Good afternoon, everyone. I'm Surinder Thind, the lead analyst for Technology and Information Services here at Jefferies. Our guest today is Yaffa Cohen-Ifrah from Sapiens. Welcome, Yaffa. Thank you. Good to be here. Excellent. So for investors that are perhaps new to this story, maybe could you give a really brief background of Sapiens and what you guys specialize in? So Sapiens is a global software provider for the insurance market. We've been around for more than 40 years, focusing on P&C and life and annuities, carriers globally. We are a very strong player in both Europe and in North America, and very excited to continue growing this market. Excellent. In terms of just what's on investors' minds right now is obviously macro and kind of demand trends. Maybe that's a good place for us to start. When I think about insurance companies, they've had a challenging couple of years from a profitability perspective, especially here in the U.S. It also looks like, as of last week, we're going to expect perhaps a busy, extreme weather, hurricane type of season. How does that change the mentality of your clients? Do they start to pull back an investment? Do you have to take that into account? How do they think about this current environment? So the decisions to go through a transformation project takes years for insurance companies. So, we always talk about the sales cycle in our industry, that it's 12-18 months and sometimes 24 months. So overall, the macroeconomic situation, we saw impact 2 years ago, and the impact was mainly, you know, slight delay in projects, but they were not pulling off, you know, projects. When I look at what Gartner... You know, Gartner just survey, you know, CIOs, and, you know, their, forecast for IT investments in this vertical, you know, the insurance vertical, they see growth compared to last year. So overall, we don't see insurance companies pulling back from investments. Right now, we don't see delays, but, you know, this might happen. But I think the beauty of the insurance market is that the decisions take a long time, and when we see insurance carriers coming to the market looking for system replacements or transformation, you know, they've been thinking about it for a few good years, and so it's a long-term decision. It's not something short. That's what I'm trying to say. That's helpful. And then how should we think about the pipeline more broadly at this point in time? How does that compare maybe to where it was last year or the year before, and overall versus how we've shifted since the pandemic? So overall, when we think about 2024, 2025, you know, we gave guidance, so the pipeline is healthy, across all our products and all our territories. So we don't see any significant change. What we did see since COVID is, for example, in the workers' compensation space, we saw, you know, more state funds coming to the market looking for system replacement. You know, we signed 3 deals last year, after a few years that we didn't have any deals in this space. Post-pandemic, we saw more life and annuity carriers coming to the market globally. But overall, we see healthy pipeline across all our main territories, which are North America and Europe. So if I was to interpret your comments, is the key message here that clients are a bit more interested at this point in terms of the transformation projects post the pandemic, or is it about the same at this point? Yes, they are more interested. Okay, that was easy. Yes. So, in terms of another key topic, is obviously AI. Can you talk about the impact of that in the industry, what those client conversations are like at this point, and what has that meant from an investment perspective for you? So overall, everybody's talking about AI, generative AI. By the way, we've been, you know, implementing AI, you know, for the past, you know, 2 years, 3 years, with different modules. I think what we see now, that everybody want to see how it will and might impact insurance companies. So we are. When you look at our product investments, obviously, we're investing in, you know, out-of-the-box modules, you know, that leveraging generative AI, and it will be included in our, you know, software. As a company, you know, we're looking at how we can leverage AI for our internal processes and delivery and product development. It's not... You know, we don't see increase, at least not for us, in, in investments. Maybe we're shifting investments to, to ensure that we are, you know, implementing and, and leveraging AI. As far as revenues, you know, we do not expect to see right now an impact on our revenues. You know, it's just part of what we are offering now, you know, when we sell our insurance platform. ... So is the idea here that, obviously you've shifted the investment, but what about the actual product itself? You mentioned that some of those capabilities are already there, but insurance companies are also cautious. So how do you think about that play of everybody wants AI, they want the latest, best technology, but insurance companies themselves are very conservative by nature? Yeah, but we're not significantly changing our products. We're just adding modules that can be more automated, you know? You know, when you think about claims processing or when you think about documentations and how you can analyze policies better. So it's not that we are changing the product, we're just making it better with some modules. You know, we're just discussing it. We are, you know, explaining it to the customers. It's what I'm trying to say, it's not a major transformation, it's slowly implemented into our product. Got it. So it sounds like it's part of the normal evolution of the product. Exactly. It is. Then I guess just shifting gears here a little bit, obviously, you're a global business. You've got a large presence in Europe, equally large presence here in North America. Maybe we can start with North America here first. This is a business that was perhaps challenged a couple of years ago. You guys have done a really good job of turning North America around. Can you maybe talk about the challenges that you faced and where you are in that journey now? You've, you know, been experiencing healthy growth in the market. Okay, so a little bit of history. Sapiens, you know, penetrated North America organically with our products, but then when we really wanted to expand in the market, we did a few acquisitions and, you know, very successful acquisition. We acquired a company called StoneRiver, Adaptik, Delphi later on. But the challenge that we had was some of our products were missing capabilities in order to be more competitive. So what we've done in the past, you know, few years, is really invested in the product. So we made significant investments in our life and annuity product that was missing some, you know, functionality and capabilities. We made investments in our P&C solution so we can be more competitive. What happened after that, you know, we went back to the market with both our, you know, life and annuity platform and with our P&C, and start winning deals. The next phase was to start investing more in the go-to-market teams, the sales team, the marketing, the customer success. What you see right now is the results of investments that we did in the product, the delivery organization, and now also sales and marketing. Our goal is to continue growing in the North American market. You know, we're, you know, hoping to see high single-digit growth also in 2024, and we feel comfortable with our product and our positioning in the market. We're investing a lot in, you know, brand awareness. You know, we are relatively newcomer to the North American market, although we've been here for a few good years, but we continue to invest here. So it sounds like the product for North America is relatively where you want it on both the P&C side and the life side. Can you talk about the slight change or the tweak in your go-to-market strategy and your willingness to partner with systems integrators? Yes. Our business model for many, many years was you buy from Sapiens the product, the software. We are the SI, we're implementing our product, and we continue to support our customers with post-production services. What we decide to do late last year is to actually expand the model to start collaborating with SIs. So we figure out that if we want to penetrate, you know, the upper tiers or even mid tiers sometimes, you know, having another channel of SIs will help us accelerate the growth. We recruited someone to build this practice within our organization because we didn't have it, and we're slowly, you know, building the relationship right now, and we talked about it in our Q1 results. You know, we have relationship with Deloitte, with PwC, and with LTIMindtree. We are now also building this practice in Europe to help us penetrate, you know, upper tiers and also in territories where we don't have a strong local presence, you know, collaborating with SIs will help us. It will take time because, again, going back to the sales cycle in our industry, we're, you know... Even, you know, we are starting to work and collaborate with SIs, you'll see the impact probably late 2025 or 2026. Got it. And then in terms of the potential impact on the economics of the business, how does that flow through? In the prior model or, you know, obviously, you're also the systems implementer. Here, you're mostly doing the software sale. Is that the right way to think about it and- ... So we will continue to do software and some services, but some of the services will go to the SIs, or, you know, some of the implementation services, which typically are lower margin, will go to the SI. But when an SI come to this type of deal, they know it's not just, you know, the implementation services, but they will benefit also from others. So their economics is, you know, you know, they will get, you know, the margins that they're looking for. For us, it means that we will have less of implementation services, which carry a lower gross margin. So higher margins overall? Yes. Absolutely. And then just one or two more quick questions on North America here. Just from a business perspective, the life and annuities business is doing, been doing really well. Can you talk about the growth there, and what's kind of fundamentally changed for you to really get that business going? So first, we are able now to offer a full platform. So if you remember, we have core, but we also have, in the life space, applications. We have illustration, underwriting, e-app. We also have data and digital. So now that our core product is in a better place, we can go to market with the full platform. You know, larger deals, obviously, and, you don't see too many companies in the life and annuity space that have this rich product portfolio that we have. Then switching to the P&C side, any just color there, that some of those segments are growing well, others are, you know, perhaps not growing as fast? So in our P&C space, we have, you know, the what we call the core P&C. We have workers' compensation, and here we have monolines. You know, we're focusing on state funds, so it's not multi-line, and we have reinsurance. So overall, the workers' comp is growing quite nicely. We signed three deals last year after, you know, a few good years with no deals in this space. Especially during COVID, there were no opportunities in this market. The reinsurance market, where we are really one of the largest players in the world in reinsurance, we see, you know, very nice growth. The core P&C is not growing as fast as the other two verticals, but overall, when we look at P&C, we have nice growth. And then maybe switching to the European market here, that's been an area of strength for you. Really strong growth in 2022, really good growth in 2023, and I think guidance has you for high single-digit growth this year. Can you maybe talk about that marketplace, and the expectations in the sense of is that kind of a normalized number for the European market? You guys obviously have a great reputation there. I think overall, we believe that we can grow in Europe high single digit. Q1 was a little bit lower because the comp numbers of Q1 2023 were very high because we had revenue shifted, you know, from deals that were delayed from Q4 to Q1. So when you compare Q1 2024 to 2023, the growth rate was a little bit lower. But overall, Europe is a strong market for us in both P&C and life, and we believe that we can continue, you know, growing high single digit. Okay, and then getting a bit more specific, a couple of years ago, you made some important acquisitions. One was in the Nordics, other was in the Dutch region. Can you talk about where those stand today? You put in a lot of energy and effort into the Dutch region. How are things progressing there? Yeah. So the German market is, you know, one of the largest insurance markets in the world, and it was almost impossible to penetrate this market, like, organically. We tried. I mean, it was, it was quite a challenge. So we decide to acquire a company, and we acquire a very small company called sum.cumo to really learn more about the market and, and have, you know, people that are local, that understand the market. We won few deals since our acquisition, but this is a long game, you know? We are, you know, putting a lot of efforts in building our brand in the German market. You know, we are increasing our investments in the market, you know, bringing more people to support potential growth, and investing a lot in go-to-market strategies. So for us, it's, you know, it might take a few more years to see a significant growth in this market, but we want to have a strong presence in the German market, and this is why we continue to invest. In the Nordics, it was a little bit different story. You know, we penetrated the Nordics market organically, but then in order to strengthen the position in the market, we did an acquisition of a company called TIA. So now we have, you know, a strong customer base in the market, and we continue to invest, obviously, in, in this important market. Got it. And then when we kind of start to break down, any color that you can provide on the two lines of business, P&C versus Life and Annuities? In Europe? So we see strong demand both for P&C and life in Europe. I mean, it can change in, you know, one country, you'll see. But overall, we see demand for P&C and life across all Europe, and by the way, also APAC, which is a market that's very small for us right now, but we won, you know, a deal in Thailand, a deal in Vietnam, and we believe that this will help us also grow in this market. Although it's, you know, relatively small, but it can become a little bit bigger. Got it. Then maybe just actually rewinding, I did want to ask you about when you think about the different countries in Europe, how different are the go-to market strategies? How challenging is that? So I think what we realized years ago is that having a local presence is really key to be successful. So, you see that we have, you know, in all our key markets, we have local presence, and this actually help us to be more competitive in the market. And, you know, and I talked about Germany and how we helped, you know, by acquiring a company, you know, establishing a local presence. We did the same thing in Spain. So we do see that we're successful where we have a local presence, but it doesn't mean that we're not trying to penetrate also markets where we don't have yet. You know, we believe in land and expand. We typically penetrate a new market, you know, win the first customer, you know, doing a successful implementation, and then try to grow in this particular market. So you're not gonna see us across all the countries, you know, in Europe, but you'll see us slowly landing and expanding in the territories. Then just big picture here, most of the solutions that you're selling now are all effectively cloud, right? Can you talk about your penetration rates and the opportunities you look ahead? Yes. So Sapiens has 600 customers, today, and about 150 are on the cloud. So all the new deals that we're signing, obviously, are SaaS on the cloud. You know, this is the only offering that we have today, to the market. The potential here is migrating existing customers from, you know, on-prem to the cloud, and this will take, you know, you know, few years. You know, it's not something that will happen right away, but this present a potential for Sapiens. Sounds like a long runway. Yes, it is long because we are not forcing our customers to move to the cloud. Obviously, we are initiating conversation with them. You know, we're looking for, you know, trigger event, you know, to convince them to move to the cloud, but we're not forcing them to do that. So, I believe that at the end of the day, we will see, you know, over, you know, the next, I would say probably 10 years. It might take longer. You know, we're in insurance, and it's a very conservative market. We will see them transform, you know, moving to the cloud, migrating, I'm sorry, to the cloud, but we're not gonna force the customers to do that. Got it. And I see we have about three minutes, so I'm gonna try and sneak in two quick questions, one on margins and one on M&A. Let's start with margins. Have been biased significantly higher over the last few years, especially as you've reoriented your global delivery footprint. Right now, I think about half your delivery, maybe a little bit more, is offshore/nearshore. How do we think about that over the next few years and what that means from a target perspective of where you want to be and what that means for margins? So it's not just delivery, by the way. You know, our India organization is quite significant for Sapiens, so it's not just delivery. You will find there R&D and corporate functions. So for us, India is part of our overall organization. 52% today, offshore and nearshore. Our long-term goal is to get close to the 60% ratio of offshore and nearshore compared to the rest. And obviously, this will help us continue to improve our margins. In 2024, we said that we're not going to improve our margins because we are increasing investments in sales and marketing to help us accelerate the growth. But overall, yes, you will see this trend of more offshore and nearshore compared to onshore. Do you think you can get to 20% margins? That's our goal, yes. On the M&A front, that's been an important part of the growth strategy, mix of healthy organic plus some via M&A, but none in the past few years. Can you talk about where we are? Is it a valuation issue? Is it a fit issue, and how should we think about that on a go-forward basis? So M&A is very important for Sapiens. You know, if you look from 2010 till today, we've made 19 acquisitions, and typically when we look for acquisitions, you know, we're trying to penetrate new markets, we're looking for complementary solutions or sometimes customer base. And yes, in the past 3 years, we did not do any acquisitions. It was mainly valuation. We tried, we tried to compete, but it just didn't make sense, financial sense for us to do those acquisitions. We have a healthy pipeline of M&A right now. The valuation in the market is better compared to last year and compared to 2 years ago. So we are hoping to, you know, to make another acquisition, you know, this year or next year. I mean, I can't promise, but it's definitely part of our growth strategy. When we look for acquisitions, you know, as I said, we continue to look for the same type of acquisitions, you know, geographic expansion, complementary products, or a customer base. Okay. Well, thank you, Yaffa. That actually takes us to the end of our session. Thanks for your time. Thank you so much.