Mitek Systems Inc (MITK) 2011 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third quarter 2011 Mitek Systems earnings conference call. My name is Jeremy and I'll 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 Mr. Bud Leedom. Please proceed, sir.

Thank you, and welcome to the Mitek Systems' quarterly conference call to discuss operational results for the third 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 future events or future financial performance, including statements regarding future acceptance and use of our products and technology. 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, or 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 US Securities and Exchange Commission.

Although we believe that the expectations related 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 December 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 Systems.

Well, good afternoon, everybody, and welcome to our first earnings call since listing on NASDAQ. We're pleased to report today that Mitek's momentum continued to grow in the third quarter and a record number of new customers signed agreements during the quarter to deploy our flagship product, Mobile Deposit. In addition, we're on track to secure signed agreements with top US banks to deploy our newest application, Mobile Photo Bill Pay by the end of 2011. And lastly, we're extremely excited about our recently launched Mobile Imaging Cloud that places us in a position to capture a number of opportunities in industries beyond banking.

After several years in development, we believe we're in a leadership position in mobile imaging technology. Our solutions, using the camera to extract data from any document are at the forefront of a fundamental shift towards apps that use the camera as a keyboard, facilitating a better user experience and bridging the gap between physical documents and digital information. Organizations are conceiving new mobile imaging strategies as a means to engage customers as never before, resulting in a growing number of inquiries for our platform.

Some of these mobile imaging use cases include credit card balance transfers, 401K rollovers, virtual safety deposit boxes, loan generation, insurance quotations and enrollments, receipt management, healthcare flex spending account reimbursement, and even new prescription fulfillments and more. All by taking a photo and extracting data using Mitek's core technology that can be easily adapted to multiple use cases.

I'd like to begin with a description of our progress with Mobile Deposit. I'm happy to announce that another tier 1 bank has joined the Mobile Deposit family and will launching under their own brand later this year. With this signing, we now have four of the top five banks rolling out on Mobile Deposit, making a total of six of the top 10 regional banks in the nation.

In addition, I'm pleased to announce that we doubled the number of signed deals last quarter to deploy Mobile Deposit, growing from 40 to 80 signed agreements. Of those, 24 are now commercially launched. In addition, two of the nation's leading brokerages have launched using Mitek's Mobile Deposit.

We expect the number of customer wins to increase. Javelin Strategy, a leading independent research firm, issued a report during the quarter that indicated that over half of financial institutions surveyed plan on offering mobile remote deposit capture in the next 12 months. The Javelin report is available on our website under investor relations and is entitled 2011 Mobile Remote Deposit Capture, creating a compelling business case for mobile servicing.

One of the key findings in the Javelin report is that Mobile Deposit has emerged as a powerful customer acquisition and retention tool because of its clear value proposition for mobile banking. Consumers are switching banks based on the availability of mobile check deposit.

Mercatus, another top financial services strategy firm in Boston issued a study indicating that 43% of mobile oriented consumers ranked the opportunity to deposit checks via a smartphone as so important as to drive switching their primary bank.

And lastly, in a Wall Street Journal article and podcast heralding the launch of mobile check deposit by Fidelity and Schwab, it was mentioned that 7 out of 10 Schwab customers surveyed indicated a preference to deposit a check with a smartphone over conventional methods. This of course is providing financial institutions a very strong case for deployment of Mobile Deposit and why we are so optimistic about our future growth. In effect, Mobile Deposit is emerging as the killer app for mobile banking. It's easy to use, and it's convenient.

One of the tremendous benefits of our leadership position with Mobile Deposit is our ability now to engage financial institutions in a much deeper level of conversation regarding strategies using our imaging technology. An interesting recent application of Mobile Deposit is directed toward an entirely new category, mobile check cashing. Today there are over 50 million un-banked Americans, many of whom have purchased smartphones. Leap Wireless, which operates the Cricket prepaid network, reports that over half of their new phone sales are smartphones. We believe here at Mitek that every phone will soon be smart, wireless data enabled, and camera equipped as prices continue to fall. These Americans are often paid by check without direct deposit payroll. They don't have a bank to deposit a check into, so they cash it for a fee.

Our partner, Cachet, has signed an agreement with Money Tree to address this market and is exploring a partnership with a national prepaid wireless carrier to offer the service out of the box when purchasing a new smartphone. Soon the un-bank can point, shoot, and get cash reloaded on their prepaid card.

We're also increasingly excited about the prospects for our newest application, Mobile Photo Bill Pay. The growing success of Mobile Deposit has shortened the sales cycle for Mobile Photo Bill Pay and as a result, several large banks who are already deploying Deposit are engaged in negotiation for Mobile Photo Bill Pay, which we launched just last November.

During last quarter, we demonstrated Mobile Photo Bill Pay at Synovate, an industry-wide forum where we were awarded best of show. This product has tremendous appeal to consumers and their banks. By just snapping a photo, you can pay any bill with a single keystroke. Banks love it because it has the potential to be a very sticky application, driving customer retention and like Mobile Deposit, drives new customer acquisition. Again, banks see the use of our technology to drive their top line revenue growth.

We believe the market for Mobile Photo Bill Pay could potentially be significantly larger than Mobile Deposit because it's a global opportunity. Currently we're in a pilot with a top 10 bank and expect to sign our first customers by year-end, in half the time it took to secure our first Mobile Deposit customers.

The popularity of our Mobile imaging solutions to create new ways of doing business goes well beyond banks and brokerages. As consumers continue to adopt smartphones and tablets in record numbers, companies in other industries have contacted us to develop new ways to build applications that attract and retain customers. As a result, we recently launched Mitek's Mobile Imaging Cloud. It's the first and only cloud based imaging service that lets other businesses access our technology to create their own solutions that use the camera as a keyboard and simplify the consumer experience. It uses our same patented image extraction technologies based on our advanced algorithms, and it's ideally suited for any industry that deploys mobile applications to engage consumers or employees.

Launching this product was really the result of the nationwide publicity for our popular mobile check deposit solution. In a way, we're taking a chapter out of the Google playbook for maps and offering our mobile imaging for integration into what could be hundreds of applications.

People love the convenience of trying to reduce the number of keystrokes. It's a painkiller. We believe over time it could be a big driver for our growth. Already we have entered into proof of concept agreements for the use of the Mobile Imaging Cloud and we'll keep you posted on our progress.

As a result of this high level of engagement, we've accelerated our hiring plan to fulfill the revenue opportunities that we believe are ahead of us. To that end, we are pleased to welcome our new Vice President of Product Management, Stu Heilsberg Director of Business Development at Qualcomm and Director of Product Management at Intuit. And Fritz Hess, as our new Vice President of Client Services, who earlier in his career served as a Vice President of Engineering at Intuit. Both are extremely capable executives with deep experience in growth companies.

We're also pleased to have added to our patent portfolio with the addition of four new patents during the quarter protecting our inventions in the area of mobile check deposit and mobile imaging. Mitek now has a total of 12 patents issued and several more in progress.

As I mentioned in my opening comments, we're excited about the level of interest we are seeing within and beyond the financial service market for solutions that use our mobile imaging technology. We believe it speaks to a fundamental shift in the way companies are addressing their mobile strategies to engage customers.

As the market for mobility and wireless data continues to grow, so does the opportunity for Mitek. Worldwide shipments of smart mobile devices will exceed a billion units by 2015. Soon every phone and tablet will be smart and camera equipped. We believe mobile imaging will be central to a new generation of solutions using the camera as the keyboard and bridging the gap between physical documents and digital information.

And with that, I'd like to summarize our Q3 financial performance. Net sales for the third quarter of our fiscal year 2011 ending September (sic - see press release) 30, 2011 were $2.95 million compared with $822,000 in the same quarter last year, an increase of 259%. Revenue year to date through the first three quarters of this fiscal year is $7.2 million and profitable.

Gross margin for the third quarter was 85% compared with 75% last quarter year-over-year. Year-to-date gross margins were 88%. Our gains in gross margin reflect favorable product mix towards mobile sales, which carry a higher gross margin.

We reported net income of $325,000 compared to a loss of $647,000 in the third quarter of our last fiscal year. This translates into earnings per share of $0.01, marking our second consecutive quarter of positive EPS. EBITDA was $373,000 compared to a negative $512,000 in the third quarter of last year.

Importantly, we entered the third fiscal quarter of 2011 with cash, cash equivalents, and short-term investments of $16.4 million. As of June 30, 2011 the Company had stockholders' equity of $17.9 million.

As we've indicated on previous calls, we continue to expect our revenue to remain somewhat lumpy over the next few quarters, reflecting the timing of customer agreements and recognition of revenue under accounting rule ACS 985.

In closing, we're pleased to have been listed on NASDAQ on July 14th and very much appreciate your continued support. We're moving forward with confidence, capital resources, and we think an unparalleled market opportunity.

Now I'd like to turn the call over for Q&A and Bud and I are both happy to answer your questions.

(Operator instructions) Tom McCrohan, Janney Capital Markets.

Do you anticipate, Jim, any change in adoption trends by financial institutions if the US unfortunately kind of enters another economic slowdown?

Tom, I think the benefit that we've experienced today is that we're associated with the phenomenal growth of the smartphone industry and growth in the tablet market. Of any sector in our economy today, I would think this would have to be one of the leading sectors and unfortunately we're part of that ecosystem.

So I think any economic disruption or correction of the market is something that will not affect us as banks continue to sign on for our products. And we've engaged in several new discussions for negotiations for the Mobile Photo Bill Pay product and our mobile imaging cloud. So I remain very, very bullish on where we're at and where we're going.

And are you aware of any television or print advertising campaigns that's forthcoming as some of these new banks that have signed up for Mobile Deposit, are they going to launch some type of advertising that could drive attention to Mitek?

Yes, our understanding is that there'll be continued advertising and other banks will launch more publicity campaigns in the fall. Regrettably I can't reveal who those are under our confidentiality agreements with those companies, but we're very encouraged by this. Again, banks are seeing this as a key way to attract new customers, so promoting it is in their interest to drive customer acquisition and to retain their existing customer base.

And the future products that you talked about, such as Mobile Photo Bill Pay, is that all going to be sold through the same distribution channel as Mobile Deposit?

The answer is we're actually taking a bit of a different approach, a more direct approach with the top 25 banks as it relates to Mobile Photo Bill Pay. And developing relationships with channel partners to address the other part of the market.

So we engage our customers in direct conversations for Mobile Deposit, but now we're taking it a step further with regard to direct economic arrangements with many of the top banks in the country. And we expect that trend to continue as we work in other industries outside of banking.

And the two new hires, Jim, could you just give us a sense of what they're going to be tasked with doing? What they're going to be doing?

You know what? We actually are experiencing tremendous interest in the products. It's remarkable. As you peel back the onion, Tom, the number of use cases continues to grow for the adoption and use of our mobile imaging technology. So we refer to it as mobile imaging strategies and we have several analysts in the industry, not equity analysts, but industry analysts who are looking at mobile imaging as an entirely new category. How organizations and enterprises are devising strategies to engage the next generation of customers.

So with that, our products will proliferate using our platform, the use cases. And to manage that properly we wanted to bring in executive level talent to fill out some of the gaps in the organization to help organize and be consistent in our offerings. So Stu Heilsberg hails from Qualcomm and Intuit, where he led product management, and will do the same here at Mitek. Again, I emphasize product business development as well.

And along with that, as we engage new customers and sign these customers, we have a real urgency to be able to service these customers. And someone with the capability has Fritz Hess, who was an engineering vice president at Intuit in his former life, is a great boon to us because now we're able to serve these customers and shorten that introduction and commercialization phase from what has been traditionally six months or longer and hopefully we can reduce that materially and drive our revenue growth.

Is Intuit a channel partner today?

Intuit actually is a partner of ours and actually not a channel partner, but we now are working with them with integration of Mobile Deposit into the bill payments platform, currently in beta.

Got it. Last question now is just on EBIT margins. How shall we be thinking about reasonable EBIT margins as the revenue ramps up? How -- kind of how scalable is your current fixed cost base?

Actually we think it's extremely scalable. First of all, on EBITDA margins we believe that as we continue to drive top line growth we'll be averaging on 85% gross margins or slightly higher. Currently year-to-date it's 88%. We'll be in that range for the remainder of the year we believe.

Secondly, we're managing our operational expenses, adding people as necessary, accelerating where it's incumbent upon us to drive revenue. And then ultimately the expenses that we've experienced in some of the G&A are related to one-time expenses associated with re-listing on NASDAQ or our capital raise. So we believe we've got our expense line in control, we believe we know where our gross margins will be driving, and therefore we think our EBITDA number is consistent and should be increasing over time.

Bhavan Suri, William Blair & Company.

Just a couple of quick questions for me. Could you give us an update on the deferred balance?

Yes, actually as a result of delivering the second element of a contract we had with Chase, we have released an amount of their earlier payment from our deferred accounts. So what remains in deferred revenue is the part that we've capitalized associated with maintenance that we recognize ratably over a 12-month period.

And can you give us that amount?

Yes, about $1 million.

And then the jump in the quarter in terms of number of banks signed was pretty significant. I mean you had doubled, which is fantastic. But what specifically do you attribute to? Was it the partners getting more active? Was it sort of the mix between direct sales and indirect? Or how do we think about that?

I would give credit to our partners. But specifically there's a couple of things that have come to the forefront that I think are interesting. And I mentioned the Javelin report, I encourage listeners on this call, Bhavan, yourself as well, if you have time take a look at that. The ROI is really being driven now by customer acquisition. And banks are telling us that as well as independent research analysts.

Javelin Research out of San Francisco and Mercatus have come to the same conclusion that customers would rather switch banks looking for Mobile Deposit capabilities than stay with a bank that doesn't have it. And that really is driving an urgency among banks to sign on for this technology.

So I think as we see it, more and more of the top tier banks are deciding on -- that is moving into the top 25, top 50 banks, and we're also seeing among community banks and credit unions a great deal of interest and they're also signing on in a hosted environment offered through our partners, FIS, Fiserv, and NCR, among others.

And did you guys add any new partners in the period?

Actually we think we have a full complement of partners. I did mention Cachet in my remarks. Cachet's been very active, very creative and we're very pleased with relationships that we have with Jack Henry, with RDM, with Warsaw, and BankServ. So as we go forward, we feel we have a full complement of partners that currently service about 95% of all banks in the country.

And were there any direct wins in the period? Something like the JPMC deal?

Actually we relied exclusively on indirect wins for this period.

And any repeat purchases or did you have folks coming back for their second kind of update on say, tendering transactions or more users?

We've had repeat business and transaction purchases from various customers and partners in the past and we expect that to continue. One of the notable things I mentioned earlier is that now of the 80, 24 are commercially launched or recently commercially launched. You can access our website, we have their icons posted there just for your information. But that's a great sign as they now get commercially launched and consumers begin to use those transactions that had been sold through our channel partners to our banks' customers. So we expect that trajectory to increase and be more linear as months go by.

And maybe you'd give us some guidance when that becomes a little more linear.

Bhavan, I love to provide what I can but certainly you know our approach is not to provide guidance. We're still early, still a little bit lumpy, but we really do see when we get critical mass as the number of these transactions get consumed the reorders come to us in greater volumes.

Sure. And I got a couple more. One on pricing. Given the environment, did you get any pushback on pricing? I know obviously the customer acquisition angle helps, but did you sort of get any pushback on pricing from partners or your direct customers?

In the normal course of a negotiation of course there's a back and forth. But we've been able to hold our line because we really are selling the product as a ROI based on customer acquisition. So the question is really compared to what? And compared to spending $100 or $150 for a new customer acquisition through traditional means, or engaging with us to have a killer mobile application that allows you to deposit a check to attract new customers is a much more cost effective way.

So the discussion really isn't on price per se, it's really on how we can drive top line revenues for our bank customers. We think we'll be able to sustain those prices and we'll be able to avoid any downward pressure over a period of time. So we think that's very positive.

Now I must add to complement that, on the backend there is a cost savings to banks deploying mobile imaging and mobile (multiple speakers) capture. And I think in the Javelin report you'll see a case study of our customer USAA, in which a traditional method of capturing and imaging a check is about $1.50, $1.20. Doing it through a mobile device is less than $0.10.

And then turning to the mobile bill pay, there's a couple of the guides that use a different approach out there, to taking the picture of the bar -- the bar tag on a bill and things like that. So just could you talk a little about the competitive environment as you gain -- start to build some traction in that space and sort of who do you see out there and how do you sort of compete there?

We really think we're in a unique position with regard to this product. No one else is doing Mobile Photo Bill Pay. And let me describe what that means first and then I'll answer your question directly.

Mobile Photo Bill Pay allows you to initiate the application on your phone and within the app that you download from your bank, because it's embedded in the bank's mobile banking application, we activate the camera, you snap a picture, a single picture of the bill, and you submit it. Our image analytics corrects the image, pre-processes it, and extracts the data. And then we send back to you the completed information so you can verify it and submit for payment. It's really one keystroke, verification and submit. Very easy to use and does not require any templates. So you can have any bill of any configuration and we'll be able to read it. Simple.

Now, there is an ability for people to pay bills online using their computers by manually typing in information into the online payment system. It's time consuming, it's cumbersome, and it's one of the areas of friction that has reduced customer adoption.

Many of the banks that are in discussions with us believe the use case for Mobile Photo Bill Pay is to facilitate on boarding of new bills and new biller information. And providing the ability to help their customers transfer bills from direct bill pay into an online banking system.

We think in addition to that, there are hundreds of -- well, there are millions of users of smartphones who are not using online bill pay, who would prefer the simplicity of point, shooting, and paying a bill using their smartphone camera by just imaging. So again, we're different in the fact that we use the camera with a form that is not template based. We can read any bill. And we do not see any competition in this particular area.

You mentioned bar codes, and Mitek does have the capability of reading bar codes in our platform, however it is not a common practice in the US to have standardized bar codes for bill payment. And so therefore we are addressing a market -- a large market, both domestically and often in other countries, in which bar codes are not deployed, where you have to be able to read dynamically different data fields no matter where they reside on a particular bill or invoice.

And I guess one final one for me. Just you obviously hired a couple of folks. Just if you could give us a quick update on sort of the CFO search and sort of how you're thinking about that in terms of timing.

Right, we are actively engaged in discussions with a variety of candidates that we have secured through a variety of means. Fairly part of it is networking with our bankers, networking with our service providers, and we believe that we have several qualified candidates. So we are on track to secure a CFO candidate we believe within a period of 90 days or less.

George Sutton, Craig-Hallum.

Quarter-over-quarter you doubled the number of bank wins and the number of banks deployed grew from four to 24. I'm just curious, how do we think about those deployments in terms of revenue opportunity? Or how quickly should we expect revenues to reflect this progress?

Well, we're reflecting the revenue today with selling blocks of capacity that are fixed and determinable pricing for licensed software. And the licensed software is really installed on servers, which collocate with a bank's infrastructure. And so we do recognize the initial blocks that are sold through our channel partners to our bank customers.

Then the banks have to integrate the software to conform it with their mobile banking strategies and launch it. We've seen that happen with several customers already, but more and more are doing that. And that typically is a six-month period, George. So there's a lag between signing these customers, the 40 additional ones that I mentioned, and actually having them commercially deployed to their banking consumers.

And so that's the lag that we're trying to address by bringing in people like Fritz Hess and others who can assist us with our client services and integration functions.

So we believe that that will become more regularly reflected in our revenue, as this recurring revenue scales once we get a critical mass of these commercial launches. And currently we've got 24 banks, some large, some small that are deployed but just initially deployed, George. They haven't been out there for more than a month or two other than a Chase or a USAA. And so as a result of that, we need to give them a little bit of time for that cycle to take its own course and for those transactions to be consumed for reorders.

Got you. In your press release you referenced companies in other industries that are contacting you and I wondered if you could expand on that comment?

I can to a degree. And without naming names regrettably, although I'd love to do that, but we're prevented from doing so for obvious reasons as the build out their mobile strategies. But what we have seen is a level of interest in two primary and tertiary markets. We look at the insurance market, primarily property and casualty, we have had discussions with members of the healthcare industry, and also with field service industry. And their use cases are all different, but they all deal with paper documents and conforming them into digital information by taking photographs.

What we've seen though consistently is an underlying trend of a use case as driving customer acquisition. So whereas we have talked about in the banking industry, this is a very effective tool to engage a customer conversation among Gen X, Gen Y, and Millennial. These are the banking generations -- banking customers of the next generation. We're seeing the same in the insurance industry as well as they target a new set of consumers, the next generation, most of whom -- many of whom are carrying smartphones.

And this is a more direct way for them to engage those customers more quickly and more intimately, and therefore it really is a discussion about how can you help us drive our customer acquisition and retention of customers. So that's the underlying trend that we see across the board.

We do also see interest in process improvement and that means, for example, better claims processing, better reimbursement processing for expense reports, et cetera, which are very useful applications, one which may carry less economic benefit in terms of their economic impact to us, but nonetheless, can still be deployed using our mobile imaging platform, which is very [extensive].

I want to underscore the fact, George, that what we can do with these other markets really makes use of the technology we've already developed. And really what this is is applying it to new and different types of forms, documents, or even laminated cards.

Lastly for me, with respect to bill pay, I found it interesting that you've decided to go direct to the top 25 rather than use partners. What should we read into that move? Is it an easier sale for you at this point given the fact you've already deployed with most of the banks in Mobile Deposit?

It's interesting, there's a speed to market, there's a sense of urgency, and there's a sense of opportunity that's here at Mitek. We'd be happy to partner with the large integrators or providers of online bill pay systems and we have dialogues going on with them, and we're very earnest in those dialogues. But banks often want to talk to Mitek directly and it's their preference, not ours necessarily, because they have an evolving mobile imaging strategy that incorporates other products. And so they feel that their time to market ability is enhanced by having a direct relationship with us. And so we're really responding to market demand right now in that regard.

Jim Matisse, Matisse Partners.

In talking about the signed accounts, the AD accounts or whatever it is, the last quarter you mentioned that it takes three to six months, at least that was the phrase used --

Yes.

-- to roll out an account. Is that still the same line of adoption?

It is at this point, Jim. We think ultimately it will be shortened, but it is about the same right now.

Okay, so by year-end you should have the majority of -- without putting words in your mouth, of those 80 accounts up and operating.

We do believe that.

And secondly, I also noticed that you've -- the iPhone adoption is of the app with your phone -- with your system works very well and I guess it does with Android, but it lags a little bit. What's the reasoning behind that or the reason for that?

Well, we're seeing it actually changing, Jim. We launch on Apple and that's not unusual, most people have in the past. But that's changing because the Android system is an open environment and more applications now are being launched on Android out of the box, meaning initial launches that we've seen in the past. And it's due to the popularity of the Android operating system it has become the number one OS.

Secondly, it is on more platforms, more phones, more handsets, so therefore developers think that's a very positive way to go. But that of course doesn't denigrate anything about what Apple is doing. In fact the numbers from Verizon and AT&T were surprisingly strong in terms of new subscriber adds, even in spite of AT&T losing its exclusivity on the iPhone.

And by the way, the new iPhone 5 we think is due out in the fall and we think it will have a much higher resolution camera. So the march of time continues and the advancements of the camera on these devices continues to get enhanced in a very positive way for Mitek.

So what we do see as a lag however, is in the Blackberry platform. And we do support the Blackberry platform. We also support the Windows Mobile platform as well, but we don't see as broad an option on those platforms as we would have hoped or expected.

Alex Lieblong, Key Colony Funds.

I was wondering, are you going to start releasing the figures, or how are you going to do that, when a bank starts using the system and Joe Blow after six months does his use go up? I'm talking about on an individual base or does it plateau pretty quick? I've got that question and then also on your bill pay service that you're thinking about are you thinking about the same type of charge of to you to $0.10 to $0.25 a transaction?

On the first question with regard to use of transactions, we rely on the banks to release their numbers. And really they are -- their customers, they're the B2C partner, we're the B2B technology provider. But we do have a couple of reference points, or one at least that we regularly use. And it's written about in the Javelin report that's available to you on our website. And that is with USAA. And we've seen consistent increase in the number of users and the number of transactions that they have published. So again, we are really emboldened and encouraged by the activity of that particular bank. We do see other banks, we understand and know those data and we're encouraged by that. But we can't release those data.

We do not expect to provide that type of guidance to the marketplace. It's very early and we're not at liberty to disclose that information. But one way we're going to handle that is to create some of our own case studies and we've engaged a research firm to assist us where we can receive permission and answer those questions exactly as you've asked them.

The second question was with regard to Mobile Photo Bill Pay. Is the economic model consistent with Mobile Deposit? And our belief is that it is a model that will drive additional revenue or what we call average revenue per user or ARPU, what commonly referred to in telecom industry space. And that the model will be based on a number of factors, possibly monthly or annual subscriber fees plus transaction fees. That's still yet to be determined. What we do know, however, is online bill pay transactions are driving healthy revenue for a variety of providers who do online bill pay. We believe that we're a solid percentage of what that revenue is and we believe as a result the revenue from Mobile Photo Bill Pay will be larger per user than it is for Mobile Deposit.

(Operator instructions) Jeff Putman, UBS.

Is it safe to say, I mean I think from the first gentleman's question, is it safe to say that if we see any Mobile Deposit advertised by the banks it's going to be Mitek's technology behind it?

We believe so.

And then secondly on the mobile bill pay, or let me back up. You don't see a big spend or ramp up in sales and marketing. You're just going to leverage your partners?

Well, it's a good question. We have resources that are dedicated to that product line right now who are deeply experienced in the bill pay market. And they are the ones conducting the discussions directly with these top banks. And we found that that was a very effective way, by the way, to engage with banks with multiple deposits. We were part of those discussions, although we relied on the channel partner to provide the technology and the integration services.

For bill pay, again it's partly due to the consumer -- the customer rather, the bank themselves saying listen guys, we've got a lot of ideas of how we want to engage our next generation customer. And we're creating a mobile imaging strategy. So it's not just bill pay on top of deposit, it's deposit, bill pay, and several other products in the queue. So we prefer a direct relationship.

And so we will work with the bank as they dictate their preference. And if their preference is to work through a channel partner, we'd be delighted to work with our channel partners. But we know also to accelerate the ramp of this product we'd like to be more engaged with the customer directly to facilitate a faster time to market. And that's what customers are asking for right now. We've had several calls in the last couple of weeks saying we want to get this done by the end of this year. We'll work with our channel partner and work with you, but whoever can help us is how we want to get there.

And then last thing kind of on that topic, I mean are you -- now that the -- it's been deployed for a while, are you getting a lot of feedback from your customers about what needs to be tweaked, what needs to be moved, changed, et cetera? And is that why you really need to be in touch with the banks directly?

We have a dialogue that's ongoing, post sale and post commercial launch as we monitor the success of the application, as we will occasionally tweak an algorithm here or there, whatever the case is. So it is true the product does get better with time and with usage. And so that's been to our benefit of being first to market and really dominating our -- this space. So we believe that that's a really critical piece of being a leader in mobile imaging is to get to market in a fast and timely way.

However, I want to make sure that everyone understands that we are not app developers per se. Our technology is a platform technology that is embedded into mobile banking applications or it can stand alone on its own. And often the banks themselves have very distinctive ideas of how they want to integrate into the mobile banking platform, meaning their application, where it appears on their application. Or if they want to launch as a standalone.

Very interesting point that we've discovered is that of the people that have launched, a large percentage of them have launched as Mobile Deposit standalone, meaning without other mobile banking functions. And they may launch under their own brand, not necessarily the Mobile Deposit brand from Mitek, and we allow that. But the point is that they feel that this is such a killer app that they'd rather go with a single point app and then add the other mobile banking features as they go along.

So what I'm really trying to say and make clear is that it really is the bank who dictates or the insurance company or the healthcare company who dictates how that end user application really looks. We facilitate that, we obviously improve our product as time goes on, but the user interface is really dictated by the customer.

Alan Ebright, Miller Tabak & Company.

Let's go back to the various questions on imaging and the progression of that over time. So just my -- since I've been using the Chase Mobile Deposit for probably four or five months. I have an iPhone 4 and personal checks, not a problem. They go through very easily. But the bigger checks that are issued on a trifolded piece of 8-1/2 by 11 piece of paper, reimbursement checks, et cetera, I've tried three, four different times, can't get it to take.

So as you guys move forward over the next few years into Mobile Photo Bill Pay where the detail and the sheet that they're going to need to see is so much larger, I mean how does this work? Is there something that you can work with the different hardware companies to get better image capture? Or is this kind of a wait for you guys for phone technology to catch up to what you need?

All technology improves over time and certainly we've seen the improvement in ours. We've been at this longer than anybody, over a decade in imaging, primarily for the back office, and really over the last six years focusing on the mobile layer, if you will, or domain of mobile imaging.

Let me address your question with regard to Chase first and then I'll go on to Mobile Photo Bill Pay. We're very proud to work directly with Chase. They're a phenomenal organization, very quick on their feet, and they see the opportunity to engage their customers with a mobile imaging strategy. So they have many plans for additional products that complement their mobile offering today, using Mitek technology.

When they began however, they were utilizing a core recognition technology in the back office and had initiated using that technology, and have come to the conclusion that the Mitek imaging technology would enhance the user experience and therefore they made a public announcement stating that we were a strategic partner. And so we consider them a crossover partner where we have augmented and complemented their initial efforts in the mobile space.

That will continue and what you're experiencing with business checks may have been earlier or it may have been recent, I don't know. But you do point to the fact that not all checks are alike. Personal checks are fairly similar in size and location of key data fields. Business checks can be very, very different.

And our technology is designed to accommodate all of them. So depending on which point and time you actually tried to deposit that may reflect that either our technology's been fully deployed or it was currently in the process of being deployed. So I would encourage you to try that again today and I think you'll have success.

Now with regard to Mobile Photo Bill Pay, that product is more difficult because we're dealing with what we call unstructured forms. There is no standard receipt or invoice or bill type form. And so we have to teach the machine, in essence the camera on the phone and our middleware software, we have to teach the intelligence to it to be able to identify key data fields and then to be able to extract that data accurately.

Once that is done, we feed back that information to the user, so you personally will have the opportunity to verify that data before submitting for payment. So really the feedback loop is directly to you as a consumer, in effect the Q&A is affected by you as the consumer before you submit. So we share that responsibility with you.

But over time more and more of these bills will be added to our system and because we're based on neural networks our algorithms learn and as a result the system gets better and better over time. Right now we're very accurate in our trials, and we expect it will be commercially launched by the end of this year.

Philip Lamoreaux, Lamoreaux Capital Markets.

I have a testimonial and then a comment. After visiting with you, I decided that I would give it a try to deposit with an institution listed on your sheet of logos that I had not heard had released the product and so I clicked on it and was delighted to see that one of those little QR symbols came up, if that's the right term, that immediately loads the software. So on my iPhone I didn't have to go to the iStore, I didn't have to do any apps, it just boom, immediately loaded. And it was extremely easy.

Then I decided I would add business accounts and I needed to differentiate the titles that I would be sending to, which required me to contact Fidelity's technical support. And they said, wow, you're using this? I haven't even used it yet. This must have just come out this week. And so they themselves weren't ready to handle multiple accounts. I guess if it's an LLC and those kinds of issues that's probably an internal Fidelity issue. But I thought it was extremely easy for those of us who don't want to take the time to load software. And so, I congratulate your team on doing that.

Sure, thank you.

And on your earnings release and the announcement today, we didn't happen to see a table of financials with the text. Was it separate on a website somewhere or -- and I suggest in the future if you stick that on the press release -- maybe you did and we just missed it. But we didn't see a table of financials.

Yes, it has been reissued and it should be available.

Mike Wallace, White Pine Capital.

Just two questions. One kind of a clarity question on Bhavan's question earlier. On the deferred revenue line did you say you released all of the JPMorgan revenues? And only thing left is the services deferred?

That is correct.

So that would imply that you're done with the JPMorgan.

Oh, no, no.

Well, I mean from the deferred standpoint it was -- you had some deliverables that need to be completed before you could recognize.

That's right, and we --

Now that you recognize, you're done with the deliverables.

Correct, that is absolutely right, Mike. We completed our deliverable and released the deferred revenue into the income statement.

So that you can kind of imply then that they're getting very close to launch.

You can imply that, yes.

The second question is on this Mitek in the cloud. And I wonder if you could give us some sense of how you think the revenue and profit model could evolve with that growth strategy?

Yes, let me address that. That's a good question, Mike. It is a derivative of our mobile imaging platform. Understand that our platform is our suite of algorithms and routines that allows us to accept a photographic image of a document, clean the document, what we call pre-processing, eliminating geometric distortions, warp, shadows, focal issues, et cetera, find the data, the key fields, and then the third step, extract the data. So we can do that for driver's licenses as well as for other types of documents. Very important.

And many customers have said, you know what? We have a big IT infrastructure, for us to integrate into our existing IT infrastructure is cumbersome. We have an urgency to get to market and is there a way we can access this technology? So with that, the genesis of the idea of hosting this in the cloud came about. And so customers now can access our technology either as a licensed platform or through the cloud service, through an open API. Again, based on one-to-one contract negotiations that the economics have determined by the use case.

So it's not as though you're going to have a menu per number of fields and therefore you pay us a price per field. It really depends on what the use case is and how we ultimately will derive the economics through a negotiation.

So you could pull the API from -- I'm not quite understanding it I guess. If I was going to develop an app I could pull it off the cloud and develop the app and it would be some sort of arrangement? How would I pay you?

Let me describe that because I think it's a very important question you're asking and I'm sorry if you've been or others have been confused about this because it is complicated.

There are ways that certain people deploy clouds and there are ways that other people deploy clouds. So the way we deploy our technology in the cloud is to actually have it hosted through a very scalable and secure environment. That's at Amazon, using their EC2 cloud service. And we will then engage with customers, primarily we've discovered outside of the banking industry, who want to access that, and negotiate rights for them to use the cloud.

So they will build their app themselves, or they may have a third party building the app who then would actually instead of hosting their own image analytics would access our hosted image analytics through an API that we would give them rights to access or embed.

And then in reality, what would happen is you snap a photograph of a document per their application. That document would be encrypted and sent over the wireless data network to our cloud at which point the image would be pre-processed and data extracted. And the data would be sent back to that application to fulfill that round trip and the enterprise application objective.

So that's a one-to-one enterprise customer to Mitek relationship to access the technology that we host on behalf of that enterprise customer. It saves them the trouble and the cost of hosting it themselves. And we of course will charge for that service.

Now, what you're thinking of and what I think is very interesting and a possibility in the future is that we provide much like Google an open API to any developer, regardless of a direct relationship with Mitek, who would then pay a toll to access our hosted environment and the data extraction. And that's an interesting possibility, but it involves having a developer program, a different marketing approach and a different price scale.

And so we're not there yet on that piece of it. We prefer to host the imaging cloud on a one-to-one with major enterprise customers to prove the efficacy in mobile imaging for multiple use cases that we think are significant in terms of the economic impact.

So a customer would have a use case that says, geez, I could take a photograph of this.

Well, absolutely.

And extract certain amounts of data that would be very helpful to populate a form or some database that you could generate other things from. And it would go through the Mitek in the cloud to populate the database. It would extract the data there and then bring it back and then you would --?

That's right.

Now how do you charge for that, Jim? And how do you generate profits on that?

Well, it depends on the use case. And we've given a couple of examples earlier, 401K rollovers is an example or claims reimbursement is another example, or quotations for services. And in fact, typically when those transactions are completed favorably, when a new customer is acquired, those fees generated are quite sizeable.

For example, on credit balance transfers. The amount of money that's exchanged to encourage a new customer acquisition is sizable and as result we'll take a piece of that, yet to be determined, Mike. But it won't necessarily be on transactions, it may be based on customer wins and it may not be in cents, it may be in dollars or tens of dollars. And so we think that is what's promising is that the ARPU has the possibility of continuing to increase with the addition of new products, and interesting economic models based on customer acquisition or retention, which drives big economic numbers.

So that's how we look at it. We really don't want to be in the pennies per transaction market, that's not what we're intending, and that's not what where we're at. What we think the new products coming online and those of these use cases I've articulated are really in dollars or tens of dollars per transaction.

Yes, that's a big market with higher ARPUs.

Yes, absolutely.

Yes, that's almost unlimited market, because everyone then can kind of develop their own applications and user your technology to populate it, yes.

Exactly our thought.

(Operator instructions) A follow-up from Tom McCrohan, Janney Capital Markets.

Just a quick one, guys. You have a major first mover advantage in 40 clients or 40 banks have signed up for mobile remote deposit capture. Can you give us any sense on visibility into the pipeline? Is 40 heading higher from here? Is that a reasonable run rate in out quarters? I think that's a number that people have focused on as obviously evidence of the adoption of the product.

Tom, I appreciate that very much. We're very excited about the total of market opportunity ahead of us. We think it is very large and quarter-over-quarter we've been providing information about new customers signing. And so the number actually is 80 now in total and 40 over last quarter.

And so we expect, and our pipeline continues to deepen, that more and more will sign on and we evidence that by what other people are saying. What USAA is saying, what Javelin is saying, what Mercatus is saying about the compelling argument for adoption of mobile check deposit. So we're very optimistic that that number will continue to grow.

However, as a matter of course, we don't provide guidance, as you know, and it's just a prudent way for us to manage the growth of our Company, considering we're at the nascent level of what we think is a very, very large opportunity.

At this time there are no questions queued.

Well, I just want to say thank you again for your interest in Mitek, your support of Mitek. We're very excited about where we are at today, where we are going. We think we do have the capital resources. We've had a very deep and experienced team here to execute on the plan. We're focused on delivering our products to a growing number of customers.

So we look forward to our next conversation with you in 90 days. Appreciate your continued support. Thank you and good-bye.

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