What’s going on in Sapiens International NV (Nasdaq: SPNS)? The software services company ran into difficulties due to the end of Y2K conversion projects, problems with euro conversion projects, and the cancellation of its planned merger with Ness Technologies. Sapiens’s shareholders watched the share plummet 95% from its peak price to about $1.
Following the crisis that gripped the company, analysts stopped covering it. That is why its first quarter results, which were relatively good, took investors by surprise. However, investors are completely in the dark about the second quarter results, which are due out soon. In the course of the second quarter, the company made several positive announcements about winning tenders and completing successful projects, but these do not offer a clear picture of the company’s situation.
Sources inform “Globes” that things have calmed down in the company, after a stormy period triggered by layoffs. At the same time, it must be borne in mind that Sapiens is operating under difficult market conditions that are surely not conducive to better results.
Another unanswered question is the exact number of workers that have been laid off. At the end of 2000, Sapiens had 869 employees. In its F-20 document, the company says it allocated $2.6 million for severance pay for about 200 workers.
Sapiens’s first quarter revenue was $14 million, compared with $11.6 million in the fourth quarter of 2000. The company’s loss in the first quarter was still big, at $9.8 million, but far smaller than the loss in the previous quarter: $25.3 million. Due to the market situation, the company’s target of breaking even in the fourth quarter may be achieved through expense cuts, rather than an increase in revenue. The cancellation of the merger with Ness Technologies cost Sapiens $1.3 million.
The changes in Sapiens also involved the replacement of some senior managers, including CFO Lauri Hanover and CEO Dan Falk. Falk was replaced by Yitzhak Sharir, who was Nilit CEO in 1994-2000, and who managed to turn the nylon thread maker into a successful international company. But Sapiens appears to be a different story. However, first quarter results and the $15 million financing round Sharir pulled off seem to indicate that the company has reasonable chances of recovery.
If Sapiens recovers, Sharir will be one of the major beneficiaries. Through his Red Coral company, Sharir bought 1.5 million Sapiens shares, representing a 6.5% holding, for $975,000, reflecting $0.65 per share. Sharir financed the purchase with a loan from Sapiens at Libor plus 0.5%. His 1.5 million shares are being held in trust in the meantime. Sapiens’s share is currently traded at $1.07, which means that Sharir has made a paper profit of $630,000.
Sapiens’s F-20 document lists the company’s major customers, which include Bank Leumi, Bank Hapoalim, insurance company Menorah, the Ministries of Transport, Health, Construction and Housing, and Public Security; the IDF; and the Israel Air Force. The company’s international customers include Air France and 3M.
Published by Israel's Business Arena on 9 July, 2001