Kofax Reports Financial Results for Its Fourth Quarter and Fiscal Year Ended June 30, 2013
Results in Line with Company's July 24 Trading Update
IRVINE, Calif.--(BUSINESS WIRE)-- Kofax plc. (ISE: KFX) , a leading provider of smart process applications for the business critical First Mile™ of customer interactions, today reported its unaudited financial results for the fourth quarter and audited financial results for the fiscal year ended June 30, 2013.
Fourth Quarter Financial Highlights:
- Software license revenue increased 2.3% to $38.7 million (Prior Year: $37.8 million) or 3.1% in constant currency (CC)
- Total revenues increased 3.8% to $78.2 million (Prior Year: $75.3 million) or 4.3% in CC
- Income from operations increased 16.6% to $17.7 million (Prior Year: $15.2 million)
- Adjusted income from operations1 (Adjusted EBITDA) increased 3.1% to $21.8 million (Prior Year: $21.2 million) or a 27.9% margin
- Adjusted diluted EPS2 was $0.16 (Prior Year: $0.13)
- Adjusted cash generated from operations was $11.0 million (Prior Year: $8.8 million)
- Quarter end cash increased to $93.4 million (Prior Quarter End: $86.8 million)
Fiscal Year Financial Highlights:
- Software license revenue decreased 4.3% to $112.2 million (Prior Year: $117.3 million) or 3.1% in CC
- Total revenues increased 1.5% to $266.3 million (Prior Year: $262.5 million) or 2.7% in CC
- Income from operations increased 13.5% to $25.1 million (Prior Year: $22.1 million)
- Adjusted income from operations (Adjusted EBITDA) decreased 4.5% to $46.3 million (Prior Year: $48.5 million) or a 17.4% margin
- Adjusted diluted EPS was $0.31 (Prior Year: $0.34)
- Adjusted cash generated from operations was $42.1 million (Prior Year: $34.3 million)
- Year end cash increased to $93.4 million (Prior Year End: $81.1 million)
Fourth Quarter Operating Highlights:
- Launched Kofax Analytics for Capture™, which provides business intelligence and analytics for Kofax Capture™ and Kofax Transformation Modules™
- Named a "Leader" by Forrester Research, Inc. in the industry analyst firm's April 2013 report entitled "The Forrester Wave™: Smart Process Applications, Q2 2013"
- Received U.S. patent number 8,451,475, which covers technology invented to improve the efficiency of fax communications based on their content
- On July 31, 2013 announced the acquisition of Kapow Technologies, Inc., a leading provider of data integration software, allowing Kofax to speed its time to market with new solutions and customers' ROIs
A summary of Kofax's revenues and adjusted EBITDA for the fourth quarter and fiscal year ended June 30, 2013 compared to the prior year periods is as follows:
Adjusted EBITDA Margin
Commenting on these results, Reynolds C. Bish, Chief Executive Officer, said: "Following a strong third quarter, we were pleased to continue that momentum into the fourth quarter, realizing record software license and total revenues. We continued to make progress in strengthening and growing our sales organization and improving our execution across all geographies and product lines, including our legacy capture as well as acquired and new product offerings in the faster growing segments of our target markets. During the second half of the fiscal year we returned to year over year software license revenue growth of 8.9% and total revenues growth of 6.4%. This is in contrast to the first half of the fiscal year, and we believe it represents a significant and positive turning point in the Company's performance. We were also pleased with our adjusted EBITDA, adjusted cash generated from operations and fiscal year end cash, which were all as we would have expected given our results and the acquisition of Altosoft at the end of February 2013."
Bish continued: "As we look to the fiscal year ending June 30, 2014, we expect software license and total revenue growth but remain aware of the prevailing unpredictable nature of global macroeconomic conditions. We are also reminded of the limited amount of Kapow revenues we will be able to report this fiscal year due to IFRS purchase accounting and the large percentage of term software license bookings it will realize this fiscal year, which yield a significant amount of deferred as opposed to reported revenue. In light of the foregoing and including the expected results of all acquisitions to date, our guidance on a constant currency basis for the fiscal year ending June 30, 2014 is as follows:
Non-IFRS Pro Forma
|Software License Revenue Growth||Low Double Digits||Mid to High Teens|
|Total Revenues Growth||Mid to High Single Digits||
Low Double Digits
Bish concluded: "From an expense perspective, we expect to continue investing 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. In addition, Kapow reported an Adjusted EBITDA loss of $2.2 million for the fiscal year ended June 30, 2013 - like many other companies of its size with a large percentage of SaaS or term software license revenue - as a result of the significant amount of deferred as opposed to recognized revenue booked. We therefore expect this part of our business to be dilutive to our Adjusted EBITDA earnings and margins during the current and next fiscal year."
Non-IFRS Pro Forma guidance does not reflect the write off of substantially all of Kapow's deferred revenues as of the acquisition date as a result of IFRS purchase accounting guidelines. The Company believes that disclosing Non-IFRS Pro Forma results and guidance provides useful supplemental data that allows for greater transparency in the review of our financial and operational performance.
Reynolds C. Bish and Chief Financial Officer Jamie Arnold will present and review the results and conduct a question and answer session in the London offices of FTI Consulting on September 4 at 9:00 a.m. U.K. time / 4:00 a.m. Eastern Time in the U.S. The event will be webcast live and can be accessed as follows:
|Live Call||Access Code|
|U.K.||+44 (0) 20 3427 1906||2192932|
|U.S.||+1 (212) 444-0481||2192932|
The live webcast can be accessed through the investor relations section of the Company website. Participants are advised to dial in 15 minutes before the call in order to register in time for the start of the presentation.
A replay of the webcast will be available on the investor relations section of the Company website by 1:00 p.m. U.K. time / 8:00 a.m. Eastern Time in the U.S. on September 4. These can be accessed at http://www.kofax.com/investors/presentations.php.
Kofax plc. (ISE: KFX) is a leading provider of innovative smart capture and process automation software and solutions for the business critical First Mile™ of customer interactions. These begin with an organization's systems of engagement, which generate real time, information intensive communications from customers, and provide an essential connection to their systems of record, which are typically large scale, rigid enterprise applications and repositories not easily adapted to more contemporary technology. Success in the First Mile™ can dramatically improve an organization's customer experience and greatly reduce operating costs, thus driving increased competitiveness, growth and profitability. Kofax software and solutions provide a rapid return on investment to more than 20,000 customers in financial services, insurance, government, healthcare, business process outsourcing and other markets. Kofax delivers these through its own sales and service organization, and a global network of more than 800 authorized partners in more than 75 countries throughout the Americas, EMEA and Asia Pacific. For more information, visit kofax.com.
1. Adjusted income from operations (Adjusted EBITDA) is IFRS based income from operations excluding the effects of share-based payment expense, depreciation expense, amortization of acquired intangible assets, acquisition related costs, restructuring costs and other operating expense, net.
2. Adjusted diluted EPS is calculated using adjusted income from operations (Adjusted EBITDA) reduced by depreciation and income taxes and the fully diluted shares outstanding.
© 2013 Kofax, plc. "Kofax" is a registered trademark and "First Mile", "Kofax Capture", "Kofax Transformation Modules", "Kofax Mobile Capture" and "Kofax Analytics for Capture" are trademarks of Kofax plc. All other trademarks are the property of their respective owners.
Chief Executive Officer's Review
During the fiscal year ended June 30, 2013 software license revenue declined 4.3% - or 3.1% in constant currency - and total revenues grew 1.5% - or 2.7% in constant currency. It would, however, be misleading to draw definitive conclusions from these annual results as the fiscal year was characterized by two distinctly different half years.
During the first half we experienced an 18.0% - or 16.6% in constant currency - year over year decline in software license revenue and a 3.6% - or 1.6% in constant currency - year over year decline in total revenues. In contrast, during the second half we returned to year over year software license revenue growth of 8.9% - or 9.6% in constant currency - and total revenues growth of 6.4% - or 6.8% in constant currency. We believe this dramatic turnaround is the direct result of actions we initiated during the first half to accelerate software license revenue growth and address volatile quarterly results arising from a reliance on large, seven figure sales, which are often difficult to control and predict. We also believe it represents a significant and positive turning point in the Company's performance.
Early in the first half we welcomed Howard Dratler as our new Executive Vice President of Field Operations. After a period of diligence and thoughtful analysis, in October we reorganized our sales force to better focus its resources, improve its execution and productivity and reduce our reliance on large, seven figure sales. Shortly following that reorganization we began to see early evidence of the expected benefits emerging in a number of leading indicators. As we entered the second half, we began to slowly realize those benefits in our software license revenue pipeline, forecast and bookings. This continued and we progressively realized more of those benefits, which resulted in the much improved second half performance.
In addition, we experienced significantly different software license revenue performance in our legacy capture versus our newer businesses in mobile and those of acquired companies. Software license revenues in our legacy capture business declined 8.2% during the fiscal year - even more during the first half offset by growth in the second half - while software license revenues in mobile and those of acquired companies grew by 30.3% during the fiscal year. The challenge of slower growth in our legacy capture business market has been confirmed by Forrester, an information technology industry analyst firm, in an independent market assessment commissioned by Kofax. Fortunately, that assessment also concluded that the combined end user markets targeted by Kofax, which include software and maintenance services for the capture, business process management and information intensive smart process applications markets, are expected to grow from $7.1 billion in 2012 at an 18.5% compound annual growth rate to $14.0 billion in 2016. So as software license revenues in mobile and those of acquired companies grow faster and become a larger percentage of our total software license revenue, we expect to realize accelerating overall software license revenue growth.
Despite our strong second half performance, we nonetheless experienced a 4.5% year over year decline in adjusted income from operations - also known as Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization or Adjusted EBITDA - for the fiscal year. This is 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. For a definition of adjusted income from operations please refer to the Chief Financial Officer's Review that follows.
We ended the fiscal year with cash of $93.4 million (2012: $81.1 million). This was after paying $11.5 million to Altosoft shareholders for the acquisition of that business and $9.9 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, even after the acquisition of Kapow subsequent to the end of the fiscal year.
While we certainly could have performed better during the first half of the fiscal year, we are pleased with the turnaround and clear progress during the second half, and we remain confident in our business and optimistic about our future.
During the fiscal year we successfully added over 2,641 new customers (2012: 2,348). We also closed 128 sales greater than $100,000 (2012: 142), 28 sales greater than $500,000 (2012: 27) and 7 greater than $1 million (2012: 8). These once again included one of the largest sales in the history of Kofax for $4.8 million to a national government agency in Western Europe for a large scale, nationwide capture project.
Two of the more notable events during and subsequent to the end of the fiscal year were our acquisitions of Altosoft and Kapow Technologies. Both acquisitions were consistent with our stated acquisition strategy and in adjacent areas of interest that we've been talking about for some time now.
At the end of February 2013 we acquired Altosoft, Inc., a leading developer of business intelligence and analytics software. Its products allow us to provide more actionable information to our customers sooner than would otherwise be possible through near real-time process and data analytics, visualization and ETL capabilities, and further enhances our product portfolio by providing a core component needed for smart process applications. The products are available as both perpetual licenses for on-premise deployments and as a hosted SaaS subscription offering.
We acquired all of Altosoft's stock for $13.5 million in cash, with $2.0 million held back for one year being subject to certain indemnification terms and conditions. An additional $3.0 million in cash payments may be made subject to the achievement of specific annual revenue growth rates during calendar years 2013, 2014 and 2015 and certain management employment conditions. Our integration of the company was substantially completed by the end of fiscal year 2013, and our end user customers and resellers have responded favorably to this acquisition.
At the end of July 2013 we acquired Kapow Technologies, Inc., a leading provider of data integration software. Kapow's products will 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.
Kapow Katalyst™ is the only data integration software to provide near real-time application integration and process automation offering both traditional API level integration capabilities as well as an innovative Synthetic API™ approach, which provides business users with an agile "point and click, no coding" approach. The resulting data integration modules can then be deployed via Kapow Kapplets™, lightweight apps instantly accessible on a self-serviced basis. The products are available under both perpetual and term licenses for on-premise deployments, and the company successfully transitioned the majority of its licenses from perpetual to term licenses while growing total revenues during its last four fiscal years.
We acquired all of Kapow's stock for total consideration of $47.5 million in cash, prior to deducting approximately $1.3 million of cash held by Kapow on closing of the transaction. Of this amount, $40.4 million was paid on closing. An additional $2.4 million will be paid upon Kofax's receipt of Kapow's audited financial statements for its fiscal year ended June 30, 2013, $2.2 million will be paid one year from closing and $2.5 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 2013.
We'll be investing to grow both the Altosoft and Kapow sales organizations in order to accelerate their software revenue growth while also leveraging their products to accelerate growth in our smart process applications software and solutions business.
Our investments in research and development have allowed us to successfully launch eight significant new software product releases during the fiscal year, including:
- Kofax Mobile Capture™ for Mortgage Applications, which allows lenders to bring the mortgage application process directly to borrowers using mobile devices to dramatically accelerate processing and improve the customer experience
- Kofax Mobile CaptureTM for Driver Licenses, which enables mobile apps that require users to capture images of and data contained in U.S. driver licenses
- Kofax Mobile CaptureTM for Auto Claims, a First Notice of Loss (FNOL) for auto accident claims that lets policyholders use mobile devices to capture images of documents and pictures at the scene of an accident, and initiate a claim with their insurer
- Kofax Mailroom Automation, a smart process application for digital mailrooms that combines capture, process management and analytics capabilities, and thereby offers more comprehensive document processing services
- Kofax Customer Onboarding™, a smart process application that lets users submit data and images of new customer enrollment documents from any source - including mobile devices, internet portals, desktop scanners and multifunction peripherals (MFPs) - and then ensures that the onboarding process is completed in a timely, accurate and cost effective manner while optimizing the customer experience
- Kofax MarkView® for Accounts Payable 8.0, which adds mobile capabilities to this accounts payable automation solution for SAP and Oracle ERP users
- Kofax Transformation Modules™ 6.0, which now automatically classifies, separates and extracts content from unstructured in addition to semi-structured and structured documents
- Kofax Analytics for Capture™, which provides robust business intelligence and analytics for Kofax Capture™ and Kofax Transformation Modules™
These investments have also resulted in the issuance of two additional patents to protect Kofax's intellectual property:
- U.S. patent number 8,345,981, which covers technology used to ensure the validity of data extracted from documents by reverse matching that data with information contained in an organization's systems of record
- U.S. patent number 8,451,475, which covers technology invented to improve the efficiency of fax communications based on their content
During the fiscal year we were also pleased to continue receiving widespread recognition for our market position and products. This included:
- Forrester published its first report entitled "The Forrester WaveTM: Smart Process Applications, Q2 2013", which ranked Kofax a "Leader" and noted the strength of our strategy and strong multichannel capture, mobile capture and process management capabilities
- Forrester, as a result of the independent market assessment commissioned by Kofax noted above, concluded that in 2012 we had a number one, leading 15% share of the capture market
- Kofax Web Capture™ was named to KMWorld Magazine's prestigious list of "Trend Setting Products of 2012"
- Kofax Web Capture received the Editor's Choice Award and Kofax's implementation at Exmoor National Park was named Government Project of the Year at the 2012 Document Manager Awards hosted by DM Magazine
- Kofax was added to the FTSE4Good Index Series, a family of share indexes for companies meeting globally recognized corporate responsibility standards
- I was honored at the 2012 British American Business Awards for leadership in the Southern California business community
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 MileTM 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, dynamic case 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:
- Broadening our smart process applications offerings and markets,
- Further penetrating our large installed base of over 20,000 end user customers,
- Expanding and optimizing our hybrid go-to-market model that supports both direct sales to end users and indirect sales through resellers and OEM partners and
- Continuing to pursue strategic acquisitions.
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 applications software 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.
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 2013 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 2013.
Board & Management Changes
There were no changes in our Board of Directors during fiscal year 2013.
We were pleased to welcome Howard Dratler as our new Executive Vice President of Field Operations during July 2012. Howard is responsible for all customer facing functions on a global basis, including sales, pre sales, channel management, business development, sales enablement, professional services, maintenance services and sales operations activities. He is a seasoned software industry executive with more than 25 years of experience across a wide range of applications, including storage, capture, content management, data warehousing and products offered under both perpetual license and SaaS subscription models, and has worked in early stage companies as well as much larger, global organizations. The majority of his background, experience and focus has been in developing hybrid go-to-market strategies and building high performance sales teams. He has an impressive track record of successfully achieving goals and objectives while effecting positive change in a number of companies, including Captiva Software Corporation - where he also worked with me as the Executive Vice President of Field Operations. As a result, Howard has been a valuable addition to our executive management team and will be instrumental in driving our revenue growth strategies.
Alan Kerr, who was our previous Executive Vice President of Field Operations, is no longer a member of our executive management team, and subsequent to the end of fiscal year 2013 Martyn Christian, who was our Chief Marketing Officer, resigned and we are currently conducting a search for his replacement. There were no other changes in the Company's executive management team during or subsequent to the end of fiscal year 2013.
As we look to the fiscal year ending June 30, 2014, we expect software license and total revenue growth but remain aware of the prevailing unpredictable nature of global macroeconomic conditions. We are also reminded of the limited amount of Kapow revenues we will be able to report this fiscal year due to IFRS purchase accounting and the large percentage of term software license bookings it will realize this fiscal year, which yield a significant amount of deferred as opposed to reported revenue. In light of the foregoing and including the expected results of all acquisitions to date, our guidance on a constant currency basis for the fiscal year ending June 30, 2014 is as follows:
Non-IFRS Pro Forma
|Software License Revenue Growth||Low Double Digits||Mid to High Teens|
|Total Revenues Growth||Mid to High Single Digits||Low Double Digits|
From an expense perspective, we expect to continue investing 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. In addition, Kapow reported an Adjusted EBITDA loss of $2.2 million for the fiscal year ended June 30, 2013 - like many other companies of its size with a large percentage of SaaS or term software license revenue - as a result of the significant amount of deferred as opposed to recognized revenue booked. We therefore expect this part of our business to be dilutive to our Adjusted EBITDA earnings and margins during the current and next fiscal year.
Non-IFRS Pro Forma guidance does not reflect the write off of substantially all of Kapow's deferred revenues as of the acquisition date as a result of IFRS purchase accounting guidelines. We believe that disclosing Non-IFRS Pro Forma results and guidance provides useful supplemental data that allows for greater transparency in the review of our financial and operational performance.
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 3, 2013
Chief Financial Officer's Review
We exit fiscal year 2013 with momentum and enthusiasm. While the first half of the fiscal year was disappointing as we reported a decline in license revenue leading to lower total revenue and earnings, it also appears to represent a bottom. In the second half of the fiscal year, we grew license revenue 8.9% year over year, we grew total revenue 6.4% year over year, which gave us the confidence to return to making investments in sales particularly quota carrying sales staff and to a lesser extent product development staff. In addition to generating growth from existing products, we acquired two companies, Altosoft, for analytics and business intelligence, and Kapow, for data integration, after year-end, which further enhance our position as a technology leader in our market.
Total revenue increased $3.8 million, or 1.5% in the fiscal year ended June 30, 2013 compared to the fiscal year ended June 30, 2012 due to an $8.4 million increase associated with our acquisitions of Singularity and Altosoft and our new mobile offering, offset by a $4.5 million or 1.8% decrease in organic revenues.
The following tables present revenue by financial statement line, as well as in total for each of our geographic regions: