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Sapiens International Corporation NV (NASDAQ:SPNS)
Q1 2021 Earnings Call
May 4, 2021, 9:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to Sapiens International Corporation's 2021 First Quarter Results Call. [Operator Instructions]

It is now my pleasure to introduce your host, Daphna Golden, Sapiens VP, Head of Investor Relations. Daphna, you may now begin.

Daphna Golden -- Vice President, Head of Investor Relations

Thank you, and good day, everyone. Our earnings release was issued before the market opened this morning and was posted on the company's website at www.sapiens.com. Here with me today representing Sapiens are Roni Al-Dor, President and CEO; and Roni Giladi, CFO. 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.

On today's call, we will refer to the 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 one business day after the call on our Investor Relations section of the company 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?

Roni Giladi -- Chief Financial Officer

Thank you, Roni. I will begin my commentary with a review of the first quarter 2021 non-GAAP results. All comparisons are year-over-year versus Q1 of 2020, unless otherwise stated. This will be followed by comments on the balance sheet and cash flow. I will wrap up with an update of our 2021 outlook. Revenue in the first quarter of 2021 increased to $110.2 million, up 21.7% from the first quarter of 2020. Our revenue in North America reached $44.8 million, similar to last year.

During Q4 of 2020, we successfully completed [Indecipherable] of large transformation implementation, which resulted in lower revenue in Q1 of 2021. An additional effect on the Q1 year-over-year was the negative impact of COVID-19 on our worker compensation business, which is highly collected to employment rates. And as Roni already mentioned, the delivery challenges in the core with P&C North America impact Q1 revenue. I would like to reiterate that with the clear plan in place, we anticipate returning to growth in the region toward the end of 2021. Revenue in Europe reached a record $57.7 million, up 43.3% driven by a combination of organic growth and M&A. As a reminder, this was the first full quarter contribution from TIA to our results.

To complete the revenue growth picture, our revenue in Rest of World, South Africa and APAC reached $7.8 million, 36% higher than last year. Moving to gross profit. Gross profit in Q1 of 2021 was $49.2 million, up from the $39.8 million in Q1 of last year. Our gross margin this quarter increased by 70 basis points to 44.7 from 44 in Q1 of 2020. Operating profit this quarter was $19 million, a 30% increase from $14.6 million in Q1 of 2020 and slightly higher than the $18.7 million recorded in Q4 of 2020. Operating margin rose by 110 basis points to 17.2%, from 16.1% of last year.

This year-over-year increase in operating margin was achieved despite the fact that R&D and SG&A were about $5 million higher. Additionally, as I shared last quarter, TIA profitability is lower than Sapiens. Since this was the first quarter in which TIA was consolidated on a full quarter basis, its impact on profitability was higher than our Q4 of 2020 results. TIA profitability is expected to improve toward the end of the year. Interest expenses in Q1 of 2021 on debenture was $0.8 million, and will continue throughout the year. It was offset by income from hedging transaction, which lowered the interest costs incurred in Q1 of 2021. Total interest expenses for the quarter were $0.5 million. Net income attributable to Sapiens shareholders for the quarter was $14.9 million, up 43.2% from the $10.4 million net income in Q1 of 2020. EPS for the quarter was $0.27 per diluted share, up from $0.20 per diluted share in the first quarter of last year, reflecting 35% increase.

Please note that EPS reflects the full share count following the public offering we have completed in Q4. Turning to our balance sheet. As of March 31, 2021, we had cash and cash equivalents and short-term deposits totaling $172.2 million. Total debt stood at $101 million, reflecting the $20 million debenture payment in the first quarter of 2021. The debt term is five years, and it will be paid in equal installments until January 1, 2020. Touching upon adjusted free cash flow. In the first quarter of 2021, we reached an adjusted free cash flow of $10.6 million, a 135% increase from Q1 of 2020. In addition, we recently announced a cash dividend of $0.37 per share, which amount to $20.2 million.

This year, we returned to our normal pre-COVID distribution rate of up to 40% of our annual non-GAAP net income. This record dividend distribution reflects Sapiens solid performance and our ability to generate free cash flow quarter-over-quarter. I would like to turn now to our guidance for 2021. In Europe, we are seeing organic growth in P&C as well as Life & Annuities. We are also benefiting from the acquisition in the Iberia, DACH and Nordic regions, all of which clearly demonstrate the success of our land-and-expand strategy.

We expect to continue to reap the fruits of this investment in 2021, and in the coming years. In North America, taking into account our plan to carefully manage and control the growth. We anticipate that the growth resumed toward the end of 2021. Given the high growth in Europe and Rest of World, and taking into account loan growth in North America, we are increasing our revenue guidance from the range of $457 million to $463 million to the range of $459 million to $464 million.

Turning to our operating profit guidance. Our updated profitability guidance for 2021 has been influenced mainly by the following. First, our planned initiative to manage our growth and investment in delivery capabilities in North America, P&C CoreSuite business; second, the recent spike in COVID-19 in India, which will increase our labor cost in the short term.

We assume these two factors are only temporary. In Q2 2021, we expect operating margin to be at least 16.5%. As to operating margin for the full year of 2021 is now expected to be in the range of 17% to 17.4% compared to previous range of 17.7% to 18%. On the M&A front, we have added several companies to Sapiens family in 2020, and we intend to focus efforts on their integration and supporting the customer of the new companies. We are still evaluating M&A targets in 2021 and act on them if we find the right opportunities. I will now turn the call back to Roni Al-Dor. Roni?

Roni Al-Dor -- President and Chief Executive Officer

Thank you, Roni. With a focus of growth strategy, global diversity and increasing market demand, Sapiens is well positioned for additional success and growth. On a personal note, I would like to express our deepest concern for our Sapiens family in India. The health and well-being of our employees is our highest priority and concern. We are making every effort to provide support. I would like now to close our prepared remarks and open the call for questions. Please?

Questions and Answers:

Operator

[Operator Instructions] The first question is from Sterling Auty of JPMorgan. Please go ahead.

Sterling Auty -- JPMorgan -- Senior Analyst

Thanks. Hi, guys. I wanted to better understand in North America, given the traditional strategy of a single hand to shake, how you're going to balance moving to partnering with system integrators? What part of the projects do you plan the system integrators to handle? What part of the projects do you intend to continue to hang on in-house? And let's start with that.

Roni Al-Dor -- President and Chief Executive Officer

Okay. Hi, this is Roni Al-Dor. To answer your question, just to remind, we have several products in North America. We have South East, we have CoreSuite and then we have our DECISION management. We have the reinsurance. We have life component. We have life core, and we have workers from so many products. So if we are going one by one, right now, with our land-and-expand approach. We made the decision to start to do business on the CoreSuite on North America. As you remember, like many years ago, we decide to focus mainly in the Rest of the World. Right now, we did all of our work. So the product is ready for North America, and we try to do it together with SI. Meaning, right now, we have selected the SI in order to do a workforce for them with them on the LMP core system. That's one. The second thing on the P&C CoreSuite, we are focusing today on the mid and lower Tier. But we believe that our product is a good fit for the highest tiers, and this is what we plan to do together with system integrators. So that's the second one. And the third product that we are discussing for a long time with SI is our DECISION management. Again, in DECISION is pure product. So it's not a lot of hand-to-shake issue because it's mainly the product and sometimes the customer or their site can do the world by themselves. On top of all of these -- so those are the main products. On top of that, we -- as I mentioned, we hired Jamie as President and General Manager for North America, and he came for many years in PWC, and he came with all of this experience. So he can really help us in the future to build the relationship to exactly -- to see what they can do, what we can do. It's gradually, we plan to grow, mainly in North America.

Sterling Auty -- JPMorgan -- Senior Analyst

All right. Great. And one follow-up. Just a heads up. I've got two teammates that are on the call in two different locations. They say that the audio went silent. So I don't know if the operator might be able to check into that. But my follow-up question is around gross margin. Looking at the sequential dip, how much of that is just pure seasonality versus other factors that may have influenced it?

Roni Giladi -- Chief Financial Officer

Hi, Sterling, this is Roni. This is not -- this is mainly coming from P&C [Indecipherable], P&C in the state. As we mentioned, we need to increase the team to manage the growth accordingly. We expect to increase the gross margin following from the next quarter.

Sterling Auty -- JPMorgan -- Senior Analyst

Got it, thank you.

Operator

The next question is from Bhavanmit Suri of William Blair. Please go ahead.

Bhavanmit Suri -- William Blair -- Analyst

Thank you. Hey, Roni, Roni and Daphna, thanks for taking my question. I guess I want to follow-up on Sterling's question a little bit more. One of the value adds you've had, and the differentiation is the one-hand-to-shake, and the other piece is in COGS, the reason why professional services is so important is you get some R&D. And in DECISION,, which is a pure product, it makes sense to have partners. But in some of the other businesses, reinsurance, which you're seeing growth in and innovation in P&C, what happens to innovation and the R&D piece, if you hand that off to a systems integrator? How should we think about the -- whatever it is, eight percentage points of COGS that are R&D. How should we try to understand where innovation will happen if that goes to Atos, for example?

Roni Al-Dor -- President and Chief Executive Officer

Hi, Bhavanmit, this is Roni Al-Dor, and Roni Giladi will continue. So first of all, all of this idea is part of our product, not all of them, and very focused on a segment. So it's not the entire segment. So I think it's like -- and we plan to do it gradually and mainly in the state and mainly all the others. Again, if you're talking about Atos, they are more BPO type of work. So we are doing the full SI. Because we want -- and we are a company that's looking to grow, we believe it will take us much, much faster to growing the state for the life. That anyway, today, we don't have business in the -- or relatively, we don't have a big business on the core product, and the same thing on the P&C part. So I think the P&C for the higher Tier, today, as you know, it's [Indecipherable] and [Indecipherable], and we don't see any reason why Sapiens cannot play in this Tier one. And this is why we would like to start to work. As you know, and we know and we learn it right now, it's still a small part of our business, but it can really influence.

Roni Giladi -- Chief Financial Officer

If I need to add one more thing. Today, we are working also with the BPO system integrator with two-product compensation and consolidation master. And we know to manage the allocation of resource and still to invest in our products. And as Roni mentioned, the moving to more system integrated will be gradually over the years. So it's not onetime event. It will take us time to do this.

Bhavanmit Suri -- William Blair -- Analyst

I guess just to push a little bit. As you move upper Tier, that's more innovation. That's more complexity. That's more product work. And so if you give that to system integrators, does your R&D go up, Roni Giladi, should we think of that going up as a percentage revenue, maybe transferring resources to do more R&D directly in the product. How should we think about that? And then I got a quick follow-up.

Roni Giladi -- Chief Financial Officer

You probably are right, but also the license part will go up that they will compensate for that. Yes, the answer for that is this. But again, I would like to emphasize this is gradually over time, not in onetime event.

Bhavanmit Suri -- William Blair -- Analyst

Got you. Got you. Got you. And then I want to touch on North America a little bit. Obviously, we've seen now two quarters of kind of just not great growth in North America, right? So it's sort of, we've sort of seen that down sequentially 5% for two consecutive periods. And so help me understand, like I know projects, and so postproduction is less revenue than during the preproduction and the rollout. But given all the wins you've had and the acquisitions, should this just be layering on? So help me think through that process, Roni.

Roni Giladi -- Chief Financial Officer

Hi, Bhavanmit, several things into it. I think when Covid came last year in 2020, one of the business that we had the over compensation being affected by that, and was -- revenue was reduced. This reduction in revenue has continued from Q3, Q4 and still continue with us going forward throughout the year. And this is one of the reason for the reduced revenue that you see. The other thing is what Roni mentioned about the challenge in delivery, in managing the growth. We'd like to do this more carefully. And therefore, we see right now a slower growth on the P&C CoreSuite. I want to emphasize that we'll see quarter-over-quarter growth but to get to the level of, let's say, you mentioned two quarter end, probably we'll get this toward the end of the year.

Bhavanmit Suri -- William Blair -- Analyst

Got it. Got it. Helpful. Thank you, guys. Thanks for taking my question.

Roni Al-Dor -- President and Chief Executive Officer

Thank you, Bhavanmit.

Operator

The next question is from Chris Merwin of Goldman Sachs. Please go ahead.

Kevin -- Goldman Sachs -- Analyst

Hi, yes. Kevin [Phonetic] here on for Chris. Thanks for taking my question. It sounds like most of the deals signed over the last 12 months included cloud. Can you impact that for us a bit? Are those core systems that are being taken in the cloud? Or are they more digital add-ons? Would be great to understand any major change in appetite among customers to migrate to the cloud. Thanks.

Roni Giladi -- Chief Financial Officer

Hi, Chris. This is Roni G. You're totally right. Most of the deals that we signed in the last 18 months are cloud. I would like to say it's not native cloud, it's single tenant cloud. Both in Europe and in the states. I hope this answer.

Kevin -- Goldman Sachs -- Analyst

Great. Maybe just a follow-up, I mean, are you seeing kind of more demand from customers? Are you seeing kind of migrate to cloud within kind of bigger projects? Or is it kind of more kind of incremental kind of add-on deals? Thanks.

Roni Giladi -- Chief Financial Officer

Currently, what we see is when a prospect we like to go to cloud. This is not if they are existing customers then shift to cloud. This is usually a new deal come to close, so new deal come. Then they move to -- the decision is on the cloud, of course, new technology with existing customer only when he would like to upgrade, this will come to a question if we move to cloud, yes or no. So right now mainly is a full system solution on the cloud, not add-on.

Kevin -- Goldman Sachs -- Analyst

Great. Thank you so much.

Roni Al-Dor -- President and Chief Executive Officer

Thank you.

Operator

The next question is from Mayank Tandon of Needham & Company. Please go ahead.

Mayank Tandon -- Needham & Company -- Analyst

Thank you. Hi, Roni, and Roni and Daphna. I wanted to start with a question about the land and expand. Roni Al-Dor, you mentioned that's obviously a focal point for you. Could you talk about how many products you're selling into the installed base today? And how we should think about that over time? Like, what is sort of the goal here as you look at the business model over the next few years in terms of selling more and more into your installed base?

Roni Al-Dor -- President and Chief Executive Officer

Hi, Maynak. So I will try to answer and then can Roni help. First of all, the first thing is what we can see more and more is our core product. This is -- for us, it's very encouraged that you can see more companies that has policy -- sorry, life and general insurance P&C. That -- and start to one --] one of them. They are happy with us, happy with the product and implementation, and they're asking us the second core system. This is -- we can see more and we also see some kind of a global player that's coming with a package that they want to see to buy from one vendor, all the suites, including life to core. That's one.

The second thing that we can see right now, it's the digital. Majority of our dealer now coming together the CoreSuite and the digital. And the next one is the reinsurance. We -- because we are very strong on reinsurance. So we, again, try, sometimes the -- first time company are selecting us and maybe implement it later on, but that's another type of example. We have decision that we already mentioned. So I think the big suite that we have, and big has a lot of combination. And also, we have some type of example that we start with reinsurance, and then people are asking us to call. So we have many products to offer.

Mayank Tandon -- Needham & Company -- Analyst

Great. That's helpful color. And I wanted to turn to the model and for Roni Giladi. Roni, what was the organic growth in 1Q? And then what are you building into your expectations for the full year?

Roni Giladi -- Chief Financial Officer

Hi, Mayank. The organic growth on a consolidated basis during Q1 was about 8%. On a yearly basis, we'll reach the 10%, even slightly, slightly higher, slightly.

Mayank Tandon -- Needham & Company -- Analyst

Okay. And then final question on margins. Could you size the impact of the disruption in India from the increased COVID cases, on the model? And I'm just trying to understand, like, when do you think you'll be able to recover that impact as you move through '21 into '22? And sorry, just not to belabor the point, but the question will be around -- if you already had people working from home, what has been the cost for disruption? Is it the inability to hire more staff, or are there other factors that are causing the impact on margins to be negative?

Roni Giladi -- Chief Financial Officer

Hi, Maynak, this is Roni. As Roni mentioned in his note, we are very focused on the Albian and the health of the Indian employee. Today, we have about 400 -- 1,400 employees in India. About 8% of them as of today are being affected by the COVID-19. You are totally right in the last year, all of the employees, I would say, 98% of the employee work remotely from home, and being able to do this successfully and do complete projects and going live, and the customers were very satisfied.

We see this environment right now in the spike in COVID can affect some of the resources that we have today in terms of being able to work with their family at home, and we are basically looking to find other solutions, either higher or more in India, either go to other territories in order to compensate for this resource because we need this resource for the revenue that we are focusing on. So this will create some additional costs. We expect this happen will continue for a few months with us until it will go over.

Mayank Tandon -- Needham & Company -- Analyst

Understand.

Roni Giladi -- Chief Financial Officer

You mentioned about recruiting. I can share some insight. For example, in the last week, we recorded about 14 employees in India. So we still continue to recruit. But we need to find ways to compensate if we have some delays in that area.

Mayank Tandon -- Needham & Company -- Analyst

That's understandable. Thank you so much.

Roni Giladi -- Chief Financial Officer

Thank you, Mayank.

Operator

The next question is from Ashwin Sevikar of Citibank. Please go ahead.

Ashwin Sevikar -- Citibank -- Analyst

Thank you. Hi Roni. Hi Roni G and Daphna. So I just want to follow up on that last question and the clarification, I guess, is if -- it seems like a 1/4 or quarter and a half impact. So the margin impact as well, your margins should recover by 4Q. And if you could break down the margin outlook change, how much is India COVID impact versus North America delivery investments?

Roni Giladi -- Chief Financial Officer

Hi, this is Roni G. In my notes, I mentioned that Q2 profitability level can go at a minimum to 16.5%. It will be 16.5% or above. You can assume that the entire difference from Q1 will be the India spike. And after a few months, in Q3, probably will go up. I mentioned earlier, a previous question from Sterling about gross margin. This also will affect Q2 gross margin. And also from Q3, we go see it up.

Ashwin Sevikar -- Citibank -- Analyst

Okay. Okay. Got it. And then I know a few questions have been asked about SIs. Just from a strategic perspective. The partnering with more SIs, is that driven by you? Or is that ask from customers? Why the change? What's driving it? And assuming you roll out more SIs, how does the financial model change in terms of margins?

Roni Al-Dor -- President and Chief Executive Officer

Okay. I will start, Roni Al-Dor. I just want to clarify, maybe it was a little bit confused. We the Sapiens, we believe on one-hand-to-shake. We plan to continue with one-hand-to-shake. This is our business model, and we stick on it. Now what we decide to do -- in the past, we have Atos, as an example, they are fully BPO. They look after our product. We are doing the implementation together with them. That's fine. This is -- we are not calling a side. This is just partner. They are bringing the BPO. We are bringing all the rest.

Now in North America, it's in one or two products. So like DECISION. DECISION, it's like a product that we don't have the services around it. So why not to go to system integrators, they are looking and they can more like -- almost like a reseller, it's not really one-hand-to-shake. On the very specific product in the Life & Annuities space for North America in order to penetrate -- because we believe that we have excellent product for life and annuity, but we had for many, many years, reputation issue. And we are based on all the good things that we did in the past. Right now, we want to penetrate to the U.S. with our products. This is why we are going to -- it's not because we -- nobody -- no customer ask us. It came from us. That's one.

Second, right now in Europe and rest of the world we are competing with many guidewire and all the others. Sometimes we see others, but we are working in all tiers. In North America, only in CoreSuite, in order to penetrate in a very cloud environment -- crowd environment that you have guidance, I think we can increase our chance to go to this market with SI. So it's all -- everything came from us, and it's very selective and also gradually. I hope...

Ashwin Sevikar -- Citibank -- Analyst

Yes. Yes. So that's great. It seems like it's entirely about incremental distribution for a couple of products.

Roni Giladi -- Chief Financial Officer

Correct.

Roni Al-Dor -- President and Chief Executive Officer

Correct.

Roni Giladi -- Chief Financial Officer

Ashwin, and therefore, the business model will not change, OK? It will continue with that. It may slightly change. But over time, remember that we have today 600 customer. All of them are one-hand-to-shake. So the additional incremental will have minimal impact in the beginning.

Ashwin Sevikar -- Citibank -- Analyst

Got it. Got it. This is just the incremental. Thank you. Got it.

Roni Al-Dor -- President and Chief Executive Officer

Thank you.

Operator

The next question is from Tavy Rosner of Barclays. Please go ahead.

Tavy Rosner -- Barclays -- Analyst

Hi, good afternoon. Thanks for taking my question. Most of them have been asked. I was wondering for the new contracts that you signed, are you still primarily formatting them in a license-plus-maintenance type of format? Or are you guys are able to offer kind of subscription-based contracts?

Roni Giladi -- Chief Financial Officer

Hi, Tavy, this is Roni G. I think more than two years ago, we shifted from a license mode to term license, which mean including license and maintenance bundled together. And I can say in the last few months, some of the offers that we already sent out, move to subscription solution. Again, as we are signing between 25 to 35 new logo, this is only incremental. So we'll not see effect immediately of that. But we started to do shift into this area.

Tavy Rosner -- Barclays -- Analyst

Thanks. And then I wanted to ask about the competitive landscape. It's pretty clear that the Duck Creek, Guidewire that you mentioned are there with the Tier one competing head-to-head. I'm wondering more into the Tier two and three. Do you see them bidding against you? Or you're primarily still enjoying kind of peace and quiet among the customers you reach into?

Roni Giladi -- Chief Financial Officer

Definitely, we see two of them in also the higher and lower tier. And we see more also Majesco and in surety. So we see all of them, mainly in U.S. in all the rest of the world, we are more seeing Guidewire. Again, they are also going to the lower tier. But as you know, in Europe, we have the, at least in few of that region that we have very good reputation. And based on our local SI, it can give us some advantage. The company that we acquired give us some advantage. So the answer is yes. They are also looking for the mid- and lower tier.

Tavy Rosner -- Barclays -- Analyst

Great. Thank you Roni. Have a good one.

Roni Al-Dor -- President and Chief Executive Officer

Thank you.

Operator

The next question is from Surinder Thind of Jefferies. Please go ahead.

Surinder Thind -- Jefferies -- Analyst

Thank you. Just another follow-up question on kind of -- this one is about product strategy, I guess, as you incrementally think about partnering with systems integrators on the margin, does that also impact the product strategy in terms of -- right now, you have different products for different regions. Any consideration about moving certain products to single-code bases, single architectures that may help? Or how should we think about the longer-term implications for product?

Roni Al-Dor -- President and Chief Executive Officer

Hi. The only product -- the only thing that we are now have a different product is on our P&C. So we did in the CoreSuite for North America. All the rest, we have -- so the take ReinsuranceMaster is a global one. [Indecipherable] life course with global. DECISION is global. So that's for a specific case that happens decide that it will take us many, many years to penetrate with our P&C to North America. So the answer is general. We prefer to work with one product to all the territories.

Surinder Thind -- Jefferies -- Analyst

Understood. And then in terms of just the impact from India, I apologize, I missed the very first question as the line dropped. Did you quantify the revenue impact of the challenges that you were having in India?

Roni Giladi -- Chief Financial Officer

Hi. We mentioned the challenge on the delivery side that we have, we have 1,400 employees that basically support our revenue globally in Europe and in the states. And because of the spike in COVID-19, we see a challenge that we'll be able to support this. Today, we have about 8% of our employees affected by the COVID. For that, we need either to recruit more people or to do over time or to go to other locations, at least only temporary in the short-term in order to answer the demand for resource.

Surinder Thind -- Jefferies -- Analyst

So just to clarify, those 8% of the employees, they are nonrevenue generating at this point?

Roni Giladi -- Chief Financial Officer

Correct. Correct. For the time being, correct.

Surinder Thind -- Jefferies -- Analyst

Understood. And then when you talk about looking for resources potentially outside of India. Is that more of a short-term solution or just more of a broader term strategy that this may be an opening to think about?

Roni Giladi -- Chief Financial Officer

This is only a short term solution. We'd like continue to grow India. We have facility there, management there. We're sure that over time, it will recover, and we'll be able to support [Indecipherable] globally level. Just to mention, the 8%, some of them are also including R&D, and therefore, do not affect the delivery. But overall, today, altogether, 8% of India resource being affected.

Surinder Thind -- Jefferies -- Analyst

Got it. And then one just final bookkeeping question. What was the impact in the quarter from -- on margins from TIA?

Roni Giladi -- Chief Financial Officer

TIA, as you remember, was acquisition that we had in November 2020, where we only consolidated for one month. Overall profitability level is 14%. And in Q1, it was -- came in full quarter. We mentioned the transition or integration with TIA will take us a full year. And therefore, Q1 obviously was been affected by this margin, a lower margin compared to Sapiens. As we continue down the year, we'll see improvement and also improvement in Sapiens.

Surinder Thind -- Jefferies -- Analyst

Got it. Just to clarify, is the anticipation that you will get the to margins or once you're fully integrated, that they'll be at firm margins? Or are you just anticipating an improvement at this point?

Roni Giladi -- Chief Financial Officer

It's -- as we continue down the year, it will be the similar level as of Sapiens.

Surinder Thind -- Jefferies -- Analyst

Got it. Thank you. That's it for me.

Roni Giladi -- Chief Financial Officer

Thank you.

Operator

[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 (877) 456-0009. In Israel, please call 039-255-900. And internationally, please call 972-39-2559 Mr. Al-Dor, would you like to make your concluding statement?

Roni Al-Dor -- President and Chief Executive Officer

Yes. Thank you for all of joining our call today, and see you next quarter.

Operator

[Operator Closing Remarks]

Duration: 56 minutes

Call participants:

Daphna Golden -- Vice President, Head of Investor Relations

Roni Giladi -- Chief Financial Officer

Roni Al-Dor -- President and Chief Executive Officer

Sterling Auty -- JPMorgan -- Senior Analyst

Bhavanmit Suri -- William Blair -- Analyst

Kevin -- Goldman Sachs -- Analyst

Mayank Tandon -- Needham & Company -- Analyst

Ashwin Sevikar -- Citibank -- Analyst

Tavy Rosner -- Barclays -- Analyst

Surinder Thind -- Jefferies -- Analyst

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