Despite Efforts, Kofax Still Over-reliant on Big Ticket Sales

Following the tried and true PR strategy of announcing bad news on a Friday, at the end of last week, Kofax announced preliminary fiscal 2014 (year-end June 30) numbers, "which reflect software license revenue, total revenues and adjusted EBITDA levels below the guidance previously provided to the financial community." For the year, Kofax reported that total revenue will fall between $287.5 and $290.5M, which would represent an 8% gain over Kofax's fiscal 2013, but also a disappointing Q4.

By our calculations, this means fiscal Kofax's Q4 2014 revenue would come in at around $72M, which would represent a drop of approximately 7.5% from the previous year's Q4. This is very disappointing for a company that through nine months was 11.7% ahead of its 2013 pace. Kofax CEO Reynolds Bish blamed the shortfall on some large deals that fell through. On a positive note, he indicated the bulk of those deals will close very soon.

"Kofax is very disappointed with the results," Bish said on a conference call with financial analysts. "The shortfall can be primarily attributed to several seven figure software licensing transactions that slipped into future quarters. We believe we will close these deals in the first and second quarter of fiscal 2015. We expect to close $3M of sales in the next week and another $1.5M in the next two weeks."

Bish blamed Kofax's continuing reliance on seven figure deals for problems--something which Kofax has attempted to address be realigning its sales force over the past year. "In the fourth quarter, we are especially subject to this sort of result," he said. "We did increase significantly the number of six-figure deals we closed in the fourth quarter, but we only closed two seven-figure deals."

Bish said all the deals that slipped were in Europe and  North America and involved Kofax's core capture technology. "Core capture still makes up more than 70% of our sales and accounts for many of our large deals," he said. "So, that is naturally what are larger deals that slip are going to involve. I don't see any core weakness in the market, or change in the competitive environment, or increased pricing pressure. However, we are seeing procurement processes take longer.

Bish indicated that sales of Kofax TA 7 smart processing application platform are gradually ramping up. Bish added that he will issue guidance in September when Kofax publishes its official year-end results and doesn't expect any changes to the long-term numbers.