IRVINE, Calif.--(BUSINESS WIRE)--Kofax plc (LSE: KFX), a leading provider of capture enabled business process management (BPM) solutions, today announced its results for the quarter and six months ended December 31, 2011.
Financial Results:
- Total revenues for the quarter grew 3.7% to $70.0 million (Prior Year: $67.5 million) or -0.3% in organic constant currency (OCC), and for the six months 5.2% to $128.5 million (Prior Year: $122.2 million) or 0.2% in OCC
- Profit for the quarter decreased 31.2% to $3.8 million (Prior Year: $5.5 million), and for the six months 40.6% to $6.5 million (Prior Year: $11.0 million)
- Adjusted EBITA for the quarter increased 2.4% to $14.8 million (Prior Year: $14.5 million) or a 21.2% margin (Prior Year: 21.5%), and for the six months declined 18.4% to $19.4 million (Prior Year: $23.8 million), or a 15.1% margin (Prior Year: 19.5%)
- Adjusted Diluted EPS for the quarter increased 11.9% to $0.11 (Prior Year: $0.10), and for the six months decreased 15.4% to $0.15 (Prior Year: $0.18)
- Cash generated from operations for the six months was $0.7 million (Prior Year: $17.2 million)
- Quarter end cash was $62.3 million (Prior Year: $69.0 million)
Operating Highlights:
- For the quarter closed four sales > $500,000, up from three in the prior year, and one > $1 million, up from none in the prior year, and for the six months closed nine sales > $500,000, up from six in the prior year, and two > $1 million, up from one in the prior year
- Acquired Singularity, a leading provider of business process management (BPM) software and dynamic case management solutions, in line with Kofax’s stated acquisition strategy and significantly expanding the Company’s addressable market
- Entered into an OEM agreement with and invested in Mobiflex, creating the basis for a long term strategic partnership and the recently announced Kofax Mobile Capture software product
- Launched Kofax Solution for Mortgage Processing, a packaged application which streamlines business processes for mortgage lenders
- Kofax Capture was named “Content Management Software Product of the Year” at the prestigious 2011 DM Awards
Subsequent to the end of the quarter the Company launched two new software products:
- Kofax Mobile Capture, a patent pending solution that extends capture enabled BPM capabilities to smartphones and tablet computers
- Kofax DotImage Enterprise Edition, which enables internet browser based, portal applications with document scanning, viewing, annotating and processing capabilities
A summary of Kofax’s revenues and EBITA for the quarter and six months ended December 31, 2011 is as follows:
Quarter | Six Months | |||||||||||||||||||
Y/Y | In | Y/Y | In | |||||||||||||||||
$M | Change | OCC | $M | Change | OCC | |||||||||||||||
Applications Software | 26.0 | -6.7 | % | -8.9 | % | 43.9 | -7.0 | % | -10.3 | % | ||||||||||
OEM / POS Software | 7.3 | 7.8 | % | -3.5 | % | 13.6 | 7.2 | % | -4.6 | % | ||||||||||
Software Licenses | 33.3 | -3.9 | % | -7.8 | % | 57.5 | -4.0 | % | -9.1 | % | ||||||||||
Maintenance Services | 29.4 | 12.5 | % | 10.3 | % | 57.1 | 14.7 | % | 10.0 | % | ||||||||||
Professional Services | 7.3 | 8.8 | % | -2.5 | % | 13.9 | 11.1 | % | 6.0 | % | ||||||||||
Total Revenues | 70.0 | 3.7 | % | -0.3 | % | 128.5 | 5.2 | % | 0.2 | % | ||||||||||
Adjusted EBITA | 14.8 | 2.4 | % | 19.4 | -18.4 | % | ||||||||||||||
EBITA Margin |
21.2 | % | -1.3 | % | 15.1 | % | -22.4 | % | ||||||||||||
Commenting on these results, Reynolds C. Bish, Chief Executive Officer, said: “Our results are consistent with the revised expectations communicated in our IMS dated November 3, 2011. In light of this and both the exceptional prior year results creating difficult comparisons and the challenges we’re facing in much of Western Europe, we’re generally pleased with our overall performance and strategic progress. Revenue growth in the Americas and Asia Pacific during the quarter and six months was solid but offset by poor performance in EMEA due to deteriorating economic conditions throughout much of that region. We were able to grow our Adjusted EBITA during the quarter as a result of tight expense controls and the previously announced restructuring of our EMEA sales and service organization. Atalasoft produced strong results during the quarter and six months as did Singularity during December, with both performing better than expected, and the integration of Singularity is proceeding as planned.”
Bish continued: “While our pipeline of opportunities has continued to grow and management and the Board remain confident in our business, we do not expect economic conditions in EMEA to improve in the near future. As a result, for fiscal year 2012 we continue to expect low single digit total revenue growth in U.S. dollars on a constant currency basis, high single digit total revenue growth on an as reported basis – including acquisitions to date and assuming current exchange rates – and an Adjusted EBITA of at least the $40.2 million reported in fiscal year 2011.”
For a definition of Adjusted EBITA and Adjusted Diluted EPS please refer to Kofax’s most recent Annual Report, which is available on the investor relations section of the Company’s website.
Webcast
The Company will present and review these results with financial analysts and conduct a question and answer session in the London offices of FTI Consulting today at 8:15 am GMT. The webcast can be accessed using the following telephone numbers and access codes:
Live Call | Access Code | |||||||||
U.K. | +44 (0) 20 7136 2051 | 3437276 | ||||||||
U.S. | 1-646-254-3361 | 3437276 |
A digital replay as well as the presentation itself will be available in the investor relations section of the Company’s website by 1:00 pm GMT today.
About Kofax
Kofax plc (LSE: KFX) is a leading provider of capture enabled business process management (BPM) solutions. For 25 years, Kofax has provided award winning solutions that manage the capture and streamline the flow of business critical information throughout an organization in a more accurate, timely and cost effective manner. These solutions provide a rapid return on investment to thousands of customers in banking, insurance, government, business process outsourcing and other markets. Kofax delivers these solutions through its own sales and service organizations, and a global network of more than 800 authorized partners in more than 70 countries throughout the Americas, EMEA and Asia Pacific. For more information, visit www.kofax.com.
“Kofax” is a registered trademark in the US, the EU and other regions. All other trademarks and registered trademarks are the property of their respective owners.
Chief Executive Officer’s Review
Financial Results
Our results are consistent with the revised expectations communicated in our IMS dated November 3, 2011. In light of this and both the exceptional prior year results creating difficult comparisons and the challenges we’re facing in much of Western Europe, we’re generally pleased with our overall performance and strategic progress.
Total revenues for the quarter grew 3.7% to $70.0 million or -0.3% in organic constant currency (OCC), and for the six months 5.2% to $128.5 million or 0.2% in OCC. This was driven by continuing growth in maintenance and professional services revenues as well as growth in OEM / POS software license revenues, which benefited from strong results in our Atalasoft business. We experienced solid growth in the Americas and Asia Pacific during the quarter and six months but this was offset by poor performance in EMEA due to deteriorating economic conditions throughout much of the Western European region.
Profit for the quarter decreased 31.2% to $3.8 million and for the six months 40.6% to $6.5 million.
Adjusted EBITA(1) increased 2.4% to $14.8 million or a 21.2% margin, and for the six months declined 18.4% to $19.4 million or a 15.1% margin. We were able to grow our Adjusted EBITA during the quarter as a result of tight expense controls and the previously announced restructuring of our EMEA sales and service organization.
Adjusted Diluted EPS increased 11.9% to $0.11, and for the six months decreased 15.4% to $0.15.
Cash generated from operations during the six months was $0.7 million, which was negatively affected by increased working capital needs but we expect this to return to normal patterns during the second half of this fiscal year. Quarter end cash was $62.3 million, down from $92.5 million at September 30, 2011 principally due to the acquisition of Singularity.
Operating Highlights
During the quarter and six months we continued to close more six and seven figure sales. For the quarter we closed four sales greater than $500,000, up from three in the prior year, and one greater than $1 million, up from none in the prior year. For the six months we closed nine sales greater than $500,000, up from six, and two greater than $1 million, up from one.
Two of the more notable events during the quarter and six months were the acquisition of Singularity and our entering into an OEM agreement with and investing in Mobiflex.
In early December 2011 we acquired Singularity, a leading provider of business process management (BPM) software and dynamic case management solutions. This will better serve the needs of our customers by allowing them to use our software products to automate both the capture processes needed to enter content into enterprise applications and repositories as well as the downstream knowledge worker processes needed to effectively utilize that information, thereby automating all of their critical business processes and providing a lower total cost of ownership and faster return on investment.
This was a highly strategic acquisition and should allow us to realize numerous important benefits. First, it approximately doubles our addressable market. Our core capture market is expected to grow from $2.2 billion in 2010 to $3.9 billion in 2015(2) at a 12% compound annual growth rate (CAGR). The BPM market is forecasted to grow from $2.2 billion in 2010 to $3.7 billion in 2015 at a 12% CAGR(3). This market expansion, coupled with Kofax’s existing direct and indirect sales channels and global reach, will significantly increase and accelerate our revenue growth opportunities. In addition, the combined Kofax and Singularity software products will provide a single capture enabled BPM platform, and we will be the first company to offer such a uniquely differentiated software product in both the capture and BPM markets. This should allow us to maintain our leadership position in the capture market, establish a leadership position in the BPM market and add to our sustainable competitive advantage. Finally, this platform will be fully deployable “on premise” or via private clouds under a traditional perpetual license model and via a public cloud under a hosted Software-as-a-Service (SaaS) subscription model. This should allow us to better serve a broader array of customer buying preferences and over time create more predictable revenue streams.
The Singularity businesses produced strong results during December and performed better than expected, and the integration of its business is proceeding as planned.
Also in early December 2011 we entered into an OEM agreement with and invested in Mobiflex, a development stage company whose ViziAppsTM mobile platform enables the cost effective creation, publication and management of applications for smart phones and tablet computers. This was the result of a joint development effort that began in early 2011 and provides Kofax with the basic software tools and infrastructure needed to develop, market and deploy mobile capture applications. These will allow customers to utilize smart phones and tablet computers as “point of origination” gateways into Kofax solutions as more thoroughly described below.
Our investments in research and development have continued to improve and add to our existing software product offerings in order to better serve the needs of our customers and help grow our revenues. During the quarter we successfully launched Kofax Solution for Mortgage Processing, a packaged application which streamlines business processes for mortgage lenders, and subsequent to the end of the quarter we launched two additional new software products:
- Kofax Mobile Capture, a patent pending solution that uses Mobiflex technology, our VRS software, the de facto standard for image enhancement and perfection in document scanning applications, and a cloud based service hosted on Microsoft Azure, to extend capture enabled BPM capabilities to smartphones and tablet computers. It enables customers to use iPhones, iPads, Android phones / tablet computers and cameras in those devices to capture images of documents, photographs, audio, video and data and then pass that content to Kofax workflows that manage it into enterprise applications and repositories. A recent report entitled “A Study of the Mobile Capture Market in the United States” published by Harvey Spencer Associates, a leading industry analyst firm, states that the market for mobile capture software is expected to grow from its nascent origins today to more than $1.3 billion by 2015, thus demonstrating the potential for this exciting new software product.
- Kofax DotImage Enterprise Edition, which enables internet browser based, portal applications with document scanning, viewing, annotating and processing capabilities that is fully integrated with Kofax’s enterprise capture platform. It allows customers to extend Kofax capture solutions beyond firewalls to the “point of origination” via line of business applications accessible over the web.
These new software products exemplify how we have prudently reallocated our research and development expenditures to better focus on the important and rapidly growing ad hoc content capture segment in order to expand our vision well beyond the traditional capture market and access additional growth opportunities.
We were also pleased to receive continuing recognition for our software products, with Kofax Capture being named “Content Management Software Product of the Year” at the prestigious 2011 DM Awards.
Outlook
While our pipeline of opportunities has continued to grow and management and the Board remain confident in our business, we do not expect economic conditions in EMEA to improve in the near future. As a result, for fiscal year 2012 we continue to expect low single digit total revenue growth in U.S. dollars on a constant currency basis, high single digit total revenue growth on an as reported basis – including acquisitions to date and assuming current exchange rates – and an Adjusted EBITA of at least the $40.2 million reported in fiscal year 2011.
Thank You
As always, 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
February
13, 2012
(1) For a definition of Adjusted EBITA please refer to
Kofax’s most recent Annual Report, which is available on the investor
relations section of the Company’s website.
(2) Harvey
Spencer Associates, October 2011, “Worldwide Market for Document Capture
Software: Update of 2010 – 2015 Market Analysis”
(3) Gartner,
April 2011, “Market Trends: BPM Technology Market is Wider Than BPM
Suites,” Teresa Jones and Laurie F. Wurster
Chief Financial Officer’s Review
Revenues
Total revenues increased $6.3 million, or 5.2%, to $128.5 million for the six months ended December 31, 2011. Much of the growth was derived from solid growth in maintenance and services revenue and revenue generated from our acquisitions of Singularity and Atalasoft. Excluding growth from beneficial currency exchange rate movements and acquisitions we had 0.2% “organic constant currency” growth. We define organic constant currency as the performance of our business excluding recent acquisitions and currency exchange rate movements in order to allow for more comparable period to period results. Therefore, for purposes of measuring our organic constant currency performance for the three and six month periods, we have excluded the entire results of Singularity, which we acquired in December 2011, and Atalasoft, which we acquired in May 2011, as well as currency exchange rate movements since June 30, 2011.
Our mix of revenues between license, maintenance and professional services changed due to strong growth in maintenance and professional services revenues in the first half of fiscal year 2012 and strong license sales in the first half of fiscal year 2011. Our license revenue declined by 4.0%, decreasing to 44.8% of total revenues for the six months compared to 49.0% in the prior period, while our maintenance revenue grew 14.7%, increasing to 44.4% of total revenues compared to 40.7% in the comparable period. Professional services grew 11.1%, increasing to 10.8% of total revenues from 10.3%.
Our revenue by geography in dollars and as a percentage of total revenues follows.
($ millions) | Revenue by Geography | As a % of Total Revenue | |||||||||||||
1H FY12 |
1H FY11 |
% Growth |
1H FY12 |
1H FY11 |
|||||||||||
Americas | $ | 70.7 | $ | 62.9 | 12.3 | % | 55.0 | % | 51.5 | % | |||||
EMEA | 48.9 | 52.0 | (5.9 | %) | 38.1 | % | 42.5 | % | |||||||
AP | 8.9 | 7.3 | 21.8 | % | 6.9 | % | 6.0 | % | |||||||
Total | $ | 128.5 | $ | 122.2 | 5.2 | % | 100.0 | % | 100.0 | % | |||||
The Americas experienced strong growth in maintenance and professional services and more moderate license growth. EMEA declined in nominal revenue and as a percentage of total revenue due to weak macroeconomic conditions throughout much of the region with declines in license and professional services. Asia Pacific (AP) had strong growth in license and maintenance.
License revenue primarily consists of perpetual licenses to use our software. The following table shows license revenue in dollars and as a percentage of total revenue:
License Revenue ($ millions) | |||||||||||||||||||||||||||||
Three Months Ended December 31 | Six Months Ended December 31 | ||||||||||||||||||||||||||||
2010 | 2011 |
Dollar |
Percent |
2010 | 2011 |
Dollar |
Percent |
||||||||||||||||||||||
$ | 34.6 | $ | 33.3 | $ | (1.3 | ) | (3.9 | )% | $ | 59.9 | $ | 57.5 | $ | (2.4 | ) | (4.0 | )% | ||||||||||||
51.3 | % | 47.6 | % | 49.0 | % | 44.8 | % | ||||||||||||||||||||||
License revenue declined $2.4 million, or 4.0%, to $57.5 million in the six month period due to a 17.9% decline in EMEA offset by a 3.2% increase in the Americas and a 27.4% increase in AP.
Maintenance revenue primarily consists of technical support and software maintenance services. The following table shows maintenance revenue in dollars and as a percentage of total revenue:
Maintenance Revenue ($ millions) | |||||||||||||||||||||||||||
Three Months Ended December 31 | Six Months Ended December 31 | ||||||||||||||||||||||||||
2010 | 2011 |
Dollar |
Percent |
2010 | 2011 |
Dollar |
Percent |
||||||||||||||||||||
$ | 26.2 | $ | 29.4 | $ | 3.2 | 12.5 | % | $ | 49.7 | $ | 57.1 | $ | 7.4 | 14.7 | % | ||||||||||||
38.8 | % | 41.6 | % | 40.7 | % | 44.4 | % | ||||||||||||||||||||
Maintenance revenue increased $7.4 million or 14.7% to $57.1 million in the six month period. Maintenance revenue grew across all geographies ranging from 4.1% in EMEA to 23.2% in Americas which benefited slightly from the acquisition of Atalasoft and 31.6% in AP where we re-enrolled several customers who had not been current on their maintenance.
Professional Services revenue primarily consists of application development and training services. The following table shows professional services revenue in dollars and as a percentage of total revenue:
Professional Services Revenue ($ millions) | |||||||||||||||||||||||||||
Three Months Ended December 31 | Six Months Ended December 31 | ||||||||||||||||||||||||||
2010 | 2011 |
Dollar |
Percent |
2010 | 2011 |
Dollar |
Percent |
||||||||||||||||||||
$ | 6.7 | $ | 7.3 | $ | 0.6 | 8.8 | % | $ | 12.5 | $ | 13.9 | $ | 1.4 | 11.1 | % | ||||||||||||
9.9 | % | 10.8 | % | 10.3 | % | 10.8 | % | ||||||||||||||||||||
Professional services revenue increased $1.4 million or 11.1% to $13.9 million in the six month period as a result of our customers’ continued demand for our application development and training services as well as those from Singularity. Professional Services revenue grew 22.0% in the Americas and 3.9% in EMEA partially due to our acquisition of Singularity but declined 10.5% in AP.
Gross Profit
Gross profit consists of total revenue less material, fulfilment, manufacturing and operations costs, maintenance and professional services costs, and third party royalty expenses. The following table shows gross profit in dollars and as a percentage of total revenue (gross margin):
Gross Profit ($ millions) | |||||||||||||||||||||||||||
Three Months Ended December 31 | Six Months Ended December 31 | ||||||||||||||||||||||||||
2010 | 2011 |
Dollar |
Percent |
2010 | 2011 |
Dollar |
Percent |
||||||||||||||||||||
$ | 54.8 | $ | 56.8 | $ | 2.0 | 3.6 | % | $ | 97.5 | $ | 103.1 | $ | 5.6 | 5.7 | % | ||||||||||||
81.2 | % | 81.1 | % | 79.8 | % | 80.2 | % | ||||||||||||||||||||
During the first half of fiscal year 2012, our gross profit improved $5.6 million, or 5.7%, to $103.1 million primarily due to growth in high margin maintenance revenue.
Operating Expenses
Research & Development (“R&D”) expenses primarily consist of personnel costs relating to engineering staff including contractors or consultants and associated overheads. The following table shows R&D expenses, in dollars and as a percentage of total revenue:
R&D Expenses ($ millions) | |||||||||||||||||||||||||||
Three Months Ended December 31 | Six Months Ended December 31 | ||||||||||||||||||||||||||
2010 | 2011 |
Dollar |
Percent |
2010 | 2011 |
Dollar |
Percent |
||||||||||||||||||||
$ | 7.8 | $ | 8.2 | $ | 0.4 | 4.6 | % | $ | 15.0 | $ | 16.3 | $ | 1.3 | 8.8 | % | ||||||||||||
11.6 | % | 11.7 | % | 12.3 | % | 12.7 | % | ||||||||||||||||||||
Research and development expenses increased $1.3 million or 8.8% to $16.3 million in the six month period as we continued to invest in our market leading, legacy software products via additional development staff in lower cost countries which led to reduced costs offset by the addition of development staff from the acquisitions of Singularity and Atalasoft. These efforts have allowed us to increase the number of personnel devoted to research and development.
Sales and Marketing expenses primarily consist of personnel costs, demand generation and other costs of sales and marketing programs and associated overhead expenses. The following table shows sales and marketing expenses, in dollars and as a percentage of total revenue:
Sales and Marketing Expenses ($ millions) | |||||||||||||||||||||||||||
Three Months Ended December 31 | Six Months Ended December 31 | ||||||||||||||||||||||||||
2010 | 2011 |
Dollar |
Percent |
2010 | 2011 |
Dollar |
Percent |
||||||||||||||||||||
$ | 23.7 | $ | 23.8 | $ | 0.1 | 0.2 | % | $ | 42.8 | $ | 47.8 | $ | 5.0 | 11.7 | % | ||||||||||||
35.2 | % | 34.0 | % | 35.0 | % | 37.2 | % |
Sales and marketing expenses increased $5.0 million, or 11.7%, to $47.8 million in the six month period due to continuing investment in our direct sales team and augmenting our support of the indirect sales channel. In addition, we have expanded our marketing programs around certain of our product lines and in certain geographical regions.
General & Administrative (“G&A”) expenses primarily consist of personnel costs for finance, accounting, human resources, information technology and facilities staff, audit and legal fees, and other costs and overhead expenses for our administrative functions. The following table shows G&A expenses, in dollars and as a percentage of total revenue:
General & Administrative Expenses ($ millions) | |||||||||||||||||||||||||||
Three Months Ended December 31 | Six Months Ended December 31 | ||||||||||||||||||||||||||
2010 | 2011 |
Dollar |
Percent |
2010 | 2011 |
Dollar |
Percent |
||||||||||||||||||||
$ | 8.8 | $ | 10.0 | $ | 1.2 | 14.2 | % | $ | 15.9 | $ | 19.6 | $ | 3.7 | 22.7 | % | ||||||||||||
13.0 | % | 14.3 | % | 13.0 | % | 15.2 | % | ||||||||||||||||||||
G&A expenses increased $3.7 million, or 22.7%, to $19.6 million in the six month period. The increase is due to costs from acquired companies and internal costs as we transition following the disposal of our hardware business in May 2011. We continue to invest in the necessary infrastructure and hire experienced personnel to support a growing diverse global business while also taking steps to optimize these functions and reduce the related expenses.
Acquisition and other transaction related costs include the costs of third party service providers such as attorneys, accountants and advisors in connection with our acquisition related activities and preliminary U.S. listing work. These costs relate to longer term strategic activities, and do not have a direct bearing on current core business operations. We have presented these expenses on a separate line to enable readers of our financial statements to better understand our core operating results and to provide a basis for more meaningful comparisons with other global software companies.
Acquisition related compensation costs include that portion of contingent consideration associated with acquisitions, “earnouts” which are treated as compensation and the retention and incentive payments made to employees during the transition of the acquired company into Kofax.
Amortization of acquired intangible assets increased $0.2 million to $1.9 million in the six month period due to approximately one month of amortization relating to our December 2011 acquisition of Singularity and six months of amortization associated with our May 2011 acquisition of Atalasoft.
Restructuring costs increased $2.2 million to $4.8 million in the six month period comprised of $4.4 million related to the restructuring announced on November 3, 2011, and $0.4 million for office closures in EMEA.
Share-based payment expense for the first half of fiscal year 2012 increased $0.5 million, or 30.9%, to $2.2 million due to share-based awards issued in fiscal year 2011.
Finance income / (expense) consists primarily of foreign exchange gains or losses and interest income and expense. Finance income increased $3.0 million to $3.8 million due to increased exchange gains. Exchange gains or losses fluctuate depending on the movement of exchange rates relative to our assets and liabilities in various geographies including unrealized gains/losses on intercompany balances.
Tax expense decreased $3.2 million or 42.7% to $4.4 million for the first half of fiscal year 2012 due to a decrease in taxable profit and reflecting a tax rate on adjusted operating profit of 31.8%, as compared to 36.3% in the first half of fiscal year 2011.
Discontinued operations consist of residual costs such as attorney and disposal fees associated with the hardware business divested in fiscal year 2011.
Statement of Financial Position
Our financial condition remains strong. Due largely to the net payment of $28.4 million for the acquisition of Singularity in early December, we exited the six months ended December 31, 2012 with $62.3 million of cash on hand, down from $98.3 million at June 30, 2011 and working capital of $29.0 down from $52.4 million at June 30, 2011.
At December 31, 2011, there were no outstanding borrowings on our $40.0 million revolving line of credit facility with Bank of America Merrill Lynch.
During the first half of fiscal year 2012 we continued our only forward currency exchange rate contract arrangement, which locks in the exchange rate on 6 million Euros of proceeds still to be received from the sale of our hardware business.
Cash Flow
Operating activities generated $0.7 million of cash during the first half of fiscal year 2012, as compared to generating $17.2 million in the first half of fiscal year 2011. The decrease was largely because in first half of fiscal year 2012 there was a decline of $7.9 million in profit before taxes, we consumed an additional $5.0 million in working capital and we made $2.3 million in additional tax and restructuring payments. We expect cash generated from operations to return to normal patterns during the second half of this fiscal year.
Investing activities used $31.0 million in the first half of fiscal year 2012, primarily due to the acquisition of Singularity.
Financing activities used $0.3 million in the first half of fiscal 2012 compared to $7.0 million in the prior year when we made the deferred payment for the acquisition of 170 Systems.
The majority of our cash is held in U.S. dollars and Euros, and to a lesser extent in Pounds Sterling. We had a $5.3 million decrease in cash due to currency exchange rate changes in the first half of fiscal year 2012 as compared to a $4.9 million increase in cash in the first half of fiscal year 2011.
Reconciliation of Non-IFRS Measures
While IFRS disclosure provides investors and management with an overall view of the Company’s financial performance, Kofax believes that it is important for investors to also understand the performance of the company’s fundamental business without giving effect to certain specific, nonrecurring and / or non-cash charges.
Management and the Board utilize certain non-IFRS financial information to compare our results of operations to comparable periods in prior years and against our budget. In particular, we review the Adjusted EBITA in terms of dollars and as a percentage of total revenues.
Adjusted EBITA is IFRS operating profit adjusted to add back acquisition and other transaction related costs, acquisition related compensation costs, amortization of acquired intangible assets, restructuring costs, share-based payment expense, and other income and expense. In the first half of fiscal year 2012, Adjusted EBITA was $19.4 million, or 15.1% of total revenue, and in the first half of fiscal year 2011 adjusted EBITA was $23.8 million, or 19.5% of revenue.
We believe that this non-IFRS financial measure facilitates more meaningful period-to-period comparisons of Kofax’s operating performance and provides investors with additional information to evaluate our results. We also present this non-IFRS measure because we use it internally as a benchmark to evaluate our operating performance, including actual to budget results, growth in EPS, and to compare our performance to that of our competitors.
Going Concern
Our financial statements have been prepared on the basis that the company is a going concern. In connection with this presentation, the Board has reviewed the company's forecasts and budgets, borrowing facilities, plans and various other analyses to determine the level of uncertainties of the business. The use of the going concern basis of accounting is
appropriate because there are no material uncertainties relating to events or conditions that may cast significant doubt about the ability of the company to continue as a going concern.
J. R. “Jamie” Arnold, Jr.
Chief Financial Officer
February
13, 2012
Unaudited Condensed Consolidated Interim Income Statement |
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$000s |
Note |
6 months to |
6 months to |
Year to |
||||||
|
|
|
|
|
||||||
Software licenses | 57,518 | 59,924 | 117,233 | |||||||
Maintenance | 57,061 | 49,749 | 101,191 | |||||||
Professional services | 13,941 | 12,548 | 25,518 | |||||||
Total revenue | 3 | 128,520 | 122,221 | 243,942 | ||||||
Cost of sales | (25,425 | ) | (24,703 | ) | (50,014 | ) | ||||
Gross profit | 103,095 | 97,518 | 193,928 | |||||||
Research and development | (16,339 | ) | (15,013 | ) | (31,494 | ) | ||||
Sales and marketing | (47,813 | ) | (42,797 | ) | (90,299 | ) | ||||
General and administrative | (19,509 | ) | (15,896 | ) | (31,985 | ) | ||||
Expenses | 4 | (83,661 | ) | (73,706 | ) | (153,778 | ) | |||
Adjusted operating profit before*** | 19,434 | 23,812 | 40,150 | |||||||
Acquisition and other transaction-related costs | (2,343 | ) | - | (2,523 | ) | |||||
Acquisition related compensation costs | (396 | ) | - | - | ||||||
Amortization of acquired intangible assets | (1,905 | ) | (1,657 | ) | (3,213 | ) | ||||
Restructuring costs | 7 | (4,776 | ) | (2,560 | ) | (3,182 | ) | |||
Share based payment expense | (2,179 | ) | (1,664 | ) | (3,733 | ) | ||||
Other income and expenses, net | 170 | 120 | 251 | |||||||
Operating profit | 4 | 8,005 | 18,051 | 27,750 | ||||||
Finance income | 3,807 | 780 | 298 | |||||||
Finance expense | (299 | ) | (353 | ) | (2,035 | ) | ||||
Profit before tax from continuing operations | 11,513 | 18,478 | 26,013 | |||||||
Tax expense | 5 | (4,358 | ) | (7,607 | ) | (8,741 | ) | |||
Discontinued operations | ||||||||||
Profit/ (loss) after tax for the period from discontinued operations | (639 | ) | 100 | (10,188 | ) | |||||
Profit for the period attributable to equity holders of the parent | 6,516 | 10,971 | 7,084 | |||||||
Earnings per share | 6 | |||||||||
> basic | $0.08 | $0.13 | $0.09 | |||||||
> diluted | $0.07 | $0.12 | $0.08 | |||||||
> adjusted basic | $0.15 | $0.20 | $0.22 | |||||||
> adjusted diluted | $0.14 | $0.18 | $0.18 | |||||||
Earnings per share from continuing operations | ||||||||||
> basic | $0.08 | $0.13 | $0.21 | |||||||
> diluted | $0.08 | $0.12 | $0.20 | |||||||
> adjusted basic | $0.16 | $0.19 | $0.33 | |||||||
> adjusted diluted | $0.15 | $0.18 | $0.31 |
* | Refer to Note 1 for discussion on prior year restatements. | |
** | June 30, 2011 information is extracted from the audited Consolidated Financial Statements from June 30, 2011. | |
*** | Adjusted operating profit is a key performance indicator used by the Group to help in assessing the Group‘s underlying performance. |
Unaudited Condensed Consolidated Interim Statement of Comprehensive Income |
|||||||||
$000s |
6 months to |
6 months to |
Year to |
||||||
Profit for the period | 6,516 | 10,971 | 7,084 | ||||||
Other comprehensive income/ (loss) | |||||||||
Exchange income/(losses) arising on translation of foreign operations | (11,121 | ) | 5,491 | 12,082 | |||||
CTA recycling | - | - | (496 | ) | |||||
Actuarial gains on defined benefit pension plans | - | 220 | 822 | ||||||
Income tax effects on components of other comprehensive income | 69 | (165 | ) | (409 | ) | ||||
Other comprehensive income/(losses) for the period, net of tax | (11,052 | ) | 5,546 | 11,999 | |||||
Total comprehensive income/ (loss) for the period, net of tax, attributable to equity holders of the parent | (4,536 | ) | 16,517 | 19,083 |
* | Refer to Note 1 for discussion on prior year restatements. | |
** | June 30, 2011 information is extracted from the audited Consolidated Financial Statements from June 30, 2011. |
Unaudited Condensed Consolidated Interim Statement of Financial Position |
||||||||
$000s | Note |
At |
At |
At |
||||
Non-current assets | ||||||||
Intangible assets | 183,422 | 150,014 | 158,151 | |||||
Property, plant and equipment | 5,828 | 7,662 | 6,900 | |||||
Deferred tax assets | 10,715 | 5,876 | 13,372 | |||||
Other non-current assets | 8,423 | 2,630 | 7,881 | |||||
Total non-current assets | 208,388 | 166,182 | 186,304 | |||||
Current assets | ||||||||
Inventories | 2,121 | 907 | 2,133 | |||||
Trade and other receivables | 79,580 | 66,742 | 67,473 | |||||
Investments-current | 254 | 162 | 250 | |||||
Current tax assets | 5,715 | 9,007 | 4,888 | |||||
Cash and cash-equivalents | 62,344 | 68,971 | 98,274 | |||||
Total current assets | 150,014 | 145,789 | 173,018 | |||||
Assets classified as held for sale | 10 | 414 | 57,315 | - | ||||
Total assets | 358,816 | 369,286 | 359,322 | |||||
Current liabilities | ||||||||
Trade and other payables | 37,487 | 37,262 | 45,069 | |||||
Deferred income - current | 54,273 | 46,420 | 55,806 | |||||
Other financial liabilities | 3 | 476 | 491 | |||||
Current tax liabilities | 18,118 | 19,738 | 13,547 | |||||
Provisions – current | 7 | 11,098 | 4,636 | 5,691 | ||||
Total current liabilities | 120,979 | 108,532 | 120,604 | |||||
Non-current liabilities | ||||||||
Other payables | - | - | 279 | |||||
Employee benefits | 2,634 | 3,101 | 2,958 | |||||
Deferred income – non-current | 5,813 | 4,345 | 3,496 | |||||
Deferred tax liabilities | 17,172 | 10,290 | 14,911 | |||||
Provision – non-current | 7 | 3,847 | 477 | 3,394 | ||||
Total non-current liabilities | 29,466 | 18,213 | 25,038 | |||||
Liabilities directly associated with the assets classified as held for sale | - | 42,095 | - | |||||
Total liabilities | 150,445 | 168,840 | 145,642 | |||||
Net assets | 208,371 | 200,446 | 213,680 | |||||
Capital and reserves | ||||||||
Share capital | 4,246 | 4,179 | 4,240 | |||||
Share premium account | 11,706 | 7,478 | 11,538 | |||||
ESOP shares | (14,518 | ) | (14,518 | ) | (14,518 | ) | ||
Treasury shares | (15,980 | ) | (15,980 | ) | (15,980 | ) | ||
Merger reserve | 2,835 | 2,835 | 2,835 | |||||
Retained earnings | 203,548 | 194,717 | 197,979 | |||||
Currency translation adjustment | 16,534 | 21,735 | 27,586 | |||||
Shareholders’ equity | 208,371 | 200,446 | 213,680 | |||||
Total equity | 208,371 | 200,446 | 213,680 |
* | Refer to Note 1 for discussion on prior year restatements. | |
** | June 30, 2011 information is extracted from the audited Consolidated Financial Statements from June 30, 2011. |
Unaudited Condensed Consolidated Interim Statement of Changes in Equity |
|||||||||||||||||||||
$000s |
Share |
Share |
ESOP |
Treasury |
Merger |
Retained |
Currency |
Total |
|||||||||||||
Group at July 1, 2010* | 4,152 | 5,519 | (14,518 | ) | (15,980 | ) | 2,835 | 181,891 | 16,409 | 180,308 | |||||||||||
Profit for the period | - | - | - | - | - | 10,971 | - | 10,971 | |||||||||||||
Other comprehensive income, net of tax | - | - | - | - | - | 220 | 5,326 | 5,546 | |||||||||||||
Total comprehensive income for the period | - | - | - | - | - | 11,191 | 5,326 | 16,517 | |||||||||||||
Share-based payment charge | - | - | - | - | - | 1,635 | - | 1,635 | |||||||||||||
New share capital issued | 27 | 1,959 | - | - | - | - | - | 1,986 | |||||||||||||
Group at Dec 31, 2010* | 4,179 | 7,478 | (14,518 | ) | (15,980 | ) | 2,835 | 194,717 | 21,735 | 200,446 | |||||||||||
Group at Jan 1, 2011 | 4,179 | 7,478 | (14,518 | ) | (15,980 | ) | 2,835 | 194,717 | 21,735 | 200,446 | |||||||||||
Profit for the period | - | - | - | - | - | (3,887 | ) | - | (3,887 | ) | |||||||||||
Other comprehensive income, net of tax and before FX recycling | - | - | - | - | - | 602 | 5,851 | 6,453 | |||||||||||||
Total comprehensive income for the period | - | - | - | - | - | (3,285 | ) | 5,851 | 2,566 | ||||||||||||
Tax on equity awards | - | - | - | - | - | 4,427 | - | 4,427 | |||||||||||||
Share based payment charge | - | - | - | - | - | 2,120 | - | 2,120 | |||||||||||||
New share capital issued | 61 | 4,060 | - | - | - | - | - | 4,121 | |||||||||||||
Group at June 30, 2011** | 4,240 | 11,538 | (14,518 | ) | (15,980 | ) | 2,835 | 197,979 | 27,586 | 213,680 | |||||||||||
Group at July 1, 2011 | 4,240 | 11,538 | (14,518 | ) | (15,980 | ) | 2,835 | 197,979 | 27,586 | 213,680 | |||||||||||
Profit for the period | - | - | - | - | - | 6,516 | - | 6,516 | |||||||||||||
Other comprehensive income, net of tax | - | - | - | - | - | - | (11,052 | ) | (11,052 | ) | |||||||||||
Total comprehensive income for the period | - | - | - | - | - | 6,516 | (11,052 | ) | (4,536 | ) | |||||||||||
Tax on equity awards | - | - | - | - | - | (3,111 | ) | - | (3,111 | ) | |||||||||||
Share based payment charge | - | - | - | - | - | 2,164 | - | 2,164 | |||||||||||||
New share capital issued | 6 | 168 | - | - | - | - | - | 174 | |||||||||||||
Group at Dec 31, 2011 | 4,246 | 11,706 | (14,518 | ) | (15,980 | ) | 2,835 | 203,548 | 16,534 | 208,371 |
* | Refer to Note 1 for discussion on prior year restatements. | |
** | June 30, 2011 information is extracted from the audited Consolidated Financial Statements from June 30, 2011. |
Unaudited Condensed Consolidated Interim Cash Flow Statement |
|||||||||
$000s |
6 months to |
6 months to |
Year to |
||||||
Cash flows from operating activities | |||||||||
Profit before tax from continuing operations | 11,513 | 18,478 | 26,013 | ||||||
Profit/ (loss) before tax from discontinued operations | (639 | ) | 248 |
(10,428 |
) |
||||
Profit before tax | 10,874 | 18,726 | 15,585 | ||||||
Finance income | (3,807 | ) | (780 | ) | (298 | ) | |||
Finance expense | 299 | 353 | 2,035 | ||||||
Depreciation and amortization | 5,091 | 4,992 | 9,682 | ||||||
Impairment related to disposal | - | 603 | 603 | ||||||
Share based payment expense | 2,179 | 1,657 | 3,837 | ||||||
Movement in provisions | 3,803 | 2,173 | 2,297 | ||||||
Loss on disposal of discontinued operations | - | - | 9,108 | ||||||
Movement in working capital | (16,476 | ) | (11,499 | ) | (8,093 | ) | |||
Cash generated from operations before restructuring | 1,963 | 16,225 | 34,756 | ||||||
Payments under restructuring – personnel | (991 | ) | (857 | ) | (1,792 | ) | |||
Cash generated from operations | 972 | 15,368 | 32,964 | ||||||
Income tax refunded (paid) | (284 | ) | 1,849 | 2,616 | |||||
Net cash inflow from operating activities | 688 | 17,217 | 35,580 | ||||||
Cash flows from investing activities | |||||||||
Purchase of property, plant and equipment, licences and similar rights | (1,512 | ) | (1,729 | ) | (3,185 | ) | |||
Disposal of property, plant and equipment, licences and similar rights | 41 | 21 | 59 | ||||||
Acquisition of subsidiaries, net of cash acquired | (29,018 | ) | - | (4,608 | ) | ||||
Purchase of investment loan | (502 | ) | - | - | |||||
Net inflow from sale of discontinued operations | - | - | 8,853 | ||||||
Interest received | 28 | 136 | 139 | ||||||
Net cash inflow/ (outflow) from investing activities | (30,963 | ) | (1,572 | ) | 1,258 | ||||
Cash flows from financing activities | |||||||||
Issue of share capital | 174 | 1,986 | 6,107 | ||||||
Decrease in long term borrowings | (279 | ) | (9,000 | ) | (8,721 | ) | |||
Interest paid | (206 | ) | (31 | ) | (292 | ) | |||
Net cash outflow from financing activities | (311 | ) | (7,045 | ) | (2,906 | ) | |||
Net (decrease)/ increase in cash and cash-equivalents in the period | (30,586 | ) | 8,600 | 33,932 | |||||
Cash and cash-equivalents at start of the period | 98,271 | 55,018 | 55,018 | ||||||
Exchange rate effects | (5,345 | ) | 4,877 | 9,321 | |||||
Cash and cash-equivalents at the end of the period | 62,340 | 68,495 | 98,271 | ||||||
Cash and cash-equivalents consists of: | |||||||||
Cash and cash-equivalents | 62,344 | 68,971 | 98,274 | ||||||
Overdrafts | (4 | ) | (476 | ) | (3 | ) | |||
62,340 | 68,495 | 98,271 |
* | Refer to Note 1 for discussion on prior year restatements. | |
** | June 30, 2011 information is extracted from the audited Consolidated Financial Statements from June 30, 2011. | |
Notes to the Unaudited Condensed Consolidated
Interim Financial
Statements
NOTE 1 - ACCOUNTING POLICIES
1.1 BASIS OF PREPARATION
The unaudited Condensed Consolidated Interim Financial Statements for the six months ended December 31, 2011 have been prepared in accordance with IAS 34, “Interim Financial Reporting” and the Disclosure and Transparency Rules of the Financial Services Authority.
The Condensed Consolidated Interim Financial Statements do not include all information and disclosures as required in the annual financial statements, and should be read in conjunction with the Group’s Consolidated Annual Financial Statements for the year ended June 30, 2011.
The financial information contained in these Condensed Consolidated Interim Financial Statements do not comprise statutory financial statements within the meaning of section 435 of the UK Companies Act 2006. The Consolidated Annual Financial Statements for the year ended June 30, 2011, from which information has been extracted, were prepared under IFRS and have been delivered to the Registrar of Companies. The report of the auditors was unqualified and did not contain a statement under section 498 of the UK Companies Act 2006.
The Condensed Consolidated Interim Financial Statements were approved by the Board of Directors on February 9, 2012.
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, 2011.
The adoption of the standards/ interpretations that have become effective for year 2012 have already been outlined in detail in the Consolidated Annual Financial Statements for the year ended June 30, 2011 and were not considered to have a significant impact on these Condensed Consolidated Interim Financial Statements.
1.3 PRIOR YEAR RESTATEMENTS
The Condensed Consolidated Interim Financial Statements include the effects of the restatements for the year ended June 30, 2010 recorded in the Consolidated Annual Financial Statements for the year ended June 30, 2011. This includes a restatement to increase Maintenance Revenues by $552,000 and the offsetting decrease in Deferred Income – Current for the 6 months ended December 31, 2010. Additionally, this includes a restatement to increase Cost of Sales by $200,000 and the offsetting decrease in Inventories for the 6 months ended December 31, 2010. See Note 3 to the Group’s Consolidated Annual Financial Statements for the year ended June 30, 2011 for additional information.
NOTE 2 - ACQUISITION
On December 5, 2011, Kofax acquired 100% of the shares of Singularity Limited (Singularity), a company incorporated in Northern Ireland, which is a leading provider of business process management (BPM) software and case management solutions. Singularity has historically conducted the majority of its operations in the United Kingdom, and has subsidiaries that include a substantial operating presence in India. The acquisition of Singularity will allow customers to manage information as it flows through their organizations, expanding Kofax’s reach beyond capture into the BPM market. The acquisition agreements and all related amounts payable are denominated in pounds sterling, and the disclosures that follow are based on the actual exchange rate to U.S. dollars at the date of acquisition; actual future payments, as expressed in U.S. dollars, may vary depending on the movement of foreign exchange rates.
The Group has prepared the preliminary fair value adjustments to the identifiable assets and liabilities of Singularity and its subsidiaries, at the acquisition date, as set out below:
$000s |
Carrying |
Adjustments | Fair Value | ||||
Non-current assets | |||||||
Property, plant & equipment | 325 | - | 325 | ||||
Technology – intangible | 364 | 7,648 | 8,012 | ||||
Customer relationship – intangible | - | 2,987 | 2,987 | ||||
Trade name – intangible | - | 538 | 538 | ||||
Total non-current assets | 689 | 11,173 | 11,862 | ||||
Current assets | |||||||
Cash and cash-equivalents | 12,527 | - | 12,527 | ||||
Trade and other receivables | 3,734 | - | 3,734 | ||||
Total current assets | 16,261 | - | 16,261 | ||||
Total assets | 16,950 | 11,173 | 28,123 | ||||
Current liabilities | |||||||
Trade and other payables | 1,599 | - | 1,599 | ||||
Deferred income – current | 2,137 | (1,534 | ) | 603 | |||
Deferred tax liabilities – current | 33 | 842 | 875 | ||||
Total current liabilities | 3,769 | (692 | ) | 3,077 | |||
Non-current liabilities | |||||||
Deferred income - non-current | 144 | (104 | ) | 40 | |||
Deferred tax liabilities - non-current | - | 2,360 | 2,360 | ||||
Total non-current liabilities | 144 | 2,256 | 2,400 | ||||
Total liabilities | 3,913 | 1,564 | 5,477 | ||||
Net assets acquired | 13,037 | 9,609 | 22,646 |
$000s |
||
Consideration paid in cash | 40,981 | |
Contingent consideration, at net present value | 3,219 | |
Total consideration | 44,200 | |
Goodwill arising from acquisition | 21,554 | |
The fair value of the trade receivables amounts to $3.0 million. None of the trade receivables have been impaired, and it is expected that the full contractual amount can be collected.
The goodwill of $21.6 million comprises the value of expected synergies arising from the acquisition and workforce, which is not separately recognized. None of the goodwill is expected to be deductible for tax purposes.
From the date of acquisition to December 31, 2011, Singularity has contributed $1.3 million of revenue, adjusted EBITA of $0.2 million and a pre-tax net loss of $0.3 million. If the combination had taken place at the beginning of the fiscal year, revenue from Singularity’s continuing operations for the six month period would have been approximately $7.6 million, and the contribution to net income would have been approximately $0.2 million, which would have resulted in total revenue of $134.8 million and net income of $7.0 million.
The consideration payable relating to the shares includes contingent payments that are based on two factors. First, $3.4 million of the purchase price was withheld in escrow relating to representations and warranties made by the sellers, including those related to the level of cash and certain other net assets acquired. To the extent it is determined to be payable, the escrow will be paid on the one year anniversary of the closing. The Group estimates that the remaining $2.9 million of the $3.4 million will be paid, and has included the $2.9 million, in the contingent consideration. The $2.9 million, at its discounted current value, is classified as a component of Provisions – current in the accompanying Condensed Consolidated Interim Statement of Financial Position.
Additionally, contingent consideration includes “earnout” payments based on the continuing employment of certain continuing employees of Singularity and its subsidiaries and license revenue arising from Singularity‘s BPM products during calendar year 2012 and 2013. The range of earnout payments is between nothing and $14.5 million. Management has assessed a number of scenarios and based on those scenarios we have estimated for financial accounting purposes that $8.9 million of the earnout will be paid. Under the provisions of IFRS3, “Business Combinations,” management has determined that $8.3 million of the earnout should be treated as compensation expense for financial accounting purposes, and will be charged to Acquisition related compensation costs ratably from the date of acquisition through December 31, 2013. During the period from acquisition to December 31, 2011, $0.3 million of the $8.3 million was amortized to expense. The remaining $0.6 million, discounted to net present value, is included as a component of the purchase price consideration. The $0.6 million, at its discounted current value, is classified as a component of Provisions – long-term in the accompanying Condensed Consolidated Interim Statement of Financial Position. As actual BPM license revenue for calendar year 2012 and 2013 is generated and revised estimates of BPM license revenue through December 31, 2013 are made, the total amount payable will be reassessed. Any resulting adjustments to the amounts payable will be charged to acquisition related compensation costs. Payment of the earnout will be made shortly after the end of each of calendar year 2012 and 2013. Based on the current estimates, $4.2 million and $4.7 million will be payable after the end of calendar 2012 and 2013, respectively.
In addition to the consideration described above, a retention and incentive bonus arrangement has been implemented for certain continuing employees of Singularity and its subsidiaries. Under the retention and incentive bonus structure, total payments ranging from nothing to $4.7 million may be paid. The incentive bonus has been structured to mirror the earnout payments described above. Based on current estimates of BPM license revenue, it is estimated for financial accounting purposes that $2.9 million of the incentive bonus will become payable. During the period from acquisition to December 31, 2011, $0.1 million of the $2.9 million was expensed to Acquisition related compensation costs. As actual BPM license revenue is generated and revised estimates of BPM license revenue through December 31, 2013 are made, the re-evaluation of the total amount payable will be made and any difference from the original estimates will be charged or credited to Acquisition related compensation costs. Payment of the retention and incentive bonus will be made shortly after the end of each of calendar year 2012 and 2013. Based on the current estimates, $1.3 million and $1.6 million will be payable after the end of calendar year 2012 and 2013, respectively.
As of December 31, 2011, compensation related earnout payments and retention and incentive bonuses have been accrued and recorded in Acquisition related compensation costs in the income statement. Had these costs been allocated on a functional basis they would have been accrued and recorded as shown below.
$000s | Cost of sales |
Research and |
Sales and |
General and |
Total | |||||
Earnout | 158 | 65 | 65 | 8 | 296 | |||||
Retention and Incentive bonus |
40 |
25 |
32 |
3 |
100 |
|||||
Total | 198 | 90 | 97 | 11 | 396 |
Analysis of cash flows on acquisition: |
|||
|
|||
$000s | |||
Consideration paid at the time of the closing | 40,981 | ||
Less: cash acquired | (12,527 | ) | |
Net outflow of cash relating to the acquisition | 28,454 | ||
NOTE 3 - OPERATING SEGMENTS
Following the disposal of the hardware business in 2011, Kofax operates one business segment, the software business. The Group manages its business based on the key measures for resource allocation, such as revenue generation and EBITA. All products and services are considered one solution to customers and are operated and analysed under one statement of income. The following table presents the software business.
$000s |
6 months to |
6 months to |
Year to
|
|||
Revenue | 128,520 | 122,221 | 243,942 | |||
Cost of sales | (25,425) | (24,703) | (50,014) | |||
Gross profit | 103,095 | 97,518 | 193,928 | |||
Depreciation and amortization | (3,186) | (2,062) | (4,127) | |||
Adjusted operating profit** | 19,434 | 23,812 | 40,150 | |||
Acquisition and other transaction-related costs | (2,343) | - | (2,523) | |||
Acquisition related compensation costs | (396) | - | - | |||
Amortization of acquired intangible assets | (1,905) | (1,657) | (3,213) | |||
Restructuring costs | (4,776) | (2,560) | (3,182) | |||
Share based payment expense | (2,179) | (1,664) | (3,733) | |||
Other income and expenses, net | 170 | 120 | 251 | |||
Finance income | 3,807 | 780 | 298 | |||
Finance expense | (299) | (353) | (2,035) | |||
Profit before tax from continuing operations | 11,513 | 18,478 | 26,013 |
* | Refer to Note 1 for discussion on prior year restatements. | |
** | Adjusted operating profit is stated before adding back acquisition and other transaction-related costs, acquisition related compensation costs, amortization of acquired intangibles, restructuring costs, share-based payment expense, finance income/expense and other income/expenses. It is used by the Group as a key performance indicator to help assess the underlying performance of the business. | |
There are no reportable assets that meet the criteria under IFRS 8 to be reported under the operating segments above.
Entity-wide Disclosures
The following revenue information is based on the location of the customer:
Total software |
America | UK | Germany |
Rest of |
Asia |
Total | ||||||
6 months to |
70,652 | 7,957 | 10,374 | 30,682 | 8,855 | 128,520 | ||||||
6 months to |
62,889 |
9,709 |
7,894 |
34,461 |
7,268 |
122,221 |
||||||
Year to |
128,321 | 17,927 | 17,148 | 62,325 | 18,221 | 243,942 | ||||||
Non-current assets for this purpose consist of intangible assets, property, plant and equipment, investment in associates, other non-current assets – excluding security deposits.
Non-current |
America | UK | Germany |
Rest of |
Asia |
Total | ||||||
At Dec 31, 2011 | 106,964 | 38,280 | 6,289 | 38,988 | 5,918 | 196,439 | ||||||
At Dec 31, 2010 | 100,112 | 5,595 | 6,794 | 39,621 | 5,665 | 157,787 | ||||||
At June 30, 2011 | 108,630 | 5,749 | 7,129 | 42,168 | 6,011 | 169,687 | ||||||
NOTE 4 - PROFIT ON OPERATING ACTIVITIES BEFORE TAXATION |
||||||
$000s |
6 months to |
6 months to |
Year to |
|||
Profit on ordinary activities before taxation is stated after charging: | ||||||
Total staff costs | 57,845 | 50,889 | 105,781 | |||
Depreciation and amortization of property, plant, equipment | 3,186 | 2,062 | 4,127 | |||
Amortization of acquired intangible assets | 1,905 | 1,657 | 3,213 | |||
Restructuring costs | 4,776 | 2,560 | 3,182 | |||
Acquisition and other transaction-related costs | 2,343 | - | 2,523 | |||
Loss on disposal of property, plant and equipment | - | - | 2 | |||
Auditors, remuneration | 3,400 | 1,329 | 3,268 | |||
Operating lease expense – minimum lease payments | 3,212 | 2,756 | 5,398 | |||
Other operating expenses | 18,423 | 18,214 | 38,684 | |||
Total operating expenses | 95,090 | 79,467 | 166,178 |
Restructuring costs consist of the Group’s reorganization of the sales and marketing and other functions as well as costs associated with the closure of certain offices.
NOTE 5 - TAX EXPENSE |
|||||||||
$000s |
6 months to |
6 months to |
Year to |
||||||
Current tax | |||||||||
Income tax on profit for the period | 4,810 | 7,940 | 8,569 | ||||||
Adjustment for over/ (under) provision in prior periods | 424 | (158 | ) | (660 | ) | ||||
Total current tax | 5,234 | 7,782 | 7,909 | ||||||
Deferred tax | |||||||||
Origination and reversal of temporary differences | (833 | ) | (175 | ) | 81 | ||||
Adjustment for (under)/ over provision in prior periods | (43 | ) | - | 751 | |||||
Total deferred tax | (876 | ) | (175 | ) | 832 | ||||
Total tax expense | 4,358 | 7,607 | 8,741 |
NOTE 6 - EARNINGS PER SHARE
Basic earnings per share of $0.08 for the period ended December 31, 2011 (December 31, 2010: $0.13) for the continuing software business have been calculated based on the profit attributable to equity holders of $7.2 million (December 31, 2010: $10.9 million) for the continuing software business using the weighted average number of ordinary shares in issue totalling 84.7 million (December 31, 2010: 82.7 million) during the period.
Adjusted basic earnings per share of $0.15 for the period ended December 31, 2011 (December 31, 2010: $0.19) for the continuing software business are based on profit of $13.3 million (December 31, 2010: $15.4) million for the continuing software business, being adjusted for the expenses as stated below using the weighted average number of ordinary shares in issue totalling 84.7 million (December 31, 2010: 82.7 million) during the period. The Board considers adjusted basic EPS to better reflect the underlying performance of the Group.
Reconciliation of |
6 months |
6 months |
6 months |
6 months |
Year to |
Year to |
||||||||||||
EPS in $ | $000s | EPS in $ | $000s | EPS in $ | $000s | |||||||||||||
Profit for the period attributable to the equity holders of the parent | 0.08 | 6,516 | 0.13 | 10,971 | 0.09 | 7,084 | ||||||||||||
Earnings per share from discontinued operations | (0.00 | ) | (639 | ) | 0.00 | 100 | (0.12 | ) | (10,188 | ) | ||||||||
Earnings per share from continuing operations | 0.08 | 7,155 | 0.13 | 10,871 | 0.21 | 17,272 | ||||||||||||
Acquisition and other transaction-related costs | 0.03 | 2,343 | - | - | 0.03 | 2,523 | ||||||||||||
Acquisition related compensation costs | 0.00 | 396 | - | - | - | - | ||||||||||||
Amortization of acquired intangible assets | 0.02 | 1,905 | 0.02 | 1,657 | 0.04 | 3,213 | ||||||||||||
Restructuring costs | 0.06 | 4,776 | 0.03 | 2,560 | 0.04 | 3,182 | ||||||||||||
Shared based payment expense | 0.03 | 2,179 | 0.02 | 1,664 | 0.04 | 3,733 | ||||||||||||
Net financial income, expense and other income | (0.04 | ) | (3,678 | ) | (0.00 | ) | (547 | ) | 0.02 | 1,486 | ||||||||
Tax effect of above | (0.02 | ) | (1,798 | ) | (0.01 | ) | (775 | ) | (0.05 | ) | (4,239 | ) | ||||||
Adjusted profit for the period attributable to the equity holders of the parent | 0.16 | 13,278 | 0.19 | 15,430 | 0.33 | 27,170 | ||||||||||||
Diluted earnings per share of $0.08 for the period ended December 31, 2011 (December 31, 2010: $0.12) for the continuing software business have been calculated based on the post tax profit attributable to equity holders of the parent of $7.2 million (December 31, 2010: $10.9 million) using 89.7 million (December 31, 2010: 88.2 million) ordinary shares, the difference to the basic calculation representing the additional shares that would be issued on the conversion of all the dilutive potential ordinary shares.
Adjusted, diluted earnings per share of $0.15 for the period ended December 31, 2011 (December 31, 2010: $0.18) have been calculated based on profit of $13.3 million (December 31, 2010: $15.4 million) for the continuing software business, being adjusted for the operating expenses as stated above using 89.7 million (December 31, 2010: 88.2 million) ordinary shares.
Reconciliation of the denominator for EPS |
6 months to |
6 months to |
Year to |
|||
millions of shares | ||||||
Weighted average number of ordinary shares (excluding ESOP and Treasury shares) | 84.7 | 82.7 | 82.5 | |||
Dilutive impact of share options | 2.6 | 3.9 | 3.2 | |||
Dilutive impact on LTIPs | 2.4 | 1.6 | 2.0 | |||
Total diluted shares | 89.7 | 88.2 | 87.7 | |||
NOTE 7 - PROVISIONS |
|||||||||||||||
$000s | Restructuring |
Onerous |
Contingent |
Others | Total | ||||||||||
At July 1, 2010 (audited) | 2,270 | 620 | 150 | 251 | 3,291 | ||||||||||
Arising during the year | 693 | 1,921 | - | 99 | 2,713 | ||||||||||
Reversed against income statement | (31 | ) | - | - | - | (31 | ) | ||||||||
Utilized | (660 | ) | (435 | ) | - | (74 | ) | (1,169 | ) | ||||||
Exchange differences | 203 | 85 | - | 21 | 309 | ||||||||||
At Dec 31, 2010 (unaudited) | 2,475 | 2,191 | 150 | 297 | 5,113 | ||||||||||
Arising during the year | 287 | 454 | 4,698 | 161 | 5,600 | ||||||||||
Reversed against income statement | (28 | ) | - | - | - | (28 | ) | ||||||||
Utilized | (1,132 | ) | (605 | ) | (130 | ) | (17 | ) | (1,884 | ) | |||||
Exchange differences | 147 | 99 | 26 | 12 | 284 | ||||||||||
At June 30, 2011 (audited) | 1,749 | 2,139 | 4,744 | 453 | 9,085 | ||||||||||
Arising during the year | 3,944 | 1,361 | 3,603 | 826 | 9,734 | ||||||||||
Reversed against income statement | (135 | ) | (909 | ) | - | (119 | ) | (1,163 | ) | ||||||
Utilized | (991 | ) | (721 | ) | (834 | ) | 254 | (2,292 | ) | ||||||
Exchange differences | (345 | ) | (215 | ) | 184 | (43 | ) | (419 | ) | ||||||
At Dec 31, 2011 (unaudited) | 4,222 | 1,655 | 7,697 | 1,371 | 14,945 | ||||||||||
NOTE 8 - RELATED PARTY TRANSACTIONS
Directors’ interests in share options and LTIPs
Directors who are also executive officers of the Group held 895,000 LTIP shares as of December 31, 2011, of which 50,000 LTIP shares were granted during the period ended December 31, 2011. 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 pence and 300 pence at the grant dates.
Directors who are also executive officers of the Group held 1,950,000 share options as of December 31, 2010, and no options were granted during the period nor did any share options lapse during the period. The exercise periods are between calendar years 2011 and 2020 with exercise prices of the shares between 146 pence and 240 pence.
NOTE 9 - CONTINGENT LIABILITIES
There were no material pending or threatened lawsuits against the Group.
NOTE 10 - EVENTS AFTER THE BALANCE SHEET DATE
Following the balance sheet date, the Group entered into a preliminary contract to sell its Perugia, Italy property and buildings for $660,000, which had a net book value of $414,000 at December 31, 2011. The sale is expected to close by to June 30, 2012.
Responsibility Statement of the Executive Directors with Respect to
the
Interim Financial Statements
We confirm that to the best of our knowledge:
The condensed 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 six 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 six 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 six 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. Bish |
J. R. “Jamie” Arnold, Jr. |
|||||
Chief Executive Officer |
Chief Financial Officer |
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February 13, 2012 |
February 13, 2012 |