TIDMKFX
Kofax® Limited (NASDAQ:KFX) (LSE:KFX), a leading provider of
smart process applications for the business critical First Miletm
of customer interactions, today reported unaudited financial
results for the third quarter and nine months ended March 31,
2014.
IFRS Financial Highlights:
-- Software license revenue increased 6.5% to $28.1 million (Prior Year
or PY: $26.4 million), and for the nine months increased 12.8%
to
$83.0 million (PY: $73.6 million)
-- Total revenues increased 10.0% to $70.7 million (PY: $64.3 million),
and for the nine months increased 11.7% to $210.2 million (PY:
$188.2
million)
-- Income from operations decreased 94.8% to $0.2 million (PY: $3.6
million) or a 0.3% margin (PY: 5.6%), and for the nine
months
decreased 44.8% to $4.1 million (PY: $7.4 million) or a 1.9%
margin
(PY: 3.9%)
-- Diluted earnings per share (EPS) was $0.00 (PY: $0.00), and for the
nine months $0.05 (PY: -$0.01)
-- Cash generated by operations was $16.2 million (PY: $13.9 million),
and for the nine months $34.5 million (PY: $23.1 million)
-- Quarter end cash was $93.1 million (PY: $86.8 million)
Non-IFRS Financial Highlights:
-- Software license revenue increased 11.6% to $29.5 million (PY: $26.5
million), and for the nine months increased 19.5% to $88.1
million
(PY: $73.7 million)
-- Total revenues increased 12.1% to $72.2 million (PY: $64.4 million),
and for the nine months increased 15.1% to $216.8 million (PY:
$188.4
million)
-- Adjusted earnings before interest, taxes, depreciation and
amortization (EBITDA) decreased 11.5% to $7.5 million (PY:
$8.4
million) or a 10.3% margin (PY: 13.1%), and for the nine
months
increased 16.1% to $28.7 million (PY: $24.7 million) or a 13.2%
margin
(PY: 13.1%)
-- Adjusted diluted EPS was $0.05 (PY: $0.06), and for the nine months
$0.18 (PY: $0.16)
-- Adjusted cash generated by operations was $19.8 million (PY: $16.3
million), and for the nine months $43.5 million (PY: $31.2
million)
A summary of Kofax's unaudited condensed consolidated income
statements for the third quarter and nine months compared to the
prior year on both an IFRS and non-IFRS basis is as follows:
IFRS
Quarter Nine Months
Unaudited Y/Y % Y/Y %
$M Change Total $M Change Total
Software 28.1 6.5 % 39.8 % 83.0 12.8 % 39.5 %
Licenses
Maintenance 32.5 8.6 % 46.0 % 98.1 8.2 % 46.7 %
Services
Professional 10.1 26.7 % 14.2 % 29.1 21.5 % 13.8 %
Services
Total 70.7 10.0 % 100.0 % 210.2 11.7 % 100.0 %
Revenues
Income 0.2 -94.8 % 4.1 -44.8 %
from
Operations
Margin 0.3 % -95.3 % 1.9 % -50.6 %
Non-IFRS
Quarter Nine Months
Unaudited Y/Y % Y/Y %
$M Change Total $M Change Total
Software 29.5 11.6 % 40.9 % 88.1 19.5 % 40.6 %
Licenses
Maintenance 32.8 9.1 % 45.4 % 98.9 9.0 % 45.7 %
Services
Professional 9.9 25.0 % 13.7 % 29.8 24.4 % 13.7 %
Services
Total 72.2 12.1 % 100.0 % 216.8 15.1 % 100.0 %
Revenues
Adjusted 7.5 -11.5 % 28.7 16.1 %
EBITDA
Margin 10.3 % -21.1 % 13.2 % 0.9 %
Operating Highlights:
-- Launched several new software products and releases, including:
Kofax TotalAgilitytm 7.1, a new release of the Company's
flagship
smart process application development and deployment
platform,
which now offers a multi-tenant on premise perpetual license as
an
alternative to a conventional on premise perpetual license
Kofax TotalAgility Cloud, which delivers the platform as a
multi-tenant or dedicated instance Microsoft Azure hosted
SaaS
subscription offering
Kofax Mobile Capturetm Platform, which dramatically transforms
how
organizations can extend capture capabilities to mobile
devices,
and two customizable frameworks for Mobile Bill Pay and
Mobile
Check Deposit apps
Altosoft Insighttm 5.0, the latest release of its business
intelligence and analytics software, which delivers a new
distributed in-memory architecture, continuous simulation
and
governed data discovery
-- A major global wealth and asset management company headquartered in
Western Europe invested more than $4.0 million in a Kofax
smart
process application utilizing Kofax TotalAgility 7.0 and
Kofax
Analytics to capture, classify, process, act upon and analyze
more
than 20 million financial documents received from customers each
year
-- A top five U.S. bank made a $1.0 million initial investment in
software licenses for the recently launched Kofax Mobile
Capturetm
Platform and frameworks for Mobile Bill Pay and Mobile Check
Deposit
apps to progressively expand and enhance its mobile banking apps
for
customers throughout the U.S.
-- Kofax Mobile Capturetm Platform was named to HousingWire Magazine's
inaugural HW TECH100tm list and chosen as the "Elegant
Implementation"
category winner
-- Hosted Transform 2014, Kofax's annual customer and partner conference,
which drew a record 750 attendees from 32 countries with a theme
of
Making the First Mile Smarter
Commenting on the Non-IFRS results, Reynolds C. Bish, Chief
Executive Officer, said: "We're pleased with our performance during
the third quarter and nine months, which was in line with our
expectations for those periods and our guidance for fiscal year
2014. Software license revenue increased during the third quarter
as a result of strong growth in mobile and new or acquired
products. Core capture software license revenue was essentially
flat in the Americas and Asia Pacific but declined in EMEA and in
total as a result of a challenging year over year comparison in all
three regions. This was particularly true in EMEA, where the prior
year period included a $4.8 million order for core capture software
licenses and maintenance services from a national government agency
in Western Europe. Adjusted EBITDA declined during the quarter as a
result of the investments we've made and continue to make in
growing our sales organization and expanding our research and
development efforts in order to drive future software license
revenue growth. The third quarter represents our fifth consecutive
quarter of year over year software license and total revenue growth
following the reorganization of our sales force during October and
November of 2012. We continue to realize improving sales execution
across all geographies and product lines and therefore remain
confident in and reaffirm our previous guidance for fiscal year
2014 as follows:"
IFRS Non-IFRS
Software License Low Double Digits Mid to High Teens
Revenue Growth
Total Revenues Growth Mid to High Single Low Double Digits
Digits
Adjusted EBITDA Margin 12.5 - 13.5% 14.5 - 15.5%
Effective Tax Rate 37.0 - 39.0%
Webcast
Management will host a conference call and audio only webcast to
discuss these financial results at 1:00 p.m. U.K. time / 8:00 a.m.
U.S. Eastern time today. To participate in the call, investors can
use the live dial in information below, or access the call via the
investor relations section of the Company's website at:
http://www.kofax.com/investors/presentations.php. A replay via
telephone and webcast will be available for 30 days.
Live Replay (available Access Code
for 30 days)
U.K. +44 (0) 1452 555566 +44 (0)1452 550000 16051165
U.S. +1 (866) 966 9439 +1 (866) 247 4222 16051165
About Kofax
Kofax Limited is a leading provider of innovative smart capture
and process automation software and solutions for the business
critical First Mile of customer interactions. These begin with an
organization's systems of engagement, which generate real time,
information intensive communications from customers, and provide an
essential connection to their systems of record, which are
typically large scale, rigid enterprise applications and
repositories not easily adapted to more contemporary technology.
Success in the First Mile can dramatically improve an
organization's customer experience and greatly reduce operating
costs, thus driving increased competitiveness, growth and
profitability. Kofax software and solutions provide a rapid return
on investment to more than 20,000 customers in financial services,
insurance, government, healthcare, business process outsourcing and
other markets. Kofax delivers these through its own sales and
service organization, and a global network of more than 800
authorized partners in more than 75 countries throughout the
Americas, EMEA and Asia Pacific. For more information, visit
kofax.com.
Safe Harbor Statement
This document contains forward looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended.
Such statements are subject to risks and uncertainties that could
cause actual results to vary materially from those projected in the
forward looking statements. The Company may experience significant
fluctuations in future operating results due to a number of
economic, competitive, and other factors, including, among other
things, our reliance on third-party manufacturers and suppliers,
government agency budgetary and political constraints, new or
increased competition, changes in market demand, and the
performance or reliability of our products. These factors and
others could cause operating results to vary significantly from
those in prior periods, and those projected in forward looking
statements. Additional information with respect to these and other
factors, which could materially affect the Company and its
operations, are included in certain forms the Company has filed
with the Securities and Exchange Commission.
Non-IFRS Financial Measures
Management uses financial measures, both IFRS and non-IFRS, in
analyzing and assessing the overall performance of the business and
making operational decisions. We have provided and believe that the
non-IFRS financial measures and supplemental reconciliation to IFRS
financial measures are useful to investors and other users of our
financial statements because the non-IFRS financial measures may be
used as additional tools to compare our performance across peer
companies, periods and financial markets. Please refer to the Chief
Financial Officer's Review for a discussion of the non-IFRS
financial measures and supplemental reconciliation to IFRS
financial measures for more information regarding the non-IFRS
measures.
© 2014 Kofax Limited. Kofax is a registered trademark and First
Mile, TotalAgility and Kofax Mobile Capture are trademarks of Kofax
Limited.All other trademarks are the property of their respective
owners.
Source: KofaxRNS
Chief Financial Officer's Review
With the exception of the section titled "Discussion of Non-IFRS
Measures", the Chief Financial Officer's Review refers to IFRS
financial measures.
In the third quarter of fiscal year 2014, we extended to five
quarters the trend of year-over-year software license and total
revenue growth. For the three months ended March 31, 2014, we
generated growth in each revenue line item and in total revenue in
all geographies. In addition, we continued the expansion of our
sales organization, particularly the number of quota carrying sales
reps, as well as increased staffing in our product development
organization.
Revenues
The following tables present revenues by financial statement
line, as well as in total for each of our geographic regions:
Three Months Ended % of Total Revenue
March 31,
2014 2013 % Change 2014 2013
($ in thousands, except percentages)
Software $ 28,136 $ 26,422 6.5 % 39.8 % 41.1 %
license
Maintenance 32,534 29,966 8.6 % 46.0 % 46.6 %
services
Professional 10,052 7,933 26.7 % 14.2 % 12.3 %
services
Total $ 70,722 $ 64,321 10.0 % 100.0 % 100.0 %
revenues
Americas $ 36,901 $ 31,435 17.4 % 52.2 % 48.9 %
EMEA 29,155 28,548 2.1 % 41.2 % 44.4 %
Asia 4,666 4,338 7.6 % 6.6 % 6.7 %
Pacific
Total $ 70,722 $ 64,321 10.0 % 100.0 % 100.0 %
revenues
Nine Months Ended % of Total Revenue
March 31,
2014 2013 % Change 2014 2013
($ in thousands, except percentages)
Software $ 82,965 $ 73,571 12.8 % 39.5 % 39.1 %
license
Maintenance 98,122 90,646 8.2 % 46.7 % 48.2 %
services
Professional 29,096 23,943 21.5 % 13.8 % 12.7 %
services
Total $ 210,183 $ 188,160 11.7 % 100.0 % 100.0 %
revenues
Americas $ 115,751 $ 98,544 17.5 % 55.1 % 52.4 %
EMEA 80,653 76,231 5.8 % 38.3 % 40.5 %
Asia 13,779 13,385 2.9 % 6.6 % 7.1 %
Pacific
Total $ 210,183 $ 188,160 11.7 % 100.0 % 100.0 %
revenues
Software license revenue increased $1.7 million or 6.5% in the
three months ended March 31, 2014 due to $4.4 million increase in
mobile and new or acquired products offset by a $2.7 million
decrease in core capture products. During the three months ended
March 31, 2014, license revenue from multi-channel capture products
decreased 8.0% as compared to the three months ended March 31,
2013, while new or acquired products increased 206.8%.
Multi-channel capture products are a product grouping created by
Forrester which in addition to our core capture products includes
mobile and web capture products and is estimated to be growing at a
4.5% compound annual growth rate between 2012 and 2016. Software
license revenue increased $2.3 million in the Americas, $0.4
million in Asia Pacific, and decreased $1.0 million in EMEA.
Software license revenue increased $9.4 million or 12.8% in the
nine months ended March 31, 2014 due to a $2.7 million increase in
core capture products and a $6.7 million increase in mobile and new
or acquired products. During the nine months ended March 31, 2014,
multi-channel capture has grown 5.5% as compared to the nine months
ended March 31, 2013, while new or acquired products has grown
102.4%. Software license revenues increased $7.2 million in
Americas, $1.1 million in EMEA, and $1.1 million in Asia
Pacific.
Maintenance services revenue increased $2.6 million or 8.6% in
the three months ended March 31, 2014 due to an increase of $1.6
million or 10.6% in the Americas and $1.2 million or 9.2% in EMEA
offset by a decrease of $0.2 million or 9.6% in Asia Pacific. In
the nine months ended March 31, 2014, maintenance services revenue
increased $7.5 million, or 8.2%, due to an increase of a $4.1
million or 9.0% in the Americas and $4.0 million or 10.3% in EMEA
offset by a decrease of $0.6 million or 9.6% in Asia Pacific. The
decreases in Asia Pacific are attributable to unfavorable exchange
rate movements.
Professional services revenue increased $2.1 million or 26.7% in
the three months ended March 31, 2014 due to an increase of $1.5
million or 38.6% in the Americas, $0.5 million or 14.2% in EMEA and
$0.1 million or 15.0% in Asia Pacific. In the nine months ended
March 31, 2014, professional services revenue increased $5.2
million or 21.5% due to an increase of $5.9 million or 52.6% in the
Americas offset by a decrease of $0.6 million or 6.3% in EMEA and
$0.1 million or 4.0% in Asia Pacific. The increase in professional
services revenue is due to incremental professional services
arising from our acquisition of Kapow as well as several large
projects in the Americas.
Costs and Expenses
Cost of Software License Revenue
The following table reflects cost of software license revenue,
in dollars and as a percentage of software license revenues:
Three Months Ended Change Nine Months Ended Change
March 31, March 31,
2014 2013 $ % 2014 2013 $ %
(in thousands, except percentages)
Cost $ 1,955 $ 2,576 $ (621 ) (24.1 )% $ 7,640 $ 7,302 $ 338 4.6 %
of
software
license
% 6.9 % 9.7 % 9.2 % 9.9 %
of
software
license
revenues
Cost of software license revenue decreased by $0.6 million or
24.1% in the three months ended March 31, 2014 and increased $0.3
million or 4.6% in the nine months ended March 31, 2014. Royalty
costs and other third party costs vary by product and accordingly
the cost of software license revenue as a percentage of the
software license revenues can fluctuate based on the mix of
software licenses sold.
Cost of Maintenance Services Revenue
The following table reflects cost of maintenance services
revenue, in dollars and as a percentage of software license
revenue:
Three Months Ended Change Nine Months Ended Change
March 31, March 31,
2014 2013 $ % 2014 2013 $ %
(in thousands, except percentages)
Cost $ 5,218 $ 4,753 $ 465 9.8 % $ 15,104 $ 13,516 $ 1,588 11.7 %
of
maintenance
services
% 16.0 % 15.9 % 15.4 % 14.9 %
of
maintenance
services
revenue
Cost of maintenance services revenue increased $0.5 million or
9.8% in the three months ended March 31, 2014 and increased $1.6
million or 11.7% in the nine months ended March 31, 2014 as we
increased our technical support organization to service a larger
installed base and as a result of our acquisitions of Altosoft and
Kapow.
Cost of Professional Services Revenue
The following table shows cost of professional services revenue,
in dollars and as a percentage of professional services
revenue:
Three Months Ended Change Nine Months Ended Change
March 31, March 31,
2014 2013 $ % 2014 2013 $ %
(in thousands, except percentages)
Cost $ 8,129 $ 7,182 $ 947 13.2 % $ 23,977 $ 21,312 $ 2,665 12.5 %
of
professional
services
% 80.9 % 90.5 % 82.4 % 89.0 %
of
professional
services
revenue
Cost of professional services revenue increased $0.9 million or
13.2% in the three months ended March 31, 2014 primarily due to a
$0.5 million increase in compensation costs largely associated with
our acquisitions of Altosoft and Kapow. Cost of professional
services increased $2.7 million or 12.5% in the nine months ended
March 31, 2014 due to a $1.1 million increase in compensation costs
largely for that same reason. Our gross margin on professional
services increased 9.6% in the three months and 6.6% nine months
ended March 31, 2014, respectively as we realized a higher
utilization of our professional services staff due to the increased
number of projects.
Research and Development
The following table shows research and development expense, in
dollars and as a percentage of total revenues:
Three Months Ended Change Nine Months Ended Change
March 31, March 31,
2014 2013 $ % 2014 2013 $ %
(in thousands, except percentages)
Research $ 10,318 $ 9,010 $ 1,308 14.5 % $ 29,346 $ 25,914 $ 3,432 13.2 %
and
development
% 14.6 % 14.0 % 14.0 % 13.8 %
of
total
revenues
Research and development expense increased $1.3 million or 14.5%
in the three months ended March 31, 2014 due to a $1.1 million
increase in compensation costs largely associated with our
acquisitions of Altosoft and Kapow and increased headcount to
support our mobile and new or acquired products. Research and
development expense increased $3.4 million or 13.2% in the nine
months ended March 31, 2014 due to a $3.1 million increase in
compensation costs largely for those same reasons
Sales and Marketing
The following table shows sales and marketing expense, in
dollars and as a percentage of total revenues:
Three Months Ended Change Nine Months Ended Change
March 31, March 31,
2014 2013 $ % 2014 2013 $ %
(in thousands, except percentages)
Sales $ 31,418 $ 24,565 $ 6,853 27.9 % $ 89,959 $ 72,770 $ 17,189 23.6 %
and
marketing
expense
% 44.4 % 38.2 % 42.8 % 38.7 %
of
total
revenues
Sales and marketing expense increased $6.9 million or 27.9% in
the three months ended March 31, 2014 due to a $3.8 million
increase in compensation costs largely associated with our
acquisitions of Altosoft and Kapow and our increased investment in
growing the sales organization. Sales and marketing expense
increased $17.2 million or 23.6% in the nine months ended March 31,
2014 for those same reasons.
General and Administrative
The following table shows general and administrative expense, in
dollars and as a percentage of total revenues:
Three Months Ended Change Nine Months Ended Change
March 31, March 31,
2014 2013 $ % 2014 2013 $ %
(in thousands, except percentages)
General $ 10,428 $ 9,082 $ 1,346 14.8 % $ 29,313 $ 28,317 $ 996 3.5 %
and
administrative
expense
% 14.7 % 14.1 % 13.9 % 15.0 %
of total
revenues
General and administrative expense increased $1.3 million or
14.8% in the three months ended March 31, 2014 primarily due to an
increase in compensation costs and share-based payment expense.
General and administrative expenses increased $1.0 million or 3.5%
in the nine months ended March 31, 2014 primarily due to those same
reasons.
Amortization of Acquired Intangible Assets
The following table shows expense related to the amortization of
acquired intangible assets, in dollars and as a percentage of total
revenues:
Three Months Ended Change Nine Months Ended Change
March 31, March 31,
2014 2013 $ % 2014 2013 $ %
(in thousands, except percentages)
Amortization $ 2,164 $ 1,587 $ 577 36.4 % $ 6,728 $ 4,813 $ 1,915 39.8 %
of
acquired
intangible
assets
% 3.1 % 2.5 % 3.2 % 2.6 %
of total
revenues
Amortization of acquired intangible assets increased $0.6
million or 36.4% to $2.2 million in the three months ended March
31, 2014 due to additional amortization of acquired intangible
assets arising from our acquisitions of Altosoft and Kapow.
Amortization of acquired intangible assets increased $1.9 million
or 39.8% to $6.7 million in the nine months ended March 31, 2014,
due to that same reason.
Acquisition-related Costs
The following table shows Acquisition-related costs, in dollars
and as a percentage of total revenues:
Three Months Ended Change Nine Months Ended Change
March 31, March 31,
2014 2013 $ % 2014 2013 $ %
(in thousands, except percentages)
Acquisition-related $ 504 $ 1,600 $ (1,096 ) (68.5 )% $ 398 $ 4,543 $ (4,145 ) (91.2 )%
costs
% of total 0.7 % 2.5 % 0.2 % 2.4 %
revenues
Acquisition-related costs decreased $1.1 million or 68.6% to
$0.5 million in the three months ended March 31, 2014 primarily due
to accruing less for the contingent consideration related to the
Singularity acquisition, offset by a small increase to the fair
value of the Altosoft contingent consideration.
Acquisition-related costs decreased $4.1 million or 91.2% to
$0.4 million primarily due to a decrease in the fair value of the
contingent consideration related to the Singularity acquisition and
direct acquisition costs related to the acquisition of Kapow,
offset by a small increase to the fair value of the Altosoft
contingent consideration.
Other Operating Expense, net
The following table shows other operating expenses, net, in
dollars and as a percentage of total revenues:
Three Months Ended Change Nine Months Ended Change
March 31, March 31,
2014 2013 $ % 2014 2013 $ %
(in thousands, except percentages)
Other $ 404 $ 417 $ (13 ) (3.1 )% $ 3,636 $ 2,274 $ 1,362 59.9 %
operating
expenses,
net
% 0.6 % 0.6 % 1.7 % 1.2 %
of
total
revenues
Other operating expense remained relatively flat at $0.4 million
in the three months ended March 31, 2014. Other operating expense
increased $1.4 million or 59.9% to $3.6 million in the nine months
ended March 31, 2014 as a result of the costs leading up to the
NASDAQ listing on December 5, 2013.
Finance Income (Expense), net
The following table shows finance income (expense), net, in
dollars and as a percentage of total revenues:
Three Months Ended Change Nine Months Ended Change
March 31, March 31,
2014 2013 $ % 2014 2013 $ %
(in thousands, except percentages)
Finance $ 705 $ (2,881 ) $ 3,586 (124.5 )% $ 4,858 $ (4,660 ) $ 9,518 (204.2 )%
income
(expense),
net
% 1.0 % (4.5 )% 2.3 % (2.5 )%
of
total
revenues
Finance income (expense), net fluctuated $3.6 million in the
three months ended March 31, 2014 and $9.5 million in the nine
months ended March 31, 2014 primarily due to a more stable exchange
rate environment, as well as actions taken by management to
mitigate material fluctuations related to exchange rates.
Income tax expense
The following table shows income tax expense, in dollars and as
a percentage of profit from continuing operations:
Three Months Ended Change Nine Months Ended Change
March 31, March 31,
2014 2013 $ % 2014 2013 $ %
(in thousands, except percentages)
Income $ 943 $ 997 $ (54 ) (5.4 )% $ 4,202 $ 3,437 $ 765 22.2 %
tax
expense
Income $ 889 $ 668 $ 8,940 $ 2,739
from
continuing
operations
Effective 106.0 % 149.3 % 47.0 % 125.5 %
tax
rate
Income tax expense decreased by $0.1 million, or 5.4%, to $0.9
million during the three months ended March 31, 2014. The effective
tax rate is less than that in the three months ended March 31, 2013
due to significant costs incurred related to preparation of the
NASDAQ listing and other items that were not deductible for tax
purposes in the three months to March 31, 2013. Income tax expense
increased by $0.8 million, or 22.2%, to $4.2 million during the
nine months ended March 31, 2014. Increased income tax expense for
the nine months ended March 31, 2014 as compared to the nine months
ended March 31, 2013 was the result of more income from continuing
operations. The effective tax rate in the nine months ended March
31, 2013 remains impacted by the expenses not deductible for tax
purposes.
Liquidity and Capital Resources
Historically, we have financed our business primarily through
cash on hand and cash flows from operations. We had $93.1 million
of cash and cash equivalents at March 31, 2014 compared to $93.4
million at June 30, 2013. The majority of our cash is held in U.S.
dollars, Euros and to a lesser extent, British Pounds. We had no
outstanding debt as of June 30, 2013.
The following tables set forth the summary of our cash
flows:
Three Months Ended
March 31,
2014 2013 Change
($ in thousands)
Cash generated from (used in)
Operating activities $ 16,233 $ 13,928 $ 2,305
Investing activities (4,893 ) (12,631 ) 7,738
Financing activities 408 30 378
Exchange rate effects 73 (1,552 ) 1,625
Net increase (decrease) $ 11,821 $ (225 ) $ 12,046
Nine Months Ended
March 31,
2014 2013 Change
($ in thousands)
Cash generated from (used in)
Operating activities $ 34,453 $ 23,133 $ 11,319
Investing activities (48,086 ) (17,656 ) (30,430 )
Financing activities 12,223 596 11,627
Exchange rate effects 1,048 (389 ) 1,438
Net increase (decrease) $ (362 ) $ 5,684 $ (6,046 )
Operating Activities
Net cash generated from operating activities was $16.2 million
in the three months ended March 31, 2014 compared to cash generated
from operating activities of $13.9 million in the three months
ended March 31, 2013, a net increase of $2.3 million. That increase
was primarily attributable to the net change in working capital for
the three months ended March 31, 2014 as compared to the three
months ended March 31, 2013.
Net cash generated from operating activities was $34.5 million
in the nine months ended March 31, 2014 compared to $23.1 million
in the nine months ended March 31, 2013, an increase of $11.3
million. That increase was primarily attributable to a $7.4 million
increase in deferred income primarily due to the acquisition of
Kapow and a $4.6 million increase in non-acquisition related
deferred income partially offset by a $0.3 million decrease in
payments under restructuring - personnel.
Investing Activities
Net cash used in investing activities was $4.9 million in the
three months ended March 31, 2014 compared to $12.6 million in the
three months ended March 31, 2013, a decrease of $7.7 million. The
primary use of cash in the current period was the payment of $1.4
million of deferred consideration associated with our acquisition
of Altosoft and $1.9 million of deferred consideration associated
with our acquisition of Kapow. Additionally, we paid $1.0 million
of contingent consideration to the former shareholders of Altosoft
resulting from the achievement of calendar year 2013 revenue and
EBITDA targets. During the three months ended March 31, 2013 we
paid $11.7 million for the acquisition of Altosoft, less cash
acquired of $0.8 million, and contingent consideration related to
our acquisition of Atalasoft, resulting in an incremental decrease
in cash flows from investing activities.
Net cash used in investing activities was $48.1 million in the
nine months ended March 31, 2014 compared to $17.7 million in the
nine months ended March 31, 2013, an increase of $30.4 million. The
primary use of cash in the current period was the $39.3 million
cash consideration associated with our July 31, 2013 acquisition of
Kapow and $6.1 million in deferred consideration related to our
acquisition of Atalasoft, Altosoft and Kapow compared to $11.7
million in cash consideration paid on March 1, 2013 related to the
acquisition of Altosoft and $0.4 million of deferred consideration
related to the acquisition of Atalasoft. Additionally, we purchased
$1.0 million of fixed assets in the nine months ended March 31,
2014 compared to the same period of the prior year.
Financing Activities
Net cash generated from financing activities was $0.4 million in
the three months ended March 31, 2014 compared to $0.0 million in
the three months ended March 31, 2013, an increase of $0.4 million,
due to the proceeds of stock option exercises in the period.
Net cash generated from financing activities was $12.2 million
in the nine months ended March 31, 2014 compared to $0.6 million in
the nine months ended March 31, 2013, an increase of $11.6 million,
due primarily to $12.4 million in net proceeds from the NASDAQ
listing offset by decreases of $0.6 million from net purchases of
employee benefit trust shares and proceeds from stock option
exercises.
Exchange Rate Effects
We operate in many countries around the world, and maintain cash
balances in locations in currencies other than the U.S. dollar. In
the three months ended March 31, 2014 cash and cash equivalents
increased by $0.1 million due to changes in exchange rates, while
during the three months ended March 31, 2013 our cash and cash
equivalents decreased by $1.6 million. During the nine months ended
March 31, 2014 cash and cash equivalents increased by $1.1 million
due to changes in exchange rates, while during the nine months
ended March 31, 2013 our cash and cash equivalents decreased by
$0.4 million due to changes in exchange rates, as we maintained
more cash on hand in U.S. dollars this period. Our cash and cash
equivalents will continue to fluctuate in the future, as exchange
rates vary over time.
On October 14, 2013, the Company extended the term of its $40.0
million revolving line of credit with Bank of America Merrill Lynch
to June 30, 2016. Subject to certain conditions, borrowings under
the credit facility can be denominated in U.S. dollars, Euros and
certain other currencies and can be made in the U.S. and certain
other countries. The credit facility is available for general
corporate purposes, including acquisitions, is secured by certain
assets of the Company and can be increased by an additional $10.0
million. As of March 31, 2014, $39.5 million was available as $0.5
million has been used to guarantee letters of credit in certain
operating facilities and payroll services.
The Company has significant overseas subsidiaries, which operate
principally in their local currencies. Where appropriate,
intracompany borrowings are arranged in functional currencies of
the borrower to centralize potential exchange rate impacts and
provide a natural hedge against exchange rate movement risks.
The Company hedges certain cash balances and cash flows relating
to transactions in accordance with policies set by the Board of
Directors. Assessment of the credit risk profile of the Company's
key customers and resellers is centralized for increased focus.
Reconciliation of Non-IFRS Measures
We use financial measures, both IFRS and non-IFRS, in analyzing
and assessing the overall performance of the business and for
making operational decisions. We have provided and believe that the
non-IFRS financial measures and supplemental reconciliation to IFRS
financial measures are useful to investors and other users of our
financial statements because the non-IFRS financial measures may be
used as additional tools to compare business performance across
peer companies, periods and financial markets.
While we use non-IFRS measures as a tool to enhance our
understanding of certain aspects of our financial performance, we
do not believe that these non-IFRS measures are a substitute for,
or are superior to, the information provided by IFRS results. As
such, the presentation of non-IFRS measures is not intended to be
considered in isolation or as a substitute for any measure prepared
in accordance with IFRS. The primary limitations associated with
the use of non-IFRS measures as compared to IFRS results are that
non-IFRS measures may not be comparable to similarly titled
measures used by other companies in our industry and that non-IFRS
measures may exclude financial information that some investors may
consider important in evaluating our performance. We compensate for
these limitations by providing disclosure of the differences
between non-IFRS measures and IFRS results, including providing a
reconciliation of each non-IFRS measure to IFRS results, in order
to enable investors to perform their own analysis of our operating
results.
Non-IFRS Revenues - We define non-IFRS revenue as revenue, as
reported under IFRS, increased to include revenue that is
associated with our historic acquisitions that has been excluded
from reported results for a given period due to the effects of
purchase accounting. In accordance with IFRS purchase accounting,
an acquired company's deferred revenue at the date of acquisition
is subject to a fair value adjustment which reduces the deferred
amount and revenues recognized subsequent to an acquisition. We
include non-IFRS revenue to allow for more complete comparisons to
the financial results of our historical operations, forward-looking
guidance and the financial results of peer companies. We believe
these adjustments are useful to management and investors as a
measure of the ongoing performance of the business. Additionally,
although acquisition related revenue adjustments are non-recurring
we may incur similar adjustments in connection with any future
acquisitions.
The tables below provide a reconciliation of IFRS revenues to
non-IFRS revenues related to all of our historic acquisitions:
Three Months Ended March 31, 2014 Three Months Ended March 31, 2013
Revenues (as Acquisition Non-IFRS Revenues (as Acquisition Non-IFRS
reported Fair Value Revenues reported Fair Value Revenues
under IFRS) Adjustment under IFRS) Adjustment
($ in thousands) ($ in thousands)
Software $ 28,136 $ 1,400 $ 29,536 $ 26,422 $ 39 $ 26.461
licenses
Maintenance 32,534 197 32,730 29,966 21 29.987
services
Professional 10,052 (136 ) 9,916 7,933 - 7,933
services
Total revenues $ 70,722 $ 1,460 $ 72,183 $ 64,321 $ 60 $ 64,381
Nine Months Ended March 31, 2014 Nine Months Ended March 31, 2013
Revenues (as Acquisition Non-IFRS Revenues (as Acquisition Non-IFRS
reported Fair Value Revenues reported Fair Value Revenues
under IFRS) Adjustment under IFRS) Adjustment
($ in thousands) ($ in thousands)
Software $ 82,965 $ 5,102 $ 88,067 $ 73,571 $ 124 $ 73,695
licenses
Maintenance 98,122 800 98,922 90,646 133 90,779
services
Professional 29,095 693 29,789 23,943 - 23,943
services
Total revenues $ 210,183 $ 6,595 $ 216,778 $ 188,160 $ 257 $ 188,417
Non-IFRS Income from Operations - We define non-IFRS income from
operations as income from operations, as reported under IFRS,
excluding the effect of acquisition fair value adjustment to
revenue, share-based payment expense, depreciation expense,
amortization of acquired intangible assets, acquisition-related
costs, restructuring costs and other operating expense, net.
Share-based payment expense, depreciation expense and amortization
of acquired intangible assets in our non-IFRS income from
operations reconciliation represent non-cash charges which are not
considered by management in evaluating our operating performance.
Acquisition-related costs consist of: (i) costs directly
attributable to our acquisition strategy and the evaluation,
consummation and integration of our acquisitions (composed
substantially of professional services fees including legal,
accounting and other consultants and to a lesser degree to our
personnel whose responsibilities are devoted to acquisition
activities), and (ii) transition compensation costs (composed
substantially of contingent payments for shares that are treated as
compensation expense and retention payments that are anticipated to
become payable to employees, as well as severance payments to
employees whose positions were made redundant). These
acquisition-related costs are not considered to be related to the
organic continuing operations of the acquired businesses and are
generally not relevant to assessing or estimating the long-term
performance of the acquired assets. Restructuring costs are not
considered in assessing our performance as we have not generally
incurred such costs for our continuing operations. Other operating
expense, net represents items that are not necessarily related to
our recurring operations and which therefore are not, under IFRS,
included in other expense lines. Accordingly, we exclude those
amounts when assessing non-IFRS income from operations. At times
when we are communicating with our shareholders, analysts and other
parties we refer to non-IFRS income from operations as adjusted
EBITDA.
We assess non-IFRS income from operations as a percentage of
total non-IFRS revenues, and by doing so we are able to evaluate
our relative performance of our revenue growth compared to the
expense growth for those items included in non-IFRS income from
operations. This measure allows management and our Board of
Directors to compare our performance against that of other
companies in our industry that may be of different sizes.
The following table provides a reconciliation of IFRS income
from operations to non-IFRS income from operations and presents
non-IFRS income from operations as a percentage of total
revenues.
Three Months Ended Nine Months Ended
March 31, December 31,
2014 2013 2014 2013
($ in thousands)
Income from $ 184 $ 3,549 $ 4,082 $ 7,399
operations
Acquisition 1,460 60 6,595 257
fair value
adjustment to
revenues
Share-based 1,387 (294 ) 3,253 897
payment
expense
Depreciation 1,349 1,501 4,019 4,549
and
amortization
expense
Amortization 2,164 1,587 6,728 4,813
of acquired
intangible
assets
Acquisition-related 504 1,600 398 4,543
costs
Other 404 417 3,636 2,274
operating
expenses, net
Non-IFRS $ 7,452 $ 8,420 $ 28,711 $ 24,732
income
from
operations
Non-IFRS 10.3 % 13.1 % 13.2 % 13.1 %
income
from
operations
as a
percentage of
adjusted
revenues
Adjusted Cash Flows from Operations - We define Adjusted cash
flows from operations as net cash inflows from operating
activities, as reported under IFRS, adjusted for income taxes paid
or refunded and payments under restructurings. Income taxes paid is
included in this reconciliation as the timing of cash payments and
receipts can vary significantly from year-to-year based on a number
of factors, including the influence of acquisitions on our
consolidated tax attributes. Payments for restructurings relate to
a specific activity that is not part of ongoing operations. The
table below provides a reconciliation of IFRS cash flows from
operations to Adjusted cash flows from operations:
Three Months Ended Nine Months Ended
March 31, March 31,
2014 2013 2014 2013
($ in thousands)
Cash flows $ 16,233 $ 13,928 $ 34,453 $ 23,133
from
operations
Income taxes 3,577 (2,385 ) 8,447 (7,163 )
paid
Payments under - 6 588 (861 )
restructuring
Adjusted cash $ 19,810 $ 16,307 $ 43,488 $ 31,157
flows
from
operations
Adjusted cash flow from operations increased $3.5 million to
$19.8 million for the three months ended March 31, 2014 as a result
of increased cash flows from operations and tax payments.
Adjusted cash flow from operations increased $12.3 million to
$43.5 million for the nine months ended March 31, 2014 as a result
of increased cash flows from operations, tax payments and payments
under restructuring.
Adjusted diluted earnings per share - We define Adjusted diluted
earnings per share as diluted earnings per share, as reported under
IFRS, adjusted by certain items that are also excluded from our
non-IFRS income from operations and which are discussed above. The
most comparable IFRS metrics, 'income (loss) from continuing
operations, after tax' and 'earnings per share - diluted', also
include the reconciling items finance income (expense), net, and
the impacts of income taxes on each of the other reconciling items.
Therefore, we include this non-IFRS measure in order to provide a
more complete comparison of our earnings per share from one period
to another.
The tables below provide a reconciliation of our Adjusted
diluted earnings per share, and our associated non-IFRS income
(loss) from continuing operations, after tax:
Reconciliation of Adjusted Diluted Earnings Per Share
For the Three Months Ended March 31,
2014 2013
Per Diluted Per Diluted
Share Share
($ in thousands, except per share data)
Income from $ (0.00 ) $ (54 ) $ (0.00 ) $ (329 )
continuing
operations,
after tax
Acquisition 0.02 1,460 0.00 60
fair value
adjustment to
revenues
Share-based 0.01 1,387 (0.00 ) (294 )
payment
expense
Amortization 0.02 2,164 0.02 1,587
of
intangible
assets
Acquisition-related 0.01 504 0.02 1,600
costs
Net finance (0.00 ) (301 ) 0.03 3,298
and other
income and
expense
Tax effect (0.01 ) (484 ) (0.01 ) (990 )
of above
Adjusted $ 0.05 $ 0.06
diluted
earnings
per share
For the Nine Months Ended March 31,
2014 2013
Per Diluted Per Diluted
Share Share
($ in thousands, except per share data)
Income/(loss) $ 0.05 $ 4,738 $ (0.00 ) $ (698 )
from
continuing
operations,
after tax
Acquisition 0.07 6,595 0.00 257
fair value
adjustment to
revenues
Share-based 0.04 3,253 0.01 897
payment
expense
Amortization 0.07 6,728 0.05 4,813
of
intangible
assets
Acquisition-related 0.00 398 0.05 4,543
costs
Net finance (0.01 ) (1,222 ) 0.08 6,934
and other
income and
expense
Tax effect (0.04 ) (4,245 ) (0.03 ) (2,869 )
of above
Adjusted $ 0.18 $ 0.16
diluted
earnings
per share
Supplemental Information
The following supplemental information is used to reconcile IFRS
Income from operations to non-IFRS Income from operations:
Share-based payment expense recognized by functional line in the
Condensed Consolidated Income Statements is as follows:
For the Three Months Ended
March 31,
2014 2013
($ in thousands)
Cost of maintenance services $ 17 $ -
Cost of professional 16 1
services
Research and development 278 98
Selling and marketing 711 (249 )
General and administrative 365 (144 )
Total share-based $ 1,387 $ (294 )
payment expense
For the Nine Months Ended
March 31,
2014 2013
($ in thousands)
Cost of maintenance services $ 47 $ -
Cost of professional 58 2
services
Research and development 627 303
Selling and marketing 1,648 161
General and administrative 873 431
Total share-based $ 3,253 $ 897
payment expense
Depreciation and amortization expense recognized by functional
line in the Condensed Consolidated Income Statements is as
follows:
For the Three Months Ended
March 31,
2014 2013
($ in thousands)
Cost of software licenses $ 5 $ 16
Cost of maintenance services 121 142
Cost of professional services 193 253
Research and development 423 425
Selling and marketing 425 440
General and administrative 182 225
Total depreciation and $ 1,349 $ 1,501
amortization expense
For the Nine Months Ended
March 31,
2014 2013
($ in thousands)
Cost of software licenses $ 27 $ 50
Cost of maintenance services 369 436
Cost of professional services 605 806
Research and development 1,225 1,246
Selling and marketing 1,236 1,325
General and administrative 557 686
Total depreciation and $ 4,019 $ 4,549
amortization expense
Risk Factors
There have been no material changes to the risk factors as
presented in our Final Prospectus filed with the U.S. Securities
and Exchange Commission for the year ended June 30, 2013 on
December 5, 2013.
James Arnold, Jr.Chief Financial OfficerApril 29, 2014
Kofax Limited
Unaudited
Condensed
Consolidated
Income
Statements
($
in thousands,
except
per share
amounts)
For the Three Months Ended For the Nine Months Ended
March 31, March 31, March 31, March 31,
2014 2013 2014 2013
Software 28,136 26,422 82,965 73,571
licenses
Maintenance 32,534 29,966 98,122 90,646
services
Professional 10,052 7,933 29,096 23,943
services
Total revenues 70,722 64,321 210,183 188,160
Cost 1,955 2,576 7,640 7,302
of software
licenses
Cost 5,218 4,753 15,104 13,516
of maintenance
services
Cost 8,129 7,182 23,977 21,312
of
professional
services
Research and 10,318 9,010 29,346 25,914
development
Sales 31,418 24,565 89,959 72,770
and marketing
General 10,428 9,082 29,313 28,317
and
administrative
Amortization 2,164 1,587 6,728 4,813
of acquired
intangible
assets
Acquisition-related 504 1,600 398 4,543
costs
Other 404 417 3,636 2,274
operating
expenses, net
Operating 70,538 60,772 206,101 180,761
costs
and expenses
Income from 184 3,549 4,082 7,399
operations
Finance income 899 20 5,498 136
Finance (194 ) (2,901 ) (640 ) (4,796 )
expense
Income from 889 668 8,940 2,739
continuing
operations,
before tax
Income tax 943 997 4,202 3,437
expense
Income/(loss) (54 ) (329 ) 4,738 (698 )
attributable
to
equity holders
of the Parent
Earnings/(loss)
per share
> Basic (0.00 ) (0.01 ) 0.05 (0.01 )
> Diluted (0.00 ) (0.01 ) 0.05 (0.01 )
Kofax
Limited
Unaudited
Condensed
Consolidated
Statements
of
Comprehensive
Income
($
in thousands)
For the Three Months Ended For the Nine Months Ended
March 31, March 31, March 31, March 31,
2014 2013 2014 2013
Income/(loss) (54 ) (329 ) 4,738 (698 )
attributable
to
equity
holders
of the
Parent
Other
comprehensive
income/(loss):
Items that
may be
subsequently
reclassified
to profit
or loss:
Exchange 45 (899 ) (1,065 ) 3,207
gains/(losses)
arising on
translation
of foreign
operations
Income tax 15 (127 ) 3 (105 )
relating
to items
that
may
be
reclassified
60 (1,026 ) (1,062 ) 3,102
Items that
will not
be
reclassified
to profit
or loss:
Actuarial (1 ) 123 338 375
(losses)/gains
on defined
benefit
pension
plans
Income tax (2 ) (18 ) (61 ) (58 )
relating
to items
that
will
not
be
reclassified
(3 ) 105 277 317
Other
comprehensive
income/(loss)
for
the period,
net
of tax:
Total 57 (921 ) (785 ) 3,419
comprehensive
income for
the period,
net
of tax,
attributable
to equity
holders of
the Parent
Income/(loss) 3 (1,250 ) 3,953 2,721
attributable
to
equity
holders
of the
Parent
Kofax Limited
Unaudited Condensed Consolidated
Statements
of Financial Position
($ in thousands)
March 31, 2014 June 30, 2013
Current assets:
Cash and cash equivalents 93,051 93,413
Trade receivables, net 51,398 60,929
Inventories 1,204 1,800
Deferred tax assets 405 2,024
Other current assets 7,899 8,657
Total current assets 153,957 166,823
Other non-current assets 4,286 3,671
Property and equipment 4,463 4,510
Deferred tax assets 27,002 14,350
Intangible assets 230,766 189,789
Total assets 420,474 379,143
Current liabilities:
Trade and other payables 36,829 35,504
Deferred income - current 77,486 62,955
Current tax liabilities 7,647 10,106
Provisions - current 4,991 8,397
Total current liabilities 126,953 116,962
Employee benefits 3,232 3,018
Deferred income - non-current 7,854 5,095
Deferred tax liabilities 16,943 14,607
Provisions - non-current 4,184 2,334
Total liabilities 159,166 142,016
Shareholders' equity:
Share capital 97 95
Share premium account 31,786 18,957
Employee benefit shares (15,416 ) (15,294 )
Treasury shares (15,980 ) (15,980 )
Merger reserve 2,835 2,835
Retained earnings 239,731 227,197
Currency translation adjustment 18,255 19,317
Total Shareholders' equity 261,308 237,127
Total liabilities and 420,474 379,143
Shareholders' equity
Kofax
Limited
Unaudited
Condensed
Consolidated
Statements
of
Changes
in Equity
($
in
thousands)
Share Share Premium Employee Treasury Merger Retained Currency Total
Capital Account Benefit Shares Reserve Earnings Translation Equity
Shares Adjustment
As of 94 17,091 (17,386 ) (15,980 ) 2,835 216,585 14,701 217,940
June
30, 2012
Profit - - - - - 10,001 - 10,001
for
the
period
Other - - - - - (679 ) 4,616 3,937
comprehensive
income/(loss),
net of
tax
Total - - - - - 9,322 4,616 13,938
comprehensive
income
for the
period
Tax on - - - - - 2,185 - 2,185
equity
awards
Share-based - - - - - 1,393 - 1,393
payment
expense
Changes - - 2,092 - - (2,288 ) - (196 )
in
employee
benefit
shares
New share 1 1,866 - - - - - 1,867
capital
issued
As of 95 18,957 (15,294 ) (15,980 ) 2,835 227,197 19,317 237,127
June
30, 2013
Profit - - - - - 4,738 - 4,738
for
the
period
Other - - - - - 277 (1,062 ) (785 )
comprehensive
income/(loss),
net of
tax
Total - - - - - 5,015 (1,062 ) 3,953
comprehensive
income
for the
period
Tax on - - - - - 4,450 - 4,450
equity
awards
Share-based - - - - - 3,253 - 3,253
payment
expense
Changes - - (122 ) - - (184 ) - (306 )
in
employee
benefit
shares
New share 2 12,829 - - - - - 12,831
capital
issued
As 97 31,786 (15,416 ) (15,980 ) 2,835 239,731 18,255 261,308
of March
31, 2014
Kofax Limited
Unaudited Condensed
Consolidated
Statements of Cash Flows
($ in thousands)
For the Nine Months Ended
March 31, 2014 March 31, 2013
Cash flows from operating
activities
Income from continuing 8,940 2,739
operations before tax
Adjustments to reconcile
profit
before tax to net
cash flows:
Finance income (5,498 ) (136 )
Finance expense 640 4,796
Depreciation and 10,817 9,362
amortization
Share-based payment expense 3,253 897
Changes in operating assets
and liabilities:
Trade receivables, net 13,185 8.196
Other assets 1,627 1,641
Trade and other payables (282 ) 2,635
Deferred income 14,159 2,186
Provisions (3,353 ) (1,159 )
Payments under (588 ) (861 )
restructuring
- personnel
Income taxes paid (8,447 ) (7,163 )
Net cash inflow from 34,453 23,133
operating activities
Cash flows from investing
activities
Purchase of property (2,779 ) (1,785 )
and equipment,
licenses and similar rights
Acquisition of (45,387 ) (16,604 )
subsidiaries,
net of cash acquired*
Proceeds from sale - 603
of discontinued
operations
Interest received 80 130
Net cash outflow from (48,086 ) (17,656 )
investing activities
Cash flows from financing
activities
Issue of share capital 465 1,932
Proceeds from initial 12,366 -
public offering
Purchases of and (306 ) (953 )
proceeds from
employee benefit shares
Interest paid (302 ) (383 )
Net cash inflow from 12,223 596
financing activities
Net increase/(decrease) in (1,410 ) 6,073
cash and cash equivalents
Cash and cash equivalents 93,413 81,122
at start of the period
Exchange rate effects 1,048 (389 )
Cash and cash equivalents 93,051 86,806
at the end of the period
* The Group cash outflow from acquisitions is net of $1.3
million cash acquired from the Kapow acquisition and also includes
payments of contingent consideration related to the Atalasoft
acquisition of $1.2 million, contingent consideration related to
the acquisition of Altosoft of $1.0 million and deferred
consideration related to the Altosoft acquisition of $2.1 million
and the Kapow acquisition of $1.9 million.
Kofax LimitedNotes to the Unaudited Condensed Consolidated
Interim Financial Statements
NOTE 1ACCOUNTING POLICIES
1.1 Basis of presentation
The unaudited Condensed Consolidated Interim Financial
Statements for the nine months ended March 31, 2014 have been
prepared in accordance with IAS 34, "Interim Financial Reporting"
and the Disclosure and Transparency Rules of the Financial Services
Authority.
On December 5, 2013, Kofax Limited ("Kofax") effected an initial
public offering of 2,300,000 shares of common stock on the NASDAQ
Global Select Market using the ticker symbol "KFX". All of the
shares of common stock were offered by Kofax; there were no selling
shareholders. Immediately prior to this listing Kofax was
established as the parent company of Kofax's various subsidiaries
through a scheme of arrangement under Part 26 of the U.K. Companies
Act of 2006. As part of that scheme, Kofax issued shares with a par
value of $0.001 per share to replace Kofax plc's prior shares with
a par value of 2.5 pence per share. Share capital and share premium
amounts in the comparative periods have been retroactively adjusted
to reflect this change.
The Condensed Consolidated Interim Financial Statements do not
include all information and disclosures as required in the
Consolidated Annual Financial Statements, and should be read in
conjunction with Kofax's Consolidated Annual Financial Statements
for the year ended June 30, 2013 and Final Prospectus dated
December 5, 2013.
The Condensed Consolidated Interim Financial Statements were
approved by the Board of Directors on April 29, 2014.
1.2 Summary of significant accounting policies
The accounting policies adopted in preparation of the Condensed
Consolidated Interim Financial Statements are consistent with those
followed in preparation of the Consolidated Annual Financial
Statements for the year ended June 30, 2013.
The adoption of the standards and interpretations that have
become effective for the current fiscal year have already been
outlined in detail in the Consolidated Annual Financial Statements
for the year ended June 30, 2013 and were not considered to have a
significant impact on these Condensed Consolidated Interim
Financial Statements.
1.3 Seasonality of operations
Many contracts, particularly those sold through the direct sales
force, are finalized in the latter portions of any given quarter.
Additionally, Kofax's revenue may vary from quarter to quarter,
depending on the timing and size of license revenue, which may
contain individually large contracts in any given period. The first
and third fiscal quarters have historically been seasonally weaker
than the second and fourth quarters. This information is provided
to allow for a proper appreciation of the results. However,
management has concluded that this does not constitute "highly
seasonal" as considered by IAS 34 Interim Financial Reporting.
NOTE 2BUSINESS COMBINATIONS
Acquisition of Kapow
On July 31, 2013, Kofax acquired 100% of the shares of Kapow
Technologies Holdings, Inc. (Kapow), a company incorporated in the
United States, specializing in data integration software. Kapow's
software will assist in Kofax's ability to integrate smart process
applications with third party software for content import and
export purposes as well as data validation during a business
process. In addition, it will assist in penetrating the emerging
electronic content transformation segment of the multichannel
capture market, and is highly complementary to the recent
acquisition of Altosoft's business intelligence and analytics
products. The acquisition was accounted for using the acquisition
method.
The consolidated financial statements include the results of
Kapow during the eight month period from the acquisition date. The
provisional fair value of the identifiable assets and liabilities
of Kapow, at the acquisition date, are as follows:
July 31, 2013
($ in thousands)
Current assets:
Cash and cash equivalents 1,276
Trade receivables, net 3,093
Other current assets 378
Total current assets 4,747
Other non-current assets 87
Property and equipment 99
Deferred tax assets 8,375
Technology-intangible 10,700
Customer relationships-intangible 5,400
In-process R&D-intangible 700
Trade names-intangibles 200
Total assets 30,308
Current liabilities
Trade and other payables 536
Other current liabilities 1,657
Deferred income - current 1,260
Total current liabilities 3,453
Other liabilities 26
Deferred tax liabilities 6,357
Total liabilities 9,836
Net assets acquired 20,472
Consideration paid in cash at time of closing 40,524
Deferred consideration 6,624
Total consideration 47,148
Goodwill arising from acquisition 26,676
Analysis of cash flows on acquisition:
($ in thousands)
Cash outflow at time of closing 40,524
Less: cash acquired 1,276
Total cash consideration 39,248
The provisional goodwill of $26.7 million includes the value of
acquired technologies, and expected synergies arising from the
acquisition and the workforce, which is not separately
recognizable. None of the goodwill is expected to be deductible for
tax purposes.
From the date of acquisition, Kapow has contributed $6.2 million
of revenue and $4.8 million of net loss to the Group. If the
combination had taken place at the beginning of the fiscal year,
revenue from Kapow's operations would have been approximately $1.0
million higher and the net income would have decreased by
approximately $1.0 million and Kofax's total revenue would have
been $211.1 million and net income $3.0 million.
NOTE 3OPERATING SEGMENTS
Kofax operates one business segment, the software business. All
products and services are considered one solution to customers and
are operated and analysed under one income statement provided to
and evaluated by the chief operating decision maker (CODM). The
CODM manages the business based on the key measures for resource
allocation, based on a single set of financial data that
encompasses Kofax's entire operations for purposes of making
operating decisions and assessing financial performance. The
Group's CODM is the Chief Executive Officer.
There are no reportable assets that meet the criteria under IFRS
8 to be reported under the single operating segment.
Entity-wide Disclosures
The following revenue information is based on the location of
the customer:
Americas UK Germany Rest of Asia- Total
EMEA Pacific
External ($ in thousands)
Revenue
for the
Three Months
Ended
March 31, 36,901 9,638 4,695 14,822 4,666 70,722
2014
March 31, 31,435 12,146 4,164 12,238 4,338 64,321
2013
Americas UK Germany Rest of Asia- Total
EMEA Pacific
External ($ in thousands)
Revenue
for the
Nine Months
Ended
March 31, 115,751 23,698 14,118 42,837 13,779 210,183
2014
March 31, 98,544 26,766 12,668 36,797 13,385 188,160
2013
The following table presents non-current assets by subsidiary
location:
America UK Germany Rest of Asia- Total
EMEA Pacific
Non-current ($ in thousands)
assets
As of March 154,556 34,889 6,511 36,244 7,056 239,256
31, 2014
As of June 116,054 34,806 6,078 33,734 6,407 197,079
30, 2013
Non-current assets for this purpose consist of property and
equipment, intangible assets, and other non-current assets -
excluding security deposits and deferred tax assets.
NOTE 4OPERATING COSTS AND EXPENSES
Operating costs and expenses include the following key
elements:
For the Three Months Ended For the Nine Months Ended
March 31, March 31, March 31, March 31,
2014 2013 2014 2013
($ in thousands)
Staff costs 44,748 39,022 128,720 111,746
excluding
share-based
payment
expense
Share-based 1,387 (294 ) 3,253 897
payment
expense
Depreciation 593 789 1,842 2,257
of property
and equipment
Amortization 2,164 1,587 6,728 4,813
of acquired
intangible
assets -
technology
and
contractual
relationships
Amortization 756 712 2,177 2,292
of
intangible
assets
- licenses
and
similar
rights
Total 756 729 1,901 2,675
remuneration
for
principal
auditors
Operating 1,998 2,034 6,005 6,081
lease
expense -
minimum lease
payments
Acquisition 504 1,600 398 4,543
related
costs
Third party 3,584 3,129 11,484 8,950
royalties
and
commissions
Travel 3,032 2,904 9,453 8,362
and
entertainment
Consultants, 4,076 2,585 10,804 8,080
contractors
and advisors
Direct 2,827 2,356 8,416 7,807
marketing
costs
Utilities, 1,652 1,500 4,930 4,487
maintenance
and repair
Other 2,461 2,119 9,990 7,771
administrative
costs
Total 70,538 60,772 206,101 180,761
operating
costs
and expenses
Amortization of acquired intangibles is a component of both cost
of sales and general and administrative expenses. Amortization of
acquired technology intangible assets of $4.2 million (March 31,
2013: $3.4 million) relates to cost of sales, and amortization of
other intangible assets of $2.5 million (March 31, 2013: $1.4
million) relates to general and administrative expenses.
For the Three Months Ended For the Nine Months Ended
March 31, March 31, March 31, March 31,
2014 2013 2014 2013
($ in thousands)
Total cost
of sales
comprises:
Cost 1,955 2,576 7,640 7,302
of software
licenses
Cost 5,218 4,753 15,104 13,516
of maintenance
services
Cost 8,129 7,182 23,977 21,312
of professional
services
Amortization 1,276 1,128 4,186 3,438
of acquired
technology
intangible
assets
Total cost 16,578 15,639 50,907 45,568
of sales
Total general
and
administrative
comprises:
General 10,428 9,082 29,313 28,317
and
administrative
Amortization of 888 459 2,542 1,375
other acquired
intangibles
assets
Total general 12,440 9,541 32,979 29,692
and
administrative
expenses
NOTE 5INCOME TAX EXPENSE
The components of income tax expense related to current income
tax expense and deferred income tax expense were as follows:
Three Months Ended Nine Months Ended
March 31, March 31,
2014 2013 2014 2013
(in thousands)
Current income
tax expense
Income tax 1,334 3,138 8,959 7,165
on profits
for the period
Adjustment for (336 ) (440 ) (658 ) (610 )
provision
in prior periods
Total current 998 2,698 8,301 6,555
income
tax expense
Deferred income
tax expense
Reversal of (245 ) (1,551 ) (4,551 ) (2,840 )
temporary
differences
Adjustment for 190 (150 ) 452 (278 )
provision
in prior periods
Total deferred (55 ) (1,701 ) (4,099 ) (3,118 )
income
tax expense
Total income 943 997 4,202 3,437
tax expense
The effective tax rate (income tax expense as a percentage of
income from continuing operations) can be influenced by the
disproportionate effect of significant expenses that are not
deductible for tax purposes, together with non-recognition of
certain tax losses, and certain income items that do not attract a
tax charge.
NOTE 6EARNINGS PER SHARE
The table below presents the computation of basic and diluted
earnings per share:
For the Three Months Ended For the Nine Months Ended
March 31, March 31, March 31, March 31,
2014 2013 2014 2013
($ in thousands, except per share data)
Income/(loss) (54 ) (329 ) 4,738 (698 )
from
continuing
operations,
after tax
Earnings/(loss)
per share
> Basic (0.00 ) (0.01 ) 0.05 (0.01 )
> Diluted (0.00 ) (0.01 ) 0.05 (0.01 )
The difference between the diluted and basic calculation is due
to the additional shares that would be issued on the conversion of
all the dilutive ordinary shares. The table below presents the
computation of basic and diluted shares:
For the Three Months Ended For the Nine Months Ended
March 31, March 31, March 31, March 31,
2014 2013 2014 2013
($ in thousands)
Weighted 86.2 84.3 86.2 84.3
average
number
of
shares
outstanding*
Dilutive impact 2.6 1.9 2.2 1.6
of
share options
Dilutive 3.8 2.4 3.8 2.4
impact
of Long Term
Incentive Plan
(LTIPs)
Diluted shares 92.6 88.6 92.2 88.3
*excluding employee benefit shares and Treasury shares
NOTE 7PROVISIONS
Personnel Onerous Contingent Others Total
Restructuring Lease Consideration
($ in thousands)
As of 586 644 8,090 1,411 10,731
June
30,
2013
Arising - - 9,914 136 10,050
during
the
period
Reversed - - (3,472 ) (92 ) (3,564 )
against
income
statement
Utilized (637 ) (320 ) (6,374 ) (972 ) (8,303 )
during
the
period
Exchange 51 (14 ) 189 35 261
differences
As - 310 8,347 518 9,175
of
March
31,
2014
Current - 310 4,681 - 4,991
Non-current - - 3,666 518 4,184
As - 310 8,347 518 9,175
of
March
31,
2014
Contingent consideration relates to deferred consideration,
contingent consideration, and employee retention payments
associated with acquisitions in prior periods and in the nine
months ended March 31, 2014. On July 25, 2013, the Altosoft
acquisition agreement was amended to allow for achievement of
earnings targets based on cumulative results in the first two years
of the assessment. During the third quarter of 2014, $1.0 million
of contingent consideration was paid to the former shareholders of
Altosoft. In determining the fair value of the remaining calendar
year 2014 and 2015 contingent consideration, management assessed a
number of scenarios and based on those scenarios, estimated for
financial accounting purposes, $2.8 million of the contingent
consideration remains to be paid to former shareholders.
In relation to the acquisition of Kapow, an additional $6.6
million of deferred consideration was included in the total
consideration of the acquisition. During the third quarter of 2014,
$1.9 million of deferred consideration was paid to the former
shareholders of Kapow. An additional $2.4 million is expected to be
paid one year from closing and $2.3 million to be paid two years
from closing, with said amounts being subject to certain
indemnification terms and conditions.
Additionally, the threshold for the contingent consideration and
related retention bonuses related to the acquisition of Singularity
was not achieved in the second measurement period. Accordingly
provisions totaling $3.6 million was reversed against the income
statement.
NOTE 8RELATED PARTY TRANSACTIONS
Directors' interests in share options and LTIPs
Directors who are also executive officers of Kofax held
1,169,800 LTIP shares as of March 31, 2014, of which 300,000 were
granted during the nine month period ended March 31, 2014 and no
LTIPs were vested during the nine months ended March 31, 2014. For
the remaining LTIPs, based upon performance criteria and other
factors, shares become subject to release three years after their
issuance. Market prices of the shares were between 146.0 pence and
361.5 pence at the grant dates.
Directors who are also executive officers of Kofax held
1,950,000 share options as of March 31, 2014, and no options were
granted during the nine month period ended March 31, 2014, nor did
any share options lapse during the period. The exercise periods are
between calendar years 2012 and 2020 with exercise prices of the
shares between 146 pence and 240 pence.
NOTE 9CONTINGENT LIABILITIES
There are no material pending or threatened lawsuits against
Kofax.
NOTE 10SUBSEQUENT EVENTS
No subsequent events have been identified requiring
disclosure.
RESPONSIBILITY STATEMENT OF THE EXECUTIVE DIRECTORS IN RESPECT
OF THE INTERIM FINANCIAL STATEMENTS
We confirm that to the best of our knowledge:
The condensed consolidated set of financial statements has been
prepared in accordance with IAS 34, "Interim Financial Reporting"
as adopted by the EU;
The interim management report includes a fair review of the
information required by:
a) DTR 4.2.7 R of the Disclosure and Transparency Rules, being
an indication of important events that have occurred during the
first nine months of the financial year and their impact on the
condensed set of financial statements and a description of the
principal risks and uncertainties for the remaining three months of
the year; and
b) DTR 4.2.8 R of the Disclosure and Transparency Rules, being
related party transactions that have taken place in the first nine
months of the current financial year and that have materially
affected the financial position or performance of the entity during
that period and any changes in the related party transactions
described in the last annual report that could do so.
Reynolds C. BishChief Executive OfficerApril 29, 2014
James Arnold, Jr.Chief Financial OfficerApril 29, 2014
Media Contact:
Kofax Limited
Colleen Edwards
Vice President, Corporate Communications
+1 (949) 783-1582
colleen.edwards@kofax.com
or
Investor Contacts:
MKR Group Inc.
Todd Kehrli
+1 (323) 468-2300
kfx@mkr-group.com
or
FTI Consulting
Sophie McMillan
+44 (0) 20 3727 1000
kofax@fticonsulting.com
This information is provided by Business Wire
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