Friday, September 28, 2012

Kodak's Software Focus

Kind of ironic that an old photography giant like Kodak should spend so much time talking about focus at its recent Global Directions conference in Las Vegas. But, that's exactly what the Rochester-based imaging vendor did this week. Subscribers to our newsletter will get full coverage later today, but basically, Kodak spent the conference spotlighting its two new software product, Info Activate for SharePoint capture and Info Insight for IDR, as well as ISV partner solutions in areas like records management and creating taxonomies.

And hardware, well, it was barely mentioned. I think there might have been a session or two on Kodak's new Asset Management Software for remote scanner management, but that was about it. No, Kodak certainly hasn't given up on the document scanner market - according to Dolores Kruchten, who is now the president of DI, Kodak still invests more in hardware development than software development. It's just that like the MFP vendors, Kodak knows there are better margins and growth in software and services going forward than in hardware. After all, Harvey Spencer Associates has projected an 11% CAGR for the capture software market through 2016. We're not sure when the last time was that the document scanner market saw double digit annual revenue growth.

Of course, many of you already know that this is not Kodak's first venture into software. Originally, there was the initiative that eventually spawned Kofile- basically a digital microfilm retrieval software package that eventually became a lower-end document management system (not sure I got that description completely right, but I think it's close). Then, there was the 1997 acquisition of Eastman Software, which DIR once labeled "The $260 Million Mistake," when the charred remains were sold off in 2001 (although Kodak did ended recouping some, if not all, of that money through a patent deal a few years later).

But Kruchten assured us that this time will be different, and Kodak will succeed because of the focus it is now placing on its software business. That focus was certainly evident at Global Directions. I don't ever remember Eastman Software getting its own conference, for instance, and it was a $50 million business when it was acquired. DI is also counting on whoever buys it to help it even further increase its investment in its software product lines going forward.

Tuesday, September 25, 2012

Kodak Global Directions 2012

Out here in Las Vegas (JW Marriott up in the hills a bit) for Kodak's first Global Directions conference. About 200 people here, which Kodak described as 60% SIs, and 30% end users. Rest our technology partners and analysts. Certainly smaller than Kodak Breakaway events in the past, but also not necessarily trying to be Breakaway.

To get a taste of what's going on out here, check out Twitter #kgd2012.

Tony Barbeau, GM of Kodak Document Imaging has described the event more of as an industry than a vendor event, of which Kodak is a sponsor. And Kodak has mostly delivered on this promise. There is not a lot of Kodak vendor content in many of the presentations. I'm sitting in Kodak DM Director of Technologies Roland Simonis' presentation on IDR right now, and he certainly has not mentioned a Kodak product 45 minutes into his talk.

Kodak did introduce an IDR product at the conference, InfoInsight, powered by German ISV ITyX. But, Simonis is clearly presenting an educational, not an advertorial track. Lot of good, diverse presenters here, including Shad White of CloudPower, Brian Dirking of Box, and Rai Wasner of Kollabria, who helped put the agenda together.

Interesting this is that scanning hardware, Kodak DI's bread-and-butter for many years, are really not playing a prominent role. This was a deliberate move to Kodak to really spotlighting their software. I'll get into reasons for this in my next premium issue, but it certainly seems like a good idea, as expanding into software and solutions are clearly the future for Kodak DI.

Wednesday, September 19, 2012

Canon to Acquire I.R.I.S.

Canon, working through its subsidiary Canon Europe, has made a bid to acquire Belgium capture ISV and systems integrator I.R.I.S. The two companies have been partners since Feb. 2009, when Canon Europe became a reseller of  I.R.I.S. products. A few months later, Canon followed-up by buying a 17% stake in I.R.I.S.

I.R.I.S. is probably best known in North America for its OCR/ICR software. Several big-name companies like Adobe, HP, and Evernote license I.R.I.S.'s technology in this area.

 I.R.I.S. also has a batch capture product - which has its roots in software it formerly licensed to Kodak through an OEM agreement (Kodak Capture, the predecessor to Kodak's current Capture Pro software). In 2008, I.R.I.S. acquired German IDR ISV Docutec and markets a document classification and extraction product - IRISXtract, based on the Docutec technology. I.R.I.S recently ramped up its North American efforts around Xtract, which includes licensing Xtract to Salumatics, a Canadian outsourcing firm, that is using the technology to capture healthcare patient records.

 I.R.I.S. has several other software products and some hardware, like mobile scanners and a pen scanner, as well. I.R.I.S. also has a ECM systems integration/professional services business that mainly operates in the Benelux region. This integration business has historically accounted for more than half the company's revenue.

For 2011, I.R.I.S. reported revenue roughly the equivalent of $158 million, but it also went through a reorganization last year. For the first half of 2012, I.R.I.S. revenue was down 33% to around $58 million, but its EDITDA (cash flow from operations) was actually improved over 2011.

Commented, Denis Hermesse, CFO I.R.I.S. Group, “We have seen a shift in our revenue mix with an increase in revenue from license, maintenance and services (including system performance and remote monitoring) and less hardware sales with low margin."

The deal
The offer Canon has made is for EUR 44.50 per share, or the equivalent of $92 million for the remaining 83% of I.R.I.S. This represents a 50% premium over what I.R.I.S. shares were trading for, before trading was suspended as the deal works itself through. It values I.R.I.S. at around $111 million, which is considerably less than the $184 million valuation related to Canon's $31 million investment in 2009.

In 2009, I.R.I.S. was coming off a 2008 in which it reported an EBITDA of Euro 9 million on revenue of Euro 108 million. Based on the first half, 2011 EDITDA projects to Euro 7 million on Euro 85 million.

Commented I.R.I.S. CEO Pierre de Muelenaere in a press release, “We are very pleased to have reached this important milestone for I.R.I.S. Group, and proud that Canon intends to bring our company within the Canon group. The entire board of I.R.I.S. Group fully supports this bid and we are committed to making this transition a success, which we believe will be to the benefit of our customers and all our stakeholders.”

For Canon, the move represents part of the overall trend of MFP manufacturers moving more toward software and solutions. Commented Rokus van Iperen, President & CEO, Canon EMEA, "Canon has identified business solutions and professional services as important focus areas for future growth and we believe this investment will bring long term opportunities to build on our success in the solutions and consultancy businesses to date. We will be working closely with I.R.I.S. Group, as a stand-alone company, to deliver more advanced solutions and services and greater customer value.”

For the record, "More acquisitions of Capture/DM/BPM ISVs by Hardware Vendors," was one of the six predictions for 2012-2013 I made at the Harvey Spencer Associated Capture Conference two weeks ago.

Wednesday, September 12, 2012

ABBYY Acquires Reseller Partner

ABBYY has acquired ECM systems integrator Digital Documents. D-Docs resells multiple ISV products including Hyland OnBase, EMC ApplicationXtender, and Open Text Alchemy on the ECM side, and ABBYY FlexiCapture and Cardiff's Teleform and LiquidOffice on the the capture side. ABBYY's plan is to enable D-Docs to continue to sell all these products - while adding the tagline "an ABBYY company" to its marketing materials.

D-Docs has some 250-300 customers in the U.S., and is especially strong in the healthcare and higher education spaces. It has less than 20 employees and has won multiple awards from its ISV partners throughout the years.

This is ABBYY USA's first acquisition and the Milpitas, CA-based recognition and document capture ISV hopes to mine D-Docs expertise to help it continue to built out its VAR channel.

Tuesday, September 04, 2012

Kofax Q4 Details

As expected, Kofax has posted a strong Q4 for its fiscal 2012. This included 17.2% growth in terms of organic constant currency for applications software-the company's core business. Applications software generated $30.2 million for the quarter and software licensing overall was about 50% of Kofax's overall revenue of $75.3 million. To give you an idea of what positive trend this is, for the fiscal year 2012 (including Q4), software licensing made up just 45% of overall revenue.

Commented CEO Reynolds Bish in a press release, "“Our fourth quarter produced strong results, with software license revenues, service revenues and revenues in all geographic regions, our core capture business and acquired businesses being equal to or greater than our expectations. This allowed us to meet the guidance we had provided and realize record total revenues and Adjusted EBITDA for the fiscal year. In light of our transition from focusing on EBITA to Adjusted EBITDA and for purposes of clarity, during fiscal year 2012 we achieved an EBITA of $42.0 million compared to $40.2 million in fiscal year 2011.”

Good stuff.

For fiscal 2013 Bish is projecting "mid to high single digit total revenue growth on a constant currency basis and an adjusted EBITDA margin of at least that reported in fiscal year 2012."

Two geographic notes:
1. EMEA saw the strongest growth in Q4 with a 53.2% growth in software licenses contributing to $30 million in total revenue.
2. Kofax continues to struggle to gain a foothold in Asia-Pac, generating just $5.4 million in revenue for the quarter - a decline of 27% over fiscal Q4 2011.

For the second half of FY2012, Kofax reported 56% of application software license sales came through channel partners, which is pretty close the mix Bish envisioned when he took over the company.

Kofax released its results on Monday (a holiday here in the States) and its stock share price seemed to dip slightly before recovering today.