BancTec Article on Co-Sourcing

Document and payment processing specialist BancTec has invested a lot of resources in the past few years increasing its footprint in the business process outsourcing (BPO) market. But according to Michael J. Alfonsi, BancTec's managing director of financial transaction processing services & finance transformation solutions, the BPO market has not grown as fast as many people had expected. From a recent article entitled, "Rethinking Document Outsourcing and Co-sourcing:" "One would think the economic downturn would have accelerated the growth in BPO, but it did not. The prevailing view on the reason why is that for many BPO adopters, the so-called low-hanging fruit has already been picked, and the next level of outsourcing, which involves full functions, got stalled as capital was being conserved during the downturn."

As a solution to this, Alfonsi is suggesting BPO providers expand their business into the area of co-sourcing.  "BPO is no longer an either/or proposition, and companies now can have both/and," he says. "Both/and is a graduated solution in which basic tasks go to the outsourcer, but both the outsourcer and the client discover the right point at which the analytics or the expertise – the very productivity – is optimized for the partners."

For more details on how to create a successful co-sourcing strategy, check out Alfonsi's full article. 

A Crowdsourcing Capture Acquisition

At Harvey Spencer Associates annual Capture Conference this past September one of our fearless predictions was that the crowdsourcing market would converge with the recognition applications. While we're not quite there yet, but we are definitely getting closer. Waltham, MA-based Lionbridge, one of the market leaders in crowdsourcing solutions, yesterday announced it had acquired Virtual Solutions. While not an automated recognition ISV,  Virutal Solutions, which is based in Camp Hill, PA, near Harrisburg, is clearly in our market. Historically, it has offered a document imaging-based service for capturing data from primarily state tax forms.

Virtual Solutions has some pretty cool technology for distributing only snippets of documents to ensure security and also has a team of home-based keyers in the U.S. to satisfy the requirements of state tax agencies. Coincidentally, we published a story this past August, in which we discussed Virtual Solutions as a crowdsourcer, even though they didn't advertise themselves as such at the time. 

Lionbridge is a $450 million organization that does the bulk of its business in translation services. It has recently expanded into more general crowdsourcing services and offers its technology as an alternative or compliment to BPO or traditional outsourcing services. It plans to leverage Virtual Solutions' task management platform to help it grow its crowdsourcing business. It also looking at expanding into document imaging-related market like claims and mortgage processing.

According to the press release, "Lionbridge expects to acquire Virtual Solutions, Inc. for a total estimated purchase consideration consisting of $3.6 million to be paid upon closing using Lionbridge’s existing cash resources, $1.0 million of deferred cash consideration, and a $3.0 million earn-out potential payable in cash over the course of three years, subject to the attainment of certain annual revenue metrics."

More on this, including interviews with principals from both sides in an upcoming issue of our newsletter.

Bish Puts Positive Spin on Kofax Results

Kofax's Q1 fiscal 2013 results were announced today. Certainly not great numbers by any means. Total revenue of $60.1 million, which represented slight (2.8%) net growth, but a .8% decline when measured in organic constant currency. Software license sales and professional services numbers were down with only increasing maintenance revenue preventing a more serious dip in revenue. And, historically, relying on increasing maintenance to drive revenue growth has not been a good sign for an ISV.

Here's an article from a U.K.-based tech Web site that does a nice job summing up Kofax's performance. Although the company is now headquartered in Irvine, CA, it still trades publicly on the London Stock Exchange.

It is worth noting that Kofax's adjusted EBITDA for the quarter was pretty much the same as last year and the company still generated $11 million in cash, ending the quarter with $90 million in the bank.

Here was CEO Reynolds Bish's spin on the numbers, "Our first quarter produced seasonally weak software license and professional service revenues and continuing growth in maintenance service revenues due to increasing renewal rates with total revenues being consistent with historical trends. This was accomplished during a quarter in which we changed our head of global sales and services in order to strengthen leadership in those areas and began implementing initiatives to gradually improve sales execution and productivity. We’re therefore pleased to report essentially the same EBITDA as that realized in the prior year period and strong cash generated from operations."

Bish also reaffirmed his guidance for the whole fiscal 2013, "which is for 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."

It's my opinion that capture market conditions are changing and although Kofax is pushing forward with more cutting edge products like Mobile Capture and Web Capture, which are both highlighted in the press release on the financials, Koafx still has a large legacy traditional client/server-based business to support. Not that the market for client/server capture is dead by any means. But, trying to support this quarterly $50-million-plus  legacy business, while ramping up in new areas that might be influenced by subscription-based pricing - well, it's a bit of a conundrum. We kind of agree with Bish that the profitability number is impressive, especially (and he doesn't mention this, at least in the press release [haven't listened to the conference call  yet])  when you consider the investments Kofax is making in its new products lines and potentially new business models.