Sapiens International Corporation NV
NASDAQ:SPNS
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Sapiens International Corporation NV
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Ladies and gentlemen, thank you for standing by. Welcome to the Sapiens International Corporation's Fourth Quarter and Full Year 2019 Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded February 24, 2020.
It is now my pleasure to introduce your host Ms. Yaffa Cohen-Ifrah, Sapiens' CMO and Head of Corporate Communications. Thank you, Ms. Cohen. You may now begin.
Thank you and good day, everyone. Our 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. Representing Sapiens today are Roni Al-Dor, President and CEO; and Roni Giladi, our CFO.
Before we start, I would like to remind everyone that this conference call may contain projections or other forward-looking statements and the safe harbor provision 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 view 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 earnings release that we published today.
I will turn the call over to Roni Al-Dor, President and CEO of Sapiens. Roni?
Thank you, Yaffa and thanks to everyone who are joining us today to review our fourth quarter and full year 2019 financial results. I will start with review of fourth quarter followed by an overview of our progress in 2019. Roni Giladi will share our outlook for 2020 in his prepared comments. Sapiens finished 2019 on a very strong note with revenue growth accelerating in the second half of the year, highlighted by fourth quarter year-over-year goals of 80%, one of our strongest quarter top line gains in the recent years.
Sales growth came from expansion in our P&C businesses in North America and EMEA, as well as improvement in our Life and Annuity businesses. Recent acquisitions and internal investment in our cost of the product improved our competitive position with a wider range of insurers, solution support by technology led services or pre and post production. As I said in the past, our business is benefitting from two key trends in the insurance industry.
The continuing migration from legacy system to modern, flexible core and cloud-based solution, as well as the need to meet their customer expectation for digital personalized experience. The insurance carrier see Sapiens innovative insurance solution as essential to gaining a competitive edge by providing superior outcomes for all their stakeholders, including their internal teams, policy holders, and agents. We further increase our leverage in first quarter by driving more capacity to our offshore entities, which produce improvement in gross margin.
We continue to experience improvement, economy of scales with control over spending resulting in non-GAAP operating margin rising year-over-year to 16.5%. As a result, fourth quarter non-GAAP net income increased 34.8% to 10.6 million or $0.21 of diluted earnings per share. This way, by all means an outstanding quarter and fantastic finish to the year. Let’s shift to new businesses and expansion for existing partnership recently announced.
We signed a new P&C wins, as well as new businesses in Life and Pension and had a few go live in the quarter and had another exciting partner to our FinTech ecosystem. We announced two wins in U.S. for our P&C and Life and Annuity businesses. Commerce Union Mutual Insurance Company of Michigan announces a part of digit transformation that the company will replace its 30 years old legacy system with Sapiens Core Suite for property and casualty, as well as our advanced analytics solution delivered over the cloud. Sapiens solutions are expected to reduce overhead cost and decrease time-to-market for future products in the insurer, as well as provide a digital and personalized experience to its policyholders.
[Indiscernible] life insurance of Montana upgraded its Life & Annuity underwriting capabilities with Sapiens UnderwritingPro and is a good example of our ability to partner with a third-party to deliver seamless integration. This solution improved the customer experience and by accelerating agents' ability to make policy decision, provide a more cost-effective underwriting process for the insurer.
The EMEA team saw notable wins in the fourth quarter in both P&C and Life. [Costs] selected Sapiens IDIT for property and casualty and sapiens reinsurance smarter for digital transformation program. The insurer is replacing its legacy ITC stem with Sapiens solution to facilitate the digitalization of its entire P&C in health insurance segments, as well its claims handling. Sapiens’ advanced analytics solution digital tools will increase productivity and reduce time-to-market.
[Calculo Group brief] of South Africa expanded its strategic long-term partnership with Sapiens by adding our flagship Core Suite for Life & Pension to transform its business and improve flexibility. Speed of process and enhanced customer experience, important differentiation in a very competitive market. Another anticipated benefit is reduced operational cost form streamline automation for all our customer, partner and personnel.
Overall, during 2019, we signed 34 new logos across all of our products and territories. Today, over 500 customers worldwide are using Sapiens solution. We work and continue to work closely with these customers to add them to maintain their system and maximize efficiency. We support them with the introduction of new capabilities or expansion of their businesses.
In the fourth quarter, we had go live with Equitable Life in Canada, one of the Canadians largest life insurance companies. Equitable Life has modernized its new business process with Sapiens UnderwritingPro for life and annuities. The insurance is expected significantly decrease its turnaround time with our web-based solution for automated underwriting and new case management.
During 2019, more than 30 customers have gone live and moved into production, which means our solution is being used as the call operational system. Go-live is a major event for both Sapiens and customer. It is a major demonstration of our ability to deliver, of customer ability to adopt and roll-out in new technology across the organizations.
We continue to expand our insurance partnership ecosystem with Liteco platform that allows us to deliver our solution, including our Core P&C and Life & Pension and annuities offering. We customers facing solution that achieved time incentive, redundant paper work process to completely digital platform to increase sales growth ratio and improve the customer experience.
We also continue with our M&A activity in 2019. In October, we expanded our European footprint with acquisition of Calculo, a leading insurance software solution and services provider to Iberian region. We see this acquisition as a catalyst for long-term goals by selling Sapiens’ Core and digital suites into the market with high percentage of in-house system and where we see good growth potential for both our P&C and Life & Pension core suite. This acquisition checks all boxes of our M&A growth strategy, the geographic expansion in new market, growing our customer base, and improve our existing product and services by on boarding Calculo teams of expert consulting and solutions.
2020 started off with announcements in January that we are expanding our footprint in the DACH region with acquisition of a German-based insurance company, sum.cumo. sum.cumo services insurance in Germany, Switzerland and Austria helping them to set up their businesses model and obtain marketing edge with successful ecommerce involvement.
Sapiens [will cross sell] its complete product and services portfolio alongside the sum.cumo offering to their customer in the region. sum.cumo is one of the most innovative insurance companies in the large DACH region, and an area that has been part of Sapiens’ long-term growth strategy.
Our investment in R&D and enhancement across all platforms are paying off and lead once again to recognition from industry expert. During the quarter, Sapiens Core Suite for Life & Pension won an excellent award for its advanced Life & Pension technology in EMEA. Celent indicates Sapiens’ heavy investment in Sapiens’ Core for Life & Pension, as well as suite cloud readiness, future richness and neat user-interface. In the previous quarter, our Sapiens' IDIT suite was recognized again as a leader in Gartner Magic Quadrants for non-life insurance platform in European for Sapiens' IDIT suite.
On the marketing front, in October, we hosted our global client conference in Rome. More than 150 participants from approximately 33 organizations, including insurance and financial services customer and prospects, discuss the future of insurance industry trend and Sapiens strategy and vision.
For the year, we advance our businesses globally in 2019 growing revenue by 12.2% to $325.7 million, the high-end of the annual guidance range. Increased revenue combined with significant operating leverage from our off-shore operation improved Sapiens’ non-GAAP annual operating margin by 240 basis points to 16%, the high-end of our guidance range.
This was a strong, exceptional year of execution on many fronts and I want to congratulate the Sapiens global team for their outstanding work in 2019. The results we deliver in 2019 show that our strategy is working and that by focusing our investment to deliver profitable growth, we can significantly enhance shareholder value.
We remain focused on building unified global platform of innovating digital insurance solution to advance our competitive position as a one-stop-shop for insurance software with enhanced products and services. The pipeline for 2020 is very robust and we see further opportunities to increase operating efficiencies and improve margins.
With a strong balance sheet and expanding portfolio of product and solution, a big support team to meet the end-to-end needs of our clients, support our growth and growing global footprint, Sapiens is well-positioned to deliver long-term sustainable growth.
I would like now to turn the call over to our CFO, Roni Giladi, to provide more details on our financial results. Please go ahead, Roni.
Thank you, Roni. I will begin my commentary with a review of the fourth quarter non-GAAP result, annual results, and then, followed by comments on the balance sheet, cash flow, and at the end, our outlook for 2020.
Revenue in the fourth quarter of 2019 totaled $86.7 million, up 18.1% from the fourth quarter of 2018. The 18.1% revenue growth was positively impacted by the Calculo acquisition and the first-time consolidation and the organic growth of this quarter was 14.7%. Our revenue in North America totaled $41.8 million, an increase of 19.5%, compared to last year. Revenue in Europe totaled $37.5 million, up 21.6% increase, compared to last year and up 13.5% if we eliminate Calculo first-time consolidation.
Moving to gross profit, gross profit this quarter totaled $38.4 million, compared to $31.3 million in Q4 of last year. Our gross margin this quarter increased to 44.3% from 42.7% in the fourth quarter of last year and 44.4% in prior quarter. We have delivered continuous improvement in gross profit in every quarter of 2018 and plan to continue to improve it in the future.
Moving to operational profit, operating profit totaled $14.3 million this quarter, compared to $10.8 million in Q4 of 2018 and $13.5 million in prior quarter. Operating margin increased in the fourth quarter and rose to 16.5% despite the impact of Calculo low profitability and was above Q4 2018 by 170 basis points. The improvement in operating margin was mainly due to improvement in gross margin.
Net income attributed to Sapiens shareholders for the quarter was $10.6 million or $0.21 per diluted share, compared to $7.8 million or $0.16 per diluted share in the fourth quarter of last year, which reflect 31.3% EPS growth.
Turning now to the full-year result for the 12 months ended December 31, 2019. At the beginning of 2019, we stated that our goal for the year were double digit growth of our P&C revenue with Life & Annuity revenue stabilizing and the remaining segment stable; organic growth of approximately 10% . On the margin front, we stated operating margin improvement that would come from off-shore operation and improve economic of scale supporting higher top line.
I'm very pleased to say that we exceeded all our 2019 revenue and margin goals. I will explain in detail our progress in these metrics. Our annual 2019 revenue were $325.7 million, up 12.2% and slightly exceeding the high-end of our guidance range of $323 million to $325 million that was updated last quarter. Each quarter in 2018, we delivered increased revenue year-over-year. Our annual organic growth in 2019 was 12.5%, eliminating the 1.9% negative impact of currency and 1.6% positive impact of M&A.
We delivered strong double-digit growth in P&C. In addition, we stabilized our Life & Annuity revenue with small growth towards the end of the year. In 2019, we saw our organic growth rate rise from 3% in 2018 to 12.5% this past year putting Sapiens back on track as a growth platform.
Our operating profit in the full year was $52.2 million, compared to $39.6 million in 2019, an increase of 32%. Our operating margin improved sequentially throughout the year from 15.3% in Q1 to 15.8% in Q2 to 16.4% in Q3, and reaching 16.5% in Q4. On an annual basis, operating margin reached 16%, an improvement of 240 basis points, compared to last year.
Tax expenses for the year were $10.3 million, representing an effective non-GAAP tax rate of remained at the same level of about 20.8% as in last year. EBITDA increased 28.4% to $55.7 million in 2019 from $43.4 million in 2018. Our adjusted EBITDA margin was 17.1% for the year, compared to 14.9% last year.
Net income for the year was $38.9 million or $0.77 per diluted share, compared to $28.1 million or $0.56 per diluted share in 2018. EPS increased by 37.5% respectively compared to last year.
Turning to our balance sheet. As of December 31, we had cash and cash equivalent of $66.3 million. Our cash does not include $22.9 million that was on escrow for the acquisition of sum.cumo. Total debt was $68.7 million at the end of the year, and on January 1, 2020, we paid the annual principal payment for our Series B debenture in the amount of $10 million. The remainder of our debt will be paid over the next six years.
I'd like to touch on adjusted free cash flow. In the fourth quarter, we reached $18 million of free cash flow and $58.9 million for the full year of 2019 reflecting our ability to convert net profit to cash generation, which is another positive indicator for Sapiens performance.
I would like to turn now to our guidance for 2020. In 2020, we anticipate non-GAAP revenue in the range of $377 million to $383 million and non-GAAP operating margin in the range of 16% to 16.5%. On the revenue side, we expect continued double-digit growth for our P&C revenue, single-digital growth for Life & Annuity revenue and stability in the rest of the business. Our long-term target for the company is organic growth of 10%, which will be accelerated additionally by M&A.
In 2020, our mid-point growth target is 16%. We expect organic growth to be around 10%. And in addition, we’ll have positive impact of the last two acquisitions in Spain with a full-year impact and Germany starting February 2000. We expect that the investment in these two territories to provide revenue growth in 2021.
Our operating margin improvement is anticipated to come from continuous improvement in Sapiens activities and we expect Sapiens spend alone margin to pass 17%. This improvement will be offset by the low profitability of the acquired companies, which we expect to improve mainly in the second half of the year. This year, we paid off higher improvement in operating margin for the benefit of higher revenue growth.
We anticipate that our annual tax rate will be similar to last year. In addition, we anticipate that the number of diluted shares will grow by about 3,000 shares every quarter as we continue to recruit talented people and following the shares issuance on behalf of sum.cumo acquisition.
On the M&A front, we started 2020 with the announcement of the acquisition of the German-based Insurtech Company sum.cumo, and we are continuing to look for M&A opportunities across Europe and North America with small to mid-size companies.
In August 2019, the company announced its dividend policy that states that the company will pay out up to 40% of our annual non-GAAP net profit. We will announce our dividend amount after publishing the annual audited financial report on Form 20-F, which is expected towards the end of March.
Many of you may question on the potential impact of Sapiens’ business from the coronavirus. At this time, we see minimal impact on our business from the coronavirus. Sapiens does not have revenue in China, and overall, has limited exposure to the APAC region. Our revenue in Singapore, Thailand, Hong Kong, and Japan represent about 3% of our total revenue. We continue to monitor the situation and update the market as needed.
To summarize, 2019 was a year of a strong growth for Sapiens as we exited the year with double-digit growth and operating margin above 16%. As we enter 2020, we expect to accelerate our growth rate while continuing our progress of margin expansion.
I would like now to turn the call back to Roni Al-Dor for closing comments. Roni?
Thank you, Roni. We are off to a strong start in 2020 with new European acquisition and the mean to continue investing to further growth. Our global sales team is focused on executing to our sales priority of landing new customer across selling to existing one. The customer success team provides critical support of our customers globally. The leadership remains focused on delivering growth and margin expansion as we execute against our long-term objective of improving shareholder value.
I would like now to close our prepared remarks and open the call for questions. Operator?
Thank you. Ladies and gentlemen, at this time, we’ll begin the question-and-answer session. [Operator Instructions] Our first question is from Tavy Rosner of Barclays. Please go ahead.
Thank you, guys for taking my questions. [Indiscernible] I wanted to discuss the long-term forecast a little bit. You know you introduced [technical difficulty] and you touched on the [technical difficulty] of the midpoint, including for the multiple acquisitions. So, I guess, can you run through the different moving parts? I mean you discussed a little bit about the different segment, and then, can you give some granularity of what’s going on across the segments by geography and if you can touch a little bit on the organic basis that would be helpful.
Hi, Tavy. This is Roni G. The starting point of remarks, it was very hard to hear you. I will try to answer and please let me know if I answered all of your questions. So, we mentioned that our organic growth going forward will be around 10% and this will be accelerated by additional M&A, of course, what we did and what will be on the forward. This year, 2020, we’re representing about 16.7% total growth combined from M&A and organic and we mentioned that our organic growth, excluding sum.cumo or Calculo is 10%, and the rest representing about $24 million will come from these two acquisitions during this year.
We expect that the defaults from these two acquisitions will come into 2021. In terms of the business nature, we see significant growth in the state in North America coming from our P&C – mainly from our P&C and good pipeline there. I would say double-digit, the highest in company today. In the terms of Europe, we see growth in P&C double digit, in Life moving from stability to mid-small organic growth on the Life, which is a change compared to last year and stability in the other business meaning technology and decision. This is our main two focus area North America and Europe. Anything that you would like to ask on top of this?
Thank you. That’s very helpful. This is Chris. Tavy got disconnected, so I was just following on his question. That’s very helpful. Thank you. No further questions.
The next question is from Mayank Tandon of Needham & Company. Please go ahead.
Thank you. Congrats on a strong finish to 2019. Maybe for Roni Al-Dor first, Roni, what does the pipeline look like this year versus say 12 months ago? And are you seeing increased adoption of cloud-based modern systems within the insurance client base versus 12 months ago? Or is it pretty much status quo with what you’ve been seeing the last six to 12 months?
Yes. Hi, this is Roni Al-Dor. In terms of the pipeline, the pipeline is definitely stronger than previous year and it’s also based on our investment in the sales and marketing and also in the customer success. And as the company revenue grow, you know, they grow in numbers. We need more pipeline in terms of to achieve the double digit growth that we are looking for. So, that’s about the pipeline. As Roni mentioned, its coming from EMEA, South Africa, Asia and US, and as Roni mentioned, strongest in P&C, but we also see more opportunity on the life.
In terms of a cloud, there is more open for the cloud option and also we build our managed services, so it also gives us some advantage in the market right now. So, there are systems that we are supporting not just cloud, we are giving all the application supported on this based on the managed services capability.
Great. And then as a follow-up, I just was curious if you are seeing some of your Tier 3 to Tier 5 clients maybe push more towards a subscription type model, is that something that’s off interest to the clients or is that not something you anticipate in the near to medium term? You still expect to be primarily focused on term license sales. Just curious in the context of some of your competitors who have been talking more about subscription type deals, especially within that Tier 3, Tier 5 client base.
Hi, Mayank. This is Roni G. We do not see any material request from our customer to move to subscription and we are continuing with our term license both in Europe and in the state and on top of this provided the managed services that Roni mentioned. We are looking into this, but we will do this moving to subscription base, but if we will do this, we will do this very gradually only for the new business at the beginning and special area first. So, if we move to subscription again gradually over time not in rush as they have impact on the financial result.
Great. And then one final question in terms of competition, again, just looking at Guidewire and some of the other larger players in the market, are you seeing them become more active in that sweet spot for you when it comes to the competitive landscape or is it still pretty much in terms of competition still being confined to some of the smaller players when you're going head-to-head against them in the step of deals?
We continue to see Guidewire everywhere, but we are also in those area where in most of the case, definitely in Europe we are in the final most of the time together with Guidewire, in the sense as you know there is few other players like Intuity, Majesco and others. So we are competing with them, but we are in a good shape today.
Excellent. So, no change?
No.
Great. Great job, guys. Thanks so much
Thank you.
The next question is from Bryan Bergin of Cowen. Please go ahead.
Hi, thank you. Wanted to start on margins, so just as far as the guidance goes, curious how you expect to open the year just understanding that sum.cumo comes in at a lower level and it will take you some time to work that up, so help us understand how the cadence of margin will flow through 2020? And then in, I heard your comment on 17% or so of standalone margin, what are the leverage you still have in your base there to continue to help on margin?
Hi, Bryan, this is Roni G. I will start with Q4, we announced Q4 operating margin with 16.5% operating margin, if we look out the entire year, the improvement in operating margin came almost only from the gross margin improvement, the acquisition of Calculo is another territory in Europe that we would like to have a present – for future growth, but the operation today is breaking even and therefore shifted the operating margin of the company in Q4 downwards.
Without Calculo our operating margin was 17%. If we look further how we can improve today, we have about 41% of our team offshore capabilities, we still can have a 2%, 3% going forward in the next mid-term in order to improve our operating margin. In terms of 2020, on top of Calculo sum.cumo is at the same concept. We like to percent in the DACH region, which we do not have today in order to accelerate in growing our revenue in the future, the operation today is below 5% operating margin profit and also have it on our margin.
Therefore, what we see is a small improvement towards the year from 16% for the full year to the guidance between 16% to 16.5%. Obviously management target is there to reach the higher level of this may summarize this by 50 basis points above what we have in 2016 – in 2019.
Okay. Thank you. That was helpful. And then with some of these larger wins, the Tier 1 wins, Tier 1 and 2 carriers, can you talk about just how the nature of those engagements may be different than your traditional base in the Tier 3 through 5? I’m thinking, in terms of the teams you have required are service sales or potential profitability over the longer term, if you can give us a sense of color around that? Thank you.
The Tier 1 customer that we’re signing also having managed services on top of our call it system implementation, obviously this require further investment in the beginning, but after going live, the managed services and post production support is supposed to increase the revenue. Overall the deal size is, I would say close to $20 million and can even to [20 to 30] and can go up to 5 years.
Thank you.
The next question is from Bhavan Suri of William Blair. Please go ahead.
Hi, guys. Thanks for taking my questions, and a nice job there. I just want to follow up a little bit starting off with gross margin, so, Roni G this will be for you, but you talked about sort of the managed services model, you talked about cloud a little bit, you talked about subscription and term licenses, as you think about gross margin you mentioned offshore, but does the license part, the managed services part, and the cloud part provide better gross margin than the professional services part of the business, and so does that provide a lever? So, some color just around how those gross margins for those businesses are, and how as they grow will that be a lever for gross margin expansion?
Hi, Bhavan. The managed services will provide a leverage in gross margin perspective, but it will come mainly after going live not in the first one or two years, so potentially in year number three we’re supposed to have a higher gross margin in terms of our profitability. In terms of subscription, we did not start this year. This has negative impact on financial. If we will start, we will do this very moderately and which check one location and then move to another; and only on the new business not on the existing one.
So, potentially the managed services will have leverage in year number 3, a subscription will do this in a way that will not impact financial and on top of that we will the offshore operation that will improve our services and profitability.
Got you, got you, got you. Okay. And then I wanted to touch on now sort of fundamentally on the business, if we look at the life and annuities business, you have seen some improvements, you have guided some growth, I guess, what’s changed in that business? What are you seeing in the pipeline, what’s changed from decision-making from customers to sort of drive that improvement that we’ve seen over the last couple of quarters and now you're sort of projecting into 2020?
Hi, Bhavan. The issue is not the market is more in Sapiens, we two years ago, we decide to put to stabilize the life and pension business as we have some issues so we put more effort on the R&D and make sure that our customers are satisfied. We stabilized a system in-house and then we start to go to the market and what we’re seeing relatively and after two years we see a lot of interest in the market. We signed few deals in 2019. We started this year with a few selected us, still not sign, so that’s the positive that we’re seeing.
All what I mention is mainly in what we call EMEA, South Africa, Rest of the World, but right now we are starting to put more investment also in U.S. So, overall, it’s not just because of the market it’s because Sapiens internal. In terms of competition, we don't have here a Guidewire, so we have good competitors like OKI, like Fast, like Accenture, but we – in terms of our products we can be proud of what we offer.
Got it. Got it. Thank you. And then touching on P&C a little bit, you touched on Guidewire as a competitor everywhere. Tier 1, all the way down to Tier 5, are you seeing [Duck Creek] as well or is that sort of still tied to Tier 1, Tier 2, and obviously they do offer sort of a subscription card base model across all tiers. I was wondering have you seen them run into them or if that’s something you see less of?
In [Europe], we understand we start to put investment in you know what they call it come back to Europe, but we still don't clearly see them, maybe once out of 20 or 30 deals and U.S. definitely we are seeing them a lot, but in New York we don't see, but I believe in the long term we will start to see them.
Got it got it. That’s very helpful. And then just touching lastly on decision a little bit, it’s not when you talk about a lot, but obviously the product is very applicable and I think we talked about it last time of that being now seeing interest in the insurance base, just an update on how decision is doing and sort of the cross sell into the insurance base for that product?
A decision we are doing okay. We are not as grow as we want to, but again the people that start to use it really love it, but it is still we see challenges to enter to a new clients, but when the client start to see it, we can see more and more clients. So, what we are doing right now we are putting sapience sales force not just decision sales force to bring decision to the insurance market. And as you know, we have some big win in very large clients that can be referenced and we can go to other clients as well?
Got it. Thank you for taking my questions guys. Nice job.
Thank you, Bhavan.
[Operator Instructions] There are no further questions at this time. Before I ask Mr. Al-Dor to go ahead with his closing statement, I would like to remind participants that a replay of this call is scheduled to begin in two hours. In the U.S., please call 1-888-295-2634. In Israel please call 039255901, and internationally please call 972-3- 9180609. Mr. Al-Dor, would you like to make a concluding statement?
Yes. Thank you, operator; and thank you to all the participants for joining us on the call today. Have a good day.
Thank you. This concludes the Sapiens International Corporation fourth quarter and full year 2019 results conference call. Thank you for your participation and you may go ahead and disconnect.