Following a terrible past couple of quarters (see Kofax slump gathers pace in Q2), Kofax has bounced back with a better looking performance in Q3 ended 31 March.
Headline revenue was up 9.6% to $64.m, driven by 20.5% growth in new software licence sales. Software licences now account for 41% of revenue vs. 37% this time last year, which points to future growth. The adjusted EBITDA margin was also up almost 5 points to 13% vs. 8.1% last time. It was enough to send Kofax’s shares up 3%.
Some of Kofax's new software releases look very interesting, such as its accounts payable automation module for SAP and Oracle users, and its transformation module, which 'separates and extracts content from unstructured in addition to semi-structured and structured documents'. Automating unstructured data capture is an area we see having significant growth potential as clients look to take cost out of labour intensive manual keying and checking.
During the quarter Kofax secured one of its largest contracts, a $4.8m order from a national government agency in Western Europe for software and maintenance services relating to a large scale, nationwide capture project. It also acquired analytics player Altosoft last month (see here), which contributed one month’s revenue – although we suspect the majority of Kofax’s Q3 growth has been organic.
Kofax isn’t out of the woods just yet however. Looking at the nine month period, software licences are actually down 7.4% (-6.1% in constant currency) due to the very poor Q1 and Q2, and total revenues are effectively flat on the prior year. Consequently, Kofax is still expecting zero to low single digit growth in total revenue (ccy) and an adjusted EBITDA of c10% less than the 18.5% in FY12.