Kofax Reports Financial Results for its Third Quarter and Nine Months Ended March 31, 2015

Kofax^® Limited (NASDAQ: KFX), a leading provider of software to simplify and transform the First Mile™ of customer engagement, today reported unaudited financial results for its third quarter and nine months of its fiscal year 2015 ended March 31, 2015.

Non-GAAP Financial Highlights:

• Software license revenue increased 4.8% to $30.9 million (PY: $29.5 million), and for the nine months increased 2.9% to $90.8 million (PY: $88.2 million)
• Total revenues increased 4.2% to $75.3 million (PY: $72.2 million), and for the nine months increased 3.9% to $225.6 million (PY: $217.1 million)
• Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) increased 14.0% to $8.6 million (PY: $7.5 million) or a 11.4% margin (PY: 10.4%), and for the nine months decreased 5.6% to $27.2 million (PY: $28.9 million) or a 12.1% margin (PY: 13.3%)
• Adjusted diluted earnings per share (EPS) was $0.07 (PY: $0.05), and for the nine months was $0.18 (PY: $0.17)
• Adjusted cash generated by operations was $12.1 million (PY: $19.7 million), and for the nine months was $19.6 million (PY: $42.8 million)

GAAP Financial Highlights:

• Software license revenue increased 7.5% to $30.2 million (PY: $28.1 million), and for the nine months increased 7.4% to $89.2 million (PY: $83.1 million)
• Total revenues increased 4.6% to $74.0 million (PY: $70.8 million), and for the nine months increased 5.6% to $222.3 million (PY: $210.5 million)
• Income from operations¹ decreased to a loss of $1.7 million (PY: $0.2 million) or a -2.3% margin (PY: 0.3%), and for the nine months decreased 33.4% to $2.8 million (PY: $4.2 million) or a 1.3% margin (PY: 2.0%)
• Diluted EPS was $0.02 (PY: $0.01), and for the nine months was $0.04 (PY: $0.05)
• Cash generated by operations was $10.4 million (PY: 16.1 million), and for the nine months was $15.8 million (PY: $33.7 million)

Quarter end cash was $55.6 million (PY: $93.1 million).

A summary of Kofax’s unaudited revenues and adjusted EBITDA for its third quarter and nine months compared to the prior year on both a GAAP and non-GAAP basis is as follows:

¹ Includes $2.3 million of legal and other expenses related to the Company’s acquisition by Lexmark.

Commenting on the Non-GAAP financial results for the quarter, Reynolds C. Bish, Chief Executive Officer, said: "We had a solid quarter with strong growth in new and acquired software products and a continuing year over year increase in the number of six and seven figure software license transactions. Despite this, the strengthening of the U.S. dollar since we last provided guidance on January 29 again negatively impacted our revenues. On a constant currency basis, using exchange rate levels in the prior year period, software license revenue would have been approximately $1.8 million and total revenues $5.0 million higher. The effect on Adjusted EBITDA was less pronounced as a result of the global nature and distribution of our employees and expenses. We expect Lexmark’s acquisition of Kofax to close in the second calendar quarter of 2015, and look forward to working with its management to combine the two businesses.”

Operating Highlights:

• Announced a definitive agreement for Lexmark to acquire all of Kofax’s outstanding shares for $11.00 per share in cash at a total value of more than $1 billion. The acquisition is contingent on Kofax shareholder approval at a special general meeting of Kofax shareholders scheduled for May 18, 2015, applicable regulatory clearances and other customary closing conditions.
• Acquired Aia Holding BV, a provider of customer communications management (CCM) software for $19.5 million. Aia’s CCM software helps organizations manage interactive and ad hoc customer correspondence both electronically and on paper, and will be fully integrated within Kofax TotalAgility^®.
• Launched Kofax Mobile ID™, a mobile capture framework that powers the capture and submittal of proof of identity documents, including U.S. and most international driver licenses, passports and national identity cards, and their content. This capability is an essential part of an account opening or other process initiated by taking a picture of such documents using a smartphone or other mobile device.
• Delisted Kofax’s shares from the London Stock Exchange effective March 31, 2015.
• Gartner’s reports on its Magic Quadrants for Intelligent Business Process Management Suites and BPM-Platform-Based Case Management Frameworks were issued and recognized Kofax for its TotalAgility Platform.

About Kofax

Kofax is a leading provider of software to simplify and transform the First Mile™ of customer engagement. Success in the First Mile can dramatically improve the customer experience, greatly reduce operating costs and increase competitiveness, growth and profitability. Kofax software and solutions provide a rapid return on investment to more than 20,000 customers in financial services, insurance, government, healthcare, supply chain, business process outsourcing and other markets. Kofax delivers these through its direct sales and service organization, and a global network of more than 800 authorized partners in more than 75 countries throughout the Americas, EMEA and Asia Pacific. For more information, visit kofax.com.

Safe Harbor Statement

This document contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements are subject to risks and uncertainties that could cause actual results to vary materially from those projected in the forward-looking statements. The Company has attempted to identify forward-looking statements by terminology including "anticipates,” "believes,” "can,” "continue,” "could,” "estimates,” "expects,” "intends,” "may,” "plans,” "potential,” "predicts,” "should” or "will” or the negative of these terms or other comparable terminology. The Company may experience significant fluctuations in future operating results due to a number of economic, competitive and other factors, including, among other things, our reliance on third-party manufacturers and suppliers, government agency budgetary and political constraints, new or increased competition, changes in market demand, our ability to consummate and the timing of the consummation of software revenue transactions and the performance or reliability of our products and the ability of the Company and Lexmark to complete the transactions contemplated by the merger agreement, including the parties’ ability to satisfy the conditions to the transaction set forth in the merger agreement (including obtaining necessary Company shareholder and regulatory approvals) and the absence of facts, circumstances, changes or events resulting in a material adverse effect on the Company. These factors and others could cause operating results to vary significantly from those in prior periods, and those projected in forward-looking statements. Additional information with respect to these and other factors, which could materially affect the Company and its operations, are included in certain forms the Company has filed with the Securities and Exchange Commission. Although the Company believes that the expectations reflected in any forward-looking statements are reasonable based on its current knowledge of the business and operations, it cannot guarantee future results, levels of activity, performance or achievements. The Company assumes no obligation to provide revisions to any forward-looking statements should circumstances change.

Non-GAAP Financial Measures

Management uses financial measures, both GAAP and Non-GAAP, in analyzing and assessing the overall performance of the business and making operational decisions. The Company has provided and believes that the Non-GAAP financial measures and supplemental reconciliations to GAAP financial measures are useful to investors and other users of its financial statements because the Non-GAAP financial measures may be used as additional tools to compare our performance across peer companies, periods and financial markets. Please refer to the forms the Company has filed with the Securities and Exchange Commission for a discussion of the Non-GAAP financial measures and supplemental reconciliations to GAAP financial measures for more information regarding the Non-GAAP measures.

© 2015 Kofax Limited. Kofax, and TotalAgility are registered trademarks and Kofax Mobile ID and First Mile are trademarks of Kofax Limited.

Source: Kofax

(1) Excludes depreciation, amortization and share-based compensation expenses

Definition of Non-GAAP Measures

Non-GAAP Revenue – We defined Non-GAAP revenue as revenue, as reported under GAAP, increased to include revenue that is associated with our historic acquisitions that has been excluded from reported results for a limited period due to the effects of purchase accounting. In accordance with GAAP purchase accounting, an acquired company’s deferred revenue at the date of acquisition is subject to a fair value adjustment which generally reduces the deferred amount and revenues recognized subsequent to an acquisition. We include non-GAAP revenue to allow for more complete comparisons to the financial results of our historical operations, forward looking guidance and the financial results of peer companies. We believe these adjustments are useful to management and investors as a measure of the ongoing performance of the business. Additionally, although acquisition-related revenue adjustments are nonrecurring, we may incur similar adjustments in connection with future acquisitions. At times when we are communicating with our shareholders, analysts and other parties we refer to Non-GAAP Revenue as Adjusted Revenue.

Non-GAAP Income from Operations – We define non-GAAP income from operations as income/(loss) from operations, as reported under GAAP, excluding the effect of Acquisition fair value adjustment to revenue, Share-based compensation expense, Depreciation expense, Amortization of acquired intangible assets, Acquisition-related costs, and Other operating expense, net. Share-based compensation expense, Depreciation expense and Amortization of acquired intangible assets in our non-GAAP income from operations reconciliation represent non-cash charges which are not considered by management in evaluating our operating performance. Acquisition-related costs consist of: (i) costs directly attributable to our acquisition strategy and the evaluation, consummation and integration of our acquisitions (composed substantially of professional services fees including legal, accounting and other consultants and to a lesser degree to our personnel whose responsibilities are devoted to acquisition activities), and (ii) transition compensation costs (composed substantially of contingent payments for shares that are treated as compensation expense and retention payments that are anticipated to become payable to employees, as well as severance payments to employees whose positions were made redundant). These acquisition-related costs are not considered to be related to the continuing operations of the acquired businesses and are generally not relevant to assessing or estimating the long-term performance of the acquired assets. Other operating expense, net represents items that are not necessarily related to our recurring operations and which therefore are not, under GAAP, included in other expense lines. Accordingly, we exclude those amounts when assessing non-GAAP income from operations. At times when we are communicating with our shareholders, financial analysts and other parties we refer to non-GAAP income from operations as adjusted EBITDA.

We assess non-GAAP income from operations as a percentage of total non-GAAP revenue and by doing so we are able to evaluate the relative performance of our revenue growth compared to the expense growth for those items included in non-GAAP income from operations. This measure allows management and our Board of Directors to compare our performance against that of other companies in our industry that may be of different sizes.

At times when we are communicating with our shareholders, financial analysts and other parties, we refer to adjusted income from operations as a percentage of revenues as EBITDA margin.

Non-GAAP diluted earnings per share – Non-GAAP diluted earnings per share is calculated using GAAP net income/(loss) excluding the effect of Acquisition fair value adjustment to revenue, Share-based compensation expense, Amortization of intangible assets, Acquisition-related costs, Net Interest-Other Income and Expense, and the related tax effect, divided by weighted average fully diluted shares outstanding. Therefore, we include this non-GAAP measure in order to provide a more complete comparison of our earnings per share from one period to another. At times when we are communicating with our shareholders, financial analysts and other parties we refer to Non-GAAP diluted earnings per share as Adjusted EPS.

Non-GAAP Cash Flows from Operations - We define Non-GAAP cash flows from operations as cash flows from operations as reported under GAAP, adjusted for income taxes paid or received and payments under restructurings. Income tax payments are included in this reconciliation as the timing of cash payments and receipts can vary significantly from year-to-year based on a number of factors, including the influence of acquisitions on our consolidated tax attributes. Payments for restructurings relate to a specific activity that is not part of ongoing operations. At times when we are communicating with our shareholders, financial analysts and other parties we refer to Non-GAAP cash flows from operations as Adjusted cash flows from operations.