TIDMKFX
Kofax® Limited (NASDAQ and LSE: KFX), a leading provider of
software to simplify and transform the First MileT of customer
engagements, today reported unaudited financial results for the
second quarter and six months of its fiscal year 2015 ended
December 31, 2014.
Non-GAAP Financial Highlights:
-- Software license revenue increased 6.4% to $34.6 million (PY: $32.6
million), and for the six months increased 2.0% to $59.8 million
(PY:
$58.6 million)
-- Total revenues increased 5.1% to $81.1 million (PY: $77.1 million),
and for the six months increased 3.8% to $150.3 million (PY:
$144.8
million)
-- Adjusted earnings before interest, taxes, depreciation and
amortization (EBITDA) increased 10.1% to $14.4 million (PY:
$13.0
million) or a 17.7% margin (PY: 16.9%), and for the six
months
decreased 12.4% to $18.7 million (PY: $21.4 million) or a 12.4%
margin
(PY: 14.7%)
-- Adjusted diluted earnings per share (EPS) was $0.09 (PY: $0.08), and
for the six months was $0.11 (PY: $0.12)
-- Adjusted cash generated by operations was $1.5 million (PY: $3.5
million), and for the six months was $7.6 million (PY: $23.1
million)
GAAP Financial Highlights:
-- Software license revenue increased 12.8% to $34.3 million (PY: $30.4
million), and for the six months increased 7.3% to $59.0 million
(PY:
$54.9 million)
-- Total revenues increased 7.7% to $79.8 million (PY: $74.1 million),
and for the six months increased 6.1% to $148.3 million (PY:
$139.7
million)
-- Income from operations increased 70.0% to $7.8 million (PY: $4.6
million) or a 9.8% margin (PY: 6.2%), and for the six months
increased
13.4% to $4.5 million (PY: $4.0 million) or a 3.0% margin (PY:
2.9%)
-- Diluted EPS was $0.05 (PY: $0.02), and for the six months was $0.02
(PY: $0.05)
-- Cash generated (used) by operations was $0.6 million (PY: ($0.6)
million), and for the six months was $5.4 million (PY: $17.6
million)
Quarter end cash was $59.4 million (PY: $81.2 million).
A summary of Kofax's unaudited revenues and adjusted EBITDA for
the second quarter and six months compared to the prior year on
both a GAAP and non-GAAP basis is as follows:
Non-GAAP
Quarter Six Months
Y/Y % Y/Y %
$M Change Total $M Change Total
Software 34.6 6.4 % 42.7 % 59.8 2.0 % 39.8 %
Licenses
Maintenance 36.2 6.9 % 44.6 % 71.7 8.1 % 47.7 %
Services
Professional 10.3 -4.3 % 12.6 % 18.8 -5.5 % 12.5 %
Services
Total 81.1 5.1 % 100.0 % 150.3 3.8 % 100.0 %
Revenues
Adjusted 14.4 10.1 % 18.7 -12.4 %
EBITDA
Margin 17.7 % 12.4 %
GAAP
Quarter Six Months
Y/Y % Y/Y %
$M Change Total $M Change Total
Software 34.3 12.8 % 42.9 % 59.0 7.3 % 39.8 %
Licenses
Maintenance 35.3 5.3 % 44.3 % 70.5 7.4 % 47.6 %
Services
Professional 10.2 0.5 % 12.8 % 18.8 -1.5 % 12.6 %
Services
Total 79.8 7.7 % 100.0 % 148.3 6.1 % 100.0 %
Revenues
Income 7.8 70.0 % 4.5 13.4 %
from
Operations
Margin 9.8 % 3.0 %
Operating Highlights:
-- Announced a global partnership with Xerox Corporation enabling Xerox
to sell, market, deploy and support Kofax TotalAgility® to
help
organizations extend the value of Xerox's managed print and
document
management services and products
-- Launched the SignDoc® family of e-signature solutions, which are
seamlessly integrated with Kofax TotalAgility and positions
Kofax for
success in the digital transaction management market
-- Received three new patents for mobile technology from the United
States Patent and Trademark Office (USPTO)
-- Kofax's Mobile Capture PlatformT received the Breakthrough Software
Innovation Award at the Banque & Innovation Conference held
in Paris,
France
-- Announced Kofax Transform 2015, the Company's annual customer, partner
and analyst event, which will be held in Las Vegas, NV on March
8-10,
2015
-- Announced a special general meeting to be held on February 9, 2015 to
vote on proposals including the delisting of Kofax's shares from
the
London Stock Exchange
Commenting on the Non-GAAP financial results for the quarter,
Reynolds C. Bish, Chief Executive Officer, said: "Mobile and new or
acquired products software license revenue grew by 101.6%
year-over-year and 74.1% on an organic basis. Our success with
these products has continued to make this part of our business an
increasingly larger percentage of our software license revenue,
accounting for 41.8% during the quarter. Software license revenue
from 'core capture' products declined year-over-year but at a lower
rate than in the first quarter. These declines were primarily
driven by customers increasingly choosing to purchase Kofax
TotalAgility and solutions built on that platform as well as our
mobile capture, web capture and electronic content transformation
products rather than our legacy Kofax Capture and Kofax
Transformation Modules products. Multi Channel Capture revenues
increased year-over-year during the quarter. This quarter's results
were achieved despite significant exchange rate headwinds. On a
constant currency basis - using exchange rate levels in the prior
year period - software license revenue would have been
approximately $1.2 million and total revenues $2.7 million higher.
The effect on Adjusted EBITDA was less negative as a result of the
global nature and distribution of our employees and expenses."
Bish continued: "We're pleased with our performance during the
second quarter, and confident in our ability to execute during the
remainder of this fiscal year while realizing lower than
anticipated expense levels. Therefore, in light of the
strengthening of the U.S. dollar in recent months and assuming
current foreign exchange rates, we are lowering the high end of our
software license revenue and total revenues ranges while increasing
the low end of our EBITDA range. Neither of these adjustments
reflect a change in our underlying current or future fiscal year
growth expectations. Our guidance for fiscal year 2015 is therefore
as outlined below:"
GAAP Non-GAAP
Millions or Percentages
Software License Revenue $132.0 to $139.0 $133.0 to $140.0
Total Revenues $314.0 to $321.0 $317.0 to $324.0
Adjusted EBITDA $42.0 to $48.0 $45.0 to $51.0
Effective Tax Rate 41.0% to 43.0% 33.0% to 35.0%
Conference Call
Management will host a conference call and audio only webcast to
discuss these financial results at 2:00 pm U.S. Pacific time /
10:00 pm U.K. time today. To participate in the call, interested
parties should use the dial in information below, or access the
call via the investor relations section of the Company's website
at: http://investor.kofax.com/events.cfm. A replay via telephone
and webcast will be available for 30 days.
Live Replay Access Code
U.S. +1 (888) 401-4668 +1 (888) 203-1112 1609685
U.K. +44 (0) 800 404 7655 +44 (0) 808 101 1153 1609685
About Kofax
Kofax is a leading provider of software to simplify and
transform the First MileT of customer engagements. Success in the
First Mile can dramatically improve the customer experience,
greatly reduce operating costs and increase 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, supply chain, business
process outsourcing and other markets. Kofax delivers these through
its direct 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 has attempted to identify
forward-looking statements by terminology including "anticipates,"
"believes," "can," "continue," "could," "estimates," "expects,"
"intends," "may," "plans," "potential," "predicts," "should" or
"will" or the negative of these terms or other comparable
terminology. The Company may experience significant fluctuations in
future operating results due to a number of economic, competitive
and other factors, including, among other things, our reliance on
third-party manufacturers and suppliers, government agency
budgetary and political constraints, new or increased competition,
changes in market demand, our ability to consummate and the timing
of the consummation of software revenue transactions and the
performance or reliability of our products. These factors and
others could cause operating results to vary significantly from
those in prior periods, and those
projected in forward looking statements. Additional information
with respect to these and other factors, which could materially
affect the Company and its operations, are included in certain
forms the Company has filed with the Securities and Exchange
Commission. Although the Company believes that the expectations
reflected in any forward looking statements are reasonable based on
its current knowledge of the business and operations, it cannot
guarantee future results, levels of activity, performance or
achievements. The Company assumes no obligation to provide
revisions to any forward looking statements should circumstances
change.
Non-GAAP Financial Measures
Management uses financial measures, both GAAP and Non-GAAP, in
analyzing and assessing the overall performance of the business and
making operational decisions. The Company has provided and believes
that the Non-GAAP financial measures and supplemental
reconciliations to GAAP financial measures are useful to investors
and other users of its financial statements because the Non-GAAP
financial measures may be used as additional tools to compare our
performance across peer companies, periods and financial markets.
Please refer to the forms the Company has filed with the Securities
and Exchange Commission for a discussion of the Non-GAAP financial
measures and supplemental reconciliations to GAAP financial
measures for more information regarding the Non-GAAP measures.
© 2015 Kofax Limited. Kofax, TotalAgility and SignDoc are
registered trademarks and Mobile Capture Platform and First Mile
are trademarks of Kofax Limited.
Source: Kofax
Chief Executive Officer's Review
Financial Performance
All amounts or percentages in this review are with reference to
Kofax's Non-GAAP financial results unless otherwise noted. For a
definition of Non-GAAP financial measures and a reconciliation to
GAAP financial measures, please refer to the Chief Financial
Officer's Review that follows.
In the second quarter of fiscal year 2015 software license
revenue increased 6.4% to $34.6 million and total revenues
increased 5.1% to $81.1 million. In the six months ended December
31, 2014 software license revenue increased 2.0% to $59.8 million
and total revenues increased 3.8% to $150.3 million.
In the second quarter of fiscal year 2015 mobile and new or
acquired products software license revenue grew by 101.6%
year-over-year and 74.1% on an organic basis. In the six months
ended December 31, 2014 this revenue grew by 97.2% year-over-year
and 74.6% on an organic basis. Our success with these products has
continued to make this part of our business an increasingly larger
percentage of our software license revenue, and accounted for 41.8%
for the quarter and 39.4% for the six months.
Software license revenue from "core capture" products declined
year-over-year in both the second quarter and six months ended
December 31, 2014 but at a lower rate in the second quarter than
the first quarter. These declines were primarily driven by
customers increasingly choosing to purchase Kofax TotalAgility and
solutions built on that platform as well as our mobile capture, web
capture and electronic content transformation products rather than
our legacy Kofax Capture and Kofax Transformation Modules products.
More cautious and therefore longer sales cycles, particularly in
Western Europe, also contributed to these declines.
Some investors and financial analysts have expressed concern
about the decline in "core capture" software license revenue and
asked what that implies for the future of the capture market and
Kofax. In considering this question one needs to reflect on several
important points. First, in December 2012 Forrester forecasted that
the capture market would grow at a 5.0% compound annual growth rate
(CAGR) from 2012 to 2016. Second, that this was for what they
defined as the "Multi Channel Capture" market, which included four
segments - production capture, on demand capture, mobile capture
and electronic content transformation - with the latter two
segments accounting for much of that growth. And third, what we
report as "core capture" includes only that portion of Kofax's
"Multi Channel Capture" software license revenue arising from sales
of our legacy Kofax Capture and Kofax Transformation Modules
products, which are used for production capture and on demand
capture.
Therefore, to provide an appropriate comparison to Forrester's
Multi Capture Market growth forecast, one needs to add Kofax
software license revenue from other relevant products to its "core
capture" software license revenue for an accurate comparison. This
would include mobile capture, web capture, electronic content
transformation and that portion of Kofax TotalAgility and solutions
built on that platform allocable to production capture and on
demand capture - all of which Kofax includes in and reports as
"mobile and new or acquired products". Given how we've packaged and
priced Kofax TotalAgility and these solutions, it's difficult or
impossible to exactly quantify this latter amount. However, it's
reasonable to assume 20.0% of Kofax TotalAgility software license
revenue is related to production capture and on demand capture. If
we did this calculation, Kofax's "Multi Channel Capture" software
license revenue would have grown approximately in line with
Forester's forecast of a 5% CAGR for all of fiscal year 2014 and
during the second quarter of fiscal year 2015.
Hence, the capture market is not in a state of decline nor is
Kofax losing market share. Rather, Kofax is undergoing a rather
dramatic shift in buying preferences from our legacy capture
software products to our mobile and new or acquired products.
As a result of the complexity of the issues discussed above and
the challenges associated with accurately calculating Kofax's Multi
Channel Capture revenues, we will no longer report "core capture"
revenues or attempt to report Multi Channel Capture revenues.
Instead, we will only report total software license revenue.
As a result of our revenue growth and prudently managing
operating expenses in the second quarter, adjusted EBITDA increased
10.1% to $14.4 million or a 17.7% margin. In the six months ended
December 31, 2014, adjusted EBITDA decreased 12.4% to $18.7 million
or a 12.4% margin.
Our results for the second quarter of fiscal year 2015 and six
months ended December 31, 2014 were achieved despite significant
exchange rate headwinds. During the second quarter - on a constant
currency basis and using exchange rate levels in the prior year
period - software license revenue would have been approximately
$1.2 million and total revenues $2.7 million higher. The effect on
Adjusted EBITDA was less negative as a result of the global nature
and distribution of our employees and expenses.
During the second quarter of fiscal year 2015 and six months
ended December 31, 2014 we closed an increasing number of larger
software license transactions as summarized below:
Quarter Six Months
FY 14 FY 15 FY 14 FY 15
Sales > $100,000 42 60 69 98
Sales > $1 million 1 3 2 4
These increases are a result of the new quota bearing sales reps
we've added and their success in selling our mobile and new or
acquired products.
We continue to generate cash and our balance sheet remains
strong. Adjusted cash generated from operations was $1.5 million
for the second quarter and $7.6 million for the six months ended
December 31, 2014, and we ended those periods with $59.4 million of
cash. In addition, our existing, undrawn $40.0 million revolving
line of credit facility with Bank of America Merrill Lynch remains
available and has been extended through June 30, 2016. We therefore
have the financial resources needed to continue to fund organic
revenue growth while executing our acquisition strategy.
Operating Highlights for the Six Months
-- Announced a global partnership with Xerox Corporation enabling Xerox
to sell, market, deploy and support Kofax TotalAgility® to
help
organizations extend the value of Xerox's managed print and
document
management services and products
-- Launched Kofax Mortgage AgilityT, a solution designed to radically
transform and simplify the mortgage application process
-- Launched the SignDoc® family of e-signature solutions, which are
seamlessly integrated with Kofax TotalAgility® and positions
Kofax for
success in the digital transaction management market
-- Received eight new patents for mobile, document imaging,
classification and process automation technologies
-- Kofax's Mobile CaptureT Platform received the breakthrough Software
Innovation award at the Banque & Innovation Conference held
in Paris,
France
-- KMWorld Magazine recognized Kapow Enterprise as a "Trend Setting
Product of 2014"
-- Announced Kofax Transform 2015, the Company's annual customer, partner
and analyst event, which will be held in Las Vegas, NV on March
8-10,
2015
-- Acquired Softpro GmbH, a leading provider of signature verification,
fraud prevention and electronic signature software and
services
-- Voluntarily changed the basis of preparation of its financial
statements from IFRS to GAAP effective as of July 1, 2014,
and
published audited GAAP financial statements for Kofax's fiscal
years
ended June 30, 2013 and 2014
-- Announced the Board of Directors' intention to seek shareholder
approval to delist from the London Stock Exchange on or before
March
31, 2015
-- Announced a special general meeting to be held on February 9, 2015 to
vote on proposals including the delisting of Kofax's shares from
the
London Stock Exchange
Forward Looking Guidance
We're pleased with our performance during the second quarter,
and confident in our ability to execute during the remainder of
this fiscal year while realizing lower than anticipated expense
levels. Therefore, in light of the strengthening of the U.S. dollar
in recent months and assuming current foreign exchange rates, we
are lowering the high end of our software license revenue and total
revenues ranges while increasing the low end of our EBITDA range.
Neither of these adjustments reflect a change in our underlying
current or future fiscal year growth expectations. Our guidance for
fiscal year 2015 is therefore as outlined below:
GAAP Non-GAAP
Millions or Percentages
Software License Revenue $132.0 to $139.0 $133.0 to $140.0
Total Revenues $314.0 to $321.0 $317.0 to $324.0
Adjusted EBITDA $42.0 to $48.0 $45.0 to $51.0
Effective Tax Rate 41.0% to 43.0% 33.0% to 35.0%
Thank You
Our performance is the direct result of the dedication and hard
work of our valued employees, indirect channel partners and
suppliers, and the continued support of our customers and
shareholders. I would like to once again use this opportunity to
sincerely thank all of these stakeholders for their on-going
contributions to our success.
Reynolds C. BishChief Executive OfficerJanuary 29, 2015
Chief Financial Officer's Review
With the exception of the section titled "Reconciliation of
Non-GAAP Measures", the Chief Financial Officer's Review refers to
our GAAP financial statements and measures for the three and six
months ended December 31, 2014 and 2013.
Revenue
Total revenues increased $5.7 million, or 7.7%, in the three
months ended December 31, 2014 compared to the three months ended
December 31, 2013 and increased $8.6 million, or 6.1%, for the six
months ended December 31, 2014 compared to the six months ended
December 31, 2013, reflecting growth across all geographies for
both the quarter and on a year to date basis.
The following tables present revenue by financial statement
line, as well as in total for each of our geographic regions:
Three Months Ended % of Total Revenue
December 31,
2014 2013 % Change 2014 2013
($ in thousands, except percentages)
Software $ 34,268 $ 30,385 12.8 % 42.9 % 41.0 %
license
Maintenance 35,323 33,556 5.3 % 44.3 % 45.3 %
services
Professional 10,223 10,173 0.5 % 12.8 % 13.7 %
services
Total $ 79,814 $ 74,114 7.7 % 100.0 % 100.0 %
revenues
Americas $ 44,007 $ 40,703 8.1 % 55.1 % 54.9 %
EMEA 29,726 28,427 4.6 % 37.3 % 38.4 %
Asia 6,081 4,984 22.0 % 7.6 % 6.7 %
Pacific
Total $ 79,814 $ 74,114 7.7 % 100.0 % 100.0 %
revenues
Six Months Ended % of Total Revenue
December 31,
2014 2013 % Change 2014 2013
($ in thousands, except percentages)
Software $ 58,972 $ 54,945 7.3 % 39.8 % 39.3 %
license
Maintenance 70,543 65,706 7.4 % 47.6 % 47.1 %
services
Professional 18,767 19,044 -1.5 % 12.6 % 13.6 %
services
Total $ 148,282 $ 139,695 6.1 % 100.0 % 100.0 %
revenues
Americas $ 82,930 $ 78,826 5.2 % 55.9 % 56.4 %
EMEA 54,341 51,587 5.3 % 36.7 % 36.9 %
Asia 11,011 9,282 18.6 % 7.4 % 6.7 %
Pacific
Total $ 148,282 $ 139,695 6.1 % 100.0 % 100.0 %
revenues
Software license revenue increased $3.9 million, or 12.8%, in
the three months ended December 31, 2014, due to a 182.1% increase
in our mobile and new or acquired products software license
revenue, including $2.0 million in license revenues from our
acquisition of Softpro, offset by a 20.6% decline in core capture
revenues. Software license revenue declined $1.2 million due to a
year-over-year change in currency exchange rates. Software license
revenue increased $0.8 million in the Americas, $2.4 million in
EMEA and $0.7 million in Asia Pacific.
Software license revenue increased $4.0 million, or 7.3%, in the
six months ended December 31, 2014, due to a 175.6% increase in our
mobile and new or acquired products software license revenue, which
was assisted by $2.6 million in license revenues from our
acquisition of Softpro, offset by a 22.4% decline in core capture
revenues. Software license revenue declined $1.0 million due to a
year-over-year change in currency exchange rates. Software license
revenue increased $0.6 million in the Americas, $2.5 million in
EMEA and $0.9 million in Asia Pacific.
Maintenance services revenue increased $1.8 million, or 5.3%, in
the three months ended December 31, 2014, due to an increase of
$1.7 million in the Americas, $0.1 million in Asia Pacific. Our
maintenance services revenue increased due primarily to continued
high maintenance contract renewal rates and higher installed
license base over the last year. Included in the increase in
maintenance revenue is $0.8 million from our Softpro acquisition.
Also, we experienced a $1.3 million decline in maintenance revenue
due to a year-over-year change in currency exchange rates.
Maintenance services revenue increased $4.8 million, or 7.4%, in
the six months ended December 31, 2014, due to an increase of $3.4
million in the Americas, $1.2 million in EMEA and $0.2 million in
Asia Pacific. Our maintenance services revenue increased due
primarily to continued high maintenance contract renewal rates and
higher installed license base over the last year. Included in the
increase in maintenance revenue is $1.1 million from our Softpro
acquisition. Also, we experienced a $1.2 million decline in
maintenance revenue due to a year-over-year change in currency
exchange rates.
Professional services revenue was flat in the three months ended
December 31, 2014, due to an increase of $0.3 million in Asia
Pacific, offset by a decrease of $0.3 million in EMEA. Professional
services revenue declined $0.3 million due to a year-over-year
change in currency exchange rates.
Professional services revenue decreased $0.3 million in the six
months ended December 31, 2014, due to a decrease of $0.3 million
in Americas, $0.6 million in EMEA, offset by an increase of $0.6
million in Asia Pacific. Professional services revenue declined
$0.3 million due to a year-over-year change in currency exchange
rates.
Costs and Expenses
Cost of Software Licenses
Cost of software licenses primarily consists of royalties to
third-party software developers that are included as original
equipment manufacturers (OEM) in our products as well as personnel
costs related to the distribution of our software licenses and
associated costs such as facilities and overhead charges.
The following table reflects cost of software license revenue,
in dollars and as a percentage of software license revenue:
Three Months Ended Change Six Months Ended Change
December 31, December 31,
2014 2013 $ % 2014 2013 $ %
(in thousands, except percentages)
Cost $ 2,275 $ 3,029 $ (754 ) -24.9 % $ 4,232 $ 5,685 $ (1,453 ) -25.6 %
of
software
licenses
% 6.6 % 10.0 % 7.2 % 10.3 %
of
software
license
revenue
Cost of software licenses decreased $0.8 million, or 24.9%, in
the three months ended December 31, 2014, and $1.5 million, or
25.6%, in the six months ended December 31, 2014, primarily due to
a change in product mix sold resulting in lower royalty expense.
Royalty costs vary by product and accordingly, the cost of software
licenses as a percentage of the software license revenue can
fluctuate based on the mix of software licenses sold.
Cost of Maintenance Services
Cost of maintenance services primarily consists of personnel
costs for our staff who respond to customer inquiries as well as
associated costs such as facilities and related overhead
charges.
The following table shows cost of maintenance services, in
dollars and as a percentage of maintenance services revenue:
Three Months Ended Change Six Months Ended Change
December 31, December 31,
2014 2013 $ % 2014 2013 $ %
(in thousands, except percentages)
Cost $ 5,380 $ 5,079 $ 301 5.9 % $ 10,397 $ 9,886 $ 511 5.2 %
of
maintenance
services
% 15.2 % 15.1 % 14.7 % 15.0 %
of
maintenance
services
revenue
Cost of maintenance services increased $0.3 million, or 5.9%, in
the three months ended December 31, 2014, primarily as a result of
our acquisition of Softpro. Cost of maintenance services increased
$0.5 million, or 5.2%, in the six months ended December 31, 2014,
primarily for the same reason.
Cost of Professional Services
Cost of professional services primarily consists of personnel
costs for our staff of consultants and trainers, other associated
costs such as facilities and related overhead charges, travel
related expenses and the cost of contractors, whom we engage from
time to time to assist us in delivering professional services. The
following table shows cost of professional services, in dollars and
as a percentage of professional services revenue:
Three Months Ended Change Six Months Ended Change
December 31, December 31,
2014 2013 $ % 2014 2013 $ %
(in thousands, except percentages)
Cost $ 7,807 $ 8,218 $ (411 ) -5.0 % $ 15,805 $ 15,847 $ (42 ) -0.3 %
of
professional
services
% 76.4 % 80.8 % 84.2 % 83.2 %
of
professional
services
revenue
Cost of professional services decreased $0.4 million, or 5.0%,
in the three months ended December 31, 2014, largely due to a
decrease in headcount. Cost of professional services was flat in
the six months ended December 31, 2014. Our gross margin on
professional services increased 4.4% in the three months ended
December 31, 2014 as we were better able to utilize our
professional services staff. Our gross margin on professional
services decreased 1.0% in the six months ended December 31, 2014
as we experienced lower utilization rates during the first quarter
of the fiscal year, offset by increased utilization in the current
quarter.
Research and Development
Research and development expenses consist primarily of personnel
costs incurred in connection with the design, development, testing
and documentation of our software products as well as associated
costs such as facilities and related overhead charges. Research and
development expenses are expensed as incurred.
The following table shows research and development expense, in
dollars and as a percentage of total revenue:
Three Months Ended Change Six Months Ended Change
December 31, December 31,
2014 2013 $ % 2014 2013 $ %
(in thousands, except percentages)
Research $ 9,848 $ 9,951 $ (103 ) -1.0 % $ 19,875 $ 19,028 $ 847 4.5 %
and
development
% 12.3 % 13.4 % 13.4 % 13.6 %
of
total
revenue
Research and development expenses decreased $0.1 million, or
1.0%, in the three months ended December 31, 2014, primarily due to
a decrease in share-based payment expense. Research and development
costs increased $0.8 million, or 4.5%, in the six months ended
December 31, 2014, due to an increase in compensation costs largely
associated with our acquisitions of Softpro and incremental
personnel to develop solutions based on Kofax TotalAgility in the
first quarter.
Sales and Marketing
Sales and marketing expenses consist primarily of personnel
costs related to our sales and marketing staff, travel costs, costs
for trade shows, advertising and other lead generating activities,
as well as associated costs such as facilities and overhead
charges.
The following table shows sales and marketing expense, in
dollars and as a percentage of total revenue:
Three Months Ended Change Six Months Ended Change
December 31, December 31,
2014 2013 $ % 2014 2013 $ %
(in thousands, except percentages)
Sales $ 32,107 $ 30,502 $ 1,605 5.3 % $ 64,187 $ 58,435 $ 5,752 9.8 %
and
marketing
% 40.2 % 41.2 % 43.3 % 41.8 %
of
total
revenue
Sales and marketing expenses increased $1.6 million, or 5.3%, in
the three months ended December 31, 2014 and increased $5.8
million, or 9.8%, in the six months ended December 31, 2014,
primarily due to an increase in compensation costs our increased
investment in growing the sales organization to support sales of
our mobile, new and acquired products and our acquisition of
Softpro.
General and Administrative
General and administrative expenses consist primarily of
personnel costs for our executive, finance, human resource and
legal functions, as well as associated costs such as facilities and
overhead charges. Also included in general and administrative
expenses are costs associated with legal, accounting, tax and
advisory fees.
The following table shows general and administrative expense, in
dollars and as a percentage of total revenue:
Three Months Ended Change Six Months Ended Change
December 31, December 31,
2014 2013 $ % 2014 2013 $ %
(in thousands, except percentages)
General $ 11,094 $ 9,695 $ 1,399 14.4 % $ 21,593 $ 19,134 $ 2,459 12.9 %
and
administrative
% 13.9 % 13.1 % 14.6 % 13.7 %
of total
revenue
General and administrative expenses increased $1.4 million, or
14.4%, in the three months ended December 31, 2014, due to
increased share-based payment expense and legal, accounting, and
tax fees, related to the changes in the Company's regulatory and
reporting requirements. General and administrative expenses
increased $2.5 million, or 12.9%, in the six months ended December
31, 2014, due to increased legal, accounting, and tax fees, related
to the changes in the Company's regulatory and reporting
requirements and increased share-based payment expense, primarily
driven by awards that were granted with higher fair values,
subsequent to the Company's initial public offering in the United
States.
Amortization of Acquired Intangible Assets
We amortize acquired intangible assets using the straight-line
method over the estimated useful life of the respective asset. Our
intangible assets include acquired contractual and customer
relationships, technology and trade names, each based on their fair
values ascribed in accounting for the initial business acquisition.
The following table shows expense related to the amortization of
acquired intangible assets, in dollars and as a percentage of total
revenue:
Three Months Ended Change Six Months Ended Change
December 31, December 31,
2014 2013 $ % 2014 2013 $ %
(in thousands, except percentages)
Amortization $ 2,819 $ 2,340 $ 479 20.5 % $ 5,248 $ 4,564 $ 684 15.0 %
of
acquired
intangible
assets
% 3.5 % 3.2 % 3.5 % 3.4 %
of total
revenue
Amortization of acquired intangible assets increased $0.5
million, or 20.5%, in the three months ended December 31, 2014 and
increased $0.7 million, or 15.0%, in the six months ended December
31, 2014, due to the acquisition of Softpro on September 1, 2014.
For the three months ended December 31, 2014, amortization of
technology related assets of $1.5 million was included in cost of
revenue with the remaining other intangible asset amortization of
$1.3 million included in operating expenses and for the six months
ended December 31, 2014, amortization of technology related assets
of $3.2 million was included in cost of revenue with the remaining
other intangible asset amortization of $2.0 million included in
operating expense.
Acquisition-related Costs
Acquisition-related costs include those costs related to
business and other acquisitions and consist of (i) costs directly
attributable to our acquisition strategy 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).
The following table shows acquisition-related costs, in dollars
and as a percentage of total revenue:
Three Months Ended Change Six Months Ended Change
December 31, December 31,
2014 2013 $ % 2014 2013 $ %
(in thousands, except percentages)
Acquisition $ 531 $ (2,208 ) $ 2,739 -124.0 % $ 2,249 $ (104 ) $ 2,353 -2,262.5 %
related
costs
% 0.7 % (3.0 )% 1.5 % (0.1 )%
of total
revenue
Acquisition-related costs increased $2.7 million, or 124.0%, to
$0.5 million in the three months ended December 31, 2014, due to a
$2.2 million decrease in the fair value of contingent consideration
related to the Singularity and Altosoft acquisitions in the three
months ended December 31, 2013.
Acquisition-related costs increased $2.4 million, or 2,262.5%,
to $2.2 million in the six months ended December 31, 2014, relating
primarily to due diligence and integration expenses related to the
acquisition of Softpro.
Other Operating Expenses, net
Other operating expenses, net consists of all income or expense
that is not directly attributable to one of our other operating
revenue or expense lines. The following table shows other operating
expenses, net in dollars and as a percentage of total revenue:
Three Months Ended Change Six Months Ended Change
December 31, December 31,
2014 2013 $ % 2014 2013 $ %
(in thousands, except percentages)
Other $ 159 $ 2,923 $ (2,764 ) -94.6 % $ 175 $ 3,234 $ (3,059 ) -94.6 %
operating
expenses,
net
% 0.2 % 3.9 % 0.1 % 2.3 %
of
total
revenue
Other operating expenses, net decreased $2.8 million, or 94.6%,
to $0.2 million in the three months ended December 31, 2014 and
decreased $3.1 million, or 94.6%, to $0.2 million primarily due to
a decrease in professional fees incurred for attorneys, accountants
and other advisors who assisted with the completion of the
Company's initial public offering in the United States, effective
December 5, 2013 and subsequent conversion from International
Financial Reporting Standards (IFRS) to Generally Accepted
Accounting Principles in the United States (GAAP).
Interest (Expense) Income, net
Interest (expense) income, net consists of interest associated
with our banking arrangements as well as interest accretion for
deferred acquisition payments. The following table shows interest
(expense) income, net in dollars and as a percentage of total
revenue:
Three Months Ended Change Six Months Ended Change
December 31, December 31,
2014 2013 $ % 2014 2013 $ %
(in thousands, except percentages)
Interest $ (145 ) $ (244 ) $ 99 -40.6 % $ (271 ) $ (354 ) $ 83 -23.4 %
(expense)
income,
net
% (0.2 )% (0.3 )% (0.2 )% (0.3 )%
of
total
revenue
Interest (expense) income, net decreased $0.1 million, or 40.6%,
in the three months ended December 31, 2014 and decreased $0.1
million, or 23.4%, in the six months ended December 31, 2014.
Other (Expense) Income, net
Other (expense) income, net consists primarily of foreign
exchange gains or losses related to our intercompany receivables
and payables, as well as fair value adjustments relating to forward
contracts or other financial instruments.
The following table shows other (expense) income, net, in
dollars and as a percentage of total revenue:
Three Months Ended Change Six Months Ended Change
December 31, December 31,
2014 2013 $ % 2014 2013 $ %
(in thousands, except percentages)
Other $ (463 ) $ (211 ) $ (252 ) 119.4 % $ 59 $ 3,950 $ (3,891 ) -98.5 %
(expense)
income,
net
% (0.6 )% (0.3 )% 0.0 % 2.8 %
of
total
revenue
Other (expense) income, net fluctuated in the three months and
six months ended December 31, 2014, due to management's efforts to
reduce foreign exchange exposure on intercompany balances and from
realized and unrealized gains on foreign currency forward
contracts.
Income tax expense
The following table shows income tax expense, in dollars and as
a percentage of income before tax:
Three Months Ended Change Six Months Ended Change
December 31, December 31,
2014 2013 $ % 2014 2013 $ %
(in thousands, except percentages)
Income $ 2,774 $ 2,655 $ 119 4.5 % $ 2,250 $ 3,385 $ (1,135 ) -33.5 %
tax
expense
Income $ 7,186 $ 4,130 $ 4,309 $ 7,582
before
tax
Effective 38.6 % 64.3 % 52.2 % 44.6 %
tax
rate
Income tax expense increased by $0.1 million, or 4.5%, to $2.8
million during the three months ended December 31, 2014. The
decrease in the effective income tax rate was primarily due to
certain jurisdictional profits being offset by previously
unrecognized losses and less nondeductible expenses during the
quarter. Income tax expense decreased by $1.1 million, or 33.5%, to
$2.3 million during the six months ended December 31, 2014. The
decrease in income tax expense was primarily due to a decrease in
income before tax as well as certain jurisdictional profits being
offset by previously unrecognized losses and incurring less
nondeductible expenses in the six months ended December 31,
2014.
Liquidity and Capital Resources
Historically, we have financed our business primarily through
our cash on hand and cash inflows from operations. We had $59.4
million of cash and cash equivalents at December 31, 2014, compared
to $89.6 million at June 30, 2014. The majority of our cash is held
in U.S. dollars, Euros and British Pounds. We have no outstanding
debt as of December 31, 2014.
The following table sets forth the summary of our cash
flows:
Three Months Ended Change
December 31,
2014 2013 $ %
($ in thousands, except percentages)
Cash
generated
from (used
in)
Operating $ 647 $ (564 ) $ 1,211 -214.7 %
activities
Investing (1,608 ) (2,011 ) 403 -20.0 %
activities
Financing 439 12,006 (11,567 ) -96.3 %
activities
Effect of (337 ) (197 ) (141 ) 71.6 %
exchange
rate
fluctuations
Net increase $ (859 ) $ 9,234 $ (10,093 ) -109.3 %
(decrease)
Six Months Ended Change
December 31,
2014 2013 $ %
($ in thousands, except percentages)
Cash
generated
from (used
in)
Operating $ 5,416 $ 17,618 $ (12,202 ) -69.3 %
activities
Investing (35,348 ) (43,193 ) 7,845 -18.2 %
activities
Financing 1,034 12,418 (11,384 ) -91.7 %
activities
Effect of (1,317 ) 977 (2,294 ) -234.8 %
exchange
rate
fluctuations
Net increase $ (30,215 ) $ (12,180 ) $ (18,035 ) -148.1 %
(decrease)
Operating Activities
Net cash generated from operating activities was $0.6 million in
the three months ended December 31, 2014, compared to net cash used
in operating activities of $0.6 million in the three months ended
December 31, 2013, an increase of $1.2 million. This increase in
cash inflows in the three months ended December 31, 2014, related
to increased net income and an additional $2.4 million in cash paid
for taxes during the three months ended December 31, 2013 offset by
$1.0 million of outflows related to working capital movements.
Net cash generated from operating activities was $5.4 million in
the six months ended December 31, 2014, compared to $17.6 million
in the six months ended December 31, 2013, a decrease of $12.2
million. This decrease was attributable primarily to the use of
cash for working capital in the six months ended December 31,
2013.
Investing Activities
Net cash used in investing activities was $1.6 million in the
three months ended December 31, 2014, compared to $2.0 million in
the three months ended December 30, 2013, due to a $0.4 million
reduction in payments for property and equipment in the three
months ended December 31, 2014.
Net cash used in investing activities was $35.3 million in the
six months ended December 31, 2014, compared to $43.2 million in
the three months ended December 30, 2013, representing a decreased
outflow of $7.9 million. The primary use of cash for investing
activities was associated with acquisitions. We paid $30.7 million
associated with the acquisition of Softpro in fiscal 2015 and $39.2
million in fiscal 2014 associated with the acquisition of Kapow,
representing a year over year decrease related to acquisitions of
$8.5 million. Additionally we had a $0.8 million reduction in the
purchases of property and equipment in the six months ended
December 31, 2014.
Financing Activities
Net cash generated from financing activities was $0.4 million in
the three months ended December 31, 2014, compared to $12.0 million
in the three months ended December 31, 2013. Net cash generated
from financing activities was $1.0 million in the six months ended
December 31, 2014, compared to $12.4 million in the six months
ended December 31, 2013. The decrease was mainly attributable to
the $12.4 million in cash received through the Company's December
5, 2013 initial public offering in the United States, partially
offset by net proceeds of employee benefit shares.
Exchange Rate Effects
We operate in many countries around the world, and maintain cash
balances in locations outside of the United States, in currencies
other than the U.S. dollar. In the three and six months ended
December 31, 2014 incremental changes in foreign exchange rates
resulted in an decrease of $0.1 million and $2.3 million, in cash
and cash equivalents, respectively. Cash and cash equivalents will
continue to fluctuate in the future, as foreign currency exchange
rates vary.
Treasury Management
On October 14, 2013, the Company extended the term of its $40.0
million revolving line of credit with Bank of America Merrill Lynch
to June 30, 2016. Subject to certain conditions, borrowings under
the credit facility can be denominated in U.S. dollars, Euros and
certain other currencies and can be made in the United States 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 December 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,
intra-company borrowings are arranged in the functional currencies
of the borrower to centralize the foreign exchange impact and
provide a natural hedge against exchange rate movement risks. The
Company hedges certain foreign currency cash and cash flows
relating to transactions in accordance with policies set by the
Board of Directors. Assessment of the credit risk profile of the
Company's key customers and resellers is centralized for increased
focus.
Reconciliation of Non-GAAP Measures
Non-GAAP Revenue - We defined Non-GAAP revenue as revenue, as
reported under GAAP, increased to include revenue that is
associated with our historic acquisitions that has been excluded
from reported results for a limited period due to the effects of
purchase accounting. In accordance with GAAP purchase accounting,
an acquired company's deferred revenue at the date of acquisition
is subject to a fair value adjustment which generally reduces the
deferred amount and revenues recognized subsequent to an
acquisition. We include Non-GAAP 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 nonrecurring, we may incur similar adjustments in
connection with future acquisitions. At times when we are
communicating with our shareholders, analysts and other parties we
refer to Non-GAAP Revenue as Adjusted Revenue. The tables below
provide a reconciliation of GAAP revenues to Non-GAAP revenues
related to all of our historic acquisitions:
Three Months Ended December 31, 2014 Three Months Ended December 31, 2013
GAAP Acquisition Non-GAAP GAAP Acquisition Non-GAAP
Revenues Fair Value Revenues Revenues Fair Value Revenues
Adjustment Adjustment
($ in thousands)
Software $ 34,268 $ 376 $ 34,644 $ 30,385 $ 2,187 $ 32,572
licenses
Maintenance 35,323 865 36,188 33,556 297 33,853
services
Professional 10,223 7 10,230 10,173 516 10,689
services
Total revenues $ 79,814 $ 1,248 $ 81,062 $ 74,114 $ 3,000 $ 77,114
Six Months Ended December 31, 2014 Six Months Ended December 31, 2013
GAAP Acquisition Non-GAAP GAAP Acquisition Non-GAAP
Revenues Fair Value Revenues Revenues Fair Value Revenues
Adjustment Adjustment
($ in thousands)
Software $ 58,972 $ 846 $ 59,818 $ 54,945 $ 3,702 $ 58,647
licenses
Maintenance 70,543 1,170 71,713 65,706 604 66,310
services
Professional 18,767 16 18,783 19,044 830 19,874
services
Total revenues $ 148,282 $ 2,032 $ 150,314 $ 139,695 $ 5,136 $ 144,831
Non-GAAP software license revenue increased $2.1 million, or
6.4%, in the three months ended December 31, 2014 and increased
$1.2 million, or 2.0%, in the six months ended December 31, 2014,
due to a significant increase in revenue from mobile and new or
acquired products offsetting a decline in core capture products.
Total acquisition fair value adjustments decreased $1.8 million for
the three months ended December 31, 2014 and decreased $3.1 million
for the six months ended December 31, 2014 as the result of
pre-acquisition deferred revenue balance from the acquisition of
Kapow being amortized and reduced over time, partially offset by
acquisition fair value adjustments from our acquisition of Softpro,
which had less of an impact in the current period.
Non-GAAP Income from Operations - We define Non-GAAP income from
operations as income/(loss) from operations, as reported under
GAAP, excluding the effect of Acquisition fair value adjustment to
revenue, Share-based compensation expense, Depreciation expense,
Amortization of acquired intangible assets, Acquisition-related
costs, and Other operating expense, net. Share-based compensation
expense, Depreciation expense and Amortization of acquired
intangible assets in our Non-GAAP 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
continuing operations of the acquired businesses and are generally
not relevant to assessing or estimating the long-term performance
of the acquired assets. Other operating expense, net represents
items that are not necessarily related to our recurring operations
and which therefore are not, under GAAP, included in other expense
lines. Accordingly, we exclude those amounts when assessing
Non-GAAP income from operations. At times when we are communicating
with our shareholders, financial analysts and other parties we
refer to Non-GAAP income from operations as adjusted EBITDA.
We assess Non-GAAP income from operations as a percentage of
total Non-GAAP revenue and by doing so we are able to evaluate the
relative performance of our revenue growth compared to the expense
growth for those items included in Non-GAAP 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 GAAP income
from operations to Non-GAAP income from operations and presents
Non-GAAP income from operations as a percentage of total Non-GAAP
revenues.
Three Months Ended December 31,
2014 2013
($ in thousands)
Income from operations $ 7,794 $ 4,585
Acquisition fair value 1,248 3,000
adjustment to revenue
Share-based payment expense 914 1,117
Depreciation and 896 1,288
amortization
expense
Amortization of acquired 2,819 2,340
intangible assets
Acquisition-related costs 531 (2,208 )
Other operating 159 2,923
expenses, net
Non-GAAP income from $ 14,361 $ 13,045
operations
Non-GAAP income from 17.7 % 16.9 %
operations as
a percentage of Non-GAAP
revenue
Six Months Ended December 31,
2014 2013
($ in thousands)
Income from operations $ 4,521 $ 3,986
Acquisition fair value 2,032 5,136
adjustment to revenue
Share-based payment expense 2,604 1,866
Depreciation and 1,867 2,671
amortization
expense
Amortization of acquired 5,248 4,564
intangible assets
Acquisition-related costs 2,249 (104 )
Other operating 175 3,234
expenses, net
Non-GAAP income from $ 18,696 $ 21,353
operations
Non-GAAP income from 12.4 % 14.7 %
operations as
a percentage of Non-GAAP
revenue
At times when we are communicating with our shareholders,
financial analysts and other parties, we refer to adjusted income
from operations as a percentage of revenues as EBITDA margin.
Non-GAAP Cash Flows from Operations - We define Non-GAAP cash
flows from operations as cash flows from operations as reported
under GAAP, adjusted for income taxes paid or received and payments
under restructurings. Income tax payments are included in this
reconciliation as the timing of cash payments and receipts can vary
significantly from year-to-year based on a number of factors,
including the influence of acquisitions on our consolidated tax
attributes. Payments for restructurings relate to a specific
activity that is not part of ongoing operations. At times when we
are communicating with our shareholders, financial analysts and
other parties we refer to Non-GAAP cash flows from operations as
Adjusted cash flows from operations.
The table below provides a reconciliation of GAAP cash flows
from operations to Non-GAAP cash flows from operations:
Three Months Ended December 31,
2014 2013
($ in thousands)
Cash flows from operations $ 647 $ (564 )
Income tax paid 811 3,568
Payments under restructuring - 488
Non-GAAP cash flows $ 1,458 $ 3,492
from operations
Six Months Ended December 31,
2014 2013
($ in thousands)
Cash flows from operations $ 5,416 $ 17,618
Income tax paid 2,134 4,870
Payments under restructuring - 588
Non-GAAP cash flows $ 7,550 $ 23,076
from operations
Non-GAAP cash flow from operations decreased $2.1 million to
$1.4 million in the three months ended December 31, 2014 and
decreased $15.6 million to $7.5 million in the six months ended
December 31, 2014, primarily attributable to decreased cash inflows
from the delivery of deferred revenue balances and decrease income
taxes paid as compared to the prior year.
Non-GAAP diluted earnings per share - Non-GAAP diluted earnings
per share is calculated using GAAP net income/(loss) excluding the
effect of Acquisition fair value adjustment to revenue, Share-based
compensation expense, Amortization of intangible assets,
Acquisition-related costs, Net Interest-Other Income and Expense,
and the related tax effect, divided by weighted average fully
diluted shares outstanding. Therefore, we include this non-GAAP
measure in order to provide a more complete comparison of our
earnings per share from one period to another. At times when we are
communicating with our shareholders, financial analysts and other
parties we refer to Non-GAAP diluted earnings per share as Adjusted
EPS.
Reconciliation of Non-GAAP Diluted Earnings Per Share
The tables below provide a reconciliation of our Non-GAAP
diluted earnings per share, and our associated Non-GAAP net
income:
Three Months Ended December 31,
2014 2013
($ in thousands, except per share amounts)
Net income $ 4,412 $ 1,475
Acquisition fair value 1,248 3,000
adjustment to revenue
Share-based payment 914 1,117
expense
Amortization of 2,819 2,340
intangible
assets
Acquisition-related 531 (2,208 )
costs
Net finance and 767 3,378
other expense
Tax effect of above (2,143 ) (1,721 )
Adjusted net income $ 8,548 $ 7,381
Non-GAAP diluted $ 0.09 $ 0.08
earnings
per share
Six Months Ended December 31,
2014 2013
($ in thousands, except per share amounts)
Net income $ 2,059 $ 4,197
Acquisition fair value 2,032 5,136
adjustment to revenue
Share-based payment 2,604 1,866
expense
Amortization of 5,248 4,564
intangible
assets
Acquisition-related 2,249 (104 )
costs
Net finance and other 387 (362 )
expense (income)
Tax effect of above (4,209 ) (3,837 )
Adjusted net income $ 10,370 $ 11,460
Non-GAAP diluted $ 0.11 $ 0.12
earnings
per share
Supplemental Information
Share based payment expense recognized by functional line in the
Consolidated Income Statements is as follows:
Three Months Ended December 31,
2014 2013
($ in thousands)
Cost of maintenance services $ 4 $ 17
Cost of professional (32 ) 16
services
Research and development 132 210
Sales and marketing 161 567
General and administrative 649 307
Total share-based $ 914 $ 1,117
payment expense
Six Months Ended December 31,
2014 2013
($ in thousands)
Cost of maintenance services $ 37 $ 31
Cost of professional (7 ) 41
services
Research and development 417 350
Sales and marketing 1,056 937
General and administrative 1,101 507
Total share-based $ 2,604 $ 1,866
payment expense
Depreciation and amortization expense recognized by functional
line in the Consolidated Income Statements is as follows:
Three Months Ended December 31,
2014 2013
($ in thousands)
Cost of software licenses $ 3 $ 8
Cost of maintenance services 87 117
Cost of professional services 117 193
Research and development 275 399
Sales and marketing 294 392
General and administrative 120 179
Total depreciation and $ 896 $ 1,288
amortization expense
Six Months Ended December 31,
2014 2013
($ in thousands)
Cost of software licenses $ 6 $ 22
Cost of maintenance services 177 247
Cost of professional services 248 413
Research and development 573 809
Sales and marketing 610 802
General and administrative 253 378
Total depreciation and $ 1,867 $ 2,671
amortization expense
Business Risks and Uncertainties
For the three and six months ended December 31, 2014, there have
been no material changes to the risk factors as presented in our
Form 20-F filed on September 2, 2014 with the U.S. Securities and
Exchange Commission.
James Arnold, Jr.Chief Financial OfficerJanuary 29, 2015
KOFAX LIMITED
UNAUDITED
CONDENSED
CONSOLIDATED
STATEMENTS
OF INCOME
(in thousands,
except
per share
amounts)
Three Months Ended December 31, Six Months Ended December 31,
2014 2013 2014 2013
Revenue:
Software $ 34,268 $ 30,385 $ 58,972 $ 54,945
licenses
Maintenance 35,323 33,556 70,543 65,706
services
Professional 10,223 10,173 18,767 19,044
services
Total revenues 79,814 74,114 148,282 139,695
Cost
of revenue:
Cost 2,275 3,029 4,232 5,685
of software
licenses
Cost 5,380 5,079 10,397 9,886
of maintenance
services
Cost 7,807 8,218 15,805 15,847
of
professional
services
Amortization 1,531 1,447 3,229 2,911
of
intangible
assets
Total cost of 16,993 17,773 33,663 34,329
revenues
Gross profit 62,821 56,341 114,619 105,366
Operating
expenses:
Research and 9,848 9,951 19,875 19,028
development
Sales 32,107 30,502 64,187 58,435
and marketing
General 11,094 9,695 21,593 19,134
and
administrative
Amortization 1,288 893 2,019 1,653
of
intangible
assets
Acquisition-related 531 (2,208 ) 2,249 (104 )
costs
Other 159 2,923 175 3,234
operating
expenses
Total 55,027 51,756 110,098 101,380
operating
expenses
Income from 7,794 4,585 4,521 3,986
operations
Interest (145 ) (244 ) (271 ) (354 )
expense,
net
Other (463 ) (211 ) 59 3,950
(expense)
income, net
Income 7,186 4,130 4,309 7,582
from
operations,
before tax
Income tax 2,774 2,655 2,250 3,385
expense
Net income $ 4,412 $ 1,475 $ 2,059 $ 4,197
Net income
per share:
Basic $ 0.05 $ 0.02 $ 0.02 $ 0.05
Diluted $ 0.05 $ 0.02 $ 0.02 $ 0.05
Weighted
average
shares
outstanding:
Basic 88,916 88,877 88,829 88,855
Diluted 92,147 92,368 92,779 92,313
KOFAX LIMITED
UNAUDITED
CONDENSED
CONSOLIDATED
STATEMENTS
OF
COMPREHENSIVE
INCOME
(in thousands)
Three Months Ended Six Months Ended
December 31, December 31,
2014 2013 2014 2013
Net income $ 4,412 $ 1,475 $ 2,059 $ 4,197
Other
comprehensive
(loss) income:
Foreign (3,785 ) (1,683 ) (8,853 ) (594 )
currency
translation
adjustments,
net of tax
Foreign (654 ) (141 ) (1,950 ) (310 )
currency
transaction
losses
related
to intercompany
transactions of
a long-term
investment
nature, net
of tax
Pension (1,749 ) 339 (1,795 ) 279
adjustments,
net of tax
Total (6,188 ) (1,485 ) (12,598 ) (625 )
other
comprehensive
loss, net
of tax
Comprehensive $ (1,776 ) $ (10 ) $ (10,539 ) $ 3,572
(loss)
income
KOFAX LIMITED
UNAUDITED CONDENSED CONSOLIDATED
BALANCE SHEETS
(in thousands)
December 31, June 30,
2014 2014
Assets
Current assets:
Cash and cash equivalents $ 59,416 $ 89,631
Accounts receivable, net of allowances 59,345 58,392
of $1,959 and $881, respectively
Other current assets 9,304 9,690
Income tax receivable 7,258 7,209
Deferred tax assets 4,772 3,502
Total current assets 140,095 168,424
Property and equipment, net 6,266 6,753
Goodwill 199,774 186,103
Acquired intangible assets, net 47,207 36,085
Deferred tax assets, net 3,464 1,877
of current portion
Other non-current assets 2,594 4,105
Total assets $ 399,400 $ 403,347
Liabilities and shareholders' equity
Current liabilities:
Accounts payable and accrued expenses $ 36,631 $ 37,445
Deferred revenue 72,701 78,497
Income taxes payable 2,955 1,101
Deferred tax liabilities 584 217
Contingent acquisition payables 5,420 4,775
Total current liabilities 118,291 122,035
Minimum pension liability 5,143 4,078
Deferred revenue, net 8,295 8,079
of current portion
Deferred tax liabilities, 8,738 3,243
net of current portion
Contingent acquisition payables, 2,867 3,927
net of current portion
Other non-current liabilities 8,419 7,519
Total liabilities 151,753 148,881
Commitments and contingencies (Note 9)
Shareholders' equity:
Common stock 98 97
Additional paid in capital 63,983 60,695
Employee benefit shares (17,776 ) (18,207 )
Treasury shares (15,980 ) (15,980 )
Retained earnings 209,200 207,141
Accumulated other comprehensive income 8,122 20,720
Total shareholders' equity 247,647 254,466
Total liabilities and $ 399,400 $ 403,347
shareholders' equity
KOFAX
LIMITED
UNAUDITED
CONDENSED
CONSOLIDATED
STATEMENTS
OF
CHANGES
IN
EQUITY
(in
thousands)
Common Stock Additional Employee Benefit Trust Treasury Shares Retained Accumulated Total Equity
Paid in Earnings Other
Capital Comprehensive
Income
Shares Amount Shares Amount Shares Amount
As of 94,706 $ 95 $ 42,045 4,639 $ (15,295 ) 5,068 $ (15,980 ) $ 195,664 $ 23,662 $ 230,191
June
30, 2013
Net - - - - - - - 4,197 - 4,197
income
Other - - - - - - - - (625 ) (625 )
comprehensive
loss,
net
of tax
Excess - - 327 - - - - - - 327
tax
benefit
on
share-based
compensation
Share-based - - 1,866 - - - - - - 1,866
compensation
expense
Changes - - (63 ) (110 ) (418 ) - - - - (481 )
in
employee
benefit
shares
Proceeds 2,300 2 12,364 - - - - - - 12,366
from
initial
public
offering
in the
United
States
Issuance 115 - 205 - - - - - - 205
of
common
shares
under
employee
stock
option
and
LTIP
plans
As 97,121 97 56,744 4,529 (15,713 ) 5,068 (15,980 ) 199,861 23,037 248,046
of
December
31, 2013
Net - - - - - - - 7,280 - 7,280
income
Other - - - - - - - - (2,317 ) (2,317 )
comprehensive
loss,
net
of tax
Excess - - 625 - - - - - - 625
tax
benefit
on
share-based
compensation
Share-based - - 3,001 - - - - - - 3,001
compensation
expense
Changes - - (105 ) 99 (2,494 ) - - - - (2,599 )
in
employee
benefit
shares
Issuance 97 - 430 - - - - - - 430
of
common
shares
under
employee
stock
option
and
LTIP
plans
As of 97,218 97 60,695 4,628 (18,207 ) 5,068 (15,980 ) 207,141 20,720 254,466
June
30, 2014
Net - - - - - - - 2,059 - 2,059
income
Other - - - - - - - - (12,598 ) (12,598 )
comprehensive
loss,
net
of tax
Excess - - 449 - - - - - - 449
tax
benefit
on
share-based
compensation
Share-based - - 2,604 - - - - - - 2,604
compensation
expense
Changes - - 82 (230 ) 431 - - - - 513
in
employee
benefit
shares
Issuance 46 1 153 - - - - - - 154
of
common
shares
under
employee
stock
option
and
LTIP
plans
As 97,264 $ 98 $ 63,983 4,398 $ (17,776 ) 5,068 $ (15,980 ) $ 209,200 $ 8,122 $ 247,647
of
December
31, 2014
KOFAX LIMITED
UNAUDITED CONDENSED
CONSOLIDATED
STATEMENTS OF CASH FLOW
(in thousands)
Six Months Ended December 31,
2014 2013
Cash flows from operating
activities:
Net income $ 2,059 $ 4,197
Adjustments to reconcile
net income
to net cash flows
from operating
activities:
Depreciation and amortization 7,114 7,287
Share-based compensation 2,604 1,866
expense
Other expense (59 ) (3,950 )
Restructuring payments - (588 )
Changes in operating assets
and liabilities:
Accounts receivable, net (2,352 ) 3,507
Other assets 2,959 924
Accounts and other payables (562 ) (5,509 )
Deferred revenue (4,571 ) 9,801
Other liabilities (16 ) (763 )
Deferred income taxes (3,618 ) (951 )
Income taxes payable 1,858 1,797
Net cash inflow from 5,416 17,618
operating activities
Cash flows from investing
activities:
Purchase of property (1,434 ) (2,177 )
and equipment
Acquisitions of subsidiaries, (34,022 ) (41,085 )
net of cash acquired
Disposal of property 24 -
and equipment
Interest received 84 69
Net cash used in investing (35,348 ) (43,193 )
activities
Cash flows from financing
activities:
Issue of common stock 154 325
Excess tax benefits 449 208
on share-based
compensation
Proceeds from initial - 12,366
public offering
in the United States
Proceeds from EBT shares, net 431 (481 )
Net cash inflow from 1,034 12,418
financing activities
Effect of exchange (1,317 ) 977
rate changes
on cash and cash equivalents
Net decrease in cash (30,215 ) (12,180 )
and cash equivalents
Cash and cash equivalents at 89,631 93,413
the beginning of the year
Cash and cash equivalents $ 59,416 $ 81,233
at the end of the year
Supplemental cash
flow disclosure:
Cash paid for income $ 2,134 $ 4,870
taxes, net
Cash paid for interest $ 43 $ 275
Note 1: Basis of presentation
In the opinion of management, the accompanying unaudited
condensed consolidated financial statements contain all adjustments
necessary (consisting only of normal recurring accruals) to present
fairly the financial information contained therein. These
statements do not include all disclosures required by accounting
principles generally accepted in the United States (GAAP) for
annual periods and should be read in conjunction with the Company's
audited consolidated financial statements and related notes for the
year ended June 30, 2014. The Company prepared the unaudited
condensed consolidated financial statements following the
requirements of the U.S. Securities and Exchange Commission for
interim reporting and in accordance with the Disclosure and
Transparency Rules of the Financial Services Authority. As
permitted under those rules, certain footnotes or other financial
information that are normally required by GAAP can be condensed or
omitted. The results of operations for the three and six month
periods ended December 31, 2014 are not necessarily indicative of
the results to be expected for the year ending June 30, 2015 or any
other period.
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.
New Accounting Standards Not Yet Adopted
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts
with Customers, issued as a new topic, ASC 606. The new revenue
recognition standard provides a five-step analysis of transactions
to determine when and how revenue is recognized. The core principle
of the guidance is that a Company should recognize revenue to
depict the transfer of promised goods or services to customers in
an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods or services. The
new standard will also result in enhanced disclosures about
revenue, providing guidance for transactions that were not
previously addressed comprehensively, and improve guidance for
multiple-element arrangements. This ASU is effective for us
beginning in fiscal 2018 and can be adopted by the Company either
retrospectively or as a cumulative-effect adjustment as of the date
of adoption. We are currently evaluating the effect that adopting
this new accounting guidance will have on our consolidated
financial statements.
Note 2: Acquisitions
Acquisition of Softpro GmbH
On September 1, 2014, Kofax acquired 100% of the shares of
Softpro GmbH (Softpro), a company incorporated in Germany,
specializing in e-signature and signature verification solutions.
The Company believes Softpro's software will accelerate Kofax's
ability to improve customer interactions by enabling organizations
to offer a streamlined, fully digital and secure experience to
their constituents and transform customer workflow to an
all-electronic process, accelerating closure in any type of
transaction that requires a contract. Additionally, Softpro
provides a full suite of banking solutions including signature
verification, authentication and fraud detection. These
capabilities, offered both on premise and in the cloud, further
differentiate Kofax's smart process application (SPA) offering from
competitors who do not offer these capabilities. The acquisition
was accounted for using the acquisition method.
The unaudited condensed consolidated financial statements
include the results of Softpro during the four month period from
the acquisition date. The preliminary fair value of the
identifiable assets and liabilities of Softpro, at the acquisition
date, are as follows:
September 1, 2014
($ in thousands)
Current assets:
Cash and cash equivalents 506
Trade receivables 1,698
Other current assets 1,085
Total current assets 3,289
Other non-current assets 13
Property and equipment 206
Technology-intangible 10,100
Customer relationships-intangible 6,500
Non-compete-intangible 1,400
In-process R&D-intangible 400
Trade names-intangibles 200
Total assets 22,108
Current liabilities
Trade and other payables 114
Other current liabilities 512
Income tax payable 1,109
Deferred tax liability 669
Deferred income 1,820
Total current liabilities 4,224
Deferred tax liabilities 6,029
Total liabilities 10,253
Net assets acquired 11,855
Consideration paid in cash at time of closing 31,200
Deferred consideration 3,292
Total consideration 34,492
Goodwill arising from acquisition 22,637
The preliminary goodwill of $22.6 million includes the value of
acquired technologies, and expected synergies arising from the
acquisition and workforce, which is not separately recognizable.
None of the goodwill is expected to be deductible for tax
purposes.
From the date of acquisition, Softpro has contributed $3.8
million of revenues and $1.5 million of net loss to consolidated
results of operations of Kofax. If the combination had taken place
at the beginning of the fiscal year, revenues from Softpro's
operations would have been approximately $2.5 million higher and
the net income would have decreased by approximately $0.1 million
and Kofax's total revenue would have been $148.3 million and net
income $5.2 million.
Note 3: Operating Segments
The Company operates in one reportable business segment, the
software business. All products and services are considered one
solution to customers and are operated and analyzed under one
income statement provided to and evaluated by the chief operating
decision maker (CODM). The CODM manages the business based on the
key measures for resource allocation, based on a single set of
financial data that encompasses the Company's entire operations for
purposes of making operating decisions and assessing financial
performance. The Company's CODM is the Chief Executive Officer.
Geographic Information
The following revenue information is based on the location of
the customer:
Three Months Ended December 31,
2014 2013
($ in thousands)
Americas $ 44,007 $ 40,703
EMEA 29,726 28,427
Asia Pacific 6,081 4,984
$ 79,814 $ 74,114
Six Months Ended December 31,
2014 2013
($ in thousands)
Americas $ 82,930 $ 78,826
EMEA 54,341 51,587
Asia Pacific 11,011 9,282
$ 148,282 $ 139,695
The following table presents non-current assets by geographic
location:
December 31, 2014 June 30, 2014
($ in thousands)
Americas $ 5,227 $ 6,234
EMEA 2,795 3,770
Asia Pacific 838 854
$ 8,860 $ 10,858
Non-current assets for this purpose consist of property and
equipment, and other non-current assets - excluding acquired
intangible assets, goodwill and deferred tax assets.
Note 4: Intangibles and Goodwill
Intangibles
Intangible assets consist of the following as of December 31,
2014 and June 30, 2014, respectively:
December 31, 2014
Gross Accumulated Net Weighted
Carrying Amortization Carrying Average Life
Amount Amount (Years)
($ in thousands)
Customer $ 29,050 $ (17,274 ) $ 11,776 5.1
relationships
Technology 66,242 (33,410 ) 32,832 7.5
and
patents
Trade 1,454 (1,013 ) 441 3.8
names,
trademarks
and other
Backlog 300 (300 ) - 3.0
Non-competition 1,590 (419 ) 1,171 2.8
agreements
In process 1,069 (82 ) 987 8.3
research
and
development
Total $ 99,705 $ (52,498 ) $ 47,207 6.7
June 30, 2014
Gross Accumulated Net Weighted
Carrying Amortization Carrying Average Life
Amount Amount (Years)
($ in thousands)
Customer $ 23,272 $ (16,055 ) $ 7,217 5.1
relationships
Technology 58,230 (30,568 ) 27,662 7.0
and
patents
Trade 1,334 (881 ) 453 3.6
names,
trademarks
and other
Backlog 300 (300 ) - 3.0
Non-competition 300 (200 ) 100 2.0
agreements
In process 700 (47 ) 653 10.0
research
and
development
Total $ 84,136 $ (48,051 ) $ 36,085 6.5
Intangible assets, such as contractual relationships and
technology, are amortized over their expected useful lives on a
straight-line basis. Amortization of these intangibles is included
in either cost of revenue or operating expenses based on the
function of the intangible asset. Amortization expense for
intangible assets was $5.2 million and $4.7 million for the six
months ended December 31, 2014 and 2013, respectively.
Goodwill
The changes in the carrying amount of goodwill for our
reportable segment as of December 31, 2014 were as follows:
December 31, 2014
($ in thousands)
Goodwill as of June 30, 2014 $ 186,103
Acquisitions 22,637
Foreign exchange translation effects (8,966 )
Goodwill as of December 31, 2014 $ 199,774
Note 5: Income Taxes
During the three months ended December 31, 2014, the effective
tax rate of 38.60% is above the United Kingdom (U.K.) statutory
rate of 20.75%, due to the level of taxable profit attributable to
the United States (U.S.), which has a federal tax rate of 35%. The
year to date effective tax rate of 52.22% is above the U.K.
statutory rate of 20.75%, due to significant acquisition expenses
which allow for no tax deduction, unrecognized losses and U.S.
profits (which is the Company's primary operating jurisdiction)
being tax effected at the higher U.S. tax rate.
The timing and outcome of our tax audit settlements is
uncertain, however it is reasonably possible that a reduction of
uncertain tax benefits may occur due to audit settlements and/or
expiration of statutes of limitations. The settlement of these
unrecognized tax benefits could result in a reduction in the tax
charge of between zero and $1.1 million within the next twelve
months.
Note 6: Earnings per share
The following table presents a reconciliation of basic and
diluted shares for the three months and six months ended December
31, 2014 and 2013:
Three Months Ended Six Months Ended
December 31, December 31,
2014 2013 2014 2013
(shares in thousands)
Basic weighted-average 88,916 88,877 88,829 88,855
number
of common shares
outstanding
Dilutive effect 3,231 3,491 3,950 3,458
of potential
common shares
Diluted weighted-average 92,147 92,368 92,779 92,313
common and potential
common shares
outstanding
Note 7: Fair Value Measures
The Company measures fair value based on the prices that would
be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement
date. Fair value measurements are based on a three-tier hierarchy
that prioritizes the inputs used to measure fair value. These tiers
include: Level 1, defined as observable inputs such as quoted
prices in active markets; Level 2, defined as inputs other than
quoted prices in active markets that are either directly or
indirectly observable; and Level 3, defined as unobservable inputs
for which little or no market data exists, therefore requiring an
entity to develop its own assumptions. The fair value of foreign
currency forward contracts is established based on market value
advice received by management from the issuing bank.
December 31, 2014
Total Level 1 Level 2 Level 3
($ in thousands)
Assets measured at fair value
Cash and cash equivalents 59,416 59,416 - -
Foreign exchange 69 - 69 -
derivative asset
Total assets measured 59,485 59,416 69 -
at fair value
Liabilities measured
at fair value
Contingent acquisition payable 8,287 - - 8,287
Total liabilities measured 8,287 - - 8,287
at fair value
June 30, 2014
Total Level 1 Level 2 Level 3
($ in thousands)
Assets measured at fair value
Cash and cash equivalents 89,631 89,631 - -
Foreign exchange 58 - 58 -
derivative asset
Total assets measured 89,689 89,631 58 -
at fair value
Liabilities measured
at fair value
Contingent acquisition payable 8,702 - - 8,702
Total liabilities measured 8,702 - - 8,702
at fair value
Foreign currency derivative instruments are valued using quoted
forward foreign exchange prices and option volatility at the
reporting date. The Company believes the fair values assigned to
its derivative instruments as of December 31, 2014 are based upon
reasonable estimates and assumptions. Contingent acquisition
payables represent future amounts the Company may be required to
pay in conjunction with various business combinations. The ultimate
amount of future payments is based on specified future criteria,
such as sales performance and the achievement of certain future
development, regulatory and sales milestones and other contractual
performance conditions. The Company evaluates its estimates of the
fair value of contingent acquisition payables on a periodic basis.
Any changes in the fair value of contingent acquisition payables
are recorded as acquisition-related costs in the Unaudited
Condensed Consolidated Income Statements.
During the reporting period ended December 31, 2014, there were
no transfers between Level 1 and Level 2 fair value measurements. A
rollforward of fair value measurements of level 3 financial
instruments is disclosed below:
December 31, 2014
($ in thousands)
As of June 30, 2014 $ 8,702
Fair value of contingent consideration 3,421
from acquisition
Contingent consideration payments (3,856 )
Change in fair value of contingent 88
consideration
Foreign exchange translation effects (68 )
As of December 31, 2014 $ 8,287
For the six month period ended December 31, 2014, deferred
consideration of $3.3 million was recorded from the acquisition of
Softpro in September 2014 and $1.0 million was paid in December
2014 with $1.2 million to be paid in September 2015 and $1.2
million to be paid in September 2016, subject to certain
indemnification terms and conditions.
Cash payments related to contingent consideration of $3.9
million were made during the six months ended December 31, 2014,
primarily due to a $2.2 million payment for the second installment
of deferred consideration from the acquisition of Kapow, a $0.5
million payment for retention bonuses from the acquisition of
Kapow, and a $1.0 million payment from the acquisition of Softpro,
as discussed previously above.
Note 8: Share-Based Compensation
We recognize share-based compensation expense over the requisite
service period. Our share-based awards are accounted for as equity
instruments. Share-based compensation included in the unaudited
condensed consolidated income statements are as follows:
Three Months Ended December 31,
2014 2013
($ in thousands)
Cost of maintenance services $ 4 $ 17
Cost of professional services (32 ) 16
Research and development 132 210
Sales and marketing 161 567
General and administrative 649 307
Total share-based compensation $ 914 $ 1,117
expense
Six Months Ended December 31,
2014 2013
($ in thousands)
Cost of maintenance services $ 37 $ 31
Cost of professional services (7 ) 41
Research and development 417 350
Sales and marketing 1,056 937
General and administrative 1,101 507
Total share-based compensation $ 2,604 $ 1,866
expense
Stock options
The Company has an incentive award plan that provides for the
granting of non-qualified stock options and incentive stock options
to officers, key employees and non-employee directors.
Stock option grants to officers and key employees under the
incentive award plan are generally granted at an exercise price
equal to the fair market value at the date of grant, generally
expire ten years after their original date of grant and generally
become vested and exercisable after four years at a rate of 25% per
year beginning twelve months after the date of grant and 6.25%
vesting every three months thereafter.
The fair value of share options granted is estimated at the date
of the grant using the Black-Scholes pricing model, taking into
account the terms and conditions upon which the share options were
granted.
The table below summarizes activity relating to stock options
for the six months ended December 31, 2014:
Number of shares
(shares in thousands)
Options outstanding at July 1, 2014 4,946
Granted 93
Exercised (151 )
Forfeited/expired (20 )
Options outstanding at December 31, 2014 4,868
Options exercisable at December 31, 2014 4,047
Long Term Incentive Plan (LTIP)
The table below summarizes activity relating to LTIP awards for
the six months ended December 31, 2014:
Number of underlying LTIP shares -
Contingent awards
(shares in thousands)
LTIP's outstanding 4,207
at July 1, 2014
Granted 1,103
Earned/released (127 )
Forfeited/cancelled (275 )
LTIP's outstanding at 4,908
December 31, 2014
Note 9: Commitments and contingencies
Litigation and other claims
The Company is subject to legal proceedings, lawsuits and other
claims relating to labor, service and other matters arising in the
ordinary course of business. Management judgment is required in
deciding the amount and timing of the accrual of certain
contingencies. Depending on the timing of when conditions or
situations arise, a contingency becoming probable and estimable is
not necessarily determinable. The amount of the contingency may
change in the future as incremental knowledge, factors or other
matters change or become known. There are no material pending or
threatened lawsuits against the Company.
Guarantees and other
The Company includes indemnification provisions in the contracts
it enters into with customers and business partners. Generally,
these provisions require us to defend claims arising out of the
Company's products' infringement of third-party intellectual
property rights, breach of contractual obligations and/or unlawful
or otherwise culpable conduct. The indemnity obligations generally
cover damages, costs and attorneys' fees arising out of such
claims. In most, but not all cases, the Company's total liability
under such provisions is limited to either the value of the
contract or a specified, agreed upon amount. In some cases our
total liability under such provisions is unlimited. In many, but
not all, cases, the term of the indemnity provision is perpetual.
While the maximum potential amount of future payments we could be
required to make under all the indemnification provisions is
unlimited, we believe the estimated fair value of these provisions
is de-minimis due to the low frequency with which these provisions
have been triggered.
The Company indemnifies its directors and officers to the
fullest extent permitted by law. These agreements, among other
things, indemnify directors and officers for expenses, judgments,
fines, penalties and settlement amounts incurred by such persons in
their capacity as a director or officer of the Company, regardless
of whether the individual is serving in any such capacity at the
time the liability or expense is incurred. Additionally, in
connection with certain acquisitions we have agreed to indemnify
the former officers and members of the boards of directors of those
companies, on similar terms as described above, for a period of six
years from the acquisition date. In certain cases we purchase
director and officer insurance policies related to these
obligations, which fully cover the six year periods. To the extent
that we do not purchase a director and officer insurance policy for
the full period of any contractual indemnification, we would be
required to pay for costs incurred, if any, as described above.
RESPONSIBILITY STATEMENT OF THE EXECUTIVE DIRECTORS IN RESPECT
OF THE INTERIM FINANCIAL STATEMENTS
We confirm that to the best of our knowledge:
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. BishChief Executive OfficerJanuary 29, 2015
James Arnold, Jr.Chief Financial OfficerJanuary 29, 2015
Media Contact:Kofax LimitedColleen EdwardsVice President,
Corporate Communications+1 (949)
783-1582colleen.edwards@kofax.comorInvestor Contacts:MKR Group
Inc.Todd Kehrli+1 (323) 468-2300kfx@mkr-group.comorFTI
ConsultingChris Lane+44 (0) 20 3727 1000kofax@fticonsulting.com
This information is provided by Business Wire
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