Thursday, January 15, 2015

Xerox Signs on As Kofax Reseller

Today Kofax announced that it has signed a global partnership with Xerox. Under the terms of the agreement, "Xerox will sell, market, deploy and support Kofax TotalAgility," with support from Kofax sales and services staff. Kofax TA represents its integrated line of products including capture, BPM, analytics, e-signature and data integration technologies.

Couple interesting points about this:
  • The Xerox executive quoted in the press release talks about Kofax TA being part of Xerox' next-generation MPS offering. The concept of MFP/printer vendors moving more deeply into ECM was factored into our recent 2015 DIR prediction that there will be a major ECM/Capture acquisition by any MFP vendor in 2015.
  • Somewhat along those lines, Hyland Software also recently announced a new global partnership with Xerox. Can we connect some dots here?

Tuesday, January 13, 2015

TIS Meets 4th Quarter Expectations

A day after Kofax reported a rebound for its fiscal '15 Q2, capture competitor Top Image Systems (TIS) has reported that it met its guidance for the fourth quarter - at least in terms of local currencies. Like Kofax, TIS does quite a bit of business outside the U.S. but reports its financials in U.S. Dollars, as its stock is traded on the Nasdaq. According to the TIS press release, "The Company anticipates the significant devaluation of the Euro, as well as of the British Pound and leading Asia Pacific and Latin American currencies, to impact its reporting in U.S. dollars."

For those of you keeping score, when TIS announced its Q3 results, which were impacted by its recent acquisition of eGistics, it projected its Q4 "revenues will range between $10.5 million and $11.5 million and expenses will range between $9.3 million to $9.7 million."

TIS also announced today that it expects to be profitable in all four quarters of 2015.

TIS plans to announce full, audited Q4 and year-end results in early March.

Kofax Q2 Numbers Look Strong

Kofax appears to have had a fairly strong second fiscal quarter for 2015 (ended Dec. 31), based on the selected preliminary results it reported yesterday. Kofax pre-reported non-GAAP software license revenue of $34M-$35M, total revenue of $80-82 and an adjusted EBITDA of $13.7 to $14.7M.  This represents about a 6% growth in software license revenue over the numbers Kofax reported for its fiscal Q2 2014, and about a 5% growth in total revenue. EBITDA, which had been down severely in Kofax's Q1, increased YOY by 7-8%, to $13.7M-$14.7M, which represented about a 3x sequential quarter increase.

Kofax CEO Reynolds Bish said the numbers could have been better if not for worldwide currency exchange decline vs. the U.S. Dollar. In the press release he said, "Given the large amount of our software license revenue and total revenues arising in Euros, British Pounds, Swiss Francs and other currencies that have weakened against the U.S. dollar, this effect was substantial. On a constant currency basis - using exchange rate levels in the prior year period - software license revenue would have been approximately $1.1 million and total revenues $2.7 million higher."

In the press release, Bish noted that sales of "new of acquired products" showed strong growth and that core capture software sales also improved - as we noted previously, Kofax reported a number of significant capture software deals in November and December. Bish noted that the number of six-figure software deals, an area of focus for the company, also continued to increase.

Full results are due out Jan. 29.

Tuesday, January 06, 2015

EPM Sells Service Business to Kodak Alaris

Just about a year after acquiring Imaging 411 in order to launch its own service business Eastman Park Micrographics (EPM) is selling its service business to Kodak Alaris, its biggest competitor. From what I heard, EPM was not entirely happy with the way its court case against Kodak Alaris was going. EPM had sought to bar Kodak Alaris Document Imaging from marketing its service to EPM ImageLink micrographics customers - but after originally receiving a court order that supported this position, that order was reversed.

Previous to EPM's acquisition of Long Island-based imaging service specialist Imaging 411 in December 2013, Kodak Alaris had been the official service provider for ImageLink equipment through a contract with EPM. After EPM acquired Imaging 411, it took over the ImageLink service contracts and attempted to bar Kodak Alaris from competing for them. From what we understand, this strategy was not entirely working out, which prompted EPM to sell its service business to Kodak Alaris.

EPM had previously signed on Kodak Alaris to provide support for its hardware customers in Europe, Asia, and Latin America. EPM Service and Kodak Alaris were competing in North America.

With the acquisition, Kodak Alaris also picks up a competitor for scanner service. Imaging 411, and then EPM, employed several ex-Kodak DI technicians and had aggressively pursued document scanner service contracts.

EPM will now focus on hardware manufacturing, with Crowley doing the sales and marketing, as well as media distribution.

Friday, January 02, 2015

Top News Stories in 2014

 This article originally appeared in our Dec. 19, 2014 premium issue.

What Went Down in 2014

A review of our five biggest news stories/trends in the past year. We’ve listed them in reverse order, like a countdown.

5. Convergence of call center and capture markets: It’s the natural evolution of multi-channel capture to eventually include voice. Conversely, as call centers evolve into contact centers, they are starting to embrace document-centric communication. Then there is everything in between: e-mails, Web sites, text messages, social media, etc., that is somewhat unconquered, and this is where the convergence is starting to occur.

At this year’s Harvey Spencer Associates Capture Conference, customer experience management (CEM) consultant Michael McBrien showed a slide depicting an ideal contact center where social, Web, in-person, phone, and mobile communications were all integrated. When asked if anyone is actually doing this, his answer was no.

That said, from the capture market perspective, we are starting to see these elements come together through initiatives like Kofax’s First Mile SPA (smart process application) strategy [see DIR 3/28/14], Kodak Alaris’ partnership with German IDR/AI specialist ITyX, and even document outsourcing specialist BancTec’s recent merger with Dataforce Group [see DIR 8/22/14]. From the contact center side, it was good to see a respected industry veteran like McBrien show up at the HSA Conference.

4. Kofax misses consecutive quarters: The year started so auspiciously for the Irvine, CA-based capture and SPA vendor. At the annual Transform conference held in March, Kofax was riding four straight quarters of software license and overall growth. In addition, an IPO on the Nasdaq (which was completed in Dec. 2013) was paying off, with Kofax’s market cap soaring to around the $750M mark

Then came Kofax’s fiscal Q4 2014 and Q1 2015. For the quarter ended June 30, Kofax reported a non-IFRS YOY decline in software license revenue of 7.5% and a YOY decline in EBITDA of 38.9%. For the quarter ended Sept. 30, Kofax reported a YOY non-GAAP decline in software license revenue of 3.5% and an adjusted EBITDA decline of 47.8%. For Q1, Kofax’s margin was just 6.3%—when in March CEO Reynolds Bish had set a goal of reaching 20% margins within three years.

In both quarters, Bish blamed the shortfalls on large seven- and high-six-figure “core capture” deals that had slipped into future quarters. After the more recent miss, Bish went so far as to say that Kofax will be putting more focus on its “mobile and new or acquired products,” hoping they will pull through traditional capture sales—and get capture back to “single-digit growth.” “We are now accelerating the reallocation of resources and expenditures into this fast growing part of our business,” said Bish [see DIR 10/10/14].

But then a funny thing started happening. In the past month and a half, since Kofax announced its fiscal Q1 results on Oct. 30, the ISV has issued no less than five press releases touting software deals in the high-six to seven-figure range, mostly focused on automating document capture processes. When you couple this with Kofax’s continuing to increase its number of $100,000 (mostly capture) deals (even during its Q1, the number of six figure deals increased by 33%), maybe the capture market isn’t in as bad of shape as Kofax had thought.

3. Increase in onboard imaging processing (IP) technology in document scanners: We’ll admit this isn’t a very sexy story in and of itself, but to us it is the sign of something bigger. In 2014, three leading scanner vendors announced enhanced on-board image processing features: Fujitsu introduced PaperStream IP, which has replaced Kofax VRS as its bundled IP technology [see DIR 1/31/14]; Visioneer embedded IP on a chip with its new On Board Acuity [see DIR 7/18/14]; and Kodak Alaris introduced a new embedded version of its PerfectPage technology [see DIR 6/13/14].

So, what’s the big deal? This trend may help scanners run at closer to rated speeds today, but down the road is when the big benefits could come. More onboard IP creates the potential for removing the PC (where IP has historically been run) from the scanning equation. Not surprisingly, Fujitsu, Visioneer, and Kodak Alaris are all members of the TWAIN Working Group, which is actively working on a new TWAIN Direct standard, designed to connect scanners to applications without going through traditional drivers. EMC Captiva (which develops ISIS drivers) has undertaken a similar initiative with its Cloud SDK.

One end game of these initiatives is that they will enable scanners to be run by a multitude of alternative computing devices such as network devices, phones, tablets, netbooks, and who knows what else. They should also simplify development of capture applications. This trend of more onboard IP is helping move document scanning into the 21st century and beyond.
2. Rise of Cloud computing in ECM: I don’t think we’ve hit the tipping point yet, but in 2014 there were multiple small movements this way that are starting to add up: You had reseller IDT telling us that 40% of its new business is coming from cloud sales [see DIR 11/7/14]. You had Captricity, a 100% cloud-based crowdsourcing capture ISV, securing a $10 million round of Series B funding [see DIR 8/1/14]. You had Ephesoft, which has a purely Web-based cloud friendly capture platform, getting a minority investment from Fujitsu [see DIR 8/1/14]. You had capture ISV TIS buying cloud document management provider eGistics [see DIR 7/18/14]. And you had Box announcing workflow technology at BoxWorks and Dropbox revamping its Dropbox for Business; in the meantime, you had SharePoint experience some growing pains as Microsoft tried to reposition it as part of its Office 365 cloud offering.

As I said, there wasn’t a tidal wave of ECM cloud adoption, but rather a large number of smaller waves in that direction that combined can be equally powerful, especially if they continue to gain momentum in the upcoming year.

1. Lexmark acquires ReadSoft: Far and away the biggest story of 2014 was Lexmark’s acquisition of ReadSoft. The drama played out publicly over a period of four months, from May to August, with the Lexington, KY-based MFP vendor finally paying the equivalent of US $255 million for the market leading capture ISV, which is based in Helsingborg, Sweden. Counter bidding by Hyland Software drove up the price from Lexmark’s initial offer of $182 million.

By all appearances, the acquisition began innocuously enough when Lexmark announced its initial bid on May 6. Although the price seemed relatively low by capture market standards based on its multiple of 1.5x ReadSoft’s 2013 revenue, it did represent a record premium of 117% over market cap for a company trading on the Stockholm Exchange. Lexmark’s offer was unanimously recommended by ReadSoft’s board and included a provision that the board would only consider a competing offer if it was at least 7% higher than the Lexmark offer.

About a week before the acceptance period for the offer was scheduled to conclude, in mid-June, Hyland, probably Lexmark’s Perceptive Software’s most direct competitor in the ECM market, made a bid of approximately $198M, which was 8.7% higher than the Lexmark bid. Lexmark quickly countered with a $200M bid, because, well, they did not have to adhere to the same 7% premium.

Reading the ReadSoft and Hyland statements surrounding the bids led DIR to believe that Lexmark has made some promises regarding future employment of ReadSoft personnel that Hyland was unwilling to match [see DIR 6/27/14]. We also got the impression that Hyland was feeling a bit jilted by ReadSoft’s preference of Lexmark as a suitor. Apparently Hyland had been in talks with ReadSoft prior to the original Lexmark bid that had reportedly ended abruptly.

This all led to Hyland’s buying up of approximately 11% of ReadSoft’s outstanding shares, which it felt voided a 90% share requirement provision in Lexmark’s bid, and then making another bid of approximately $210M. Lexmark countered with a bid of $224M, which included an option to waive the 90% provision [see DIR 7/18/14]. Hyland took one more shot, which Lexmark answered with its $255M bid that included purchasing outright all the shares of ReadSoft’s two co-founders. This gave Lexmark a voting majority and effectively closed the deal [see DIR 8/22/14].

The bidding war was great for the capture industry, as it effectively increased the acquisition multiple of one of the market leaders to 2.2x revenue, a much healthier figure than the one associated with the original bid. The reasons for the acquisition on Lexmark’s side are clear. These include helping it reach its goal of $500 million in revenue for Perceptive Software in 2016 and increasing its European ECM presence. At the same time it helps Lexmark avoid the higher tax rates associated with repatriated profits by investing them in a European acquisition.

Hyland would also have benefited greatly from ReadSoft’s European presence, including its well regarded SAP integration in accounts payable applications. But, in the end it could not compete with Lexmark’s deeper pockets and whatever employment agreements were reached between Lexmark and ReadSoft. Curiously, at the same time it was acquiring ReadSoft, which has recently operated at around a break-even level, Lexmark was touting a goal of reaching 25% operating margins for Perceptive, which, for Q3 (minus some partial quarter numbers from ReadSoft), reported just 3.8% margins [see DIR 11/7/14]. Lexmark clearly has its work cut out.

Somewhat ironically, a couple months after it bowed out of the ReadSoft bidding, Hyland signed a partnership with Xerox. Part of the goal of that relationship is to help the ECM ISV expand its international reach [see DIR 11/21/14]. This should help even the playing field with Perceptive somewhat, although we still wouldn’t be surprised to see Hyland acquire a European ISV to supplement its efforts.
Those are some of the high points of our news coverage in 2014, a year which also included another successful AIIM Conference [see DIR 4/11/14], a strong rebound in Kodak branded scanner sales (now being sold by Kodak Alaris) [see DIR 10/24/14], Harvey’s Spencer Associates celebrating its 10th annual Capture Conference [see DIR 9/12/14], and Nuance buying MFP capture rival Notable Solutions.

Industry Pioneer Passes

Finally, we would be remiss if we didn’t mention that 2014 was also the year that we lost one of the industry’s true pioneers, Nien-Ling Wacker. Wacker founded Laserfiche in 1987, a company that has been one of the leaders in the document imaging and management space since I started working in the market in 1998. Despite the company’s consistent growth, Wacker did her best to maintain her personal touch in the business. Whenever I would see her at events, should always made time to hold a real conversation and never failed to ask how I and our publication were doing, even as I interviewed her about Laserfiche.

Wacker received many accolades throughout her career, including the AIIM Pioneer of the Year Award in 2002, National Luminary of the Year by the Mothers in Business Network in 2005, and City National Bank’s Entrepreneur of the Year in 2009. In 2006 she was inducted into the National Association of Women Business Owners Hall of Fame in Los Angeles. She is also remembered for her “Red Shoes” story, the moral of which is along the lines of “make hay while the sun shines,” which Wacker certainly did during her tenure with Laserfiche.

Nien-Ling’s husband Chris has taken over as Laserfiche CEO. Karl Chan has been promoted from CTO to president.