Mitek Systems Inc (MITK) 2011 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first-quarter 2011 Mitek Systems earnings conference call. My name is Jeremy and I will be your operator for today. At this time all participants are on a listen only mode. Later we will conduct a question and answer session. (Operator Instructions).

I would now like to turn the conference over to Mr. Bud Leedom, Finance Director of Mitek Systems, Inc.

I would like to first read our Safe Harbor statement. This conference call may contain forward-looking statements. These statements relate to future events or future financial performance, including statements regarding future acceptance and use of our products and technologies. Such statements are subject to risks and uncertainties.

In some cases you can identify forward-looking statements by terminology such as may, will, should, expect, plan, anticipate, believe, feel, estimate, predict, potential or continue, the negative of such terms, or other comparable terminology.

These statements are only predictions. Actual events or results may differ materially. Factors that could cause actual results to differ from those contained in the forward-looking statements include, but are not limited to, the general conditions of the domestic and global economy, our ability to continue to develop, produce and introduce innovative new products in a timely manner, our ability to identify and execute successfully cost control initiatives without adversely impacting sales, the performance of new products and continued acceptance of current products, uncertainties associated with intellectual property protection for our products, and other risks identified from time to time in our filing made with the US Securities and Exchange Commission.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results. Moreover, we assume no responsibility for the accuracy or completeness of such forward-looking statements, and undertake no obligation to update any of these forward-looking statements.

This call is being broadcast live over the Web and will be available for replay through February 1, 2010, and on the Investor section of our website at www.MitekSystems.com.

With that, now I would like to turn the call over to James DeBello, our President and CEO of Mitek.

Well, welcome everyone and thank you for joining us today to discuss our performance during our first quarter of 2011. The momentum of our business continues to build. Based on the growing level of our customer interest in Mobile Deposit reported to us by our channel partners, our visibility into the market is at its highest level since we launched the product in 2008.

As we discussed last quarter, we believe we have entered an inflection point for the deployment of Mobile Deposit. During the month of January alone, we added 10 new customers on top of the 10 that we announced just three weeks ago. We are also making tremendous progress on our strategic roadmap and are currently in a pilot with a major financial institution on our second product, Mobile Photo Bill Pay.

We believe our Bill Pay product has a significant market opportunity globally, perhaps even larger than Mobile Deposit, and is on pace to see a commercial launch late this year.

We are thrilled to see the increasing level of interest and growing recognition of Mitek in the marketplace, and are enthusiastic about the progress we have been able to report throughout this year.

If I were to try characterize the quarter I would say that the pace of deals has accelerated and strong interest has emerged from banks, brokerages and other verticals interested in our mobile imaging capabilities.

Just this morning J. P. Morgan Chase announced a strategic partnership with Mitek. The Chase deal is significant as it contemplates a multiple-year arrangement and multiple products using our technology. As mentioned in our Q, the Company entered into an agreement with Chase, one of the world's leading financial institutions, for the licensing of the Company's Mobile Deposit product.

In addition, the agreement includes additional software products and services that the Company expects to deliver later in this fiscal year. This arrangement includes extended payment terms, and as a result, revenue under the arrangement will be recognized once we deliver all the products defined in the arrangement to the extent that payments have become due for each product. This is in accordance with software revenue recognition policies and GAAP standards.

I would like to note that included in deferred revenue is a portion of the contract value for which we have already collected our first payment from Chase.

We believe that Chase's announcement further validates our position as a leader in Mobile Deposit and financial document capture using smartphone cameras. You may have seen the Chase Super Bowl ad featuring their now famous newlywed couple snapping a photo of a check for immediate deposit.

This campaign has been running successfully for months and reflects their broad commitment to a Mobile Deposit capability that engages their current customers more actively and attracts new customers with the goal of capturing marketshare.

Chase sees our patented solutions as a way to provide an all around better customer experience in depositing checks via smartphone cameras. Given today's mobile lifestyle, the Chase mobile banking app provides the ultimate consumer convenience. This mobile lifestyle is a fundamental cultural shift and a key market driver for our growth.

More and more people are managing their financial lives on their smartphones. It was reported recently that more smartphones were shipped in 2010 than all PCs.

According to Mobile Commerce various experts predict that by 2012 there will be 150 million smartphone subscribers in the US, all connected to the mobile Internet, and hopefully to their banks snapping deposits and paying bills.

As we discussed last quarter, we believe we have entered an inflection point for the deployment of Mobile Deposit. Since the new year we have added 10 new customers, and three of the top 10 banks are already in the process of deploying our Mobile Deposit solution. And we are engaged in earnest discussions via our OEM partners with most of the top 25.

Adoption of mobile banking is emerging as one of the most rapidly adopted banking services, even eclipsing the rate of growth of online banking in the past. Banks like Chase are now touting mobile banking as the most convenient way to access your financial information.

And it is no wonder, then TowerGroup says the mobile banking customer is the most profitable customer segment for banks. The number of mobile banking users is expected to grow to over 100 million mobile banking users by 2014 as predicted by industry analysts. And over half of those are expected to use mobile check deposits according to Mercatus, who predicts that more than 1.5 billion check deposit a year will originate from mobile phones by 2014.

Our channel partners are key to the growth and visibility of Mobile Deposit. And all of our major partners are in the win column, having signed their first Mobile Deposit contract, and all have deepening pipelines.

As an example, just last week BluePoint Solutions, a leading integrator of software solutions for credit unions, announced four new customer wins with assets up to $2.8 billion. Two of the credit unions in particular are looked upon within the industry as thought leaders and early adopters, which lead me to leave believe that the 7,000 credit unions in the US are also a terrific market for Mobile Deposit.

Coming on the heels of significant deals with Chase, and previously with PayPal and USAA, Mobile Deposit is gaining traction in all tiers of the financial market, including Tier 1 banks, regional banks, community banks, credit unions, brokerages and payments companies. We expect additional customer announcements from our partners in the coming months.

Now it is important to note that many of these OEM partners, banks and credit unions will market their Mobile Deposit solutions under their own brand, or more often integrate our functionality within their mobile banking platform. In effect, Mitek has become the Intel inside these mobile solutions. They are shipping apps that are Mitek ready. Our solution provides the gold standard in acceptance rates and optimal customer experience.

We are also making huge progress on the rollout of our strategic roadmap and have excited the mobile payments market with our recently launched Mobile Photo Bill Pay. Our newest product announced last quarter, Mobile Photo Bill Pay, allows anyone to use their smartphone camera to point, shoot and pay any bill or invoice without writing a check.

Although equally groundbreaking as Mobile Deposit, the sales cycle for Mobile Photo Bill Pay is considerably shorter, largely due to the credibility of our technology and the existing sales channel we built, many of whom are the same channel partners who resell Mobile Deposit.

As I mentioned at the top of my remarks, we have already engaged with a major financial institution in a pilot, and are in distribution discussions with many of the leading payment processors. We expect that Mobile Photo Bill Pay will be commercially available to customers by the end of this year, a mere 12 months after launch of this revolutionary concept.

Mitek is enjoying broad acceptance because our products are useful and convenient. If you think that the market opportunity for Deposit and Bill Pay is large, think about the opportunity to capture other documents with smartphones critical to the workflows and other industries, such as insurance, logistics, even healthcare.

Coupled with our creativity, we have plans to launch additional mobile imaging products this year for the payments industry and other verticals, taking advantage of our cloud-based mobile imaging architecture and open APIs. In a way we are taking a chapter out of the Google playbook for Maps when they launched an open API for location-based services.

With the smartphone camera acting as a palm-sized document scanner in your pocket, we believe our mobile imaging is an important enabling technology for all sorts of applications and process improvements across many, many industries.

It is not surprising to us that we have begun now to receive calls from major corporations in other industries with a need to build apps using mobile document capture. Who better to turn to than the leader in mobile check and bill capture, which are financial documents that meet the highest standards for security and accuracy. As a result, we have begun to engage in preliminary discussions in a variety of industries and expect announcements later this year.

Now I would like to review our financials. Net sales for the first quarter of fiscal 2011 were $1.4 million, compared with $1.2 million in the same quarter last year, an increase of 21%.

Gross margin for the first quarter was 85%, compared with 70% last year. Now this largely reflects our product mix changing to more mobile sales, which carry a higher gross margin.

The current quarter's net loss of $801,000 includes non-cash expenses totaling $712,000. These expenses include $384,000 of non-cash interest expense resulting from the conversion of the Company's debenture into equity. And that eliminates all long-term debt from our balance sheet.

It also includes $234,000 of non-cash stock-based compensation expense related to our annual performance of stock option grants to all employees. Lastly, it includes $94,000 of depreciation and amortization.

Our cash position meanwhile has increased nicely and is ample to execute our plan. We ended the first fiscal quarter with cash and cash equivalents of $2.1 million compared with only $1.1 million in the year ago period.

As of December 31, 2010, we had working capital of approximately $2.1 million and stockholders equity at $2.3 million compared with working capital of only $550,000 and stockholders equity of only $556,000 in just one year ago.

Finally, I would like to say how excited I am to have Pete Hart nominated to join the Board, pending shareholder approval next week. As many in the payments industry know, Pete is the former CEO of MasterCard and an industry icon. He currently sits on the Boards of companies ranging from VeriFone to Global Payments, and is the Chairman of Silicon Valley Bank.

He has been at the heart of many innovations within the payments industry. His joining our Board will provide Mitek with tremendous insight and exposure as we accelerate Mitek's growth.

At this point I would like to end my prepared comments and answer any of your questions.

(Operator Instructions). George Sutton, Craig-Hallum.

So with respect to the top 10 banks, you mentioned that three are currently in process, if I heard you correctly. And that leaves obviously seven that wouldn't necessarily be in process yet.

As I saw the Chase add and obviously the repercussions that have come from that, it would seem that most top 10 banks are going to want to have this capability relatively quickly. Have you seen any acceleration or any change as a result of the comments of the Chase program?

We have. Chase is a brilliant organization. Their campaign has been very targeted and the recall rates have been extraordinarily high. They have raised the visibility of mobile remote deposit capture, the category in which we play with Mobile Deposit broadly. As a result, we have seen the discussions accelerate with all Tier 1 banks and other banks that go beyond the top 10. So we feel that we are in a very good position to secure contracts via our partners with the other banks.

Now you mentioned other verticals, which -- and I think you mentioned brokerage firms as an example. Can you give us a little more of a sample of what potential other verticals might look like and how would you attack those?

Sure. With regard to brokerages, I almost consider them in the financial industry that we serve as a primary thrust in the syntax vertical. And we are engaging currently with several brokerage firms, again, via our partners. We expect commercial launches of Mobile Deposit throughout this year.

One, in fact, had tweeted that Mobile Deposit capability is coming soon to all of their users.

In addition to the financial vertical, we have seen interest come from other verticals who are interested in the use of our leading mobile imaging technology, and that is what I have referred to in my prepared remarks. These include inquiries from far ranging industries that include automotive, insurance, field service, logistics, and even healthcare.

These are initial-stage discussions, as all industries now are addressing this new mobile platform that is in the palm of everyone's hand, which is the smartphone. But because of that fundamental shift in the market all companies are exploring ways in which they can provide greater convenience or service to their customers in a B2C world, or even in a B2B world provide greater workflow and process improvement using mobile technology to capture images and extract data. And that is exactly our sweet spot.

Last question for me. With respect to JPMorgan and the revenue recognition, so we see this very commonly with large deals in the financial services space where you're not able to record revenues until all the products have been implemented.

The interesting statements you made about a pilot with a major financial institution on the bill pay side, and the fact that you are providing additional software and services to J. P. Morgan, are those two events correlated?

As you know, our recognition technology can be deployed in the back office, as they have been traditionally, at the branch teller, at the ATM, at the home, and on the mobile device, so all those areas are contemplated, without revealing exactly what the product is, and we are prevented from doing so per the terms of our agreement.

Let me just say that the partnership with Chase is far-reaching. They are very quick on their feet; they are very smart. And they see mobile as a key part of their ongoing strategy to grow their business and capture marketshare. We think that is a very, very important opportunity for Mitek. And we have dedicated a great deal of attention to Chase and we will continue to do so, as we will with all customers.

But I can go back also to your earlier comment about other verticals. We see the other verticals as being a very exciting future opportunity for Mitek. And imagine how big that market opportunity could be if you begin to address very large industries that are deploying mobile applications. That I think is the sum and substance of how our mobile imaging technology can play not only in financial verticals, but other verticals through additional partnerships.

Super. Thanks a lot, Jim.

Ryan Worch, Worch Capital.

Two quick questions. First, are you guys comfortable with your cash position going forward 6 to 12 months? Two, what is the game plan for getting off the Bulletin Boards and listed on an exchange?

Good questions. We are comfortable with our cash position. I do believe it is ample for us to achieve our operating plan for this year. Our cash position has increased quarter to quarter. We actually are in the position where we threw cash from operations last quarter. We expect to have that similar performance this quarter and beyond. So our cash position example.

We also believe that we are now approaching all of the thresholds that are required by a major national market, and in this case NASDAQ, to relist. Our deficit is only in regard to net equity. We reported net equity of $2.2 million, leaving us at a deficit of $2.8 million to achieve relisting.

The $5 million net equity threshold is the only remaining post that we haven't met yet. We are trading above $4 consistently, and much higher than that recently. We have governance with outside independent Directors, so we are conformed as a Board and with our internal governance in accordance with NASDAQ requirements.

And, furthermore, we comply with all GAAP and Sarbanes-Oxley requirements. So for all those reasons we believe we are poised to relist in the future -- the foreseeable future. That could be this year or next, depending on internal operations, or if the opportunity presents itself, to review additional capital to achieve that goal. We have not made that decision. We believe right now that we have adequate resources.

Okay, great, thanks, guys.

Mike Wallace, White Pine Capital.

A couple of questions here. I am starting to come back to the -- I don't have a Q in front of me. I don't think it has been posted out there yet. But it will probably show the deferred revenues?

It has been filed and it will show the deferred revenues, of course.

What was the deferred revenue balance?

About $1.2 million.

$1.2 million. I don't think there was any in the last year's deferred revenue.

No, no, we have deferred revenue regularly. Only because, as you know, through our PCS, our post-customer support, we defer that maintenance revenue and recognize it only periodically pro rata.

Okay, so can you give us -- I can look at it from quarter-to-quarter, but can you give us some sense to the change in deferred revenues then?

Yes, I will tell you the numbers. And, Mike, perhaps you are trying to derive what the value of the Chase piece is, and it won't help you necessarily to do the math, because deferred revenues will decrease also throughout the period as we recognize, and then increase naturally per the arrangement with Chase.

But the prior period was around $800,000 and the current period is around $1.2 million, rounding.

Okay, so it is $800,000 to $1.2 million. And there probably some runoff from prior in there?

Correct.

Okay, so that's good (multiple speakers).

Again, if I can reflect on the Chase arrangement, that is an extended payment agreement over multiple years. We think ultimately very valuable to the Company as we grow.

Sometimes they will give you some cash up front. Is there any cash up front on that or is it just -- they're going to pay as you go and --?

We have received a payment and that is noted in the Q.

Just to circle back on the Chase, they were rolling out their own solution and putting a lot of marketing support behind it. Can you give us some granularity on why they switched and, I would say, finally adopted your solution in a little more formal way?

All I can say, and I am very proud of our team for this, is Chase chose Mitek for a superior customer experience. And that ultimately will be a great advantage to them as they engage more and more customers. And we are very, very pleased to be partnered with them.

Can you give us a little more on what superior customer experience meant to them?

Well, let's talk about it generally, because I think that is an important concept here. There are two facets to the products that we deliver. One is to make them easy and convenient for the user. Again, we believe very strongly in simple user interfaces, one touch in terms of capturing an image and having it accepted.

So, again, the ability to read a document that has been photographed by a smartphone camera is a very, very challenging technology and science. We have mastered that. That is why we have patents. And that really lends itself to an easy consumer experience, because they are only taking one photograph, and that photograph of that check or that bill is processed.

In addition, and think about it on the other side of the coin is the ability to process the data efficiently on the backend through internal operations. Our technology has very, very high acceptance rates, and so the cost of ownership among our customers is very low relative to doing other methods.

So as a result of it, our technology to all customers, not just Chase, represents a great consumer experience -- that is a way to engage your customer -- and a great backend processing efficiency.

Is it -- the agreement will limit your ability to reference them as -- this is almost a huge endorsement for you. They were out there with their own solution and they were trying to roll it out and build a platform out, and clearly discovered that it wasn't working like they had expected. So when they look out in the marketplace and see the Mitek solution, which of course, they knew was there, it finally came your way. So is this -- I mean, this is a big endorsement that I would think you guys could use quite effectively for future deals.

This is a very, very big endorsement. And it is unprecedented that Chase would give such public awareness through their PR announcement this morning to a vendor.

But I think it does reflect the strategic importance to them of an excellent mobile strategy and capability to prove and provide an optimal consumer experience. So for all those reasons this is very big. Other people in the industry have mentioned that Mobile Deposit is becoming table stakes for any mobile banking initiative.

I was thinking of it also in terms of the patent and intellectual property around this process in terms of that endorsement. Right? They clearly recognize that it has got to be a solid patent, a solid process patent that they're not going to be able to get around.

Our patent was issued August 17. It is a method and systems patent. We are expecting ancillary patents to be issued shortly within the next 120 to 180 days, further supporting our intellectual property.

And I must say that a great market will attract competition. We are seeing such huge demand, we anticipate that others will try to enter. But we do own the IP in and around this space. And we will enforce our patent rights on behalf of our shareholders.

Anybody -- you see anybody out there infringing at this point?

Nothing that we can discuss at this point. We are keeping an eye out. But we just want to make sure that people, and we communicate this well to the industry, that we have very extensive claims and that we will protect those claims.

Well, again, like I said, adding Chase was probably the closest (inaudible) was something out there in the marketplace that they were trying to make work and clearly couldn't, so recognized that (multiple speakers) you've got this space pretty much locked up. Okay. Very good, thank you.

[Jim Mulletis], Mulletis.

Hi Jim and Bud, congratulations on a great number and great comments.

Thank you very much.

A couple of questions. You have hired several employees. Can you address that, just to give us a little flavor of what -- obviously, you need them and it is also -- it doesn't sound like it is all that difficult -- I say difficult -- to hire people.

It is always difficult to hire great people. And you build great companies with great people, and we are taking a lot of care with regard to our recruiting efforts.

We have hired appropriate staff to accommodate acceleration and rapid deployment of our technology. We anticipated that we would need to do that this year. Last year we spent a tremendous amount of effort securing all the major channel partners who service banks, credit unions and brokerages. And those agreements are long-term and those partners are now deploying Mobile Deposit into the field.

That requires additional client service personnel, people who help with the post-sale integration with our partners. So we have hired people in the client services area and the marketing and sales area. Again, a handful, Jim, to augment our staff, anticipating further acceleration of the business.

Another question. The rolling out of the customers, how long does it take for an ex-bank to be brought on to be a full user? And is it different for a Chase Bank versus [Jim Allegis, Inc.]?

The typical timeframe of the product rollout we find to be 6 to 9 months on average. In the past it has been a bit longer as this technology was very innovative and it had been an early-stage market. When we had engaged our OEM partners there was an educational process to bring them up to speed and have them integrate into their backend systems, which they have done now.

So we now see an acceleration of new bank deployment, people who have signed agreements and then work with our integrators to actually deploy to their customers. That requires, for example, getting on the Apple Store if you have an iPhone offering or the BlackBerry Store, and providing that kind of ease of access to your consumers, not just the backend. So there is multiple parts that need to be coordinated.

Again, it is pretty much cookie-cutter, but there are several items to your checklist. It is different for large banks compared to smaller banks. Large banks have bigger systems. They have sophisticated database management, risk management, protocols that they must comply with. And so they put a lot of care into a product selection, as Chase has, before they roll it out to their consumers.

It is a little different with smaller institutions, who rely more on integrators who may host the technology for them. Those would be the FIS's, the [Fiservs] of the world and NCR.

And as a result, they can get to market a little more quickly. And what they are choosing, many of them now, are to private label a standalone app through Mobile Deposit only rather than integrating our functionality into a broader mobile banking platform.

So it really depends on the strategy of the institution and how quickly they want to get to market. The critical path item is not our technology or integration, it me really is the bank's systems to coordinate and align their internal operations, risk management, marketing and branch efforts.

The expense of adopting Mitek's process, is it -- not prohibitive, but is it a big deal to, again, a small bank versus a big bank, or a small user versus a big user, is there some hesitation on their part or is it just they have to be there?

We built the technology on a .NET architecture, which is highly scalable industry standard and very secure. So as a result of that, really as we mentioned or as I mentioned earlier, not only this is easy to install at a bank, but also it can be hosted -- hosted in a cloud environment.

So we see that as a big opportunity for the Company, and ultimately for our OEM partners, to provide mobile imaging to a variety of applications as people are very creative out there using the camera as really a data input device.

A final question, and I will hangup, or not hang up but get off the phone, and that is -- your direct -- your marketing, the larger banks, do you direct market or do you do it through your resellers or a combination?

Banks really are the B2C players. They own that consumer experience. They are retail institutions and they are very adept at that. Chase has very sophisticated marketing outreach programs, as well as their back office.

So our job is a technology enabler. So we provide advanced technologies to our partners who provide them to the banks. It is a two-tier channel distribution. So we really don't market to the end-user consumer.

We do however spend a considerable amount of effort with public relations to alert the market about our progress, our innovations, our patents, and also to encourage our partners to use the Mitek Inside brand, which really is the seal of approval, the gold standard.

And in fact, to that effect, we wrote a white paper articulating the challenges as it relates to photographic imaging of documents and capture that is much, much different than typical flatbed scanning.

And that is available free of charge our website, available to all of our partners, even for them to private label it, and to all the people in the -- among our stakeholders who are interested in learning more about our technologies.

Great. It is easy to identify. Great.

Yes.

Thank you very much. And as I say, congratulations.

We very much appreciate it, Jim.

(Operator Instructions). [Alan Ebright], Miller Tabak.

I am relatively new to the story. I saw you guys presented at LD Micro conference up in LA in December.

Sure. (multiple speakers).

I have continued to follow the story. I've got to get a couple of things clear in my head. One is the mobile Photo Bill Pay. I know this is kind of an evolving concept for you guys, but I am thinking about at the end of each month I sit down, I open up the bills, I log onto my bank. I pay the phone, the DIRECTV, the gas; it is all done in five minutes. So how is this Mobile Photo Bill Pay helping me, the consumer, out?

There is two ways, and let me tell you how that works. It is really a very exciting technology and plays to our strength in managing documents and being able to capture information no matter where that information is placed on the document. And no two invoices or bills seem to be like. And to be forced to have a template for each bill would be impossible. Our technology is template-free, and that is really the secret sauce that makes this possible.

The second thing is this is a global market. Deposits fundamentally addresses a US check market, which is the largest in the world. But Bill pay is useful in any country in any region, so we think the market opportunity for this is much, much larger. That is why we are so excited about it.

But specifically to address your question, in America today only about 20% of Americans who have banking relationships use online bill pay through your desktop PC, and coordinate it either with your bank as an aggregator, or separately as a direct pay to a particular bill provider, if you are a utility company, for example, or you are a communications company.

80% of Americans don't. Why? It is because of the complexity of establishing your payee list, of enrolling for the system, and these are the reasons that banks have told us they haven't had more traction.

It is curious to note, that only 40% of Americans use online banking. Again, why, with such a penetration of PCs? It is the complexity. The mobile device today represents a new paradigm. It is untethered, it is connected, and it is easy to use. For all those reasons we really think the mobile devices will pull along these services to users who otherwise would not have used them on their desktop.

Specifically, in your use case, you are an online bill payer already. When you get the occasional, what we call orphan bill, you have to sit down at your computer and enter that data manually using each keystroke to enter the data. We think that is the old paradigm. A better way, we believe, is to use your camera as the input or on-boarding device, snapping a photo. We do all the backend optimization of that image, making it recognition-friendly, and then we extract the data.

You only snap the picture. That data can be presented to your payee list and integrated with one keystroke. That is snapping the photograph. So we think that makes your life easier.

But in addition to and beyond this, for people who have a lifestyle that is centered around their mobile device, they don't want to be tethered. They don't want to sit down at their PC, and they prefer to do bill pay through their mobile device.

Again, what you get that bill in the middle of the month it is due at the end, you can take it out of the envelope, snap a picture right there. We will feed back the data to you for confirmation. And you can tell the application when you want to pay it and how much of the bill you want to pay, and submit, and you're done. It is much easier, much more convenient. And we think really we are in the business of providing convenience. That is a long answer to your short question, but I wanted to give you the two use cases.

Okay, that is very helpful. Then the second question and then I will drop off. So what is driving the bank demand for Mobile Deposit? Are they looking at it like, hey, if we get X amount of our account holders to start doing this we need one less teller? Is it a personnel decision? What is -- it can't just be convenience for our customers. There has got to be more of a driver than that.

The ROI for banks, as it is becoming more developed and more apparent, is driven by the ability to attract new customers and retain your existing customers.

Let me be specific, go to the app store, read the reviews on the Chase app, very positive. Read the reviews on the PayPal app, which includes Mobile Deposit. There is a wow factor, a sizzle. But it is also a way for consumers to do a practical task in a very convenient way. And it has pulled customers from other banks, and it has pulled customers from other payments institutions into the PayPal domain, and obviously into our other customers, including Chase. So they see it as a way to attract and retain new customers.

Operationally there are savings, of course, there are. When you have imaging you are now asking the consumer to image their own document as opposed to doing it in the back office. There is an implied reduction of labor costs. There is an implied reduction of telller cost potentially.

More and more things are moving towards imaging. It is becoming an offensive weapon on behalf of banks to attract and retain new customers.

Great, thanks guys.

[Linda Murphy].

Hello, gentlemen. I am just a single and investor. And my concern, if you would address please, would be if there is any sort of identity theft issues, more so relating to mobile banking?

Good question, and security has been a number one concern of ours from the very beginning when we first launched it -- and obviously on behalf of banks.

Chase and others have compliance requirements, federal examiners and regulatory compliance issues that they have addressed and feel extraordinarily comfortable with. As does PayPal, USAA and others who are deploying this technology.

So let me be specific how we have addressed this from a technology perspective. In our application, and in others that are provided by our bank customers, typically they involve a two-tier authentication at the very beginning. In addition to a two-factor authentication, they include a user idea of what -- user ID of what the actual phone device is. So there is additional elements of security that the bank can employ.

Once that image is taken it is not stored on the phone. It is compressed and it is sent upstream over the secure socket layer, what is a commonly referred term in the industry as SSL. And that is an encrypted method to send the image to our servers. And then from that the data is extracted after the item is optimized for recognition friendliness.

That data is then presented to the bank and that bank processes that. It is a closed system. The bank knows who their customer is. And they have multiple factor authentication and encryption to prevent security breach.

The question has often come up, well, what happens if I submit the check twice? We have a system within Mobile Deposit, and banks do in their back office, to detect duplicate deposits.

And then furthermore, the question comes up, what happens if I deposit it in bank A and then physically take the item down to bank B?

There is a third party group. It is called Early Warning System. They are a consortium that is owned, in part, by Chase, Wells Fargo, Bank of America and Citibank, which actually is an image repository And can do real-time processing to prevent two institution deposits.

That product we expect to be launched sometime in this calendar year. So you can see a tremendous amount of thought and more behind the scenes has gone into preventing identity theft and the risk of losses.

Would that be the same answer for mobile payments?

Yes, exactly. It would be the same answer, the same fundamental approach. In mobile payments, of course, what we are doing is allowing the captured image, and then we determine the payee, the payer, what the amount is by capturing that data, and presenting it in a file to the bank for processing.

But keep in mind, you would have been enrolled as a user of that already with your institution. They will know who you are. And with your authentication passwords you would be known to Deposit, and also to have money debited from your account to be paid -- to be used to pay your bill.

So this really is, if you think about it, an extension of existing depository methods, an extension of existing payment methods that banks have been deploying for years in accordance with a host of security measures to prevent the kind of losses you're talking about.

Great, that sounds great.

Well, glad that you are an investor, and I appreciate your comment.

Thank you.

At this time there are no more questions.

Well, I very much appreciate the time that we spent today. We are very, very pleased about our progress here at the Company. Thank you for your support.

We will continue to keep the pedal to the metal. We are very excited about new products, new customers, and we will keep you posted at each step of the way. I look forward to speaking to you all again next quarter. Thank you.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.