Sapiens International Q3 2023 Earnings Call Transcript

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Provided by Quartr
November 8, 2023

There are 9 speakers on the call.

Operator

Welcome to Sapiens International Corporation's 2023 Third Quarter Financial Results Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. It is now my pleasure to introduce your host, Yafar Cohen Efrach, Chief Marketing Officer and Head of Investor Relations. Thank you, Yaffa.

Operator

You may now begin.

Speaker 1

Thank you, operator. I want to welcome you to Sapiens' conference call to review our Q3 results for 2023. With me on the call today are Mr. Roni Al Dor, President and CEO Mr. Roni Ghiraddi, CFO and Mr.

Speaker 1

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 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.

Speaker 1

On today's call, we will refer to the non GAAP financial measures. A reconciliation A GAAP to non GAAP result 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?

Speaker 2

Good morning, everyone, and thank you for joining us today for Sapiens' Q3 2023 earnings calls. Sapiens has delivered another strong quarter in 2023, and I want to start highlighting some key points that demonstrate these facts. 1st and foremost, we remain committed to deliver results that align with the expectation we set earlier this year. In each quarter of 3 quarters, in 2023, we have delivered revenue growth with extending margins. The Q3 was yet another strong quarter for us marked by further improvement in our operating margin.

Speaker 2

Revenue in the Q3 of 2023 totaled $130,800,000 Up to 9.9% year over year. Operate 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 So I will success in 2023. And in Europe, we have maintained our strong performance, and we are excited about our momentum.

Speaker 2

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 The American Armed Forces Mutual Aid Association, a non profit financial solution provider For military families and veterans who selected Sapient's cross series customer acquisition solution Consistent with Sapient's application or illustration for an underwriting for Sapient Intelligence As part of its legacy modernization and automation initiative, AA, FMAA 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's implementing a schedule For completion during the Q2 of 2024. Workers' comp is category where Sapiens is gaining strength in North America.

Speaker 2

In the Q3, we announced that South Carolina State Accident Fund, a state agency that offers guaranteed workers' Compensation insurance for governmental entities selected Sapiens' core suite for workers' compensation To provide a more intuitive system and detail of workflow automation, SAS will also implemented Sapiens Digital Suite Moving to EMEA. Europe continues to be a key region for growth. Japan's 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 get ground. In the Q3, Akia Life, One of the Finland's top life insurance chose Sapiens as its partners to lead its 4th system transformation via Sapiens CallSuite for life and pension.

Speaker 2

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 product Across life, wealth and pension insurance. Aptia has recently experienced rapid change in customer behavior. Its digital efforts are critical steps towards enhancing efficiency and elevating the customer experience along the new product offerings. Moving to South Africa. In the Q3, a long standing customer of Sapiens in South Africa, a Tier 1 bank Expanded use of Sapiens Corporate for Life and Pension to launch its group REIT proposition.

Speaker 2

The expanded use of Sapiens Corporate for Life Pension is part of the bank strategy to launch new and improved products to its customer base. Adopting Sapiens' Choice For Life and Pension satisfied the requirements for complete and robust policy administration solutions. In addition, the Tier 1 South African bank, which expanded its relationship with Sapiens into new territory, went live in Namibia, with second EBIT Suites for property and casualty. As the core system for its short term non life Insurance business there. The bank already used EBIT Suite for its core short term operating in South Africa And Sapiens posted for a loss and pension for its license and annuity businesses.

Speaker 2

This suite was chosen by the bank for its Suspension in Namibia based on its positive experience with the existing Sapiens relationship and successful implementation In Sapiens, we did suite in South Africa. This win exemplifies how our holistic relationship with our customer So their lifecycle can be growth driver for Sapiens. Shifting to our product portfolio, we start with product capability and functionality To compete effectively in any region, Chefin's Gold Server is a comprehensive product offering and dynamic platform That supports the entire product lifecycle to bring holistic solution to customer with business application, digital data and decision management products on top of our core P and C and Life platforms. All our product segments, including Life, D and C, Rocket Compensation and Digital performed well gained in the 3rd quarter. We remain committed to provide innovative solutions that meet the evolving needs to our clients.

Speaker 2

We are receiving awards and endorsements for industry analysts For our CoreSuite Life and Pension platforms in North America and EMEA, we support our growth expectation for this product line in this critical region. In the Q3, Sapiens' reinsurance master platform Was named as Luminary Solution in CELEN's CB's Rancho and Solution Global Reports. Sapiens Corporate for Life and Annuity platform was named as Luminary Policy Administration Solution by Celent in North America. Sapiens Profit for Life and Pension will end 2023 Excellence Awards for 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.

Speaker 2

I want to take a moment to discuss the importance of our customer summit, which was critical event for us. This year 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 and C, workers' comp, life, venture and decision, Financial 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 with 18 sponsoring the event.

Speaker 2

Microsoft was the gold sponsor and other industry leaders supported our summit, further underwriting the strength of our partnership and the value they bring to our customers. Our Customer Summit is a platform for meaningful discussion about our roadmap 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 prospects. This summit's focus on our cloud based digital and data offering across our core suite and business application solutions, which enable our customer to grow while realize operating gains. We had a fantastic feedback from attendees, And there is tremendous excitement around the improvement our offering can bring to their businesses.

Speaker 2

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 short leadership and strong partnership spirit enable our customers to run The most critical business functionality successfully. During the conference, we announced the launch of 2nd Decision Model AI generative AI solution to enhance automation speed, integrating Microsoft Azure OpenAI Services. Decision Model AI, the first product in Sapiens' Precision AI portfolio will address the growing market demand I want to take a few moments and address the situation in Israel. As you all know, Sapiens is a global company founded The headquarters in Israel. On October 7, Israel was under terror attack by Hamas, a tourism organization.

Speaker 2

1400 people were killed in the attack and 242 were kidnapped, civilians, babies, children And elderly people, this attack forced Israel into a war. Our thoughts are with all the people who are suffering from the situation and those who have lost loved ones. TechX is a mature global organization With key members in operation across the globe. Our global operation includes development and support centers in 22 countries, including the United States, Europe, India and Israel. Additionally, we have a global operation center We've well established a business continuity program among these centers.

Speaker 2

We are well prepared and organized to continue Supporting our customer and employee during these challenging times. In conclusion, We are confident in execution our strategies effectively across our established regions in various product categories in which we compete. Our team dedication, highly execution level have been 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 Sifo to provide more detail on our financial performance.

Speaker 3

Thank you, Roni. I will begin with a review of our Q3 2023 non GAAP results. All comparisons are year over year I will follow with the comments on the balance sheet and cash flow and wrap up With our guidance for 2023. Revenue in the Q3 of 2023 increased to $130,800,000 up 9.9% from the Q3 of 2022. On a constant currency basis, our organic growth rate compared to Q3 of 2022 was 6.9%.

Speaker 3

Our revenue in North America totaled $54,800,000 comparing favorably to $49,600,000 in Q3 of 2022, an increase of $5,200,000 or 10.7 percent. The increase in North America revenue Was due to growth across most of our line of business and reflect our momentum in this region. In the last 5 quarters, our North America region Grew quarter over quarter, reflecting the initiative and investment we implemented to grow this region. Our European revenue totaled $64,700,000 a year over year increase of 13.8% Compared to $56,900,000 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 $11,300,000 in Q3 of 2023 compared to $12,600,000 in the same quarter of last year.

Speaker 3

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, it was 8.3%, reflecting 7.2% growth in North America, 9.7% in Europe and 6.5% in the Rest of World. I will move now to revenue mix. Revenue mix in Q3 of 2023 from recurring software product and reoccurring post production services Totaled $87,400,000 compared to $75,000,000 in the same quarter of last year, A $12,400,000 increase or 16.6% growth from Q3 of 2022.

Speaker 3

We are extremely pleased with the momentum and growth of our recurring and reoccurring revenue stream, which as I will remind you, has higher gross margin than our one time implementation and the company overall gross margin. These recurring software products and recurrent post production 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 $59,300,000 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 $35,200,000 An increase of 7.8 percent compared to $32,600,000 in the Q3 of 2022. Both of our R and D and sales investment have grown this quarter to support product position and sales effort globally.

Speaker 3

Operating profit in Q3 of 2023 was $24,100,000 an increase of 15.1%. Operating margin increased from 17.6% to 18.4%. During the quarter, we had tailwind From the new Israeli shekels versus the U. S. A.

Speaker 3

Dollar, which reduced some of our costs and was partly offset by higher investments. Net income attributable to Sapiens shareholders for the Q3 of 2023 was $19,100,000 Compared to $16,900,000 in Q3 of 2022. EPS for the quarter was $0.34 per diluted share, An increase of $0.04 or 13.3 percent compared to $0.30 per diluted share in the Q3 of last year. EBITDA increased by 12.4 percent to $24,800,000 or 18.9 percent of revenue Compared to $22,000,000 or 18.5 percent of revenue in Q3 of 2022. Turning to our balance sheet and adjusted free cash flow.

Speaker 3

As of September 30, 2023, we had cash and cash equivalents and short term deposits totaling $173,000,000 with a total debt of $59,000,000 which is scheduled to mature In 3 equal annual tranches until January 2026. During the Q3 of 2023, we generated an adjusted free cash flow of $1,700,000 compared to $1,900,000 in Q3 of 2022. During the Q3, we paid a cash dividend of $0.26 per share, reflecting a total dividend of $14,400,000 for the 1st 6 months of 2023. As per our dividend policy, we will announce the second half of twenty twenty three dividend when we announce our 20 F reports for 2023. I would like to turn now to our guidance for 2023.

Speaker 3

We are reiterating our full year 2023 Non GAAP revenue guidance in the range of $511,000,000 to $516,000,000 which reflect Year over year growth of 8.1 percent 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 currency basis. Our software product and reoccurring post production services grew by 16.6% and represent 66% Of our revenues and operating margin was 18.4% with an EBITDA margin of 19%.

Speaker 3

In closing, I would like to leave you with the following thoughts. 1st and foremost, we understand that the ongoing war 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 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 investor some sense of our visibility.

Speaker 3

We continue to be conservative and feel comfortable with delivering on current consensus estimate At $550,000,000 revenue in 2024. To reiterate what Roni Al Dorr stated, Sapiens is a global organization with distributed operation worldwide. 93% of Sapiens revenue are generated globally Outside of Israel. 85 percent 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 customer and prospects.

Speaker 3

We work with global banks around the world. We have a strong balance sheet With $170,000,000 in cash, with significant portion of our cash in U. S. Dollars. With that, I will turn the call Over to Roni.

Speaker 3

Roni?

Speaker 2

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

Operator

Thank Your questions will be pulled in the order they are received. Please stand by while we poll for your questions. The first question is from Dylan Becker of William Blair. Please go ahead.

Speaker 4

Hey, gentlemen. I appreciate the question and great to hear that the Sapiens team and families are doing safe and well. I think I speak for Everyone on the call and hoping for a quick resolution to the conflict there. But, Ronnie, 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 Is there any specific need to drive efficiencies?

Speaker 4

Is it maybe skewed towards new growth initiatives? Assuming it's maybe a little bit of both, I'm wondering how your customers are thinking about prioritizing that spend today?

Speaker 5

Yes. This is Alex here. Edwin, I'll try to answer your question. When we look at our

Speaker 6

customers, there are several drivers

Speaker 5

One major driver is operational efficiency And they're needing this a bit non stable financial climate to ensure that their business and their processes Are fully operational with clear efficiency. And this is now for us, our solutions Across the board, when we look across our data solutions, our digital solutions, naturally our core solutions, they all have Strong capabilities around operational efficiency from bringing a high level of automation to the processes, low code, 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, All together in our platform a very strong driver for our customers to engage with us. Another driver that we see The ability to quickly identify an open niche or 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, low code, no code and the ability to deploy our systems in a record time in order to allow them to go to market.

Speaker 4

Okay. Got it. Super helpful. And then maybe to there's nice momentum in the postproduction product And I think in the North American segment there, it seems like the prior sales restructuring is 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 at Is that opening up the willingness to incentivize spend in this area?

Speaker 2

Ilah, just I hope I can answer your question. It was a little bit difficult to hear you. So as just to share with everybody, we increased dramatically our sales organization, The marketing part, the account management part and the marketing, so all the three areas, we are We start to see in early stage new things that we didn't see it in the past just because we are covering more Customer than it was in the past. We did an outstanding client conference I mentioned. I don't want to repeat it.

Speaker 2

It's also generated a lot of interest Around the digital data cloud decision part and so on. So we see Sapiens going and we So we have much more to offer, also on product and also on services. If I didn't answer your question, let's say ask again.

Speaker 4

No, no, that makes sense. And then Ronnie, maybe 2, if I could squeeze one last one in. So coming out of the conference, The comments seems around 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?

Speaker 4

Is it again the specialization around particular lines? Anything you call out there is another area of encouraging commentary. Thanks, guys.

Speaker 5

Yes. So this is Alex again. 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.

Speaker 5

When we look at Workers' Strong, where we definitely have a remarkable traction and success, The comprehensiveness of the solution, its unique product market fit, The way it gives a 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 We brought together to the game. This is definitely allows us to demonstrate a very, very mature and comprehensive solution. Yes. I think what we see in P&C Solutions is also our ability to serve the customers, to show the value, To help them grow their business in a record time, that's definitely another driver.

Speaker 5

This is their 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, full end to end solution, this is definitely One of the strengths point having it fully integrated in a platform level, being able to deploy them all together, and we see here the effect in the market.

Speaker 4

Great. Very helpful. Thanks, Alex. Thanks, Ryan. Thanks, guys.

Speaker 4

Thanks.

Operator

The next question is from Kevin Kumar of Goldman Sachs. Please go ahead.

Speaker 4

Hi. Thanks for taking my question.

Speaker 7

I wanted to ask about the data and digital modules. I know that's 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? Thanks.

Speaker 5

Yes. So this is Alex here. Again, the way we look at our both digital and data solutions that we have a central NTP in Sapiens 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.

Speaker 5

Now the impact on our business Several factors. 1, our typical deal size is increasing. The wallet share Also 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, a digital or a data or both solutions and also deployed in the cloud, not less important, of course, this aspect as well. So I think first impact is wallet share. 2nd impact is the attractiveness of our solutions It's rising, and it seems more and more attractive because we can provide customers a full end to end solution covering the various aspects of this business In a single installation, and this brings also a lot of value to the customers' ability To work with 1 vendor to deploy something that is pre integrated and hence cost effective.

Speaker 5

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 is With the high level of maturity of our digital and data solutions that now we feel very, very comfortable going forward. And as Ronny 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 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.

Speaker 7

Great. I appreciate that and helpful. I want to maybe ask also if you Give an update on your offshore ratio, kind of where we are in terms of that transition and maybe how much that is helping drive margin expansion this year? Anything else you'd comment on kind of the success you're seeing in kind of improving profitability this year? Thank you.

Speaker 3

Hi, Kevin. This is Roni G. So, offshore ratio, we are about 51% overall. We are growing this quarter over quarter. This quarter, we also grow a minimal percentage, but they continue to grow.

Speaker 3

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 offshore ratio, it's mainly coming from shekels versus dollar impact that has some benefit to us, but we offset this by additional investment in SG and A and in R and D. We believe we can increase the offshore ratio in the next several years and create additional few percentage improvements In operation profit in the next few years.

Speaker 7

Great. Thanks for taking my questions.

Operator

The next question is from Chris Rimer of Barclays. Please go ahead.

Speaker 8

Hi. Thanks for taking my questions. 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?

Speaker 3

Yes, can you please repeat the question?

Speaker 8

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 investments in terms of headcount, in terms of cost spending

Speaker 7

in sales and marketing, this kind

Speaker 8

of thing? I will try to

Speaker 3

I will try to answer and then Roni and Alex will follow-up. Obviously, you see that the dollar value in SG and A and in R and D growing quarter over quarter, Constant all the time. So in R and D, please think also that we are having offshore Included adding, so even though that we're adding significant multi employee, the impact on the dollar is not significant. We allocate the R and D investments based on growth engine in the company. About 2 thirds of our products in the company are growth engine.

Speaker 3

And vast majority of this R and D investment is going to there and we are focusing on the Western Wall, North America and Europe on the regions that we have operation. So This is on the R and D. On the SG and A, as Ronny mentioned, we believe that we can increase the sales team and account executive both in Europe In North America and as we speak we are already doing this. We are not seeing significant increase in the SG and A because we are also Reducing some of the costs of the G and A, like Lisa that we already did in this year. So significant investment in the SG and A because we believe we have the product To sell vast product suite and also good position in North America and in Europe.

Speaker 8

Got it. Thank you. 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?

Speaker 5

This is Alex. So our decision

Speaker 2

so we published

Speaker 5

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, the usage of that is Like an OEM within our internal other core systems to use it as a tool for automation and for business rule management. The impact of this new Gem AI capabilities is very substantial on both aspects.

Speaker 5

When we look at Using the decision by our customers as the decision modeling and business rule management tool, Already the first stage that we rolled out, the Model AI, It allows them to really capture all the logic of the decision model rather than use a person, a business analyst or a modeler To build the data, we can now consume it from any type of documentation written in any natural language. And ability to translate natural language into business rules and deploy them. This brings about, we estimate, at least 30% reduction in effort In deployment project and in business as usual, this value is really We can harvest the value both in the direct sales of decision as well as using it within the core platforms of Sapiens Where it is the entity that manages the business rules and also there in terms of both the project implementation, the one time 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 Cision AI, Gen AI is around integration, Around the ability to seamlessly work with machine learning capabilities embedded in the decision model.

Speaker 5

I know this brings will bring a huge amount of opportunities for us to improve the business operation, to improve our management And to improve automation for customers, both using it as an internal capability and on the customer side.

Speaker 2

Thank you. Thank you.

Operator

The next question is from Omry Lapidot of Lomi Partners. Please go ahead.

Speaker 6

Hey, congratulations on the results on Lip on the new partners here. Can you comment on the operating cash Slow, which was approximately $4,000,000 is the 3rd 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.

Speaker 6

The 2024 mid range conservative forecast is about 550,000,000

Speaker 3

Hi, Omid, this is Roni G. I will answer both of your questions. Regarding the first question in collection, Some of the time, yes, Q3 is slightly lower. We do not expect this to continue. We have There is no issue with our customers.

Speaker 3

There is no any accrual that we need for doubtful accounts. Customer are good relationship, Only amount of collection, so we do not expect this to have in Q4 and we'll catch up with this difference. So this is on the collection A point again, no change in the contract perspective, not also change in customer relationship with Zappes at all. Regarding the point of 2024, because of the situation, because approach us because 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 SAPIEN's company, as we mentioned in the call, about 67% of our revenue is recurring in nature.

Speaker 3

We have a significant customer. We are implementing cost 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 in additional potential prospect that we have in place that we need to convert into revenue, obviously this need to be done. So this is why we mentioned the 550 To make sure that we are continuing to grow as we continue in the past.

Speaker 3

If we need to change it up for slightly lower, This will be in Q4, but right now, I feel very comfortable with this number.

Speaker 6

Okay, great. Thanks.

Operator

Please stand by while we poll for more questions. This concludes the question and answer session. 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 2 hours. In the U.

Operator

S, please call 1888 269-0005. In Israel, please call 3,9,255,938. And internationally, please call 9723 9,255,938. Mr. Al Dor, would you like to make your concluding statement?

Speaker 2

Yes. Thank you. In conclusion, I want to emphasize our dedication to delivering our promises and to continue to achieve our We look forward to continue this journey with Solafil. 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.

Speaker 2

Thanks.

Operator

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.

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