Monday, February 08, 2010

Kofax reports 6-months results

There is a lot of information in the release.

Here's the stuff I boiled down as important:
  1. Overall software revenue increased by 17% to $101.5m compared to $86.7m in the prior year. Revenue on an organic and constant currencies basis increased 8%. Analysis: By our calculations, the September acquisition of 170 Systems, an approximately $7 million per quarter business, is being credit for about $8 million over four months, which, I'm guessing is pretty much what was expected.)
  2.  Applications software license revenue increased 11% while services revenue continued its strong performance with growth of 29%. Analysis: This is less impressive, as based on our calculations, 170 Systems could have quite possibly accounted for $4 million in software licenses sales over the six-month period - meaning there could have been no organic growth in software license sales. Of course, Kofax is telling us that the 29% growth in service revenue, which is now accounts for 54% of application software revenue (compared to 46% for licenses), made up for this. I'm not sure how this jives with the scuttlebutt we've been hearing about Kofax increasing maintenance fees. Does anyone know if Kofax accounts for maintenance as licenses or services? Either way, services traditionally produce lower margins than licenses.
  3. That said, even with a 15% increase in total expenses, almost all related to sales and marketing, Kofax did manage a 41% overall increase in the EBITDA for its software business, which checked in at a cool $8 million.
  4. VRS sales were essentially flat; they are actually included with software sales and were about 12% of Kofax's $101.5 million in half-year software revenue.
  5. The hardware business sucked, actually decreasing 1% in total revenue to $67 million and producing an adjusted EBITDA of just $2 million, after reporting a $5.6 million EBITDA for the previous year's six-month period. Analysis: Granted, I've never made $2 million in six months from my business, so I guess, $2 million is nothing to sneeze at, but comparing the profit and growth numbers of the VRS and hardware business to those of the software applications business, it's clear to me that a schism is going to have to take place for Kofax CEO Reynolds Bish to achieve the stock valuation he desires. Presumably dragged down by the hardware numbers, Kofax share value actually took a minor hit after the Interim report came out - even though the software numbers look pretty good.
Ralph

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