Mitek Systems Inc (MITK) 2011 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second-quarter 2011 Mitek Systems, Incorporated earnings conference call. My name is Alicia and I would be your operator for today. At this time all participants are in listen-only mode. Later we will conduct a question and answer session. (Operator Instructions). I would now like to turn the conference over to your host for today, Mr. Bud Leedom, Finance Director. Please proceed.

Thank you Alicia, and welcome to the Mitek Systems' quarterly conference call to discuss operational results for the second quarter of fiscal 2011. My name is Bud Leedom and I serve as Mitek's Finance Director.

Before I begin the call, I would like to read our Safe Harbor statement. This conference call may contain forward-looking statements. These statements relate to the 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 filings made with the 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 also being broadcast live over the web and will be available for replay through August 1, 2011 and on the Investor section of our website at www.MitekSystems.com. Now I would like to turn the call over to James DeBello, President and CEO of Mitek.

Welcome everyone and thank you for joining us today to discuss our performance during our second quarter of 2011.

The second-fiscal quarter marks a pivotal period for Mitek Systems and reflects strong demand for our innovative mobile payment solutions. Not only are we pleased to welcome Bank of America and Capital One as new customers to our patented Mobile Deposit solution during the quarter, but the Company stands today with its strongest financial position in more than 15 years.

The momentum of our business continued during the second quarter with an 89% year-over-year increase in revenue to $2.9 million, and earnings per share of $0.02. We also announced this morning that Mitek successfully closed a $15 million private placement with institutional investors.

We plan to use the proceeds from our private placement to fund working capital as part of our growth strategy. In addition, the equity allows us to file for a listing of our shares on the NASDAQ Capital Market which we plan to begin the filing process immediately.

The word from our banking customers appears unanimous. Not only is Mobile Deposit a must-have solution, but our mobile imaging technology is providing an opportunity for financial institutions to think outside of the box in creating new customer solutions by replacing the keyboard with a camera to provide better service and ultimately driving new revenue.

With our Mobile Photo Bill Pay solution anticipated to be commercially launched later this year by major a bank, we believe Mitek is positioned as a leading pure play in the mobile payment space.

The combination of signing top banks, nearly doubling our revenues, and closing a $15 million private placement is validation for our mobile payment strategy using the smartphone camera, and reinforces our belief that we are at the very early stage of something very exciting and we think very big.

The smartphone is changing the way in which we live. As a result businesses in many industries are looking at the smartphone as an entirely new channel to reach customers and drive revenue growth.

If I were to characterize the quarter, I would say the pace of deals has accelerated and strong interest has emerged from banks, brokerages and other verticals interested in our mobile imaging capabilities. Mitek has the product lineup, channel partnerships, patent portfolio and the financial resources to capitalize on this opportunity.

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 combined. Even prepaid carriers are reporting that more than half of their new handset sales are smartphones connected to the mobile Internet, opening up new opportunities for Mitek and our partners to penetrate the unbanked market which numbers 30 million to 40 million consumers.

According to Mobile Commerce, various experts predict that by 2012 there will be 150 million smartphone subscribers in the US alone, all connected to the mobile Internet, and we believe to their banks, many of whom will be snapping deposits and paying bills with their smartphone camera.

Adoption of mobile banking is emerging as one of the most rapidly adopted banking services, eclipsing the rate of growth of online banking. Banks like Chase and Bank of America are now touting mobile banking as the most convenient way to access your financial information. And it is no wonder. The Tower Group says the mobile banking customer is the most profitable consumer segment for banks.

The number of mobile banking users is expected to grow to over 100 million customers by 2014 as predicted by industry analysts. Over half of those are expected to use mobile check deposits according to Mercatus, who predict that 1.5 billion check deposits 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 now in the win column, having signed agreements to deploy Mobile Deposit, and all of deepening pipelines. We expect additional customer announcements from our partners in the coming months and will be sure to keep you posted.

I'm also happy to announce that we signed several new channel partner agreements during the second quarter, one with [Devos], a multibillion-dollar provider of self-service and security delivery systems, and two others with Encenta and Vsoft.

They join the ranks of our existing partners, NCR, Fiserv, FIS, Jack Henry Financial, Wausau Financial, BankServ and others. Collectively the Mitek channel partners sales solutions and services to 95% of all financial institutions in the US. This broad reach gives Mitek the ability to scale our business cost effectively by leveraging the customer relationships of our partners.

Our Mobile Deposit solution is at the foundation for changing the way consumers and banks interact. It's gaining traction in all tiers of the financial market, including Tier 1 banks, regional banks, community banks, credit unions, brokerages and payments companies.

USAA, among our first customers, recently announced that they had 400,000 active mobile check deposit users who have deposited over 2 million checks using a smartphone during the past 12 to 18 months.

Our recent quarter results are a direct result of this dramatic shift in consumer behavior, and this just the very start. With over 15,000 banks and credit unions, it is clear we are still at the very early adoption phase of just our first mobile product.

We're experiencing increasing demand for our flagship Mobile Deposit product with five of the nations top 10 banks now signed on to deploy our solution. These include, of course, our new customers Bank of America and Capital One Financial, the number one and eight retail banks in the US, respectively, based on reported assets.

During the last quarter 26 new customers signed agreements to deploy Mobile Deposit, bringing the total to 40, including other notable leading financial institutions and payment processors, J.P. Morgan Chase, U.S. Bank and PayPal to name just a few.

We're also making tremendous progress on our strategic roadmap. Recently Mitek was granted four new patents for its mobile technologies by the U.S. Patent and Trademark Office, and is awaiting final designation of the patent numbers that we expect will be announced soon.

Coupled with our systems and methods patent granted last year for Mobile Deposit, we believe that we now have the most extensive portfolio of patents for mobile imaging. This brings Mitek's total number of patent granted for all of our recognition technologies to 12, with more pending.

Thirdly, we are currently in a pilot with a major financial institution on Mobile Photo Bill Pay, which we launched during our first quarter of this fiscal year. Mobile Photo Bill Pay allows anyone to use their smartphone camera to pay any bill or invoice without writing a check or licking a stamp by simply snapping a photo of it. We believe our Bill Pay product has a significant opportunity globally, perhaps even greater than Mobile Deposit, and is on pace to see commercial launch late this year.

Just last week we attended the Fiserv user conference where the topic of Photo Bill Pay using a smartphone camera was broadly discussed. This is a very exciting product. The editor of Net Bankers said that Mobile Photo Bill Pay was the top new product announced at the banking industry's largest retail delivery conference last year. This week we will be demonstrating Mobile Photo Bill Pay live on stage at Finovate, one of the premier gatherings of financial executives and technology innovators in the country.

We believe that the sales cycle for Mobile Photo Bill Pay is considerably shorter, largely due to the credibility of our technology and existing sales channels we have built, many of whom are the same channel partners who resell Mobile Deposit. And the consumer is the same -- the mobile banking user. As a result we expect to generate multiple revenue streams from the same customer base on deploying our suite of mobile imaging financial solutions. In effect, we expect that our revenue per user, or ARPU, is scalable and will increase over time.

As I mentioned at the top of my remarks, we have already engaged with a major financial institution in a pilot, and in distribution discussions with many of the online payment processors.

Based on the high level of interest both here and abroad, we anticipate signing several agreements before year-end. It is important to note that many of these OEM partners, banks and credit unions will market their Mobile Deposit and Photo Bill Pay 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 solutions provide the gold standard in acceptance rates and optimal customer experience.

We live in a time when we want things fast and we want them easy, epitomized by the online smartphone generation. Mitek is enjoying broad acceptance because our products are easy to use and more convenient than visiting a branch or stroking each keystroke to enter data.

Our mobile imaging technology snaps and captures data from any financial document or other identity document by simply using your camera. If you think the market opportunity for deposit and bill pay is large, think about the opportunities to capture other documents with smartphones critical to the workflows and other industries, such as insurance, logistics and 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.

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 different industries. In essence, Mitek mobile imaging is the bridge between the physical paper-based world and the digital world.

For example, there ahs been lots of industry talk about the electronic wallet, or EFC, on your phone, but practically how can you transfer the content of your wallet to your phone or enroll in the new service easily?

Well, with a snapshot using Mitek mobile imaging we have transformed printed content into digital information. And not surprising to us, we have begun to receive calls from major corporations and other industries with an interest in building apps using mobile document capturing. Who better to turn to than the leader in mobile check and bill capture that meets the highest standards for security and accuracy. As a result we have begun to engage 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 second quarter of fiscal 2011 were $2.9 million compared with $1.5 million in the same quarter last year, representing an increase of 89%. Gross margin for the second quarter was 91% compared with 85% last quarter. This largely reflects our product mix changing to more mobile sales, which carry a higher gross margin.

We reported net income of $570,000 compared to $7,000 in the second quarter of last fiscal year. This translates into earnings per share of $0.02. EBITDA was $758,000 compared to $336,000 in the second quarter of last year.

We enter the second fiscal quarter of 2011 with cash and cash equivalents of $2.3 million. As of March 31, 2011 the Company had stockholders equity of $3.2 million. And as I mentioned a moment ago, we closed a $15 million equity financing that materially improves our cash position and funds us for our foreseeable expected growth. It also allows us to file for listing on NASDAQ, and as I mentioned earlier, the process which we expect to begin this week.

As we indicated last quarter, we expect our revenue to remain somewhat lumpy over the next several quarters, reflecting the timing of customer agreements and recognition of revenue under GAAP accounting rules. We expect that banks require up to six months for integration and deployment after they sign a deal to deploy Mobile Deposit, but after which they start consuming their usage-based licenses, the depletion of which will drive new license orders. And we continue to be diligent managing expenses associated with our growth.

Finally, I would like to say how excited I am to have Pete Hart join the Mitek Board. Pete's the former CEO of MasterCard and currently sits on the Boards of companies ranging from VeriFone to Global Payment, and currently is the Chairman of Silicon Valley Bank. He has been at the heart of many innovations within the payments industry.

Coupled with our Advisory Board Chairman, John Major, who is the Chairman of Broadcom, we feel we have strong industry insight, anticipating changes, advancements and being at the leading of that charge here at Mitek.

At this point, I would like end my prepared comments and open it up for your questions.

(Operator Instructions) [Brian Wickern].

I am just kind of curious -- first of all, great job. And I was just wondering what is in the international pipeline? I know you guys are pretty focused on the domestic market, but I was wondering what you had going on overseas?

Thanks, Brian, great question. We do have our eyesight on what we could do internationally, particularly with our new product, Mobile Photo Bill Pay. That is a global market. As you can expect, people around the globe pay the bills paper-based. And our ability to snap a picture of any bill and be able to extract the data for automatic payment electronically is unique and very valuable.

We plan to penetrate the international market through our channel partners. Recently FIS held their earnings call, and they said a large percentage of their growth was due to revenue being driven from the EU. So we really feel we are capable now through our channel to be able to penetrate that opportunity.

And I compare and contrast that to Mobile Deposit, which is fundamentally a US-based or North American type product, because checks really are a prominent way of non-cash payment here in the US and Canada. So we see really Deposit as primarily domestic or North American in focus, and we see Mobile Photo Bill Pay as global in reach.

Great. Just thanks very much.

(Operator Instructions) [Doug Grinder], DA Davidson

Will you revisit the drivers of the gross margin improvement? It sounds as if 91% is sustainable.

Thanks, Doug, good question. We have evolved the gross margin as we have changed our product mix. We have planned for 85% consistently. In certain periods we would generate greater gross margins based on the mix of our products.

As you know, our focus is on mobile products. We also have a strong recognition engine productline that we still continue to support our channel and our customers with. And so the combination of those two play with the gross margin. But right now we are anticipating strong gross margin performance for the upcoming quarters.

That's helpful. And nice work on signing the 26 banks in the quarter. Can you clarify the mix there as the number of community banks, regional banks?

We really don't break that down, but I do tell you this. It covers the gamut of banks by assets size. Everything from Bank of America and Capital One, as I mentioned, all the way to Conestoga Bank, a community bank with 18 branches in Philadelphia.

They have launched live Mobile Deposit under their brand. Users can download it today from the Apple store. And they have actually had billboards -- moving billboards in Philadelphia touting the capability. So we're quite pleased with Conestoga Bank and others in that category, as well as credit unions.

And then lastly, in regard to this Photo Bill Pay launch and the expected increase in revenue per user, can you just talk about where that metric revenue per user currently stands, and generally where you can get it to with these additional add-on products, such as Photo Bill Pay?

As you know, online bill pay is an established method by which 20% of banking customers use to pay their bills. We think there is a huge untapped market opportunity beyond the 20%, but even within the 20%, for individuals who want to add payees to their electronic payee list.

For that service we will charge an annual fee, plus a per transaction are or bill paid fee. And those are economics that are in discussion right now with many of the channel partners who provide these types of services, as well as with banks directly. So as the market becomes -- as we sign agreements we will be able to discuss that more clearly.

That's it for me. Thanks.

George Sutton, Craig Hallum.

Hi, guys. Jim, you mentioned other verticals a couple of times. I wondered if you could give us a little sense of what you are referring to about the nonfinancial verticals?

Sure, George. We receive calls and inquiries from a variety of industries, notably the insurance industry, some players in the transportation and logistics industry, and even in some areas of the healthcare industry, who all see the smartphone as an enabling channel to interact more closely with their customers and drive revenue.

They really see this as a way to engage deeply more intimately with those customers, provide better services and attract new customers [and] retaining their existing ones. It is a profit driver for these companies.

So as we look at the opportunity, our mobile imaging platform which underlies our mobile check deposits and our Mobile Photo Bill Pay technology can be applied to other types of documents. Drivers licenses are among them for identity validation or application for new services.

And we see other documents, bills of lading, even pharmaceutical documents that may be of use. So we're in dialogue with several different industry players. They're all notable and name brand who have an interest in exploring this. And when those deals become signed we will be sure to announce them.

Now, Jim, you mentioned that periodically you will have numbers that are lumpy. This was a lumpy good quarter from my perspective. It sort of broke out of all of our recent ranges. Was this lumpy in anyway relative to what we should expect going forward?

George, one thing we can say for certainty is that we will continue to sign banks and financial institutions using Mobile Deposit, so we expect those numbers to continue to increase.

And as I mentioned, once those deals are signed, these are agreements to deploy Mobile Deposit, there is a lag time. And that lag time could be anywhere from three to six months, but often six months only because of the planning, the integration and the launch from the financial institution themselves to their customers.

As a result, they don't start consuming their licenses until they get commercially active. And at such time then the growth rate will begin as the adoption accelerates. And that depletes these licenses. Reordering becomes a part of that equation at a later date.

So we're still in the nascent stage of this market. We're signing on new customers, getting that critical mass of banks, and soon those banks will be commercially deployed. But still since this was such a breakout quarter we still believe that is three to six months away.

Okay, thanks guys.

Jim Matisse, Matisse Partners.

Hi, Jim, congratulations on a nice quarter. A question, looking at the financials, I see that you have a share count that goes from 17 million to 23 million plus shares. Does that include the new offering, the new private placement?

No. What you see there is the diluted shares on a weighted average as of March 31. The offering was completed recently, and that is why we announced it here today, and therefore that will be additive.

We state in our announcement about the private placement that the number of shares sold amounted to nearly $2.9 million, just south of that. So that would be in addition.

That's what I thought, but I guess why did the share count go up so much last quarter at the end of the quarter? I had no idea you had that many shares that were convertible or whatever caused the increase in share count?

Well, some people exercise warrants, some options were exercised, a variety of other activity to increase the share count that way.

Thanks very much.

Mike Wallace, [Wideside Capital].

Good morning, Jim. Just to kind of clarify there on that last question. So that is the share count is 23.2 million fully diluted, all-in 23.2 million, plus the 2.9 million. Now is that the number we should be using?

Jimm actually that is an average weighted share. So if you were to look at it, the total number of outstanding shares would be on the order of 24 million, and the total number of diluted shares would be on the order of 29 million.

That includes the recent offering then?

That is correct.

Well, it looks like the business is really coming together nice. On a net income line it looks like the flow through margins were about 55%. I figure a change in revenues versus opt income or net income, which is really, really good.

Is that sort of the number we should be thinking about, Jim, as we go forward, or is that -- as you know, your op expenses tend to grow slower than sales, and flow through margins could be even higher than the 55% range?

Well Mike as you know, and traditionally we haven't provided guidance only because we're at the beginning stage of what I think is a very sizable market. But your question with regard to managing our expenses is a good one.

We expect that we will continue to manage very tightly those expenses. We will see some acceleration in the sales area as it relates to growth in revenue, and that obviously is due to commissions and other types of payments.

We will add appropriately personnel, but our headcount add it will really be in the numbers of 5, in that range, throughout the completion of this year. This is new add.

And of course as we grow and we face new opportunities, we will make sure that we do things properly, and that relies on working with our auditors closely and working with our accounts closely. So those expenses also will be a pickup as we go down this path. But nevertheless we think those margins are real and sustainable. And we believe that this Company can perform at that level in the Future.

Okay. What do you [estimate] total employees now?

We have a whopping nearly 30.

30 people now.

But I tell you, Jim, the beauty of these people is we have over a decade of investment in the mobile -- rather in the imaging technology, so we are leveraging that tremendous repository of intellectual property. And over the past four years plus we have been investing in the mobile imaging domain on top of that.

So we're able to really leverage this past investment into a very modern and scalable growth strategy. So that is why we can do it with a fairly limited number of heads. That keeps our cost down.

The second thing we have done, as you know, we have deployed a channel of distribution. These are the largest channel players in the industry. They are a very sizable group, but as a result they have very sizable salesforces. And they also have relationships with all of the major institutions, large and small out there.

So as a result we can have a limited number of sales and business development people and use that to manage our partners. And as that happens, and as those partners get turned on, and they are doing that right now, we see the numbers going up in terms of customer wins. So it's a very scaleable model that we have deployed here at Mitek.

I don't know too many businesses that have a market opportunity like yours that your customers actually carry most of the heavy lifting on the marketing aspects of it.

I think we've done a decent job in terms of getting the word out and creating demand pull through our public relations, our participation in tradeshows. And really being one of the most innovative companies in the payments arena in a long, long time.

I think people are seeing us as the vanguard -- this whole concept of using your camera as a keyboard, converting paper-based content into digital, and also being able to apply financial solutions.

So what we're uncovering is very interesting, Mike, is as we have these dialogs with thanks, we penetrate with Mobile Deposit, and then the discussion goes on to Mobile Photo Bill Pay and other products in which they want to use the camera on their smartphone to capture other documents to improve the workflows, get closer to their customers, with the ultimate goal of driving more revenue. As you peel back the onion more opportunity emerges.

Yes, which means it is probably pretty good high incremental margins as you go through. Just in terms of other things really quick on the -- did the quarter include any deferred revenues from Chase that was from Q1?

Yes. Those deferred revenues from Q1 are still on our balance sheet as deferred revenues currently. We expect that before the end of this fiscal year we will be able to release those deferred revenues into the income statement upon delivery of the other products that is contemplated in our agreement.

So this quarter did not include any release of the deferred, is that --?

That's correct.

Okay.

Now let me add a little color to that, just so we are on the same page, Mike. And the deferred revenue also is maintenance revenue, which we recognize ratably over the period of the course of the contracts. So that will ebb and flow as we gain new customers and add maintenance, and we deplete that by virtue of time elapsing.

Okay, so I assume at Chase everything is moving along on target there then?

We believe that everything is moving along with all of our customers. We are very pleased with our progress.

So then just to come back to George's question, just to clarify at this point all revenues are new license sales going into the channel partners, and then they will let them out as the product gets deployed.

That is right.

Has there been any reloads up to this point?

Many of our channel partners have reloaded and are depleting their licenses as adoption occurs at its expected pace and more banks become commercial. So absolutely we have had reorders and reloads, as you put it.

Okay, that is encouraging too. Then in terms of timing of listing, you got any sense of how long it's going to take you to get through that process?

We don't control that process, other than filing, and we will file this week, and we expect that process will be within the next several months. We will keep you posted on that, Mike. Again, we don't control the process at NASDAQ. We believe that we comply with all of the fundamental relisting requirements, and so therefore we're excited about that.

We think it is good for our shareholders. We think it is good for our customers who see a stronger balance sheet in a national market listing. And we think it is good for Mitek in general.

Good. I think it is real good that you are doing that. Then just lastly and I am going to move -- then I will move on. Can you give us some details of the non-cash charges for the quarter?

Generally those non-cash charges are de minimis this quarter. Last quarter there associated with stock option grants. Typically we do that in a lump at the beginning of the fiscal year when we reward individuals for performance. But those, of course, are taken over a period of time per the GAAP rules, and therefore what you see is the ongoing non-cash expenses associated with past grants.

What were the dollar amounts just this quarter?

Mike, what I will have to get back to you on that question.

Ok, but you're saying they're pretty minimal this quarter, so the $570,000 is a pretty clean op number.

Absolutely.

Thanks, Jim. Nice job.

(Operator Instructions). Ivan Sacks.

Good morning Jim. My question was answered along the way. But I was curious just to reemphasize, and what about the documentation, do you have storing documentation, like drivers license and that? Does that come quite a bit later, because obviously you've got the check deposit and the (inaudible) payment plan as well to implement? Can you implement all three at the same time or do you have to digest the first two first?

Good question. It is all about focus, and I concur with that. And that's what we have scheduled the releases of our products sequentially, focusing like a laser beam on Mobile Deposit, and that is where the bulk of our resources are dedicated.

We then follow with the release of Mobile Photo Bill Pay. If you recall years ago we actually contemplated Mobile Photo Bill Pay as part of Deposit in our first announcement back in 2008. But we have sequenced the order of release so that we can maintain focus.

Underlying all of these products is our mobile imaging platform, which is extensible and can be applied to other documents. We treat a drivers license just like any other document. Now of course it is complex because there are 50 states and there are multiple licenses within those states. But we have prototypes and actually demonstration applications which can do that today.

So that is technology, which has been proven and has also been developed and can be deployed. So we do have some business development efforts that are dedicated to new market opportunities. And frankly, it is in reaction to the calls coming in. So we want to be prepared to jump through the window of opportunity as it exists today and create our leadership position and maintain it.

Ivan, if I were to say one thing, we really want to dominate that ability to use the camera on a phone as a document scanning device. And that is our skill set and our expertise, and we think that has broad ranging applications.

Excellent, thank you.

Jim Gentrup, Discovery Investment Research.

Good morning. I just wanted to ask a couple of quick questions about the revenue recognition again, if I may. Did you or could you report how many licensees contributed to revenue this quarter?

We really don't break that down. But let me assure you that we follow very, very strictly the GAAP standards for rev req, what were formerly known as 97-2. It is a very complex literature. We're very cautious to be conservative in our approach, so I just want to state that upfront.

So I guess the 26, I think that you mentioned those are just recent and I'm assuming that they have yet to --.

Let me clarify that for you. That's a good question. Those 26 customer signed agreements to deploy Mobile Deposit during the second fiscal quarter ending March 31. Most of them did that with our channel partners.

So they're not even close yet to being where you are recognizing revenue from those recent agreements?

I think your conclusion is correct. The fact is that they signed deals with our channel partners, I think that indicates momentum and market adoption. Of course when they get deployed then they start consuming their licenses that they purchased from our channel partners. When those are depleted, or when they term out, they come back to us for more via the channel partner who reorders with us directly.

So taking a look back, the $2.9 million is really people you have probably lease signed for six months, is that a fair assumption then that you will have some (inaudible) perhaps as well?

I think that is a fair assessment, but let me also say that when we sign new deals with large banks or financial institutions, they often are negotiating those deals with our partners, who then in turn turn right around and order from us for that initial stocking order, if you call it that or initial term license. And so often it goes hand-in-hand and is in direct sequence.

And other times, as you represented, and you are correct, they may be reordered from banking channel partners who have depleted their initial licenses and are ordering more.

This is a key part of the revenue model, which is scalable and ratable, and that is we believe that as mobile banking adoption among consumers increases we are going to get a lift from that. But we hope to see, and we're beginning to see that now is as initial orders are placed anticipating an annual period, or maybe multi-annual periods. But then the demand exceeds that initial license and reorders will happen before the term license expires. So we think with the critical mass of deployed banks you're going to see more linear growth and a more predictable revenue streams.

So your gross margins are pretty impressive, considering you're selling a lot through a partner?

Well, we're in a unique position. Our market pricing is based on lots and lots of dialogue, not only with the channel partners but with the banks themselves. And so we feel that we are priced fairly. But we are a software company, we don't shift hardware. Is the software that gets deployed electronically and shipped virtually. As a result of that our costs associated with that revenue are low. However, our development costs are high. So you get it one way or another.

You don't have a deferred revenue number on the balance sheet from the press release that I see. Can you release that?

The financials are associated with the press release and is a different number of approximately $1.5 million.

Okay, thank you very much.

At this time, we have no further questions. That does conclude your question and answer portion of the call. I will now turn the call over to Jim DeBello for closing remarks.

Thank you for that. And thanks everyone for attending today's conference. We're very excited about our position in the market, our new resources and our ability to execute on our plan. So thank you for your questions. I look forward to speaking with you in 90 days. Goodbye.

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