Sapiens International Corporation NV

NASDAQ:SPNS

Earnings Call Transcript 2020-Q3

[Operator]

Ladies and gentlemen, thank you for standing time. Welcome to the Sapiens International Corporation's Third Quarter 2020 Results Conference Call. [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 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 in 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 have been provided in our press release issued before the market opened this morning.

A replay of this call will be available after the call on our Investor Relations section of the company's website or via the website link, which is available in the earnings 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, executive]

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, a recent secondary offering and discuss the key metrics and 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 with up-sell additional products and services.

This quarter, we increased our revenue from North America by 12.5% and 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 this with the acquisition of sun.cumo, which helped us to establish a strong local base and will support the efforts for further expanding the market.

We've also enhanced the certain presence team in DACH region to support the growth. This approach allows Sapiens to embed into the regional culture and succeed the regional regulatory framework.

Our lend and expand strategy is an efficient and effective way to grow in highly regulated and regionally diverse global insurance market. Sapiens global presence and comprehensive product offerings, [ supported by the ] local professional team is significant competitive advantage.

In Iberia, since acquiring Calculo, we have started gaining momentum in the region and enhance 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 health care professional liabilities, also now in the MPL market. As with our prior acquisition, Delphi will enhance our value proposition to the medical insurance market, enrich our P&C CoreSuite with MPL content, increase our MPL domain knowledge as well as expand our North America customer base.

Combined with Sapiens solutions, relationships and resources, this acquisition enhance our position as a leading solution provider in the U.S. insurance market.

The global Sapiens team delivered 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 Property & Casualty to provide a cloud-based fully digital experience for their customer and expand their product offering.

After an extensive search, they chose Sapiens for both our insurance knowledge and technology that allow 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 insurance process and allow enterprise-wide delivery for their white label products.

Last week, we announced a go-live with Harford Mutual Insurance Group, with the second PolicyPro platform. This fully configurable solution enhanced Harford Mutual Insurance Group to roll out a new innovative product, automated business processes and enhance operational efficiencies to quickly launch new product to market and generate new revenue streams.

Sapiens continuously invest to improve our product functionality and advance our technologies. In the third quarter, we launched several upgrades and enhancements. We launched our P&C ReinsurancePro platform for the DACH region after acquiring sun.cumo in early 2020.

We adapted the Sapiens IDITSuite for Property & Casualty and Sapiens ReinsuranceMaster to the DACH region. IDITSuite and ReinsuranceMaster are end-to-end cloud-based platforms 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 AppSource. This platform combines core insurance functionality with data analytics and digital suite that can now deploy the Microsoft Azure cloud. To keep pace with evolving needs and customer needs, we launched a new version of our cloud-based P&C Core Suite for EMEA & APAC to facilitate a digital customer experience and enhanced process automation.

This new version of IDITSuite for property and casualty brings strong enhancement and provides 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 a strategic platform for any organization that is getting ready for the future, aiming to have 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 added several innovative partners to our ecosystems. To improve our Workers' Compensation platform, we partnered with AssureSign to incorporate electronic signature technology into our Workers' Compensation platform and Gradient AI to apply predictive insights to Workers' Compensation underwriting and claims processes.

Sapiens also partnered with GreenRoad Technologies, recognized leader in advanced driving risk analysis for the automotive industry. GreenRoad provides a new level of driver risk assessment data for automotive insurance carriers 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.

As Sapiens portfolio of products and services is growing, this puts us in a strong position to enhance up-sell and cross-sell opportunities. We have examples of customer lending in P&C and then expanding into Latin annuity and vice versa, for 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 regions in terms of services models. 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 platforms.

According to the insurance industry analysts, the insurance sector is trying to normalize and even starting to develop after the initial impact of COVID-19. The technology spend is being reprioritized as insurers recognize that they need to transform digitally and shift digital channels and products 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 enablers. Sapiens is well positioned globally to deliver these products and services across all product lines and [ existing ] tiers.

Our digital offering enable customers to achieve digital transformation as they look to enhance their services and offerings. We help insurance [ clause ] to get between customer 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 offerings. Around 600 participants that presented is near 200 U.S. customer as well as 8 partners and 7 leading research analysts participate in our 3-day summit.

The event featured [ 17 ] sessions, led by Sapiens experts, leading industry analysts, insuretech partners and include user group on technology, product and strategy, with a specific focus on digital transformation. The summit provides an excellent opportunity to enhance our market presence, showcase our latest innovations and strengthen our customer connections, and we did it virtually.

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 modern and functionality-rich solution.

Sapiens UnderwritingPro won Celent's 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 2 Gartner reports for both life platforms and P&C platforms in Europe. Sapiens CoreSuite For Life and Pension was recognized as a leading Gartner Magic Quadrant for life insurance policy administration system in Europe. Sapiens IDITSuite for property and casualty received a leader recognition for the second year in a row in Gartner's Magic Quadrant for nonlife insurance platform in Europe.

As we close out the year, we are in a strong position. We are growing with existing customers, winning new customers and building our pipeline for next year.

In closing, Sapiens recently priced $100 million secondary led by Tier 1 investment banks, so we were pleased to say that the deal was oversubscribed. The proceeds from the offering will be used for general corporate purpose and mainly M&As.

Sapiens enjoy a 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'm extremely pleased with our global team performance and proud of the success they have delivered in an unusual challenging business environment. Thanks to the team's focus and execution, we head 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, executive]

Thank you, Roni. I will review the third quarter non-GAAP results, 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 top line revenue and operational margin, actual and guidance. This quarter, we consolidated Delphi in our results of operation for 2 months.

Revenue. 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 & Annuities. Revenue in APAC and South Africa decreased from $8 million to $5.6 million in Q3 of 2020. The decrease is due to a 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 products as 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 increased 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; an associated level of reduced expenses; fast integration with Delphi, which impacted September results; continuous improvement with our offshore program, which today represents 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 this tax rate will continue also in Q4 of this year and is a result of the new tax benefit program we implemented, which has retroactive 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 Sapiens 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 a public offering of $100 million without the impact of [indiscernible]. The main reason for the capital raise 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 for net profit to adjusted free cash flow. Q3 represents 105% conversion, and the accumulated last 9 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 2019 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 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 gives us multiple levers of growth organically and through M&A, across existing and new customers, geographies, product lines and services. In addition, our efficiency program and offshore operations 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 carriers to invest more on digital and consistent 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, executive]

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 of 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.

[Operator]

[Operator Instructions] The first question is from Sterling Auty of JPMorgan.

[Sterling Auty, analyst]

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, executive]

This is Roni Al-Dor. In terms of digital, we see a big demand in COVID-19. As we say, COVID-19 has become what we call 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 U.S. 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 have invest, in the last years, we did what we call leapfrog in this area. We plan to announce our new version and new upgrades in this area. So it all looks positive.

[Sterling Auty, analyst]

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, executive]

It's very dependent of the acquisition that we are doing. As you know, we did 15 acquisitions in the last almost 10 years. So it's -- sometimes we are if you're acquiring technology companies. So we are fully integrated, and if we are [ applying ] legacy 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.

[Operator]

Your next question is from Mayank Tandon of Needham & Company.

[Mayank Tandon, analyst]

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 et cetera. What is your best guestimate at this point on how '21 might shape up versus '20, again, adjusting for M&A, obviously?

[Roni Giladi, executive]

Mayank, this is Roni G. Obviously, we'll provide guidance after we announce Q4 results, which is the beginning of 2021. But if we see the trend right now, we talked about this year, Sapiens is going to grow organically at a pace of 8.5%. So I would say this will be the baseline. When COVID-19 came, we see some insurance peers 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 relief on the investment. And we are starting to build a bigger pipeline, again, both on P&C and Life, U.S.A. and Europe. But currently, this is the [ trend ] or -- obviously the trend that we see, we'll provide full guidance into next year.

[Mayank Tandon, analyst]

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

[Roni Giladi, executive]

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

[Mayank Tandon, analyst]

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

[Roni Giladi, executive]

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

[Mayank Tandon, analyst]

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, executive]

So we did analysis internally about this and we see that probably COVID-19 may somehow or somewhat slowed the revenue pace, but have made contribution on the profit level. We estimate this 0.5% to 1%. And we think that when COVID-19 will be passed, potentially we'll have higher profit, but with more expenses, I would say, half of the savings will continue and half not.

[Mayank Tandon, analyst]

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, executive]

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

[Mayank Tandon, analyst]

Once again, hearty congrats on the quarter.

[Roni Giladi, executive]

Thank you very much.

[Roni Al-Dor, executive]

Thank you.

[Operator]

Your next question is from Bhavan Suri of William Blair.

[Bhavan Suri, analyst]

A nice job in the quarter there. I want to touch first just a little bit on the competitive environment. You've seen, obviously, another competitor go public and when we acquired by private equity. Just love to understand sort of, has that impacted your competitive front at all in North America more specifically or other markets? And have you seen any changes in competitive behavior?

[Roni Al-Dor, executive]

Bhavan, it is Roni Al-Dor. As you know, you're talking about the other vendor is -- is it Duck Creek? So we don't really see them [ going public ]?

[Bhavan Suri, analyst]

[ They did it as well, yes. ]

[Roni Al-Dor, executive]

Yes. Okay. Yes, you're right, I guess it was public, it just took over by the private equity. So what we -- so just to remind you, half of our business is Europe, what we call Rest of the World. So we don't see most of them in the territory. So it's still the main competitor with Guidewire and some local. So it's -- again, we are in competitive environment, but not as difficult as in U.S.

If we are talking in U.S. right now, we are in particular in Duck Creek, they 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, we don't really see them on the P&C. We are more seeing them on the life side.

So overall, we don't really see a change. We believe that in the next year or 2, we will start to see Duck Creek in Europe. But just to remind you, we become stronger and strong in Europe. We -- Gartner put us in a leading position, second to Guidewire are in Europe. So let's assume that we can do the best we can do, it will take them a few years. So -- and we are putting a lot of effort with Iberia, with the DACH, with other regions. So we -- from second -- we'll do the best we can do in order to keep our position and hopefully, can be #1.

In terms of U.S., we have our, if we [ come closely ] from last week see no momentum. We put many clients on production that came from last year's sales. We are right now building our sales. In terms of the reinsurance is also part of the P&C. We don't see all the company that you mentioned. The real competition is coming from SAP. 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, analyst]

Got it. That's very helpful. And then you talked about sort of -- you mentioned it in your comments, you mentioned in the press release for this customer upsell. I guess let's start with new customers. I'd like to understand how the conversations with new customers are going? Are you seeing them convert faster because of COVID? Or you think that getting slower? And then as you cross or up-sell, while you have had some nice wins, how are you seeing those conversations progress?

Are they improving from a few months ago? Are they about the same pace? How should we think about the pace of both new and existing customers?

[Roni Al-Dor, executive]

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 projects, but all of them are back on track. So it's -- right now, I think the main area that most of the company are looking for digital transformation. And they're 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 them to -- time to make a decision to do more check. But again, we see -- we continue to see opportunity as well.

[Bhavan Suri, analyst]

Congrats.

[Roni Al-Dor, executive]

Thank you, Bhavan.

[Roni Giladi, executive]

Thank you.

[Operator]

Your next question is from Tavy Rosner of Barclays.

[Chris Reimer, analyst]

This is Chris Reimer on for Tavy. 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, executive]

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 customers and new prospects. But as we continue right now, we are -- several good months in this environment. People are more understanding this is the situation, and we are starting to build the pipeline after again, not same as what we had before COVID-19, but it's [ close enough ].

[Chris Reimer, 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, executive]

This is Roni G. So basically, we are competing on 2 fronts 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. I mean the interaction with system integrator like [indiscernible], Capgemini, Delos. And here, we are competing against these guys.

On the software side, we are competing with all the big names, the Guidewire, Majesco, Duck Creek, Fadata. According to analysts, and Roni mentioned Celent and Gartner, we are positioned part of the leading group, both on P&C, both on life in Europe and in the States.

We still have a way to go in the State, but we are getting closer to the leading group. Just to remind, we acquired StoneRiver in 2017 year after [indiscernible] 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 that as a one-stop shop, see a lot of advantage that we are going both sides. So we are very competitive in this area also.

[Operator]

[Operator Instructions] Your next question is from of Legacy Value Partners.

[Omri Velvart, analyst]

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 software sector, including some really big names entering the software, like Roper Technologies, the $40 billion company. Obviously, you know, they bought a competitor in the U.S. and a large private equity fund entered the field with both Majesco.

So what I'm asking is, second is -- I mean you obviously will have to do M&A, and you've been very good with it in the past decade. What kind of fair valuation you would 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 Al-Dor, executive]

I'm not sure I 100% understood the question, but we'll try to answer.

[Roni Giladi, executive]

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 are investing effort, money and time and attention in order to execute on that.

The value that we see is significant. For example, expanding geographical presence that we have, expanding customer base, expanding knowledge of people who know insurance, this strengthened acquisition. And we, as a 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 lever 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 margins.

[Omri Velvart, analyst]

Okay. 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 come to the market and you look for [ normally ]. 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 there recently?

[Roni Al-Dor, executive]

Yes. The answer, yes. The valuation is going up, it's -- but again, to remind you, it depends on each company is different, depends on growth, depends on profitability between its territory, risk factor. So there is a lot of parameters. We are also -- when we acquire companies, not just one factor, it's sometimes 20, 30 factors.

But the 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 have second there in the right time.

[Omri Velvart, analyst]

I see. Okay. And again, congrats for the great quarter.

[Roni Al-Dor, executive]

Thank you.

[Roni Giladi, executive]

Thank you very much.

[Operator]

Your next question is from Ethan Etzioni of Etzioni Portfolio Management.

[Ethan Etzioni, analyst]

Yes. My question is this, you said that the organic growth in '20 was 8.5% is your baseline for '21. On the other hand, you said that the pipeline is weaker because of the COVID. So I want to ask how do you reconcile this 2 any different figures?

[Roni Giladi, executive]

Ethan, this is Roni G. What I said that the guidance for 2020 is 8.5%. What we said in the beginning and think about this, we are 3 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, and what we said that we think and estimate and we provide full guidance beginning of 2021, that the level of growth -- organic growth probably will remain also in 2021, meaning 8.5%.

[Operator]

Your next question is from [indiscernible].

[Unknown Shareholder]

[indiscernible] in the quarter and 2 pioneers in this industry, which didn't even have a name 2 years ago. And now it's insurtech. As an investor, I 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, executive]

This is Roni G. Sapiens has a policy of distributing dividend of about up to 40% of the 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 a reason of risk mitigation.

We feel much stronger right now. We understand the trajectory, and we'll provide probably full dividend amount in 2021.

[Unknown Shareholder]

Okay. Also on the -- how is -- I know you answered this a little bit, but I'm not sure I understood it. How are the expenses, traveling expenses, show expenses, exhibition expenses, how has that affected the SG&A?

[Roni Giladi, executive]

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

[Operator]

There are no further questions at this time. Before I ask Mr. Al-Dor to go ahead with his closing statements, I would like to remind participants that a replay of this call is scheduled to begin in 2 hours. In the U.S., please call 1 [phone]; in Israel, please call 039-255-900; and internationally, please call 9 [phone].

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

[Roni Al-Dor, executive]

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

[Operator]

Thank you. This concludes the Sapiens International Corporation's Second Quarter 2020 Results Conference Call. Thank you for your participation. You may go ahead and disconnect.