Mitek Systems Inc (MITK) 2002 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Mitek Systems, Inc. first quarter earnings release conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time.

If anyone should require assistance during the call, please press the star, then zero keys, on your touch-tone telephone. If anyone should disconnect and need to rejoin, please dial 1-877-817-7175. And, as a reminder, ladies and gentlemen, this conference is being recorded.

I would now like to introduce your host for today's conference, Lisa Mueller, of the Financial Relations Board. Please go ahead, ma'am.

Good morning, everyone, and thank you for joining us for today's conference call hosted by the management of Mitek Systems. By now you should have all received a copy of the press release. If you have not received it, please call my office at 310-407-6555 and we will fax one to you immediately.

With us today from management is John Thornton, Chairman and President. Mr. Thornton will provide an overview of the quarter and then open the call up to questions. With the exception of historical matters, the matters discussed in this conference call are forward-looking statements that involve risks and uncertainties.

Forward-looking statements include, but are not limited to statements relating to the development and pace of sales of the company's products, expected trends and growth in the company's results of operations, projections concerning the company's available cash flow and liquidity, anticipated penetration in new and existing markets for the company's products and the size of such markets, anticipated acceptance of the company's products by existing and new customers, the ability of the company to sustain any growth in sales and revenue and the increase in sales representatives and other personnel.

The company's actual results could differ from such forward-looking statements. There can be no assurance that the company will achieve the results set forth herein. Mitek Systems and CheckQuest are registered trademarks of Mitek Systems. All other products or company names may be trademarks or registered trademarks of their respective holders.

I would now like to turn the call over to John Thornton.

Thank you, very much, Lisa, and thank you, you people, who are on the line, for your interest and willingness to be on this call. It's a pleasure to announce the results that we have attained this last quarter and I will start by reading the release and then opening it to questions.

San Diego, January 29, 2002. Mitek Systems, Inc., a developer of automated document recognition technology, today announced financial results for the fiscal first quarter 2002 ended December 31, 2001.

The company reported net sales of 3.4 million for the fiscal 2002 first quarter, an increase of 64 percent over net sales of two million for the fiscal 2001 first quarter. Sequentially, net sales grew 28 percent from net sales of 2.7 million for the fiscal 2001 fourth quarter ended September 30, 2001.

Fiscal first quarter 2002 total costs and expenses increased 24 percent to 2.1 million, or 63 percent of net sales, from 1.7 million, or 84 percent of fiscal first quarter 2001 net sales. Compared to the previous quarter ended September 30, 2001, total costs and expenses increased 13 percent from 1.9 million due to additional staffing for CheckQuest sales and operations added during the fourth quarter of fiscal 2001.

Mitek reported net income of 380,000, or three cents per basic and diluted share, for the fiscal first quarter ended December 31, 2001, compared to a net loss of 173,000, or two cents per basic and diluted share, for the same quarter last year.

We're continuing to fine tune our sales infrastructure in response to healthy demand for our CheckQuest check imaging solution and other advanced character recognition software for all types of document and forms processing. In the first fiscal quarter of 2002, we experienced both follow-on orders and new customer sales opportunities. With no bank debt and sufficient cash resources, we are positioned well for solid progress this year with our sales and marketing development initiatives.

And with that, I would be happy to open it up to questions.

Thank you. Ladies and gentlemen, at this time, if you have a question, please press the one key on your touch-tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. If you are using a speakerphone, please lift the handset before asking a question. One moment, please.

Our first question comes from Robert Demarzo of Demarzo Insurance.

Hi, John. Great quarter.

Hello, Bob. Thank you.

Great quarter. Very pleased. A few questions. First of all, the line of credit. Have you - has that been renewed yet?

It has been renewed and we have no borrowings against it.

So, as you're saying, as this company goes forward between the line of credit and the cash and everything else, you feel there's sufficient monies to handle any new growth?

I think so. The answer to that, however, remains dependent upon what the growth curve is and exactly where it comes from. The product - the CheckQuest product line provides almost adequate funding by itself, assuming it is the major factor. But it looks awfully good at this point, having ended the quarter with a little over a million in cash and no bank debt.

Can you give us a breakdown of between CheckQuest ?

It varies quarter by quarter and I don't want you to make assumptions yet because it's not clear to us and I don't want to mislead people. At this point, every product facet of the company produced and produced significantly. Sometimes we guess wrong, we think, maybe, CheckScript will be the hot product. Other times we think CheckQuest will be the hot product. And we're surprised. But I think it's probably sufficient to say that every product produced a very reasonable revenue return.

If there's a substantial number of CheckQuest sales in the future, what are you doing to prepare for that? Anything?

We have added people - and that's principally why we have grown in our expense arena. We added operations people for installation of that product and we added sales people for the sales of that product. So, we - we're banking heavily on that and, so far, it's working pretty well. It's a slow product to sell. It is - it takes at least six months from start to finish to mature a sale into a purchase order with a deposit. But it looks pretty good at this point.

The large CheckQuest sales that seem not to be happening at this point in which you - I think, as you felt was a result of the economy and everything else that's gone on, do you still see the reluctance on the large sales or are you getting some interest?

We're getting interest, but, again, our sample is small. It looks as if we'll be able to sell into the smaller end of the medium sized bank markets, but that's an expectation, not a fact. I think this quarter could make it into a fact. But one or two doesn't mean we can penetrate heavily. But we are trying to increase the dollars per sale in that area and with this, of course, increase the productivity of our sales personnel and a better return on the sales dollars.

Thank you. Once again, if you have a question, please press the one key on your touch-tone telephone.

Well, it sounds as if the questions are answered. If anyone else has a question, please say so now or we will end the call. Very much appreciate you attention and your willingness to be on the call. I think this indicates that we are well on our way in this turnaround effort ...

Pardon me - pardon me, sir.

Yes.

We do have two questions.

OK.

OK. Our question is from Charles Hilton of A.G. Edwards. (Company: A.G. Edwards Inc.; Ticker: AGE; URL: http://www.agedwards.com/)

Hi, John.

Hi, Charles.

I'm delighted with the quarter, by the way.

Thank you.

Which you must be proud, as well.

Very pleased.

I think I've asked this question. Is there some seasonality to your business?

Yes. There is some. The banks generally don't change systems in December. They may buy, but they don't want installation, so there is a little bit of an aberration in that period. Also, whenever they're going through examinations by the bank examiners, of course, it slows down. They want no changes during those periods, as well. Beyond that, it's pretty much flat.

OK. You indicated that you've added to the payroll. Now, do you feel that this is going to be - at this point going forward - it's that side - the cost of sales are going to be fairly stable from the standpoint of new . Have you reached that mass that you want to run with for the moment? Or are you still - got the ads out?

We're still looking for people, but I don't expect any big shifts in the short run. It's time, now, that the people we have brought on are producing and I think that's where the bulk of our growth will be. But we'll steadily attempt to grow by a few every quarter.

Well, it sounds good to me.

Thank you.

Our next question comes from Michael Baum of Baum Investments.

Good morning.

Good morning.

I have just a couple questions. Number one, when your marketing people approach new prospects to sell the CheckQuest, what are the competitive arguments that they present to try and get the order? And, number two, how's your backlog look?

Let's take the first one first. It usually first has to fit a series of numbers that make the bank a prospect. Those numbers are number of checks handled on a daily basis, amount of assets in the bank, et cetera, et cetera, et cetera.

We approach the bank, then, once the bank qualifies as a possible prospect - we approach them from an ROI standpoint. Most of our banks have an ROI at around a year or a little over a year. This is a very attractive investment for a bank. It also provides the bank with, materially, additional features which they can use, either to improve their competitive position or to charge for, thereby increasing their revenue and their gross margin. So, it's a combination of ROI and features.

I see. And does it include a photographic or is it - or a Xerox copy of the checks that individuals write during the month that comes back to the - at month end for the statement for the client .

We do provide statements ...

Good.

With readouts of those checks. Very shortly, we'll have that on a computer readout for the customer, if that's what he desires. Currently, we are providing printed statements.

Does that include an actual ...

Yes.

... photograph.

Yes, it does.

So, the person can see their own signature and just how they wrote out the check.

That's correct, if that's what the bank wants to use.

Excellent. My second question - how's your backlog look?

Backlog is something that's very quick. We ship instantaneously with receipt of order and deposit. The portion of the sales on the CheckQuest product line that is delayed is the installation and the hardware, which usually follows in two to three months from the time that the order is placed. As our prospects increase, our sales increase, the installations increase and that's exactly what's happening.

How long do your staff people have to stay on board with a new customer to see that things are going right?

Usually, it's up and running in two weeks and we're working to get it to one. But we're not there yet.

And ...

It's very fast, compared to competition.

... my final question - how do you stand, competitively, with other firms offering similar product lines?

That, of course, is a point of view answer. Our point of view is we have the superior product of its type being offered to small community banks today. Now, some of the competitors might not agree with that, but it certainly appears that way to us.

Thank you, very much.

You're welcome.

Our next question comes from Tony Georgalas of Morgan Stanley Dean Witter. (Company: Morgan Stanley Dean Witter & Company ; Ticker: MWD ; URL: http://www.msdw.com/)

John, congratulations on a great job.

Thank you.

Let me ask you a question. What is your burn rate?

Well, in expenses, it's right around three quarters of a million a month. Now, I qualify it like that because, of course, there is cost of sales that is a pro rata thing with the revenue.

All right. Three-quarters a month.

Approximate.

Per month. Just a sec. I noticed that over the last three years, the revenue - and I realize the last, you know, year-and-a-half has been very, very difficult, but, you know, your revenue's been somewhere - and not really - $9.2, $9.3, $9.7 million. Is there any, you know, I know that you're making headway. Obviously, it shows on the earnings. But what is happening? You can't get out of that nine million ...

Well, we don't forecast. With that statement in mind, if you were to take what happened this last quarter, which we've just reported, times four, you'd see a breakout. Now, whether or not that will happen, remains to be seen. There is no question. As you well know, we're still in a recession in troubled times and in times where visibility is really clouded.

On the other hand, it appears that we are through it. I think our company was on the leading edge going into the recession and I think we got hit very hard - devastating. Our fundamental demand fell off 40 percent, probably. That appears to be a thing of the past. We struggled with that for quite, you know, for several years, just like you have enumerated. And I think that's now behind us.

Is - probably, it's easier to say yes, but has 9-11 had a large impact? I mean, obviously, in the New York area, the answer would be yes. But going throughout the country, it shouldn't have, should it?

Nothing like the effect of the fiscal effect of the - on the New Yorkers. But there is no question, it has caused caution among all businesses of any type and variety. Oh, by the way, the recession has had a major effect - much more than 9-11 on our kind of business.

Right. All right. Thanks, John.

You're welcome.

Congratulations.

Thank you.

Sir?

Yes?

There are no further questions at this time. Would you like to proceed with any further remarks?

I just want to, once again, thank you. We're very proud of what happened. We're working, doing everything we know how to cause this to happen all over again. Thank you, very much, for your time and we appreciate your interest. Good-bye.

Ladies and gentlemen, that does conclude the conference call for today. Again, thank you for participating and you may all disconnect. Have a good day.