Mitek Systems Inc (MITK) 2004 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Mitek Systems second quarter 2004 financial results conference call. At this time all participants are in a listen-only mode. Following today’s presentation, instructions will be given for the question and answer session. If anyone needs assistance at any time during the conference, please press the star, followed by the zero.

As a reminder, this conference is being recorded today, Tuesday, May 4th, of 2004. I would now like to turn the conference over to Ms. Laurie Berman, with Financial Relations Board. Please go ahead, ma’am.

Good morning, and thank you for joining us for Mitek Systems’ conference call. Management will discuss the results for the fiscal second quarter ended March 31st, 2004. 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’ll get you a copy right away.

With us from management today are President and CEO, James DeBello, and Chairman and CFO, John Thornton. Mr. DeBello will begin with a review of the quarter and then open the call to your questions.

I’d like to remind you that with 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 provisions of the US Private Securities Litigation Reform Act and detailed in the company’s public filings with the SEC on Forms 10-K and 10-Q.

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 in 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 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. With that, I would like to turn the call over to Jim DeBello, President and CEO. Jim?

Good morning, everyone and thanks for joining us today for Mitek’s second quarter conference call. During the call I’ll review our second quarter performance and then discuss recent operational highlights. Following that, I’d be happy to take your questions.

I’d like to start today’s call by addressing a major concern I know some of you have. Even though our financial results have been disappointing over the last year, we are fully committed to building Mitek for the long-term. We’re enthusiastic about the future and are working hard on the development of new products that provide value to our customers.

Simply and honestly put, we have no intention of closing our doors and we’re engaged in discussions about how to best enhance shareholder value, including courting potential new investors or strategic partners.

Although the year over year comparisons we reported this morning were difficult, we’ve seen some progress on a sequential basis, growing revenue slightly and narrowing our loss in each quarter since the fourth quarter of 2003, as we strive to improve our financial position and drive towards renewed profitability.

While we’re disappointed that sales growth remains challenging, we’re continuing to reduce our expenses to ensure that our level of spending is commensurate with the current revenue levels. Even so, as we detailed last quarter, we remain committed to our flagship products and are investing appropriately in new and innovative offerings.

Our cash balance remains stable and we remain debt free.

Now I’d like to discuss our financial results for the second quarter in more detail. Net sales were $2m, a decline from $3.9m for the year ago quarter, but a 17% increase from the immediately preceding quarter. Purchasing decisions by customers were delayed, contributing to the overall decline in sales from a year ago. We’ve been working very hard to address the issues some customers have about Mitek’s future viability and we believe that once those issues are fully addressed, decisions to purchase our solutions will be forthcoming.

Sequential revenue growth reflects the core base of customers who are convinced that Mitek’s solutions are the best in class and who exhibit confidence in our ability to weather adverse circumstance.

Gross margin was 61% for the quarter, relatively unchanged from the year ago period, but 800 basis points higher than in the first quarter of this year. This is primarily due to the product mix moving towards software, our core competency, and the focus we believe the company must have to achieve profitability.

As a result of our strict cost control program, operating expenses again declined in the 2004 second quarter, compared to the same quarter last year. Total costs and expenses in the 2004 second quarter, excluding costs of sales, were $2.1m, down from $2.4m for the year ago quarter, and up slightly from the immediately preceding quarter.

In the first quarter of this year, total costs and expenses, excluding cost of sales, were 120% of net sales. We brought that down to 102% of net sales in the second quarter of this year. Excluding cost of sales, we have reduced our YTD operating expenses by 12%, reflecting our commitment to cost containment during these difficult times.

We reported a net loss of $816,000, or 7 cents per basic and diluted share for the second quarter of this year, compared with net income of $26,000 or breakeven per basic and diluted share for the same fiscal quarter last year. As I mentioned earlier, sequentially our net loss narrowed from $1.1m, or 10 cents per share.

Turning to our balance sheet, we ended the second quarter with no bank borrowings and $700,000 in cash. Our working capital was $810,000 and shareholder’s equity totaled $895,000 at March 31st, 2004. Last quarter, we said that although there was a hint of market recovery in some technology sectors, we have yet to witness increased demand for our recognition engines and image-based solutions, nor have we seen increased spending by our traditional target customer group, community banks.

Last quarter we also detailed what the new Check 21 legislation might mean for Mitek going forward. Since that time, some of our community bank customers have requested enhancements to our CheckQuest product line to accept images from the Fed. We have enhanced CheckQuest with this capability and it is currently being tested by one of our customers. We plan to upgrade other customers in the coming months.

The Fed also plans to announce the Reg. CC amendments triggered by Check 21, in June of this year. It's expected that at that time they will announce the Fed’s image exchange products and associated pricing. Community banks today are in the wait and see mode and we don’t feel they’ll make major investments until the Fed makes its announcement regarding its Check 21 products and pricing, this June.

While the particulars of compliance are being sorted out, we continue to pursue opportunities generated by Check 21 and we’re in active discussions with the branch Telesystem ATM and point of sale equipment manufacturers who will most likely be impacted by the legislation.

As a result of our expanded development efforts, we introduced an exciting new product during the quarter to meet the needs of the rapidly growing check fraud prevention market. And in the third quarter we expect to introduce two additional offerings, one focused on fraud prevention, and the other, a faster recognition engine.

Our new fraud toolkit, named PADsafe, is a sophisticated diagnostic tool designed to help banks identify and detect fraudulent preauthorized drafts, and of course, prevent associated losses. PADsafe can be integrated into any fraud prevention software system. And for those of you who are unfamiliar with preauthorized drafts, or PADs, they are checks that authorize a third party to withdraw funds from a bank account for the purpose of paying bills. PADs look just like a regular check, but without a signature. In place of the signature is a phrase, such as “no signature required” or “authorized by drawer.” PADsafe uses advanced document image analysis techniques to automatically identify PADs from checks and then it flags the user of the potentially fraudulent PAD.

Because up to now, it’s been difficult to judge the authenticity of PADs, banks have been in the difficult situation of determining whether or not to pay on the draft. Right now this new product is being used by one of the world’s largest financial service companies through our alliance with SoftPro USA.

Check fraud remains a huge problem for banks, resulting in losses nearly $1b. We believe that our innovative fraud protection products will help mitigate these problems and result in enhanced selling opportunities to a larger [inaudible] and community bank institutions.

I’d like to quickly touch upon our recent hearing with NASDAQ regarding the listing of our common stock. We submitted our appeal to the hearing board, however, we have not yet heard back from the exchange. But it’s important to note that regardless of the outcome of that appeal, it will have no bearing on our ability to move forward with our plans.

As I said when I began just a few minutes ago, we remain committed to our long-term growth plan. We will continue to appropriately invest in new and existing products, focusing on the highly attractive fraud protection market. In fact, we recently hired two new salespeople, one of whom is totally devoted to marketing our fraud protection products.

We’ll also take advantage of the emerging opportunities presented by the passage of Check 21. Enhancing shareholder value is one of our top priorities and we’re working very hard to earn your continued support.

That concludes my comments. John and I would be happy to take your questions.

Thank you, sir. (Caller Instructions.)

And our first question is from Steve [Clement], with Clement Capital Management. Please go ahead with your question.

Yes, I was just curious when you were talking about the way business is currently, and with the losses you’ve had in recent quarters, I mean, it appears that you’re going to need to raise some money to kind of get to where you want to be. Is that accurate or not?

Steve, it is an accurate assessment. We are looking at a variety of strategic partnerships or other investors. We have had earnest discussions with many of them. And we expect that over the course of the next several weeks, and certainly in the next couple of months, that we will have concluded some level of outside activity and interest investment in the company.

How much money do you think you’re going to be needing?

We believe that the range is between $3m-$5m.

Okay, thank you very much.

Thank you. And there are no further questions at this time. Please continue.

My only final remark is simply to say that we’re committed to building the company. We are in a rough patch, only because of some dynamics in the marketplace. We’re improving our execution on the sales side. We’re improving our gross margins and we intend to keep doing that.

So, we do deeply appreciate your continued support out there. But you have to understand that we are working very hard to improve the situation here and regain the confidence of new and perspective customers, many of whom are delighted with the technology and products and are simply waiting for us to introduce some new ones and also for us to strengthen our balance sheet.

Thank you, sir. Ladies and gentlemen, this concludes the Mitek Systems second quarter financial results conference call. If you would like to listen to a replay of today’s conference call, please dial 303-590-3000 or 800-405-2236, with pass code 578104.

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