Follow-up on Health of Capture Market Article

As you can imagine, at last week's ReadSoft Conference, I received quite a bit a bit of feedback on the article I ran in our last premium issue (May 9) asking the question "Is the Capture Market in Trouble?"  Basically, the article asked the question if in light of Lexmark's recent offer to acquire ReadSoft, for approximately 1.5x revenue, coupled with Kofax's recent fiscal Q3 quarterly report (for 3 months ending March 31) - which included a YOY decline in sales of core capture products - might indicate that the document capture market had lost some of its luster.

Thankfully, Top Image Systems, although significantly smaller than Kofax and ReadSoft, recently reported numbers that are a positive sign for the industry. Highlights include

• 19% increase YOY in total revenue to $8.1M
• license revenue growth of 43%
• growth in all regions, including 100% growth in the Americas were revenue reached $1M
• almost .5M in SaaS sales, which led to a 36% YOY growth in recurring revenue (COO Michael Schraeder from Seeking Alpha transcript of financials conference call on the SaaS revenue: "This amount will be paid again regularly over the next 10 quarters dealing up with solid growing base of returning revenues. The total license revenue of these contracts is equivalent to approximately $4.4.")
• projected double-digit revenue growth for 2014

TIS also raised $13.7M in capital during the quarter through a "public offering or ordinary shares" that will be used to fund potential acquisitions. " At present we are actively targeting growing accretive assets that consolidate our cloud SaaS and mobile organically strategies," said Schaeder.

Of course, unlike Kofax, TIS includes does not break out its mobile capture revenue as separate from its "legacy products," so it's quite possible that TIS and Kofax are experience more similar growth rates that at first glance, as both seem to be reporting robust and healthy mobile capture practices.

Some ReadSoft Acquisition follow-up
As far as the ReadSoft price goes, Bob Fresneda, president of ReadSoft NA and SVP, Americas and Asia Pacific, stressed that ReadSoft's owners and co-founders did not just seek out the highest price for the organization. "Lexmark is a nice landing spot for ReadSoft to be drafted by a company that is willing to invest in the technology and the people," he told us.

ReadSoft CEO Per Åkerberg stressed that Lexmark has plans to enable ReadSoft to continue to operate as a "standalone company."

All that said, it was pointed out that there is a provision in the acquisition agreement that enables ReadSoft to do another deal of someone offers a bid that is at least 7% higher than Lexmark's before the acquisition closes, which is supposed to occur in about a month. 

In our opinion, ReadSoft would make a great takeover target for Open Text, which is its main competitor in the invoice processing space in SAP environments. ReadSoft also has a strong install base - an asset that Open Text typically covets in its acquisition targets. And 7% over $182M would only be $195M, which still seems like a bargain for ReadSoft. Of course, Open Text doesn't exactly have the reputation as "a nice landing place" for acquired company, so I don't know how the board would take to an offer. It might just server to drive up Lexmark's offer.

EPM & Kodak Alaris in Complicated Relationship

So, on one hand Kodak Alaris and Eastman Park Micrographics (EPM) have struck a deal, through which Kodak Alaris is going to continue to provide sales and support for EPM equipment in Europe, Asia, and Latin America. On the other hand, EPM is suing Kodak Alaris for soliciting business from EPM's North American customers, whose service contracts are currently being taken over by Imaging 411, the document imaging service provider that EPM acquired late last year.

Apparently, it's complicated....

Ensuring Security in Document Capture Applications

Not something a lot of people consider.

Check out this excellent contributed article by Parascript's Don Dew on the some of the ways organizations can ensure that their data entry operations are as secure as their back-end data systems.

New Customer Account Applications: Ensuring privacy and security in capturing sensitive information

Paperwork is often part of the first interaction point with a new customer – whether it’s new account applications or enrollment forms for employment, a credit card, or even Medicare. Because of this, information needs to be captured and entered quickly and seamlessly to provide responsive service at an important initial relationship-building stage. And, because these forms contain critical customer information – such as date of birth, social security number, and even payment data – they also need to be processed safely.

Information on applications and forms can generally be classified into two types of data: personal identifiable information (PII), and non-identifiable information (NII).  

Security, policy, and technical requirements set PII apart from NII. PII includes information such as name, address, social security number, telephone number, diagnosis, credit card accounts and email address.  The loss of PII can result in identity theft or fraudulent use of information. Meanwhile, NII includes anonymous information such as gender or age, does not identify a specific person, and, therefore, can be easier to process. 

A number of regulations make keeping personal information secure a requirement for businesses and organizations:  

•  The Freedom of Information and Privacy Act requires the disclosure of federal documents and makes it necessary for government agencies to completely remove or redact confidential information from released files.
• In the health care industry, companies and their contract providers must also comply with HIPAA in order to protect the privacy of individually identifiable health information. 
•  Financial institutions have to comply with The Gramm-Leach-Bliley (GLB) Act, which requires companies to ensure the security and confidentiality of information such as names, addresses, phone numbers, bank and credit card account numbers, income and credit histories, and Social Security numbers.
• · Many businesses also must follow PCI Standards, which provide a framework for developing a robust payment card data security process, including prevention, detection and appropriate reaction to security incidents.

With the potential for fines, penalties, lawsuits and/or embarrassment for leaking vital information, companies and government organizations are compelled to stay on top of requirements to protect sensitive information. Once this information has entered a business system, privacy is most easily managed through software encryption and permission management. However, getting information off of physical documents and into that system offers multiple opportunities for breaches, including: 1) access to information as it is being keyed in by data humans, sometimes located overseas, and/or in high turnover jobs 2) access to information located in imaged archives, and 3) access to paper originals.

Assuming that access to the original paper has been dealt with via careful retention and destruction policies, the other two scenarios can be successfully mitigated with security features built in to document capture software, acting as a first point of defense. Examples include:

Restricting access to information by only providing ‘snippets’ to validators/keyers – Document capture and recognition software solutions can enforce security at the field level, such as providing only a snippet of each form to a single operator. First name fields, for instance, can be given to one validator/keyer, social security numbers to another and diagnostics to still another, so that each piece of information on its own is benign.

Decentralizing access to information by distributing the validation/keying function - To go one step further, the information can be sent to multiple sites within the same company, completely removing and practically eliminating any chance of a security breach or misuse.

These processes ensure that any back-office human validation of forms restricts personally identifiable information by limiting the context in which it would be useful.

Preventing future information leaks through redaction – In cases where document images must be retained for archival, redaction removes sensitive information by digitally obscuring it to make documents secure for distribution. Redaction can often be efficiently achieved during the document capture process, just as sensitive information is entering an organization. Incoming documents are scanned and keyed, then sensitive fields, such as account, drivers’ license and social security numbers are automatically located and redacted by capture software, and sent to archives through a secure digital workflow.  This helps to ensure confidentiality and protect key information.  Redacted information in the archive can't be accidentally or maliciously accessed years later.

Customer onboarding is a document heavy, critical moment in the account lifecycle.  Companies need to be both responsive and protective of information that customers entrust them with on new account applications. In addition to being the law, safeguarding customer information also makes good business sense. And, with greater access to information, in a secure environment, companies can provide better service and help boost the bottom line. 

For more information, check out these videos on advanced data validation and security and locating content to protect sensitive data.

Don Dew is Director of Marketing for Parascript, a leading recognition solutions provider, online at www.parascript.com

 

Initial Thoughts on Lexmark's Offer for ReadSoft

The buzz this morning is all about Lexmark's a bid to acquire ReadSoft.

Here are some initial thoughts:

•  It appears like a done deal, as the acquisition has been unanimously recommended by ReadSoft's board of directors and, according to ReadSoft, "shareholders representing 22.9% of the shares and 41.5% of the votes have undertaken to accept the offer."
  
• It's a fairly attractive offer for ReadSoft shareholders considering it represents a 117% premium over the shareholder value when the market closed on yesterday. (The offer is $6.11 in cash for each Series A and Series B share of ReadSoft for a price of approximately $182 million, net of cash acquired.) ReadSoft shares closed May 5 on the Stockholm exchange (where the Swedish-based company primarily trades) at less than $3 per share, a value they had basically held for the past three months - which was about half of the company's 52-week high, reached last summer,
  
•  It's not that attractive of an offer if you consider that two years ago Lexmark paid $148M to acquire Brainware, a capture ISV about a quarter the size of ReadSoft. ReadSoft reported $117M in revenue in 2013 - although it has struggled recently with growth and profitability - which likely drove the share value down over the past year.

How do you integrate Brainware with ReadSoft under Lexmark's Perceptive Software practice? This is the $100M plus question and here are some thoughts:

• ReadSoft is clearly larger and more established, but Perceptive has certainly invested a lot into Brainware.
  
• Both ReadSoft's and Brainware's strongest market has been A/P, but I'm not exactly sure that they are direct competitors. ReadSoft really only took off in the A/P space after it acquired the Ebydos SAP workflow technology, and has since added similar workflow for Oracle Financials. Brainware always touted its ability to do "straight-through" processing based on three-way matches, which theoretically eliminates the need for workflows. So, Brainware's technology always seemed like a better fit in PO heavy environments where there were not a lot of exceptions, while ReadSoft was great when there were more workflow requirements. Of course, when Perceptive acquired Brainware, it touted the ability to introduce Perceptive's ImageNow worklfow into the equation and even things out a bit. I'm not sure how much that has been a factor. The bottom line, however, is that both companies compete primarily in the same horizontal market.
  
• Geographically, it seems that Lexmark is counting on ReadSoft to increase it presence in Europe, where ReadSoft generated approximately 70% of its revenue in 2013. Even though Brainware's development team is in Europe, its sales and marketing were always based in the U.S. This reminds me somewhat of Perceptive's acquisition of German ECM ISV Saperion last year, which has technology similar to Perceptive's legacy ECM platform, but was acquired to give Perceptive a stronger European ECM base.
  
• Along those lines, in our latest issue we ran a brief discussing how Perceptive was going to leverage its new Evolution Hybrid Cloud environment to potentially bring its two ECM platforms together. Perhaps it will eventually do the same with its two capture software platforms.
  
• Perceptive also gains the XBOUND document capture workflow platform, which ReadSoft acquired with foxray a couple years ago. A recent conversation with ReadSoft CMO Andrew Pery indicated that the foxray sales pipeline is improving and evolving as ReadSoft has continued to productize what had historically been software geared mainly toward customized one-off type implementations. ReadSoft had been targeting the service provider and mailroom markets with XBOUND - not necessarily a strong market for Perceptive historically.

Finally, I'm looking forward to catching up with top ReadSoft (and maybe Lexmark?) executives at ReadSoft's user conference next week.

Notes from Mitek Q2 Earnings call

As I Tweeted earlier @DIREditor, capture ISV Mitek Systems, which specializes in mobile imaging technology, recently reported strong growth for its fiscal Q2 ended June 30. But the company continues to burn through cash. It's revenue for the quarter was $4.5M (40% YOY growth), but this came with a GAAP net loss of $2.2M and a non-GAAP loss of $1.3M.

Russell Clark, Mitek CFO, from the transcript of the conference call as recorded by Seeking Alpha: "Total operating expenses were $6.7 million compared to $5.6 million in the year ago period. This year-over-year increase was primarily driven by investments in sales and marketing personnel as well as litigation costs related to protecting our IP....Q2 litigation expenses were higher than previous quarters due to the timing of expert testimony moving into Q2....It's also important to note that the $1.2 million in litigation expenses in Q2 of the current year comprised almost all of the $1.3 million non-GAAP net loss in the quarter. Our non-GAAP results will be very close to breakeven if not for these expenses."

Regarding the litigation,CEO Jim DiBello said, "We have patents infringement losses against Top Image Systems and USAA, both suits are ongoing. In the USAA lawsuit the deadline to file motions for a summary judgment is mid May with the trial date set for early September."

So, maybe things are as bad as initially appear when a company's net loss is about half its revenue. Mitek still has $31.5M in assets listed on its balance sheet, including $26M in cash and short term investments. This second figure is down a little less than $3M from six months previous.

However, in that six-month period (specifically in the last three months), Mitek's stock value has certainly taken a beating. After peaking at more than $7 per share in late January, it is now trading at less than half that, with the company's market cap, falling all the way to $95M. When you consider the $26M in the bank - it's net value is around $69M - which may actually bring them into potential acquisition territory - hostile or otherwise. However, the question is, do savvy investors know something more about the USAA case than we do? Or are they just panicking? If I was a betting man...

News on Upcoming Events from IOFM, Notable Solutions, HSA & Kofax

IOFM Preps for Second Payments Summit

Building on success of last year’s inaugural event, the Institute of Finance andManagement (IOFM) is gearing up for its second annual Payments Summit. The event, which focuses on B2B and C2B payments, is being held June 2-4 at the Hyatt Regency on the Inner Harbor in Baltimore. It features a day and a half of conference sessions, as well as an exhibition area.

Last year’s event had 100-150 attendees and IOFM organizers are expecting more this year. “Sign-ups have been steady, but we are still looking for more attendees and also have openings for exhibitors,” said RD Whitney, Executive Director for IOFM, which is owned by Diversified Business Communications. “We think we have the only event that focuses on the full spectrum of payments and provides a holistic view of payments automation.”

The Payments Summit was launched last year targeting former TAWPI members who felt alienated by the direction of IFO (the Institute of Financial Operations), which bought the TAWPI trade organization in 2011. IFO incorporated the former TAWPI show in its Fusion event, which is primarily focused on accounts payable. IOFM also hosts an accounts payable conference, but feels it is filling a market need with a dedicated A/R conference.

Last year’s Payments Summit was well received, and once again former TAWPI executive Mark Brousseau will be emceeing this year’s event. There is no headliner keynote, but the agenda features a steady stream of panels and end user presenters designed to provide peer-to-peer education. Last year’s hot topics included the challenges of managing multi-channel payment streams, as well as automating capture from full-page documents like EOB forms.

IBML is signed on as the title sponsor. Other exhibitors that Document Imaging talk readers may be familiar with include OPEX, BancTec, eGistics, Creditron, Data Dimensions, Fairfax Imaging, MAVRO, Open Scan, and Orbograph. Early attendee sign-ups include executives from industries like banking, telco, healthcare and retail, as well as trade associations and third-party payment processors.

Notable Solutions hosts inaugural US event

Capture and print management ISV Notable Solutions will be hosting its inaugural North American end user event that same week as the Payments Summit, also on the Inner Harbor in Baltimore. eNgage 2014 will run June 4-5 at the Pier 5 Waterfront Hotel. Keynote speakers include Bob Larrivee, director custom research at AIIM and Feri Clayton, director, ECM, IBM Software Group. Notable Solutions end uses from organizations like Toyota, Tulane University, and Fairfax County Government will also present.

“This event is in response to numerous requests from our customers and partners to bring together industry experts to discuss the key challenges facing organizations today,” said Mehdi Tehranchi, Notable Solutions CEO, as quoted in a press release. “We also plan on sharing the successes of those customers who have raised the bar by implementing cost-efficient systems to securely manage and gain greater participation in their business processes.”

Why Kofax Transform is Moving to Las Vegas

Kofax has apparently outgrown the locations at the San Diego Bayfront Hilton where its annual Transform event has been held the past four years. Transform 2015 will be held at in Las Vegas, March 8-11. The 2015 AIIM Conference will then be held in San Diego March 18-20. Kofax is hoping to attract a more international crowd and feels Las Vegas is a better location for that as well. Apparently, AIIM checked with Kofax before scheduling their event in San Diego, so there is no conflict here.

HSA Capture Agenda Shaping up
Finally, once again I have been invited to give my news review and predictions at this year's upcoming Harvey Spencer Capture Conference. The event is being held Sept. 3-4 at its usual location at the Glen Cove Mansion on Long Island. Other topics on the agenda include Big Data, Computational Linguistics and Semantic Understanding, and Photo and Video Understanding. Hope to see you there.

Prepping for ReadSoft User Conference, May 14-16

Looks like I'm heading down to this year's ReadSoft User Conference, May 14-16 New Orleans.. Should be a good, fun and productive event. I'm expecting to get an overview on ReadSoft's direction through a combination of attending the sessions, one-on-one interviews with ReadSoft executives and partners, and some good ole' Nawlins networking.

I visited the ReadSoft offices almost a year ago and came away with this overview of their basically two-pronged strategy: expanding their capture and P2P practices. It will be interesting to see how that strategy has evolved over the year, under the guidance of Andrew Pery, who was working for ReadSoft as a consultant when I visited last year, and was later named the company's first CMO.

ReadSoft is coming on an improved first quarter that included 27% YOY growth in software license sales and a 9% increase in overall revenue. ReadSoft's EBITDA was improved, but the ISV still lost money. According to President & CEO Per Åkerberg CEO, as quoted in the press release on the Q1 financials, "Our EBITDA result and our margins have taken clear s teps in the right direction....A gradual change in the reporting of our revenues from our support and maintenance agreements has affected this quarter’s result negatively compared to first quarter last year. This effect means no lost revenue but only a time delay in the reporting of these revenues."