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Omtool AccuRoute is a platform
for document capture, processing and routing that gives end users a great deal of
flexibility using interfaces that they are very comfortable with like their own email
interface or their own document management or repository interface
Technology
Technical & System Software
(OMTL-NASDAQ: CM)
Omtool™, Ltd.
8A Industrial Way
Salem, NH 03079
Phone: 800-886-7845
Robert L. Voelk
Chairman, President and CEO
Interview conducted by:
Walter Banks, Publisher
CEOCFOinterviews.com
April 6, 2006
BIO:
Bob Voelk is one of the original founders of Omtool and currently serves as its chairman,
chief executive officer, and president. He is responsible for Omtool’s global
strategy, is a recognized expert in document routing technologies and has a long and
distinguished career in the computer software industry. As president and CEO, Bob has been
responsible for developing Omtool’s diverse product portfolio, its worldwide network
of strategic alliances and the executive management functions. Prior to co-founding
Omtool, Voelk worked for more than a decade at ASA International, a developer of
proprietary vertical market software, where he served as executive vice president of the
company’s International Trade and Transportation Division. He currently serves on the
board of directors for ASA International and eSped.com.
Company Profile:
Omtool, Ltd. is a leading provider of document routing products and services that enable
organizations to manage the capture, process and distribution of “mixed-mode”
documents containing both paper and electronic documents to electronic information
systems, leveraging the native interfaces users are already familiar with. Omtool’s
enterprise-level products are used by organizations whose business processes frequently
include paper-based documents and/or have stringent compliance requirements that include
secure handling, storage, integration, and tracking of a variety of documents delivered to
or from corporate systems.
AccuRoute, the company’s flagship product, is a
document capture, process and distribution platform that makes it easy to centralize
valuable company information and distribute it to multiple systems simultaneously.
AccuRoute is the industry’s only document routing platform that delivers a unified
management control system for both paper and electronic documents while providing an
architecture for complete document integration. AccuRoute is designed to enable “in
the business workflow” document capture, processing and distribution required by
business users within their every day tasks.
CEOCFO: Mr. Voelk, can you give us a little background on
Omtool, your background with the company and how it has changed over the years?
Mr. Voelk: “Omtool was formed in the early 90’s and
I was one of the original founders. Our primary focus at that time was high-volume or
enterprise-scale fax messaging; we developed and still have, a large base of customers who
do high volume faxing. These are companies such as Dell Computer Corporation (NASDAQ:
DELL), Mellon Bank (Mellon Financial Corporation – NYSE: MEL) and Wells Fargo &
Company (NYSE: WFC); institutions that produce documents such as loan origination
documents or acceptances or orders and fax them in very high volume. That business was our
primary business for many years, however, over the last few years we have really shifted
our business and focus away from the fax business, which has struggled recently.
Two years ago, we released a product into the legal market called, AccuRoute, which has
become our core product going forward. Therefore, our current positioning in the
marketplace is that we are a leading provider of document routing products and services
that enable organizations to capture, process and route what we call ‘mixed-mode
documents’. These are documents that are both in paper and electronic form or either
paper or electronic form. Fundamentally, AccuRoute is a horizontal product. Most
businesses today still have a lot of paper outside of their electronic systems and they
need a way of streamlining their processes, so that they can reintegrate that paper into
the electronic flow. This could be for a number of reasons, such as SEC reporting or
compliance to regulations like Sarbanes-Oxley and other various regulations for the
banking industry. These compliance issues are not easy to deal with in systems where you
have a significant amount of information electronically that you can archive and can
retrieve, but you also have a lot of paper documents running through the building that you
really don’t have a handle on.
We first introduced our AccuRoute product into the legal vertical, because we thought that
the legal vertical was a small vertical; it was constrained and we knew who the leading
law firms were, so that it was easy to identity and contact them. Based on our experience
in the fax space, what we found was that as it related to enterprise level faxing
documents, law firms were the only smaller companies that had the same types of concerns
and volumes and issues that our very largest enterprise customers had. Therefore, we felt
that it was an ideal vertical for us to focus on in bringing AccuRoute to the market, so
we did that if February of 2004, when we announced AccuRoute at a legal show in New York.
Over time, what we’ve managed to do in the last two years by focusing on the legal is
to sell 110 plus law firms and we are now penetrated to some degree into 30% of the top
100 law firms in the United States. Hence, it has been a very successful product for us
and we are now looking to roll it out into other verticals.”
CEOCFO: Is your AccuRoute software applicable to smaller as
well as large law firms?
Mr. Voelk: “It is certainly applicable to smaller law
firms, although the legal market per se, is really a squat pyramid. There are a few larger
firms at the top and then there are many firms as you start to go down, but they start to
shrink in size dramatically. For example, in the United States to be in the top 250 law
firms, you only need to have approximately 160 lawyers; so if you have 160 lawyers in you
firm then your are probably in the top 250 law firms in the United States. Then it starts
to spread-out and there are for AccuRoute, probably about 2,000 firms that are big enough
to use this product and it would go down all the way to firms that have 25 to 30 lawyers
in a firm. Beyond that, there are many more law firms that drop off below that. Of course
the vase majority of law firms are single or dual practitioners.”
CEOCFO: And you are still operating the fax business?
Mr. Voelk: “We still sell the fax product for those
customers that have a very specialized need. We have a huge base of enterprise customers
that still use it every day, such as Dell Computer that uses our product daily worldwide.
That is not a market that is going to go away, but it certainly is a market that has seen
a lot of pressure and that has been shrinking quite dramatically for us, over the last 3
or 4 years.”
CEOCFO: Your AccuRoute product is relatively new; have the
revenues of the AccuRoute surpassed those of the fax business yet?
Mr. Voelk: “It is new, but the complex portion of that
answer is that on a software basis, about 50% of our software revenues in 2005 came from
AccuRoute, which was up from about 38% in 2004 when we first introduced the product.
Therefore, the AccuRoute software revenues have been moving up nicely. The fax revenues to
mirror that, have been in decline; now that’s just the software side, but our revenue
base is really made up of software, some hardware services and a long term maintenance
agreement. What is relevant to us is that our AccuRoute business, which is predominantly
in legal, in all of its components almost doubled between 2004 and 2005. Further, we
expect that it will continue to grow in 2006 and into 2007. However, legal is a finite
market and when we entered into that market, we did our own study on it and compared that
to other studies and we estimate that the entire market is only about $100 million;
that’s an aggregate. Therefore, we knew going in that wasn’t that was going to
generate the most growth for us in the long run, but it was certainly a market where we
could establish ourselves, prove the product and get some quality customers that we could
reference. We could use them to demonstrate that our product worked in high volume
document environments and then leverage that over into other verticals like finance and
healthcare.”
CEOCFO: What market are you targeting next?
Mr. Voelk: “We started doing the initial work for
finance in the later half of last year (2005) and we’ve accelerated that now, so that
we now have a financial services rep that has been onboard for a couple of months and we
are looking to add some more. We are also starting to do some trade shows and some
advertising and marketing in that space. However, we expect the finance to be our primary
new market though out the year and we of course expect to continue to do well in the legal
space though out the year as well.”
CEOCFO: When you say finance, are you referring to banks,
insurance companies; can you give us a picture of the types of businesses that you target?
Mr. Voelk: “Banks, investment banks, in particular,
large opportunities for us at this point. We don’t actually lump all of some of the
other categories in finance today, such as insurance; we don’t count that in finance,
although in some environments they do.”
CEOCFO: What do you deliver that gives you an edge on the
competition?
Mr. Voelk: “I think that it is an evolving market and
for a long time most software companies really paid very little attention to paper
documents at all. Therefore, there really hasn’t been a significant push of
technology around the question of, ‘how do you get these paper documents back into
your system’, particularly in the office environment. ‘How do you make them work
for you in a significantly better way and as you do that, how do you meet your regulatory
and compliance needs as a byproduct of that?’ Therefore, what we do that is quite
different than the alternative solutions is that in the space that we are directly in, the
office document space, most of the solutions were really hardware add-ons or vendor
specific capabilities that tied into individual devices.
For example, Xerox, Inc. (NYSE: XRX), Ricoh Co. Ltd. and HP (Hewlett-Packard Company
– NYSE: HPQ) all had their own vendor specific product that allows some scanning and
capture of documents and typically, those documents could be stored somewhere on a
computer on a file or they could be emailed. However, it was very much a single use
environment where if you had a document, you went to the machine, you did something with
the document, it went somewhere and then that was it. If you needed to do 2 or 3
transactions, you typically either had to 2 or 3 times or you had to send it to some
intermediate destination, where you then picked it up and then did additional work with
it. That is really the competitive landscape of alternative products, by-and-large.
What AccuRoute does is quite different, in that AccuRoute is really a platform for
document capture, processing and routing. What that means is that end users have a great
deal of flexibility, using interfaces that they are very comfortable with like their own
email interface or their own document management or repository interface. They can setup
routing rules on an ad-hock basis, so they can decide that for the next few days while
they are working on a specific project, they can setup how they want all of their
documents delivered for this project. This would include who they go to, where they are
stored, the format that they need to be in, whether that is Microsoft Word format for some
people or a PDF file or searchable text file for PDFs. This could also include whether
they need to be put into my corporate archives, which might be for compliance or it might
be that I would use a document management system for collaboration with people inside the
firm and outside of the firm.”
CEOCFO: How exactly do you get the documents there?
Mr. Voelk: “I setup these rules and then the AccuRoute
server maintains those rules for that person. Therefore, when they have a document and
they go to a scan enabled device, and AccuRoute can work with virtually any scan enabled
device, which is an important point; they would typically walk up to the device with a
coversheet and scan their document once and then all of the document distribution,
profiling, indexing and storage is done automatically. AccuRoute interfaces into all of
these systems and does this and that is a time saving in and of itself, but it is even
more important if you have to do this 2 or 3 or more times over a 2 or 3 day period.
Hence, it really saved you more time and it is cumulative the benefits that you get.
Therefore, that is a different philosophy than the competitive landscape today, which are
very specific to individual scan devices or machines or sometimes very specific to an
individual destination. AccuRoute deals with a huge variety of destinations and virtually
any machine that can scan with the network attachments that can scan a document.”
CEOCFO: You mentioned that AccuRoute can work with multiple
machines.
Mr. Voelk: “The point that I was making that we can work
with multiple machines is important because, what we found early on, when we did a
prototype of this with Xerox, who is a big partner of ours; what we found was that
customers were saying that this is a concept that we can get behind, but we really need to
know that whatever we choose as a software infrastructure is going to survive changes in
the hardware and advances in the hardware. We don’t really want to be tied to a
particular piece of hardware for something that is as important as document routing or
compliance. Therefore, that is another feature of AccuRoute that is different than some of
the competitive landscapes and subsequently really allows us to appeal to larger
organizations or organizations where these issues are big issues.”
CEOCFO: Do you have the sales organizations and/or partners
in place to sell your product worldwide?
Mr. Voelk: “We have worldwide customers and they come in
two flavors; we have an office in London, England that handles everything except the Americas,
which is handled out of our office here. In London they handle everything else, and
because of our legacy business, the fax service business; we have customers all over the
world. We have We have enterprise customers like Dell Computer, where we have
installations with Dell, literally all over the world, in Europe, Asia - particularly in
China, and our largest customers, by necessity, install their products in multiple
geographies. We support them through our offices in the U.S. and London. On the sales
front, we are just starting to switch our international organization over from selling the
legacy business, which is our fax business that has been in decline for us, to now
starting to push AccuRoute and we’ve made some progress in Europe in selling
AccuRoute into some law firms. We are also now working with some financial institutions.
However, most of the AccuRoute service that we’ve been starting in Europe, have been
by some the largest international law firms that are customers of ours, based in the U.S.,
who have also bought servers and installed them in Europe. So we are just starting to
pick-up our European operation.”
CEOCFO: These large files that people are scanning; are they
saved on their premises or at your locations?
Mr. Voelk: “They are saved on their premises. Typically,
the documents are stored into a document repository and for law firms that is most
frequently either Interwoven, Inc (NASDAQ: IWOV). or Hummingbird Ltd. (NASDAQ: HUMC),
which are the two largest presence in terms of document management systems for larger law
firms. In financial institutions, you are more likely to see a Documentum, Inc. or
Filenet. Therefore, each market has its own core systems, but we sell our product as a
software platform and we provide services around that; primarily installation and training
and to some degree integration work although our product is designed to integrate natively
into most of the major applications out of the box. Hence, we don’t do as much custom
integration as you would do with an ERP (Enterprise Resource Planning) system.”
CEOCFO: Are most of your revenues generated from the sale of
software or from things such as support and service contracts?
Mr. Voelk: “Software revenues have been relatively flat
for a long time. They have been trending up a little bit; I think they were up 5% in 2005
over 2004 on the strength of AccuRoute overcoming the decline in the fax business.
However, half of our revenues today are in maintenance revenues, where we have a
long-standing satisfied customer who continues to buy and also continue to maintain the
legacy fax infrastructure. We’ve seen a decline, such as in 05 where we saw about a
19% decline, in our maintenance revenues over 04 in the legacy product and our maintenance
revenues over the year were relatively flat, but AccuRoute picked-up the slack on that.
Further, maintenance revenues are still a big part of our business and I think that it is
going to make the AccuRoute grow as we move through the legacy fax business and AccuRoute
continues to grow.”
CEOCFO: Do you see your future grow coming from reaching new
industries or staying focused on legal and financial?
Mr. Voelk: “Right now we expect to see significant
growth in the legal space in 2006, but we also expect to start to see good revenue from
the financial sector in 06. As you get into 2007, I think you will also start to see some
healthcare, however, I think that the financial segment alone is so large, because where
our original estimates for the legal segment were $100 million; our initial estimates for
the financial segment is 4 or 5 times that. Therefore, there is a significant market there
in the legal space and when we are talking about head-to-head competition, we are winning
better than 75 or 80% of the time. If we can maintain that kind of head-to-head winning
ratio as we move into other verticals and if we can meet the challenge of making ourselves
visible to more opportunities, which is always a difficult task for smaller companies. If
we can do those things, then the financial and in the legal segments alone will give us
plenty of headroom to grow dramatically over the next few years.”
CEOCFO: What is the financial position of Omtool and will you
need to raise money to continue to build out your business?
Mr. Voelk: “We’ve been relatively conservative and
in 2004, we were very conservative as we rolled out AccuRoute as a new product, but in
2005 we increased our expenditures. In 2006, we will accelerate our sales and marketing
expenditures quite dramatically and we believe that through 06, we will start to see some
growth on the top-line and that is really what our objective is. Fortunately, we’ve
been relatively conservative and we’ve got a good base of loyal customers. We have
about $10 million in cash and for a firm our size that really represents a significant
cash position. Therefore, we are really not in a position where we have to raise money to
achieve our objectives. We just need to execute on our plan.”
CEOCFO: Please address potential investors; why they should
be interested in Omtool and are you focused on reaching retail or institutional investors?
Mr. Voelk: “We are not going to turn away any investor,
because investors are a good thing, but our view is that we are a little more appropriate
for institutional investors than retail at this time. This is because we are a small
company with a dynamic product in a market that estimates are growing dramatically and it
is going to represent significant opportunity over the next 3 to 5 years. However, small
companies represent more risk than I think is appropriate for a retail investor
by-and-large; and institutions have the opportunity to do the research that they should do
on small companies. Further, I think that if they do that and the looked at Omtool
carefully, they would see that we have a great position in a market that is on its own.
They would also realize that as we expand our sales and marketing and become more visible
in the marketplace, then we have an opportunity to become a significant player and a
significant software company in this space and then leverage from there into other spaces.
Therefore, for an institutional investor who is willing to hold the stock for 1 or 2
years, I think that Omtool would be a great investment. On the other hand, retail
investors who are looking for an immediate return may not find what they are looking for,
because we are very much in the investment mode. You need to understand our business
relative to the key indicators, which revolve around AccuRoute. How is AccuRoute doing,
what are we doing with AccuRoute sales, how is that product doing? You have to look beyond
how the legacy business is tailing off and most institutions can certainly do that and
will do that.”
CEOCFO: In closing, tell us about your management team and if
you feel that you have all of the pieces in place?
Mr. Voelk: “It is a dynamic time for us, we are really
excited and we’ve got a great team, which we’ve been building over the last
year. We are pretty much in place with a little over 100 people right now and we really
only anticipate a 10% increase through 2006 as we already have all of our key people in
place and most of our supporting people in place. Therefore we are positioned to do well
in 2006.”
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