549: Stay the Course | Cort Townsend, CFO, Kofax

Listen to the Episode Below (00:36:48)

As is the case with many finance leader resumes, Cort Townsend’s reveals a repetition of professional advancement and achievement that allows casual readers to quickly validate his CFO credentials. However, like those of many, Townsend’s self-tale is only a shorthand rendering of a career path filled with twists, turns, and high-stakes industry drama.

Such was the case in 2015 and 2016, a period in Townsend’s career annals with enough M&A high jinks and boardroom intrigue to fill an entire volume. Subsequently, though, in July 2017, Townsend landed neatly inside the CFO office of Kofax via an appointment that casual readers of his resume might have assumed was the natural next step for a dedicated senior executive who had already served as the firm’s controller and vice president of finance. So, where was all the drama?

Lost between the lines of Townsend’s resume was the acquisition of Kofax by Lexmark International in 2015 and the subsequent acquisition of Lexmark by Apex Technology in 2016. Along the way, Townsend was named finance chief of Lexmark’s enterprise software group, which turned out to be an abbreviated tour of duty that made him the obvious choice for a C-suite posting when Lexmark opted to spin off the software group in late 2016 and later sell it to private equity firm Thoma Bravo.

The sale of the group would be completed in July 2017, the very month in which Townsend was appointed CFO of newly branded Kofax. Witness just the type of swift-moving, complex narrative that allows even detail-oriented leaders like Townsend to much appreciate the virtues of a shorthand bio. –Jack Sweeney

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Guest: Cort Townsend

Company: Kofax

Headquarters: Irvine, CA

Connect: www.kofax.com

CFOTL: Tell us about the business and which metrics are top-of-mind …

Townsend: We’re mostly a perpetual model. We do sell some SaaS in term licenses, but the bulk of our new sales are coming from perpetual bookings. This drives the entire health of the organization because when you have perpetual bookings, you’re going to have maintenance and support that gets sold at a 20% attach rate. In addition to this, you’re going to have professional services bookings that come from those perpetual bookings on direct deals that come in with about a 50% attach rate. It’s a very high-margin product. This being software, our perpetual license margins are at about 90%, so you can pretty quickly calculate how much this is going to contribute to your bottom line.

Our maintenance and support renewal bookings are also very important to us. We measure renewal rates on that maintenance and support, so every time we sell a perpetual license, we’ll sell maintenance at 20% of that value on an annual basis. So every year, these customers are renewing, and it’s a fairly sticky product. It’s very important that they’re staying current on maintenance and support, so that maintenance revenue contributes almost 50% of our total revenue, which is also very high-margin for us. Those renewal rates on maintenance, as well as our SaaS and term renewals, are very important to us, and those are at about 90%.

The next major key metric that I really focus on is our quota-bearing rep productivity. This is tied to bookings but is looking at it at a more granular level. We budget for a certain level of rep attainment as a percentage of their quota every year, which, depending on what part of the business they’re in, could be anywhere from $1.5 million to $2 million. More than 70% of our cost structure is coming from head count compensation, and at 2,300 employees, this is a very significant cost. We try to really focus on it and try to focus on attrition to ensure that we’re not having to incur replacement costs, which are always higher than for when someone is already there.

We offshore about 50% of our R&D outside the U.S. in a variety of different locations, mainly through acquisitions. We’re in Russia, Vietnam, Northern Ireland, Canada, India, Budapest. The list goes on, but it’s lower-cost for us. We have a head of R&D who has kind of built a career around offshoring this development, so we’re able to manage costs that way when we do some of it outside the U.S.