E-mail:
Password:

 

Language Deutsch Español Français Italiano Portuguese Japanese

Regulatory Announcement

Company	Kofax plc
TIDM	KFX
Headline	Interim Results - Six Months to 31 December 2009
Released	8-Feb-2010 07:00
Number	7901G07

 

Interim Results – Six Months to 31 December 2009

IRVINE, Calif., February 8, 2010 - Kofax plc (LSE: KFX), the leading provider of document driven business process automation solutions, today announces Interim Results for the six months ended 31 December 2009.

Financial Highlights

• Total revenues up 9% to $168.3m (2008: $154.5m)
  • Software business revenues up 17%
  • Hardware business revenues down 1%
• Adjusted EBITA* of $10.0m (2008: $11.3m)
  • Software business adjusted EBITA of $8.0m, a margin of 7.9% (2008: $5.7m)
  • Hardware business adjusted EBITA of $2.0m, a margin of 3.0% (2008: $5.6m)
• Pre-tax profits of $3.6m (2008: $9.1m)
• Adjusted earnings per share* of $.06 (2008: $.09)
• Operating cash flow before restructuring payments of $8.5m (2008: $3.4m)
• Cash of $30.9m ($48.1m at 30 June 2009)

^{* Further details with regard to the calculation of adjusted amounts are set out in note 7 to the financial results.}

Operating Highlights

• Achieved major customer wins at Chronopost International, Defense Accounting & Finance Service, District of Columbia Public Schools, Infosys, Iron Mountain, Oakley and Pro BTP
• Acquired 170 Systems, adding accounts payable workflow capabilities and the ability to deliver a complete invoice processing solution
• Introduced new releases of Kofax Front Office Server and Kofax Transformation Modules
• Reported a 45% increase in attendance at our Transform Americas and EMEA end user customer & partner events

Kofax plc	FD
Investor Contact:	James Melville–Ross
Stefan Gaiser, Chief Financial Officer	Nicola Biles
+49 (0) 761 45269 193	Tel :     +44 (0) 20 7831 3113
stefan.gaiser@kofax.com	e-mail:             kofax@fd.com
Media Contact: Michael Troncale, Director, Corporate Communications +1 949-783-1434 michael.troncale@kofax.com

About Kofax
Kofax plc (LSE: KFX) is the leading provider of document driven business process automation solutions. For more than 20 years, Kofax has provided award winning solutions that streamline the flow of information throughout an organization by managing the capture, transformation and exchange of business critical information arising in paper, fax and electronic formats in a more accurate, timely and cost effective manner. These solutions provide a rapid return on investment to thousands of customers in financial services, government, business process outsourcing, healthcare, supply chain and other markets. Kofax delivers these solutions through its own sales and service organizations, and a global network of more than 1000 authorized partners in more than 60 countries throughout the Americas, EMEA and Asia Pacific. For more information, visit www.kofax.com.

Chief Executive’s Review

Operational Overview
Two years ago we started to restructure Kofax’s business, implement new revenue growth strategies and upgrade our talent to improve the Company’s performance over time. During this period we’ve been pleased with our progress in implementing these changes but have obviously been a company in transition, experiencing success in some areas and challenges in others, and – like most firms – have suffered from a difficult economic environment. Despite our continuing caution, we believe we are now positioned to increasingly realize the benefits of these changes while having better visibility into our business and publicly report financial results that support this belief.

The first half of our financial year yielded very positive results, with total revenues in our software business growing 17% on an “as reported” basis, including the 170 Systems’ contribution, and 8% on an “organic and constant currencies” basis. This is particularly gratifying as we acquired and substantially integrated 170 Systems during this period and despite those efforts both businesses performed in line with our expectations.

The benefits of our strategic efforts have been particularly apparent in our applications software and services portion of our software business. We experienced improving sales execution and performance in the Americas and EMEA, where we won a number of very significant sales as a result of our direct sales efforts. The Asia Pacific region grew but at a lower rate than we expected. Despite this we believe its results will be as expected for the full financial year.

In our OEM / POS software business the essentially flat revenues masked the fact that these revenues actually grew on a sequential basis by more than 22% in both “as reported” and “constant” currencies when compared to the preceding half year ended 30 June 2009. As a result, we now expect continuing year over year improvements in this portion of our software business.

Our hardware business continues to be challenged by increasing price competition as a result of more digital scanners being sold through mainline hardware distributors. As a result, it’s revenues declined by 1% and 3% on an “as reported” and “constant” currencies basis, respectively, and we experienced lower gross profit margins.

The decline in our total adjusted operating profit masks significant underlying improvement and leverage in our software business due to an anticipated $2.1m loss arising from the 170 Systems acquisition and lower revenues and gross margins in our hardware business. We expect this leverage to become increasingly apparent during the remainder of this and the next financial years.

170 Systems Acquisition
This transaction was in line with our stated strategy of augmenting our organic growth with the acquisition of synergistic technologies or complementary companies that increase our competitive advantage or expand our market reach. In this specific case it addressed a significant competitive disadvantage we’ve publicly acknowledged and discussed in some detail over the past year.

By acquiring 170 Systems we achieved the ability to deliver the complete invoice processing solution that end users desire from a single point of procurement. This incorporates Kofax’s paper and electronic invoice capture software as well as 170 Systems’ accounts payable workflow capabilities. We believe this will allow us to gain a larger share of the rapidly growing invoice processing market which, according to Paystream Advisors, is forecasted to grow from $1.1 billion in 2008 to over $1.8 billion in 2012 at an 18.3% compound annual growth rate.

Outlook
Management and the Board remain confident in our business prospects and strategies, and the Company’s balance sheet remains strong with cash of $30.9m at 31 December 2009.

We’re pleased with the continued progress in implementing our strategic initiatives but while market conditions seem to have stabilized and started to slowly improve it’s still a very unsettled economic environment. As a result, for the full financial year ending 30 June 2010 we cautiously expect mid single digit growth in our organic software business revenues plus the contribution from the 170 Systems acquisition, and flat to a low single digit decline of our hardware business revenues. As a result, management and the Board remain confident that the full year results will be in line with our expectations.

Reynolds C. Bish
Chief Executive Officer

Financial Review

Throughout the first half of this financial year, we’ve seen strong performance in our overall software business revenues. Now that we’ve largely completed the restructuring of our software business, our efforts have been focused on improving its sales management and productivity to further enhance the prospects of future growth. The results of all these changes are starting to be seen and in September we further strengthened our software business through the acquisition of 170 Systems, which added $7.0m in revenue for the period.

Our hardware business revenues continued to decline slightly with gross margins stabilizing at the lower levels experienced during the second half of the year ended 30 June 2009.

On the operations side, we’ve also begun to see the benefits of the restructurings and the infrastructure investments made during the last two years through substantially lower general and administrative costs. Our operational focus remains on identifying cost efficiencies through further standardization of administrative activities.

Company Results
With the change in our presentation currency to the US dollar, a large portion of our revenues are no longer subject to exchange rate movements. However, we continue to trade heavily in Euros and benefited from the increase in the value of the Euro compared to the US dollar, which averaged three percent during the period.

Overall revenue was up 9% to $168.3m compared to $154.5m in the previous period. All of this growth was seen in the software business with a small portion attributable to currency exchange rates, which increased these revenues by 1% on an “as reported” basis. Further growth was achieved through the 170 Systems acquisition which generated $7.0m of incremental revenues.

Gross profit was $88.4m with an overall gross profit margin of 52.5%. International Financial Reporting Standards require acquired deferred revenues to be adjusted to fair value which reduced the recognized revenue during the period by approximately $1.4m. Without this fair value adjustment our gross profit margin would have been 53.4%.

Adjusted EBITA was lower during the period, decreasing from $11.3m to $10.0m. This decrease was caused by several factors. We realized a $2.1m anticipated loss from 170 Systems during the period and the gross margins in our hardware business, while stable compared to the second half of last financial year, decreased substantially compared to the previous period. Adjusted EPS was $.06, down from $.09 cents for the first half of the prior year.

Software Business Segment
During the first half of the year, we saw a strong performance in the software business. Much of this was achieved through significant organic growth as well as the acquisition of 170 Systems, both of which performed generally in line with our expectations.

The table below sets out the segment information for our software business in more detail.

Software business P&L 6 months to 31 December 2009	6M/FY10 $m	6M/FY09 $m	Change %	Organic & Constant Currency
Applications Software Licenses	40.9	36.9	11%	7%
Applications Software Services	48.6	37.7	29%	11%
Total Applications Software	89.5	74.6	20%	9%
OEM / POS Software	12.0	12.1	(1%)	(1%)
Total Software Business Revenue	101.5	86.7	17%	8%
Gross Profit	76.6	65.0	18%	12%
Research & Development	15.8	15.1	5%	(10%)
Sales & Marketing	37.6	27.8	35%	23%
General & Administrative	15.2	16.4	(7%)	(9%)
Total Expenses	68.6	59.3	15%	6%
Adjusted EBITA	8.0	5.7	41%	69%

Overall software revenue increased by 17% to $101.5m compared to $86.7m in the prior year. Revenue on an organic and constant currencies basis increased 8%.

Applications software license revenue increased 11% while services revenue continued its strong performance with growth of 29%. Applications software growth was seen in all regions with Asia Pacific achieving 34% growth, Americas 37% and EMEA 10%. Applications software services continued to benefit from high renewal rates and an increased focus on getting customers to reinstate expired maintenance contracts. The economic conditions and execution challenges we’ve seen in the OEM/POS business seem to have subsided as our revenue levels remained approximately the same year over year. We expect to see further improvement in this business during the second half of the year. Gross profit in the software business was $76.6m, which represents a gross margin of 75%. Total overheads were $68.6m. This resulted in an adjusted EBITA of $8.0m or a 7.9% margin on revenue, which should continue to improve as the benefits of the restructurings and new revenue growth strategies are realised.

Hardware Business Segment
Hardware business revenue decreased 1% to $66.8m compared to $67.8m in the prior year. Product revenue decreased by 2% while service revenue increased by 1%. Total revenue in “constant currencies” decreased 3%. The lower gross margins reflect a continuing competitive market and represent a substantial decrease compared to the first half of the prior year but remained stable compared to the second half. The increase in sales and marketing expense is largely due to reclassifications from general and administrative functions following the implementation of our new accounting and order entry system.

The table below sets out the segment information for our hardware business in more detail.

Hardware business P&L 6 months to 31 December 2009	6M/FY10 $m	6M/FY09 $m	% Change	Using Constant Currency
Hardware Products	47.8	49.0	(2%)	(4%)
Hardware Services	19.0	18.8	1%	(1%)
Total Hardware Business Revenue	66.8	67.8	(1%)	(3%)
Gross Profit	11.8	15.0	(21%)	(23%)
Sales & Marketing	6.6	5.4	22%	18%
General & Administrative	3.2	4.0	(20%)	(18%)
Total Expenses	9.8	9.4	5%	3%
Adjusted EBITA	2.0	5.6	(64%)	(67%)

Taxation
The tax charge of $2.5m equals an effective tax rate of 70%, which is primarily the result of the non-deductibility of intangible amortization and share-based payment expense. The tax charge on adjusted pre-tax profits represents an adjusted effective tax rate of 27%. The difference between the effective tax rate and the adjusted effective tax rate is due to the release of deferred tax provisions on intangible assets and the add-back of $1.8m in non-deductible share-based payments related to a one-time cancellation charge.

Earnings per Share
Basic profit per share was $.01 compared to prior year earnings of $.08. Adjusted earnings per share equaled $.06 compared to $.09 in the prior year. The adjusted earnings per share calculation excludes certain charges, including amortisation of acquired intangible assets, restructuring charges and fair value adjustments on financial instruments. Please see Notes to the Financial Statements concerning further information about the basis upon which these calculations were made.

Cash Flow
Operating cash flow before restructuring and income tax payments was $8.5m compared to $3.4m in the prior year. Operating cash flow during the first six months was strong due to improved collection efforts following our migration to a new accounting system. Total cash outflows for investments increased during the period to $21.4m from $6.9m in the prior year, due to the acquisition of 170 Systems. Total cash outflows related to financing declined to $.9m from $9.3m in the prior year as a result of the discontinuation of the share buy-back and dividend programs.

To acquire 170 Systems, we paid consideration of $32.9 million, net of $10.1 million of cash held by the company. Of that amount, $29.7 million was in cash, $9.0 million was in the form of a note payable due in September 2010 and $4.3 million was in the form of a hold back, with $2.3 million to be released in September 2010 and the remainder in September 2011, subject to certain indemnification terms and conditions.

Going Concern
The financial statements have been prepared on the basis that the company is a going concern. In connection with this presentation, the Director’s have 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 related to events or conditions that may cast significant doubt about the ability of the company to continue as a going concern.

Stefan Gaiser
Chief Financial Officer