Mitek Systems Inc (MITK) 2003 Q3 法說會逐字稿

Good day, ladies and ladies and gentlemen and welcome to Mitek Systems third quarter 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 conference, please press "star" then zero on your touch-tone telephone and as a reminder this call is being recorded. I would like to introduce your host for today's conference Jocelyn Hunter.

Good morning and thank you for joining us the Mitek Systems conference call. Management will discuss the results for the 3rd fiscal quarter ended June 30, 2003. 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 get a copy to you right away. With us today from management, our President and CEO James DeBello and Chairman and CFO, John Thornton. Mr. DeBello will review the quarter and then open the call to your question.

With the exception of historical matters, the matters discussed in this conference call are forward-looking statements that involve risks and uncertainties under the Safe Harbor statement provision of the Private Securities Litigation Reform Act and detailed in the public filings with the SEC on forms 10K and 10Q. Forward-looking statements include but are not limited to statements relating to the development and the 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 achieve or sustain any growth in sales and revenue and the increase in sales representative 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. With that I would now like to turn the call over to Jim DeBello, President and CEO.

Thanks, Jocelyn. Good morning everyone and thank you for participating on Mitek's third quarter conference call. This is my first call as the President and CEO and I would like to take the opportunity to address these following items. First of all I will briefly describe my background and what attracted me to assume the CEO role at Mitek. Next I will comment on the company's third quarter results and operating highlights and then I will share with you our key strategic priorities going forward as well as the business out look. Finally we will conclude the call by opening the call to your questions.

I joined Mitek with over 15 years of experience in the technology sector and having held executive management positions in both large and startup companies as well as private and public entities and although I recently assumed the position of President and CEO about 10 weeks ago I have had a long history with Mitek Systems. Since 1994 I served as director of the company and having been involved in the course of the company for almost a decade I was naturally attracted to joining Mitek Systems as chief executive. In my opinion Mitek Systems has a very strong technology foundation and exciting growth potential.

Now, with that said I would like to address our results for the third quarter. In line with our preliminary results that we announced last week, net sales for the quarter were $3 million, about a 10% increase over the year-ago quarter, but a 21% decline from the second quarter's level sequentially. Now, we have observed that IT spending on enterprise software continues to be slow and very sluggish. You have been reading about that as well. Now, according to industry sources, including Forrester Research and the Aberdeen group, both highly respected research firms that are independent, first half 2003 IT budgets are weaker and below planned budget levels. Buyers are still hesitant, and the onus has been upon the vendor to stimulate the men, requiring new pricing models and often steep discounts. As a result, Forrester recently revised its IT spending forecast down to 1.3% gross for the year. And as you can expect, we're seeing these trends firsthand.

Our customers are tightly managing their budgets and extending their decision-making process, and we're seeing delayed purchasing commitments and lengthening sales cycles. Consequently a number of the transactions, which we're on track to close failed to be booked before the end of the quarter. So this impacted our net sales, product mix and margins as several of these deals were at higher margins and we are a small company. You know that every single one of our customer deals can have a significant effect on our performance. So that being said, we are remaining focused on these transactions in the pipeline and of course we're working aggressively to close them. Since the end of the third quarter, we are currently completing one of these delay transactions and we expect to make some significant progress during the remaining period to complete the remainder over the course of Q4.

Another important observation from the third quarter is that we had our best sales quarter for the CheckQuest product. This is also an area where we've seen intense competition and eroding prices for more limited number of deals in this sluggish economy. Still, we had success in penetrating new and larger accounts. However, our product mix and gross margin for the third quarter were negatively impacted by these delayed transactions. Gross margin was 54% for the third quarter, compared with 85% for the same quarter last year and 62% in the previous quarter. Now, because our performance can vary dramatically based on a few large transactions and sales competitions, we are susceptible to substantial swings in gross margin from quarter to quarter.

Fiscal third quarter 2003 total costs and expenses less cost and sales of $1.4 million were $2.6 million or an 86% of net sales. For the third quarter, 2002, total costs and expenses less cost of sales of $398,000 were $2.2 million, or 80% of net sales. Compared to the previous quarter ended march 31, 2003, total costs and expenses increased due to higher selling and marketing expenses. We've reported a net loss of $953,000 or 9-cents per basic and diluted share for the third quarter. This compares with a net income of $173,000 or 2-cents per share for the same fiscal quarter last year and net income of $26,000 or break-even for basic and diluted share for the prior quarter.

For nine months ended June 20, 2003, net sales were $9.9 million, an increase of 7% over net sales of $9.2 million for the comparable period in fiscal 2002. Fiscal 2003 year to date net loss was $867,000 or 8-cent per share for basic and diluted share compared with net income of $412,000 or 4-cent per basic and diluted share for the first nine months of fiscal 2002.

However, our financial condition remains very strong. We ended the quarter with cash of $1.4 million up from $760,000 at the end of fiscal 2002. And as of June 30, 2003, the company had working capital of approximately $3.9 million in stockholders equity of $4.2 million. We do not have any bank debt on our balance sheet. Now, although we are disappointed with our third quarter performance we are still committed to achieving our goal of sustained profitability. To this end, I have set a number of strategic priorities. First of all, we're critically evaluating our sales and marketing efforts and implementing changes to strengthen our capabilities. We have assembled an experienced team to execute our strategic initiatives, to identify new opportunities for our products, and to expand our addressable market.

One major market segment that we focused on and have successfully penetrated in the past few quarters is the larger-sized community bank market. You will recall that this past march we made a Check Quest and Capture Quest sale to mid state bank, $2.2 billion bank with 39 branches along the central coast of California. This represented the largest of our bank customers to date to purchase the combined system. During last quarter, we continued to have success in the segment ask we look forward to sharing these customer wins with you over the next coming weeks as we make announcements. We are seeing large community and regional banks becoming more aware of our products and recognizing our compelling value proposition. We believe that with the leading edge features and functionality of our products these banks can not only improve their productivity and reduce their expenses but also provide greater services to their customers and satisfy increasingly stringent regulatory requirements required by the feds.

A second strategic priority is the continued development of new products and enhancements to existing products. Over the past two months, I personally met with several perspective and current customers on the road, face-to-face. These conversations reinforced our belief that customers are seeking innovative solutions to meet the revolving needs. Therefore, I believe it's imperative that we maintain our technology leadership and remain on the forefront of our research and development. And I might also say that one of our key advantages is our post sales support and training, which is very valuable in convincing customers that we will partner with them on a longer term basis and we have won new account based on our (inaudible) sales support and insulation capabilities.

During the quarter, we enhanced -- we introduced and enhanced a version for a number of our leading products including Doctus, Dynafind and Quickstrokes, these are OEM products. We also continue to garnered positive customer feedback for our new products launched this fiscal year such as capture quest and fraud protect, the latter was awarded the transform best of aim 2003 award. Finally our last key strategic initiative is to improve our operating leverage. We're assessing our cost structure, evaluating operations to eliminate unnecessary expenses and improve efficiency. Recently, we have added members to both our executive team and board of directors.

Earlier this month, we announced the appointment of Murali Narayanan as Vice President of Marketing, additionally we increased the size of our board with David Hosey joining as an independent director. David brings over 25 years of experience in contacts in the banking industry. We believe that Murali and David's contributions to Mitek Systems will be reflecting in the coming quarters. Still the business outlook is cloudy for this quarter. We know that IT spending remains sluggish. We're cautious but positive and are continually work hard to close these delay deals that I referenced. I will conclude by saying how excited I am to lead Mitek Systems. We're making progress on our strategic initiatives having reduced operating costs and restructured our sales team in these early weeks the fourth quarter. We are making changes to enhance shareholder value and I certainly appreciate your continued support of the company. I'm committed to the long-term success of Mitek Systems and look forward to updating you regularly on our progress.

That concludes my presentation. Both John and I would be happy to take your questions now. Operator?

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

Once again, ladies and gentlemen, if have you a question at this time please press the "star" "one" key. There appear to be no questions on the phone lines. I would like to turn the program over to you for any closing remarks.

I would like to thank everyone. My hope is to meet many of the shareholders, accept your calls and keep in contact. Again I would like to repeat how positive and excited I am to be here at Mitek Systems. We do have several active strategic initiatives we're working on. We will be able to report on our progress quarter to quarter and look forward to doing that. So, again, thanks for your support. We very much appreciate it. Look forward to speaking to you again in three months.

Ladies and gentlemen, thank you for participating in today's program. This concludes the call. You may now disconnect.