Kofax plc (NASDAQ:KFX) Q4 2014 Earnings Conference Call September 2, 2014 8:00 AM ET
Todd Kehrli - IR
Reynolds Bish - CEO
Jamie Arnold - CFO
Scott Berg - Northland Capital Markets
Jeff Van Rhee - Craig-Hallum
David Hynes - Canaccord Genuity
Good day and welcome to the Kofax’s Fiscal 2014 Fourth Quarter and Yearend Earnings Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Todd Kehrli of the MKR Group, please go ahead.
Thank you, operator. Thank you for joining us today to discuss Kofax’s fourth quarter and full year financial results for fiscal 2014, which were released earlier this morning and can be found on Kofax’s IR site at www.investor.kofax.com.
With me on today’s call are Reynolds Bish, Chief Executive Officer of Kofax and Jamie Arnold, Kofax’s Chief Financial Officer. Reynolds will begin the call with some prepared remarks and we will then open the call for questions from the financial analysts who cover the Company and institutional investors.
Before we begin, I want to caution everyone that in this call, the Company will make forward-looking statements that involve risks and uncertainties that could cause actual results to vary materially from those projected in the forward looking statements. Among the important factors that could cause actual results to differ materially from those expressed or implied in the forward-looking statements are that the Company may experience significant fluctuations in future operating results due to a number of economic, competitive and other factors, including among other things the Company’s reliance on third-party manufacturers and suppliers, government agency budgetary and political constraints, new or increased competition, changes in market demand, the Company’s ability to consummate and the timing of the consummation of software revenue transactions, the company’s ability to integrate acquired companies and to continue to grow through acquisitions or investments in other companies or technologies and the performance or reliability of the company’s profits.
These factors and others could cause operating results to vary significantly from those in prior periods and those projected in the Company’s forward looking statements. Additional information with respect to these and other factors, which could materially affect the Company and its operations, are included in certain forms the Company has filed with the Securities and Exchange Commission.
In addition, I also want to point out that our prepared remarks referred to certain non-IFRS financial measures. Management use these financial measures both IFRS and non-IFRS in analyzing and assessing the overall performance of the business and making operational decision.
We have historically provided and believe that the non-IFRS financial measures and supplemental reconciliations to IFRS financial measures are useful to investors and others users of our financial statements because of the non-IFRS financial measures may be used as additional tools to compare our performance across peer companies, periods and financial markets.
We define Non-IFRS software license revenue and total revenues as IFRS software license revenue and total revenues plus software license revenue and total revenues associated with past acquisitions excluded from IFRS amounts due to acquisition purchase accounting. We define Non-IFRS adjusted EBITDA as IFRS income from operations but excluding the effect of acquisition fair value adjustments to revenues and certain other non-routine expenses, acquisition related costs and non-cash charges as discussed in more detail in our filings with the Securities and Exchange Commission.
With that said, I will now turn the call over to Reynolds.
Thank you, Todd. And thank you all for joining us on today’s call. Before I start with the prepared remarks I would like to note that all my comments with respect to Q4 of fiscal year ‘14 and fiscal year ‘14 in total were referred to our non-IFRS financial results, but as a result of our transitioning to GAAP financial reporting as of July 1, 2014, our forward looking guidance were referred to non-GAAP financial measures.
With that, let me begin by saying that today we made a number of important announcements. We announced our unaudited fourth quarter and unaudited fiscal year ‘14 IFRS financial results. Our acquisitions in SoftPro, our guidance for fiscal year ‘15 including the anticipated results of SoftPro, our intention to seek shareholder approval to de-lift from the London Stock Exchange on or before March 31, 2015. Jamie has noticed that his intention to resign as our CFO by September 30, 2015, and consistent with our transition to GAAP reporting as of July 1, 2014, are publication of unaudited GAAP and non-GAAP financial statements for the fourth quarter of fiscal ‘14 and audited GAAP and unaudited non-GAAP financial statements for fiscal year ‘13 and fiscal year ‘14.
Our financial results for the fourth quarter and all of fiscal year ‘14 are in line with our previously announced preliminary results, which we’ve already discussed in some detail. We’ve already closed over $3 million of the $6 million of slipped seven figure software license sales, we believe will close the rest during the remainder of the first half of fiscal 2015 and we now in fact believe that these will be additive to what one would have otherwise expected for this half year period.
As a result, we believe this slippage was an anomaly and we have added that slippage into our guidance for fiscal year ’15. As evidenced for the progress we’ve made in generating more six figures software license sales to mitigate the risk associated with seven figure transactions, we close 63 six figure software license sales during Q4, up from only 49 in the prior year. And for fiscal year ‘14 as a whole, we closed 176 up from only 125 in the prior year, which represents over 41% increase. We also added 2,894 new customers compared to only 2,641 in the prior year period. And as a result of the growing number of six figure software license sales, we believe we will have significantly reduced the risk associated with larger seven figure transactions we seasonally expected to realize during the fourth quarter of each fiscal year including fiscal year ’15.
Throughout the year, we continued as expected to experience significantly different software license revenue performance in our core capture versus mobile and newer acquired products. At the end of third quarter software license revenues in core capture had grown by 4.1% approximately in line with the mid-single digit growth we expected.
However, the unanticipated shortfall during the fourth quarter led to core capture software license revenue for all of fiscal year ‘14 declining by 5.4%. Mobile and newer acquired product software license revenues aided by the acquisition of Kapow grew over 106% and accounted for 26.1% of total software license revenue up from only 13.9% of total revenues in the prior year.
Maintenance services revenue grew year-over-year as expected but is now being driven primarily by new software license revenue sales as opposed to the benefits historically realized as we brought maintenance services pricing, processes, policies and procedures up to best practice level. Professional services also grew as expected that a higher rate than we would normally realize as a result of the acquisition of Kapow in the addition of its professional services revenue.
We experienced the year-over-year decline in adjusted EBITDA and adjusted EBITDA margin as a result of our explicit decision to continue investing more in our product research and development efforts and further strengthening and growing our sales organization in all areas of our business in order to drive faster software license revenue growth in the future.
Turning now to our acquisition of SoftPro, this acquisition is consistent with our stated acquisition strategy of targeting smaller companies in adjacent areas with software or solutions that allow us to better serve the needs of our customers while also creating additional competitive differentiation and advantage. It was clearly in one of the several areas we’ve been talking about for some time now and add yet another valuable reason for organization to choose Kofax solutions.
Many First Mile interactions require signatures and SoftPro software brings proven and highly differentiated signature verification, fraud prevention and electronic signature capabilities to our smart process applications thus making the First Mile of customer interactions even smarter. This will help speed, simplify and instill confidence by enabling organization software a fully digital streamlined and secured experience. This type of electronic transaction management capabilities will transform and optimize the customer experience while reducing operating cost and driving increased competitive growth and profitability.
SoftPro has established itself as a trusted solution provider with many of the world’s largest banks including Citicorp, CHASE, Wells Fargo and others as well as reading financial institutions, retailers and government agencies in more than 50 countries around the world. FraudOne, SoftPro's signature verification and fraud detection software protects bank and depositor assets by verifying signatures and detecting fraud before funds can be accessed for more than 25 million checks every single day. And SignDoc, SoftPro's electronic signature software offers both click-to-sign as well as physical signature capture via mobile and other devices, signature verification and fraud detection and is available for both on premise or cloud deployments and is currently processing over 200 million electronic signatures annually.
SoftPro’s audited results for its fiscal year ended December 31, 2013, reported total revenues of $13.3 million and a non-IFRS adjusted EBITDA of $1 million. During our fiscal year ‘15, we expect to realize non-GAAP revenues equal to the $13.3 million prorated to reflect only 10 rather than 12 months of operations and a breakeven level of non-GAAP adjusted EBITDA as we integrate the Company and our products and refocus and invest in growing its sales organization in order to drive accelerated software license revenue growth and earnings growth in fiscal year ‘16 and beyond.
Turning now to our forward looking guidance including the anticipated results of SoftPro, let me start by reconfirming the long-term financial model we previously discussed which is based on organic software license revenue growth in the mid teens, total revenue growth of 10% to 12% and an adjusted EBITDA margin of 20% or greater in fiscal year 2017. Our guidance for fiscal year 2015 again including the anticipated results of SoftPro on a non-GAAP basis is as follows. For software license revenues in the range of $147 million to $153 million, total revenues in the range of $343 million to $351 million and adjusted EBITDA of $54 million to $58 million and an effective tax rate in the range of 33% to 35%. This guidance reflects the significant year-over-year increase in our adjusted EBITDA as well as a higher adjusted EBITDA margin which is consistent with realizing progress towards our long term financial model.
I now turn our attention to our intention to seek shareholder approval to delist from the London Stock Exchange. This decision was made by the Board after a careful consideration and recognizing that more than 78% of Kofax’s shares of common stock were held by U.S. shareholders, Board members and affiliated parties, as of July 31, 2014, and that the majority of our total daily share trading volume routinely occurs on NASDAQ. We plan to hold an extraordinary general meeting on February 9, 2015 in order for shareholders to vote on this proposal and subject to its approval thereafter delist from the London Stock Exchange on or before March 31, 2015. The Board chose to announce this decision now in order to provide sufficient time for the remaining UK shareholders unable to hold shares not listed on the London Stock Exchange to liquidate their holdings in an orderly manner. We thank our UK shareholders for the long term support of the company and sincerely hope they can understand this decision and the rationale behind it.
Lastly but certainly not least today, we announced that Jamie Arnold our Chief Financial Officer and an Executive Director has given notice of his intention to resign for personal reasons including the toll of his weekly commute from Phoenix, Arizona to Irvine, California from those positions when the successor is appointed by the Board and to resign as an employee on or before September 30, 2015 over one year from today. We’ve already initiated a search for his replacement and believe this will be successfully accomplished within a period of time needed to ensure smooth transition of his responsibilities. Jamie has accomplished a great deal of very challenging work during his tenure with Kofax and helped us realize a number of very important achievements. This includes the disposal of our hardware distribution and maintenance business, our listing on NASDAQ and our transition from IFRS to GAAP financial reporting.
We know Jamie is looking forward to spending more time with his family and while what still be a number of months before he’s gone I would like to say that we’ll all be sorry to see him leave and thank him for his contributions to our success.
That concludes our prepared remarks. And we’ll now open the call for questions.
(Operator Instructions) And we’ll go first to Scott Berg with Northland Capital Markets.
Good morning Scott.
Mr. Berg, please check your mute button.
Scott Berg - Northland Capital Markets
Sorry about that I was on the mute. Good morning Reynolds and Jamie, congrats on a good quarter. Couple, first question here for Jamie, and the GAAP conversion and I was looking at the historical my assumption to the answer is no. But is there any significant impact on rev-rec or the revenue assumptions in fiscal year ’15 relative to ’14?
No, there is not. We’ve I think over the last few years we’ve implemented most of the processes that you would expect from a U.S. GAAP company so we don’t expect any changes impact to the FY15 numbers.
Scott Berg - Northland Capital Markets
And is there any significant seasonality to the SoftPro revenues versus typical license based Software Company?
There would be no significant variation I think they would follow the normal seasonality that you would also see in Kofax in terms of having a relatively strong quarter ended December 31, strong quarter ended June 30, and then seasonal weakness during the quarter ended September 30 and also the quarter ended March 31. So it’d be very consistent with the existing Kofax model.
Scott Berg - Northland Capital Markets
The reason I started off with those two questions versus as I look at your guidance for ’15 in particular, if I back out what I assumed are they required revenues and I used $14 million for SoftPro so maybe high by about $0.5 or so. And then $6 million license revenues that slipped from Q4 that should be recognized here at some point in this fiscal year as total revenue growth organically flat 10% and given the conversation that we’ve had and where you think that that business is going I thought that that would be a little bit higher than that. And I wanted to; A, check my math; but B is that, just a conservative outlook towards what the business is doing this year or are you seeing any material changes to the pipelines or sales assumptions relative to fiscal ’14.
I don’t think we’ve seen any negative changes or extremely positive developments relative to fiscal year ’15 I think things have continued to develop as we would have expected. If you read the SoftPro press release, it breaks out its revenues over license, maintenance and professional services they also had a little bit of hardware that they were selling. And if we drill down specifically into the software license revenue I believe our guidance, the midpoint of our guidance for software license revenues, if you back out the $6 million of slippage that we believe is going to be additive and if you also back out say 212 or the two months of the SoftPro business that we wouldn’t pick up. And you looked at the remainder on a year-over-year basis I think that would translate into close to 14% year-over-year software license revenue growth which is very consistent with the mid teens that we have been guiding to.
So I certainly don’t think that there is any negative or incredibly positive messaging that we’re sending in the guidance that we’ve provided, I think it’s very consistent with what we’ve led people to believe. And I think we’re very comfortable with it.
Scott Berg - Northland Capital Markets
And I guess my last question is on the SoftPro acquisition, Reynolds I saw in the press release to have it integrated this year, this calendar year at least by the end of the year. How should we view that acquisition in terms of the impacts to both [product] moving forward and the opportunities in the sales cycles, because the assumption is that it will obviously be added to TotalAgility 7 in the next release, in the next version. But just trying to understand what the near mid-term opportunities for you guys will be with the acquisition.
Sure, while there is as I just described in my remarks and the press release also describes they really have two different products. One is this product called FraudOne, which is used essentially to compare the signatures on physical checks to reference signatures that a bank obtains on signature cards or through other sources and to eliminate or mitigate the risk of fraud in the check processing cycle.
And that tends to be licensed in fairly large transactions to banks and in their check processing organizations. And that has historically accounted for the bulk of their revenues and the bulk of their maintenance revenue stream because that was the concept around the original founding of the company and where they experience their initial success. Over time here more recent years as there has been an increased level of interest in electronic signatures, it’s not surprisingly [indiscernible] on them that with the expertise that they have developed in signature verification and fraud detection that it would be a natural extension of that to develop a electronic signature software product offering which they have done and is available as I said earlier on premise or as the hosted solution. And they have started selling that principally over the last year to 18 months, seeing some very nice success in that regard particularly in selling and into existing accounts, who are already using their FraudOne software. And our intent is to continue to sell FraudOne as a standalone offering for signature verification into banks around the world principally through the existing SoftPro sales organization. That has been doing that for a number of years.
But in addition to that to grow their sales organization to more aggressively market and sell the electronic signature product offering and expand their revenues in that area and then in addition to that to integrate the electronics signature capability into Kofax TotalAgility 7, in order to make it part of our Smart Process application development and deployment platform. And essentially add more value and realize more value as a result of the Smart Process applications that we’re developing and selling both as a platform, but also in these vertically oriented solutions such as mortgage agility. And I think that’s a perfect example if you’re automating the front end mortgage application process, there is a number of disclosures and other documents that frequently have to get executed during that process, it’s a no brainer for us to add that capability in. We’ve previewed this with some of our early adopters that have mortgage agility has been very well received. They are excited about it and so we think we’ll be quite a few synergies and opportunities for us to growth the revenues of SoftPro in all three of those areas. FraudOne in their core market, grow their ability to sell their electronics signature capability on a standalone basis and then us to also sell it once its bundled into Kofax TotalAgility 7 and the vertical solutions built on top of that.
We’re taking a very what I think is a prudent and a conservative view towards how fast we’ll be able to make all that happen by assuming that will essentially have flat year-over-year revenues on an annualized basis and rather than generating the level of profitability that they did in the past that we’ll rather invest that in better positioning the company for a faster growth in the future.
We’ll go next to Jeff Van Rhee with Craig-Hallum.
Jeff Van Rhee - Craig-Hallum
A number of questions. Reynolds first just while we’re on SoftPro, what has the business seen historically in terms of growth rates? Just give us a little bit of a history lesson on the business in general? And then second, of your installed base, what percent care in terms of the relevance of the SoftPro product to cross-sell?
Okay. Historically the company was a privately held company, owned principally by two brothers, one of whom founded the business and other one of whom joined the company. And they tended to focus more on cash flow and profitability than driving revenue growth and as a result of that over a long period of time there revenues tended to grow albeit at a very slow rate typically in the single digits while maintaining a very solid level of profitability and cash flow out of the business. And as a result of that we believe that there is a significant opportunity for us to significantly accelerate that growth rate and get it up in line with our mobile and newer acquired products which as you know we have talked about growing at 30% or more but to do that we are going to have to invest in better focusing and growing their sales organization in order to do that.
So, that’s the reason that we have taken the approach we have to the guidance and what we expect out of it over the next year. There is going to be some investment necessary which historically they have not done in order to drive the kind of growth rate that we believe is possible and would expect out of that business. In terms of what percent of our customers care about this, it’s difficult for me to give you any kind of quantitative data on that. In the process of doing the acquisition, we certainly talk to a number of their customers of both products, both the FraudOne signature verification and fraud detection product as well as their electronic signature product which as I said they have only been marketing starting about 18 months ago and have had limited efforts at.
Again because they weren’t making the level of divestment necessary in their sales organization in order to drive faster adoption and revenue growth there. We also spoke to a number of our existing customers as I said some of the early adopters of mortgage agility because we think there is some very significant synergies there but we also spoke to some of our other customers which in some cases were also customers as SoftPro, as joint customers, so that we could talk about whether they’re are cross-sell and up-sell kinds of opportunities. And I think, universally, the feedback was very positive which reinforced our view that we have to be able to leverage this as I just described in talking to Scott. But it’s just far too preliminary for us to be able to really quantify that.
Jeff Van Rhee - Craig-Hallum
Okay. Stepping back I guess just as we look at the forward fiscal year, if you sum up, what is the sort of the priority check list of one, two, three things that you have got to get done here as you take a higher level view on the keys to success for this year?
Well, I think we have to return the core capture to growth; it really had a year-over-year decline last year because of the shortfall and slippage that we experienced during Q4, all of which came out at core capture. I believe, in fact, we will see a return to growth in that part of our business in the current quarter and in the current half year. So that’s key because it continues, even last year represented about 76% of our revenues. So, we have to return that to growth in the mid single-digits at least.
Secondly, we have to continue to drive much faster 30% plus growth organically in our mobile and newer acquired products and part of that and I think a third key component is establish some of our first, what you might call, lighthouse accounts for the mortgage automation solution, four to six key sales that we could then utilize as for reference purposes, as we move forward into fiscal year 16 and beyond and drive what we think is much, much faster growth opportunities with that product based on all the feedback that we have had. So, get core capture growing at the mid single-digits, continue to drive 30% plus growth in the newer areas and establish what we may call lighthouse or beachhead accounts with the mortgage agility product to lay the groundwork for much faster growth in future years.
I think in parallel with all that, we are going to very closely monitor, as I talked about in the past, continue to monitor the progress that all these reps we have hired over the last 12 to 15 months, are making in getting to the point where they initially begin contributing revenue. And then as they ramp up the full productivity and as we have talked about in the past that’s continued to evolve as we would expect. I think it continue to evolve as we would expect through today and so all the indicators in terms of the wisdom and the ramp to productivity remain intact. And we seem to be executing to that as expected but again that’s an area that we are going to very closely monitor because it’s so critical to our future growth. And of course, we will continue to grow the sales force but certainly not at the 35% to 40% rate that we have over the last 12 to 15 months probably at a more sustainable rate of 15% a year, so if you add up sort of the three revenue objectives and then the two critical factors of monitoring the progress of sales organization as well as continuing to grow at I would see those are the some of the key things that we’ll be focusing on this year.
Jeff Van Rhee - Craig-Hallum
Okay and then there was a handful of transactions that pushed out at the quarter, some are closed some are not, can you just update in a little more detail and the ones that are not, what the factors are that have, have them pushing or still at least open? And then secondly as you look at the year and you formulated your forward guide with some pretty good organic growth acceleration in there, can you talk to the assumptions underpinning that particularly close rates and coming out of a quarter with some uncertainty how did you get conviction and confidence in terms of how to model that forward pipe or forward revenue guidance in light of whatever the pipeline looks like?
Okay, let me try to address both of those, first in the slipped deals I think if you will know, we close the big one for a $3 million which is about half of the slippage by the middle to latter part of July and announced that the other two continue to progress. There is a possibility of both of them closing this quarter. I believe we’ll close at least one of them this quarter with the other one certainly to follow during the quarter ended December 31.
I believe that the one we expect this quarter has not closed to-date principally because that was in Europe and as you well know the holiday effect in Europe is much-much worse than anyone in the U.S. ever see people take their vacations and there is nothing that distracts them from that and business have to wait until they return, whether we like it or not that’s just the fact over here.
If you want to turn to the guidance and some of the assumptions that we have under that, I think the biggest assumption underlying all that is the growth in the sales organization that we’ve affected over the last year and the fact that in the quarter ended June 30 and in the current quarter, we have the early hires now coming on Board and beginning to contribute revenue growth and that will continue to progress as more and more of them get to the fixed nine-month level begin contributing and as they then ramp up from there.
So, if you look at the overall revenue generation capacity of the Company, it is substantially higher than it was a year ago and that revenue generation capacity will continue to increase as we move forward in this fiscal year. And I think we have the growth opportunities for them to take advantage of and to make all that happen. So that would be the number one underlying assumption in the guidance that we provided. I think the experience that we’ve seen so far with the hires that we’ve made gives us the confidence to provide the kind of guidance that we have.
Jeff Van Rhee - Craig-Hallum
Okay, last two for me and then I’ll let some to jump on, just briefly, what percent of revenues from the channel and then maintenance renewals rates in the quarter?
I don’t know the split between channel and direct business for the quarter specifically, but I do know for all of fiscal year ‘14, it was about 66% indirect and about 33% direct, which is down from historical levels of more 55% indirect, 45% direct that’s attributable to two factors. One is that substantially all of that slippage at the end of Q4 would have been direct. And secondly is that, there were a number of larger transactions we made through the year that direct sales organization drove, but at the end of the day we fulfill it through a channel partner. So, it negatively affected that overall ratio. I don’t think it says anything about significant changes in our go-to-market model or the success or failure of the direct or indirect channels. And I think in terms of your second part of your question was.
Jeff Van Rhee - Craig-Hallum
Maintenance renewals, yes. Again, I don’t have that statistics and I don’t if you have had them Jamie for the quarter specifically, but for the year as a whole, I believe they remain either unchanged or improved very slightly on an overall global basis. So they continue to be somewhere between say 92% and 94% depending upon the geographic region of the world, but no material changes there.
(Operator Instructions) We’ll go next to David Hynes with Canaccord Genuity.
David Hynes - Canaccord Genuity
Reynolds maybe you can just give us some color on kind of what specifically you guys are doing to de-emphasis reliance in the seven figure deals and build that six figure deals pipeline?
Sure, no, I am happy to try to do that. The underlying initiative there all started about now we’re coming up on we’re getting close to two years ago when we initiated the reorganization of the sales force to focus a larger part of the sales force on transactions in the six figure range. So, alleviating the noise and distraction of the low end of the business below $100,000 much of which is accounted for by the 1,000s of low ASP often in the range of $5,000 to $25,000 orders that we received from our indirect channel in any particular period of time and take time and attention to process they can be very distracting for someone who is also trying to drive six or seven figure transactions.
Similarly, we in reorganizing the sales force, we wanted to remove the distraction associated with these large seven figure transactions and we did that by carving off a small group of the most experienced reps and telling them they can continue to pursue those but ended up taking 70% of the sales organization and said you’re going to focus on the $100,000 to $1 million business and implemented a variety of techniques to make that happen in terms of their comp plan in terms of their demand generation, in terms of their lead development and just in essence that are focusing their efforts. And we have continued slowly over time and here is recently as July when we had our sales kick off meeting for the new fiscal year have over time continued to tweak that model in order to continue to improve the focus and remove more of the noise associated with the indirect channel business from the efforts of the direct reps and the reps pursuing the business in excess of $100,000.
And I think as demonstrated by the statistics I quoted earlier on the call we saw great progress during the year and I am convinced that we’ll continue to see that. So we had about I believe there is about 40% year-over-year increase in the number of six figure transactions if we can drive that same level this year, by the end of this year by the time we get to the fourth quarter of this year we’ll have all but eliminated the risk associated with these seven figure transactions because they’ll be reduced to a much smaller percent of our overall software license revenue in any particular period be it a quarter, a half year, or a year in total.
And again everything that we have seen in terms of monitoring the pipeline generation, the progress as the prospects move through the sales cycle, reinforce our view of the continuing progress in terms of increasing the number of those six figure transaction. So I think we just need to keep doing what we’re doing, continue to tighten the focus on that, improve the growth rate of the six figure transactions. But all the indications are that that’s yielding the anticipated desired results.
David Hynes - Canaccord Genuity
Got it. And then maybe one more, the mortgage automation FCAs and then I guess in the market for two months now and I know you talked about kind of the importance of lighthouse accounts in fiscal ’15. But maybe any comments on kind of early traction on that front and I guess higher level talk about kind of the future direction of the vertical SPAs and if we should expect that if we’re going to see another one from you guys in fiscal ’15 and what direction you might take that?
Well, we made our first sale of that actually before we closed our fiscal year ’14, we are in the midst of deploying that solution we have developed a nice pipeline of opportunities and the pipeline is not only in line with our expectations but interestingly enough is now including some larger opportunities from much larger banks than we ever thought would have been prospects for the solution. So we assumed in our market research and in our modeling for that smart process application that world’s largest banks would have their own bespoke systems that they had developed internally because of their scale and their resources to address this kind of problem and therefore we’d be targeting more of the mid range mortgage lenders or regional banks that are lending into the mortgage marketplace and that’s what we focused our efforts what we found since then is the larger banks are coming to us and saying we’ve heard about mortgage agility and guess what our systems aren’t any better than what you see everywhere else. We have the same kind of pain points and we’d like to engage with you and find out what you might be able to do for us.
So I think if anything the market opportunity there is bigger than what we had originally thought but it is still very early in the launch of that product and as I said earlier we need to get four to six solid wins and deployments this year to validate all the enthusiasm that we and others have about that market opportunity I am convinced that will happen, but we in fact need to make that happen. So I think we’re very optimistic about that but cautious because it’s still very early days. In terms of the additional vertical solutions, we anticipate developing and introducing one by the end of this fiscal year aimed at automating the medical claims submission process and the opportunity for that is being driven by two factors. One is that, all the systems for medical processing were mostly sold 10, 15, 20 years ago by my old company Captiva, another company called Recognition Research that was acquired by SunGard and a company called Dakota Imaging that was acquired by WebMD.
All three of those companies have gotten lost inside the acquiring companies and have lost their way, their focus and in many cases have actually ended life of those products. At the same time, there is an ever increasing additional layer of compliance related to HIPPA and the ObamaCare that is forcing the owners of those systems to attempt to implement that compliance within those existing solution which is proving to be difficult or impossible. And as a result of that, I think it presents a very unique opportunity for someone like ourselves to develop a more contemporary solution that addresses all those -- that not only provides all the historical benefits of automating the processing of it but also builds the compliance and addresses the new compliance requirements that they otherwise wouldn’t be able to deal with and that’s a big issue of them.
So we think that would be the next area for us to go. That would then take us into three accounts payable automation mortgage application automation and medical claim submissions and processing. And at that point I think rather than entering an additional vertical, we would be more likely to go back and visit in financial services specifically within banking and what additional smart process applications we can develop and deploy to build off the initial success that we I think realistically expect to realize in the mortgage automation solution. So something for other areas of lending within the bank that would allows us to leverage the credibility that we’ve gained through mortgage agility.
And there are no further questions in the queue at this time. I would like to turn the conference back over to management for any closing comments.
Okay, well, if there aren’t any more questions then we’ll conclude the call. We want to thank everyone for joining us today and we’ll look forward to speaking with you all again I believe it’s on October 30 when we will announce the results of our first quarter of fiscal year ‘15. So thank you very much and we’ll speak to you soon.
And that concludes today’s conference. We thank you for your participation.
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