitors do not take our business model, meaning their interaction with system integrator like Ernst & Young, Capgemini, Deloitte, and here we are competing against these guys. On the software side, we are competing with all the big names, Guidewire, Majesco, Duck Creek, Fadata. According to analysts and only mentioned Celent and Gartner, we are positioned part of the learning group, both on P&C, both on life, in Europe and in the States. We still have way to go in the state, but we are getting closer to the leading group. And just to remind, we acquired StoneRiver in 2017, year after Adaptec, and right now we are very close to the leading group in the State; so, positioned very well on the software side. And on the services, a lot of the prospects and customers see this as a one-stop shop, see a lot of advantage that we are doing both side. So we are very competitive in this area also.

Unidentified Analyst

Okay. Yes, thanks. That’s very helpful. That’s it from me.

Operator

[Operator Instructions] The next question is from Omri Velvart of Legacy Value Partners. Please go ahead.

Omri Velvart

Hi, Roni and Roni. Excellent quarter. So, congratulations. We saw over the past few months, a lot of deal activity in the sector, in the software, in the insurance sort of sector, including some really big names entering the sector like Roper Technologies, a $40 billion company. Obviously, you know, they bought Vertafore in the US, and a larger private equity fund entered the field, they bought Majesco. So what I’m asking is, second has — I mean, you obviously, like to do M&A, you have and you’ve been very good over the past decade. What kind of fair valuations we will see in the market currently, especially in light of your recent secondary offering. I’m sure the valuation went up, but what kind of value do you see you creating by doing more M&A over the near future?

Roni Giladi

I’m not sure, I 100% understood the question, but will try to answer.

Omri Velvart

I can…

Roni Giladi

I will try — I will try to answer. M&A is a very integral part of our strategy. This is something that we are focusing on top of the organic side, we’re investing effort, money, and time, and attention in order to execute in that. The value that we see is significant, for example, expanding geographies present that we have, expanding customer base, expanding knowledge of people who know insurance. This strengthened our position and with the Company that we integrate, the Company that we acquired, we are not holding Company, been able also to get to the profitability level of Sapiens through the acquisition and the platform that we have. So on the revenue level, it allow us to basically level our opportunity of growth, and in the same time, because of our big-sized Company, we have been able also to match our profitability — other companies to our profitability level in order to expand margin.

Omri Velvart

Okay. Thanks, it’s very helpful. Just a follow-up question. I also asked about valuations. I mean, what kind of multiples do you see when you will — when you come to the market and you look for more M&A. I mean, have you seen increased valuations over the past year because a lot of big players, a lot of large players went into the market, recently.

Roni Al-Dor

Yes, the answer is yes. The valuation is going up, it’s — but again, remind you it depends of each company is difference, depends of growth, depends of profitability between territory, risk factor; so there is a lot of our [indiscernible]. We are also — when we acquire companies, not just one factor, is sometimes 20 factors, 30 factors, but overall the valuation, because there is a huge demand in the insurance, and people understand there is a lot to do in the insurance space. And we are seconds there, in the right time.

Omri Velvart

I see. Okay, thank you. And again congrats for the quick — for the great quarter.

Roni Giladi

Thank you.

Roni Al-Dor

Thank you very much.

Operator

The next question is from Ethan Etzioni of Etzioni Portfolio Management. Please go ahead.

Ethan Etzioni

Yes. My question is this, you said that the organic growth in ’20 of 8.5% is your baseline for ’21, on the other hand, you said that the pipeline is weaker because of the COVID. So I’m — I wanted to ask, how do you reconcile these two different figures?

Roni Giladi

Hi Ethan, this is Roni G. What I say that the guidance for 2020 is 8.5%. What we said in the beginning and think about this, we are three quarters in 2020 with the COVID-19. And what we are seeing in the past few months is ramping up of pipeline, globally by the way. What we said that we think and estimate, and we’ll provide full guidance beginning of 2021, the level of growth, organic growth, probably will remain also in 2021, meaning 8.5%.

Ethan Etzioni

Okay, thank you very much. And good luck.

Roni Giladi

Thank you.

Operator

The next question is from Brian West [ph]. Please go ahead.

Unidentified Analyst

Color come out in the quarter and two pioneers in this industry, which didn’t even have a name two years ago. And now, it’s Insure Tech. As an investor, I’m ask — what is the dividend policy of the Company considering you cut the dividend by 36%? I thought it was a reaction to COVID and saving money. But now, I’m not sure.

Roni Giladi

Hi. This is Roni G. Sapiens has a policy of distributing dividend of about up to 40% of the not net GAAP income net — sorry, non-GAAP net income, up to 40%. This year 2020, we distributed half of the amount and it was, basically, in after March, immediately after COVID-19 basically show up or appear. And this was the reason of risk mitigation. We feel much stronger right now. We understand it strategically and we’ll provide probably full dividend amount in 2021.

Unidentified Analyst

Okay, thank you. Also in the — how is it — I know you answered this a little bit, but I am not sure I understood it. How are the expenses — travel expenses, show expenses, exhibition expenses, how has that affected the SG&A?

Roni Giladi

Hi. This is Roni. Obviously, it’s reduced the amount of travel expenses. Of course, not only SG&A, but also other in the delivery, people also were flying not only in the SG&A, also the sales team, of course. So it reduced the amount. We estimated a COVID-19 impact, including travel and all the rest. And after impact, the revenue is about 1%.

Unidentified Analyst

Okay, thank you.

Roni Giladi

Thank you.

Operator

There are no further questions at this time. Before I ask Mr. Al-Dor to go ahead with his closing statement, I would like to my participants that a replay of this call is scheduled to begin in two hours. In the US, please call 1-877-456-0009. In Israel, please call 03-925-5900. And internationally, please call 972-3925-5900.

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

Roni Al-Dor

Yes. Thank you to the operator, and thank you to all the participants who joined us today. Have a good day.

[Call ends abruptly]



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