Mitek Reports 25% Year Over Year Revenue Growth and Another Record Quarter Transcript (Summary)

Todd Kehrli: Thank you, operator. Good afternoon and welcome to Mitek’s first quarter fiscal 2022 earnings conference call. With me on today's call are Mitek’s CEO Max Carnecchia, and CFO Frank Terrell.

 

Before I turn the call over to Max and Frank, I'd like to cover a few quick items. This afternoon, Mitek issued a press release announcing its first quarter fiscal 22 financial results. That release is available on the company's website at miteksystems.com. This call is being broadcast live over the internet for all interested parties and the webcast will be archived on the industry relations page of the company's website.

 

I want to remind everyone that on today's call management will discuss certain factors that are likely to influence the business going forward. Any factors discussed today that are not historical facts, particularly comments regarding our long-term prospects and market opportunities should be considered forward-looking statements. These forward-looking statements may include comments about the company's plans and expectations of future performance. Forward-looking statements are subject to a number of risks and uncertainties which could cause actual results to differ materially. We encourage all of our listeners to review our SEC filings, including our most recent 10K and 10-Q for a complete description of these risks.

 

Our statements on the call today are made as of today, January 27, 2022, and the company undertakes an obligation to revise or update publicly any of the forward-looking statements contained herein, whether as a result of new information, future events, changes in expectations or otherwise. Additionally, throughout this call, we'll be discussing certain non-GAAP financial measures. Today's earnings release and the related current report on Form 8-K describe the differences between our non-GAAP and GAAP reporting and present the reconciliation between the two for the periods reported in the release.

 

With that said, I'll now turn the call over to Mitek CEO, Max.

 

Max Carnecchia: Thanks, Todd. It's really nice to see you in person today. And good afternoon, everyone. Thank you for joining us today. We're off to a fast start in fiscal 2022, with our first quarter delivering very strong results.

 

Our digital identity verification revenue grew a strong 30% year-over-year as we continue to capitalize on the shift to digital and respond to our customers’ needs to balance identification and fraud prevention with a smooth online customer experience. As such, we experienced record transactional volumes in identity this quarter. Whether it's verifying a loan application, authenticating travelers, using biometrics to authenticate payment, re-authenticating access of a remote workforce, or verifying the identity of a new customer, the world's leading brands are using Mitek to enable trust instantly in this digital economy.

 

The demand for digital banking also continues to yield strong growth for our deposits business, which grew 22% year-over-year. All of this resulted in record first quarter revenue of $32.5 million, which was up 25% year-over-year. Non-GAAP net income of $10.2 million, or $0.22 per diluted share, up 65% year-over-year and cash flow from operations of $2.3 million.

 

The case for digital transformation has never been more urgent, and I'm honored to lead a team of global professionals who continue to make a difference for customers and consumers as they navigate this economic and social shift.

 

Digging into each of our businesses, let's start with identity. Our continued growth at scale underscores our growing leadership in the digital identity ecosystem, and the immense value we deliver to customers seeking to transform the customer experience during verification, authentication and account opening. Access to digitally enabled services continues to increase and this accelerating shift to digital creates an immense challenge for organizations as they strive to balance customer experience with financial risk.

 

As the digital economy grows, so do the opportunities for fraud. And as long as criminals can cleverly exploit weaknesses in an institution's ability to distinguish a legitimate customer from an imposter. This threat will continue to increase. Digital identity verification has therefore moved beyond just being an enabler of digital commerce. It now serves as an integral element of most organizations’ technology stack, and we believe the next decade of fraud prevention will be defined by an organization's approach to the lifecycle of continuous identity and access management capabilities.

 

Traditionally, companies have focused their energies on establishing proof of identity at the outset of a digital customer journey such as opening a new account. However, establishing trust in a person's digital identity is an ongoing process. This quarter's increase in transaction volumes from our banking and fintech customers, in particular is evidence of this change, as the digital identity authentication is successfully being adopted throughout the digital journey.

 

Our Mobile Verify solution powered by multimodal biometrics is transformational for organizations as they respond to consumer demand and establish a foundation of trust with their digital customers and protect this confidence at every touchpoint throughout the lifecycle. Our industry leading technology is used every day across over 80 million mobile devices around the world. And it is the strongest starting point for fighting fraud. Built on patented machine learning and computer vision algorithms, our technology provides instant feedback regarding legitimacy, authentication, and liveness of the applicant or their identity document.

 

Liveness detection has become an essential element of digital engagement and regulators believe it is essential to fraud detection and prevention. This quarter, we continue to progress our efforts related to liveness detection and launch the document liveness product IDLive Doc IDLive Doc uses AI and builds on the same neural processing approach used in ID R&D passive facial liveness detection product to spot documents screen replay attacks in real time.

 

Because of today's modern high resolution video displays, it is very difficult for the human eye to distinguish between a photo replica of a document and the real document. When this fraud is successful, it often goes undetected until other fraud signals or a fraud event triggers an audit IDLive Doc is uniquely designed to prevent screen replay attacks from proceeding to the next step in the identity verification process, flagging potential fraud fast and early without any involvement from humans. This new product significantly enhances fraud detection capabilities, while reducing costs and latency of such analysis. And we are very excited to be the first to market with this innovation.

 

Accordingly, a study we conducted with [Payments], who is a global leader for data news and insights for the connected economy, more than half of US consumers think biometric authentication methods are faster, more convenient and more trustworthy than passwords or pins, yet only 10% of consumers are using them today.

 

In addition to enabling frictionless authentication, and verification, the role of biometrics has never been more relevant and in line with our quest for inclusive digital participation for all. We at Mitek pride ourselves on our innovation and commitment to negating biometric bias and are in full support of the proposed AI Bill of Rights.

 

As we continue to innovate, we remain committed to exploring all avenues to achieve product superiority and expansion, whether through partnership, increased R&D, innovation or acquisition.

 

Turning now to our deposits business and our industry-leading mobile check deposit solution. The increasing use of smart devices improve connectivity and demand for high end user experience are the crucial aspects that are driving digital transformation at banks and allowing banks to deliver critical services to their consumers in the form of an app. Banks are leveraging our mobile check deposit product as a catalyst for their app adoption and increased usage. And Bank of America announced last year that digital deposits accounted for 85% of transactions in one quarter, fueled by almost 48 million checks deposited that same quarter. As a result, we continue to experience growth from our highly profitable deposits product line, as more and more checks are being deposited digitally. This is just another example of the rapid shift we are seeing to the digital channel. And with that shift, the need for trust and security increases.

 

We also look forward to incremental growth in our deposits business as we further penetrate this market opportunity with the ongoing rollout of our newest solution Check Fraud Defender.

 

In closing, I couldn't be more optimistic about the opportunities ahead and our strong results validate my trust in the [MitekNation] to strengthen our market position in 2022 and beyond. The growing demand for our market leading offerings demonstrates the pivotal role our products play in providing trust in the digital economy, and we are well positioned to take more share. Strong growth of our innovative biometric and authentication technologies and the rise of our fraud network will incrementally add to our position as a market leader, our globally trusted brand, and the team of fraud experts remain committed to all of our customers and partners in our collective quest to fight fraud and abuse and enable trust in the digital economy.

 

With that, I'm going to turn the call over to Frank to discuss the fiscal first quarter financial results in more detail. Following Frank's remarks. We'll open the call to questions. Frank, please go ahead.

 

Frank Teruel: Thanks, Max. And thank you, [MitekNation] for all of your significant contributions and another record setting quarter. Let's start with the Q1 revenue and operating results. Mitek generated first quarter revenue of $32.5 million, a 25% increase year-over-year.

 

Software and hardware revenue was $15.4 million, up 26% year-over-year. Increase in software and hardware revenue is due primarily to the timing of our mobile deposit reorders. Service and other revenue, which includes Transactional SaaS revenue, maintenance and consulting services was $17 million for the quarter, an increase of 25% over Q1 last year. This increase was due to growth in transactional sales revenue, which increased 31% year-over-year to $11.6 million.

 

For Q1 2022, deposits revenue increased 22% year-over-year to $19.1 million. Identity verification revenue increased 30% year-over-year to $13.4 million. We delivered strong software and hardware gross margins of 98%. For the quarter, gross margins on service and other revenue was 83% for the quarter, and total gross margin for the quarter was 90% Compared to 84% in Q1 last year.

 

Total GAAP operating expenses including cost of revenue were $27.6 million compared to $24.4 million in Q1 of last year, and this increase is due to the continued investment to grow our identity business and the additional costs associated with the ID R&D acquisition.

 

Sales and marketing expenses for the quarter were $8.4 million compared to $7.4 million a year ago. R&D expenses were $7.6 million compared to $6.2 million last year, and our G&A expenses were 6 million compared to 5.1 million a year ago. GAAP net income for the quarter increased 44% to $3.1 million or $0.07 per diluted share. Our diluted share count was 46.2 million compared to 43.9 million shares a year ago.

 

As a reminder, our earnings release includes a reconciliation between GAAP and non-GAAP net income. We believe non-GAAP net income provides a useful measure of the company's operating results by excluding acquisition related costs and expenses stock comp expenses, litigation expenses and the related tax impact of these items.

 

Non-GAAP net income for Q1 increased 65.1% year-over-year to $10.2 million or $0.22 per diluted share. Our non-GAAP adjustments include $3.1 million of stock compensation expense, $2.3 million of acquisition related costs and expenses, $1.7 million in amortization of debt discount and issuance costs, $1.4 million in cash tax differences and $374,000 in litigation expenses for the quarter. This was all offset by income tax [pre-tax expenses] of 1.9 million.

 

Now, turning to the balance sheet, we generated $2.3 million in cash flow from operations during the quarter, bringing our total cash investments to $218.2 million. During the quarter, we repurchase approximately 599,000 shares for $10.1 million at an average price of $16.95 per share. As a reminder, our board authorized a $15 million share buyback program in June of last year, which runs through June 30 of 2022.

 

In closing, we are very pleased with our results, which include record revenue for the first quarter, as well as very solid non-GAAP net income and cash flow. We look forward to continuing to deliver amazing fraud prevention services that Mitek provides for our valued global customers and driving increase shareholder value for all of our stockholders.

 

Operator, that concludes our prepared remarks. Please open up the lines for questions.

Q&A

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