Mitek Systems Inc (MITK) 2014 Q4 法說會逐字稿

Good day and welcome to the Mitek fiscal fourth-quarter and full-year 2014 earnings results conference. Today's conference is being recorded.

At this time, I would like to turn the conference over to Peter Salkowski, Mitek Investor Relations. Please go ahead, sir.

Thank you, Melissa. Good afternoon, everyone, and thank you for joining us. With me on today's call are Mitek's CEO, Jim DeBello, and CFO Russ Clark.

Before I turn the call over to Jim and Russ, I would like to cover a few quick things. This afternoon Mitek issued a press release announcing its fourth-quarter and fiscal 2014 financial results. That release is available on the Company's website at www.MitekSystems.com.

This call is being broadcast live over the Internet for all of the interested parties and the webcast will be archived on the Investor Relations page of the Company's website.

On today's call we will discuss certain factors that are likely to influence the business going forward. Any factors discussed today that are not historical facts, particularly comments regarding our long-term prospects and market opportunities, should be considered forward-looking statements. These forward-looking statements may include comments about our plans and expectations of future performance.

Forward-looking statements are subject to a number of risks and uncertainties which could cause actual results to differ materially. We encourage all of our listeners to review our SEC filings, including our most recent 10-K, for a more complete description of these risks.

Our statements on this call are made as of today, November 6, 2014, and the Company undertakes no obligation to revise or update publicly any of the forward-looking statements contained herein, whether as a result of new information, future events, changes in expectations, or otherwise for any reason.

Additionally, throughout this call, we will be discussing certain non-GAAP financial measures. Today's earnings release and the related current report on Form 8-K describe the differences between our non-GAAP and GAAP reporting and present the reconciliation between the two for the period reported in the release.

Now I will turn the call over to Mitek's CEO, Jim DiBello. Jim?

Thanks, Peter, and hello, everyone. We ended fiscal 2014 with our best revenue quarter ever, resulting in the full fiscal year becoming our highest revenue year ever.

We now have 3,026 financial institutions signed and 2,521 deploying Mitek's breakthrough and patented Mobile Deposit solution that is used by over 33 million consumers. All top 10 US retail banks and nearly all of the top 50 banks are Mitek Mobile Deposit customers.

Within this exciting market, we see three key drivers to growth. First, expanding the number of banks offering Mobile Deposit; second, growing the number of consumers using Mobile Deposit; and, lastly, increasing the number of transactions by those consumers.

With Mitek's Mobile Deposit deployed by all the top banks in the US and 100% customer retention, we have already accomplished the first growth driver, making Mitek the clear industry leader. Our attention is now focused on growing the number of consumers using Mobile Deposit within these institutions and increasing their frequency of use. We are working to ignite the second and third growth drivers by adding risk management capabilities, enabling banks to increase deposit limits, and by adding features like MiSnap to enhance the consumer experience.

Mitek's Mobile Deposit provides a great platform for growth. Having a trusted brand with all of the top US banks is a natural springboard, allowing Mitek to offer new products such as mobile imaging for identity capture used for account opening and enrollment.

Turning now to our fourth-quarter and full-year results, I'm very delighted to report that Mitek achieved record fourth-quarter revenue of $5.5 million, an increase of 26% year-over-year, marking another solid quarter of revenue performance. In addition, the fourth-quarter results represented the second sequential quarter in which Mitek achieved non-GAAP profitability and the first quarter in some time that we have achieved GAAP net income.

Our fourth-quarter performance brings a strong close to fiscal 2014, a year in which we grew revenue nearly 30% to $19.2 million. Our flagship mobile deposit solution, along with new partnerships and expansion of our mobile imaging platform, fueled our top-line growth.

And in addition to record quarterly revenue results, the fourth quarter marked the end of litigation between Mitek and USAA. In the resulting settlement Mitek did not make any payments to the plaintiff and maintained the high integrity of our company. Our patent portfolio of 20 issued patents and 23 patents pending remains valid, powerful, and enforceable today. We are very pleased to have this distraction behind us.

Moving forward, we are starting fiscal 2015 with great additions to our Board of Directors and our advisory board. This week Jim Hale was elected to Mitek's Board of Directors. Jim is a financial technology industry veteran who brings financial expertise and corporate development experience, as a keen eye for opportunities in the payments and technology industries.

He recently served as chairman of Official Payments Holdings during its acquisition by ACI and currently he serves on the boards of Bank of Marin and LOYAL3, a platform which offers publicly-traded stock directly to consumers.

I am also thrilled to announce that Victor Nichols joined Mitek's advisory board. Victor brings deep experience in the consumer identity market, having recently served as CEO of North America and President of Global Consumer Services at Experian. As we look to build on our strengths in the financial services industry and expand our product portfolio into other industry verticals, Jim and Victor's expertise will be extremely valuable to Mitek, and that is why we are excited to have them join us.

Turning now to our products, Mobile Deposit and identity are focus areas for Mitek and here are some of the top trends to capitalize on in 2015. First, as I mentioned, there are three key drivers to revenue growth for Mobile Deposit: more banks, more consumers, and more deposits.

At Mitek, we are largely executed on establishing our Mobile Deposit product as the go-to technology. We believe the next stage of growth will be driven by consumers and their usage patterns.

On a high level, the growing popularity and convenience of the smartphone will continue to have a positive effect on the number of consumers using Mobile Deposit. Smartphones are becoming more and more ubiquitous. IDC expects that in 2014 worldwide smartphone sales will grow over 23% from 2013 and Gartner expects that nine out of 10 phones to be smartphones by 2018. I remind you, all of these phones will be equipped with cameras that are frequently used.

Even more fitting, for younger generations commerce is moving from words to pictures. During the quarter, Mitek was featured in USA Today, Forbes, and Time magazine discussing our Millennial study.

Our surveys revealed Millennials' obsession with their smartphones and apps. Just imagine, 87% of Millennials say their smartphone never leaves their side. This obsession has carried over to the smartphone camera. It's all good news for us.

While this first surfaced in the form of the selfie, when given the chance, Millennials use their camera to bank, to enroll, and to shop. Nearly 90% of Millennials have or say they would deposit money by snapping a photograph.

Still, though, there are many consumers who have yet to try Mobile Deposit. In a September study, the American Bankers Association reported that only one in eight US adults have deposited a check using a mobile device.

Of the 13% of consumers who have used Mobile Deposit, 80% report using it regularly. This study shows us that the opportunity for Mobile Deposit remains enormous and also affirms the stickiness of our solution. Once you have used it, you are hooked.

As we diligently work with the industry to expand usage to the over 210 (sic) Americans with not yet used Mobile Deposit, we believe we are early in the growth stage of an enormous market. To grow the number of Mobile Deposit users and their frequency of use, we are providing risk management and data analytics tools to financial institutions. These tools will allow financial institutions to increase deposit limits based on how well they know their customer, and we refer to these as smart limits.

Our most recent Mobile Deposit feature that we just announced uses our algorithms to read and combat duplicate deposits, another way for reducing risk for the financial institutions. And we also dedicate a lot of effort towards creating the best consumer experience.

As an example, MiSnap allows the user to take a picture without touching the shutter by simply hovering the smartphone over the check which activates the camera automatically. Mitek's MiSnap improves the user experience by removing keystrokes and camera shake, resulting in more transactions and, as a result, more transaction revenue to us.

To date, 15 leading financial institutions have deployed Mitek MiSnap for mobile deposit, including U.S. Bank; ING Direct Canada, now known as Tangerine; and Morgan Stanley. Additional major banks are in the integration process and MiSnap is also available through our channel partners. We expect the majority of mobile deposit users to be using MiSnap in the future.

In addition to our success with Mobile Deposit, we are working to position our mobile photo account opening solution as the best way to simplify tedious account opening processes and to improve new customer acquisition. With the mobile identity and authentication market at around $5 billion worldwide, we know the opportunity to offer account opening within this market is quite large. This quarter we signed a top 30 financial institution for mobile account opening, making account opening the third solution this particular enterprise has licensed from us.

We've also announced a partnership with a distributor and OEM partner, MeridianLink, a solutions provider to several thousand financial services organizations. And through this partnership, MeridianLink will add Mitek's mobile photo account opening to their iPad apps, enabling access to financial institutions across the country. Take a recent example. Alabama Credit Union employees used our solution to greet and enroll new students at the University of Alabama's freshman orientation.

The MeridianLink partnership follows on the heels of Mitek's mobile account opening pilot with U.S. Bank and the Minnesota Twins. As the first pilot of its kind in the country, U.S. Bank reps were stationed around Target Field and, using our account opening solution, approached fans to enroll for a new credit card.

U.S. Bank and the Twins organization saw strong results. The number of applications accepted improved by 50%. With a snap of a picture, it kept fans' attention on the game and away from filling out paperwork.

We have also expanded our presence in the insurance vertical. During the quarter we announced that another top five insurance company added Mitek's mobile photo payments to their mobile app. Through the app, users view their bill and pay it using MiSnap to take a picture of a check or credit card.

Javelin research shows that Americans already make $36 billion in annual bill payments on their mobile devices. Forrester predicts this number will reach $90 billion in 2017. Mitek now works with three of the top five insurance companies, allowing us to capitalize on their need to serve their mobile consumers.

Finally, in the fourth quarter we enhanced our mobile imaging platform with some new capabilities. As with the top five insurer I just mentioned, Mitek's MiSnap now captures a credit card or debit card in addition to checks. Consistent with our strategy to expand consumer usage of Mitek's solutions, we also added features to help institutions approach a wider range of customers, such as multi-language features and voice-enabled components for visually impaired customers.

We have also added the capability to capture information from a state-issued ID card to apply for a credit card or open an account or even get a quote to originate a loan.

Overall, I am very pleased with our progress, including our record fourth-quarter and 30% year-over-year revenue growth and achieving profitability for the second half of fiscal 2014. I am also very pleased to be working closely with our new board and advisory board members and to be entering the new fiscal year without the overhang of the USAA patent litigation suit.

For fiscal 2015, we will continue to invest in opportunities that strengthen the growth of Mobile Deposit, MiSnap, and our identity capture solutions. We are confident we can make the right investments while continuing to improve the profitability of the business.

As smartphone usage continues to grow at a torrid pace with consumer habits becoming increasingly mobile, and based on camera usage, we are focused on bringing the most innovative and user-friendly mobile imaging solutions to market, positioning Mitek well for future growth.

With that, I will turn the call over now to Russ Clark, our CFO, for more detailed review of our quarterly results. Russ?

Thanks, Jim, and thank you to everyone joining us on today's call.

As a reminder, all financial figures I cite today will be on a GAAP basis unless I specifically call out a number as non-GAAP. Our earnings release includes a reconciliation between the two measures. We believe that excluding non-cash stock compensation and IP litigation expenses from non-GAAP earnings provides a useful measure of the Company's operating results.

Also, any quarters or years that I discuss will be based on our fiscal year-end of September 30.

During Q4 we saw our top line grow sequentially and year-over-year to a record $5.5 million, resulting in non-GAAP net income of $1.9 million. Total Q4 revenue increased 26% year-over-year from total revenue of $4.4 million in the year-ago period. Q4 software revenue of $3.8 million included 10 Mobile Deposit reorders and increased 17% compared to year earlier software revenue of $3.3 million.

Mobile Deposit reorders continue to drive the lion's share of our licensed revenue growth. Our installed base of Mobile Deposit providers has continued to grow, reaching over 2,500 financial institutions live at year-end. Although this growing user base has provided us increasing visibility in the quarterly revenue and allowed us to report consistent and improving quarterly revenue results, it is important to note that the predictability of our quarterly revenue is still highly dependent on the closing of mobile deposit reorders and new orders.

We are continuing to address this issue by offering more predictable multi-year subscription pricing models for our mobile Photo Bill Pay, Payments, Account Opening, and identity products.

Q4 Maintenance and PS revenue of $1.7 million increased 53% over last year's Q4 Maintenance and PS revenue of $1.1 million. We have seen nice year-over-year and sequential growth in this line item and had a particularly strong PS quarter, generating nearly $400,000 of revenue primarily related to MiSnap implementation assistance to our Mobile Deposit base.

Total Q4 operating expenses were $5.6 million compared to $5.9 million in the year-ago period. The year-over-year decrease was primarily driven by lower selling and marketing and R&D expenses. These lower expenses were partially offset by higher year-over-year G&A expenses resulting from IP litigation costs for the suits that we settled in Q4.

Non-cash stock compensation expense during Q4 was $777,000 compared to $746,000 in the year-ago period. R&D expenses were $1.3 million in Q4, down from $1.8 million in the year-ago period, primarily as a result of lower personnel costs and outside contractor expenses.

Our Q4 G&A expenses were $2.6 million compared to $2.0 million in the year-ago period. The year-over-year increase in G&A was primarily driven by IP litigation costs, which totaled $1.1 million during Q4.

GAAP net income in Q4 was $2,050, or breakeven per share, compared to a net loss of $1.5 million, or $0.05 per share, in the year-ago period. As I mentioned, excluding non-cash stock compensation and IP litigation costs, Mitek reported non-GAAP net income of $1.9 million, or $0.06 per share, for the quarter. This compared to a non-GAAP net loss of $51,000, or breakeven per share, for Q4 of 2013. Our EPS share count for Q4 was 30.5 million basic and 31.0 million diluted shares.

We expect total Q1 2015 OpEx to be between $5.25 million and $5.75 million, excluding litigation expenses. Although OpEx decreased sequentially from Q3 to Q4 of 2014, we expect the trend to return to a more normal historical level during Q1 of 2015, due primarily to the timing of outside contractor expenses and marketing program spend.

With respect to defending our IP rights, we settled a major suit near the end of fiscal 2014. However, we live in a world plagued by patent trolls and, unfortunately, Mitek is currently defending itself in suits filed by one such troll. Given the early stages of the process, I am not able to provide many details other than to state that we believe that these claims are without merit and we will aggressively defend our IP.

As a result, we expect that related litigation expenses could be as much as $500,000 during Q1 of 2015. No schedule or trial date has yet been set by the courts in this matter.

Now looking at our results for the full year, revenue for 2014 totaled $19.2 million comprised of $13.3 million in software licenses and $5.8 million in Maintenance and PS. Our near 30% year-over-year revenue growth was fueled primarily by mobile deposit, with an increasing mix of reorders. We also topped $1 million of PS revenue for the year, related primarily to MiSnap engagements.

Total operating expenses for 2014 were $24.6 million compared to $22.1 million in 2013 as we invested in growth and defended our IP during 2014. We maintained strong year-over-year gross margins of 89% and spent $3.7 million on IP litigation in 2014, which compares to spending of $2.4 million in 2013.

GAAP net loss for 2014 was $5.3 million, or $0.17 per share, compared to a net loss of $7.3 million, or $0.26 per share, in 2013. This is based on 30.5 million shares in 2014 versus 27.5 million shares in the year-ago period.

Excluding IP litigation expenses and stock compensation, non-GAAP net income for fiscal 2014 was also $1.9 million, or $0.06 per share, compared to a non-GAAP net loss of $2.1 million, or $0.08 per share, in the year-ago period. Stock compensation for 2014 was $3.4 million compared to $2.8 million in 2013.

As of September 30, 2014, our headcount was around 50 employees.

And turning to the balance sheet, as of September 30, 2014, cash, cash equivalents, and investments totaled $26.1 million compared to $29 million at the end of 2013. This represents a net cash burn, including litigation spending, of around $700,000 per quarter for 2014. Our accounts receivable balance of $3 million represented a DSO of 49 days for Q4, which is consistent with Q3.

That concludes our prepared remarks. Operator, please open the line for questions.

(Operator Instructions) Bhavan Suri, William Blair.

This is actually Alper Tuken in for Bhavan here. Congrats on the quarter.

So I see that Mobile Deposit was -- got you guys over on your top-line revenue for software and I was wondering how the cross-sell opportunities from your mobile deposit customers are progressing. I know you said you has signed a top five insurance company, but I was just wondering just how the general cross-sell environment is with your Mobile Deposit customers.

Alper, I think, as we have discussed previously, it's good. We are using our presence in all those banks that we've discussed here and are working with our channel partners, with our account opening and identity products and payments and bill pay products as well.

Many of the wins that we discussed on the call here in those areas are really based on a foundation that was created by our success with mobile deposit and our customer base's satisfaction with those products.

We have several customers, Alper -- this is Jim responding -- that have multiple solutions licenses from Mitek, either directly or indirectly through our partners. And we expect that many of our distributors will pick up our additional new products as we continue to grow. Very positive.

Would you say the average number of products per customer is trending upward?

By definition, it is because every quarter we are adding customers with multiple solutions for Mitek. I think what the customers are responding is the consumer habit that I referenced in my remarks. The consumers are comfortable using their camera for not only the selfies that I mentioned, but for financial transactions, and we expect that to continue and to grow. And that is going to spur more adoption of our technology and cross-selling other products.

Thank you. Then if I could ask another follow-up. On the expense side, I know you said that with the sales and marketing and R&D spend that those would normalize back to prior levels due to the timing of your marketing spend and some contractors.

How should we view those into 2015? Do you see them going down by a couple hundred basis points or maintaining kind of average levels at 2014 [still]?

Alper, as you mentioned, I will point you back to the guidance I provided for total OpEx of $5.25 million to $5.75 million for Q1 and I think you are pretty familiar with our cost structure. We are at around 50 employees total at the end of the fiscal year in terms of hiring and so forth. We probably are looking for a dozen employees or so throughout the course of the fiscal year to add to staff in the engineering area primarily, and a little bit lesser extent in sales and marketing.

All right. Thank you guys for taking my questions.

(Operator Instructions) Andrew Boyce, Piper Jaffray.

This is Andrew here stepping in for Mike. First off, thanks for taking my questions.

I guess, first off, could you talk a little bit more about that development network? How is that progressing? Are you guys seeing some good results from that?

I will. This is Jim and I appreciate the question. The mobile developer network is a way to expose our imaging platform through an open API to qualified third-party developers.

Now this is the way we can plus our products into other industries which we aren't directly approaching. There are so many opportunities that present themselves from mobile imaging and healthcare, in ticketing, in other industries that we couldn't possibly begin to approach with the limited staff that we have today.

We're focused on financial services, including insurance as verticals, and we would continue to do that. But as a result, we are seeing a lot more effort with regard to technology and adoption in areas such as underserved bank participants. There is a company that we have been beginning to partner with that provides an Airbnb equivalent for check cashing that allows you to actually receive your cash by a concierge who greets you at a shopping mall after you deposit a check on your low-cost smartphone and to get it cashed.

We have another one that is working on providing exchange of seats for sporting events by validating the information from the ticket in the image of the ticket and then providing an easy exchange. And they are just getting launched as well.

We have a third in the real estate business that is already beginning to see some traction with regard to being able to deposit earnest money using our technology from realtors who receive deposits on new house purchases. So we are seeing a variety of applications and use cases that are tangentially involved in financial services, but primarily also in adjacent markets, and we expect that to continue.

We are spending a fair amount of energy in social media to promote that, but not a lot of hard cash with regard to advertising that. So it is by definition what I would consider a Petri dish, an experimental opportunity to use imaging and other applications, and we see that beginning to proliferate.

Okay, awesome. Thank you very much for the light there. And I guess also in past quarters you guys have said you are about a little over 75% of the top 50 banks. Are you above 80% to 85% now, or could you give us kind of a number on how many top 50 banks you are in?

Yes, I think our most recent update in that is that we are in nearly all, so that's somewhere in the mid-40s of 50, and the list tends to change every quarter just depending on which bank bought which one.

Okay, awesome. Thank you very much and congrats on the quarter again. That's all I had for you.

(Operator Instructions) That does conclude our question-and-answer session for today. I would like to hand the conference back over to Peter Salkowski for any closing or additional remarks.

Thank you very much. Before closing the earnings call, I'd like to inform everyone that Mitek will be participating in the Susquehanna Payments Forum on November 18 in San Francisco.

Thank you for joining us today for Mitek's fiscal fourth-quarter earnings call. We appreciate your interest in the Company. Have a good day.

That does conclude our conference for today. Thank you for your participation.