As expected, document imaging and business process management (BPM) provider Kofax delivered a better Q4 (see Signs of a better quarter at Kofax), after a warning the previous quarter (see Kofax slides on Q3 warning). This helped it meet full year expectations. Q4 revenue, for the three months ended 30 June, grew 10% in organic constant currency (OCC) to $75.3m. The real boost came from software licences, which were up 16.9% (OCC). The adjusted EBITDA margin (i.e. before all the nasty bits) grew by half to 28.2%.
Looking at the full year picture however shows a far less buoyant situation. Revenue was up 1.4% (OCC) to $262.5m, and the adjusted EBITDA margin dropped to 18.5% from 19% last time. The true operating margin (including all the nasty bits) actually dropped 300 basis points to 8.4%, as restructuring costs shot up, including a $4.9m charge for staff cuts made in Q1.
At the headline level, full year revenue grew 7.6%, thanks mainly to the acquisitions of web imaging vendor Atalasoft in May 2011 (see here) and BPM vendor Singularity in December 2011 (see here). Kofax is clearly very pleased with the performance of Singularity, which has exceeded expectations. It is also optimistic about its OEM agreement with and $500k investment in ViziApps, from which Kofax launched a new mobile capture product for Apple and Android devices. This has the potential for use in mortgage processing, insurance applications and logistics delivery, and apparently, won Kofax four global clients during Q4.
Generating software licence growth is the challenge for Kofax. On an organic basis revenue from licences fell 5.5% in the full year, however this decline was offset by the acquisitions. And there is clearly work to do before Kofax completes the strategic shift from ‘legacy’ capture to BPM. For instance, it is going to take till some point next year before Singularity’s core TotalAgility product is fully integrated into a single Kofax capture-enabled BPM product. However this is clearly where Kofax is banking on the next phase of its growth.
Kofax is wisely not getting carried away by Q4. It is pointing to ‘mid to high single digit’ revenue growth in FY13, and an adjusted EBITDA margin of at least that in FY12. The capture business is expected to grow in low to mid single digits, but Kofax is banking on significantly better growth in acquired businesses and from the new mobile capture product.