Kofax Reports Financial Results for Its Second Quarter and Six Months Ended December 31, 2012
Kofax Reports Financial Results for Its Second Quarter and Six Months Ended
December 31, 2012
Business Wire
IRVINE, Calif. -- February 11, 2013
Kofax plc (LSE: KFX), a leading provider of smart process applications for the
business critical First Mile™ of customer interactions, today reported its
unaudited financial results for the quarter and six months ended December 31,
2012.
Second Quarter and Six Month Financial Highlights:
* Total revenue for the quarter declined 9.0% to $63.7 million (Prior Year:
$70.0 million) and 8.2% in constant currency (CC), and for the six months
declined 3.6% to $123.8 million (Prior Year: $128.5 million) or 1.6% in CC
* Software license revenue for the quarter decreased 24.8% to $25.0 million
(Prior Year: $33.3 million) or 24.0% in CC, and for the six months
decreased 18.0% to $47.1 million (Prior Year: $57.5 million) or 16.6% in
CC
* Income from operations for the quarter decreased 38.3% to $3.8 million
(Prior Year: $6.2 million), and for the six months decreased 51.9% to $3.9
million (Prior Year: $8.0 million)
* Adjusted income from operations^1 (Adjusted EBITDA) for the quarter
decreased 39.7% to $9.9 million (Prior Year: $16.4 million), or a 15.5%
margin (Prior Year: 23.5%), and for the six months decreased 29.0% to
$16.1 million (Prior Year: $22.6 million), or a 13.0% margin (Prior Year:
17.6%)
* Adjusted diluted EPS^2 for the quarter was $0.06 (Prior Year: $0.11), and
for the six months was $0.10 (Prior Year: $0.15)
* Adjusted cash generated from operations for the quarter increased to $3.6
million (Prior Year: $2.4 million), and for the six months increased to
$14.9 million (Prior Year: $2.0 million)
* Quarter end cash increased to $87.0 million (Prior Year: $62.3 million)
Second Quarter Operating Highlights:
* Announced the availability of Kofax Mobile Capture™ for Mortgage App,
which allows lenders to bring the loan application process directly to
borrowers at the Point of Origination™ by leveraging mobile devices to
dramatically accelerate loan processing and improve the customer
experience
* Kofax Web Capture received the Editor’s Choice Award and Kofax’s
implementation at Exmoor National Park was named Government Project of the
Year at the 2012 Document Manager Awards hosted by DM Magazine
* Commissioned a market assessment by Forrester, a leading global research
and advisory firm, which concluded that the market for Kofax’s software
and maintenance services at the end user level was $7.1 billion in 2012
and forecast to grow at an 18% compound annual growth rate to $14.0
billion in 2016, and the findings of the research validated the market
expansion and growth opportunities resulting from the Company’s
acquisition and new product development strategies
A summary of Kofax’s revenues and adjusted EBITDA for the second quarter and
six months ended December 31, 2012 compared to the prior year periods is as
follows:
Quarter Six Months
Unaudited Y/Y In Y/Y In
$ M Change CC $ M Change CC
Software 25.0 -24.8 % -24.0 % 47.1 -18.0 % -16.6 %
Licenses
Maintenance 30.8 4.6 % 5.4 % 60.7 6.3 % 9.1 %
Services
Professional 7.9 8.1 % 8.4 % 16.0 14.8 % 16.5 %
Services
Total 63.7 -9.0 % -8.2 % 123.8 -3.6 % -1.6 %
Revenue
Adjusted 9.9 -39.7 % 16.1 -29.0 %
EBITDA
Adjusted
EBITDA 15.5 % -33.8 % 13.0 % -26.3 %
Margin
Commenting on these results, Reynolds C. Bish, chief executive officer, said:
“Our second quarter software license revenue was lower than anticipated,
principally due to a mid seven figure sale in EMEA slipping, which we now
expect to close in a future quarter. Software license revenue in the Americas
was also lower than expected as we implemented significant changes in our
sales organization to improve its focus, execution and productivity. The
overall decline in software license revenue occurred in our legacy capture
products. We’re pleased to report that our new mobile capture product revenue
is growing faster than we expected and product revenues from the Singularity
and Atalasoft acquisitions grew more than 100% in both as reported and
constant currency during this last half year. We’re also pleased with the high
level of cash generated from operations and our cash of $87.0 million at
quarter end.”
Bish continued: “In line with our expectations, global macroeconomic
conditions continue to be unpredictable and the recessionary environments
evident in many Western European countries have not improved. However, because
the growth in our professional services revenue is lower than we had
previously expected – as a result of the mix of our software license revenue
and relatively more indirect than direct sales, with our channel partners
often providing these services – and the lower than expected software license
revenue in Q2, we are therefore taking a conservative view and lowering our
guidance for fiscal year 2013 to no to low single digit growth in total
revenue on a constant currency basis and an adjusted EBITDA of approximately
10% less than that reported in fiscal year 2012.”
Bish concluded: “Our new product development and acquisition strategies,
coupled with the changes we’ve effected in our sales organization, position us
to take advantage of the market expansion and growth opportunities validated
in Forrester’s market assessment. As a result, we believe we are now at a
turning point and should begin to once again report software license and total
revenue growth.”
Webcast
Reynolds C. Bish and chief financial officer Jamie Arnold will present and
review the results and conduct a question and answer session in the London
offices of FTI Consulting on February 11 at 8:00 a.m. UK time / 3:00 a.m.
Eastern Time in the US. The event will be webcast live and can be accessed as
follows:
Live Call Access Code
U.K. +44 (0)20 7784 1036 8511545
U.S. (646) 254-3366 8511545
Participants are advised to dial in 15 minutes before the call in order to
register in time for the start of the presentation.
The live webcast can be accessed through the investor relations section of the
Company website. A replay of the webcast will be available on the investor
relations section of the Company website by 1:00 p.m. UK time / 8:00 a.m.
Eastern Time in the US on February 11. These can be accessed at
www.kofax.com/ir/presentations.asp.
About Kofax
Kofax plc (LSE: KFX) is a leading provider of innovative smart capture and
process automation software and solutions for the business critical First Mile
of customer interactions. These begin with an organization’s Systems of
Engagement, which generate real time, information intensive communications
from customers, and provide a fluid bridge to their Systems of Record, which
are typically large scale, rigid enterprise applications and repositories not
easily adapted to more contemporary technology. Success in the First Mile can
dramatically improve an organization’s customer experience and greatly reduce
operating costs, thus driving increased competitiveness, growth and
profitability. Kofax software and solutions provide a rapid return on
investment to more than 20,000 customers in banking, insurance, government,
healthcare, business process outsourcing and other markets. Kofax delivers
these through its own sales and service organization, and a global network of
more than 800 authorized partners in more than 75 countries throughout the
Americas, EMEA and Asia Pacific. For more information, visit kofax.com.
1. Adjusted income from operations (Adjusted EBITDA) is IFRS based income from
operations excluding the effects of share-based payment expense, depreciation
expense, amortization of acquired intangible assets, acquisition related
costs, restructuring costs and other operating expense, net.
2. Adjusted diluted EPS is calculated using adjusted income from operations
(Adjusted EBITDA) reduced by depreciation and income taxes and the fully
diluted shares outstanding.
© 2012 Kofax, plc. “Kofax” is a registered trademark in the US, the EU and
other regions, and “First Mile”, “Kofax Mobile Capture” and “Point of
Origination” are trademarks of Kofax, plc. All other trademarks are the
property of their respective owners.
Chief Executive Officer’s Review
Financial Highlights
Total revenue for the six months declined 3.6% to $123.8 million or 1.6% in
constant currency. This was driven by seasonally weak software license revenue
during our first quarter and disappointing software license revenue during the
second quarter, principally due to a mid seven figure sale in EMEA slipping,
which we now expect to close in a future quarter. During the second quarter,
software license revenue in the Americas was also lower than expected as we
implemented significant changes in our sales organization to improve its
focus, execution and productivity.
The overall decline in software license revenue occurred in our legacy capture
products. We’re pleased to report that our new mobile capture product revenue
is growing faster than we expected and product revenues from the Singularity
and Atalasoft acquisitions grew more than 100% in both as reported and
constant currency during the last half year.
During that same period, maintenance and professional services revenues grew
and offset much of the decline in software license revenue. However, the
growth in our professional services revenue is lower than we had previously
expected as a result of the mix of our software license revenue and relatively
more indirect than direct sales, with our channel partners often providing
these services.
Consistent with the decline in software license revenue and more indirect than
direct sales, during the six months we closed fewer six and seven figure
sales, with only six greater than $500,000, down from 14 in the prior year
period, and one greater than $1 million, down from five.
Adjusted income from operations (Adjusted EBITDA) for the six months decreased
29.0% to $16.1 million, or a 13.0% margin, as a result of the decline in
software license revenue, and adjusted diluted EPS for the six months was
$0.10.
We’re pleased with the high level of adjusted cash generated from operations
for the six months of $14.9 million, compared to only $2.0 million in the
prior year period, and the quarter end cash of $87.0 million, compared to only
$62.3 million one year ago.
Operating Highlights
Our investments in research and development have continued to improve and add
to our software product offerings in order to better serve the needs of our
customers and help grow our revenue. During the six months we successfully
launched:
* A free Kofax Mobile Capture app through the iTunes App Store and Google
Play for demonstration and use with business cards, receipts and other
documents
* Kofax Mobile Capture™ for Mortgage App, which allows lenders to bring the
loan application process directly to borrowers at the Point of
Origination™ by leveraging mobile devices to dramatically accelerate loan
processing and improve the customer experience
This continues to exemplify how we are prudently reallocating our research and
development expenditures to better focus on mobile capture in order to expand
our vision well beyond the traditional capture market and access additional
growth opportunities. The importance of mobile capture was recently reinforced
by The Association for Information and Image Management (AIIM) in a report
entitled “Distributed and Mobile Capture – Moving the Process Closer to the
Customer,” which contained the results of a survey revealing that mobile
capture is considered a "Game Changer" for customer focused initiatives.
We were also pleased to receive continuing recognition for our software
products and market presence:
* Kofax Web Capture™ was named to KMWorld Magazine’s prestigious listing of
“Trend Setting Products of 2012”
* Kofax Web Capture received the Editor’s Choice Award and Kofax’s
implementation at Exmoor National Park was named Government Project of the
Year at the 2012 Document Manager Awards hosted by DM Magazine
* I was honored at the 2012 British American Business Awards for leadership
in the Southern California business community
* Kofax was added to the FTSE4Good Index Series, a family of share indexes
for companies meeting globally recognized corporate responsibility
standards
Perhaps most importantly, during the period we commissioned a market
assessment by Forrester, a leading global research and advisory firm, which
concluded that the market for Kofax’s software and maintenance services at the
end user level totaled $7.1 billion in 2012 and is forecast to increase at an
18% compound annual growth rate (CAGR) to $14.0 billion in 2016. This is
composed of the capture, business process management (BPM) and information
intensive vertical smart process applications (SPAs) segments:
Segment 2012 2016 CAGR
Capture $2.1B $2.5B 4.5%
BPM $4.4B $7.6B 14.6%
Vertical SPAs $0.6B $3.9B 59.7%
Total $7.1B $14.0B 18.5%
The findings of this research also validated the market expansion and growth
opportunities resulting from Kofax’s acquisition and new product development
strategies, reinforcing our belief that we are uniquely positioned to succeed
in each of these three segments:
* The assessment concluded that Kofax had a number one, leading 15% share of
the capture market, and in Forrester’s recently published first “Wave” for
Multichannel Capture, Kofax was shown as a “Leader” and number one in all
three categories used for the ranking
* In the BPM market segment our TotalAgility product is considered to be
“Visionary” in Gartner’s “Magic Quadrant” for BPM and a “Leader” in
Forrester’s “Wave” for Dynamic Case Management
* Our vertical smart process applications strategy – first initiated almost
12 months ago – is focused on leveraging our capture, business process
management, dynamic case management and mobile capabilities to provide
packaged solutions for information intensive customer engagement needs
across many of our existing vertical markets
No one else has the comprehensive product set needed to effectively automate
and simplify the business critical “First Mile” of customer interactions and
thereby optimize their experience and greatly reduced operating costs. Our
solutions provide a fluid bridge between an organization’s constantly evolving
“Systems of Engagement” and typically rigid, large scale “Systems of Record,”
which are enterprise applications and repositories that cannot easily adapt to
more contemporary needs such as the explosion in mobile devices. Our solutions
capture and streamline the flow of business critical information throughout an
organization in a more accurate, timely and cost effective manner, enabling
our users to be more responsive to their customers and better grow their
businesses. We have a proven track record of providing these solutions with an
installed base of over 20,000 active end user customers, and we have the
vertical market expertise and global hybrid go-to-market model and reach
needed to penetrate a broad spectrum of the market. As a result, we are
enthusiastic and confident about our future prospects.
Guidance for the Fiscal Year Ending June 30, 2013
In line with our expectations, global macroeconomic conditions continue to be
unpredictable and the recessionary environments evident in many Western
European countries have not improved. However, because the growth in our
professional services revenue is lower than we had previously expected – as a
result of the mix of our software license revenue and relatively more indirect
than direct sales, with our channel partners often providing these services –
and the lower than expected software license revenue in Q2, we are therefore
taking a conservative view and lowering our guidance for fiscal year 2013 to
no to low single digit growth in total revenue on a constant currency basis
and an adjusted EBITDA of approximately 10% less than that reported in fiscal
year 2012.
Our new product development and acquisition strategies, coupled with the
changes we’ve effected in our sales organization to improve its focus,
execution and productivity, position us to take advantage of the market
expansion and growth opportunities validated in Forrester’s market assessment.
As a result, we believe we are now at a turning point and should begin to once
again report software license and total revenue growth.
Thank You
Our performance is the direct result of the dedication and hard work of our
valued employees, channel partners and suppliers, and the continued support of
our customers and shareholders. I would like to once again thank these
stakeholders for their on-going contributions to our success.
Reynolds C. Bish
Chief Executive Officer
February 11, 2013
Chief Financial Officer’s Review
Revenue
Total revenue decreased $4.7 million, or 3.6%, in the six months ended
December 31, 2012 compared to the six months ended December 31, 2011 due to an
$11.2 million, or 8.8% decrease in core capture revenue partially offset by a
$6.6 million increase associated with our acquisition of Singularity. The
decrease in core capture revenue resulted from a $12.0 million decrease in
software license revenue, a $0.8 million decrease in professional services
revenue and a $1.6 million increase in maintenance services revenue.
The following table presents the revenue by geography in dollars and as a
percentage of total revenue.
Six Months Ended December 31, % of Total Revenue
2011 2012 % 2011 2012
Change
(in thousands, except percentages)
Revenue
by
Geography
Americas $ 70,652 $ 67,109 (5.0 )% 55.0 % 54.2 %
EMEA 49,013 47,683 (2.7 )% 38.1 % 38.5 %
Asia 8,855 9,047 2.2 % 6.9 % 7.3 %
Pacific
Total $ 128,520 $ 123,839 (3.6 %) 100.0 % 100.0 %
revenue
Software license revenue decreased $10.4 million, or 18.0%, in the six months
ended December 31, 2012, due to a $12.0 million, or 21.1%, decrease in core
capture software license revenue partially offset by a $1.7 million increase
associated with our acquisition of Singularity. Core capture software license
revenue declined in all geographies due to a combination of sales execution
issues and continued economic weakness in EMEA. Software license revenue, as a
percentage of total revenue, decreased 6.7% in the six months ended December
31, 2012, due to the weakness in license sales compared to the relatively
stable maintenance services revenue and the growth in professional services
revenue.
Maintenance services revenue increased $3.6 million, or 6.3%, in the six
months ended December 31, 2012 due to a $1.6 million, or 2.8%, increase in
core capture maintenance services and a $2.0 million increase associated with
our acquisition of Singularity. Our core capture maintenance services revenue,
on a constant currency basis, increased in each of our geographies due
primarily to high maintenance contract renewal rates as well as the expansion
of our user base.
Professional services revenue increased $2.1 million, or 14.8%, in the six
months ended December 31, 2012 due to a $2.9 million increase associated with
our acquisition of Singularity, partially offset by an $0.8 million, or 6.1%,
decrease in our core capture professional services. Core capture professional
services revenue was relatively flat in EMEA and declined in the Americas and
Asia Pacific (AP). Many, but not all, of our professional services engagements
are associated with new software license sales, with the timing of revenue
recognition of our professional services often lagging that of our software
license revenue. Accordingly, the decrease in our core capture professional
services in the Americas and AP has followed the relative pattern of the
decrease in our software license revenue.
Costs and Expenses
Cost of Software Licenses
Cost of software licenses primarily consists of royalties to third-party
software developers as well as personnel costs related to the distribution of
our software licenses. The following table reflects cost of software license
revenue, in dollars and as a percentage of software license revenue:
Six Months Ended December 31,
2011 2012 $ Change % Change
(in thousands, except
percentages)
Cost of
software $ 5,260 $ 4,726 $ (534 ) (10.2 )%
licenses
As a
percentage
of software 9.1 % 10.0 %
license
revenue
Cost of software licenses decreased by $0.5 million, or 10.2%, in the six
months ended December 31, 2012, which is generally in line with the decrease
in our software license revenue. Royalty costs vary by product, as applicable,
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:
Six Months Ended December 31,
2011 2012 $ Change %
Change
(in thousands, except
percentages)
Cost of
maintenance $ 8,082 $ 8,763 $ 681 8.4 %
services
As a
percentage of
maintenance 14.2 % 14.4 %
services
revenue
Cost of maintenance services increased $0.7 million, or 8.4%, in the six
months ended December 31, 2012 due to $0.4 million of costs associated with
our acquisition of Singularity, as well as to our core capture costs having
increased by $0.3 million, or 3.7%, which was in line with the growth of core
capture maintenance services revenue.
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:
Six Months Ended December 31,
2011 2012 $ %
Change Change
(in thousands, except
percentages)
Cost of
professional $ 12,103 $ 14,130 $ 2,027 16.7 %
services
As a
percentage of
professional 86.8 % 88.3 %
services
revenue
Cost of professional services increased $2.0 million, or 16.7%, in the six
months ended December 31, 2012 due to $2.6 million of costs associated with
our acquisition of Singularity partially offset by a $0.6 million decrease in
our core capture cost of professional services. Our gross margin on
professional services decreased from 13.2% in the six months ended December
31, 2011 to 11.7% in the six months ended December 31, 2012 as we were not
able to deploy our resources as efficiently because the professional services
revenue has not increased as fast as we expected.
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 associated costs such as facilities and
related overhead charges. Our research and development expenses have been
expensed as incurred. The following table shows research and development
expense, in dollars and as a percentage of total revenue:
Six Months Ended December 31,
2011 2012 $ %
Change Change
(in thousands, except
percentages)
Research and
development $ 16,532 $ 16,904 $ 372 2.3 %
expense
As a
percentage of 12.9 % 13.6 %
total revenue
Research and development expenses increased $0.4 million, or 2.3%, in the six
months ended December 31, 2012 due to $1.7 million of costs associated with
our acquisition of Singularity partially offset by a $1.3 million, or 8.3%,
decrease in core capture research and development expenses. The decrease in
core capture research and development expenses is due to our strategy of
moving the development of certain of our more mature products to offshore
sites with lower labor costs so that we can better focus on expanding our
products beyond the traditional capture market.
Sales and Marketing
Sales and marketing expenses consist primarily of personnel costs related to
our sales and marketing staff, costs for trade shows, advertising and other
lead generating activities, as well as associated costs such as facilities and
related overhead charges. The following table shows sales and marketing
expense, in dollars and as a percentage of total revenue:
Six Months Ended December 31,
2011 2012 $ Change %
Change
(in thousands, except
percentages)
Sales and
marketing $ 48,647 $ 48,205 $ (442 ) (0.9 )%
expense
As a
percentage 37.9 % 38.9 %
of total
revenue
Sales and marketing expenses remained relatively flat in the six months ended
December 31, 2012 as we integrated Singularity sales and marketing operations
into our core capture operations while achieving savings from effecting
efficiencies in our sales and marketing operations.
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 related 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:
Six Months Ended December
31,
2011 2012 $ Change %
Change
(in thousands, except
percentages)
General and
administrative $ 20,641 $ 19,235 $ (1,406 ) (6.8 )%
expense
As a
percentage of 16.1 % 15.5 %
total revenue
General and administrative expenses decreased $1.4 million, or 6.8%, in the
six months ended December 31, 2012, due to a $1.8 million decrease in our core
capture costs partially offset by $0.4 million of costs associated with our
acquisition of Singularity. The decrease in our core capture costs is due to a
$1.4 million decrease in legal, accounting and tax fees and a $0.6 million
decrease in share-based payment expense.
Amortization of Acquired Intangible Assets - We amortize acquired intangible
assets using the straight-line method over the estimated useful life of the
respective asset. Amortization of acquired intangible assets increased $1.3
million, or 69.3%, to $3.2 million in the six months ended December 31, 2012,
primarily due to $1.6 million of amortization of acquired intangible assets
arising from our acquisition of Singularity.
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 and (ii) transition compensation costs.
Acquisition-related costs increased $1.2 million, or 65.9%, to $2.9 million in
the six months ended December 31, 2012 due to a $2.5 million increase in
transition compensation costs in connection with our acquisition of
Singularity partially offset by a $1.3 million decrease in direct acquisition
costs. During the six months ended December 31, 2011 we incurred direct
acquisition costs associated with our evaluation and due diligence associated
with the business process management software market, which ultimately led to
our acquisition of Singularity in December 2011.
Restructuring Costs – Restructuring costs decreased $4.7 million, or 100%, as
there were no restructuring charges in the six months ended December 31, 2012.
In the six months ended December 31, 2011, due to a weak economic environment
in EMEA, we recorded a $4.7 million charge for staff redundancy payments
associated with headcount reductions of approximately 60 personnel and future
payments for excess unused facility leases in EMEA.
Other Operating Expense, net - Other operating expense, net consists of all
income or expense that is not directly attributable to one of our other
operating revenue or expense lines. Other operating expenses, net increased
$1.1 million, or 133.6% to $1.9 million in the six months ended December 31,
2012 primarily due to professional fees incurred for attorneys, accountants
and other advisors associated with the preliminary work needed for us to
affect an initial public offering (IPO) in the United States.
Finance Income (Expense), net - Finance income (expense), net consists
primarily of foreign exchange gains or losses related to our receivables and
payables (including non-functional currency denominated intercompany
transactions), to fair value adjustments relating to forward contracts or
other financial instruments and to a lesser extent to interest income
(expense). Finance Income (expense), net changed from a net income of $3.5
million to an expense of $1.8 million during the six months ended December 31,
2012, as the U.S. dollar weakened against each of the British pound, the euro
and the Swiss franc while during the six months ended December 31, 2011, the
U.S. dollar strengthened against each of those currencies.
Tax - Income tax expense decreased by $1.9 million, or 44%, to $2.4 million
while the Effective Tax Rate (income tax expense as a percentage of income
from continuing operations) increased 80 points to 117.8% in the period ended
December 31, 2012. These movements are a function of the relatively
disproportionate effect of significant expenses that are not deductible for
tax purposes, coupled with lower profit from continuing operations. The
Adjusted Effective Tax Rate increased by 1 point to 32.6% for the six months
ended December 31, 2012 due to impact of elements of the tax charge relative
to the relatively lower income from continuing operations.
Loss from Discontinued Operations, net of tax - On May 31, 2011, we completed
the sale of our hardware business. In six months ended December 31, 2011, we
recorded associated expense of $0.6 million, which included transaction fees,
legal fees, asset values, and other administrative and transition costs. We
had no such costs in the six months ended December 31, 2012.
Liquidity and Capital Resources
Historically, we have financed our business primarily through our cash flows
from operations. We had $87.0 million of cash and cash equivalents at December
31, 2012, compared to $81.1 million at June 30, 2012 and $62.3 million at
December 31, 2011. The majority of our cash is held in US dollars, euros and
to a lesser extent, British pounds. We had no outstanding debt as of December
31, 2012. We have a revolving credit facility that provides for borrowings of
up to $40.0 million and matures on June 30, 2014. As of December 31, 2012, we
had $39.6 million available under this revolving credit facility.
Adjusted cash flow from operations increased $12.9 million to $14.9 million in
the six months ended December 31, 2012, which reflects the return to a more
normalized cash conversion ratio.
Net cash generated by operating activities increased $8.6 million to $9.2
million in the six months ended December 31, 2012 due to increased cash flows
from the collection of accounts receivable offset by use of cash for a
reduction in accounts payable and deferred revenue, and increased tax
payments.
Net cash used in investing activities was $5.0 million primarily due to $4.5
million deferred and contingent payments associated with our December 2011
acquisition of Singularity and our May 2011 acquisition of Atalasoft. Net cash
used in investing activities was $31.0 million in the six months ended
December 31, 2011, primarily relating to our acquisition of Singularity which
used $28.5 million in cash, and to a lesser extent relating to contingent
payments in connection with our acquisition of Atalasoft.
Net cash generated from financing activities was $0.6 million in the six
months ended December 31, 2012, compared to a use of $0.3 million in the six
months ended December 31, 2011. The difference of $0.9 relates to an
incremental $1.6 million inflow related to share capital issuances as a result
of employee exercises of stock options, offset in part by a purchase of $1.0
million of our ordinary shares from the open market for our Employee Benefit
Trust.
The Company has significant overseas subsidiaries, which operate principally
in their local currencies. Where appropriate, intra group borrowings are
arranged in local currencies to provide a natural hedge against exchange rate
movement risks.
The Company hedges certain net foreign currency cash and cash flows relating
to transactions in accordance with policies set by the Board.
Reconciliation of Non IFRS Measures
Management uses several financial measures, both IFRS and non-IFRS, in
analyzing and assessing the overall performance of the business and for making
operational decisions. We believe that these non-IFRS measures are also useful
to investors and other users of our financial statements in evaluating our
performance because these non-IFRS financial measures may be used as
additional tools to compare business performance across peer companies and
periods and financial markets.
While we use non-IFRS measures as a tool to enhance our understanding of
certain aspects of our financial performance, we do not believe that these
non-IFRS measures are a substitute for, or are superior to, the information
provided by IFRS results. As such, the presentation of non-IFRS measures is
not intended to be considered in isolation or as a substitute for any measure
prepared in accordance with IFRS. The primary limitations associated with the
use of non-IFRS measures as compared to IFRS results are that non-IFRS
measures may not be comparable to similarly titled measures used by other
companies in our industry and that non-IFRS measures may exclude financial
information that some investors may consider important in evaluating our
performance. We compensate for these limitations by providing disclosure of
the differences between non-IFRS measures and IFRS results, including
providing a reconciliation of each non-IFRS measure to IFRS results, in order
to enable investors to perform their own analysis of our operating results.
Adjusted Income from Operations - We define adjusted income from operations as
income from operations excluding the effect of share-based payment expense,
depreciation expense, amortization of acquired intangible assets,
acquisition-related costs, restructuring costs and other operating expense,
net. Share-based payment expense, depreciation expense and amortization of
acquired intangible assets in our adjusted 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. Restructuring costs are not
considered in assessing our performance as we have not historically incurred
such costs for our continuing operations. Other operating expense, net
represents items that are not necessarily related to our recurring operations
and which therefore are not, under IFRS, included in other expense lines.
Accordingly, we exclude those amounts when assessing adjusted income from
operations. At times when we are communicating with our shareholders, analysts
and other parties we refer to adjusted income from operations as EBITDA.
We assess adjusted income from operations as a percentage of total 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 adjusted
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 table below provides a
reconciliation of IFRS income from operations to adjusted income from
operations and presents adjusted income from operations as a percentage of
total revenue:
Six Months Ended December 31,
2011 2012
$ in thousands
Income from operations, before income $ 11,513 $ 2,071
taxes
Share-based payment expense 2,179 1,191
Depreciation and amortization expense 3,186 3,048
Amortization of acquired intangible assets 1,905 3,226
Acquisition-related costs, excluding 1,774 2,943
share-based payment expense
Restructuring costs 4,776 -
Other operating expense, net 795 1,857
Finance income and expense, net (3,508 ) 1,779
Adjusted income from operations $ 22,620 $ 16,115
Adjusted income from operations as a 17.6 % 13.0 %
percentage of total revenue
Adjusted Cash Flows from Operations - We define “adjusted cash flows from
operations” as cash flows from operations as reported under IFRS, adjusted for
income taxes paid or received and payments under restructurings. Income tax
payments paid is included in this reconciliation as the timing of cash
payments and receipts can vary significantly from year-to-year based on a
number of factors, including the influence of acquisitions on our consolidated
tax attributes. Payments for restructurings relate to a specific activity that
is not part of ongoing operations. The table below provides a reconciliation
of IFRS cash flows from operations to adjusted cash flows from operations:
Six Months Ended December 31,
2011 2012
$ in thousands
Cash flows from operations $ 688 $ 9,205
Income tax payments / paid 284 4,778
Payments under restructurings 991 867
Adjusted cash flows from operations $ 1,963 $ 14,850
Adjusted diluted earnings per share - Adjusted diluted EPS is calculated using
adjusted income from operations (Adjusted EBITDA) reduced by depreciation and
income taxes and fully diluted shares outstanding.
Reconciliation of December December December December
adjusted 31, 31, 31, 31,
income from 2012 2012 2011 2011
operations
EPS in $ $‘000 EPS in $ $‘000
(Loss)/ income from
continuing $ (0.00 ) $ (369 ) $ 0.08 $ 7,155
operations, after
income taxes
Share-based payment 0.01 1,191 0.03 2,179
expense
Amortization of 0.04 3,226 0.02 1,905
intangible assets
Acquisition-related 0.03 2,943 0.02 1,774
costs
Restructuring costs - - 0.05 4,776
Net finance income
and expense and 0.04 3,636 (0.03 ) (2,713 )
other income and
expenses
Tax effect of above (0.02 ) (1,823 ) (0.02 ) (1,798 )
Adjusted income $ 0.10 $ 8,804 $ 0.15 $ 13,278
from operations
Going Concern
Our financial statements have been prepared on the basis that the Group is a
going concern. In connection with this presentation, the Board has reviewed
the Group's forecasts and budgets, borrowing facilities, plans and various
other analyses to determine the level of uncertainties of the business. The
use of the going concern basis of accounting is appropriate because there are
no material uncertainties relating to events or conditions that may cast
significant doubt about the ability of the Group to continue as a going
concern.
Principal Risks and Uncertainties
The principal risks and uncertainties facing the Company were disclosed on
pages 11 and 12 of the Company’s 2012 Annual Report. The Chief Executive
Officer’s Review includes an update on key risks in the second half of the
current fiscal year.
Unaudited Condensed Consolidated Income Statements
$’000 Six months ended Six months ended
December 31, December 31, 2011
2012
Software licenses 47,149 57,518
Maintenance services 60,680 57,061
Professional services 16,010 13,941
Total Revenue (Note 2) 123,839 128,520
Cost of software licenses 4,726 5,260
Cost of maintenance services 8,763 8,082
Cost of professional services 14,130 12,103
Research and development 16,904 16,532
Sales and marketing 48,205 48,647
General and administrative 19,235 20,641
Amortization of acquired 3,226 1,905
intangible assets
Acquisition-related costs 2,943 1,774
Restructuring costs (Note 6) - 4,776
Other operating expenses, net 1,857 795
Operating costs and expenses 119,989 120,515
(Note 3)
Income from operations 3,850 8,005
Finance income 116 3,807
Finance expense (1,895 ) (299 )
Income from continuing 2,071 11,513
operations, before income taxes
Income tax expense (Note 4) 2,440 4,358
(Loss)/ income from continuing (369 ) 7,155
operations, after income taxes
Discontinued operations
Loss from discontinued - (639 )
operations, after income taxes
(Loss)/ income for the period
attributable to Equity holders (369 ) 6,516
of the Parent
Earnings per share (Note 5)
> basic ($0.00 ) $ 0.08
> diluted ($0.00 ) $ 0.07
Earnings per share from
continuing operations
> basic ($0.00 ) $ 0.08
> diluted ($0.00 ) $ 0.08
Unaudited Condensed Consolidated Statements of Comprehensive Income
$’000 Six months ended Six months ended
December 31, 2012 December 31, 2011
(Loss)/ income for the period
attributable to Equity holders (369 ) 6,516
of the Parent
Other comprehensive
income/(loss)
Items that may be subsequently
reclassified to profit or loss
Exchange gains/(losses)
arising on translation of 4,106 (11,121 )
foreign operations
Income tax relating to items 22 69
that may be reclassified
Items that will not be
reclassified to profit or loss
Actuarial gains on defined 252 -
benefit pension plans
Income tax effects relating to
items that will not be (40 )
reclassified
Other comprehensive
income/(loss) for the period, 4,340 (11,052 )
net of tax
Total comprehensive income/
(loss) for the period, net of 3,971 (4,536 )
tax, attributable to Equity
holders of the Parent
Unaudited Condensed Consolidated Statements of Financial Position
$‘000 At December 31, 2012 At June 30, 2012
Non-current assets
Intangible assets 178,472 179,358
Property, plant and 5,084 5,571
equipment
Deferred tax assets 11,585 10,363
Other non-current assets 4,822 5,285
Total non-current assets 199,963 200,577
Current assets
Inventories 1,955 1,542
Trade receivables, net 48,438 59,521
Other current assets 12,038 10,151
Current tax assets 810 4,864
Cash and cash equivalents 87,031 81,122
Total current assets 150,272 157,200
Total assets 350,235 357,777
Current liabilities
Trade and other payables 29,771 33,820
Deferred income – current 57,219 58,508
Current tax liabilities 6,876 12,255
Provisions – current (Note 8,103 9,609
6)
Total current liabilities 101,969 114,192
Non-current liabilities
Employee benefits 2,185 2,259
Deferred income – 4,585 5,078
non-current
Deferred tax liabilities 13,081 14,112
Provisions – non-current 2,997 4,196
(Note 6)
Total non-current 22,848 25,645
liabilities
Total liabilities 124,817 139,837
Net assets 225,418 217,940
Capital and reserves
Share capital 4,289 4,264
Share premium account 14,680 12,921
Employee Share Option Plan
(ESOP)/ Employee Benefit (18,339 ) (17,386 )
Trust (EBT) shares
Treasury shares (15,980 ) (15,980 )
Merger reserve 2,835 2,835
Retained earnings 219,103 216,585
Currency translation 18,830 14,701
adjustment
Shareholders’ equity 225,418 217,940
Total equity 225,418 217,940
Unaudited Condensed Consolidated Statements of Changes in Equity
$’000 Share Share ESOP/ EBT Treasury Merger Retained Currency Total
capital premium shares shares reserve earnings translation equity
account adjustment
At July 1, 4,240 11,538 (14,518 ) (15,980 ) 2,835 197,979 27,586 213,680
2011
Profit for - - - - - 6,516 - 6,516
the period
Other
comprehensive - - - - - - (11,052 ) (11,052 )
income, net
of tax
Total
comprehensive - - - - - 6,516 (11,052 ) (4,536 )
income for
the period
Tax on equity - - - - - (3,111 ) - (3,111 )
awards
Share-based
payment - - - - - 2,164 - 2,164
expense
Changes in
ESOP/ EBT - - - - - - - -
shares
New share
capital 6 168 - - - - - 174
issued
At December 4,246 11,706 (14,518 ) (15,980 ) 2,835 203,548 16,534 208,371
31, 2011
Profit for - - - - - 9,508 - 9,508
the period
Other
comprehensive - - - - - 987 (1,833 ) (846 )
income, net
of tax
Total
comprehensive - - - - - 10,495 (1,833 ) 8,662
income for
the period
Tax on equity - - - - - 833 - 833
awards
Share-based
payment - - - - - 1,709 - 1,709
expense
Changes in
ESOP/ EBT - - (2,868 ) - - - - (2,868 )
shares
New share
capital 18 1,215 - - - - - 1,233
issued
At June 30, 4,264 12,921 (17,386 ) (15,980 ) 2,835 216,585 14,701 217,940
2012
Profit for - - - - - (369 ) - (369 )
the period
Other
comprehensive - - - - - 211 4,129 4,340
income, net
of tax
Total
comprehensive - - - - - (158 ) 4,129 3,971
income for
the period
Tax on equity - - - - - 1,173 - 1,173
awards
Share-based
payment - - - - - 1,503 - 1,503
expense
Changes in
ESOP/ EBT - - (953 ) - - - - (953 )
shares
New share
capital 25 1,759 - - - - - 1,784
issued
At December 4,289 14,680 (18,339 ) (15,980 ) 2,835 219,103 18,830 225,418
31, 2012
Unaudited Condensed Consolidated Statements of Cash Flows
$‘000 Six months ended Six months ended
December 31, 2012 December 31, 2011
Cash flows from operating
activities
Income from continuing 2,071 11,513
operations before income taxes
Loss from discontinued - (639 )
operations before income taxes
Finance income (116 ) (3,807 )
Finance expense 1,895 299
Depreciation and amortization 6,274 5,091
Share-based payment expense 1,191 2,179
Movement in provisions 2,347 3,803
Trade receivables 11,550 (10,172 )
Other assets (1,591 ) (7,546 )
Trade and other payables (5,893 ) (1,481 )
Deferred income (2,878 ) 2,723
Payments under restructuring – (867 ) (991 )
personnel
Income taxes (paid) (4,778 ) (284 )
Net cash inflow from operating 9,205 688
activities
Cash flows from investing
activities
Purchase of property, plant
and equipment, licenses and (1,234 ) (1,512 )
similar rights
Disposal of property, plant
and equipment, licenses and 1 41
similar rights
Acquisition of subsidiaries, (4,499 ) (29,018 )
net of cash acquired
Purchase of financial - (502 )
instrument
Proceeds from sale of 600 -
discontinued operations
Interest received 107 28
Net cash (outflow) from (5,025 ) (30,963 )
investing activities
Cash flows from financing
activities
Issue of share capital 1,746 174
Decrease in long term - (279 )
borrowings
Share buy back (959 ) -
Interest paid (221 ) (206 )
Net cash inflow/ (outflow) 566 (311 )
from financing activities
Net increase/ (decrease) in
cash and cash equivalents in 4,746 (30,586 )
the period
Cash and cash equivalents at 81,119 98,271
start of the period
Exchange rate effects 1,166 (5,345 )
Cash and cash equivalents at 87,031 62,340
the end of the period
Cash and cash equivalents
consists of:
Cash and cash equivalents 87,031 62,344
Overdrafts - (4 )
87,031 62,340
Notes to the Unaudited Condensed Consolidated Interim Financial Statements
NOTE 1 ACCOUNTING POLICIES
1.1 Basis of Presentation
The unaudited Condensed Consolidated Interim Financial Statements for the six
months ended December 31, 2012 have been prepared in accordance with IAS 34,
“Interim Financial Reporting” and the Disclosure and Transparency Rules of the
Financial Services Authority.
The Condensed Consolidated Interim Financial Statements do not include all
information and disclosures as required in the Consolidated Annual Financial
Statements, and should be read in conjunction with the Group’s Consolidated
Annual Financial Statements for the year ended June 30, 2012.
The financial information contained in these Condensed Consolidated Interim
Financial Statements do not comprise statutory financial statements within the
meaning of section 435 of the UK Companies Act 2006. The Consolidated Annual
Financial Statements for the year ended June 30, 2012, from which information
has been extracted, were prepared under IFRS and have been delivered to the
Registrar of Companies. The report of the auditors was unqualified and did not
contain a statement under section 498 of the UK Companies Act 2006.
The Condensed Consolidated Interim Financial Statements were approved by the
Board of Directors on February 8, 2013.
1.2 Summary of Significant Accounting Policies
The accounting policies adopted in preparation of the Condensed Consolidated
Interim Financial Statements are consistent with those followed in preparation
of the Consolidated Annual Financial Statements for the year ended June 30,
2012.
The adoption of the standards/ interpretations that have become effective for
year 2013 have already been outlined in detail in the Consolidated Annual
Financial Statements for the year ended June 30, 2012 and were not considered
to have a significant impact on these Condensed Consolidated Interim Financial
Statements.
NOTE 2 OPERATING SEGMENTS
The Group operates one 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 Group’s entire operations for purposes of making
operating decisions and assessing financial performance. The Group’s CODM is
the Chief Executive Officer.
There are no reportable assets that meet the criteria under IFRS 8 to be
reported under the single operating segment.
Entity-wide Disclosures
The following revenue information is based on the location of the customer:
$’000 America UK Germany Rest Asia- Total
of
EMEA Pacific
External
revenue
Six
months
ended 67,109 14,620 8,504 24,559 9,047 123,839
December
31, 2012
Six
months
ended 70,652 7,957 10,374 30,682 8,855 128,520
December
31, 2011
The following table presents non-current assets by subsidiary location:
$’000 America UK Germany Rest Asia- Total
of
EMEA Pacific
Non-current
assets
At December 100,978 38,568 6,332 35,213 6,356 187,447
31, 2012
At June 30, 104,035 38,334 6,096 34,784 6,194 189,443
2012
Non-current assets for this purpose consist of property, plant and equipment,
intangible assets, and other non-current assets – excluding security deposits
and deferred tax assets.
NOTE 3 OPERATING COSTS AND EXPENSES
Operating costs and expenses include of the following key elements:
$’000 December 31, December 31,
2012 2011
Profit on ordinary activities before
taxation is stated after charging:
Staff costs excluding share-based 72,706 70,195
payment expense
Share-based payment expense 1,191 2,179
Depreciation of property, plant and 1,468 1,691
equipment
Amortization of acquired intangible
assets – technology and contractual 3,226 1,905
relationships
Amortization of intangible assets – 1,580 1,495
licenses and similar rights
Remuneration for principal auditors 1,963 2,699
Operating lease expense – minimum lease 4,016 3,212
payments
Acquisition-related costs 2,943 1,774
Restructuring costs - 4,776
Other operating expenses 30,896 30,589
Operating costs and expenses 119,989 120,515
Amortization of acquired intangibles is a component of both cost of sales and
general and administrative expenses. Amortization of acquired technology
intangible assets of $2.3 million (December 31, 2011: $1.2 million) relates to
cost of sales, and amortization of other intangible assets of $0.9 million
(December 31, 2011: $0.7 million) relates to general and administrative
expenses.
$’000 December 31, 2012 December 31,
2011
Total cost of sales comprises:
Cost of software licenses 4,726 5,260
Cost of maintenance services 8,763 8,082
Cost of professional services 14,130 12,103
Amortization of acquired technology 2,310 1,238
intangible assets
Total cost of sales 29,929 26,683
Total general and administrative
comprises:
General and administrative 19,235 20,641
Amortization of other acquired 916 667
intangible assets
Total general and administrative 20,151 21,308
expenses
NOTE 4 INCOME TAX EXPENSE
The components of income tax expense related to current income tax expense and
deferred income tax expense were as follows:
$’000 December 31, 2012 December 31, 2011
Current income tax expense
Income tax on profits for the 4,027 4,810
period
Adjustment for provision in (170 ) 424
prior periods
Total 3,857 5,234
Deferred income tax expense
Reversal of temporary (1,289 ) (833 )
differences
Adjustment for provision in (128 ) (43 )
prior periods
Total (1,417 ) (876 )
Total income tax expense 2,440 4,358
The effective tax rate (income tax expense as a percentage of income from
continuing operations) increased due to the relatively disproportionate effect
of significant expenses that are not deductible for tax purposes, coupled with
lower profit from continuing operations. These non-deductible expenses are
excluded from adjusted profit as used for the adjusted EPS (Note 5).
NOTE 5 EARNINGS PER SHARE
Basic earnings per share (EPS) of ($0.00) (December 31, 2011: $0.08) for the
six months ended December 31, 2012 for the continuing business have been
calculated based on a loss from continuing operations after income taxes of
$(0.4) million (December 31, 2011: $7.2 million) using the weighted average
number of ordinary shares in issue totalling 84.1 million (December 31, 2011:
84.7 million) during the period.
Diluted earnings per share of ($0.00) (December 31, 2011: $0.08) for the six
months ended December 31, 2012 for the continuing business have been
calculated based on income from continuing operations after income taxes of
$(0.4) million (December 31, 2011: $7.2 million) using 84.1 million, (December
31, 2011: 89.7 million) ordinary shares. Basic ordinary shares are used in the
six months ended December 31, 2012 share calculation since the effect of
potential ordinary shares upon conversion, which totals 88.9 million, would be
anti-dilutive.
Adjusted earnings per share of $0.10 (December 31, 2011: $0.16) for the six
months ended December 31, 2012 for the continuing business have been
calculated based on Adjusted income from continuing operations after income
taxes of $8.8 million (December 31, 2011: $13.3 million) using the weighted
average number of ordinary shares in issue totaling 84.1 million (December 31,
2011: 84.7 million) during the period.
Adjusted diluted earnings per share of $0.10 (December 31, 2011 $0.15) for the
six months ended December 31, 2012 for the continuing business have been
calculated based on Adjusted income from continuing operations after income
taxes of $8.8 million (December 31, 2011: $13.3 million) using 88.9 million
(December 31, 2011: 89.7 million) ordinary shares.
Reconciliation of December December December December
adjusted 31, 31, 31, 31,
income from 2012 2012 2011 2011
operations
EPS in $ $‘000 EPS in $ $‘000
(Loss)/ income from
continuing (0.00 ) (369 ) 0.08 7,155
operations, after
income taxes
Share-based payment 0.01 1,191 0.03 2,179
expense
Amortization of 0.04 3,226 0.02 1,905
intangible assets
Acquisition-related 0.03 2,943 0.02 1,774
costs
Restructuring costs - - 0.05 4,776
Net finance income
and expense and 0.04 3,636 (0.03 ) (2,713 )
other income and
expenses
Tax effect of above (0.02 ) (1,823 ) (0.02 ) (1,798 )
Adjusted income 0.10 8,804 0.15 13,278
from operations
A reconciliation of the number of shares included in EPS follows:
Millions of shares December 31, December 31,
2012 2011
Basic weighted average number of
ordinary shares (excluding ESOP/EBT and 84.1 84.7
Treasury shares)
Dilutive impact of share options 1.6 2.6
Dilutive impact of Long Term Incentive 3.2 2.4
Plan (LTIPs)
Diluted weighted average number of 88.9 89.7
shares
NOTE 6 PROVISIONS
$’000 Personnel Onerous Contingent Others Total
Restructuring lease consideration
At July 1, 1,394 1,317 9,570 1,524 13,805
2012
Arising
during the - - 3,241 243 3,484
period
Reversed
against - - - (80 ) (80 )
income
statement
Utilized (867 ) (335 ) (4,763 ) (523 ) (6,488 )
Exchange 56 67 229 27 379
differences
At December 583 1,049 8,277 1,191 11,100
31, 2012
Current 583 564 6,282 674 8,103
Non-current - 485 1,995 517 2,997
The Group’s personnel restructuring accounts relate to reorganizations of
various operational and management functions in the years ended June 30, 2012
and 2011. Activity during the December 31, 2012 period relate to the
utilization of such provisions.
As part of the restructuring announced in the year ended June 30, 2011, a
number of the properties under operating lease became onerous. The period-end
provision represents the Group’s estimate of the net cost expected to arise
across the remaining life of the lease on these underutilized properties,
which is between one and three years.
The contingent consideration accounts relate to holdback, earn out, and
employee retention payments associated with acquisitions during the years
ended June 30, 2012 and 2011. On December 31, 2012, the Singularity share
purchase agreement has been amended to extend the time period in which
contingent consideration may be earned by one year. Management has assessed a
number of scenarios and based on those scenarios estimated for financial
accounting purposes that $10.4 million of the contingent consideration related
to the earn out will be paid to former shareholders and $3.3 million related
to the retention and incentive bonus will be paid to the continuing employees.
The other provisions accounts include different various insignificant amounts.
NOTE 7 ADJUSTED INCOME FROM OPERATIONS
The following table reconciles the income from operations before income taxes
to adjusted operating income from operations, a measure that is used by
management to measure its operating effectiveness. This measure of performance
does not hold more prominence than measures presented on the Consolidated
Income Statement.
$’000 December 31, December 31, 2011
2012
Income from operations, before 2,071 11,513
income taxes
Share-based payment expense 1,191 2,179
Depreciation and amortization 3,048 3,186
expense
Amortization of acquired intangible 3,226 1,905
assets
Acquisition-related costs 2,943 1,774
Restructuring costs - 4,776
Other operating expenses, net 1,857 795
Finance income and expense, net 1,779 (3,508 )
Adjusted income from operations 16,115 22,620
NOTE 8 CONTINGENT LIABILITIES
There are no material pending or threatened lawsuits against the Group except
for one filed November 29, 2012 in which the Group was named as a defendant in
a lawsuit filed by Scan EMEA Holding GmbH in Zurich, Switzerland, alleging
that the Group breached its contract with Scan EMEA Holding GmbH in connection
with the January 2011 agreement to sell the Group’s hardware business. The
Group has assessed the merits of the lawsuit, believes it cannot reasonably be
expected to have a material adverse effect on its business, results of
operations or financial condition and intends to vigorously litigate this
matter and to take other actions available to it to mitigate any potential
loss. Concurrent with filing the lawsuit Scan EMEA withheld €1.5 million of
the final €2.0 million payment associated with their purchase of the Group’s
hardware business.
NOTE 9 RELATED PARTY TRANSACTIONS
Directors’ Interests in Share Options and LTIPs
Directors who are also executive officers of the Group held 933,000 LTIP
shares as of December 31, 2012, of which 483,000 vested during the six month
period ended December 31, 2012 and no LTIPs were granted. For the remaining
LTIPs, based upon performance criteria and other factors, shares become
subject to release three years after their issuance. Market prices of the
shares were between 146 pence and 300 pence at the grant dates.
Directors who are also executive officers of the Group held 1,950,000 share
options as of December 31, 2012, and no options were granted during the six
month period ended December 31, 2012, nor did any share options lapse during
the period. The exercise periods are between calendar years 2012 and 2020 with
exercise prices of the shares between 146 pence and 240 pence.
NOTE 10 SUBSEQUENT EVENTS
No subsequent events have been identified requiring disclosure.
RESPONSIBILITY STATEMENT OF THE EXECUTIVE DIRECTORS IN RESPECT OF THE INTERIM
FINANCIAL STATEMENTS
We confirm that to the best of our knowledge:
The condensed set of financial statements has been prepared in accordance with
IAS 34, “Interim Financial Reporting” as adopted by the EU;
The interim management report includes a fair review of the information
required by:
a) DTR 4.2.7 R of the Disclosure and Transparency Rules, being an indication
of important events that have occurred during the first six months of the
financial year and their impact on the condensed set of financial statements
and a description of the principal risks and uncertainties for the remaining
six months of the year; and
b) DTR 4.2.8 R of the Disclosure and Transparency Rules, being related party
transactions that have taken place in the first six months of the current
financial year and that have materially affected the financial position or
performance of the entity during that period and any changes in the related
party transactions described in the last annual report that could do so.
Reynolds C. Bish
Chief Executive Officer
February 8, 2013
James Arnold, Jr.
Chief Financial Officer
February 8, 2013
Contact:
Kofax plc
Media Contact:
Colleen Edwards
Vice President, Corporate Communications
+1-949-783-1582
colleen.edwards@kofax.com
or
Investor Contacts:
MKR Group Inc.
Charles Messman or Todd Kehrli
+1-949-468-2300
kfx@mkr-group.com
or
FTI Consulting
Sophie McMillan
+44 (0) 20 7831 3113
kofax@fticonsulting.com
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