TIDMKFX
Kofax® Limited (NASDAQ: KFX)(LSE: KFX), a leading provider of
smart process applications for the business critical First MileT of
customer interactions, today reported unaudited financial results
for the fourth quarter and audited financial results for the fiscal
year ended June 30, 2014.
Non-IFRS Fiscal Year Financial Highlights:
-- Software license revenue increased 10.2% to $123.9 million (PY: $112.4
million)
-- Total revenues increased 11.5% to $297.4 million (PY: $266.7 million)
-- Adjusted earnings before interest, taxes, depreciation and
amortization (EBITDA) decreased 9.8% to $42.1 million (PY:
$46.7
million) or a 14.2% margin (PY: 17.5%)
-- Adjusted diluted EPS was $0.27 (PY: $0.32)
-- Adjusted cash generated by operations was $48.3 million (PY: $42.1
million)
IFRS Fiscal Year Financial Highlights:
-- Software license revenue increased 5.0% to $117.8 million (PY: $112.2
million)
-- Total revenues increased 8.8% to $289.7 million (PY: $266.3 million)
-- Income from operations decreased 59.1% to $10.3 million (PY: $25.1
million) or a 3.5% margin (PY: 9.4%)
-- Diluted earnings per share (EPS) was $0.12 (PY: $0.11)
-- Cash generated by operations was $34.6 million (PY: $30.5 million)
-- Quarter end cash was $89.6 million (PY: $93.4 million)
Kofax Limited
A summary of Kofax's condensed consolidated income statements
for the fourth quarter and fiscal year ended June 30, 2014 compared
to the prior year are as follows:
Non-IFRS
Quarter Twelve Months
Y/Y % Y/Y %
$M Change Total $M Change Total
Software 35.8 -7.5 % 44.4 % 123.9 10.2 % 41.6 %
Licenses
Maintenance 35.2 12.8 % 43.6 % 134.1 10.0 % 45.1 %
Services
Professional 9.6 14.9 % 12.0 % 39.4 22.0 % 13.3 %
Services
Total 80.6 3.0 % 100.0 % 297.4 11.5 % 100.0 %
Revenues
Adjusted 13.4 -38.9 % 42.1 -9.8 %
EBITDA
Margin 16.6 % -40.7 % 14.2 % -19.1 %
IFRS
Quarter Twelve Months
Y/Y % Y/Y %
$M Change Total $M Change Total
Software 34.8 -9.9 % 43.8 % 117.8 5.0 % 40.6 %
Licenses
Maintenance 35.1 12.8 % 44.1 % 133.2 9.4 % 46.0 %
Services
Professional 9.6 14.7 % 12.1 % 38.7 19.7 % 13.4 %
Services
Total 79.5 1.8 % 100.0 % 289.7 8.8 % 100.0 %
Revenues
Income from 6.2 -65.1 % 10.3 -59.1 %
Operations
Margin 7.8 % -65.7 % 3.5 % -62.4 %
Subsequent Events:
-- The Company acquired Softpro GmbH, a leading provider of signature
verification, fraud prevention and electronic signature software
and
services, on September 1, 2014 as announced in a separate
press
release today
-- The Company previously announced a voluntary change in the basis of
preparation of its financial statements from IFRS to GAAP as of
July
1, 2014, and as announced in a separate press release today
published
audited GAAP financial statements for the fiscal years ending
June 30,
2013 and June 30, 2014, and on its website published GAAP
financial
statements and Non-GAAP financial measures and supplemental
reconciliations for the quarter and fiscal year ended June 30,
2014
-- The Company today announced its intention to seek shareholder approval
to delist from the London Stock Exchange on or before March 31,
2015
-- The Company today announced that Jamie Arnold, Kofax's Chief Financial
Officer and an Executive Director, has given notice of his
intention
to resign for personal reasons from those positions and as an
employee
by September 30, 2015 - over one year from today
Commenting on the Non-IFRS results, Reynolds C. Bish, Chief
Executive Officer, said:
"Our financial results for the fourth quarter and fiscal year
ended June 30, 2014 were in line with our previously announced
preliminary results. We've already closed over $3.0 million of the
$6.0 million of slipped software license sales and believe we will
close the remainder during the first and second quarters of fiscal
year 2015. As a result, we believe this slippage was an anomaly as
opposed to the beginning of unpredictable and volatile quarterly
results.
"We are pleased with our overall progress during the fiscal year
and achieved a number of our strategic objectives. We launched
important new software products and releases, including Kofax
TotalAgility 7 and Kofax TotalAgility Cloud, we completed the
development of Mortgage Agility and we acquired and successfully
integrated Kapow. Software license revenue for the fiscal year from
mobile and new or acquired products grew 106.5% and accounted for
26.1% of total software license revenue - up from only 13.9% in the
prior year. We significantly increased the number of six figure
software license sales, further mitigating but not yet removing the
risk associated with seven figure sales. We grew the number of
quota bearing sales reps by approximately 35%, putting the revenue
generation capacity in place to drive future software license
revenue growth. And, lastly, we successfully established our dual
listing on NASDAQ."
Commenting on the Company's forward looking guidance, Bish
said:
"We remain confident in our business strategy, are prudently
optimistic about our future and reconfirm the long-term financial
model previously communicated, which is based on organic software
license revenue growth in the mid teens, total revenue growth of
10% to 12% and an adjusted EBITDA margin of 20% or greater in
fiscal year 2017. Our guidance for fiscal year 2015, including the
anticipated results of Softpro GmbH, is as follows:"
Millions or Percentages GAAP Non-GAAP
Software License Revenue $145.0 to $151.0 $147.0 to $153.0
Total Revenues $339.0 to $347.0 $343.0 to $351.0
Adjusted EBITDA $51.0 to $55.0 $54.0 to $58.0
Effective Tax Rate 35.0% to 37.0% 33.0% to 35.0%
Intention to Seek Shareholder Approval to Delist from the London
Stock Exchange
The Company today announced its intention to seek shareholder
approval to delist from the London Stock Exchange. This decision
was made by the Board after careful consideration and recognizing
that more than 78.0% of Kofax's shares of common stock were held by
U.S. shareholders, Board members and affiliated parties as of July
31, 2014 and that the majority of the total daily share trading
volume routinely occurs on NASDAQ. The Company plans to hold an
Extraordinary General Meeting on February 9, 2015 in order for
shareholders to vote on the proposal and, subject to approval,
thereafter delist on or before March 31, 2015. The Board chose to
announce this decision now in order to provide sufficient time for
U.K. shareholders unable to hold shares not listed on the London
Stock Exchange to liquidate their holdings in an orderly
manner.
Commenting on Mr. Arnold's notice, Bish said:
"Jamie's accomplished a great deal of very challenging work
during his tenure with Kofax and we'll all be sorry to see him
leave. We'll initiate a search for his replacement and believe this
will be successfully accomplished within a period of time needed to
ensure a smooth transition of his responsibilities."
Conference Call and 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://investor.kofax.com/events.cfm. A replay via telephone and
webcast will be available for 30 days.
Live Replay Access Code
U.K. + 44 (0) 800 404 7655 +44 (0) 808 101 1153 5530811
U.S. +1 (888) 505-4369 +1 (888) 203-1112 5530811
About Kofax
Kofax Limited is a leading provider of innovative smart capture
and process automation software and solutions for the business
critical First MileTM 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, our ability to
consummate and the timing of the consummation of software revenue
transactions 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 and Non-GAAP Financial Measures
Management uses financial measures, both IFRS and Non-IFRS and
GAAP and Non-GAAP, in analyzing and assessing the overall
performance of the business and making operational decisions. We
have provided and believe that the Non-IFRS and Non-GAAP financial
measures and supplemental reconciliation to IFRS and GAAP financial
measures are useful to investors and other users of our financial
statements because the Non-IFRS and Non-GAAP 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 in this press release and the GAAP
financial statements and Non-GAAP measures for the quarter ended
June 30, 2014 attached to this press release for a discussion of
the Non-IFRS and Non-GAAP financial measures and supplemental
reconciliation to IFRS and GAAP financial measures for more
information regarding the Non-IFRS and Non-GAAP measures.
© 2014 Kofax Limited. Kofax is a registered trademark and First
Mile, Kofax TotalAgility, Kofax Mobile Capture and Kofax Mortgage
Agility are trademarks of Kofax Limited.All other trademarks are
the property of their respective owners.
Source: Kofax
Chief Executive Officer's Review
Financial Performance
All amounts or percentages in this review are with reference to
Kofax's Non-IFRS financial results unless otherwise noted. For a
definition of the Non-IFRS financial measures and reconciliation to
IFRS financial measures, please refer to the Chief Financial
Officer's Review that follows.
In the fiscal year ended June 30, 2014 software license revenue
increased 10.2%, maintenance services 10.0%, professional services
22.0% and total revenues 11.5%.
During the first three quarters of the fiscal year we delivered
year over year software license revenue growth in both core capture
and mobile and new or acquired products, continuing the momentum
started during the second half of fiscal year 2013 and achieving
five consecutive quarters of such growth. We were therefore
disappointed with our fourth quarter results, which reflected an
unexpected shortfall in core capture software license revenue in
the United States and Europe. This was primarily attributable to
three seven figure software license sales totaling approximately
$6.0 million slipping into future quarters during the last few days
of the quarter.
We believe this slippage occurred due to a continuing reliance
on seven figure software license sales that are impossible to
control and more difficult to forecast, coupled with insufficient
six figure sales to mitigate this risk - despite all of our efforts
to address these dynamics. This has always been a risk during the
fourth quarter of each fiscal year, which has historically been
more dependent upon and produced a greater number of such seven
figure software license sales.
We've already closed over $3.0 million of these slipped sales
and believe we will close the remainder during the first and second
quarters of fiscal year 2015. As a result, we do not believe this
slippage was attributable to what would be more fundamental issues,
such as core capture market degradation, our go to market model,
macro economic or competitive challenges or a failure to realize
the expected ramping of the new quota bearing sales reps we've
added over the last year. We therefore believe this slippage was an
anomaly, with us experiencing some of the execution risk downside
that remains in our business, particularly in the fourth quarter of
the fiscal year - as opposed to the beginning of unpredictable and
volatile quarterly results.
Throughout the year we continued - as expected - to experience
significantly different software license revenue performance in our
core capture versus mobile and new or acquired products. At the end
of the third quarter, software license revenues in core capture had
grown by 4.1% - in the mid single digits as expected. However, the
unexpected shortfall during the fourth quarter led to core capture
software license revenue declining by 5.4% for the full fiscal
year. Mobile and new or acquired products software license revenue
grew 106.5%, and accounted for 26.1% of total software license
revenue - up from only 13.9% in the prior year.
Maintenance services revenue grew year over year - as expected -
and is now being driven primarily by new software license sales as
opposed to the benefits historically realized as we brought
maintenance services pricing, processes, policies and procedures up
to "best practice" levels.
Professional services grew - also as expected - but at a higher
rate than we would normally realize as a result of the acquisition
of Kapow on July 31, 2013 as described below and the addition of
its professional services revenue.
We experienced a 9.8% year over year decline in Adjusted
Earnings Before Interest, Taxes, Depreciation and Amortization
(EBITDA) and an adjusted EBITDA margin of 14.2% for the fiscal
year. This was the result of our explicit decision to continue
investing more in both our product research and development efforts
and further strengthening and growing our sales organization in all
areas of our business to drive faster software license revenue
growth.
We ended the fiscal year with cash of $89.6 million. This was
after paying $39.2 million to Kapow shareholders for the
acquisition of that business and $6.6 million in deferred
consideration to shareholders of businesses acquired in prior
fiscal years. Our $40.0 million line of credit with Bank of America
Merrill Lynch remains in place to further enhance our financial
position. As a result, our balance sheet remains strong and we have
the resources needed to fund our organic growth while executing our
acquisition strategy.
Operating Highlights
During the fiscal year we successfully added 2,894 new customers
(Prior Year or PY: 2,641). We also closed 165 software license
sales greater than $100,000 (PY: 115), 11 greater than $500,000
(PY: 10) and 6 greater than $1.0 million (PY: 6). These once again
included one of the largest in the history of Kofax for $4.1
million of software licenses to a national government agency in the
United States for a large scale, nationwide capture project.
We also grew the number of quota bearing sales reps by
approximately 35% on a year over year basis - from approximately
100 to 135 - in order to put the revenue generation capacity in
place to drive future software license revenue growth. During
fiscal year 2015 we'll continue growing the number of quota bearing
sales reps but at a more moderate and sustainable rate of
approximately 15%.
Our investments in research and development have allowed us to
successfully launch a number of new software products and releases
during the fiscal year, including:
-- Kofax TotalAgilityT 7, the Company's flagship smart process
application development and deployment platform as an on
premise
perpetual license
-- Kofax TotalAgility Cloud, which delivers the platform via Microsoft
Azure as a hosted SaaS subscription offering
-- Kofax Mobile CaptureT Platform, which dramatically transforms how
organizations can extend capture capabilities to mobile devices,
along
with three customizable smart app frameworks for Mobile Bill
Pay,
Mobile Check Deposit and Gift Card Balance Inquiries based on
the
Kofax Mobile Capture Platform
-- Kofax AP AgilityT, the Company's accounts payable automation solution
for any third party ERP or accounting software package and
includes
tight integration with Microsoft Dynamics AX as an on
premise
perpetual license
-- Kofax AP Agility Cloud, which delivers the Kofax AP Agility solution
via Microsoft Azure as a hosted SaaS subscription offering
-- Kofax TotalAgility Mailroom AutomationT, a smart process application
that more effectively manages an organization's in bound
communications into their systems of record for archive purposes
and
further processing
-- Kofax TotalAgility Customer OnboardingT, a smart process application
that enables an organization to process new account opening and
other
applications in a more cost effective and responsive manner
-- Altosoft InsightT 5.0, a new release of the Company's analytics and
visualization software, which delivers a new distributed
in-memory
architecture, continuous simulation and governed data
discovery
-- Kapow EnterpriseT 9.3, a new release of the Company's data integration
software, which features a redesigned interface that simplifies
the
user experience and encompasses the entire information supply
chain
from data acquisition to enrichment, persistence, exploration
and
distribution
We also completed the development of Kofax Mortgage AgilityT on
schedule, an exciting new smart process application designed to
radically transform and simplify the mortgage application process
for both applicants and lenders. Mortgage Agility combines a robust
set of multichannel capture, process management, mobile, analytics
and data integration capabilities on a single platform to provide a
less frustrating and more convenient customer experience for
applicants, and helps lenders close more quality loans faster and
at a lower cost.
Our investments in research and development have resulted in the
issuance of five additional patents to protect Kofax's intellectual
property:
-- U.S. patent 8,677,249 issued in March 2014, which covers technology
for providing a structured and unstructured document inspection
and
manipulation user interface, including those captured via
mobile
devices
-- U.S. Patents 8,693,043 and 8,719,197 issued in April and May 2014,
respectively, which cover technologies for automatic
document
separation and classification via machine learning
-- U.S. Patent 8,749,839 issued in June 2014, which extends Kofax's
VirtualReScanT image perfection technology to images captured
via
mobile devices
-- Patent 5,426,286 from the Japanese Patent Office issued in January
2014, which covers technology for determining document
validity,
including those captured via mobile devices
We acquired Kapow Technologies Holdings, Inc., a leading
provider of data integration software, on July 31, 2013. Kapow's
products greatly simplify our ability to integrate smart process
applications with an organization's systems of engagement and
systems of record, allowing us to speed our time to market with new
solutions and customers' ROIs. Such integrations are needed for
content import and export purposes as well as data validation
during a business process. We successfully integrated Kapow during
the fiscal year and its bookings for the fiscal year exceeded our
expectations, although the mix of perpetual and term software
license sales was more heavily weighted toward the latter than we
had expected. This caused a substantial portion of those bookings
to be deferred for revenue recognition in fiscal year 2015 and
beyond.
During the fiscal year we were also pleased to continue
receiving widespread recognition for the Company, and our market
position and products, including:
-- Kofax TotalAgility 7 won a "Product of the Year" award from Document
Manager Magazine
-- Kofax TotalAgility 7 was recognized as a "Strong Performer" in the
Forrester WaveT for Dynamic Case Management
-- The Company and Kofax TotalAgility 7 were positively recognized in
Gartner reports entitled "Critical Capabilities for Case
Management
Frameworks" and "Gartner MarketScope for Business Process
Management
Platform as a Service (PaaS)"
-- Kofax Mobile Capture Platform won Mortgage Technology Magazine's "2013
Harnessing Mobile Award"
-- Kofax Mobile Capture Platform was named to HousingWire Magazine's
inaugural HW TECH100T list and chosen as the "Elegant
Implementation"
category winner
-- Kofax Mobile Capture Platform was voted 'Best of Show' by attendees at
the FinovateAsia 2013 event in Singapore
-- Kapow Enterprise was recognized as a "Trend Setting Product of 2013'
by KMWorld Magazine
-- Kapow Enterprise was named a "Trendsetting Product of 2014" by
Database Trends and Applications Magazine
-- Kapow Enterprise was named to Analyst One's "Top Technologies List for
2013"
-- Kapow Enterprise was named 'Best in Show' by attendees at the bpmNEXT
2014 Conference
-- The Global Equity Organization awarded its "2014 Award for the Most
Creative Solution' to Kofax for the Company's employee stock
plan
administration program
And, lastly, on December 5, 2013 we successfully established our
dual listing on NASDAQ. This has since then resulted in a
significant increase in the Company's share price, over a ten fold
increase in the average daily share trading volume - principally on
NASDAQ - and the majority of Kofax's shares of common stock now
being held by U.S. shareholders.
Subsequent Events
On September 1, 2014 we acquired Softpro GmbH, a leading
provider of signature verification, fraud prevention and electronic
signature software and services. SoftPro's products are synergistic
with our smart process applications software and solutions for the
business critical First MileTM of customer interactions,
particularly in the processing of new account openings and other
applications in a more cost effective and responsive manner. Its
products are offered for both on premise and cloud deployments.
We'll invest to grow its sales organization in order to drive its
software license revenue growth while also leveraging its products
in our smart process applications software and solutions
business.
We acquired all of Softpro's stock for total consideration of
$34.7 million in cash. Of this amount, $31.2 million was paid as
part of the closing of the transaction on September 1, 2014. An
additional $1.1 million will be paid 90 days after closing, $1.2
million will be paid one year from closing and $1.2 million will be
paid two years from closing, with said amounts being subject to
certain indemnification terms and conditions. We expect to complete
our integration of the company by the end of calendar year
2014.
We previously announced a voluntary change in the basis of
preparation of the Company's financial statements from IFRS to GAAP
effective as of July 1, 2014, the beginning of our fiscal year
2015. For reference purposes, we've published audited GAAP
financial statements for the fiscal years ending June 30, 2013 and
June 30, 2014, and we've published unaudited GAAP quarterly
financial statements, certain Non-GAAP financial measures and
supplemental reconciliations to GAAP for those Non-GAAP measures
for the fiscal years ended June 30, 2013 and 2014.
Today we announced our intention to seek shareholder approval to
delist from the London Stock Exchange. This decision was made by
the Board after careful consideration and recognizing that more
than 78.0% of Kofax's shares of common stock were held by U.S.
shareholders, Board members and affiliated parties as of July 31,
2014 and that the majority of the total daily share trading volume
routinely occurs on NASDAQ. We plan to hold an Extraordinary
General Meeting on February 9, 2015 in order for shareholders to
vote on this proposal and, subject to approval, thereafter delist
on or before March 31, 2015. The Board chose to announce this
decision now in order to provide sufficient time for U.K.
shareholders unable to hold shares not listed on the London Stock
Exchange to liquidate their holdings in an orderly manner.
Today we also announced that Jamie Arnold, Kofax's Chief
Financial Officer and an Executive Director, has given notice of
his intention to resign for personal reasons from those positions
when his successor is appointed by the Board and to resign as an
employee on or before September 30, 2015 - over one year from
today. Jamie has successfully accomplished a great deal of very
challenging work during his tenure with Kofax and we'll all be
sorry to see him leave. We'll initiate a search for his replacement
and believe this will be successfully accomplished within a period
of time needed to ensure a smooth transition of his
responsibilities.
Corporate Mission & Strategy
Our mission is to deliver superior value to our stakeholders -
customers, partners, employees, suppliers and shareholders - by
extending our position as a leading provider of smart process
applications software and solutions for the business critical First
Mile of customer interactions. Our smart process applications
provide an essential connection between an organization's systems
of engagement with customers, which generate real time, information
intensive communications, and their systems of record, which are
typically large scale enterprise applications and repositories used
to manage information and internal operations. They combine our
market leading capture, process management, analytics, data
integration and mobile capabilities to radically transform and
simplify these interactions, and result in an optimized customer
experience and greatly reduced operating costs, thus driving
increased competitiveness, growth and profitability. As a result of
these benefits, many of our users realize a return on investment
(ROI) within 12 to 18 months.
We intend to accomplish this mission by pursuing these key
strategies:
While doing so we will also make on-going investments in
research and development in order to maintain, improve and add to
our smart process application software and solution offerings,
while over time prudently reallocating those expenditures to better
focus on the more rapidly growing areas of our business. This,
combined with our acquisition strategy, will continually expand our
vision to encompass additional growth opportunities.
We made a great deal of progress in many of these areas during
this last fiscal year and have further solidified a foundation for
more aggressively pursuing our mission and strategies during the
current and future fiscal years.
Dividend Matters
The Board regularly reviews our strategy, balance sheet and
future opportunities, and considers the Company's dividend policy.
After careful consideration of these factors throughout fiscal year
2014 and through today, the Board maintained and currently intends
to maintain its policy of not paying dividends in order to invest
in better growing our business. As a result, no dividends were
declared or paid during fiscal year 2014.
Board & Management Changes
The Board of Directors appointed James A. Urry as a
Non-Executive Director and member of the Nominating Committee
effective February 3, 2014. Mr. Urry brings extensive financial
expertise and experience across a wide range of companies, products
and markets to the Board. His appointment to the Board brings the
total number of Non-Executive and Executive Directors to ten.
Bruce Powell, a Non Executive Director of the Company since
1996, has notified the Board of his intention to not stand for
re-election at this year's Annual General Meeting. Coincident with
the Annual General Meeting, his decision will bring the total
number of Non-Executive and Executive Directors to nine.
We were pleased to welcome Grant Johnson as our new Chief
Marketing Officer in October 2013. Grant is responsible for all
corporate communications, field marketing, product marketing and
related activities. He is a seasoned software industry executive
with more than 20 years of relevant experience across a wide range
of companies, products and markets, including content management,
capture, process management and customer relationship management,
and products offered under both on premise perpetual license and
hosted SaaS subscription offering models. As a result, Grant has
been a valuable addition to our executive management team and will
be instrumental in driving our future marketing strategies.
Martyn Christian, who was our previous Chief Marketing Officer,
resigned in July 2013 and is no longer a member of our executive
management team.
As noted and discussed above, subsequent to the end of fiscal
year 2014 Jamie Arnold, our Chief Financial Officer and an
Executive Director, gave notice of his intention to resign for
personal reasons from those positions when his successor is
appointed by the Board and to resign as an employee on or before
September 30, 2015 - over one year from today.
There were no other changes in the Company's Board or executive
management team during or subsequent to the end of fiscal year
2014.
Forward Looking Guidance
We remain confident in our business strategy, are prudently
optimistic about our future and reconfirm the long-term financial
model previously communicated, which is based on organic software
license revenue growth in the mid teens, total revenue growth of
10% to 12% and an adjusted EBITDA margin of 20% or greater in
fiscal year 2017. Our guidance for fiscal year 2015, including the
anticipated results of Softpro GmbH, is as follows:
Millions or Percentages GAAP Non-GAAP
Software License Revenue $145.0 to $151.0 $147.0 to $153.0
Total Revenues $339.0 to $347.0 $343.0 to $351.0
Adjusted EBITDA $51.0 to $55.0 $54.0 to $58.0
Effective Tax Rate 35.0% to 37.0% 33.0% to 35.0%
Thank You
Our performance is the direct result of the dedication and hard
work of our valued employees, indirect channel partners and
suppliers, and the continued support of our customers and
shareholders. I would like to once again use this opportunity to
sincerely thank all of these stakeholders for their on-going
contributions to our success.
Reynolds C. Bish
Chief Executive Officer
September 1, 2014
Chief Financial Officer's Review
During fiscal year 2014, we continued to pursue the operational
investments we had started in the second half of fiscal year 2013
which included spending ahead of revenue to enhance our product
offerings with a focus on Kofax Total Agility and related solutions
as well as increasing our sales and marketing capacity. While the
fourth quarter was disappointing, with the slip in license revenue
leading to lower than expected earnings, we believe those results
are due to forecasting and sales execution issues and not a
weakness in our proposition to customers or our market
opportunity.
In addition to the operational investments, we completed our
initial public offering in the United States in December 2013 which
strengthens our financial position, and acquired two companies,
Kapow Technologies Holdings, Inc. for data integration, at the end
of July 2013 and SoftPro GmbH, a leading provider of signature
verification, fraud prevention and electronic signature software
and services, subsequent to fiscal 2014, which further strengthens
our position as a technology leader in the markets we serve. We
exit fiscal year 2014 with a solid foundation that can support
growth resulting from our strategic plans and objectives.
The following comments are in reference to our IFRS financial
statements for the fiscal year ended June 30, 2014.
Revenue
Total revenue increased $23.4 million, or 8.8% in the fiscal
year ended June 30, 2014 compared to the fiscal year ended June 30,
2013 reflecting growth across all geographies.
The following tables present revenue by financial statement
line, as well as in total for each of our geographic regions:
For the Year Ended June 30, % of Total Revenue
2014 2013 % Change 2014 2013
($ in thousands, except percentages)
Software license $ 117,791 $ 112,228 5.0 % 40.7 % 42.2 %
Maintenance 133,194 121,751 9.4 % 46.0 % 45.7 %
services
Professional 38,725 32,339 19.7 % 13.3 % 12.1 %
services
Total revenue $ 289,710 $ 266,318 8.8 % 100.0 % 100.0 %
Americas $ 160,412 $ 141,872 13.1 % 55.4 % 53.3 %
EMEA 108,186 104,906 3.1 % 37.3 % 39.4 %
Asia Pacific 21,112 19,540 8.0 % 7.3 % 7.3 %
Total revenue $ 289,710 $ 266,318 8.8 % 100.0 % 100.0 %
Software licenses revenue increased $5.6 million, or 5.0% in the
fiscal year ended June 30, 2014, due to a 69.4% increase in our
mobile and new or acquired products software license revenue, which
was assisted by revenues from our acquisitions of Altosoft and
Kapow, offset by a 5.4% decline in core capture revenues. The
decline in core capture was due to sales execution issues in the
fourth quarter delaying three seven figure transactions through the
pipeline to timely closure. License revenue increased $5.0 million
in the Americas and $1.9 million in Asia Pacific offset by a $1.3
decrease in EMEA.
Maintenance services revenue increased $11.4 million, or 9.4%,
in the fiscal year ended June 30, 2014 due to an increase of $6.0
million in the Americas and $5.8 million in EMEA, offset by a $0.4
million decrease in Asia Pacific. Our maintenance services revenue
increased due primarily to continued high maintenance contract
renewal rates as well as the expansion of our installed base from
new license transactions.
Professional services revenue increased $6.4 million, or 19.7%,
in the fiscal year ended June 30, 2014 due to an increase of $7.4
million in the Americas and $0.2 million in Asia Pacific offset by
a $1.2 million decrease in EMEA. The increase in professional
services revenue is primarily due to incremental professional
services arising from our acquisition of Kapow as well as several
large capture projects in the Americas.
Costs and Expenses
Cost of Software Licenses
Cost of software licenses primarily consists of royalties to
third-party software developers as well as personnel costs related
to the distribution of our software licenses and associated costs
such as facilities and overhead charges. The following table
reflects cost of software license revenue, in dollars and as a
percentage of software license revenue:
For the Year Ended June 30, Change
2014 2013 $ %
($ in thousands, except percentages)
Cost of software $ 9,877 $ 10,688 $ (811 ) (7.6 )%
license
% of software 8.4 % 9.5 %
license
revenue
Cost of software licenses decreased by $0.8 million, or 7.6%, in
the fiscal year ended June 30, 2014, which is primarily related to
a change in product mix resulting in lower royalty expense. Royalty
costs vary by product and accordingly, the cost of software
licenses as a percentage of the software license revenue can
fluctuate based on the mix of software licenses sold.
Cost of Maintenance Services
Cost of maintenance services primarily consists of personnel
costs for our staff who respond to customer inquiries as well as
associated costs such as facilities and related overhead
charges.
The following table shows cost of maintenance services, in
dollars and as a percentage of maintenance services revenue:
For the Year Ended June 30, Change
2014 2013 $ %
($ in thousands, except percentages)
Cost $ 20,241 $ 18,194 $ 2,047 11.3 %
of maintenance
service
% 15.2 % 14.9 %
of maintenance
service
revenue
Cost of maintenance services increased $2.0 million, or 11.3%,
in the fiscal year ended June 30, 2014 as we invested to ensure we
maintain high service levels, increasing 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
Cost of professional services primarily consists of personnel
costs for our staff of consultants and trainers, other associated
costs such as facilities and related overhead charges, travel
related expenses and the cost of contractors, whom we engage from
time to time to assist us in delivering professional services. The
following table shows cost of professional services, in dollars and
as a percentage of professional services revenue:
For the Year Ended June 30, Change
2014 2013 $ %
($ in thousands, except percentages)
Cost $ 32,625 $ 28,343 $ 4,282 15.1 %
of professional
services
% 84.2 % 87.6 %
of professional
service revenue
Cost of professional services increased $4.3 million, or 15.1%,
in the fiscal year ended June 30, 2014 due to increase in
compensation costs largely associated with our acquisitions of
Altosoft and Kapow. Our gross margin on professional services
increased from 12.4% in the twelve months ended June 30, 2013 to
15.8% in the twelve months ended June 30, 2014 as we were able to
better manage and deploy our resources.
Research and Development
Research and development expenses consist primarily of personnel
costs incurred in connection with the design, development, testing
and documentation of our software products as well as associated
costs such as facilities and related overhead charges. Research and
development expenses are expensed as incurred.
The following table shows research and development expense, in
dollars and as a percentage of total revenue:
For the Year Ended June 30, Change
2014 2013 $ %
($ in thousands, except percentages)
Research and $ 40,428 $ 34,686 $ 5,742 16.6 %
development
% of total revenue 14.0 % 13.0 %
Research and development expenses increased $5.7 million, or
16.6%, in the fiscal year ended June 30, 2014 due to an increase in
compensation costs largely associated with our acquisitions of
Altosoft and Kapow, and associated with incremental personnel to
develop Kofax Total Agility and related solutions offset by a
decrease in costs for core capture products, which we have
continued moving offshore where we have found talented resources at
lower labor costs.
Sales and Marketing
Sales and marketing expenses consist primarily of personnel
costs related to our sales and marketing staff, travel costs, costs
for trade shows, advertising and other lead generating activities,
as well as associated costs such as facilities and overhead
charges.
The following table shows sales and marketing expense, in
dollars and as a percentage of total revenue:
For the Year Ended June 30, Change
2014 2013 $ %
($ in thousands, except percentages)
Sales $ 122,925 $ 98,209 $ 24,716 25.2 %
and marketing
expense
% of total 42.4 % 36.9 %
revenue
Sales and marketing expenses increased $24.7 million, or 25.2%,
in the fiscal year ended June 30, 2014 due to an increase in
compensation costs largely associated with our acquisitions of
Altosoft and Kapow and our increased investment in growing the
sales organization. In fiscal year 2014, we continued the sales
enhancement program started in the second half of fiscal year 2013,
which has resulted in quota carrying sales staff increasing by
approximately 35% in fiscal year 2014 as well as implementing
changes to continue improving our sales and marketing
execution.
General and Administrative
General and administrative expenses consist primarily of
personnel costs for our executive, finance, human resource and
legal functions, as well as associated costs such as facilities and
overhead charges. Also included in general and administrative
expenses are costs associated with legal, accounting, tax and
advisory fees.
The following table shows general and administrative expense, in
dollars and as a percentage of total revenue:
For the Year Ended June 30, Change
2014 2013 $ %
($ in thousands, except percentages)
General $ 39,382 $ 37,286 $ 2,096 5.6 %
and administrative
expense
% of total revenue 13.6 % 14.0 %
General and administrative expenses increased $2.1 million, or
5.6%, in the fiscal year ended June 30, 2014 due to increased
legal, accounting, and tax fees, related to the changes in the
Company's regulatory and reporting requirements during 2013 and
increased share-based payment expense, primarily driven by the
increase in value of awards resulting for recent increases in our
share price.
Amortization of Acquired Intangible Assets
We amortize acquired intangible assets using the straight-line
method over the estimated useful life of the respective asset. Our
intangible assets include acquired contractual and customer
relationships, technology and trade names, each based on their fair
values ascribed in accounting for the initial business
acquisition.
The following table shows expense related to the amortization of
acquired intangible assets, in dollars and as a percentage of total
revenue:
For the Year Ended June 30, Change
2014 2013 $ %
($ in thousands, except percentages)
Amortization $ 8,933 $ 6,707 $ 2,225 33.2 %
of acquired
intangible assets
% of total revenue 3.1 % 2.5 %
Amortization of acquired intangible assets increased $2.2
million, or 33.2%, in the twelve months ended June 30, 2014, due to
$2.7 million of additional amortization of acquired intangible
assets arising from our acquisitions of Altosoft and Kapow which
was offset by a decrease in amortization expense of previously
acquired intangible assets which were fully amortized as of June
30, 2014.
Acquisition-related Costs
Acquisition-related costs include those costs related to
business and other acquisitions and consist of (i) costs directly
attributable to our acquisition strategy, including the evaluation,
consummation and integration of our acquisitions and (ii)
transition compensation costs.
The following table shows acquisition-related costs, in dollars
and as a percentage of total revenue:
For the Year Ended June 30, Change
2014 2013 $ %
($ in thousands, except percentages)
Acquisition $ 857 $ 4,682 $ (3,825 ) (81.7 )%
related
costs
% of total 0.3 % 1.8 %
revenue
Acquisition-related costs decreased $3.8 million, or 81.7%, to
$0.9 million in the fiscal year ended June 30, 2014 due to a $6.9
million decrease in the fair value of contingent consideration and
retention related to our acquisition of Singularity, offset by $1.5
million increase in the fair value of the contingent consideration
related to the acquisition of Altosoft. The remaining offsetting
acquisition related costs were associated with direct acquisition
costs from the July 31, 2013 acquisition of Kapow.
Other Operating Expenses, net
Other operating expenses, net consists of all income or expense
that is not directly attributable to one of our other operating
revenue or expense lines. The following table shows other operating
expenses, net, in dollars and as a percentage of total revenue:
For the Year Ended June 30, Change
2014 2013 $ %
($ in thousands, except percentages)
Other operating $ 4,172 $ 2,395 $ 1,777 74.2 %
expenses, net
% of total revenue 1.4 % 0.9 %
Other operating expenses, net increased $1.8 million, or 74.2%
to $4.2 million in the fiscal year ended June 30, 2014 primarily
due to professional fees incurred for attorneys, accountants and
other advisors associated with the work needed for us to complete a
NASDAQ listing of our common shares and to support the July 1, 2014
change in the basis of preparation of our financial statements from
IFRS to U.S. GAAP.
Finance Income (Expense), net
Finance income (expense), net consists primarily of foreign
exchange gains or losses related to our intercompany receivables
and payables, to fair value adjustments relating to forward
contracts or other financial instruments and to a lesser extent to
interest income (expense).
The following table shows finance income (expense), net, in
dollars and as a percentage of total revenue:
For the Year Ended June 30, Change
2014 2013 $ %
($ in thousands, except percentages)
Finance $ 6,511 $ (6,929 ) $ 13,440 194.0 %
income
(expense),
net
% of total 2.2 % (2.6 )%
revenue
Finance income (expense) net, fluctuated $13.4 million in the
fiscal year ended June 30, 2014 and represents a swing from an
expense to income primarily due to a switch to unrealized foreign
exchange gains related to revaluing non-functional currency
denominated intercompany positions. The movement was largely due to
the strengthening of the Euro and British pound against the U.S.
dollar. Many of the intercompany positions have been settled during
fiscal year 2014 thus reducing, in part, our future exposure to
large swings in gains and losses.
Income tax expense
The following table shows income tax expense, in dollars and as
a percentage of income before tax:
For the Year Ended June 30, Change
2014 2013 $ %
($ in thousands, except percentages)
Income tax $ 5,402 $ 8,198 $ (2,796 ) (34.1 )%
expense
Income before $ 16,781 $ 18,199
tax
Effective 32.2 % 45.0 %
tax rate
Income tax expense decreased by $2.8 million, or 34.1%, to $5.4
million during the fiscal year ended June 30, 2014. The decrease in
income tax expense and effective tax rate was primarily the result
of incremental increases to the utilization of previously
unrecognized tax losses, release of uncertain tax positions on
expiry of statute of limitations, the effect of expenses that are
not deductible for tax purposes and decrease in pre-tax net
income.
Liquidity and Capital Resources
Historically, we have financed our business primarily through
our cash on hand as well as cash flows from operations. We had
$89.6 million of cash and cash equivalents at June 30, 2014,
compared to $93.4 million at June 30, 2013. The majority of our
cash is held in U.S. dollars, Euros and to a lesser extent, British
Pounds. We have no outstanding debt as of June 30, 2014.
The following table sets forth the summary of our cash
flows:
For the Year Ended June 30,
2014 2013 Change
($ in thousands)
Cash generated
from (used in)
Operating $ 34,557 $ 30,523 $ 4,034
activities
Investing (48,995 ) (19,075 ) (29,920 )
activities
Financing 9,417 1,120 8,297
activities
Effect of exchange 1,239 (274 ) 1,513
rate fluctuations
Net increase $ (3,782 ) $ 12,294 $ (16,076 )
(decrease)
Operating Activities
Net cash generated from operating activities was $34.6 million
in fiscal 2014, compared to $30.5 million in fiscal 2013, an
increase of $4.0 million. This increase was attributable primarily
to increased cash inflows from the collection of account
receivables during the year.
Investing Activities
Net cash used in investing activities was $49.0 million in
fiscal 2014, compared to $19.1 million in fiscal 2013, representing
an increase of $29.9 million. The primary use of cash in both years
was associated with our acquisitions. We paid $39.2 million in
fiscal 2014 associated with the acquisition of Kapow and $11.7
million in fiscal 2013, related to the acquisition of Altosoft,
representing an incremental increase related to acquisitions of
$27.5 million. Additionally, during 2014 we paid $1.0 million of
contingent consideration and $1.3 million of deferred
consideration, during 2014 related to the acquisition of Altosoft
in 2013, as well as additional purchases of computer equipment to
support increases in headcount.
Financing Activities
Net cash generated from financing activities was $9.4 million in
fiscal year 2014, compared to $1.1 million in fiscal year 2013,
representing an increase of $8.3 million primarily due to $12.4
million in net proceeds from the NASDAQ listing, offset by an
incremental decrease of $2.6 million from purchases of employee
benefit trust shares, net of proceeds from stock option
exercises.
Exchange Rate Effects
We operate in many countries around the world, and maintain cash
balances in locations outside of the United States, in currencies
other than the U.S. dollar. In 2014 cash and cash equivalents
increased by $1.2 million, primarily resulting from changes in
foreign exchange rates, while in 2013 cash and cash equivalents
decreased by $0.3 million. Our cash and cash equivalents will
continue to fluctuate in the future, as foreign currency exchange
rates vary.
Treasury Management
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 June 30, 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,
intra-company borrowings are arranged in the functional currencies
of the borrower to centralize the foreign exchange impact and
provide a natural hedge against exchange rate movement risks.
The Company hedges certain foreign currency cash 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
Management uses 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.
Adjusted 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 as these adjustments give a proforma view of our
revenue.
The tables below provide a reconciliation of IFRS revenues to
Non-IFRS revenues related to all of our historic acquisitions:
For the Year Ended June 30, 2014 For the Year Ended June 30, 2013
Revenues Acquisition Revenues Acquisition
(as reported Fair Value Non-IFRS (as reported Fair Value Non-IFRS
under IFRS) Adjustment Revenues under IFRS) Adjustment Revenues
($ in thousands)
Software $ 117,791 $ 6,069 $ 123,860 $ 112,228 $ 156 $ 112,384
licenses
Maintenance 133,194 911 134,105 121,751 205 121,956
services
Professional 38,725 714 39,439 32,339 - 32,339
services
Total revenues $ 289,710 $ 7,694 $ 297,404 $ 266,318 $ 361 $ 266,679
Adjusted software license revenue increased $11.5 million, or
10.2% in 2014 as a result of mobile and new or acquired products
software license revenue grew 106.5%. Acquisition fair value
adjustments increased $7.3 million as the result of the subsequent
recognition of fair value adjustment to deferred income acquired in
the acquisition of Kapow in July 2013.
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 (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 operations of the acquired businesses and
are generally not relevant to assessing or estimating the long-term
performance of the acquired assets. 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.
We also 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.
For the Year Ended June 30,
2014 2013
($ in thousands)
Income from operations $ 10,270 $ 25,128
Acquisition fair value 7,694 361
adjustment to revenue
Share-based payment expense 4,867 1,393
Depreciation and amortization 5,323 6,009
expense
Amortization of acquired 8,933 6,707
intangible assets
Acquisition-related costs 857 4,682
Other operating expenses, net 4,172 2,395
Adjusted income from operations $ 42,116 $ 46,675
Adjusted income from operations 14.2 % 17.5 %
as a percentage of revenue
At times when we are communicating with our shareholders,
analysts and other parties, we refer to adjusted income from
operations as a percentage of revenues as EBITDA margin.
Adjusted Cash Flows from Operations - We define "adjusted cash
flows from operations" as cash flows from operations as reported
under IFRS, adjusted for income taxes paid or received and payments
under restructurings. Income tax payments are 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:
For the Year Ended June 30,
2014 2013
($ in thousands)
Cash flows from operations $ 34,557 $ 30,523
Income tax paid 13,165 10,749
Payments under restructuring 637 863
Adjusted cash flows from operations $ 48,359 $ 42,135
Adjusted cash flow from operations increased $6.2 million to
$48.4 million in the fiscal year ended June 30, 2014, attributable
primarily to increased cash inflows from collection of account
receivables during the year.
Adjusted diluted earnings per share - Adjusted diluted earnings
per share is calculated using IFRS net income/(loss) excluding the
effect of Acquisition fair value adjustment to revenue, Share-based
compensation expense, Amortization of intangible assets,
Acquisition-related costs, Net interest, Other income and expense,
and the related tax effect, divided by fully diluted shares
outstanding. 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), after tax:
Reconciliation of Adjusted Diluted Earnings Per Share
For the Year Ended June 30,
2014 2013
Per Per
Diluted Diluted
Share $'000 Share $'000
Diluted earnings per 0.12 $ 11,379 0.11 $ 10,001
share and net income
Acquisition fair value 0.08 7,694 0.00 361
adjustment to revenue
Share-based payment 0.05 4,867 0.01 1,393
expense
Amortization of 0.10 8,933 0.08 6,707
intangible
assets
Acquisition-related 0.01 857 0.06 4,682
costs
Net finance and other (0.03 ) (2,339 ) 0.11 9,324
income and expense
Tax effect of above (0.07 ) (6,936 ) (0.05 ) (4,300 )
Adjusted diluted 0.26 0.32
earnings
per share
Supplemental Information
The following supplemental information is used to reconcile IFRS
Income from operations to Adjusted Income from operations:
Share based payment expense recognized by functional line in the
Consolidated Income Statements is as follows:
For the Year Ended June 30,
2014 2013
($ in thousands)
Cost of maintenance services $ 79 $ 14
Cost of professional services 92 28
Research and development 884 274
Selling and marketing 2,607 579
General and administrative 1,205 498
Total share-based payment expense $ 4,867 $ 1,393
Depreciation and amortization expense recognized by functional
line in the Consolidated Income Statements is as follows:
For the Year Ended June 30,
2014 2013
($ in thousands)
Cost of software licenses $ 32 $ 65
Cost of maintenance services 484 576
Cost of professional services 786 1,048
Research and development 1,639 1,676
Selling and marketing 1,651 1,745
General and administrative 731 899
Total depreciation and $ 5,323 $ 6,009
amortization expense
Business Risks and Uncertainties
Under current European Union reporting requirements, the Board
of Directors is required to comment on risk factors facing the
business. As with any business, various risks may affect the
Company, its results and management's ability to execute. The Board
has implemented systems to identify risks, to assess them and to
ensure that reasonable mitigation and action plans are in place.
The Board is paying particular attention to the operational risks
and uncertainties surrounding economic conditions in many of the
Company's markets. Furthermore the following principal risks and
uncertainties have been identified by the Company:
Identification and Retention of Key Employees
Recruiting and retaining highly skilled personnel is a risk to
our ongoing success. While we've made a number of important
additions to our staff during the past fiscal year and now have an
even more professional employee base in place, if we lose the
services of our key employees or are unable to attract and retain
other qualified personnel, we may be unable to operate our business
effectively. For this reason, we offer competitive salaries and
benefits as well as long term incentive awards such as our option
and LTIP schemes.
Rapidly Changing Technology
As a technology based company, we are subject to rapid changes
in the marketplace in which we compete. We seek out strategic
acquisitions as well as make significant investments in research
and development to ensure that we remain competitive in the markets
we serve. Our failure to successfully develop, market or sell new
products or adopt new technology platforms and vertical solutions
could materially adversely affect our results of operations and
financial conditions. Our research and development, acquisition and
marketing strategies ensures that we are addressing customer needs
by enhancing our existing technology and creating new technologies
internally and through acquisitions such as Altosoft and Kapow.
General Economic Risks
The economic and trading environment has been challenging
throughout the last two fiscal years. The Company has an extended
geographic presence, necessitating a number of local banking
relationships and local cash holdings. While the Company operates a
cash pooling system, and has adopted treasury policy designed to
ensure that it is not over-exposed to any particular bank failure,
the risk remains that such a failure could adversely impact the
Company's assets. The Company uses a global top tier commercial
bank to invest its cash and assist with the treasury policy.
Recessionary trading environments have had a significant impact on
many previously financially stable businesses. While the Company
seeks to minimize the risk of being adversely affected by the
failure of a supplier, a reseller or a customer, the volatility of
trading and its impact on our trading partners represents a
potential risk to the business. The Company maintains a low
concentration of suppliers, resellers, or customers such that an
adverse change to any of them would not significantly impact the
business.
Sales and Marketing Execution
During the year we have continued our "hybrid go-to-market"
model to expand our market reach by selling direct to end users in
addition to relying on indirect channel partner sales through value
added resellers, system integrators, distributors and OEMs. If we
are not successful in maintaining this balanced approach we may not
be able to sustain and grow our revenues. The Company focuses on
maintaining relationships with and incentivizes partners to
continue to meet revenue targets. Additionally, the Company has
reorganized and increased the headcount of the sales organization
to improve the Company's ability to execute sales.
Financial Risks
One of the principal financial risks facing the Company relates
to the movements in exchange rates. The Company derives its
revenues from a variety of currencies including the U.S. dollar,
Euros and British pounds. Expenses are denominated principally in
U.S. dollars, Euros, British pounds and Swiss francs. Fluctuations
in exchange rates between these currencies relative to the dollar
may cause fluctuations in financial results of the Company as the
results of overseas operations are translated into dollars for
consolidation. The Company does not hedge the foreign exchange
exposure arising on net investments in the assets and liabilities
of overseas subsidiaries. The Company does hedge certain net
foreign currency cash and cash flows relating to transactions in
accordance with policies set by the Board. Assessment of the credit
risk profile of the Company's key customers and resellers also
remain a key area of attention and is closely monitored, which is
evidenced by our low level of doubtful receivables.
Acquisition Risk
As part of the Company's strategy, we may acquire additional
companies or technologies. We may not be able to continue to grow
through such acquisitions or successfully integrate those
acquisitions which could lead to our revenue not growing at an
acceptable rate and may in turn harm our business. We may need to
raise additional capital to finance future acquisitions, and such
financing may not be available on acceptable terms, or at all, and
may be on terms that are dilutive to our shareholders. The Company
has a robust diligence process to understand acquisition targets.
All acquisitions undergo detailed review and approval by the Board
of Directors, and we ensure that those businesses are quickly
integrated into the Company's existing operations.
Compliance Risk
Our ability to produce accurate and timely financial statements
could be impaired and investors' views of us could be harmed if we
fail to maintain proper and effective internal controls. If we do
not maintain proper and effective internal controls or remediate
deficiencies in our internal control, the market price of our
common shares could decline and we could be subject to sanctions or
investigations. The Company has an internal audit function that
performs testing to evaluate the effectiveness of our internal
controls. The Company continues to recruit additional accounting
and finance staff as the business grows to ensure that appropriate
resources are available to produce accurate and timely financial
statements.
Meeting Financial Expectations
Our quarterly operating results may fluctuate as a result of a
variety of factors, many of which are outside of our control.
Fluctuations in our quarterly operating results or outlook may be
due to a number of factors, including the extent which we are able
to increase market awareness of our Company and our products, the
extent to which we are able to manage our sales cycle which can
vary from customer to customer, and the extent to which our
existing customers purchase additional perpetual licenses and the
timing and terms of those purchases. If our quarterly operating
results or outlook fall below the expectations of research analysts
or investors, the price of our common stock could decline
substantially.
James Arnold, Jr.
Chief Financial Officer
September 1, 2014
Consolidated Income
Statements
For the Year Ended June 30,
2014 2013
($ in thousands, except per share amounts)
Software licenses 117,791 112,228
Maintenance services 133,194 121,751
Professional services 38,725 32,339
Total Revenue 289,710 266,318
Cost of software 9,877 10,688
licenses
Cost of maintenance 20,241 18,194
services
Cost of professional 32,625 28,343
services
Research and development 40,428 34,686
Sales and marketing 122,925 98,209
General 39,382 37,286
and administrative
Amortization of acquired 8,933 6,707
intangible assets
Acquisition-related 857 4,682
costs
Other operating 4,172 2,395
expenses, net
Operating costs 279,440 241,190
and expenses
Income from operations 10,270 25,128
Finance income 7,387 287
Finance expense (876 ) (7,216 )
Income before tax 16,781 18,199
Income tax expense 5,402 8,198
Net Income 11,379 10,001
Earnings per share
> Basic 0.13 0.12
> Diluted 0.12 0.11
Consolidated Statements of Comprehensive Income
For the Year Ended June 30,
2014 2013
($ in thousands)
Net income 11,379 10,001
Other comprehensive income/(loss)
Items that may be subsequently
reclassified to profit or loss
Exchange gains/(losses) arising on (2,184 ) 4,576
translation of foreign operations
Income tax relating to items (408 ) 40
that may be reclassified
(2,592 ) 4,616
Items that will not be reclassified
to profit or loss
Actuarial losses on defined (433 ) (809 )
benefit pension plans
Income tax relating to items that (119 ) 130
will not be reclassified
(552 ) (679 )
Other comprehensive income/(loss) (3,144 ) 3,937
for the period, net of tax
Total comprehensive income 8,235 13,938
for the period, net of tax
Consolidated Statements
of Financial Position
June 30, 2014 June, 30 2013
Current assets: ($ in thousands)
Cash and cash equivalents 89,631 93,413
Trade receivables, net 58,392 60,929
Current tax assets 7,209 2,024
Other current assets 9,690 10,457
Total current assets 164,922 166,823
Other non-current assets 4,105 3,671
Property and equipment 4,611 4,510
Deferred tax assets 27,211 14,350
Intangible assets 228,612 189,789
Total assets 429,461 379,143
Current liabilities:
Trade and other payables 36,970 35,504
Deferred income - current 78,458 62,955
Current tax liabilities 8,153 10,106
Provisions - current 5,251 8,397
Total current liabilities 128,832 116,962
Employee benefits 4,078 3,018
Deferred income - non-current 8,079 5,095
Deferred tax liabilities 18,140 14,607
Provisions - non-current 4,470 2,334
Total liabilities 163,599 142,016
Shareholders' equity:
Share capital 97 95
Share premium account 31,956 18,957
Employee benefit shares (18,207 ) (15,294 )
Treasury shares (15,980 ) (15,980 )
Merger reserve 2,835 2,835
Retained earnings 248,436 227,197
Currency translation adjustment 16,725 19,317
Total Shareholders' equity 265,862 237,127
Total liabilities and 429,461 379,143
Shareholders' equity
Consolidated
Statements
of
Changes
in
Equity
Employee Currency
Share Share Benefit Treasury Merger Retained Translation Total
Capital Premium Shares Shares Reserve Earnings Adjustment Equity
($ in thousands)
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,
net
of tax
Total - - - - - 9,322 4,616 13,938
comprehensive
income
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 1 1,866 - - - - - 1,867
share
capital
issued
As of 95 18,957 (15,294 ) (15,980 ) 2,835 227,197 19,317 237,127
June
30, 2013
Profit - - - - - 11,379 - 11,379
for
the
period
Other - - - - - (552 ) (2,592 ) (3,144 )
comprehensive
income,
net
of tax
Total - - - - - 10,827 (2,592 ) 8,235
comprehensive
income
Tax on - - - - - 5,713 - 5,713
equity
awards
Share-based - - - - - 4,867 - 4,867
payment
expense
Changes - - (2,913 ) - - (168 ) - (3,081 )
in
employee
benefit
shares
Proceeds 2 12,366 - - - - - 12,368
from
U.S.
initial
public
offering
New - 633 - - - - - 633
share
capital
issued
As of 97 31,956 (18,207 ) (15,980 ) 2,835 248,436 16,725 265,862
June
30, 2014
Consolidated Statements of Cash Flows
For the Year Ended June 30,
2014 2013
($ in thousands)
Cash flows from operating activities
Income before tax 16,781 18,199
Adjustments to reconcile profit
before tax to net cash flows:
Finance income (7,387 ) (287 )
Finance expense 876 7,216
Depreciation and amortization 14,334 12,872
Share-based payment expense 4,867 1,393
Changes in operating assets
and liabilities:
Trade receivables 5,149 (1,381 )
Other assets 1,262 852
Trade and other payables 178 161
Deferred income 15,200 4,229
Provisions (2,901 ) (1,119 )
Payments under restructuring (637 ) (863 )
- personnel
Income taxes paid (13,165 ) (10,749 )
Net cash inflow from 34,557 30,523
operating activities
Cash flows from investing activities
Purchase of property and equipment, (3,753 ) (3,050 )
licenses and similar rights
Acquisition of subsidiaries, (45,387 ) (16,759 )
net of cash acquired*
Proceeds from sale of discontinued - 603
operations
Interest received 145 131
Net cash outflow from (48,995 ) (19,075 )
investing activities
Cash flows from financing activities
Issue of share capital 633 1,867
Proceeds from U.S. initial 12,366 -
public offering
Purchases of and proceeds (3,098 ) (402 )
from EBT shares
Interest paid (484 ) (345 )
Net cash inflow from 9,417 1,120
financing activities
Net increase/ (decrease) in (5,021 ) 12,568
cash and cash equivalents
Cash and cash equivalents 93,413 81,122
at start of the period
Exchange rate effects 1,239 (277 )
Cash and cash equivalents 89,631 93,413
at the end of the period
* The Company 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. The cash outflow from
acquisitions for the year ended June 30, 2013 of $16.8 million is
net of $0.9 million in cash acquired from the acquisition of
Altosoft and also includes $2.0 million in payments of contingent
consideration related to the Atalasoft acquisition and $3.1 million
in payments of deferred consideration related to the acquisition of
Singularity.
Kofax Limited ("the Company") is a publicly listed company
incorporated and domiciled in Bermuda. The address of the
registered office is Clarendon House, 2 Church Street, Hamilton,
Bermuda HM 11. The Company's common shares are traded on the London
Stock Exchange and on the NASDAQ Global Select Market. Kofax
Limited and its subsidiaries is a leading global provider of smart
process applications software and related maintenance and
professional services.
AUTHORIZATION OF FINANCIAL STATEMENTS
The Financial Statements of the Company for the year ended June
30, 2014 were authorized for issue by the Board of Directors on
September 1, 2014, consistent with the date through which
subsequent events have been evaluated, and the Statements of
Financial Position were signed on behalf of the Board by Greg Lock,
Reynolds Bish, and James Arnold, Jr.
NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies adopted in the preparation of
the Financial Statements are set out below. The policies have been
consistently applied to all years presented.
1.1Basis of preparation
These Consolidated Financial Statements have been prepared in
accordance with the International Financial Reporting Standards
(IFRS) as adopted by European Union.
On December 5, 2013, the Company effected an initial public
offering in the United States of 2,300,000 shares of common stock
at a price to the public of $5.85 per share. The shares began
trading on the NASDAQ Global Select Market on that exchange under
the ticker symbol "KFX." All of the shares of common stock being
offered were by Kofax; there were no selling Kofax shareholders.
Additionally, the Company established Kofax Limited as the parent
company through a scheme of arrangement under Part 26 of the U.K.
Companies Act of 2006. As part of the scheme, the Company
established a new par value of $0.001 per share replacing the 2.5
U.K. pence per under Kofax plc. The consolidated financial
statements are therefore presented as if Kofax Limited had been the
parent company of the Company throughout the periods presented.
Share capital and share premium amounts in the comparative periods
have been retroactively adjusted to reflect such establishment.
The Company's presentational currency is the U.S. dollar as that
is the currency of the primary economic environment in which the
Company operates. All values are rounded to the nearest thousand
dollars ($'000s), except where otherwise indicated.
The financial statements have been prepared under the historical
cost convention with the exception of certain items which are
measured at fair value as disclosed in the accounting policies
below. Except where otherwise stated, all references to 2014 and
2013 in these notes to the financial statements are defined as the
year ended June 30, 2014 and June 30, 2013, respectively.
NOTE 2ACQUISITIONS
Acquisition of Kapow Technologies Holdings
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. The acquisition was accounted for using the
acquisition method.
The consolidated financial statements include the results of
Kapow during the eleven month period from the acquisition date. The
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 3,052
Other current assets 260
Total current assets 4,588
Other non-current assets 453
Property and equipment 99
Deferred tax assets 10,027
Technology-intangible 10,700
Customer relationships-intangible 5,400
In-process R&D-intangible 700
Trade names-intangibles 200
Total assets 32,167
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 7,417
Total liabilities 10,896
Net assets acquired 21,271
Consideration paid in cash at time of closing 40,524
Deferred consideration 6,624
Total consideration 47,148
Goodwill arising from acquisition 25,877
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 goodwill of $25.9 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 $11.2
million of revenue and $6.3 million of net loss to the Company. If
the combination had taken place at the beginning of fiscal year
2014, 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 $290.7 million and net income $10.4 million.
Acquisition of Altosoft Corporation
On February 28, 2013, Kofax acquired 100% of the shares of
Altosoft Corporation (Altosoft), a company incorporated in the
United States, which is a provider of business intelligence and
analytics software. The Company acquired Altosoft to enhance
Kofax's product portfolio with near real-time process and data
analytics, visualization and extract, transform load capabilities.
The consolidated financial statements include the results of
Altosoft during the four month period from the acquisition date.
The fair value of the identifiable assets and liabilities of
Altosoft, at the acquisition date, are as follows:
February 28, 2013
($ in thousands)
Current assets:
Cash and cash equivalents 892
Trade receivables 565
Other current assets 13
Total current assets 1,470
Other non-current assets 342
Technology-intangible 5,000
Customer relationships-intangible 1,700
Non-compete agreement-intangible 300
Tradenames-intangibles 150
Total assets 8,962
Current liabilities
Deferred income 456
Other current liabilities 242
Total current liabilities 698
Other liabilities 164
Deferred tax liabilities 2,982
Total liabilities 3,844
Net assets acquired 5,118
Consideration paid in cash at time of closing 12,634
Deferred consideration 2,000
Fair value of contingent consideration 2,015
Total consideration 16,649
Goodwill arising from acquisition 11,531
The fair value of the trade receivables was $0.6 million. None
of the trade receivables have been impaired and the full
contractual amounts have been fully collected subsequent to the
acquisition.
The intangible asset, including goodwill, includes the value of
acquired technologies, and expected synergies arising from the
acquisition and workforce, which is not separately recognizable.
None of the goodwill is expected to be deductible for tax
purposes.
Contingent consideration payments range between nothing and $4.4
million. $2.0 million represented the acquisition-date fair value
of the payments that management estimated at that time will become
payable to the former shareholders of Altosoft and is included in
the purchase price allocation; however, none of the payments are
guaranteed. The contingent consideration payments are based on the
achievement of specific annual revenue and EBITDA levels that are
payable in $1.0 million increments during calendar years 2013, 2014
and 2015. Additionally, 25% of revenue above targets will be paid
up to $1.4 million such that the maximum consideration would be
$19.0 million. During 2014, the Company paid $1.0 million to the
former shareholders of Altosoft related to the achievement of
specific revenue and EBITDA targets during calendar year 2013. The
fair value of contingent consideration was $3.0 million as of June
30, 2014.
Of the total purchase price, $2.0 million was withheld as
deferred consideration relating to representations and warranties
made by the sellers, including those related to the level of cash
and certain other net assets acquired. The Company paid the full
amount of deferred consideration in fiscal year 2014.
The Company has entered into separate employment agreements with
Altosoft employees subsequent to the acquisition in which the
Company will provide the employees with a retention package that
will include a cash bonus. The total anticipated payment is $0.6
million, with the latest payment due in January 2015. The retention
bonus is being accrued as the employees provide services and $0.3
million and $0.1 million was recognized during 2014 and 2013,
respectively in Acquisition-related costs.
Analysis of cash flows on acquisition:
($ in thousands)
Cash outflow at time of closing 12,634
Less: cash acquired (892)
Net outflow of cash relating to the acquisition 11,742
From the date of acquisition, Altosoft has contributed $7.9
million and $1.0 million of revenue, and $1.4 million of net income
and $0.2 million of net loss to the Company in fiscal years ended
June 30, 2014 and 2013, respectively. If the combination had taken
place at the beginning of fiscal year 2013, revenue from Altosoft's
operations would have been approximately $1.8 million and the
addition to net income would have been approximately $0.1 million
and would have made the Company's total revenue would have been
$267.1 million and net income $10.3 million.
Acquisition of Singularity
On December 5, 2011, Kofax acquired 100% of the shares of
Singularity Limited (Singularity), a company incorporated in
Northern Ireland, which was a provider of business process
management (BPM) software and dynamic case management solutions.
Singularity has historically conducted the majority of its
operations in the United Kingdom, and has subsidiaries that include
a substantial operating presence in India. The acquisition
agreements and all related amounts payable are denominated in
British pounds, and the disclosures that follow are based on the
exchange rate to U.S. dollars at the date of acquisition; future
payments, as expressed in U.S. dollars, may vary depending on the
movement of foreign exchange rates. The contingent consideration
and retention bonus is payable based on metrics to be measured
through December 31, 2014. Adjustments to the fair value of the
liability resulted in a decrease of $3.9 million and $1.5 million
during 2014 and 2013, respectively, recognized in acquisition
related costs in the consolidated income statements. No payments of
contingent consideration or retention bonuses were made in 2014.
Payments of contingent consideration and retention bonuses were
$7.9 million during the year ended June 30, 2013. The fair value of
contingent consideration was $0.4 million as of June 30, 2014.
Acquisition of Atalasoft
On May 26, 2011, Kofax acquired 100% of the shares of Atalasoft,
Inc. (Atalasoft), a U.S. based company which was a provider of
imaging software development kits. Contingent consideration
payments ranged between zero and $5.1 million. $4.7 million
represented the acquisition-date fair value of the payments that
management estimated at that time would become payable to the
former shareholders of Atalasoft; however, none of the payments
were guaranteed. The contingent consideration was payable based on
metrics to be measured through September 30, 2013. Payments of
contingent consideration were $1.2 million and $2.0 million during
the years ended June 30, 2014 and 2013, respectively. There were no
contingent consideration payments payable to Atalasoft as of June
30, 2014.
NOTE 3OPERATING SEGMENTS
The Company operates one business segment, the software
business. All products and services are considered one solution to
customers and are operated and analyzed under one income statement
provided to and evaluated by the chief operating decision maker
(CODM). The CODM manages the business based on the key measures for
resource allocation, based on a single set of financial data that
encompasses the Company's entire operations for purposes of making
operating decisions and assessing financial performance. The
Company's CODM is the Chief Executive Officer.
There are no reportable assets that meet the criteria under IFRS
8 to be reported under the single operating segment.
Entity-wide Disclosures
The following revenue information is based on the location of
the customer:
Rest of Asia-
America UK Germany EMEA Pacific Total
External ($ in thousands)
Revenue
for
the Year
Ended
June 30, 160,411 31,001 19,414 57,772 21,112 289,710
2014
June 30, 141,872 35,638 16,927 52,341 19,540 266,318
2013
The following table presents non-current assets by subsidiary
location:
Rest of Asia-
America UK Germany EMEA Pacific Total
Non-current ($ in thousands)
Assets
As of June 152,637 34,922 6,453 36,212 7,104 237,328
30, 2014
As of June 116,054 34,805 6,078 34,221 6,812 197,970
30, 2013
Non-current assets for this purpose consist of property and
equipment, intangible assets, and other non-current assets-
excluding deferred tax assets.
NOTE 4OPERATING COSTS AND EXPENSES
Operating costs and expenses include the following key
elements:
For Year Ended June 30,
2014 2013
($ in thousands)
Staff costs, excluding share-based 175,525 151,023
payment expense
Share-based payment expense 4,867 1,393
Depreciation of property and equipment 2,436 3,050
Amortization of acquired 8,933 6,707
intangible assets -
technology and contractual
relationships
Amortization of intangible assets 2,887 2,959
- licenses and similar rights
Total remuneration for 3,953 3,383
principal auditors
Operating lease expense - 8,032 8,042
minimum lease payments
Acquisition related costs 857 4,682
Third party royalties and commissions 14,271 13,004
Travel and entertainment 12,877 11,549
Consultants, contractors and advisors 15,637 11,052
Direct marketing costs 10,626 9,765
Utilities, maintenance and repair 6,583 5,858
Other administrative costs 11,956 8,723
Total operating costs and expenses 279,440 241,190
Amortization of acquired intangibles is a component of both cost
of sales and general and administrative expenses. Amortization of
acquired technology intangible assets of $5.5 million (2013: $4.7
million) relates to cost of sales, and amortization of other
intangible assets of $3.4 million (2013: $2.0 million) relates to
of general and administrative expenses
For Year Ended June 30,
2014 2013
($ in thousands)
Total cost of sales comprises:
Cost of software licenses 9,877 10,688
Cost of maintenance services 20,241 18,194
Cost of professional services 32,625 28,343
Amortization of acquired technology 5,508 4,733
intangible assets
Total cost of sales 68,251 61,958
Total general and administrative comprises:
General and administrative 39,382 37,286
Amortization of other acquired 3,425 1,974
intangibles assets
Total general and administrative expenses 42,807 39,260
NOTE 5INCOME TAX EXPENSE
The components of income tax expense related to current income
tax expense and deferred income tax expense of the Company were as
follows:
For the Year Ended June 30,
2014 2013
($ in thousands)
Current income tax expense
Income tax on profits for the year 7,252 12,566
Adjustment for over provision 17 (92 )
in prior periods
Total current tax 7,269 12,474
Deferred income tax expense
Reversal of temporary differences (2,468 ) (3,900 )
Adjustment for over provision 601 (376 )
in prior periods
Total deferred tax (1,867 ) (4,276 )
Total income tax expense 5,402 8,198
The reasons for the difference between the actual tax charge and
the rate of corporation tax in the UK applied are as follows:
For the Year Ended June 30,
2014 2013
($ in thousands)
Expected tax expense based 3,776 4,322
on the standard
rate in the UK of 22.5%
(2013: 23.8%)
Tax losses not recognized 3,945 2,000
in current period
Utilization of previously (4,283 ) (304 )
unrecognized tax losses
Adjustments for provision 617 (468 )
in prior periods
Expenses not deductible (2,881 ) (2,181 )
for tax purposes
and income not subject to tax
Different tax rates applied 4,484 4,736
in overseas jurisdictions
Changes of tax rate on (256 ) 93
timing differences
Total income tax expense 5,402 8,198
on operations
NOTE 6EARNINGS PER SHARE
The table below presents the computation of basic and diluted
earnings per share:
For the Year Ended June 30,
2014 2013
($ in thousands, except per share data)
Income/(loss) from continuing 11,379 10,001
operations, after tax
Earnings/(loss) per share
>Basic 0.13 0.12
>Diluted 0.12 0.11
The Company issued an additional 2.3 million shares as a result
of the initial public offering on the NASDAQ Global Market Select
in the United States effective December 5, 2013. The calculation of
basic and diluted earnings per share for all periods presented has
been adjusted retrospectively to include the additional shares, for
comparability.
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 common shares. The table below presents the
computation of basic and diluted shares:
For the Year Ended June 30,
2014 2013
(Shares in millions)
Basic weighted average number 87.6 86.7
of common shares (excluding
employee benefit and
treasury shares)
Dilutive impact of share options 2.6 1.6
Dilutive impact of Long Term 3.9 2.7
Incentive Plan (LTIPs)
Diluted weighted average 94.1 91.0
number of shares
NOTE 7PROVISIONS
Personnel Contingent
Restructuring Onerous Lease Consideration Others Total
($ in thousands)
As of 586 644 8,090 1,411 10,731
June
30,
2013
Arising - - 10,588 373 10,961
during
the
period
Reversed - - (3,920 ) (92 ) (4,012 )
against
income
statement
Utilized (637 ) (441 ) (6,374 ) (972 ) (8,424 )
during
the
period
Exchange 51 24 319 71 465
differences
As of - 227 8,703 791 9,721
June
30,
2014
Current - 227 4,775 248 5,251
Non-current - - 3,928 543 4,470
As of - 227 8,703 791 9,721
June
30,
2014
Personnel Contingent
Restructuring Onerous Lease Consideration Others Total
($ in thousands)
As of 1,394 1,317 9,570 1,524 13,805
June
30,
2012
Arising - - 10,055 485 10,540
during
the
period
Reversed - - (1,543 ) (148 ) (1,691 )
against
income
statement
Utilized (863 ) (722 ) (9,933 ) (440 ) (11,958 )
during
the
period
Exchange 55 49 (59 ) (10 ) 35
differences
As of 586 644 8,090 1,411 10,731
June
30,
2013
Current 586 428 6,334 1,049 8,397
Non-current - 216 1,756 362 2,334
As of 586 644 8,090 1,411 10,731
June
30,
2013
The Company's restructuring in 2012 involved the reorganization
of various management and operational functions, and a second phase
of the shared service center in EMEA. The restructuring in 2011
involved the reorganization of the operational structure mainly
relating to hardware sales management layers, and the first phase
of the shared service center, which resulted in a provision that
was largely utilized in 2012. A total restructuring charge of $4.9
million was recognized in the Consolidated Income Statement for the
year ended June 30, 2012. No restructuring charges have been
recognized for the years ended June 30, 2014 and June 30, 2013.
As part of the restructuring announced in 2011, a number of the
properties under operating lease became onerous. The year-end
provision represents the Company's estimate of the net cost
expected to arise across the remaining life of the leases on these
underutilized properties, which is between one and two years.
Contingent consideration relates to deferred payments related to
acquisitions. For the twelve month period ended June 30, 2014,
contingent consideration arising of $10.6 million related to
deferred consideration of $7.1 million from the acquisition of
Kapow, and increases to the fair value of contingent consideration
related to the purchase of Altosoft based on subsequent
reassessments of the fair value of the liability. For the twelve
month period ended June 30, 2013, contingent consideration arising
of $10.1 million related to deferred consideration of $4.0 million
relating to the acquisition of Altosoft, and the accretion of
estimated retention and earnout payments over the service period
from the purchase of Singularity.
Amounts reversed against the income statement during the twelve
months ended June 30, 2014 and 2013 represent periodic downward
revisions to the fair value of contingent consideration related to
the acquisition of Singularity.
Amounts utilized during the period represented cash payments on
deferred consideration of $6.4 million and $9.9 million during the
twelve months ended June 30, 2014 and 2013, respectively. Payments
during the twelve months ended June 30, 2014 related to $3.3
million of deferred consideration and retention bonuses paid
related to the Altosoft acquisitions, $1.9 million related to the
first installment of deferred consideration paid related to the
acquisition of Kapow, and $1.2 million of contingent consideration
related to the acquisition of Atalasoft. During the twelve months
ended June 30, 2013 payments related to $7.9 million of deferred
consideration and retention bonuses paid related to the Singularity
acquisition and $2.0 million of contingent consideration related to
the acquisition of Atalasoft.
On August 1, 2014 the Company paid the second installment of
Kapow deferred consideration of $2.3 million with the remaining
deferred consideration to be released upon the two year anniversary
of the acquisition.
NOTE 8CONTINGENT LIABILITIES
There are no material pending or threatened lawsuits against the
Company.
NOTE 9SUBSEQUENT EVENTS
Acquisition of SoftPro GmbH
On September 1, 2014, Kofax acquired 100% of the shares of
SoftPro GmbH (SoftPro), a company incorporated in the Germany,
specializing e-signature and signature verification solutions. The
Company believes SoftPro's software will accelerate Kofax's ability
to improve customer interactions by enabling organizations to offer
a streamlined, fully digital and secure experience to their
constituents and transform customer workflow to an all-electronic
process, dramatically accelerating closure in any type of
transaction that requires a contract. Additionally, SoftPro
provides a full suite of banking solutions including signature
verification, authentication and fraud detection. These
capabilities, offered both on premise and in the cloud, further
differentiate Kofax's smart process application (SPA) offering from
competitors who do not offer these capabilities. The acquisition
will be accounted for using the acquisition method.
Below we provide provisional information on the acquisition. The
valuation had not been completed by the date the financial
statements were approved for issue by management. Full information
on the acquisition of SoftPro will be disclosed in the Company's
annual financial statements for the year ending June 30, 2015.
Provisional Fair
Value
($ in thousands)
Net liabilities acquired (1,514)
Intangible assets, including goodwill 36,214
Total consideration 34,700
Satisfied by: ($ in thousands)
Cash outflow at time of closing 31,200
Deferred consideration 3,500
Total consideration 34,700
The provisional goodwill of $36.2 million includes the value of
acquired technologies, and expected synergies arising from the
acquisition and workforce, which is not separately recognizable.
None of the goodwill is expected to be deductible for tax
purposes.
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 ConsultingChris Lane, +44 (0)
20 3727 1000kofax@fticonsulting.com
This information is provided by Business Wire
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