Kofax® Limited (NASDAQ:KFX) (LSE:KFX), a leading provider
of smart process applications for the business critical First Mile™
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 Licenses
28.1 6.5 % 39.8 % 83.0 12.8 % 39.5 % Maintenance
Services 32.5 8.6 % 46.0 % 98.1 8.2 % 46.7 % Professional Services
10.1 26.7 %
14.2 % 29.1
21.5 % 13.8 %
Total Revenues
70.7 10.0 % 100.0 % 210.2
11.7 % 100.0 %
Income from Operations
0.2 -94.8 % 4.1 -44.8 %
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 Licenses 29.5
11.6 % 40.9 % 88.1 19.5 % 40.6 % Maintenance Services 32.8
9.1 % 45.4 % 98.9 9.0 % 45.7 % Professional Services 9.9
25.0 % 13.7 %
29.8 24.4 %
13.7 %
Total Revenues
72.2 12.1 % 100.0 % 216.8
15.1 % 100.0 %
Adjusted EBITDA
7.5 -11.5 % 28.7 16.1 %
Margin
10.3 %
-21.1 %
13.2 %
0.9 %
Operating Highlights:
- Launched several new software products
and releases, including:
- Kofax TotalAgility™ 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 Capture™ 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 Insight™ 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 Capture™ 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 Capture™ Platform was
named to HousingWire Magazine's inaugural HW TECH100™ 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 Revenue Growth
Low Double Digits
Mid to High Teens Total Revenues Growth
Mid to High Single Digits
Low Double 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 for 30 days) Access
Code 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
March 31,
% of Total Revenue 2014 2013
% Change 2014 2013 ($ in
thousands, except percentages) Software license $ 28,136 $
26,422 6.5 % 39.8 % 41.1 % Maintenance services 32,534 29,966 8.6 %
46.0 % 46.6 % Professional services 10,052 7,933 26.7
% 14.2 % 12.3 %
Total revenues $ 70,722 $ 64,321 10.0 %
100.0 % 100.0 %
Americas $ 36,901 $ 31,435 17.4 % 52.2 % 48.9 % EMEA 29,155 28,548
2.1 % 41.2 % 44.4 % Asia Pacific 4,666 4,338 7.6 %
6.6 % 6.7 %
Total revenues $ 70,722 $ 64,321 10.0 % 100.0 %
100.0 %
Nine Months Ended
March 31,
% of Total Revenue 2014 2013 % Change
2014 2013 ($ in thousands, except percentages)
Software license $ 82,965 $ 73,571 12.8 % 39.5 % 39.1 % Maintenance
services 98,122 90,646 8.2 % 46.7 % 48.2 % Professional services
29,096 23,943 21.5 % 13.8 % 12.7 %
Total
revenues $ 210,183 $ 188,160 11.7 % 100.0 % 100.0 %
Americas $ 115,751 $ 98,544 17.5 % 55.1 % 52.4 % EMEA 80,653
76,231 5.8 % 38.3 % 40.5 % Asia Pacific 13,779 13,385
2.9 % 6.6 % 7.1 %
Total revenues $ 210,183 $ 188,160 11.7 %
100.0 % 100.0 %
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
March 31,
Change
Nine Months Ended
March 31,
Change 2014 2013 $
% 2014 2013 $
% (in thousands, except percentages) Cost of software
license $ 1,955 $ 2,576 $ (621 ) (24.1 )% $ 7,640
$ 7,302 $ 338 4.6 % % of software license revenues
6.9 % 9.7 % 9.2 % 9.9 %
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
March 31,
Change
Nine Months Ended
March 31,
Change 2014 2013 $
% 2014 2013 $
% (in thousands, except percentages) Cost of
maintenance services $ 5,218 $ 4,753 $ 465 9.8 % $
15,104 $ 13,516 $ 1,588 11.7 % % of maintenance
services revenue 16.0 % 15.9 % 15.4 %
14.9 %
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
March 31,
Change
Nine Months Ended
March 31,
Change 2014 2013 $
% 2014 2013 $
% (in thousands, except percentages) Cost of
professional services $ 8,129 $ 7,182 $ 947 13.2 % $
23,977 $ 21,312 $ 2,665 12.5 % % of professional
services revenue 80.9 % 90.5 % 82.4 %
89.0 %
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
March 31,
Change
Nine Months Ended
March 31,
Change 2014 2013 $
% 2014 2013 $
% (in thousands, except percentages) Research and
development $ 10,318 $ 9,010 $ 1,308 14.5 % $ 29,346
$ 25,914 $ 3,432 13.2 % % of total revenues
14.6 % 14.0 % 14.0 % 13.8 %
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
March 31,
Change
Nine Months Ended
March 31,
Change 2014 2013 $
% 2014 2013 $
% (in thousands, except percentages) Sales and
marketing expense $ 31,418 $ 24,565 $ 6,853 27.9 % $
89,959 $ 72,770 $ 17,189 23.6 % % of total revenues
44.4 % 38.2 % 42.8 % 38.7 %
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
March 31,
Change
Nine Months Ended
March 31,
Change 2014 2013 $
% 2014 2013 $
% (in thousands, except percentages) General
and administrative expense $ 10,428 $ 9,082 $ 1,346
14.8 % $ 29,313 $ 28,317 $ 996 3.5 % % of total
revenues 14.7 % 14.1 % 13.9 % 15.0 %
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
March 31,
Change
Nine Months Ended
March 31,
Change 2014 2013 $
% 2014 2013 $
% (in thousands, except percentages)
Amortization of acquired intangible assets $ 2,164 $ 1,587
$ 577 36.4 % $ 6,728 $ 4,813 $ 1,915 39.8 % %
of total revenues 3.1 % 2.5 % 3.2 % 2.6
%
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
March 31,
Change
Nine Months Ended
March 31,
Change 2014 2013 $
% 2014 2013 $
% (in thousands, except percentages)
Acquisition-related costs $ 504 $ 1,600 $ (1,096 )
(68.5 )% $ 398 $ 4,543 $ (4,145 ) (91.2 )% % of total
revenues 0.7 % 2.5 % 0.2 % 2.4 %
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
March 31,
Change
Nine Months Ended
March 31,
Change 2014 2013 $
% 2014 2013 $
% (in thousands, except percentages) Other
operating expenses, net $ 404 $ 417 $ (13 ) (3.1 )% $
3,636 $ 2,274 $ 1,362 59.9 % % of total revenues
0.6 % 0.6 % 1.7 % 1.2 %
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
March 31,
Change
Nine Months Ended
March 31,
Change 2014 2013 $
% 2014 2013 $
% (in thousands, except percentages) Finance
income (expense), net $ 705 $ (2,881 ) $ 3,586 (124.5 )% $
4,858 $ (4,660 ) $ 9,518 (204.2 )% % of total revenues
1.0 % (4.5 )% 2.3 % (2.5 )%
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
March 31,
Change
Nine Months Ended
March 31,
Change 2014 2013 $
% 2014 2013 $
% (in thousands, except percentages) Income
tax expense $ 943 $ 997 $ (54 ) (5.4 )% $ 4,202
$ 3,437 $ 765 22.2 % Income from continuing
operations $ 889 $ 668 $ 8,940 $ 2,739
Effective tax rate 106.0 % 149.3 % 47.0 %
125.5 %
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
reported
under IFRS)
Acquisition
Fair Value
Adjustment
Non-IFRS
Revenues
Revenues (as
reported
under IFRS)
Acquisition
Fair Value
Adjustment
Non-IFRS
Revenues
($ in thousands) ($ in thousands) Software licenses $ 28,136 $
1,400 $ 29,536 $ 26,422 $ 39 $ 26.461 Maintenance services 32,534
197 32,730 29,966 21 29.987 Professional services 10,052
(136 ) 9,916 7,933 − 7,933 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
reported
under IFRS)
Acquisition
Fair Value
Adjustment
Non-IFRS
Revenues
Revenues (as
reported
under IFRS)
Acquisition
Fair Value
Adjustment
Non-IFRS
Revenues
($ in thousands) ($ in thousands) Software licenses $ 82,965 $
5,102 $ 88,067 $ 73,571 $ 124 $ 73,695 Maintenance services 98,122
800 98,922 90,646 133 90,779 Professional services 29,095
693 29,789 23,943 −
23,943 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
March 31,
Nine Months Ended
December 31,
2014 2013 2014
2013 ($ in thousands) Income from operations $
184 $ 3,549 $ 4,082 $ 7,399 Acquisition fair value adjustment to
revenues 1,460 60 6,595 257 Share-based payment expense 1,387 (294
) 3,253 897 Depreciation and amortization expense 1,349 1,501 4,019
4,549 Amortization of acquired intangible assets 2,164 1,587 6,728
4,813 Acquisition-related costs 504 1,600 398 4,543 Other operating
expenses, net 404 417 3,636
2,274 Non-IFRS income from operations $ 7,452
$ 8,420 $ 28,711 $ 24,732
Non-IFRS income from operations as a
percentage of adjusted revenues
10.3 % 13.1 % 13.2 % 13.1 %
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
March 31,
Nine Months Ended
March 31,
2014 2013 2014
2013 ($ in thousands) Cash flows from
operations $ 16,233 $ 13,928 $ 34,453 $ 23,133 Income taxes paid
3,577 (2,385 ) 8,447 (7,163 ) Payments under restructuring −
6 588 (861 ) Adjusted cash flows from
operations $ 19,810 $ 16,307 $ 43,488 $ 31,157
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
$43.5 million for the nine months ended March 31, 2014 as a result
of increased cash flows from operations, tax payments and payments
under restructuring.
Adjusted diluted earnings per share - We define Adjusted diluted
earnings per share as diluted earnings per share, as reported under
IFRS, adjusted by certain items that are also excluded from our
non-IFRS income from operations and which are discussed above. The
most comparable IFRS metrics, ‘income (loss) from continuing
operations, after tax’ and ‘earnings per share – diluted’, also
include the reconciling items finance income (expense), net, and
the impacts of income taxes on each of the other reconciling items.
Therefore, we include this non-IFRS measure in order to provide a
more complete comparison of our earnings per share from one period
to another.
The tables below provide a reconciliation of our Adjusted
diluted earnings per share, and our associated non-IFRS income
(loss) from continuing operations, after tax:
Reconciliation of Adjusted Diluted Earnings Per Share
For the Three Months Ended March 31,
2014 2013
Per Diluted
Share
Per Diluted
Share
($ in thousands, except per share data) Income
from continuing operations, after tax $ (0.00 ) $ (54 ) $ (0.00 ) $
(329 ) Acquisition fair value adjustment to revenues 0.02 1,460
0.00 60 Share-based payment expense 0.01 1,387 (0.00 ) (294 )
Amortization of intangible assets 0.02 2,164 0.02 1,587
Acquisition-related costs 0.01 504 0.02 1,600 Net finance and other
income and expense (0.00 ) (301 ) 0.03 3,298 Tax effect of above
(0.01 ) (484 ) (0.01 ) (990 ) Adjusted diluted
earnings per share $ 0.05 $ 0.06
For
the Nine Months Ended March 31, 2014 2013
Per Diluted
Share
Per Diluted
Share
($ in thousands, except per share data) Income/(loss) from
continuing operations, after tax $ 0.05 $ 4,738 $ (0.00 ) $ (698 )
Acquisition fair value adjustment to revenues 0.07 6,595 0.00 257
Share-based payment expense 0.04 3,253 0.01 897 Amortization of
intangible assets 0.07 6,728 0.05 4,813 Acquisition-related costs
0.00 398 0.05 4,543 Net finance and other income and expense (0.01
) (1,222 ) 0.08 6,934 Tax effect of above (0.04 ) (4,245 )
(0.03 ) (2,869 ) Adjusted diluted earnings per share $ 0.18
$ 0.16
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 services 16 1 Research and development
278 98 Selling and marketing 711 (249 ) General and administrative
365 (144 ) Total share-based payment expense $ 1,387
$ (294 )
For the Nine Months Ended
March 31,
2014 2013 ($ in thousands) Cost of maintenance
services $ 47 $ − Cost of professional services 58 2 Research and
development 627 303 Selling and marketing 1,648 161 General and
administrative 873 431 Total share-based
payment expense $ 3,253 $ 897
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 amortization expense $ 1,349 $ 1,501
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 amortization expense $ 4,019 $ 4,549
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,
2014
March 31,
2013
March 31,
2014
March 31,
2013
Software licenses 28,136 26,422 82,965 73,571 Maintenance
services 32,534 29,966 98,122 90,646 Professional services 10,052
7,933 29,096 23,943
Total
revenues 70,722 64,321 210,183 188,160 Cost of software
licenses 1,955 2,576 7,640 7,302 Cost of maintenance services 5,218
4,753 15,104 13,516 Cost of professional services 8,129 7,182
23,977 21,312 Research and development 10,318 9,010 29,346 25,914
Sales and marketing 31,418 24,565 89,959 72,770 General and
administrative 10,428 9,082 29,313 28,317 Amortization of acquired
intangible assets
2,164
1,587 6,728 4,813 Acquisition-related costs 504 1,600 398 4,543
Other operating expenses, net 404 417 3,636
2,274
Operating costs and expenses 70,538
60,772 206,101 180,761
Income from
operations 184 3,549 4,082 7,399 Finance income 899 20
5,498 136 Finance expense (194 ) (2,901 ) (640 ) (4,796 )
Income from continuing operations, before tax 889 668 8,940
2,739 Income tax expense 943 997 4,202 3,437
Income/(loss) attributable to equity holders of
the Parent (54 ) (329 ) 4,738 (698 )
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,
2014
March 31,
2013
March 31,
2014
March 31,
2013
Income/(loss) attributable to equity holders of the Parent
(54 ) (329 )
4,738 (698 ) Other
comprehensive income/(loss): Items that may be subsequently
reclassified to profit or loss: Exchange gains/(losses) arising on
translation of foreign operations
45 (899 )
(1,065
) 3,207 Income tax relating to items that may be
reclassified
15 (127 )
3 (105 )
60 (1,026 )
(1,062 ) 3,102 Items that will not
be reclassified to profit or loss: Actuarial (losses)/gains
on defined benefit pension plans
(1 ) 123
338
375 Income tax relating to items that will not be reclassified
(2 ) (18 )
(61 ) (58 )
(3
) 105
277 317 Other comprehensive income/(loss) for
the period, net of tax:
Total comprehensive income for the period, net of tax,
attributable to equity holders of the Parent
57 (921
)
(785 ) 3,419 Income/(loss) attributable to
equity holders of the Parent
3 (1,250 )
3,953
2,721
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
Shareholders’ equity
420,474 379,143
Kofax Limited
Unaudited Condensed Consolidated
Statements of Changes in Equity
($ in thousands)
Share
Capital
Share Premium
Account
Employee
Benefit
Shares
Treasury
Shares
Merger
Reserve
Retained
Earnings
Currency
Translation
Adjustment
Total
Equity
As of June 30, 2012 94 17,091 (17,386 ) (15,980 ) 2,835
216,585 14,701 217,940 Profit for the period – – – – –
10,001 – 10,001
Other comprehensive income/(loss), net of
tax
– – – – – (679 ) 4,616 3,937 Total
comprehensive income for the period – – – – – 9,322 4,616 13,938
Tax on equity awards – – – – – 2,185 – 2,185 Share-based payment
expense – – – – – 1,393 – 1,393 Changes in employee benefit shares
– – 2,092 – – (2,288 ) – (196 ) New share capital issued 1 1,866 –
– – – – 1,867 As of June 30,
2013 95 18,957 (15,294 ) (15,980 ) 2,835 227,197 19,317 237,127
Profit for the period
– – – –
– 4,738 – 4,738 Other comprehensive
income/(loss), net of tax
– – –
– – 277 (1,062 )
(785 ) Total comprehensive income for the period
– – – – –
5,015
(1,062 )
3,953
Tax on equity awards
– – – – –
4,450 – 4,450 Share-based payment expense
– – – – – 3,253 –
3,253 Changes in employee benefit shares
– –
(122 ) – – (184 )
– (306 ) New share capital issued
2
12,829 – – – –
– 12,831 As of March 31, 2014
97 31,786 (15,416 ) (15,980
) 2,835 239,731 18,255
261,308
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 operations before tax 8,940 2,739 Adjustments to
reconcile profit before tax to net cash flows: Finance income
(5,498 ) (136 ) Finance expense 640 4,796 Depreciation and
amortization 10,817 9,362 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 restructuring – personnel (588 ) (861 ) Income taxes
paid (8,447 ) (7,163 ) Net cash inflow from operating activities
34,453 23,133 Cash flows from investing activities Purchase
of property and equipment, licenses and similar rights (2,779 )
(1,785 ) Acquisition of subsidiaries, net of cash acquired* (45,387
) (16,604 ) Proceeds from sale of discontinued operations − 603
Interest received 80 130 Net cash outflow from
investing activities (48,086 ) (17,656 ) Cash flows from
financing activities Issue of share capital 465 1,932 Proceeds from
initial public offering 12,366 − Purchases of and proceeds from
employee benefit shares (306 ) (953 ) Interest paid (302 ) (383 )
Net cash inflow from financing activities 12,223 596
Net increase/(decrease) in cash and cash equivalents (1,410 ) 6,073
Cash and cash equivalents at start of the period 93,413
81,122 Exchange rate effects 1,048 (389 ) Cash and cash
equivalents at the end of the period 93,051 86,806
* 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 1 ACCOUNTING 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 2 BUSINESS 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 $3.0 million.
NOTE 3 OPERATING SEGMENTS
Kofax operates one business segment, the software business. All
products and services are considered one solution to customers and
are operated and analysed under one income statement provided to
and evaluated by the chief operating decision maker (CODM). The
CODM manages the business based on the key measures for resource
allocation, based on a single set of financial data that
encompasses Kofax’s entire operations for purposes of making
operating decisions and assessing financial performance. The
Group’s CODM is the Chief Executive Officer.
There are no reportable assets that meet the criteria under IFRS
8 to be reported under the single operating segment.
Entity-wide Disclosures
The following revenue information is based on the location of
the customer:
Americas UK
Germany
Rest of
EMEA
Asia-
Pacific
Total External Revenue for the Three Months Ended ($
in thousands) March 31, 2014 36,901 9,638 4,695 14,822 4,666
70,722 March 31, 2013 31,435 12,146 4,164 12,238 4,338
64,321 Americas UK Germany
Rest of
EMEA
Asia-
Pacific
Total External Revenue for the Nine Months Ended ($
in thousands) March 31, 2014 115,751 23,698 14,118 42,837
13,779
210,183 March 31, 2013 98,544 26,766 12,668 36,797
13,385
188,160
The following table presents non-current assets by subsidiary
location:
America UK
Germany
Rest of
EMEA
Asia-
Pacific
Total Non-current assets ($ in
thousands) As of March 31, 2014 154,556 34,889 6,511 36,244
7,056
239,256 As of June 30, 2013 116,054 34,806 6,078
33,734 6,407
197,079
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 4 OPERATING COSTS AND EXPENSES
Operating costs and expenses include the following key
elements:
For the Three Months
Ended For the Nine Months Ended
March 31,
2014
March 31,
2013
March 31,
2014
March 31,
2013
($ in thousands) Staff costs excluding share-based payment expense
44,748 39,022 128,720 111,746 Share-based payment expense 1,387
(294 ) 3,253 897 Depreciation of property and equipment 593 789
1,842 2,257 Amortization of acquired intangible assets – technology
and contractual relationships
2,164
1,587
6,728
4,813
Amortization of intangible assets – licenses and similar rights
756
712
2,177
2,292
Total remuneration for principal auditors 756 729 1,901 2,675
Operating lease expense – minimum lease payments 1,998 2,034 6,005
6,081 Acquisition related costs 504 1,600 398 4,543 Third party
royalties and commissions 3,584 3,129 11,484 8,950 Travel and
entertainment 3,032 2,904 9,453 8,362 Consultants, contractors and
advisors 4,076 2,585 10,804 8,080 Direct marketing costs 2,827
2,356 8,416 7,807 Utilities, maintenance and repair 1,652 1,500
4,930 4,487 Other administrative costs 2,461 2,119 9,990
7,771 Total operating costs and expenses 70,538 60,772
206,101 180,761
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: $1.4
million) relates to general and administrative expenses.
For the Three Months
Ended For the Nine Months Ended
March 31,
2014
March 31,
2013
March 31,
2014
March 31,
2013
($ in thousands) Total cost of sales comprises: Cost of software
licenses 1,955 2,576 7,640 7,302 Cost of maintenance services 5,218
4,753 15,104 13,516 Cost of professional services 8,129 7,182
23,977 21,312 Amortization of acquired technology intangible assets
1,276
1,128
4,186
3,438 Total cost of sales 16,578 15,639 50,907 45,568 Total
general and administrative comprises: General and administrative
10,428 9,082 29,313 28,317 Amortization of other acquired
intangibles assets 888 459 2,542 1,375 Total general and
administrative expenses 12,440 9,541 32,979 29,692
NOTE 5 INCOME 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
March 31,
Nine Months Ended
March 31,
2014 2013 2014
2013 (in thousands) Current income tax expense
Income tax on profits for the period 1,334 3,138 8,959 7,165
Adjustment for provision in prior periods (336 ) (440 ) (658 ) (610
) Total current income tax expense 998 2,698 8,301
6,555 Deferred income tax expense Reversal of
temporary differences (245 ) (1,551 ) (4,551 ) (2,840 ) Adjustment
for provision in prior periods 190 (150 ) 452 (278 )
Total deferred income tax expense (55 ) (1,701 ) (4,099 ) (3,118 )
Total income tax expense 943 997 4,202
3,437
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 6 EARNINGS 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,
2014
March 31,
2013
March 31,
2014
March 31,
2013
($ in thousands, except per share data)
Income/(loss) from continuing operations,
after tax
(54 ) (329 ) 4,738 (698 ) 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,
2014
March 31,
2013
March 31,
2014
March 31,
2013
($ in thousands) Weighted average number of shares outstanding*
86.2 84.3 86.2 84.3 Dilutive impact of share options 2.6 1.9 2.2
1.6 Dilutive impact of Long Term Incentive Plan (LTIPs) 3.8 2.4 3.8
2.4 Diluted shares 92.6 88.6 92.2 88.3
*excluding employee benefit shares and Treasury shares
NOTE 7 PROVISIONS
Personnel
Restructuring
Onerous
Lease
Contingent
Consideration
Others Total ($ in thousands) As of June 30, 2013 586
644 8,090 1,411 10,731 Arising during the period – – 9,914 136
10,050 Reversed against income statement – –
(3,472
)
(92
)
(3,564
)
Utilized during the period (637 ) (320 ) (6,374 ) (972 ) (8,303 )
Exchange differences 51 (14 ) 189 35 261
As of March 31, 2014 – 310 8,347 518
9,175 Current – 310 4,681 – 4,991 Non-current
– – 3,666 518 4,184 As of March
31, 2014 – 310 8,347 518 9,175
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 8 RELATED 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 9 CONTINGENT LIABILITIES
There are no material pending or threatened lawsuits against
Kofax.
NOTE 10 SUBSEQUENT 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 LimitedColleen EdwardsVice President,
Corporate Communications+1 (949)
783-1582colleen.edwards@kofax.comorInvestor Contacts:MKR
Group Inc.Todd Kehrli+1 (323) 468-2300kfx@mkr-group.comorFTI
ConsultingSophie McMillan+44 (0) 20 3727
1000kofax@fticonsulting.com
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