Sapiens International Corporation NV
NASDAQ:SPNS
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Sapiens International Corporation NV
Earnings Call Analysis
Q3-2023 Analysis
Sapiens International Corporation NV
Sapiens has reported a strong third quarter in 2023 with a revenue of $130.8 million, marking a 9.9% increase from the previous year. They also saw an operating margin increase to 18.4%. The North American region, in particular, experienced a revenue increase of 10.7% year-over-year, attributed to new customers like the American Armed Forces Mutual Aid Association, and expansions with existing customers.
Sapiens emphasizes the unique capabilities of their core platforms. The comprehensiveness and market fit of their worker compensation solution have been highlighted, garnering significant market recognition. The company's cloud-based, SaaS model, along with strong integrations with external ecosystem partners, has allowed them to offer mature and comprehensive solutions. They've continued to serve customers within property and casualty insurance (P&C), helping them to grow their businesses quickly and efficiently.
The company's average deal size is on the rise, which has been attributed to not only selling core solutions but also bundling additional digital, data, or cloud solutions. This strategy has increased the 'wallet share' from each deal and enhanced the attractiveness of Sapiens' solutions as they are able to provide customers with full end-to-end, cost-effective, and integrated solutions. The cross-sell ability has been bolstered by the maturity of their digital and data solutions, resulting in aggressive sales pursuits in both Europe and the U.S., as well as a focus on growing the sales and account executive teams.
Sapiens' offshore ratio stands at 51% and is increasing, contributing to improvements in gross margin and operational profits. They are actively investing in both R&D and Sales, General, and Administrative expenses (SG&A), prioritizing the Western world, particularly North America and Europe, which they view as growth engines. Additionally, the company is controlling costs by reducing other G&A expenses, allowing for significant investments in growth areas without drastically increasing SG&A costs.
Sapiens has introduced generative AI capabilities with their decision model tool, aiming at financial institutions for managing business logic and automation. This AI-driven tool is expected to reduce deployment project efforts by at least 30% and integrate with customers’ systems to manage business rules more efficiently. The new tool not only promises significant efficiency improvements but also provides opportunities to enhance role management and automation for clients.
Sapiens addressed concerns about operating cash flow, which they attribute to the timing of collections and not indicative of any customer relationship issues. Looking ahead, they feel confident with a conservative forecast of $550 million in revenue for 2024, based on existing customers, new prospects, and the stability offered by their 67% recurring revenue. While there is a commitment to growing as they have in the past, they acknowledge that adjustments may occur in Q4 based on actual performance and market conditions.
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Welcome to Sapiens International Corporation's 2023 Third Quarter Financial Results Call. [Operator Instructions]It is now my pleasure to introduce your host, Yaffa Cohen-Ifrah, Chief Marketing Officer and Head of Investor Relations. Thank you, Yaffa. You may now begin.
Thank you, operator. I want to welcome you to SAPN's conference call to review our third quarter results for 2023. With me on the call today are Mr. Roni Al-Dor, President and CEO; Mr. Roni Giladi, CFO; and Mr. Alex Zukerman, Chief Strategy Officer. Following the summary of the results, we will be available to answer any questions. Before we start, I would like to remind everyone that this conference call may contain projections or other forward-looking statements. The safe harbor provisions in the press release issued today also apply to the content of the call. Sapiens expressly disclaim any obligation to update or revise any of these forward-looking statements, whether because of future events, new information, a change in its views or expectations or otherwise. On today's call, we will refer to the non-GAAP financial measures. A reconciliation of GAAP to 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 earnings release we published today. I will turn the call over to Roni Al-Dor, President and CEO of Sapiens. Roni?
Good morning, everyone, and thank you for joining us today for Sapiens' Third Quarter 2023 earnings calls. Sapiens has delivered another strong quarter in 2023, and I want to start highlighting some key points that demonstrate this fact. First and foremost, we remain committed to deliver results that align with the expectations we set earlier this year. In each quarter of 3 quarters in 2023, we have delivered revenue growth with suspending margins. The third quarter was yet another strong quarter for us, marked by further improvement in our operating margin. Revenue in the third quarter of 2023 totaled $130.8 million, up to 9.9% year-over-year. Operating margin this quarter increased to 18.4%. We are seeing continued momentum in key regions. In North America, our investment and increased sales team have contributed to our success in 2023. And in Europe, we have maintained our strong performance, and we are excited about our momentum. Let's start with North America, where we are gaining traction through new logos and expansion with existing customers. Revenue in North America increased by 10.7% year-over-year. One example is our recent win with the American Armed Forces, Mutual Aid Association and non-profit financial solution provider for military families and veterans who selected Sapiens' broad serious customer acquisition, sale solution, consisting with Sapiens application or illustration for and directing for assisted intelligence as part of its legacy modernization and automation initiatives. AAFMAA selected Sapiens based on our proven ability to deliver timely quality products and services in a digital environment, enabling them to better serve their members. This is a new Sapiens customer who is implementing in schedule for completion during the second quarter of 2024. Worker's Comp is category where Sapiens is gaining strength in North America. In the third quarter, we announced that South Carolina State Accident Fund, a state agency that offers guaranteed workers' compensation insurance for governmental entities, selected Sapiens CoreSuite for Workers Compensation to provide a more intuitive system and detail a workflow automation. SAS will also implement Sapiens Digital Suite and Sapiens Intelligence for more engaging user experience and enhancing processing, respectively, delivery through Sapiens SaaS platform. Moving to EMEA. Europe continued to be a key region for growth. Sapiens' revenue in the territory increased by 13.8% year-over-year, continued the growth momentum we saw in previous quarters. The Nordics are focused region in Europe, where we continue to gain ground. In the third quarter, Aktia Life, one of Finland's top life insurance, chose Sapiens for its partner to lead it for system transformation via Sapiens CoreSuite for Life and Pension. Sapiens was selected for its proven experience in complex insurance ecosystem integration and for providing an end-to-end cloud sales digital enhancement platform for individual and group products across life, wealth and pension insurance. Aktia recently experienced rapid change in customer behavior. Its digital efforts are critical states towards enhancing efficiency and elevating the customer experience along the new product offerings. Moving to South Africa. In the third quarter, a long-standing customer of Sapien in South Africa, a tier-1 bank, expanded its use of Sapiens CoreSuite for Life and Pension to launch its group lead core position. The expanded use of Sapiens CoreSuite for Life and Pension is part of the bank's strategy to launch new and improved products to its customer base. Adopting Sapiens CoreSuite for Life and Pension satisfied the requirements for complete and robust policy administration solution. In addition, the Tier-1 South African bank, which expanded its relationship with Sapiens into new territories, went live in Namibia, with Sapiens CoreSuite for Property and Casualty. As the core system for its short-term non-life insurance business there, the bank already used IDITSuite for its core short-term operating in South Africa, and Sapiens CoreSuite for Life and Pension for its life and annuity businesses. IDITSuite was chosen by the bank for its expansion in Namibia, based on its positive experience with the existing Sapiens' relationship and successful implementation in Sapiens IDITSuite in South Africa. This win exemplifies how our holistic relationship with our customers through their life cycle can be a growth driver for Sapiens. Shifting to our product portfolio, we started product capability and functionality to compete effectively in any region. Setting those further will take comprehensive product offering and dynamic platform that support the entire product life cycle to bring holistic solutions to customers with business applications, digital data and decision management products on top of our core P&C and Life platforms. All our product segments, including Life, P&C, Worker Compensation and Digital performed well again in the third quarter. We remain committed to provide innovative solutions that meet the evolving needs to our clients. We are receiving awards and endorsements for industry analyst for our CoreSuite Life and Pension platforms in North America and EMEA. This supports our growth expectation for this product line in this critical region. In the third quarter, Sapiens ReinsuranceMaster platform was named as Luminary Solution in the Celent Ceded Reinsurance Solutions Global Report. Sapiens CoreSuite Life and Annuity platform was named as Luminary Policy Administration Solution by Celent in North America. Sapiens CoreSuite for Life and Pension Celent 2023 XCelent Awards of the Breadth of Functionality category in EMEA region and was named a luminary solution. On October 2023, we hosted our North America Customer Summit in Tucson, Arizona. I want to take a moment to discuss the importance of our Customer Summit, which was a critical event for us. This year's Summit was the largest ever with over 500 attendees from 145 companies, including new and long-time customer from all of our business verticals, P&C, Workers Comp, Life, Pension, Decision, Financial and Compliance. In addition, we hosted an industry expert from Celent, Datos, Microsoft and more. We are empowered by the trust and the confidence our customers have in Sapiens. We were also proud to have 23 partners that attended with 18 sponsoring the event. Microsoft was the gold sponsor and other industry leaders supported our Summit, further underlining the strength of our partnerships and the value they bring to our customers. Our Customer Summit is a platform for meaningful discussion about our road map, solution and industry trends. We had panels featuring industry analysts and customers, offering valuable insights into our industry, future and confident insight in our strength and capabilities for our process. This time its focused on our cloud-based digital and data offering across our CoreSuite and business application solutions, which enable our customers to grow with realized operating gains. With fantastic feedback from attendees, there is tremendous excitement around the improvement our offering can bring to their businesses. The success of our Customer Summit reflects the collective efforts of our sales, customer success, marketing, delivery and management teams in the North America region. Our strong leadership and strong partnership period enable our customers to run their most critical business functionality successfully. During the conference, we announced the launch of Sapiens Decision Model, AI-Generative AI Solution, to enhance automation speed integrated in Microsoft Azure OpenAI services. Decision Model AI, the first products in Sapiens' Decision AI portfolio, will address the growing market demand for decision management technology driven by machine learning and AI integration. I want to take a few moments and address the situation in Israel. As you all know, Sapiens is a global company founded the headquarter in Israel. On October 7, Israel was under terror attacked by Hamas, the terrorism organization. 1,400 people were killed in that attack and 242 were kidnapped. Civillians, babies, children and elderly people. This attack throws Israel into a war. Our thoughts are with all the people who are suffering from the situation and those who have lost love ones. Sapiens is a mature global organization with team members and operations across the globe. Our global operations includes development and support centers in 22 countries, including the United States, Europe, India and Israel. Additionally, we have global operation centers with a well-established business continuity program among these centers. We are well prepared and organized to continue supporting our customers and employees during these challenging times. In conclusion, we are confident in execution of our strategies effectively across our established regions in various product categories in which we compete. Our teams dedication, high execution level, a win factor in our long-term record of success. This confidence fuels our commitment to deliver excellent results for our customers and shareholders. Now I would like to turn it over to CFO to provide more detail on our financial performance.
Thank you, Roni. I will begin with a review of our third quarter 2023 non-GAAP results. All comparisons are year-over-year versus Q3 2022 unless otherwise stated. I will follow with the comments on the balance sheet and cash flow and wrap up with our guidance for 2023. Revenue in the third quarter of 2023 increased to $130.8 million, up 9.9% from the third quarter of 2022. On a constant currency basis, our organic growth rate compared to Q3 of 2022 was 6.9%. Our revenue in North America totaled $54.8 million, comparing favorably to $49.6 million in Q3 of 2022, an increase of $5.2 million or 10.7%. The increase in North America revenue was due to growth across most of our line of business and reflects our momentum in this region. In the last 5 quarters, our North America region grew quarter-over-quarter, reflecting the initiative and investments we implemented to grow this region. Our European revenue totaled $64.7 million, a year-over-year increase of 13.8% compared to $56.9 million in Q3 of 2022. On a constant currency basis, reflecting organic growth of 7.5%. Revenue from the Rest of World, which includes South Africa and APAC, declined 10.6% to $11.3 million in Q3 of 2023 compared to $12.6 million in the same quarter of last year. The decline in revenue is temporary and is mainly due to project Go-live. Overall, year-to-date, our revenue in all our regions are growing. Our year-to-date growth comparing to 9 months, ended September 2022, on a constant currency basis was 8.3%, reflecting 7.2% growth in North America, 9.7% in Europe and 6.5% in Rest of World. I will move now to revenue mix. Revenue mix in Q3 of 2023 from recurring software product and re-occurring postproduction services totaled $87.4 million compared to $75 million in the same quarter of last year, a $12.4 million increase or 16.6% growth from Q3 of 2022. We are extremely pleased with the momentum and growth of our recurring and re-occurring revenue stream, which, as I will remind you, has a higher gross margin than our onetime implementation and the company overall gross margin. This recurring software product and re-ocurring postproduction services represent 66.8% of our total revenue this quarter compared to 63% in Q3 of last year and 64.3% in Q2 of 2023. Gross profit in Q3 of 2023 was $59.3 million, growing by 10.7% compared to Q3 of last year. Our gross margin this quarter was 45.3%, 30 basis points higher compared to Q3 of 2022. Operating expenses were $35.2 million, an increase of 7.8% compared to $32.6 million in the third quarter of 2022. Both of our R&D and sales investments have grown this quarter to support product position and sales effort globally. Operating profit in Q3 of 2023 was $24.1 million, an increase of 15.1%. Operating margin increased from 17.6% to 18.4%. During the quarter, we had a tailwind from the new Israeli shekel versus the U.S.A. dollar, which reduced some of our costs and was partly offset by higher investments. Net income attributable to Sapiens shareholders for the third quarter of 2023 was $19.1 million compared to $16.9 million in Q3 of 2022. EPS for the quarter was $0.34 per diluted share, an increase of $0.04 or 13.3% compared to $0.30 per diluted share in the third quarter of last year. EBITDA increased by 12.4% to $24.8 million or 18.9% of revenue compared to $22 million or 18.5% of revenue in Q3 of 2022. Turning to our balance sheet and adjusted free cash flow. As of September 30, 2023, we had cash and cash equivalents and short-term deposits totaling $173 million with a total debt of $59 million, which is scheduled to mature in 3 equal annual tranches until January 2026. During the third quarter of 2023, we generated an adjusted free cash flow of $1.7 million compared to $1.9 million in Q3 of 2022. During the third quarter, we paid a cash dividend of $0.26 per share, reflecting a total dividend of $14.4 million for the first 6 months of 2023. As per our dividend policy, we will announce the second half of 2023 dividend when we announced our 20-F report for 2023. I would like to turn now to our guidance for 2023. We are reiterating our full year 2023 non-GAAP revenue guidance in the range of $511 million to $516 million, which reflects year-over-year growth of 8.1% at the midpoint. However, we are increasing our non-GAAP operating margin guidance from a range of 18% to 18.2% to a range of 18.2% to 18.3%. To summarize, this was another strong quarter. Our revenue grew 9.9%, or 6.9% on a constant Q&C basis. Our software product and re-occurring postproduction services grew by 16.6% and represent 66% of our revenues, and operating margin was 18.4% with an EBITDA margin of 19%. In closing, I would like to leave you with the following thoughts. First and foremost, we understand that the ongoing work in Israel may raise concern about potential implication on Sapiens' business. We are closely and continuously monitoring the situation, ensuring that our Israel employees are safe and Sapiens business continuity is kept intact. However, given the current situation and global macro concerns, I would like to provide some high-level color on our 2024 revenue trajectory. We have never provided this level of color before in Q3, but given the above-mentioned issues, it's appropriate to us to give you, our investors, some sense of our visibility. We continue to be conservative and feel comfortable with delivering on trend consensus estimate at $550 million revenue in 2024. To reiterate what Roni Al-Dor stated, Sapiens is a global organization with distributed operation worldwide. 93% of Sapiens' revenue are generated globally outside of Israel. 85% of our employees are located outside of Israel, and we have local management position and customer-facing employees in each country we operate. The vast majority of our sales team is outside of Israel, close to our customers and prospects. We work with global banks around the world. We have a strong balance sheet with $170 million in cash with a significant portion of our cash in U.S.A. dollars. With that, I will turn the call over to Roni. Roni?
Thank you, Roni. We delivered a strong quarter given great success across our business geographically and by product line. Importantly, we remain committed to deliver results that align with the expectations we set earlier this year. I will now ask the operator to please open the call for questions.
[Operator Instructions]The first question is from Dylan Becker of William Blair.
Great to hear that the Sapiens team and families are safe and well. I think I speak for everyone on the call in hoping for a quick resolution to the context there. Roni, maybe talking about the demand drivers and kind of the accelerating need for change. I wonder when you're talking to those clients, what's the biggest driver? Is there emphasis and need to drive efficiencies? Is it maybe skewed towards new growth initiatives? Assuming it's maybe a little bit of both, but I'm wondering how your customers are thinking about prioritizing that spend today.
Yes. I'll try to answer your question. When we look at our customers, we have several drivers to do business with us. One major driver is operational efficiency, and needing in this a bit nonstable financial climate to ensure that their business and their processes are fully operational with clear efficiency. Now for us, our solutions across the board when we look across our data solutions, our digital solutions, at their core solutions. They all have strong capabilities around operational efficiency from bringing a high level of automation to the processes, local no-code the ability to extend and extend the ability of users to perform their activities, all the direct-to-consumer and digital engagement tools that we provide, those all together in our platform, a very strong driver for our customers to engage with us. Another driver that we see is the ability to quickly identify an open niche or a blue ocean type of business by the insurance companies and go quickly after this business. And this is where they really look for our capabilities around strong configuration, local no-code and the ability to deploy our systems in a record time in order to allow them to go to market.
Super helpful. There's nice momentum in the post production products, and I think in the North American segment there it seems like the prior sales restructuring, you're seeing some nice traction, but also how customer receptivity has changed, if at all? Now we're seeing a little bit of a recovery from carriers and loss ratios you're seeing a [Audio Gap] environment. Is that opening up the willingness to incentivize spend in this area?
I hope I can answer your question. It was a little bit difficult to hear you. So, just to share with everybody, we increased dramatically our sales organization, the marketing part, the account manageable part and the marketing. So all the 3 areas. We start to see an early stage, new things that we didn't see in the past, just because we are covering more customers than it was in the past. We did an outstanding client conference. I mentioned, I don't want to repeat it. It's also generated a lot of interest around the digital, data, cloud, decision part and so on. So we see as Sapiens growing we have much more to offer also on product and also on services.
That makes sense. And then, Roni, if I could squeeze one last one in. So coming out of the conference, the common themes seem to resonate around strength in areas like workers comp, reinsurance and maybe even medical malpractice. I guess what's the secret sauce from a product perspective there? Is it the content? Is it again the specialization around a particular line? Anything to call out there as it is another area of encouraging commentary.
So I think we need to look here. There are 2 major vectors that draw this attention of the market to our solutions. One is the unique capabilities across each one of our core platforms. When we look at workers comp, where we definitely have a remarkable traction and success, the comprehensiveness of the solution, it's unique product market fit. The way it is, the solution on a functional level to the users and the business of worker compensation is exceptional, and this is how the market recognize it. Together with the hyper-strong technology, everything is deployed in the cloud in a SaaS model, strong integration to external ecosystem partners that we brought together to the game. This definitely allows us to demonstrate a very, very mature and comprehensive solution. I think what we see in P&C solutions is also our ability to serve the customers, to show their value, to help them grow their business in a record time. And that's definitely another driver. This is per product. When we look at our platform proposition and the digital and data capabilities that we bring together with the core by an ability to provide a turnkey solution, a full end-to-end solution. This is definitely one of the strength points, having it fully integrated in a platform level, being able to deploy them all together, and we see here the effect in the market.
The next question is from Kevin Kumar of Goldman Sachs.
I wanted to ask about the data and digital process modules. I know that's been a big focus area for you all, and just curious how that's attaching to new deals, maybe how that's trending versus prior quarters? And in general, can you just talk a little bit about kind of cross-selling some of these modules back into the customer base and the success you're having there?
Yes. Again, the way we look at our both digital and data solutions that we have a central entity in savings that develops those solutions and spread it across our different segments of the business and the different core solutions. So what we see is the effect of that in our strategy, we put a huge emphasis on the fact that we provide our core data and digital solutions fully pre-integrated, loosely coupled, so customers can pick and choose, but definitely fully integrated out of the box, which brings a huge operational efficiency, both in the projects and deployment and in the business as usual. Now the impact on our business is several factors. One, our typical deal size is increasing. The wallet share of a typical deal is increasing because we are not selling only core as we used to do in the years before, but we typically sell another with the core digital or data or both solutions and also deploy it in the cloud, not less important, of course, this aspect as well. So I think first impact is wallet share. Second impact is the attractiveness of our solutions is rising and it seems more and more attractive because we can provide customers full end-to-end solutions covering the various aspects of this business in a single installation. And this brings also a lot of value to the customers and ability to work with one vendor to deploy something that is integrated and hence cost effective. This also allows us to increase our cross-sell. Now this is something that we are now starting to do more aggressively than before. This also comes with the high level of maturity of our digital and data solutions that now we feel very, very comfortable going forward. And as Roni mentioned, increasing our sales and account executive teams to be able to go back to our customer base. Most of them are on a core of business application, usage and cross-sell with our data and digital solutions, and we start to see this trend both in Europe and in the U.S.
Great. I wanted to maybe ask also if you can give an update on your offshore ratio, kind of where we are in terms of that position and maybe how much that is helping drive margin expansion this year? And anything else you could comment on kind of the success you're seeing in kind of improving profitability this year?
So offshore ratio, we are about 51% overall. We are growing this quarter-over-quarter. This quarter, we also grow in minimal percentage, but they continue to grow. There is obviously impact on the gross margin and operational profits. So this is an important factor in our business. This quarter, the improvement is not coming from the auction ratio. Its mainly coming from shekels versus dollar impact that has some benefit to us, but we offset this by additional investments in SG&A and in R&D. And we believe we can increase the offshore ratio in the next several years, and we create additional few percentage improvements in operating profit in the next few years.
The next question is from Chris Reimer of Barclays.
Another topic around OpEx. I wanted to ask, given the strong growth in the regions, how are you looking at the rate of investment as compared to costs?
Can you please repeat the question?
Yes. How are you looking at investments across the regions now that they're growing so -- well, they're producing good results. So how are you looking at the level of investment? In terms of headcount, in terms of cost spending in sales and marketing, this kind of thing?
I will try to answer and then Roni and Alex will follow up. Obviously, you see that the dollar value in SG&A and in R&D growing quarter-over-quarter constant all the time. So in R&D, please think also that we are having offshore employees that are adding. So even though that we're adding significant market employees, the impact on the dollar is not significant. We allocate the R&D investments based on growth engine in the company, about 2/3 of our product in the company on growth engine. And vast majority of this R&D investment is going to there and we are focusing on the Western world, North America and Europe in the region that we have operations. So this is on the R&D. On the SG&A, as Roni mentioned, we believe that we can increase the sales team and account executives both in Europe and in North America, and as we speak, we are already doing this. We are not seeing significant increase in the SG&A because we are also reducing some of the costs of the G&A, like we said that we already did in this year. So significant investment in the SG&A because we believe we have the product to sell a product suite and also a good position in North America and in Europe.
Got it. And regarding the AI product that you announced last month, can you walk us through how that looks right now versus your other pre-integrated digital products? Can you just walk us through how it might be different? And what's the potential there in terms of what you have in place right now?
So we published our new generative AI capabilities with the decision model tool. The decision model tool has 2 main usages within Sapiens. One, it's a software that is sold to financial institutions, banks, insurance companies and other large financial institutions to manage their business logic. And the second usage of that is like an OEM within our internal other core systems to use it as a tool for automation and for business for management. The impact of this new gen AI capabilities is very substantial on both aspects. When we look at using the decision by our customers as their decision modeling and business role management tool, already the first stage that we rolled out, the model AI, allows them to really capture all the logic of the decision model rather than using a person, a business analyst or a modeler to build the data. We can now consume it for any type of documentation written in any metro language and ability to translate natural language into businesses and deploy them. This brings about, we estimate, at least 30% reduction in efforts in deployment projects and in business as usual. We can harvest the value both in the direct sale of decision as well as using it within the core platforms of Sapiens where it is the entity that manages the business with and also there in terms of both the project implementation, the onetime implementation as well as the business as usual maintenance and ongoing business management. This brings a substantial reduction in the effort and in the time that it takes to work on that. The next stages that we plan to roll decision AI is around integration, around the ability to seamlessly work with machine learning capabilities embedded in the decision model. And all this will bring a huge amount of opportunities for us to improve the business operation, to improve role management and to improve automation for our customers, both using it as an internal capability and on the customer side.
The next question is from Omri Lapidot of Leumi Partners.
Congratulations on the results on the new partners here. Can you comment on the operating cash flow, which was approximately $4 million in the third quarter, usually a weak quarter. We also saw it the previous year. Did something change in the consumer side, payment terms or something like that? And one more thing, just making sure I heard right, the 2024 mid-range conservative forecast is about $550 million?
Regarding the first question in collection. Some of the time, yes, Q3 is slightly lower. We do not expect this to continue. There is no issue with our customers. There is not any accrual that we need for the accounts. Customers are good relationship, only amount of collection. So we do not expect this to happen in Q4, and we'll catch up with this difference. So this is on the collection point. Again, no change in the contract perspective, not also change in customer relationship with CapEx at all. Regarding the point of 2024, because of the situation, because [Audio Gap] investor approach us, we thought that this is right to put something in place in Q3 instead of Q4 to see the stability that we have in Sapiens company. As we mentioned in the call, about 67% of our revenue is recurring in nature. We have a significant customer. We are implementing our system to them. So we feel very strong about the ability to continue to grow. Regarding the number, this number reflects the existing customer that we have, an additional potential prospect that we have in place that we need to convert into revenue. Obviously, this needs to be done. So this is why we mentioned the $550 million to make sure that we are continuing to grow as we continue in the past. If we need to change it up all or slightly lower, this will be in Q4, but right now, we feel very comfortable with this number.
This concludes the question-and-answer session. [Operator Instructions]Mr. Al-Dor, would you like to make your concluding statement?
Yes. Thank you. In conclusion, I want to emphasize our dedication to delivering our promises and to continue to achieve our profitability growth. We look forward to continue this journey with all of you. Thank you for your trust and support in Sapiens. Thank you for joining the call today, and we look forward to speaking with you in our next earnings calls. Thanks.
Thank you. This concludes the Sapiens International Corporation Third Quarter 2023 Results Conference Call. Thank you for your participation. You may go ahead and disconnect.