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?

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.

Kofax Places its Bets on SPAs

As many of us know earlier this month, Kofax pre-announced that its fiscal 2015 'Q1 results would be below expectations. The final results came out yesterday, and, pretty much as expected Kofax's revenue came in at $69.3M (growth of just 2.3%), sales generated from software licenses fell by 3.5%, and earnings decreased almost 50% to $4.3M or just a 6.3% margin.

In a call discussing the pre-announcement, Kofax CEO Reynolds Bish blamed the shortfall on some larger capture deals that did not close as expected. This was the second quarter in a row for which he used to same excuse. Investors were none too happy, and Kofax's stock plummeted - losing almost 25% of its value overnight. The stock has since gained back some of its value, but as of right now, Kofax's market capitalization is around $550M, which is less than two times revenue and about 30% below Kofax's high-water valuation mark reached this summer.

On the follow-up call to the recent final earnings announcement, Bish stated that Kofax had closed one of the two seven-figure deals that had slipped at the end of Q1, as well as several six-figure deals. He also reiterated that mid-market capture sales through the channel remained strong-but that increased scrutiny at the higher end of the capture market, especially in Europe, through both direct and indirect sales channels, was making sales tougher.

While Bish did not come right and say that the capture market, which still accounts for the majority of Kofax sales, was weak, he did restate that new sales reps are primarily being hired to focus on sales of newer/acquired product lines (including mobile), which in Q1 accounted for 35% of Kofax's software license revenue. "Most of the new quota bearing sales reps we've added over the 18 months have been in the mobile and newer acquired products part of our business," Bish said (from the Seeking Alpha transcript of the analyst call).

In the Q&A portion of the call, Bish added some color to comments he had made previously about reallocating resources and expenditures to focus more on the faster growing parts of Kofax's business specifically "mobile and new or acquired products." "There are a number of additional steps that we've taken here more recently to do so and most of them are aligned along the demand generation efforts," he said.

Bish added that because of Kofax's longevity and reputation the capture market, cutting back on demand-generation efforts in that market "hasn't historically tended the impact that business or ability to generate business there."

Bish then added that Kofax's current salespeople, many of whom also have a strong legacy in capture, have been given stogner incentives to sell the newer products. "There are a lot of reps out there, that have been with the company for many years, who certainly find things like Kofax Capture and Kofax Transformation modules to be their comfort zone, and so we've implemented a number of incentives as well as management processes in order to move them faster from the old legacy products to Kofax TotalAgility."

TotalAgility is the platform that Kofax introduced last year, which combines multiple of its acquired technologies in areas like BPM, business intelligence/analytics, application integration, and presumably e-signatures, and combines them with capture and IDR in a single Web-based and mobile platform. Said Bish, "[TA] can program capture functions, but more importantly can also automate the downstream synergistic business processes, provide a much higher value, a much more comprehensive solution and can also ultimately lead into providing true Smart Process Applications."

Attacking this potentially lucrative SPA space, which is squarely addressed with Kofax's First Mile marketing program, seems to where this market-leading capture ISV wants to train its focus, although it's likely that its market presence, technology set, experience, and momentum, will enable Kofax to maintain its leadership position in the enterprise capture space as well.

Focused on the Future
I think it's worth noting that when Kofax says that 35% of its new license revenue is coming from sales of "mobile and new or acquired software products" that does not necessarily mean these are true SPA sales. They may be of technologies that can be leveraged in SPAs, but capture fits under that bill as well. The majority of these sales, from what I understand, are more or less point solution sales - that said, some are into new and exciting markets, like in the case Kapow's data integration technology.

Yes, Kofax seems to be treating capture like a cash cow, but that's not necessarily a bad thing. As we've said several times over the past year, the capture market is maturing, especially at the enterprise level where Kofax often competes. This may have something to do with the delays in larger sales. There is nothing wrong with a market leader taking its profits from a mature technology and investing them in a potentially higher growth emerging market. Let's just hope that the SPA market proves to be the correct bet for Kofax.

Top Image Systems to Buy eGistics

Document capture ISV Top Image Systems (TIS) has announced plans to acquire cloud archiving specialist eGistics. TIS will pay approximately $18M for Dallas-based eGistics, which had 2013 revenue of $10.6M. eGistics has historically focused on the financial services market - which has also been the primary focus of TIS' recent North American efforts. TIS has also positioned itself as a cloud player in the capture space, so this acquisition dovetails nicely with what it has been trying to do.

TIS plans to leverage eGistics cloud infrastructure to rollout several of what is terms "smart processing applications" in areas like invoice processing, the digital mailroom, bill paying, account opening, mortgage processing, and employee onboarding. We recently detailed how TIS is partnering with workflow ISV K2 on SPAs that it is bringing to market. TIS also has plans to market its software to eGistics blue chip customer base, which reportedly includes "4 of top 5 U.S. banks."

The acquisition will triple TIS' U.S. headcount to more than 65 employees. According to TIS Executive Chairman Izhak Nakar, as quoted in a press release, "As a result of this powerful strategic combination, TIS Americas will be the largest business unit in terms of revenues. Reinforcing our commitment to growing our presence in the U.S. market, the acquisition significantly accelerates this important strategic initiative, giving us tremendous talent, two offices, and a more comprehensive suite of offerings to cross-sell to a broad installed base.”

The acquisition is expected to close in Q3 and be accretive to TIS' bottom line as eGistics reported a 2013 profit of $1.52M. eGistics shareholders will receive 50% cash and 50% stock from TIS. As of the end of Q1 2014, TIS had $15.7M on its balance sheet - more than $13M of which came from a recent public offering of ordinary shares.

Kofax, QAI, SPAs - Did They Help Fix Healthcare.gov?

This summer Kofax announced a $7M deal with a government agency that was among the biggest in company's history. It included more than $4M in software license revenue and $3.5M for four years of prepaid software maintenance. The deal was to a government agency and was sold through federally-focused Fulton, MD-based systems integrator and conversion services provider Quality Associates, Inc. (QAI).

At Kofax's recent Transform Conference, QAI was recognized by Kofax with its Award for Partner Deal of the Year. A few more details surrounding the customer came out. "The overall contract will help a government healthcare agency manage efforts related to enrolling uninsured citizens in state insurance exchanges, as mandated by the Affordable Care Act (ACA) – millions of paper and electronic applications and other documentation are received, reviewed and verified for completeness and eligibility, and processed in an environment that protects applicants’ personal information."

QAI is presenting this as a First Mile implementation leveraging Kofax's Smart Process Application technology. Of course, this is exactly what I was calling for as I was going through my personal experience trying to sign up for a new healthcare plan at US Government Web site. At least it appears we are all on the same page now, which may have something to do with the sharp decrease in complaints we've heard recently about the onboarding process.

Kofax Transform 2014 Kicks-Off - A Brief Look at Kapow

I am out there in San Diego Kofax's annual user and partner conference. Things kicked off last night with a reception/partner product showcase. One of the goals of my trip out here was to get a better understanding of Kapow - the data integration software company that Kofax acquired last year. I had a fairly long discussion with a Kapow salesperson last night as well as a demo. Basically, he described the "technology as the glue that binds." In other words - here's the way I understand it at least - it has the ability, without API programming, to go into any application and extract requested data. This can include both internal and external sites. And it's a two-way integration, so, if the collected data comes back in a way that indicates some sort of action should be taken, the Kapow software can also execute that action by submitting new data. And the software is designed so that these integrations can be set up by business analysts, with help from IT staff only for certain customizations.

Here's a case study of how Audi used Kapow to create an internal portal. How it fits into the Kofax platform is that it should enable Kofax's capture and Altosoft data integration sofware to be integrated with an unlimited number of third-party applications - which should push forward Kofax's First Mile strategy. The First Mile of course was the big marketing strategy pushed forward last year under then CMO Martyn Christian at Transform. All indiciations are that Kofax plans to continue down that strategic line. I'm interested to see how today's presenatations and interviews play out.

Kofax Announces $4 Million TA & Analytics Deal

Today Kofax announced it had won a $4 million contract with a Western European-based "global wealth and asset management company." The deal includes Kofax's Total Agility 7.0 smart processing application (SPA) platform, as well as Kofax Analytics software (which is based on software from Altosoft, which Kofax acquired last year). It breaks down into $1.25M worth of software licenses and approximately $2.75M of maintenance, professional services, and training charges. The deal closed in Kofax Q2 (ended Dec. 31) and was delivered in January.

The software is being used to "capture, classify, process, act upon and analyze more than 20 million financial documents received from customers each year."

Certainly a solid deal for Kofax, especially because it includes two pieces of software that are separate from its legacy (as a capture ISV) and geared toward its future vision of serving the SPA market. That said, it's worth noting that software licenses made up less than one-third of the total price of the deal. Is this going to be the standard SPA sales model due to the complexity of the implementations? As a comparison to Kofax's legacy model, for the six months ended Dec. 31, software licenses made up about 40% of Kofax's total revenue with maintenance and professional services making up the remaining 60%. In that regard, the recent SPA deal doesn't seem like that big a departure from Kofax's traditional revenue model - although it's probably worth considering that the six-month period includes maintenance contracts related to more than 15 years of software sales, which should push that percentage higher than what you'd expect as related to a one-time deal. Do you know what I'm saying?

Anyhow, I guess it's natural that as Kofax moved into more complex SPA solutions its professional services revenue should rise - as in addition to more complexity, many professional services related to capture deals have historically been managed by resellers. It will be interesting to see how this affects Kofax's long-term profitability.

Obamacare - My Experience and why SPA could have saved it!

Okay, so first off, hope everyone here stateside has/had/is having a great T-Giving holiday.

So, far my Holiday shopping has been focused on getting some new health insurance  - taking advantage of the Obamacare plan, which is technically named the Affordable Healthcare Act, or something to that effect. Full disclosure  - I am a Democrat (having switched parties when George W. Bush was first nominated as the Republican presidential candidate) and have voted twice for Mr. Obama as president. I also have a pre-existing medical condition that historically had made it impossible for me to switch insurance and shop for a better policy. As I own my own business and am self-insured, I really have had no leverage and my insurers keep raising my rates and there has been nothing I could do about it. So, I was looking forward to being able to do some comparative shopping through Obamacare.

Yes, I had heard all the nightmare stories about how hard it was to actually get the Affordable Healthcare Act Web site to work properly when signing up. But, I figured some of this had to be exaggerated, right? Media hype. I'm mean I'm fairly technologically savvy and the U.S. federal government invested at least $100 million in the Web site, so it couldn't be that bad, could it? I mean Web sites are somewhat mature technology.

Well, it turns out everything is as bad as advertised. Here's a list of the problems I've encountered so far:
1. Online form was not very intuitive: For example, whenever you change something, it takes you back to that part of the form and doesn't make it clear how you are supposed to skip refilling in the same information in the sections that follow the area that you've changed.
2. I am currently attempting to log-in the Web site right now and can't get in.
3. It took me literally two hours to fill out the unintuitive e-form
4. Received feedback that I would get a tax credit for my wife and I and that the state would have to check on eligibility for kids enrollment in a state-sponsored insurance program.
5. I then realized I needed to change some (I thought fairly minor) info about my current healthcare coverage.
6. Went back online but couldn't get back into my application form to make the change.
7. Went through chat service and phone call to try and make corrections- and while my questions were answered promptly, nothing was accomplished. I was told I'd have to wait for a call back within 2-6 business days before I could make any changes.
8. In the meantime, my application seems to be stuck somewhere in limbo, although it's not really clear where that is.
9. Waited three weeks and never got a call.
10. Got a bill from my current insurer which for reasons (perhaps related to Obamacare?) has increased its premiums 12% across the board.
11. Called the Affordable Healthcare Act customer support number this morning and the rep said they had no record my previous call and that, someone would call me in another 2-5 business days. If I miss that call, I am instructed to call back on the same number I called this morning and only then can they connect me to who I need to talk to.
12. Took me six tries to log onto the Obamacare Web site to double-check the status of my application, which appears to be in the same state I left it before, although for some reason (presumably because someone has to make changes to it, it is listed as "inactive," although it's not exactly clear what that means.
13. Now I guess I wait until next Thursday to hear from someone before calling back. And my deadline for applying for coverage effective Jan. 1 has been extended to Dec. 23. 

It has been my contention since I began this process of applying for healthcare coverage through Obamacare, that the on-ramp is clearly something that could have been better addressed by what Forrester, Kofax and others are calling Smart Process Applications (SPAs). From a Kofax press release on Forrester's definition of SPAs: "SPAs is a new category of application software designed to support industry specific business activities that are people intensive, highly variable, loosely structured, and subject to frequent change. SPAs automate both structured and unstructured work activities in support of collaborative processes."

SPAs combine technology like capture, BPM, collaboration, and analytics to help connect customer-facing systems of engagement - which is what the Obamacare Web site is supposed to be - with systems of record, which is presumably what sits on the back end of the Obamacare Web site and is supposed to come up with a selection of insurance plans I can choose from. There is obviously a breakdown in the current system for making this connection as I've been trying to get some quotes from several weeks now!

As I've said before, I think this whole Obamacare mess demonstrates the market potential for SPAs. Sure, some e-commerce sites, like Amazon, are great, but they have spend billions of dollars and multiple years ramping up to their current level of mostly automated customer service. For almost everyone else, most back end systems are based on some type of tradtional paper process and just gluing a Web site to the front end is not going to work. This is where SPA fits in. It can act as the glue between old processes and new e-commerce driven ones. And document imaging ISVs and SIs are the perfect people to sell and install SPAs because their businesses are rooted in taking traditional processes and making them more electronic through applications like capture and workflow.  Basically, they understand technology and they also understand processes - two key ingredients to making e-commerce systems work successfully in a real world full of legacy systems and old habits.

In conclusion, I hope I get this healthcare thing resolved and I hope all you capture, document imaging and SPA vendors and SIs can leverage the so-far disastrous results of the Obamacare service to convince organizations transitioning to more e-commerce that they really need your help. After all, they certainly don't want to make the same mistakes and be compared to Obamacare when trying to conduct business.

Best T-Giving wishes,

Ralph

Kofax: A Go-To Partner for MS in SPA

A couple weeks ago, Kofax announced it would make an insurance claims processing solution available for demonstration as part of an engagement at Microsoft Technology Centers (KTC) worldwide. Here's our blog post discussing that announcement. It mainly focuses on Kofax's moving its technology to a cloud environment.

We were also wondering how significant this was regarding Kofax's relationship with Microsoft. Here's the reply we received from Dermot McCauley, VP, solutions product marketing, for Kofax: "The Kofax Agile Claims demonstration supports the Microsoft partnership by providing innovative technologies that allow us to offer a more complete customer solution and meet their customer’s exact needs. These resources shorten the time required to develop a customer demonstration by removing traditional barriers and reduces the total cost of solution acquisition while providing compelling customer value. Drawing on the integrated innovation of Kofax Total Agility, the Microsoft Technology Center can be a powerful resource for customer organizations.  

"Additionally, the KTA offering potentially influences Microsoft licensing including Azure, Dynamics, SQL Server, SharePoint, O365, Exchange, Lync, and Bing. As we continue to roll-out this demonstration globally, Microsoft team members in the field will look to Kofax as a leading provider of smart process applications for the business critical First Mile of customer interactions."

It seems as if he is trying to position Kofax as a go-to partner for MS in the SP space. That's not a bad thing.

Kurzweil, the Wisdom of Harvey Spencer, & Kofax TA 7.0

A couple weeks ago at Kodak Alaris' excellent Global Directions 13 Conference, noted futurist and technology author Ray Kurzweil gave the keynote. As I noted earlier, he totally delivered on the hype, and gave an excellent talk discussing everything from his roots in the document imaging industry to how and why we are going to live much longer in the near future. The main theme of his talk was how information technology grows at an exponential, and not a linear, speed. This causes people to underestimate the improvements that will be made a few years down the road, and as a result, the effect these improvements will have on our lives.

Related to this, Kurzweil noted that people developing technology products need to be working on stuff that makes sense three to four years down the road. This made me reflect on the Harvey Spencer Associates' conference I had attended two weeks earlier. At the HSA conferences, Harvey likes to push the envelope of the capture industry. In fact, he will often have speakers that make you think, what the heck does this have to do with the market? This year, in fact, there were a couple speakers that focused on voice technology, which, aside from Nuance, wouldn't seem to affect anyone in the capture market. But, when you consider Kurzweil's sentiments, maybe it will.

For some perspective, I took a look at the agenda for the second HSA Capture conference, held in 2006. One of the sessions was "Check 21 and its Impact on the Convergence of Document and Transaction Processing." I remember telling Harvey at the time, I really didn't see the connection between payments and document processing. But, low and behold, some seven years later, at IOFM Payments Summit I attended recently, the convergence of documents and payments processing was one of the major themes.

Of course, Windows Vista was also a topic on the agenda at HSA Capture 2006, so you can't win them all, but, I think it's safe to say, in line with Kurzweil's strategy, looking ahead a few years when developing new technology is important, because it helps get you to market ahead of the competition, who can follow, but will have a tough time unseating an established leader. SharePoint 2007 was another topic discussed at HSA 2006, and by that time KnowledgeLake already had an established, if small, capture-to-SharePoint practice. As Spencer's vision of the influence of SharePoint proved correct, and it spread as a popular ECM repository, KnoweldgeLake blossomed from a start-up to a major player in our industry, while other vendors scrambled to catch up.

Which all brings us to Kofax's announcement today of Total Agility 7, a platform for implementing smart process applications (SPA). Kofax first unveiled its SPA strategy about a year ago. At the time I wondered what the heck they were talking about. Kofax's CMO Martyn Christian (who left the company about a month ago), however, did a pretty good job tying SPAs to the newly defined "first-mile" of business processes and the strategy started to make sense, but I was still wondering how Kofax planned to address it. Well, Total Agility 7, which has apparently (per Kurzweil's advice) been in the works for several years and some $125 million worth of acquisition and R&D investment, makes it all clear. Basically, it's a Web-based (eventually cloud-based) platform with all the tools needed to create SPAs.

I'll expound more on this in my next premium issue of DIR, as Kofax CTO Anthony Macciola gave me a great interview on the details of TA 7. In brief, it combines Kofax's existing capture technology, with its internally developed mobile tools, with the technology from the acquisitions Kofax has made over the past few years, and puts in all in a Webified, cloud-ready environment that appears ready to address what Kofax hopes is an emerging market for SPA solutions.

Kapow Helps Kofax Address SPA/First Mile

Okay, so here's my first stab at explaining Kofax's acquisition of Kapow Technologies which was announced earlier today. Based in Palo Alto, Kapow is a data integration ISV with some $16 million in annual revenue. Kofax agreed to pay a net of approximately $46 million. (We'll get into more of the financial details in our next premium issue of DIR.)

On a conference call today, Kofax CEO Reynolds Bish explained that Kapow has three primary lines of business:

• enterprise application integration
• content migration from one ECM-type system or database driven application to another
• competitive or marketing intelligence involving monitoring social networks and tracking trends occuring on them

He also noted that over the past four years, Kapow has transitioned from an on-premise software model to a subscription model and that, including maintenance, more than 70% of Kapow's revenue is currently generated through a recurring billing cycle. Kofax plans to continue to sell into all of Kapow's current markets.

But, the really exciting part from a Kofax standpoint is how Kapow's software will help Kofax better pursue its Smart Process Application (SPA)/First Mile of the customer interaction strategy. SPA is a market defined by Forrester sometime between late last year and early this year. Kofax embraced it because of its higher growth potential than document capture.

 Here's some of what Forrester principal analyst Craig LeClair had to say about SPA (excerpted from a previous DIR article.): “SPAs are packaged apps designed to address end-to-end process needs. They can be used to address processes that businesses have been struggling with like invoice and claims processing, and customer onboarding....SPAs combine capture, BPM, social tools, and analytics as enablers to build focused applications."

Kofax is then trying to combine an SPA focus with its aforementioned strategy of addressing the "First Mile" of customer interactions. Here's how Kofax CMO Martyn Christian described this "First Mile:" “The First Mile is really that bridge between systems of engagement and systems of record,” he said. “It involves processes like scanning paper, but it could also involve an app on a cell phone. Our goal is to capture customer information and start to look at building cases and collaboration around it, before the data ultimately ends up in an ERP system or whatever system of record it’s headed towards.”

Basically the First Mile is about most effectively connecting systems of engagement on the front end with the back-end systems of record. But, one of the catches to doing this is that it involves connecting multiple disparate systems - something which Kofax, as primarily a document capture ISV, didn't really have a legacy in.

So, the first step in addressing this shortcoming was acquiring BI and data analytics ISV Altosoft. Altosoft gave Kofax the ability to pull data from disparate system for analyzation and decision-making. The acquisition of Kapow builds on that by enabling Kofax to more easily connect to multiple applications.

During today's conference call, Bish did a fairly good job of explaining the advantages of simplifying application integration when you are competing in the SPA space. "When we talk about SPA, we talk about being able to bridge the gap between systems of engagement and systems of record," he said. "To do that means we have to integrate our technology with both of those types of systems. For example, as part of an SPA you might have to do look-ups into your systems of records to validate information coming from your system of engagement. You also have to export data to a system of record or some other repository.

"Historically, to make those connections, we've had to rely on API programming, which can be time consuming as well as expensive, as it can require extensive professional services. Kapow will enable us to do integrations better, faster, and cheaper, which will accelerate deployment of SPA solutions. Reducing our professional services will also enable us to remove some potential barriers to selling SPA solutions."

The bottom line is that the Kapow acquisition seems to be an important step toward Kofax's goal of transitioning from a document capture specialist to an SPA vendor with a broader market to address. It is another example of how Bish continues to push the company forward through investment in new technology of the profits earned primarily through Kofax's current capture business. Clearly Bish (and the Kofax board) see the capture market as evolving and are not satisfied and stand pat and let it pass them by.