Kofax missed its software sales targets in Q2, worsening the slump begun in Q1 (see Kofax Q1 goes into reverse). Unsurprisingly, the document capture vendor isn’t going to meet its previous FY13 targets either. Revenue is now being downgraded to ‘low single digit growth’ in constant currency (CC) from ‘mid to high single digit’ previously, and an adjusted EBITDA c10% lower than FY12’s 18.5%, vs. at least 18.5%. The news drove Kofax’s shares down almost 13%.
Licence sales were down almost a quarter in Q2 to $25m (CC), and down 18% to $47.1m in the half year. Kofax blamed its legacy capture business, principally the slipping of a significant mid-seven figure sale in EMEA, which it now expects to close ‘in a future quarter’, as well as significant changes in its Americas sales organization.
Overall, headline revenue was down 8.2% in Q2 to $63.7m, and down 3.6% in H1 to $123.8m. The adjusted EBITDA margin (i.e. before all the nasty bits) fell to 15.5% in Q2 vs. 23.5% last time, and in H1 to 13% vs. 17.6% last time. Including the nasty bits, operating profits actually more than halved to $3.85m - driving the operating margin down to 3.1% vs. 6.3% last time.
Looking at the geographical split the UK bucked the trend as by far the best performing region in H1, with revenue growth of 83% to $14.6m. Asia Pacific saw modest 2% growth growth, but all other regions (America, Germany and rest of Europe) declined. Before we get too excited, this stellar growth from the UK appears to be solely down to the acquisition of Singularity, the Northern Ireland-based business process management (BPM) vendor Kofax acquired in December 2011 (see Kofax pays high price for strategic acquisition). We suspect this added at least $8m in the half year. Excluding that, the UK, like the other mature markets, could well be in reverse.
Kofax is clearly happy with both Singularity and its other strategic purchase of US-based Atalasoft (see Kofax acquires web imaging specialist). Apparently both reported growth of more than 100% in H1. The problem is that the much larger legacy business is declining rapidly, and making the transition to capture-enabled BPM extremely painful.