Mitek Systems Inc (MITK) 2007 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Mitek Systems Incorporated second quarter fiscal year 2007 financial results conference call. (Operator Instructions) As a reminder, this conference is being recorded today, Wednesday, May 09, 2007.

During today's conference call, Mitek Systems management will discuss the results for its fiscal second quarter ended March 31, 2007. By now, you should have received a copy of the press release. If you have not received it, please call 858-503-7810, extension 327, and we will get a copy to you right away. With us today are President and CEO, James DeBello. Mr. DeBello will provide a review of the quarter and then open the call to your questions.

I would like to remind you that, with the exception of the historical matters, matters discussed in this conference call are forward-looking statements that involve risks and uncertainties under the Safe Harbor Statement Provision of the U.S. Private Securities Litigation Reform Act that are detailed in the company's public filings with the SEC on forms 10-KFC and 10-QFC.

Forward-looking statements include, but are not limited to, the statements relating to the development and the pace of sales of the company's products; expected trends; and growth in the company's available cash flow and liquidity, anticipated penetration into 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 now like to turn the call over to Jim DeBello. Jim?

Thanks, Kanisha. Good morning, ladies and gentlemen. I hope that you've all seen our second quarter financial report released early this morning before the market opened. In keeping with the format from last quarter's conference call, rather than repeat the financial highlights as in the past, I want to get right down to a discussion about our business.

I'd like to begin by saying that all of us here at the company remain very excited about our long-term growth strategy. I'm pleased the way our employees have quickly regrouped after the discontinued merger that we reported last quarter. We've hired an outstanding new vice president of sales with strong industry background and strengthened our sales team.

During the second quarter, we also announced MITEK NETX. This is a product initiative that will provide our channel partners with an Internet offering that redefines the ease of use and accessibility of our image analytics tools.

Our goal continues to be to monetize our technology across multiple industries. Today, our technology is being primarily sold to financial institutions; but recently, we've begun to get some traction in deploying our technology through partners supporting government organizations and the life sciences industry.

I'd like to spend a few minutes, now, on the fees remaining from the discontinued merger that we discussed last quarter. We announced then that there were some fees payable to merger-related service providers. We had anticipated then that the fees for their efforts would be paid from the proceeds from the deal and from the cash flow of the combined companies.

I'm pleased to announce today that we've reduced these obligations materially and have negotiated final settlements with the majority of the service providers involved. The settlement amount is reflected in our balance sheet and we've accrued what we think will cover the remaining open obligations.

By resolving these issues, our balance sheet remains healthy and our operating cash flows are manageable. This allows us to pursue the growth of our business.

Now, as I mentioned earlier, our primary short-term challenge remains to monetize our technology in multiple markets. The only financial aspect that I wasn't pleased with during our last quarter was our reported revenues, that were lower by about $150,000 quarter-over-quarter.

Now, I believe the overhang of the merger did have an impact as there was some customer uncertainty about product commitment and integration plans. The net result is that our operating loss for the second quarter was around $211,000, but please note that the loss is mostly attributable to the approximately $96,000 of stock-option expenses combined with $106,000 of nonrecurring merger-related expenses.

And to address the short-term revenue issue, I appointed Dave Youngerman as our Vice President of Sales near the end of last quarter. We announced that just about a month ago. And we've also strengthened our sales team. These additions reflect our investment to grow our revenue base by adding significant depth to our capabilities. I think it's fair to say that our sales team today is the smartest and has the most industry experience that we've ever had here at Mitek. Dave's an expert in the payments industry and he started his career with NCR. Most recently, he was the President of Panini North America, a leading provider of remote deposit capture devices.

It is important to note that there's a significant trend in the payment industry today allowing the distributed processing of payments through electronic transfer of data, a result of Check 21 legislation. This changes the dynamic of software and hardware solutions that can now be optimized for applications at teller and merchant locations and opens a vast new arena of distributed software applications delivered thought the Web. This is why we announced MITEK NETX and have already launched our first Web-based product, Fraud Protect Web.

MITEK NETX is the next generation of our recognition platform, and it has a comprehensive Internet strategy that allows our developers to deploy our recognition technologies in a variety of Web environments. Dave and I believe our timely implementation plan will put us in a leading position with these technologies vis-a-vis our competition. Be believe we've aligned our selling skills and, now, our technology, with this market opportunity.

The second fiscal quarter was especially notable by the announcement of our partnership with OPT2VOTE, a UK-based company specializing in election delivery to local government across the United Kingdom. OPT2VOTE has integrated the Mitek SignProtect technology into their existing solution and they feature our signature authentication as a key component of their absentee ballot processing system. They have used this in their recent elections and have automatically compared signatures for authenticity prior to the count.

We've now deployed our patented signature forgery detection technology into three markets, first beginning with financial services, followed by local government -- and life sciences with StayInFront, a partner that we announced about six months ago.

In addition, marketing by Harland of its Validify checks that utilize our proprietary signature technology continues to move ahead and we anticipate benefits as the program takes hold.

Just as a note, the combination of Harland and Clark American has been completed as of last week, making the newly formed Harland Clark Company the largest check-printing company in the world, with nearly 70% market share. There is a possibility that this could positively impact adoption of Validify in the long run, although I have to say, the merger process did slow down Harland's marketing efforts in the short term.

During the second quarter, we also announced our second patent for the invention of additional forgery detection capabilities, which further reinforces our leadership in image-based forgery detection. We'll continue to protect our technology by continuing to patent it as we proceed.

In summary, with our renewed sales efforts, combined with MITEK NETX, we are working very hard towards improving out top-line performance, profitability, and shareholder value. I'd like to thank you for your continued confidence in our long-term growth prospects and our success.

At this point, it think it's appropriate to open it up, Kanisha, to questions from the audience.

(Operator Instructions) Your first question comes from George Sutton.

Good morning; this is Ben for George. Could you tell me, are there any updates on the progress of what your new salespeople are seeing?

And on one hand, I see the challenges of selling the technology into a variety of applications -- banking, pharma, government. But none are fully emerged yet. Specifically, what is the status of the pharma program? Could you give us your take on the speed and progress of the ramp?

Okay. Let me first address your question regarding the new sales group. They have been with us now for a total of six weeks. This would be David Youngerman as our Vice President. We've also added some very strong people in the field and have promoted internally. So collectively, we have made special outreaches to our existing customers. And also, through the existing relationships that these people have brought to our company, we have been able to engage with new prospects. And those meetings are ongoing and look promising.

So we see the breadth of our penetration broadening over a period of time. In this market, we have experienced typical sales cycles anywhere from three to nine months. So we are planting seeds now and we hope to harvest in three to nine months; maybe sooner, if we're able to do so.

With regards, specifically, to the pharma effort -- we had announced earlier a partnership with a company called StayInFront. It is a privately held company which produces customer relationship management software and salesforce management software for large pharmaceutical salesforces. Their customers are exclusively pharma companies who have big salesforces that go in the field and provide drug samples to physicians. As required by the PDMA Act through Congress -- the Prescription Drug Marketing Act -- signatures have to be obtained and those have to validated in order for compliance to be met.

So with StayInFront, they have integrated our technology into their solution and they are currently marketing it to their customer base. They expect to sign on their first beta customers shortly. Those that they have in their pipeline are large pharma companies; they're name brands that you would recognize, but we're not allowed at this point to disclose those.

Okay, great. And along those lines, aside from the StayInFront deal, are you working with anyone else in the medical distribution or CRM market?

Yes, we have several other prospects, one of which we're meeting with next week in the Northeast. So we are proceeding along a path to sign additional partners in that area. That is the area of compliance.

There is another area of research that we are also pursuing with large drug companies to assist them in their exploration discovery of new pharmaceuticals. So we think that our image analytics technology, and specifically our pattern recognition technology, can be applied holistically to any digital image. And so we're not limited to digital images of checks.

So we don't want to be known as a check processing or a check image company alone, although we do that extraordinarily well and we're among the best in the world. In fact, our recent tests against our competition have showed that our performance is exceptional. But we think we also can apply this core domain expertise to other markets. And that really is an effort that's ongoing as we speak.

Okay, great. And then, specific to the Harland opportunity -- they had a change in sales leadership a while back. How does that impact your opportunity? And I know you touched on this a little bit, but if you could give any more color as to any updates on the merger and what that would do for your opportunity.

Yeah, that's a fair question. I tell you, whenever there's a change, as you know, it is disruptive. We experienced the prospect of a change through the terminated merger that we announced last quarter, and that did slow us down. I think we've recovered from that and, actually, we have strengthened our team moving forward.

I think the same thing happened at Harland to a degree that, with their announced consolidation with M&F Industries, which owns Clark American, that combination was disruptive to the process of marketing Validify as well as other Harland products. That deal closed last week. It was a deal that exceeded, I think it was 1.5 billion or 1.8 billion in its transaction costs. And that has been completed and the teams have been realigned. So that disruption, we think, is over. Again, Harland has the primary marketing responsibility for Validify. It is their product; we did develop the technology for them and retain the rights to the underlying technology. But they have the exclusive right to sell it into the check business.

So having 70%, now, of the check-printing market in the U.S. is material, and I think overcomes one of the objections that they had faced earlier when they had 40% of the check-printing market. So we believe now that they have critical mass and perhaps this will accelerate the adoption of Validify. Can't guarantee that; don't know that. But it could happen that way.

Great. Last question -- with all your growth strategies in place, could you give us some color on when we'll start to see the associated growth in revenue and earnings?

Yeah, our drive right now is to drive revenue growth. Really, at a bottom line, if you take away the option expense for new hires and if you take away the merger-related expenses, we basically have been operating at close to break even. So we need to grow the top line. Our expenses are managed well. We'll continue to manage them aggressively. But it's all about the top line right now.

That's why having Dave here with his expertise in remote deposit capture, which is the primary trend in the payments industry, and the additional personnel -- we had mentioned Mark White earlier, who is in our Midwest office, and he has years and years of experience, also, in the payments industry. And our Director of Sales, Louise Steller, and other members of the team-- We believe that we will begin to see acceleration.

This is a market that -- the payments market in specific -- that has not experienced tremendous growth. It is transforming, but it hasn't experienced tremendous growth. So I don't want to set the expectation that out of the payments market alone, you will see tremendous growth. We will see growth; we're very confident about that future. But in order to accelerate growth across the company, we also need to be successful penetrating new and exciting markets. And we're working toward that.

And I think that Mitek's NETX initiative, as an Internet Web-capable platform, allows us, and our partners, to do very innovative things with regard to image analytics in terms of creating solutions and applications that not only are on a typical client server environment but even browser accessible or hosted that could be very, very exciting and new. And so we've got great response from our client base about this initiative. We're working very hard toward executing on it and we'll have continuing announcements as we develop and unfold it.

Great; thank you very much.

My pleasure; thanks for questions.

There are no further questions at this time.

Okay. If that's the case, then, I'd be happy to answer any questions. You know you can reach me directly as well, as a follow-up. I very much appreciate your participation on this call. We're very pleased, again, with your support. Thank you for that. But I must say that the team here is highly motivated, very excited about where we're going as a company. Look forward to speaking with you again next quarter. Good bye.

This concludes today's teleconference. You may now disconnect.