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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Kofax | LSE:KFX | London | Ordinary Share | BMG5307C1055 | COM USD0.001 (DI) |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 735.00 | 0.00 | 00:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Nov 2019 to Nov 2024
Kofax® Limited (NASDAQ:KFX) (LSE:KFX), a leading provider of smart process applications for the business critical First Mile™ of customer interactions, today reported unaudited financial results for the third quarter and nine months ended March 31, 2014.
IFRS Financial Highlights:
Non-IFRS Financial Highlights:
A summary of Kofax’s unaudited condensed consolidated income statements for the third quarter and nine months compared to the prior year on both an IFRS and non-IFRS basis is as follows:
IFRS Quarter Nine Months Unaudited Y/Y % Y/Y % $M Change Total $M Change Total Software Licenses 28.1 6.5 % 39.8 % 83.0 12.8 % 39.5 % Maintenance Services 32.5 8.6 % 46.0 % 98.1 8.2 % 46.7 % Professional Services 10.1 26.7 % 14.2 % 29.1 21.5 % 13.8 % Total Revenues 70.7 10.0 % 100.0 % 210.2 11.7 % 100.0 %Income from Operations
0.2 -94.8 % 4.1 -44.8 %Margin
0.3 % -95.3 % 1.9 % -50.6 % Non-IFRS Quarter Nine Months Unaudited Y/Y % Y/Y % $M Change Total $M Change Total Software Licenses 29.5 11.6 % 40.9 % 88.1 19.5 % 40.6 % Maintenance Services 32.8 9.1 % 45.4 % 98.9 9.0 % 45.7 % Professional Services 9.9 25.0 % 13.7 % 29.8 24.4 % 13.7 % Total Revenues 72.2 12.1 % 100.0 % 216.8 15.1 % 100.0 %Adjusted EBITDA
7.5 -11.5 % 28.7 16.1 %Margin
10.3 % -21.1 % 13.2 % 0.9 %Operating Highlights:
Commenting on the Non-IFRS results, Reynolds C. Bish, Chief Executive Officer, said: “We’re pleased with our performance during the third quarter and nine months, which was in line with our expectations for those periods and our guidance for fiscal year 2014. Software license revenue increased during the third quarter as a result of strong growth in mobile and new or acquired products. Core capture software license revenue was essentially flat in the Americas and Asia Pacific but declined in EMEA and in total as a result of a challenging year over year comparison in all three regions. This was particularly true in EMEA, where the prior year period included a $4.8 million order for core capture software licenses and maintenance services from a national government agency in Western Europe. Adjusted EBITDA declined during the quarter as a result of the investments we’ve made and continue to make in growing our sales organization and expanding our research and development efforts in order to drive future software license revenue growth. The third quarter represents our fifth consecutive quarter of year over year software license and total revenue growth following the reorganization of our sales force during October and November of 2012. We continue to realize improving sales execution across all geographies and product lines and therefore remain confident in and reaffirm our previous guidance for fiscal year 2014 as follows:”
IFRS Non-IFRS Software License Revenue Growth Low Double Digits Mid to High Teens Total Revenues Growth Mid to High Single Digits Low Double Digits Adjusted EBITDA Margin 12.5 – 13.5% 14.5 – 15.5% Effective Tax Rate 37.0 – 39.0%
Webcast
Management will host a conference call and audio only webcast to discuss these financial results at 1:00 p.m. U.K. time / 8:00 a.m. U.S. Eastern time today. To participate in the call, investors can use the live dial in information below, or access the call via the investor relations section of the Company’s website at: http://www.kofax.com/investors/presentations.php. A replay via telephone and webcast will be available for 30 days.
Live Replay (available for 30 days) Access Code U.K. +44 (0) 1452 555566 +44 (0)1452 550000 16051165 U.S. +1 (866) 966 9439 +1 (866) 247 4222 16051165About Kofax
Kofax Limited is a leading provider of innovative smart capture and process automation software and solutions for the business critical First Mile of customer interactions. These begin with an organization’s systems of engagement, which generate real time, information intensive communications from customers, and provide an essential connection to their systems of record, which are typically large scale, rigid enterprise applications and repositories not easily adapted to more contemporary technology. Success in the First Mile can dramatically improve an organization’s customer experience and greatly reduce operating costs, thus driving increased competitiveness, growth and profitability. Kofax software and solutions provide a rapid return on investment to more than 20,000 customers in financial services, insurance, government, healthcare, business process outsourcing and other markets. Kofax delivers these through its own sales and service organization, and a global network of more than 800 authorized partners in more than 75 countries throughout the Americas, EMEA and Asia Pacific. For more information, visit kofax.com.
Safe Harbor Statement
This document contains forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements are subject to risks and uncertainties that could cause actual results to vary materially from those projected in the forward looking statements. The Company may experience significant fluctuations in future operating results due to a number of economic, competitive, and other factors, including, among other things, our reliance on third-party manufacturers and suppliers, government agency budgetary and political constraints, new or increased competition, changes in market demand, and the performance or reliability of our products. These factors and others could cause operating results to vary significantly from those in prior periods, and those projected in forward looking statements. Additional information with respect to these and other factors, which could materially affect the Company and its operations, are included in certain forms the Company has filed with the Securities and Exchange Commission.
Non-IFRS Financial Measures
Management uses financial measures, both IFRS and non-IFRS, in analyzing and assessing the overall performance of the business and making operational decisions. We have provided and believe that the non-IFRS financial measures and supplemental reconciliation to IFRS financial measures are useful to investors and other users of our financial statements because the non-IFRS financial measures may be used as additional tools to compare our performance across peer companies, periods and financial markets. Please refer to the Chief Financial Officer’s Review for a discussion of the non-IFRS financial measures and supplemental reconciliation to IFRS financial measures for more information regarding the non-IFRS measures.
© 2014 Kofax Limited. Kofax is a registered trademark and First Mile, TotalAgility and Kofax Mobile Capture are trademarks of Kofax Limited. All other trademarks are the property of their respective owners.
Source: KofaxRNS
Chief Financial Officer’s Review
With the exception of the section titled “Discussion of Non-IFRS Measures”, the Chief Financial Officer’s Review refers to IFRS financial measures.
In the third quarter of fiscal year 2014, we extended to five quarters the trend of year-over-year software license and total revenue growth. For the three months ended March 31, 2014, we generated growth in each revenue line item and in total revenue in all geographies. In addition, we continued the expansion of our sales organization, particularly the number of quota carrying sales reps, as well as increased staffing in our product development organization.
Revenues
The following tables present revenues by financial statement line, as well as in total for each of our geographic regions:
Three Months Ended
March 31,
% of Total Revenue 2014 2013 % Change 2014 2013 ($ in thousands, except percentages) Software license $ 28,136 $ 26,422 6.5 % 39.8 % 41.1 % Maintenance services 32,534 29,966 8.6 % 46.0 % 46.6 % Professional services 10,052 7,933 26.7 % 14.2 % 12.3 % Total revenues $ 70,722 $ 64,321 10.0 % 100.0 % 100.0 %Americas $ 36,901 $ 31,435 17.4 % 52.2 % 48.9 % EMEA 29,155 28,548 2.1 % 41.2 % 44.4 % Asia Pacific 4,666 4,338 7.6 % 6.6 % 6.7 % Total revenues $ 70,722 $ 64,321 10.0 % 100.0 % 100.0 %
Nine Months Ended
March 31,
% of Total Revenue 2014 2013 % Change 2014 2013 ($ in thousands, except percentages) Software license $ 82,965 $ 73,571 12.8 % 39.5 % 39.1 % Maintenance services 98,122 90,646 8.2 % 46.7 % 48.2 % Professional services 29,096 23,943 21.5 % 13.8 % 12.7 % Total revenues $ 210,183 $ 188,160 11.7 % 100.0 % 100.0 % Americas $ 115,751 $ 98,544 17.5 % 55.1 % 52.4 % EMEA 80,653 76,231 5.8 % 38.3 % 40.5 % Asia Pacific 13,779 13,385 2.9 % 6.6 % 7.1 % Total revenues $ 210,183 $ 188,160 11.7 % 100.0 % 100.0 %Software license revenue increased $1.7 million or 6.5% in the three months ended March 31, 2014 due to $4.4 million increase in mobile and new or acquired products offset by a $2.7 million decrease in core capture products. During the three months ended March 31, 2014, license revenue from multi-channel capture products decreased 8.0% as compared to the three months ended March 31, 2013, while new or acquired products increased 206.8%. Multi-channel capture products are a product grouping created by Forrester which in addition to our core capture products includes mobile and web capture products and is estimated to be growing at a 4.5% compound annual growth rate between 2012 and 2016. Software license revenue increased $2.3 million in the Americas, $0.4 million in Asia Pacific, and decreased $1.0 million in EMEA.
Software license revenue increased $9.4 million or 12.8% in the nine months ended March 31, 2014 due to a $2.7 million increase in core capture products and a $6.7 million increase in mobile and new or acquired products. During the nine months ended March 31, 2014, multi-channel capture has grown 5.5% as compared to the nine months ended March 31, 2013, while new or acquired products has grown 102.4%. Software license revenues increased $7.2 million in Americas, $1.1 million in EMEA, and $1.1 million in Asia Pacific.
Maintenance services revenue increased $2.6 million or 8.6% in the three months ended March 31, 2014 due to an increase of $1.6 million or 10.6% in the Americas and $1.2 million or 9.2% in EMEA offset by a decrease of $0.2 million or 9.6% in Asia Pacific. In the nine months ended March 31, 2014, maintenance services revenue increased $7.5 million, or 8.2%, due to an increase of a $4.1 million or 9.0% in the Americas and $4.0 million or 10.3% in EMEA offset by a decrease of $0.6 million or 9.6% in Asia Pacific. The decreases in Asia Pacific are attributable to unfavorable exchange rate movements.
Professional services revenue increased $2.1 million or 26.7% in the three months ended March 31, 2014 due to an increase of $1.5 million or 38.6% in the Americas, $0.5 million or 14.2% in EMEA and $0.1 million or 15.0% in Asia Pacific. In the nine months ended March 31, 2014, professional services revenue increased $5.2 million or 21.5% due to an increase of $5.9 million or 52.6% in the Americas offset by a decrease of $0.6 million or 6.3% in EMEA and $0.1 million or 4.0% in Asia Pacific. The increase in professional services revenue is due to incremental professional services arising from our acquisition of Kapow as well as several large projects in the Americas.
Costs and Expenses
Cost of Software License Revenue
The following table reflects cost of software license revenue, in dollars and as a percentage of software license revenues:
Three Months Ended
March 31,
ChangeNine Months Ended
March 31,
Change 2014 2013 $ % 2014 2013 $ % (in thousands, except percentages) Cost of software license $ 1,955 $ 2,576 $ (621 ) (24.1 )% $ 7,640 $ 7,302 $ 338 4.6 % % of software license revenues 6.9 % 9.7 % 9.2 % 9.9 %Cost of software license revenue decreased by $0.6 million or 24.1% in the three months ended March 31, 2014 and increased $0.3 million or 4.6% in the nine months ended March 31, 2014. Royalty costs and other third party costs vary by product and accordingly the cost of software license revenue as a percentage of the software license revenues can fluctuate based on the mix of software licenses sold.
Cost of Maintenance Services Revenue
The following table reflects cost of maintenance services revenue, in dollars and as a percentage of software license revenue:
Three Months Ended
March 31,
ChangeNine Months Ended
March 31,
Change 2014 2013 $ % 2014 2013 $ % (in thousands, except percentages) Cost of maintenance services $ 5,218 $ 4,753 $ 465 9.8 % $ 15,104 $ 13,516 $ 1,588 11.7 % % of maintenance services revenue 16.0 % 15.9 % 15.4 % 14.9 %Cost of maintenance services revenue increased $0.5 million or 9.8% in the three months ended March 31, 2014 and increased $1.6 million or 11.7% in the nine months ended March 31, 2014 as we increased our technical support organization to service a larger installed base and as a result of our acquisitions of Altosoft and Kapow.
Cost of Professional Services Revenue
The following table shows cost of professional services revenue, in dollars and as a percentage of professional services revenue:
Three Months Ended
March 31,
ChangeNine Months Ended
March 31,
Change 2014 2013 $ % 2014 2013 $ % (in thousands, except percentages) Cost of professional services $ 8,129 $ 7,182 $ 947 13.2 % $ 23,977 $ 21,312 $ 2,665 12.5 % % of professional services revenue 80.9 % 90.5 % 82.4 % 89.0 %Cost of professional services revenue increased $0.9 million or 13.2% in the three months ended March 31, 2014 primarily due to a $0.5 million increase in compensation costs largely associated with our acquisitions of Altosoft and Kapow. Cost of professional services increased $2.7 million or 12.5% in the nine months ended March 31, 2014 due to a $1.1 million increase in compensation costs largely for that same reason. Our gross margin on professional services increased 9.6% in the three months and 6.6% nine months ended March 31, 2014, respectively as we realized a higher utilization of our professional services staff due to the increased number of projects.
Research and Development
The following table shows research and development expense, in dollars and as a percentage of total revenues:
Three Months Ended
March 31,
ChangeNine Months Ended
March 31,
Change 2014 2013 $ % 2014 2013 $ % (in thousands, except percentages) Research and development $ 10,318 $ 9,010 $ 1,308 14.5 % $ 29,346 $ 25,914 $ 3,432 13.2 % % of total revenues 14.6 % 14.0 % 14.0 % 13.8 %Research and development expense increased $1.3 million or 14.5% in the three months ended March 31, 2014 due to a $1.1 million increase in compensation costs largely associated with our acquisitions of Altosoft and Kapow and increased headcount to support our mobile and new or acquired products. Research and development expense increased $3.4 million or 13.2% in the nine months ended March 31, 2014 due to a $3.1 million increase in compensation costs largely for those same reasons
Sales and Marketing
The following table shows sales and marketing expense, in dollars and as a percentage of total revenues:
Three Months Ended
March 31,
ChangeNine Months Ended
March 31,
Change 2014 2013 $ % 2014 2013 $ % (in thousands, except percentages) Sales and marketing expense $ 31,418 $ 24,565 $ 6,853 27.9 % $ 89,959 $ 72,770 $ 17,189 23.6 % % of total revenues 44.4 % 38.2 % 42.8 % 38.7 %Sales and marketing expense increased $6.9 million or 27.9% in the three months ended March 31, 2014 due to a $3.8 million increase in compensation costs largely associated with our acquisitions of Altosoft and Kapow and our increased investment in growing the sales organization. Sales and marketing expense increased $17.2 million or 23.6% in the nine months ended March 31, 2014 for those same reasons.
General and Administrative
The following table shows general and administrative expense, in dollars and as a percentage of total revenues:
Three Months Ended
March 31,
ChangeNine Months Ended
March 31,
Change 2014 2013 $ % 2014 2013 $ % (in thousands, except percentages) General and administrative expense $ 10,428 $ 9,082 $ 1,346 14.8 % $ 29,313 $ 28,317 $ 996 3.5 % % of total revenues 14.7 % 14.1 % 13.9 % 15.0 %General and administrative expense increased $1.3 million or 14.8% in the three months ended March 31, 2014 primarily due to an increase in compensation costs and share-based payment expense. General and administrative expenses increased $1.0 million or 3.5% in the nine months ended March 31, 2014 primarily due to those same reasons.
Amortization of Acquired Intangible Assets
The following table shows expense related to the amortization of acquired intangible assets, in dollars and as a percentage of total revenues:
Three Months Ended
March 31,
ChangeNine Months Ended
March 31,
Change 2014 2013 $ % 2014 2013 $ % (in thousands, except percentages) Amortization of acquired intangible assets $ 2,164 $ 1,587 $ 577 36.4 % $ 6,728 $ 4,813 $ 1,915 39.8 % % of total revenues 3.1 % 2.5 % 3.2 % 2.6 %Amortization of acquired intangible assets increased $0.6 million or 36.4% to $2.2 million in the three months ended March 31, 2014 due to additional amortization of acquired intangible assets arising from our acquisitions of Altosoft and Kapow. Amortization of acquired intangible assets increased $1.9 million or 39.8% to $6.7 million in the nine months ended March 31, 2014, due to that same reason.
Acquisition-related Costs
The following table shows Acquisition-related costs, in dollars and as a percentage of total revenues:
Three Months Ended
March 31,
ChangeNine Months Ended
March 31,
Change 2014 2013 $ % 2014 2013 $ % (in thousands, except percentages) Acquisition-related costs $ 504 $ 1,600 $ (1,096 ) (68.5 )% $ 398 $ 4,543 $ (4,145 ) (91.2 )% % of total revenues 0.7 % 2.5 % 0.2 % 2.4 %Acquisition-related costs decreased $1.1 million or 68.6% to $0.5 million in the three months ended March 31, 2014 primarily due to accruing less for the contingent consideration related to the Singularity acquisition, offset by a small increase to the fair value of the Altosoft contingent consideration.
Acquisition-related costs decreased $4.1 million or 91.2% to $0.4 million primarily due to a decrease in the fair value of the contingent consideration related to the Singularity acquisition and direct acquisition costs related to the acquisition of Kapow, offset by a small increase to the fair value of the Altosoft contingent consideration.
Other Operating Expense, net
The following table shows other operating expenses, net, in dollars and as a percentage of total revenues:
Three Months Ended
March 31,
ChangeNine Months Ended
March 31,
Change 2014 2013 $ % 2014 2013 $ % (in thousands, except percentages) Other operating expenses, net $ 404 $ 417 $ (13 ) (3.1 )% $ 3,636 $ 2,274 $ 1,362 59.9 % % of total revenues 0.6 % 0.6 % 1.7 % 1.2 %Other operating expense remained relatively flat at $0.4 million in the three months ended March 31, 2014. Other operating expense increased $1.4 million or 59.9% to $3.6 million in the nine months ended March 31, 2014 as a result of the costs leading up to the NASDAQ listing on December 5, 2013.
Finance Income (Expense), net
The following table shows finance income (expense), net, in dollars and as a percentage of total revenues:
Three Months Ended
March 31,
ChangeNine Months Ended
March 31,
Change 2014 2013 $ % 2014 2013 $ % (in thousands, except percentages) Finance income (expense), net $ 705 $ (2,881 ) $ 3,586 (124.5 )% $ 4,858 $ (4,660 ) $ 9,518 (204.2 )% % of total revenues 1.0 % (4.5 )% 2.3 % (2.5 )%Finance income (expense), net fluctuated $3.6 million in the three months ended March 31, 2014 and $9.5 million in the nine months ended March 31, 2014 primarily due to a more stable exchange rate environment, as well as actions taken by management to mitigate material fluctuations related to exchange rates.
Income tax expense
The following table shows income tax expense, in dollars and as a percentage of profit from continuing operations:
Three Months Ended
March 31,
ChangeNine Months Ended
March 31,
Change 2014 2013 $ % 2014 2013 $ % (in thousands, except percentages) Income tax expense $ 943 $ 997 $ (54 ) (5.4 )% $ 4,202 $ 3,437 $ 765 22.2 % Income from continuing operations $ 889 $ 668 $ 8,940 $ 2,739 Effective tax rate 106.0 % 149.3 % 47.0 % 125.5 %Income tax expense decreased by $0.1 million, or 5.4%, to $0.9 million during the three months ended March 31, 2014. The effective tax rate is less than that in the three months ended March 31, 2013 due to significant costs incurred related to preparation of the NASDAQ listing and other items that were not deductible for tax purposes in the three months to March 31, 2013. Income tax expense increased by $0.8 million, or 22.2%, to $4.2 million during the nine months ended March 31, 2014. Increased income tax expense for the nine months ended March 31, 2014 as compared to the nine months ended March 31, 2013 was the result of more income from continuing operations. The effective tax rate in the nine months ended March 31, 2013 remains impacted by the expenses not deductible for tax purposes.
Liquidity and Capital Resources
Historically, we have financed our business primarily through cash on hand and cash flows from operations. We had $93.1 million of cash and cash equivalents at March 31, 2014 compared to $93.4 million at June 30, 2013. The majority of our cash is held in U.S. dollars, Euros and to a lesser extent, British Pounds. We had no outstanding debt as of June 30, 2013.
The following tables set forth the summary of our cash flows:
Three Months Ended
March 31,
2014 2013 Change ($ in thousands) Cash generated from (used in) Operating activities $ 16,233 $ 13,928 $ 2,305 Investing activities (4,893 ) (12,631 ) 7,738 Financing activities 408 30 378 Exchange rate effects 73 (1,552 ) 1,625 Net increase (decrease) $ 11,821 $ (225 ) $ 12,046
Nine Months Ended
March 31,
2014 2013 Change ($ in thousands) Cash generated from (used in) Operating activities $ 34,453 $ 23,133 $ 11,319 Investing activities (48,086 ) (17,656 ) (30,430 ) Financing activities 12,223 596 11,627 Exchange rate effects 1,048 (389 ) 1,438 Net increase (decrease) $ (362 ) $ 5,684 $ (6,046 )Operating Activities
Net cash generated from operating activities was $16.2 million in the three months ended March 31, 2014 compared to cash generated from operating activities of $13.9 million in the three months ended March 31, 2013, a net increase of $2.3 million. That increase was primarily attributable to the net change in working capital for the three months ended March 31, 2014 as compared to the three months ended March 31, 2013.
Net cash generated from operating activities was $34.5 million in the nine months ended March 31, 2014 compared to $23.1 million in the nine months ended March 31, 2013, an increase of $11.3 million. That increase was primarily attributable to a $7.4 million increase in deferred income primarily due to the acquisition of Kapow and a $4.6 million increase in non-acquisition related deferred income partially offset by a $0.3 million decrease in payments under restructuring – personnel.
Investing Activities
Net cash used in investing activities was $4.9 million in the three months ended March 31, 2014 compared to $12.6 million in the three months ended March 31, 2013, a decrease of $7.7 million. The primary use of cash in the current period was the payment of $1.4 million of deferred consideration associated with our acquisition of Altosoft and $1.9 million of deferred consideration associated with our acquisition of Kapow. Additionally, we paid $1.0 million of contingent consideration to the former shareholders of Altosoft resulting from the achievement of calendar year 2013 revenue and EBITDA targets. During the three months ended March 31, 2013 we paid $11.7 million for the acquisition of Altosoft, less cash acquired of $0.8 million, and contingent consideration related to our acquisition of Atalasoft, resulting in an incremental decrease in cash flows from investing activities.
Net cash used in investing activities was $48.1 million in the nine months ended March 31, 2014 compared to $17.7 million in the nine months ended March 31, 2013, an increase of $30.4 million. The primary use of cash in the current period was the $39.3 million cash consideration associated with our July 31, 2013 acquisition of Kapow and $6.1 million in deferred consideration related to our acquisition of Atalasoft, Altosoft and Kapow compared to $11.7 million in cash consideration paid on March 1, 2013 related to the acquisition of Altosoft and $0.4 million of deferred consideration related to the acquisition of Atalasoft. Additionally, we purchased $1.0 million of fixed assets in the nine months ended March 31, 2014 compared to the same period of the prior year.
Financing Activities
Net cash generated from financing activities was $0.4 million in the three months ended March 31, 2014 compared to $0.0 million in the three months ended March 31, 2013, an increase of $0.4 million, due to the proceeds of stock option exercises in the period.
Net cash generated from financing activities was $12.2 million in the nine months ended March 31, 2014 compared to $0.6 million in the nine months ended March 31, 2013, an increase of $11.6 million, due primarily to $12.4 million in net proceeds from the NASDAQ listing offset by decreases of $0.6 million from net purchases of employee benefit trust shares and proceeds from stock option exercises.
Exchange Rate Effects
We operate in many countries around the world, and maintain cash balances in locations in currencies other than the U.S. dollar. In the three months ended March 31, 2014 cash and cash equivalents increased by $0.1 million due to changes in exchange rates, while during the three months ended March 31, 2013 our cash and cash equivalents decreased by $1.6 million. During the nine months ended March 31, 2014 cash and cash equivalents increased by $1.1 million due to changes in exchange rates, while during the nine months ended March 31, 2013 our cash and cash equivalents decreased by $0.4 million due to changes in exchange rates, as we maintained more cash on hand in U.S. dollars this period. Our cash and cash equivalents will continue to fluctuate in the future, as exchange rates vary over time.
On October 14, 2013, the Company extended the term of its $40.0 million revolving line of credit with Bank of America Merrill Lynch to June 30, 2016. Subject to certain conditions, borrowings under the credit facility can be denominated in U.S. dollars, Euros and certain other currencies and can be made in the U.S. and certain other countries. The credit facility is available for general corporate purposes, including acquisitions, is secured by certain assets of the Company and can be increased by an additional $10.0 million. As of March 31, 2014, $39.5 million was available as $0.5 million has been used to guarantee letters of credit in certain operating facilities and payroll services.
The Company has significant overseas subsidiaries, which operate principally in their local currencies. Where appropriate, intracompany borrowings are arranged in functional currencies of the borrower to centralize potential exchange rate impacts and provide a natural hedge against exchange rate movement risks.
The Company hedges certain cash balances and cash flows relating to transactions in accordance with policies set by the Board of Directors. Assessment of the credit risk profile of the Company’s key customers and resellers is centralized for increased focus.
Reconciliation of Non-IFRS Measures
We use financial measures, both IFRS and non-IFRS, in analyzing and assessing the overall performance of the business and for making operational decisions. We have provided and believe that the non-IFRS financial measures and supplemental reconciliation to IFRS financial measures are useful to investors and other users of our financial statements because the non-IFRS financial measures may be used as additional tools to compare business performance across peer companies, periods and financial markets.
While we use non-IFRS measures as a tool to enhance our understanding of certain aspects of our financial performance, we do not believe that these non-IFRS measures are a substitute for, or are superior to, the information provided by IFRS results. As such, the presentation of non-IFRS measures is not intended to be considered in isolation or as a substitute for any measure prepared in accordance with IFRS. The primary limitations associated with the use of non-IFRS measures as compared to IFRS results are that non-IFRS measures may not be comparable to similarly titled measures used by other companies in our industry and that non-IFRS measures may exclude financial information that some investors may consider important in evaluating our performance. We compensate for these limitations by providing disclosure of the differences between non-IFRS measures and IFRS results, including providing a reconciliation of each non-IFRS measure to IFRS results, in order to enable investors to perform their own analysis of our operating results.
Non-IFRS Revenues - We define non-IFRS revenue as revenue, as reported under IFRS, increased to include revenue that is associated with our historic acquisitions that has been excluded from reported results for a given period due to the effects of purchase accounting. In accordance with IFRS purchase accounting, an acquired company’s deferred revenue at the date of acquisition is subject to a fair value adjustment which reduces the deferred amount and revenues recognized subsequent to an acquisition. We include non-IFRS revenue to allow for more complete comparisons to the financial results of our historical operations, forward-looking guidance and the financial results of peer companies. We believe these adjustments are useful to management and investors as a measure of the ongoing performance of the business. Additionally, although acquisition related revenue adjustments are non-recurring we may incur similar adjustments in connection with any future acquisitions.
The tables below provide a reconciliation of IFRS revenues to non-IFRS revenues related to all of our historic acquisitions:
Three Months Ended March 31, 2014 Three Months Ended March 31, 2013Revenues (as
reported
under IFRS)
Acquisition
Fair Value
Adjustment
Non-IFRS
Revenues
Revenues (as
reported
under IFRS)
Acquisition
Fair Value
Adjustment
Non-IFRS
Revenues
($ in thousands) ($ in thousands) Software licenses $ 28,136 $ 1,400 $ 29,536 $ 26,422 $ 39 $ 26.461 Maintenance services 32,534 197 32,730 29,966 21 29.987 Professional services 10,052 (136 ) 9,916 7,933 − 7,933 Total revenues $ 70,722 $ 1,460 $ 72,183 $ 64,321 $ 60 $ 64,381 Nine Months Ended March 31, 2014 Nine Months Ended March 31, 2013Revenues (as
reported
under IFRS)
Acquisition
Fair Value
Adjustment
Non-IFRS
Revenues
Revenues (as
reported
under IFRS)
Acquisition
Fair Value
Adjustment
Non-IFRS
Revenues
($ in thousands) ($ in thousands) Software licenses $ 82,965 $ 5,102 $ 88,067 $ 73,571 $ 124 $ 73,695 Maintenance services 98,122 800 98,922 90,646 133 90,779 Professional services 29,095 693 29,789 23,943 − 23,943 Total revenues $ 210,183 $ 6,595 $ 216,778 $ 188,160 $ 257 $ 188,417Non-IFRS Income from Operations - We define non-IFRS income from operations as income from operations, as reported under IFRS, excluding the effect of acquisition fair value adjustment to revenue, share-based payment expense, depreciation expense, amortization of acquired intangible assets, acquisition-related costs, restructuring costs and other operating expense, net. Share-based payment expense, depreciation expense and amortization of acquired intangible assets in our non-IFRS income from operations reconciliation represent non-cash charges which are not considered by management in evaluating our operating performance. Acquisition-related costs consist of: (i) costs directly attributable to our acquisition strategy and the evaluation, consummation and integration of our acquisitions (composed substantially of professional services fees including legal, accounting and other consultants and to a lesser degree to our personnel whose responsibilities are devoted to acquisition activities), and (ii) transition compensation costs (composed substantially of contingent payments for shares that are treated as compensation expense and retention payments that are anticipated to become payable to employees, as well as severance payments to employees whose positions were made redundant). These acquisition-related costs are not considered to be related to the organic continuing operations of the acquired businesses and are generally not relevant to assessing or estimating the long-term performance of the acquired assets. Restructuring costs are not considered in assessing our performance as we have not generally incurred such costs for our continuing operations. Other operating expense, net represents items that are not necessarily related to our recurring operations and which therefore are not, under IFRS, included in other expense lines. Accordingly, we exclude those amounts when assessing non-IFRS income from operations. At times when we are communicating with our shareholders, analysts and other parties we refer to non-IFRS income from operations as adjusted EBITDA.
We assess non-IFRS income from operations as a percentage of total non-IFRS revenues, and by doing so we are able to evaluate our relative performance of our revenue growth compared to the expense growth for those items included in non-IFRS income from operations. This measure allows management and our Board of Directors to compare our performance against that of other companies in our industry that may be of different sizes.
The following table provides a reconciliation of IFRS income from operations to non-IFRS income from operations and presents non-IFRS income from operations as a percentage of total revenues.
Three Months Ended
March 31,
Nine Months Ended
December 31,
2014 2013 2014 2013 ($ in thousands) Income from operations $ 184 $ 3,549 $ 4,082 $ 7,399 Acquisition fair value adjustment to revenues 1,460 60 6,595 257 Share-based payment expense 1,387 (294 ) 3,253 897 Depreciation and amortization expense 1,349 1,501 4,019 4,549 Amortization of acquired intangible assets 2,164 1,587 6,728 4,813 Acquisition-related costs 504 1,600 398 4,543 Other operating expenses, net 404 417 3,636 2,274 Non-IFRS income from operations $ 7,452 $ 8,420 $ 28,711 $ 24,732Non-IFRS income from operations as a percentage of adjusted revenues
10.3 % 13.1 % 13.2 % 13.1 %Adjusted Cash Flows from Operations - We define Adjusted cash flows from operations as net cash inflows from operating activities, as reported under IFRS, adjusted for income taxes paid or refunded and payments under restructurings. Income taxes paid is included in this reconciliation as the timing of cash payments and receipts can vary significantly from year-to-year based on a number of factors, including the influence of acquisitions on our consolidated tax attributes. Payments for restructurings relate to a specific activity that is not part of ongoing operations. The table below provides a reconciliation of IFRS cash flows from operations to Adjusted cash flows from operations:
Three Months Ended
March 31,
Nine Months Ended
March 31,
2014 2013 2014 2013 ($ in thousands) Cash flows from operations $ 16,233 $ 13,928 $ 34,453 $ 23,133 Income taxes paid 3,577 (2,385 ) 8,447 (7,163 ) Payments under restructuring − 6 588 (861 ) Adjusted cash flows from operations $ 19,810 $ 16,307 $ 43,488 $ 31,157Adjusted cash flow from operations increased $3.5 million to $19.8 million for the three months ended March 31, 2014 as a result of increased cash flows from operations and tax payments.
Adjusted cash flow from operations increased $12.3 million to $43.5 million for the nine months ended March 31, 2014 as a result of increased cash flows from operations, tax payments and payments under restructuring.
Adjusted diluted earnings per share - We define Adjusted diluted earnings per share as diluted earnings per share, as reported under IFRS, adjusted by certain items that are also excluded from our non-IFRS income from operations and which are discussed above. The most comparable IFRS metrics, ‘income (loss) from continuing operations, after tax’ and ‘earnings per share – diluted’, also include the reconciling items finance income (expense), net, and the impacts of income taxes on each of the other reconciling items. Therefore, we include this non-IFRS measure in order to provide a more complete comparison of our earnings per share from one period to another.
The tables below provide a reconciliation of our Adjusted diluted earnings per share, and our associated non-IFRS income (loss) from continuing operations, after tax:
Reconciliation of Adjusted Diluted Earnings Per Share
For the Three Months Ended March 31, 2014 2013Per Diluted
Share
Per Diluted
Share
($ in thousands, except per share data) Income from continuing operations, after tax $ (0.00 ) $ (54 ) $ (0.00 ) $ (329 ) Acquisition fair value adjustment to revenues 0.02 1,460 0.00 60 Share-based payment expense 0.01 1,387 (0.00 ) (294 ) Amortization of intangible assets 0.02 2,164 0.02 1,587 Acquisition-related costs 0.01 504 0.02 1,600 Net finance and other income and expense (0.00 ) (301 ) 0.03 3,298 Tax effect of above (0.01 ) (484 ) (0.01 ) (990 ) Adjusted diluted earnings per share $ 0.05 $ 0.06 For the Nine Months Ended March 31, 2014 2013Per Diluted
Share
Per Diluted
Share
($ in thousands, except per share data) Income/(loss) from continuing operations, after tax $ 0.05 $ 4,738 $ (0.00 ) $ (698 ) Acquisition fair value adjustment to revenues 0.07 6,595 0.00 257 Share-based payment expense 0.04 3,253 0.01 897 Amortization of intangible assets 0.07 6,728 0.05 4,813 Acquisition-related costs 0.00 398 0.05 4,543 Net finance and other income and expense (0.01 ) (1,222 ) 0.08 6,934 Tax effect of above (0.04 ) (4,245 ) (0.03 ) (2,869 ) Adjusted diluted earnings per share $ 0.18 $ 0.16Supplemental Information
The following supplemental information is used to reconcile IFRS Income from operations to non-IFRS Income from operations:
Share-based payment expense recognized by functional line in the Condensed Consolidated Income Statements is as follows:
For the Three Months Ended
March 31,
2014 2013 ($ in thousands) Cost of maintenance services $ 17 $ − Cost of professional services 16 1 Research and development 278 98 Selling and marketing 711 (249 ) General and administrative 365 (144 ) Total share-based payment expense $ 1,387 $ (294 )For the Nine Months Ended
March 31,
2014 2013 ($ in thousands) Cost of maintenance services $ 47 $ − Cost of professional services 58 2 Research and development 627 303 Selling and marketing 1,648 161 General and administrative 873 431 Total share-based payment expense $ 3,253 $ 897Depreciation and amortization expense recognized by functional line in the Condensed Consolidated Income Statements is as follows:
For the Three Months Ended
March 31,
2014 2013 ($ in thousands) Cost of software licenses $ 5 $ 16 Cost of maintenance services 121 142 Cost of professional services 193 253 Research and development 423 425 Selling and marketing 425 440 General and administrative 182 225 Total depreciation and amortization expense $ 1,349 $ 1,501For the Nine Months Ended
March 31,
2014 2013 ($ in thousands) Cost of software licenses $ 27 $ 50 Cost of maintenance services 369 436 Cost of professional services 605 806 Research and development 1,225 1,246 Selling and marketing 1,236 1,325 General and administrative 557 686 Total depreciation and amortization expense $ 4,019 $ 4,549Risk Factors
There have been no material changes to the risk factors as presented in our Final Prospectus filed with the U.S. Securities and Exchange Commission for the year ended June 30, 2013 on December 5, 2013.
James Arnold, Jr.Chief Financial OfficerApril 29, 2014
Kofax Limited
Unaudited Condensed Consolidated Income Statements
($ in thousands, except per share amounts)
For the Three Months Ended For the Nine Months EndedMarch 31,
2014
March 31,
2013
March 31,
2014
March 31,
2013
Software licenses 28,136 26,422 82,965 73,571 Maintenance services 32,534 29,966 98,122 90,646 Professional services 10,052 7,933 29,096 23,943 Total revenues 70,722 64,321 210,183 188,160 Cost of software licenses 1,955 2,576 7,640 7,302 Cost of maintenance services 5,218 4,753 15,104 13,516 Cost of professional services 8,129 7,182 23,977 21,312 Research and development 10,318 9,010 29,346 25,914 Sales and marketing 31,418 24,565 89,959 72,770 General and administrative 10,428 9,082 29,313 28,317 Amortization of acquired intangible assets2,164
1,587 6,728 4,813 Acquisition-related costs 504 1,600 398 4,543 Other operating expenses, net 404 417 3,636 2,274 Operating costs and expenses 70,538 60,772 206,101 180,761 Income from operations 184 3,549 4,082 7,399 Finance income 899 20 5,498 136 Finance expense (194 ) (2,901 ) (640 ) (4,796 ) Income from continuing operations, before tax 889 668 8,940 2,739 Income tax expense 943 997 4,202 3,437 Income/(loss) attributable to equity holders of the Parent (54 ) (329 ) 4,738 (698 ) Earnings/(loss) per share > Basic (0.00 ) (0.01 ) 0.05 (0.01 ) > Diluted (0.00 ) (0.01 ) 0.05 (0.01 )Kofax Limited
Unaudited Condensed Consolidated Statements of Comprehensive Income
($ in thousands)
For the Three Months Ended For the Nine Months EndedMarch 31,
2014
March 31,
2013
March 31,
2014
March 31,
2013
Income/(loss) attributable to equity holders of the Parent (54 ) (329 ) 4,738 (698 ) Other comprehensive income/(loss): Items that may be subsequently reclassified to profit or loss: Exchange gains/(losses) arising on translation of foreign operations 45 (899 ) (1,065 ) 3,207 Income tax relating to items that may be reclassified 15 (127 ) 3 (105 ) 60 (1,026 ) (1,062 ) 3,102 Items that will not be reclassified to profit or loss: Actuarial (losses)/gains on defined benefit pension plans (1 ) 123 338 375 Income tax relating to items that will not be reclassified (2 ) (18 ) (61 ) (58 ) (3 ) 105 277 317 Other comprehensive income/(loss) forthe period, net of tax:
Total comprehensive income for the period, net of tax, attributable to equity holders of the Parent 57 (921 ) (785 ) 3,419 Income/(loss) attributable to equity holders of the Parent 3 (1,250 ) 3,953 2,721Kofax Limited
Unaudited Condensed Consolidated Statements of Financial Position
($ in thousands)
March 31, 2014 June 30, 2013 Current assets: Cash and cash equivalents 93,051 93,413 Trade receivables, net 51,398 60,929 Inventories 1,204 1,800 Deferred tax assets 405 2,024 Other current assets 7,899 8,657 Total current assets 153,957 166,823 Other non-current assets 4,286 3,671 Property and equipment 4,463 4,510 Deferred tax assets 27,002 14,350 Intangible assets 230,766 189,789 Total assets 420,474 379,143 Current liabilities: Trade and other payables 36,829 35,504 Deferred income – current 77,486 62,955 Current tax liabilities 7,647 10,106 Provisions – current 4,991 8,397 Total current liabilities 126,953 116,962 Employee benefits 3,232 3,018 Deferred income – non-current 7,854 5,095 Deferred tax liabilities 16,943 14,607 Provisions – non-current 4,184 2,334 Total liabilities 159,166 142,016 Shareholders’ equity: Share capital 97 95 Share premium account 31,786 18,957 Employee benefit shares (15,416 ) (15,294 ) Treasury shares (15,980 ) (15,980 ) Merger reserve 2,835 2,835 Retained earnings 239,731 227,197 Currency translation adjustment 18,255 19,317 Total Shareholders’ equity 261,308 237,127 Total liabilities and Shareholders’ equity 420,474 379,143Kofax Limited
Unaudited Condensed Consolidated Statements of Changes in Equity
($ in thousands)
Share
Capital
Share Premium
Account
Employee
Benefit
Shares
Treasury
Shares
Merger
Reserve
Retained
Earnings
Currency
Translation
Adjustment
Total
Equity
As of June 30, 2012 94 17,091 (17,386 ) (15,980 ) 2,835 216,585 14,701 217,940 Profit for the period – – – – – 10,001 – 10,001
Other comprehensive income/(loss), net of tax
– – – – – (679 ) 4,616 3,937 Total comprehensive income for the period – – – – – 9,322 4,616 13,938 Tax on equity awards – – – – – 2,185 – 2,185 Share-based payment expense – – – – – 1,393 – 1,393 Changes in employee benefit shares – – 2,092 – – (2,288 ) – (196 ) New share capital issued 1 1,866 – – – – – 1,867 As of June 30, 2013 95 18,957 (15,294 ) (15,980 ) 2,835 227,197 19,317 237,127 Profit for the period – – – – – 4,738 – 4,738 Other comprehensive income/(loss), net of tax – – – – – 277 (1,062 ) (785 ) Total comprehensive income for the period – – – – –5,015
(1,062 )3,953
Tax on equity awards – – – – – 4,450 – 4,450 Share-based payment expense – – – – – 3,253 – 3,253 Changes in employee benefit shares – – (122 ) – – (184 ) – (306 ) New share capital issued 2 12,829 – – – – – 12,831 As of March 31, 2014 97 31,786 (15,416 ) (15,980 ) 2,835 239,731 18,255 261,308Kofax Limited
Unaudited Condensed Consolidated Statements of Cash Flows
($ in thousands)
For the Nine Months Ended March 31, 2014 March 31, 2013 Cash flows from operating activities Income from continuing operations before tax 8,940 2,739 Adjustments to reconcile profit before tax to net cash flows: Finance income (5,498 ) (136 ) Finance expense 640 4,796 Depreciation and amortization 10,817 9,362 Share-based payment expense 3,253 897 Changes in operating assets and liabilities: Trade receivables, net 13,185 8.196 Other assets 1,627 1,641 Trade and other payables (282 ) 2,635 Deferred income 14,159 2,186 Provisions (3,353 ) (1,159 ) Payments under restructuring – personnel (588 ) (861 ) Income taxes paid (8,447 ) (7,163 ) Net cash inflow from operating activities 34,453 23,133 Cash flows from investing activities Purchase of property and equipment, licenses and similar rights (2,779 ) (1,785 ) Acquisition of subsidiaries, net of cash acquired* (45,387 ) (16,604 ) Proceeds from sale of discontinued operations − 603 Interest received 80 130 Net cash outflow from investing activities (48,086 ) (17,656 ) Cash flows from financing activities Issue of share capital 465 1,932 Proceeds from initial public offering 12,366 − Purchases of and proceeds from employee benefit shares (306 ) (953 ) Interest paid (302 ) (383 ) Net cash inflow from financing activities 12,223 596 Net increase/(decrease) in cash and cash equivalents (1,410 ) 6,073 Cash and cash equivalents at start of the period 93,413 81,122 Exchange rate effects 1,048 (389 ) Cash and cash equivalents at the end of the period 93,051 86,806* The Group cash outflow from acquisitions is net of $1.3 million cash acquired from the Kapow acquisition and also includes payments of contingent consideration related to the Atalasoft acquisition of $1.2 million, contingent consideration related to the acquisition of Altosoft of $1.0 million and deferred consideration related to the Altosoft acquisition of $2.1 million and the Kapow acquisition of $1.9 million.
Kofax LimitedNotes to the Unaudited Condensed Consolidated Interim Financial Statements
NOTE 1 ACCOUNTING POLICIES
1.1 Basis of presentation
The unaudited Condensed Consolidated Interim Financial Statements for the nine months ended March 31, 2014 have been prepared in accordance with IAS 34, “Interim Financial Reporting” and the Disclosure and Transparency Rules of the Financial Services Authority.
On December 5, 2013, Kofax Limited (“Kofax”) effected an initial public offering of 2,300,000 shares of common stock on the NASDAQ Global Select Market using the ticker symbol “KFX”. All of the shares of common stock were offered by Kofax; there were no selling shareholders. Immediately prior to this listing Kofax was established as the parent company of Kofax’s various subsidiaries through a scheme of arrangement under Part 26 of the U.K. Companies Act of 2006. As part of that scheme, Kofax issued shares with a par value of $0.001 per share to replace Kofax plc’s prior shares with a par value of 2.5 pence per share. Share capital and share premium amounts in the comparative periods have been retroactively adjusted to reflect this change.
The Condensed Consolidated Interim Financial Statements do not include all information and disclosures as required in the Consolidated Annual Financial Statements, and should be read in conjunction with Kofax’s Consolidated Annual Financial Statements for the year ended June 30, 2013 and Final Prospectus dated December 5, 2013.
The Condensed Consolidated Interim Financial Statements were approved by the Board of Directors on April 29, 2014.
1.2 Summary of significant accounting policies
The accounting policies adopted in preparation of the Condensed Consolidated Interim Financial Statements are consistent with those followed in preparation of the Consolidated Annual Financial Statements for the year ended June 30, 2013.
The adoption of the standards and interpretations that have become effective for the current fiscal year have already been outlined in detail in the Consolidated Annual Financial Statements for the year ended June 30, 2013 and were not considered to have a significant impact on these Condensed Consolidated Interim Financial Statements.
1.3 Seasonality of operations
Many contracts, particularly those sold through the direct sales force, are finalized in the latter portions of any given quarter. Additionally, Kofax’s revenue may vary from quarter to quarter, depending on the timing and size of license revenue, which may contain individually large contracts in any given period. The first and third fiscal quarters have historically been seasonally weaker than the second and fourth quarters. This information is provided to allow for a proper appreciation of the results. However, management has concluded that this does not constitute “highly seasonal” as considered by IAS 34 Interim Financial Reporting.
NOTE 2 BUSINESS COMBINATIONS
Acquisition of Kapow
On July 31, 2013, Kofax acquired 100% of the shares of Kapow Technologies Holdings, Inc. (Kapow), a company incorporated in the United States, specializing in data integration software. Kapow’s software will assist in Kofax’s ability to integrate smart process applications with third party software for content import and export purposes as well as data validation during a business process. In addition, it will assist in penetrating the emerging electronic content transformation segment of the multichannel capture market, and is highly complementary to the recent acquisition of Altosoft’s business intelligence and analytics products. The acquisition was accounted for using the acquisition method.
The consolidated financial statements include the results of Kapow during the eight month period from the acquisition date. The provisional fair value of the identifiable assets and liabilities of Kapow, at the acquisition date, are as follows:
July 31, 2013 ($ in thousands) Current assets: Cash and cash equivalents 1,276 Trade receivables, net 3,093 Other current assets 378 Total current assets 4,747 Other non-current assets 87 Property and equipment 99 Deferred tax assets 8,375 Technology−intangible 10,700 Customer relationships−intangible 5,400 In-process R&D−intangible 700 Trade names−intangibles 200 Total assets 30,308 Current liabilities Trade and other payables 536 Other current liabilities 1,657 Deferred income – current 1,260 Total current liabilities 3,453 Other liabilities 26 Deferred tax liabilities 6,357 Total liabilities 9,836 Net assets acquired 20,472 Consideration paid in cash at time of closing 40,524 Deferred consideration 6,624 Total consideration 47,148 Goodwill arising from acquisition 26,676Analysis of cash flows on acquisition:
($ in thousands) Cash outflow at time of closing 40,524 Less: cash acquired 1,276 Total cash consideration 39,248The provisional goodwill of $26.7 million includes the value of acquired technologies, and expected synergies arising from the acquisition and the workforce, which is not separately recognizable. None of the goodwill is expected to be deductible for tax purposes.
From the date of acquisition, Kapow has contributed $6.2 million of revenue and $4.8 million of net loss to the Group. If the combination had taken place at the beginning of the fiscal year, revenue from Kapow’s operations would have been approximately $1.0 million higher and the net income would have decreased by approximately $1.0 million and Kofax’s total revenue would have been $211.1 million and net income $3.0 million.
NOTE 3 OPERATING SEGMENTS
Kofax operates one business segment, the software business. All products and services are considered one solution to customers and are operated and analysed under one income statement provided to and evaluated by the chief operating decision maker (CODM). The CODM manages the business based on the key measures for resource allocation, based on a single set of financial data that encompasses Kofax’s entire operations for purposes of making operating decisions and assessing financial performance. The Group’s CODM is the Chief Executive Officer.
There are no reportable assets that meet the criteria under IFRS 8 to be reported under the single operating segment.
Entity-wide Disclosures
The following revenue information is based on the location of the customer:
Americas UK GermanyRest of
EMEA
Asia-
Pacific
Total External Revenue for the Three Months Ended ($ in thousands) March 31, 2014 36,901 9,638 4,695 14,822 4,666 70,722 March 31, 2013 31,435 12,146 4,164 12,238 4,338 64,321 Americas UK GermanyRest of
EMEA
Asia-
Pacific
Total External Revenue for the Nine Months Ended ($ in thousands) March 31, 2014 115,751 23,698 14,118 42,837 13,779 210,183 March 31, 2013 98,544 26,766 12,668 36,797 13,385 188,160The following table presents non-current assets by subsidiary location:
America UK GermanyRest of
EMEA
Asia-
Pacific
Total Non-current assets ($ in thousands) As of March 31, 2014 154,556 34,889 6,511 36,244 7,056 239,256 As of June 30, 2013 116,054 34,806 6,078 33,734 6,407 197,079Non-current assets for this purpose consist of property and equipment, intangible assets, and other non-current assets – excluding security deposits and deferred tax assets.
NOTE 4 OPERATING COSTS AND EXPENSES
Operating costs and expenses include the following key elements:
For the Three Months Ended For the Nine Months EndedMarch 31,
2014
March 31,
2013
March 31,
2014
March 31,
2013
($ in thousands) Staff costs excluding share-based payment expense 44,748 39,022 128,720 111,746 Share-based payment expense 1,387 (294 ) 3,253 897 Depreciation of property and equipment 593 789 1,842 2,257 Amortization of acquired intangible assets – technology and contractual relationships2,164
1,587
6,728
4,813
Amortization of intangible assets – licenses and similar rights756
712
2,177
2,292
Total remuneration for principal auditors 756 729 1,901 2,675 Operating lease expense – minimum lease payments 1,998 2,034 6,005 6,081 Acquisition related costs 504 1,600 398 4,543 Third party royalties and commissions 3,584 3,129 11,484 8,950 Travel and entertainment 3,032 2,904 9,453 8,362 Consultants, contractors and advisors 4,076 2,585 10,804 8,080 Direct marketing costs 2,827 2,356 8,416 7,807 Utilities, maintenance and repair 1,652 1,500 4,930 4,487 Other administrative costs 2,461 2,119 9,990 7,771 Total operating costs and expenses 70,538 60,772 206,101 180,761Amortization of acquired intangibles is a component of both cost of sales and general and administrative expenses. Amortization of acquired technology intangible assets of $4.2 million (March 31, 2013: $3.4 million) relates to cost of sales, and amortization of other intangible assets of $2.5 million (March 31, 2013: $1.4 million) relates to general and administrative expenses.
For the Three Months Ended For the Nine Months EndedMarch 31,
2014
March 31,
2013
March 31,
2014
March 31,
2013
($ in thousands) Total cost of sales comprises: Cost of software licenses 1,955 2,576 7,640 7,302 Cost of maintenance services 5,218 4,753 15,104 13,516 Cost of professional services 8,129 7,182 23,977 21,312 Amortization of acquired technology intangible assets1,276
1,1284,186
3,438 Total cost of sales 16,578 15,639 50,907 45,568 Total general and administrative comprises: General and administrative 10,428 9,082 29,313 28,317 Amortization of other acquired intangibles assets 888 459 2,542 1,375 Total general and administrative expenses 12,440 9,541 32,979 29,692NOTE 5 INCOME TAX EXPENSE
The components of income tax expense related to current income tax expense and deferred income tax expense were as follows:
Three Months Ended
March 31,
Nine Months Ended
March 31,
2014 2013 2014 2013 (in thousands) Current income tax expense Income tax on profits for the period 1,334 3,138 8,959 7,165 Adjustment for provision in prior periods (336 ) (440 ) (658 ) (610 ) Total current income tax expense 998 2,698 8,301 6,555 Deferred income tax expense Reversal of temporary differences (245 ) (1,551 ) (4,551 ) (2,840 ) Adjustment for provision in prior periods 190 (150 ) 452 (278 ) Total deferred income tax expense (55 ) (1,701 ) (4,099 ) (3,118 ) Total income tax expense 943 997 4,202 3,437The effective tax rate (income tax expense as a percentage of income from continuing operations) can be influenced by the disproportionate effect of significant expenses that are not deductible for tax purposes, together with non-recognition of certain tax losses, and certain income items that do not attract a tax charge.
NOTE 6 EARNINGS PER SHARE
The table below presents the computation of basic and diluted earnings per share:
For the Three Months Ended For the Nine Months EndedMarch 31,
2014
March 31,
2013
March 31,
2014
March 31,
2013
($ in thousands, except per share data)Income/(loss) from continuing operations, after tax
(54 ) (329 ) 4,738 (698 ) Earnings/(loss) per share > Basic (0.00 ) (0.01 ) 0.05 (0.01 ) > Diluted (0.00 ) (0.01 ) 0.05 (0.01 )The difference between the diluted and basic calculation is due to the additional shares that would be issued on the conversion of all the dilutive ordinary shares. The table below presents the computation of basic and diluted shares:
For the Three Months Ended For the Nine Months EndedMarch 31,
2014
March 31,
2013
March 31,
2014
March 31,
2013
($ in thousands) Weighted average number of shares outstanding* 86.2 84.3 86.2 84.3 Dilutive impact of share options 2.6 1.9 2.2 1.6 Dilutive impact of Long Term Incentive Plan (LTIPs) 3.8 2.4 3.8 2.4 Diluted shares 92.6 88.6 92.2 88.3*excluding employee benefit shares and Treasury shares
NOTE 7 PROVISIONS
Personnel
Restructuring
Onerous
Lease
Contingent
Consideration
Others Total ($ in thousands) As of June 30, 2013 586 644 8,090 1,411 10,731 Arising during the period – – 9,914 136 10,050 Reversed against income statement – –(3,472
)
(92
)
(3,564
)
Utilized during the period (637 ) (320 ) (6,374 ) (972 ) (8,303 ) Exchange differences 51 (14 ) 189 35 261 As of March 31, 2014 – 310 8,347 518 9,175 Current – 310 4,681 – 4,991 Non-current – – 3,666 518 4,184 As of March 31, 2014 – 310 8,347 518 9,175Contingent consideration relates to deferred consideration, contingent consideration, and employee retention payments associated with acquisitions in prior periods and in the nine months ended March 31, 2014. On July 25, 2013, the Altosoft acquisition agreement was amended to allow for achievement of earnings targets based on cumulative results in the first two years of the assessment. During the third quarter of 2014, $1.0 million of contingent consideration was paid to the former shareholders of Altosoft. In determining the fair value of the remaining calendar year 2014 and 2015 contingent consideration, management assessed a number of scenarios and based on those scenarios, estimated for financial accounting purposes, $2.8 million of the contingent consideration remains to be paid to former shareholders.
In relation to the acquisition of Kapow, an additional $6.6 million of deferred consideration was included in the total consideration of the acquisition. During the third quarter of 2014, $1.9 million of deferred consideration was paid to the former shareholders of Kapow. An additional $2.4 million is expected to be paid one year from closing and $2.3 million to be paid two years from closing, with said amounts being subject to certain indemnification terms and conditions.
Additionally, the threshold for the contingent consideration and related retention bonuses related to the acquisition of Singularity was not achieved in the second measurement period. Accordingly provisions totaling $3.6 million was reversed against the income statement.
NOTE 8 RELATED PARTY TRANSACTIONS
Directors’ interests in share options and LTIPs
Directors who are also executive officers of Kofax held 1,169,800 LTIP shares as of March 31, 2014, of which 300,000 were granted during the nine month period ended March 31, 2014 and no LTIPs were vested during the nine months ended March 31, 2014. For the remaining LTIPs, based upon performance criteria and other factors, shares become subject to release three years after their issuance. Market prices of the shares were between 146.0 pence and 361.5 pence at the grant dates.
Directors who are also executive officers of Kofax held 1,950,000 share options as of March 31, 2014, and no options were granted during the nine month period ended March 31, 2014, nor did any share options lapse during the period. The exercise periods are between calendar years 2012 and 2020 with exercise prices of the shares between 146 pence and 240 pence.
NOTE 9 CONTINGENT LIABILITIES
There are no material pending or threatened lawsuits against Kofax.
NOTE 10 SUBSEQUENT EVENTS
No subsequent events have been identified requiring disclosure.
RESPONSIBILITY STATEMENT OF THE EXECUTIVE DIRECTORS IN RESPECT OF THE INTERIM FINANCIAL STATEMENTS
We confirm that to the best of our knowledge:
The condensed consolidated set of financial statements has been prepared in accordance with IAS 34, “Interim Financial Reporting” as adopted by the EU;
The interim management report includes a fair review of the information required by:
a) DTR 4.2.7 R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first nine months of the financial year and their impact on the condensed set of financial statements and a description of the principal risks and uncertainties for the remaining three months of the year; and
b) DTR 4.2.8 R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first nine months of the current financial year and that have materially affected the financial position or performance of the entity during that period and any changes in the related party transactions described in the last annual report that could do so.
Reynolds C. BishChief Executive OfficerApril 29, 2014
James Arnold, Jr.Chief Financial OfficerApril 29, 2014
Media Contact:Kofax LimitedColleen EdwardsVice President, Corporate Communications+1 (949) 783-1582colleen.edwards@kofax.comorInvestor Contacts:MKR Group Inc.Todd Kehrli+1 (323) 468-2300kfx@mkr-group.comorFTI ConsultingSophie McMillan+44 (0) 20 3727 1000kofax@fticonsulting.com
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