Mitek Systems Inc (MITK) 2012 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Third Quarter 2012 Mitek Systems Earnings Conference Call. My name is Diana and I'll be the Operator for today. At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session. (Operator Instructions) As a reminder, today's conference is being recorded for replay purposes.

I would now like to turn the conference over to your host, Ms. Julie Cunningham, Vice President, Investor Relations. Please, go ahead.

Thanks, Diana. Good afternoon and thank you for joining us for the Mitek Systems Third Quarter Fiscal 2012 Conference Call. Joining me on the call today is James DeBello, President and CEO, and Russ Clark, Chief Financial Officer.

The agenda for today's call includes commentary from Jim followed by a discussion of the financial results from Russ. This afternoon, Mitek issued a news release announcing its third quarter fiscal 2012 financial results. That's available on our website at www.MitekSystems.com. This call is being broadcast live over the internet to all interested parties and the audio of this call will be available on the Investor Relations page of our website and archived there for 30 days.

As a reminder, this conference call may contain forward-looking statements that are not historical facts but rather are based on the Company's current expectations and beliefs. Mitek's results may differ materially. Please refer to Mitek's SEC filings for detailed information.

In addition, we'll be using non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures are included in the earnings release on our website.

And now I'd like to turn the call over to Jim DeBello.

Thanks, Julie. Good afternoon, everyone. I'll begin by reviewing our third quarter results and provide some commentary on Mitek's progress. Then Russ will go over the Q3 financials and we'll open the call for your questions.

For the third quarter of fiscal 2012 we posted revenues of $3.2 million and a non-GAAP net loss of $1.2 million. The return to revenue growth was obviously a key focus for us. But also we continued laying the foundation for future growth by investing in new product development and building the management team appropriately as we scale our business. Towards that end, we made two recent strategic hires, both of whom are industry veterans that add further bench strength to our management team.

Mike Strange joins us from GreenDot where he was CTO and he brings 20 years of experience in payments, prepaid, and hosted services to Mitek. As Mitek's Chief Technology Officer, Mike's proven track record in engineering management and product development will be invaluable as we grow and diversify our product offerings.

Mike Diamond also joined us as Senior Vice President of Sales and New Business Development. He brings a wealth of payments industry knowledge to Mitek and previously Mike held senior level business development roles at IBM and S1 Corporation. I view Mike's role as pivotal as we extend our partner and customer relationships to insurance and other vertical markets.

Mitek has developed and patented mobile capture and data extraction software solutions and continues to lead the industry with innovations. We are investing heavily in R&D to build out our existing product road map as well as bring new products to market. We are on track with the latest release of our mobile photo bill pay product to our pilot banks and remain confident that this product is our second killer app.

As a leader in mobile imaging, we've helped hundreds of corporations like Chase and Progressive engage in a new and powerfully unique way with their consumers. This is a phenomenon driven by the extraordinary consumer experience that Mitek enables. The delight to consumers is almost magical as depicted in the latest national TV advertisement from Chase in which the mother and daughter capture the lion with the snap of a smartphone camera and send it to the bank instead of a check. This kind of whimsical marketing has put fun back in banking and the demand for it is growing.

Research firm Forrester calls mobile check deposit table stakes. Brian Moynihan, the CEO of Bank of America, was recently quoted touting mobile banking, saying -- quote -- It's just a much more efficient and frankly stronger service model -- end quote. This is the promise of our suite of mobile imaging applications that let consumers enroll in new services, fund their prepaid cards and bank accounts, shop for new credit cards and auto insurance and pay their bills, all with a simple snap of a camera on their smartphone or tablet. And we're just scratching the surface to use our technology in ways that the consumer never realized possible.

A recent survey from Gardner's says that only 29% of consumers are aware of mobile check deposit. As a result, we believe that the opportunity for growth of mobile deposit and our future mobile imaging solutions is very large. Last May we participated in the Mobile Banking Summit in San Francisco and it was gratifying to see scores of banks and other financial institutions actively pursuing new ways to enhance their mobile strategy. In fact, multiple companies mentioned Mitek by name during their presentations as a valued technology partner.

Clearly, mobile imaging is enabling the strategic layer of mobile banking applications for document processing and identity verification. It's interesting to note that according to Javelin Research 58% of the over 10,000 US financial institutions plan to deploy mobile remote deposit capture over the next 12 months. Indeed, our mobile deposit product has already been adopted by 25 of the top 40 banks in the United States.

The three key drivers of our business are -- one -- the number of companies we signed -- two -- the number of mobile consumers using our product -- and three -- the total number of transactions being consumed. Here are the latest statistics as of June 30, 2012.

First, we've cross a new milestone of over 400 banks and financial institutions signed for a cumulative total of 408 financial institutions. We achieved another major milestone with a record number of 93 additions during the quarter. This includes BMO Harris Bank which is the 15th largest retail bank in the US.

Secondly, 137 banks are now live which includes Chase and Citibank, Bank of New York Mellon, PMC, US Bank, and Wells Fargo. Notably, Wells Fargo launched in seven locations so far and plans to be nationwide by yearend and I'm very happy to announce a report that was published by Reuters just yesterday announcing that Bank of America plans to begin offering mobile check deposit later this week. Adoption of mobile deposit continues to be strong and transaction usage grew by more than 25% compared to the prior quarter.

We're focused on mobile imaging use cases that enable consumers to enroll, shop, fund, and pay but demand for our technology and solutions is not limited to banks. Recently we signed an agreement with Smart Tuition, an innovative company. While it's not a material deal in a financial sense, it is a consumer pay application for enrolling in K through 12 tuition payment programs. That's a great example of how mobile imaging can be used to automate the enrollment process and engage and empower the consumer. This is just one of the many areas where we believe we can leverage our technology to enhance people's everyday lives.

We've invested millions of dollars in R&D and many years to create and perfect our mobile imaging technology. We've created this category and our products have enabled Fortune 500 companies to provide a unique and valued service to their customers. We believe that mobile imaging use cases are virtually limitless and span multiple vertical markets.

We're happy to report that mobile deposit adoption and launch momentum continues unabated and we're excited about bringing our next products -- mobile photo bill pay and mobile balance transfer -- to market over the coming weeks and months.

Now I'd like to take a few minutes to talk about the litigation with USAA. First, we are determined to protect our intellectual property in defense against baseless allegations in a suit filed against Mitek by USAA. We continue to believe that USAA's suit is meritless and that our legal case is solid. We invented this technology. We patented it with not one but five separate patents and we have worked hard to enable the financial industry and USAA to engage with their consumers in an important new way, using our mobile imaging algorithms and inventions.

As you know, on April 12th, Mitek filed its own suit against USAA for patent infringement and breach of contract. We believe that USAA has infringed five of Mitek's patents related to advanced imaging and analytic software to authenticate and extract data from imaged checks and other financial documents using a smartphone or tablet. Last week we added two additional claims to our case against USAA for defamation and unfair business practices.

We're a group of scientists here at Mitek and engineers who formed a small technology Company, worked hard over a period of years to invent this mobile imaging technology and brought it to market. We take umbrage with being unfairly attached and maligned by an industry giant who benefited from our technology. That is simply preposterous.

While we chose the litigation path, we will do what is necessary to protect our rights for our customers and our shareholders as well as our business reputation. Despite the ongoing litigation, our Company remains intensely focused on the development and delivery of innovative and high quality products. We do not expect the litigation to have any impact on our planned product offerings or on our customers.

We believe that our return to revenue growth along with our blue chip customer roster of over 400 financial institutions including 93 newly signed banks are evidence of our continued positive momentum.

And with that I'd like to turn the call over to Russ Clark to review the financial statement. Russ?

Thanks, Jim. And good afternoon, everyone. As I review the numbers, all figures quoted are on a GAAP basis unless specifically noted as non-GAAP. We've provided a full reconciliation from GAAP to non-GAAP along with the earnings release on our website.

For the third quarter of fiscal 2012, revenue totaled $3.2 million compared to total revenue of $3 million for the year ago period. Of that total, approximately $2.5 million with software and $698,000 was maintenance and professional services. Of the deals completed during the third quarter, four were reorders. Cost of revenue in Q3 was $359,000 and about evenly split between the software and maintenance and PS category. This compares to $438,000 in the year ago period.

Gross margins for Q3 were 89% compared to 85% in the year ago period. Total operating expenses were $4.8 million compared to $2.2 million in the year ago period and included $831,000 of non-cash stock compensation expense compared to $362,000 in the year ago period. Now, let me break down the expenses by category.

Selling and marketing expenses were $1.1 million in Q3 compared to $668,000 in the year ago period. R&D expenses were $2.1 million in Q3 compared to $728,000 in the year ago period. The year over year increase in R&D expenses reflects our continued investment in developing new products. G&A expenses were $1.6 million in Q3 compared to $785,000 in the year ago period. Our headcount at the end of Q3 remained around 50 and our hiring this year has been primarily focused in the R&D area.

GAAP net loss was $2 million or $0.08 per share in the third quarter. This compares to net income of $325,000 or $0.01 per diluted share in the year ago period. Non-GAAP net loss was $1.2 million or $0.05 per share compared to net income of $687,000 or $0.03 per diluted share in the year ago period. Non-GAAP net income excludes stock based compensation expense and non-cash interest and amortization expense related to convertible debt. Our share count for Q3 was 25.6 million basic and fully diluted shares.

Turning now to the balance sheet, as of June 30, 2012, we had cash, cash equivalents, and investments of $15.4 million compared to $16.3 million at September 30, 2011. During the first nine months of fiscal 2012, we've used around $1 million of cash to fund our operating activity and we believe that our current capital resources are sufficient to fund our business plan. Accounts receivable was $3.2 million as of the end of Q3 versus $3 million at September 30, 2011.

With that I'll ask the Operator to please open the line for questions.

(Operator Instructions) Our first question comes from the line of Bhavan Suri, William Blair & Company.

Hey, guys. Thanks for taking my question. Can you hear me okay?

Sure can, Bhavan.

One of the things I wanted to point out, it was a good metric that illustrated the increase in transactions since the last quarter. I wanted to confirm that's just transactions for mobile deposits. I guess the question I had was how are you getting the metric and on what frequency? Because in the past I guess there has been some concern about even arriving at this metric?

Bhavan, what we've experienced in the marketplace is dramatic growth in the usage of the product. When we invented and launched this product, our first objective was to sign channel partners who could help us sell it and scale the business.

Secondly, to secure agreements with large banks to deploy it. The remaining question always was would the consumers find it delightful as a consumer experience? And I think we've answered that question affirmatively with the kind of growth that we're seeing in these transactions.

As part of our agreements with our channel partners and ultimately with the banks, we can and are collecting usage data on a quarterly basis. And so as a result we are collecting trends and we are analyzing those trends. We are not, however, allowed to reveal individual bank performance with regard to usage. We're hoping the banks do that soon but in the meantime we're aggregating the information and as the number of banks grow that are live -- and that is happening every quarter. We're getting more and more data. It's all universally positive with regard to usage growth and we find that very, very encouraging.

The other part that's important to us is that portends well for our future products. What we're seeing is a change in a consumer habit using the camera on the smartphone or the tablet as an on boarding method, a device that allows them to avoid key stroking in the data and by simply snapping a picture it's becoming a consumer habit that they're finding useful, convenient, and without error. That's, I think, very encouraging -- not only for our current mobile deposit product but for the future products that we expect to be commercial before the end of the year.

Right. Jim, that's helpful. And again, I understand you don't want to give out the bank information in detail. But I guess the question I would have is so any -- even just a range of what the aggregate number of transactions is so we have a base to work off of?

Bhavan, a very fair question but we're prevented from doing that. I'll tell you, even JPMorgan Chase on their analyst call portrayed their growth in consumption without a scale, meaning they had an increasing month to month bar chart. It was dramatic. But they didn't have a scale because they're not ready yet to reveal their numbers to the marketplace. We believe once Citibank and Wells Fargo and Bank of America get rolling that we can anonymize the data in the future, ultimately aggregate it, and share that information in the future. We're not quite there yet.

Okay. Fair enough. And then just on reorders, you mentioned some reorders, can you provide some color on where the reorders were from? Is it the sort of customers you sold directly to or partners -- what types of partners?

Sure, Bhavan. It's Russ. One of the four reorders we discussed on the last call, that was one of the channel deals that slipped out of last quarter that we did get closed in this quarter, that was one of -- the three -- the other three were also with channel partners, smaller in size than the one but again just all reorders from channel partners who had purchases initial blocks over the course of the last two years.

Got it. And on the services line and I'll wrap up with one more quick one -- but on the services line, how much of that roughly $700,000 is maintenance and how much is actual delivery services?

Bhavan, it's virtually all maintenance. We may do in any given quarter in the neighborhood of $50,000 to $150,000 of professional services work, but it's virtually maintenance.

Got it. Great. I'll let someone else jump in and then I'll jump in at the end with some questions. Thanks, guys.

The next question comes from the line of Tom McCrohan, Janney Capital Markets.

Thanks and congrats on a good quarter and the B of A announcement. That's really exciting to finally see them launching the product.

We're very excited about the Bank of America launching. You bet. Thanks, Tom.

It's fantastic. But Jim, do you believe the remote deposit capture addressable market is still -- I think it was $200 million revenues? Apologies if I got the number wrong. But I think you had spoke about the addressable market being about $200 million in revenues. I was wondering if that's changed at all and what your expectations are in terms of kind of seeing those revenues through the P&L.

Tom, what we have reflected in our investor presentations in the past are numbers presented to us by AlixPartners who have calculated a total of 2.1 billion checks to be deposited using the mobile channel by year 2016. That's how we derived a top end of a potential market size of $200 million based on AlixPartner's study directly with consumers.

What we have and can report on from Mitek, from our perspective, is that the market for mobile deposit we think continues to strengthen and expand. Currently the activity in the market is driven by retail banks directly to their consumers. What we are also seeing more recently is the use of mobile deposit among merchant or commercial accounts. That would include organizations and companies like distributers or people who provide services in the field for which they get paid in check at the point of service. So, we think that's a growth opportunity. There have been some articles written about a beer distributer, the third largest in the country who was currently working through Chase Treasury to offer mobile check deposit through the Chase bank.

The third area of growth we see is in the prepaid market, particularly for the underserved or under banked segment. We think that number of Americans ranges somewhere in the order of 60 million to 80 million Americans who are currently underserved through banking and financial services but whom many carry smartphones. That's a new market. We announced that capability to use mobile deposits to not deposit into a bank account but to simply top off a prepaid card by imaging a payroll check or other item. That is another area of growth and opportunity.

So, again, we feel very strongly in the potential of growth. We're at the tip of the iceberg here, Tom, or whatever metaphor you'd like to use. Top of the second inning, scratching the surface, whatever the case is we're seeing tremendous demand surging from the consumers who have been made aware of this technology, have used it successfully and happily and through viral growth are talking about it and others are adopting it. And if you'd like evidence of that, I'd suggest that our shareholders could go to the Apple store, download or review the consumer reviews that are offered and written independent of Mitek on pages of the Bank of America app or the Wells Fargo app or the Citibank app. It's all very telling about consumers who have demanded this technology because it saves them time and is more convenient.

And a follow-up question, if it's not time for other people, can you provide an update, Jim, on the use cases we talked about and have been live now, the mobile quoting service with Progressive and also any expectations around the mobile bill pay being released by your unnamed banking partner? Thanks.

We haven't revealed with whom our product is being piloted, mobile photo bill pay. It's currently in pilot. We think it is looking very strong right now and we expect that it will be commercially available very soon. So, we're on track there. Separately we have discussion with mobile balance transfer. This enables you, as we've talked about, Tom, in the past, the image of credit card statements and to receive an offer from a different credit card issuer to compare the interest rates and the terms and conditions and to make an option to transfer your balance to a new credit card issuer.

That automates the marketing process. It's a way for the bank issuer to engage a new consumer and it's less costly for them than direct mail. So, we think the prospect for that product is also very strong. The technology is rock solid. In addition, I mentioned in my remarks earlier, the company Smart Tuition. They actually have deployed a product we call ACH Enrollment. It's the ability for individuals to snap a photograph of a voided check. We extract the banking, routing, and transit information and other bank information that's pertinent and we assist the consumer in enrolling in new services. In this case, a K through 12 tuition payment program.

So, we're seeing the use of our technologies in new ways that we didn't even anticipate here at Mitek and the use cases continue to grow. We frequently get contacted by industry members of the healthcare vertical market who have an interest in enrolling insurance cards or assisting in payment or facilitating reimbursements through flex spending accounts. Again, all within the wheelhouse of our technology, of our algorithms that enable capturing information from printed documents. So, we're very encouraged by the expanding universe of use cases today.

The next question comes from the line of Mike Grondahl, Piper Jaffray.

Thanks for taking my questions, guys. The first one is just did you disclose the volume or the number of transactions related to the four reorders? And then secondly, on the bill pay, the new product, how many pilots are you running? Is that just one or is it several? And then lastly maybe in terms of Progressive, any revenue there so far or kind of when do you think you'll begin to generate revenue from that relationship? Thank you.

Hi, Mike. It's Russ. On the reorders, we haven't disclosed any metrics or sizing on those other than that we had four and as I mentioned a minute ago, we had a larger one through a channel partner, all four of them were through channel partners as well. We had the same issue from an NDA perspective on sizing on particular customer deals and there's a small basket of them. So, I think in terms of quantifying the number, we've give that which is four and that's probably all the information we can provide at this point.

Your second question was -- bill pay?

The number of bill pay pilots, yes.

So, we're working through, as Jim mentioned, on bill pay. We're talking to two current deposit customers about the product and have pilot agreements with them. So, as we're working through that, as Jim mentioned, we're looking forward to getting through those processes and getting a deal signed here in the near future.

Great. And then lastly, just on Progressive and any revenue currently, or when do you think that relationship will generate revenue?

Sure, Mike. On that one, again, we signed we'll call it a limited license agreement a few quarters ago with Progressive. The app is live in around 30 states today. We're working with them to fill out the rest of the map and be in a position to enter the next phase and arrangement with them that covers the map in the US. So, we're focused on that as well. We're working towards it, and hope to be able to have something to announce there in the near future as well.

Great. And then maybe just lastly your operating expense levels, are those good levels to think about going forward or was there any one time items in there?

Yes. There were some what I would love to call one-time items when we get into litigation expenses and so forth although it might be a little tough to describe those as one time. What we did, as I mentioned in my remarks, the $4.8 million in OpEx for the quarter included $800,000 or so of stock comp. So, call it around a $4 million run rate there. That has obviously increased during the year. We continued to invest in hiring additional engineers and scientists and to a lesser extent add people to the sales team. We will continue to invest on the OpEx line but we have had a fair amount of growth during the year and as we move ahead into our next fiscal year we'll take a look at that and see how it plays out but again the $4 million of kind of non-GAAP OpEx for the quarter, I wouldn't expect that we'd creep up as much as we have during recent quarters but we will -- I just want to be clear, we will continue to invest in R&D and the sales team as well.

Okay. Thank you.

The next question comes from the line of David Chamberlain, Allianz.

Quick question just on the 25% transaction growth. Can you give any kind of comparison in the previous quarters to give us -- I understand you don't want to give exact numbers, but to get a sense of the progression in transaction growth? That would be helpful.

David, the 25% quarter over quarter that we reported here, we've seen -- I think as Jim mentioned, we're still in the early stages. So, as volume increased over the last four or five quarters, there's some lumpiness, again as the sample size and the population continues to increase. As we looked at the metrics this quarter and ended up with the greater than 25% which we disclosed earlier, we think that's a good metric to think about going forward and I hesitate to throw out some of the prior quarter growth rates because they have bounced around as the sheer baseline of transactions has continued to grow.

I think additionally we are collecting more information from the channel and from our customers. So, we're able now to present for the first time what we see as dramatic consumption growth based on some hard numbers that we're now collecting. And we'll continue to do that, David, moving forward.

Okay. And then just kind of dovetailing on Mike's question on expenses, do you foresee -- so, in R&D, my sense of what you were saying is that the rate of growth kind of sequentially and perhaps R&D will still increase but you won't see this kind of let's say year over year kind of tripling in R&D? You think the growth is going to at some point start to slow. Is that fair to say?

Yes. I guess I would come back to we'll continue to invest and commercialize the products that we've been talking about getting to market on over the last few minutes. Our number one focus for investment dollars in terms of our budget cycle is going to be in the R&D area, engineering and scientists, product management as well. So, with that said if you look at sheer rates, again, as our baseline grows, it's difficult to continue to invest at the same percentages. So, I guess from that perspective I wouldn't expect the same percentage increases on a go forward basis but certainly I would continue to expect that line to grow. And also sales and marketing as well, as we focus and make the transition from mobile deposit into bill pay and insurance quotation and some of the other applications. We will need to add not a huge sales force but add some heads in the sales and marketing area.

Okay. Final question was just on the photo bill pay product. It sounds like something maybe not imminent but do you expect something in the second half of the calendar year in terms of one of these pilots going live?

Absolutely. We've been continually working on the algorithms, refining, and we think we have a very solid product candidate that is in pilot right now and we think we'll be through the pilot phase in the near future, meaning within a month, and commercially available within that same timeframe. We have a strong appetite for the product to become commercial this fall selling season beginning with the end of summer period and therefore we're supporting that with a lot of energy right now in our R&D team for refinement, completion, and delivery. So, all systems are go, David, in that one. We really think it's very critical for this Company to deliver our second killer product. It's a major focus of what we're doing here to compliment what we're doing with Progressive in drivers licenses and of course continue a refinement and innovation with mobile deposits.

Okay. Thanks.

Yes.

The next question comes from the line of Mayank Tandon, Needham & Company.

Thank you. Good evening. Jim, I wanted to just get a sense on the pricing. I think you've talked about $0.10 per transaction on the mobile check imaging business. I know you're not giving specifics on the four reorders but just wanted to get some color in terms of those reorders. Have they been around that level or have you seen any of your partners come back and try to renegotiate pricing?

Mayank, how we look at pricing, what we've discussed in the past has been an average and a range and we're consistent within that average and range on the bulk of the orders that we've conducted over the course of mobile deposit and its life in the product arena. So, we feel very positively about sustaining its price point. Obviously it's a volume-based pricing model and so we're looking to encourage not only consumption by consumers but to reflect the additional reorders by our partners.

That is happening. Some partners are making larger reorders than others as they see and seek how to satisfy the demand being created. So, in summary, we are consistent in that range. We don't like to talk about details for obvious reasons because it disadvantages us in the marketplace in negotiations with the market. So, however, we have made public statements with regard to the range and we are consistent within that range.

Got it. Appreciate that. And also, maybe Russ, could you share some -- I know you haven't provided a cash flow statement but could you provide some color on the key cash flow metrics? I'd be particularly interesting in terms of how much you've spent on the litigation so far and what your expectations may be?

Sure, Mayank. Key cash flow metrics I mentioned in my remarks. We've used about $1 million in cash from operations on a year to date basis after the nine months. We had about $200,000 in CapEx over that period of time as well -- just IT, maintenance, and so forth. In terms of legal spend, in this most recent quarter obviously that's when things kicked off so there was maybe higher activity than -- I guess maybe back up. There was a relatively higher level of activity in this last quarter. It will be spotty depending on court schedules and when things get going but we did have around $300,000 of legal expenses in the quarter related to the USAA matter.

Great. Sorry I missed that. Thanks very much.

The next question comes from the line of Bhavan Suri, William Blair & Company. Your line is open.

Hey, guys. Just a follow-up on Progressive here. It's been a couple quarters since that's rolled out and it's great to hear they're going nationwide. Any sense on sort of the growth as they've rolled out through states again? Is it sort of single digit, double digit kind of growth that you're seeing in transactions? And I guess the follow-up to that is there repeatability to those transactions or do those sort of tend to be one-time type things?

Bhavan, let me address that. This is something that's repeatable. And it is universal with regard to appealing to a broad section of consumers. What they're discovering, what we're told is that not only do consumers 21 and above but for the young consumers who are getting their first auto insurance quotation using their smartphone is also a target market. They're very satisfied with the results that they're seeing in terms of adoption and transactions as it relates to snapping a photograph of a DL and also the VIN number to get a mobile quotation.

So, we're very encouraged by that. We have not been enabled by providing you with any statistics and we allowed Progressive to do that when they're ready to do that but know that they continue to advertise the product nationally. You may have seen the TV commercial featuring their --

Slow? Yes.

That continues which I think is a good indication of how pleased they are with the technology and how much further they'd like to go with nationwide coverage of that application.

Great. And then just a quick one. With the Olympics coming up, were there any partners that have indicated or any clients that indicated sort of an increase in spend in marketing during this time just so -- Hey, I'll keep an eye out for the add, but more just sort of to get a sense of if people are ramping up spending during the summer here?

We have not been told that anyone is increasing their advertisement during the games. If they are sponsors, of course they expect to do that but I don't believe Chase is a sponsor. I'm not sure if they are, actually, of the Olympic games. But they've been consistent in their advertising as Progressive. We have seen Citibank launch a national campaign featuring two Olympic tennis players. That's been effective. And one Olympic runner. But it's not directly tied to the Olympics. They're not authorized by the IOC to use the five rings because they're not an official sponsor. But they're using the opportunity of a sporting event to capitalize on marketing their product.

So, in sum of substance, Bhavan, we don't know if there's going to be any additional advertising or not. But we'd certainly like to see it. I certainly am hopeful for organizations like Wells and B of A at some point to put a little marketing clout behind their launches.

Super. Thanks, guys. That's all from me.

Thanks, Bhavan.

The next question comes from the line of Tom McCrohan, Janney Capital Markets.

Jim, is the pricing for mobile photo bill pay, has anything been finalized on it now that some of your customers are getting closer to launch?

Tom, we have not signed a commercial license deal for the commercial launch of that product. However, our approach to that product will be slightly different. I should say entirely different really than how we're conducting our approach to mobile deposit. As you know with deposit you buy blocks of transactions, deposit, up front. With our mobile imaging solution that includes photo bill pay, balance transfer and our future products, we are evolving the model where we would secure a platform fee for the core mobile imagining platform and then a click charge for the usage of the technology for a particular use case.

So, it will be less frontend loaded and more backend loaded, evening out what we have had in the case of lumpiness in the past due to all of our concentration in mobile deposit. As we diversify the product line and particularly in light of this new revenue model we'll be able to, we think, even out the lumps and have a more predictable path as these other products take root.

Great. That's all I had. Thank you.

Yes, Tom.

Our next question comes from the line of Joel Achramowicz, Merriman Capital.

Thank you very much for taking my question, guys. I wanted to ask, Jim, first of all, you've expressed particularly on schedule to see sort of bill pay come on line, one of the pilots, by summertime. Are you still on that schedule?

We really think we are, Joel. We haven't deviated from that at all. We have been working very hard behind the scenes and with our pilot customers but we believe that is true and we stay firm with that expectation.

Great. And then one question, Russ, for you, do you see potential revenue, sequential increases in revenue from the third quarter to the fourth quarter?

Yes, Joel. We haven't given revenue guidance historically. I don't think we're going to change that at this point. Obviously we have had some lumpiness in the past. We're pleased to see results this quarter back on track in the range that we've had prior to our fiscal Q2 and hope to continue that.

Good. Then let me rephrase that. Is it possible that we could see further bill pay revenues in the fourth quarter?

It is possible. Again, with the timeframes that we're talking about, summertime, that would fall into our fiscal fourth quarter. So, that would assume signing on a bill pay deal.

Very good. Fair enough. Finally, a question on the legal side. Jim, could you perhaps give us some color on maybe some of your major RDC deposit capture customers? You're obviously working with huge banks. How are they reacting to this legal situation that's obviously disconcerting? But obviously you don't want it to effect your operations going forward. But could you maybe give us some color on how they're reacting to that and how that might be effecting or perhaps even helping you in some regards in terms of moving forward?

I'd be happy to, Joel. We take this very seriously here. And we intend to very vigorously defend our right. We feel strongly that customers that we have for our products have been extraordinarily supportive. We have seen big banks launch their products commercially even after the advent of the USAA allegations. Secondly, we've seen new banks sign on and go live and so we're seeing continued momentum and support from the industry. Obviously people have questions and we are responding to those questions but we're doing so in an affirmative way and we believe they feel comfortable moving forward. This is a phenomenon driven by consumer demand. Banks are responding to that. And it's growth.

I'd like to point you, Joel, and everyone else on the call to a special micro site on our website that has a clear timeline of the sequence of events from our invention and our patents all the way through providing technology to USAA and then their false allegations against us. It is located at www.MitekSystems.com/USAA-Litigation. I encourage all of you to review that. It is very compelling. We have a very compelling record of email exchanges, meetings that occurred, and information that we provided the USAA and we feel very strongly that our invention is what fueled their go-to-market strategy. And so, we will defend it. We'd like you to review that. And we're anxious to get this settled once and for all.

Good. That's all I have. Good luck going forward.

Thank you, Joel.

Thanks, Joel.

There are no more questions at this time.

I'd like to thank everyone for joining us. I look forward to speaking with you in 90 days.

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