Mitek Systems Inc (MITK) 2018 Q1 法說會逐字稿

Good day, and welcome to the Mitek First Quarter Fiscal 2018 Financial Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Todd Kehrli with the MKR Group. Please go ahead, sir.

Thank you, operator. Good afternoon, and welcome to Mitek's Fiscal 2018 First Quarter Earnings Conference Call. With me on today's call are Mitek's Chairman and CEO, Jim DeBello; and CFO, Jeff Davison. Before I turn the call over to Jim and Jeff, I'd like to cover a few quick items. This afternoon, Mitek issued a press release announcing its first quarter fiscal 2018 financial results. That release is available on the company's website at miteksystems.com. This call is being broadcast live over the Internet for all interested parties, and the webcast will be archived on the Investor Relations page of the company's website. I'd like to remind everyone that on today's call, management 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 the company's 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 and 10-Q for a more complete description of these risks. Our statements on this call are made as of today, January 25, 2018, 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. Additionally, throughout this call, we will be discussing certain GAAP financial measures -- 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 periods reported in the release. With that said, I'll now turn the call over to Mitek's CEO, Jim DeBello.

Well, thanks, Todd, and good afternoon, everyone. Thanks for joining us. I'm happy to report today that Mitek grew revenue 31% year-over-year, a record for our first quarter. This growth was driven by continued momentum from both our digital identity solutions and our industry-leading Mobile Deposit. Additionally, our non-GAAP net income increased 4% year-over-year to $1 million or $0.03 per diluted share, representing our 16th consecutive quarter of profitability.

We made significant progress in our identity verification business this quarter, driving year-over-year growth of 29% in number of ID customers, 117% in SaaS transactions and 116% growth in our SaaS revenue. And the strength of our growing and profitable Mobile Deposit business continues to be a solid springboard that positions us to capture further growth in the multibillion-dollar global digital identity verification market.

Some of our notable new customer acquisitions for our identity solutions during the first quarter included one of the world's largest investment management companies, who will be using our technology for new account enrollment. We also signed one of the world's largest airlines for mobile check-in for international flights. And we added one of the largest global rental car companies, who plans on using our identity verification to facilitate a self-service check-in. We see the travel vertical as a huge opportunity for our solutions as it represents a significant recurring transaction opportunity.

In addition to growth from new customers, we have several renewals for our identity platform, including a renewed agreement with a top 5 bank in the U.S.

Mitek is redefining how consumers around the globe verify their identity in a digital world. We live in an era of rapid digital transformation; the advent of 5G networks and connected devices, even cars, will accelerate this. Meanwhile, government IDs remain the universally accepted identity proof, but what used to be done in person is now online. New, previously unimaginable services delivered remotely need a trusted digital environment in which to thrive, but it's hard to trust what you can't see and that's where Mitek comes in.

Our identity platform is the key enabler for e-commerce, allowing consumer-facing businesses to know for certain that the customer with whom they are doing business, in a digital world, is truly who they claim to be.

Traditionally, identity verification has long been dominated by big data bureaus. But in 2017, more than 1.6 billion records were breached. There's nothing secret about this information anymore, and that's why fraud and identity theft are on the rise.

With the advent of the smartphone, we now have access to unprecedented capabilities. Mitek is leveraging these capabilities and transforming the industry with a unique approach that combines the power of the camera to capture IDs and compare facial images to verify identities.

As part of our ongoing commitment to innovation, our scientists and engineers are focused on a subset of AI called Machine Learning and Deep Learning, which enables computers to learn without being explicitly programmed.

Our cloud platform is continuously learning from the millions of ID documents it processes. We believe that today we have the largest repository of fake ID images in the world, which trains our AI platform. This means that we can quickly add and update new ID document types from around the globe to provide our global customers unparalleled and accurate digital identity verification capability. In other words, we do a pretty good job of catching the bad guys and fakes.

During the quarter, we added a new issued patent and 2 new pending applications. Altogether, we hold 36 patents that all relate to capturing and processing documents, with an additional 18 patents pending. As a result, we think this makes our identity verification platform the most accurate and comprehensive ID proofing product in the market today. It sets us apart from our competition.

There's an urgency to establish trust in digital commerce. Evidently, Facebook feels the same way. Earlier this week, they announced an acquisition of an ID verification technology company that they will devote to protect the integrity of their platform. We think this is a pivotal validation of the market opportunity ahead of us.

Businesses are increasingly agreeing, and our identity business is growing rapidly as a result. So why are all these companies using Mitek's Mobile Verify?

One reason they're licensing our solution is because we are delivering great results in the new customer onboarding use case. One example is with Knox, the first all-digital payments platform built on Blockchain. Using Mitek's Mobile Verify, Knox was able to improve its new customer onboarding time by 98%, from 12 hours to 5 minutes.

This helped them grow their user base by 214%. The Mobile Verify also allowed Knox to achieve compliance with the EU's Anti-Money Laundering directives. On top of growth from our direct sales efforts, we continue to see new identity wins from our channel partnerships. By reselling and integrating our identity verification technologies with partners like Experian, VASCO, IdentityMind and others, we can augment our direct sales efforts and accelerate the expansion of our identity solutions in our key vertical markets that include financial services, lending, payments, travel and shared economy companies.

As part of this plan to foster greater global identity coverage, we acquired ICAR last October. The addition of ICAR extends the scope of Mitek's identity document coverage beyond North America and Europe into Latin America, and broadens our product portfolio with several new factors of authentication including social scoring, e-mail, phone number lookup and geolocation.

The integration is going great, and they are performing extremely well and we are thrilled with the addition of ICAR and its team. ICAR's computer vision scientists are dedicated to ongoing research and development, and by merging them with our Mitek labs, we now have one of the most powerful research and development teams in the digital identity verification industry.

We continue to seek other opportunities for growth through acquisition and intend to use our strong balance sheet to grow both organically and through M&A.

There are 3 key market drivers favoring our continued growth, including the ubiquity of mobile devices and the demand from consumers for easy self-service solutions; second, the increased instances of data breaches eroding confidence in traditional identity verification methods such as the Social Security number; and third, strict global Anti-Money Laundering and KYC regulations. Mitek's identity solutions squarely address these pain points and the multibillion-dollar consumer identity market. We believe these markets will continue to drive significant growth this fiscal year and beyond, as consumer-facing companies look to deploy ID solutions to create trust in a digital world.

In addition to our growth and innovation in identity, we continue to dominate the Mobile Check Deposit market with 6,100 financial institutions and tens of millions of consumers using our mobile capture technologies.

Mitek pioneered Mobile Deposit, and the latest generation is the 23rd new release since we invented this industry-leading product 10 years ago.

In addition to continuing our innovation, in November 2017, we announced a new partnership with Charity Dynamics, a nonprofit digital technology solution firm that provides online marketing and fund-raising solutions for other nonprofits. Charity Dynamics mobile application will now feature Mitek's mobile deposited MiSnap products, helping charitable organizations improve peer-to-peer fund-raising and granting them faster access to donation funds, given via paper checks.

Adoption and usage of Mobile Check Deposit continues to grow at a rate of 20%. The key drivers are consumer penetration and frequency of use. With financial institutions focused on driving their customers to use the lower cost digital channel and consumers enjoying the unparalleled ease of use, we continue to grow our Mobile Deposit business and are confident that we'll see continued growth in Mobile Deposit this fiscal year and for years to come.

Our record total revenue and profits in fiscal 2017 were driven by the successful execution of our growth plan for both identity and Mobile Deposit.

We continued to successfully execute on that plan in the first quarter of 2018 and are positioned well for future growth.

Now with that, I'll turn the call over to Jeff to discuss the financial results in more detail. Jeff?

Thanks, Jim, and thank you, everyone, for joining us this afternoon. Let's start with Q1 revenue and operating results. For the first quarter of fiscal 2018, Mitek generated revenue of $12.1 million, a 31% increase year-over-year. Software and hardware revenue of $7.2 million was up 20% year-over-year. We maintained strong blended software and hardware gross margins at 90% for the quarter. With the acquisition of ICAR, we now have a small hardware component to our revenue and as such we have cost of goods sold for the hardware, which carries a lower margin than our software revenue, plus the change to our blended gross margins. Services revenue, which includes SaaS, maintenance and consulting, was $4.9 million for the quarter, an increase of 50% over last year's Q1 revenue of $3.3 million. This increase in services revenue is due primarily to growth in transactional SaaS revenues from our mobile identity products, which increased 116% year-over-year to $2.6 million.

Services gross margin were consistent at 82% for the quarter. Total operating expenses, including cost of revenue, were $14.4 million compared to $9.9 million in Q1 last year. The year-over-year increase in operating expense reflects our continued investments to grow our identity business as well as the addition of the operating costs associated with the acquisition of ICAR.

Sales and marketing expenses for the quarter were $4.8 million compared to $3.8 million a year ago. R&D expenses were $3.3 million compared to $2.5 million last year, and our G&A expenses were $3.5 million compared to $2.2 million a year ago.

As a reminder, our earnings release includes a reconciliation between GAAP and non-GAAP net income. We believe non-GAAP net income provides a useful measure of company's operating results by excluding acquisition-related costs and expenses, stock comp expense and litigation costs related to protecting our intellectual property. GAAP net loss of $5.7 million or $0.17 per diluted share for Q1 included a onetime noncash charge of $4.4 million or $0.13 per diluted share, related to the enactment of the Tax Cuts and Jobs Act. Excluding the impact of this tax reform, net loss was $1.3 million or $0.04 per diluted share. Non-GAAP net income increased 4% year-over-year to $1 million or $0.03 per diluted share, representing our 16th consecutive quarter of non-GAAP net income.

In Q1, we incurred $1.3 million of acquisition-related costs and expenses compared to $518,000 last year. Stock comp expense was $1.9 million compared to $1.1 million a year ago. We had $50,000 in litigation expenses. Our diluted share count was 36.2 million shares compared to 34.7 million shares a year ago.

Turning to the balance sheet. During the quarter, we generated $2.6 million in cash from operations, which was offset by net cash used for the ICAR acquisition of $3 million, bringing our total cash and investments to $45.8 million at the end of Q1. Our accounts receivable balance of $5.7 million represented a DSO of 48 days.

Now moving to guidance. We are reiterating our previously provided fiscal 2018 guidance for full year total revenue of between $57 million and $59 million. This would represent revenue growth of between 26% and 30% for the year.

We continue to see strong market demand for our digital identity verification solutions and we will continue to invest in this growth opportunity this year and for the foreseeable future. However, we also continue to expect to generate healthy non-GAAP profit margins of between 19% and 20% for the full fiscal year 2018.

We are providing guidance for the second quarter to provide visibility into our expectations for how revenue and expenses will come in through the remainder of 2018.

We expect total revenue for Q2 2018 of approximately $13.5 million, representing 19% growth year-over-year, including over 70% growth in our ID business. While our expectations for the Mobile Deposit business remains unchanged at 10% to 20% growth for the full year, for Q2, due to timing of reorders for transactions and the comparison to a very strong Q2 2017, we expect the Q2 Mobile Deposit revenue to be substantially the same as Q2 last year. The second quarter last year was strong due to 50% growth in Mobile Deposit revenue, driven by 3 large reorder transactions. That being said, we continue to see Mobile Deposit transaction growth of approximately 20% and expect to see higher growth rates in the Mobile Deposit business in Q3 and Q4 of this year.

We expect total operating expenses for Q2 2018, excluding acquisition-related costs and stock comp expenses, to be between $12.2 million and $12.7 million. Our investments to grow the identity business are being made in the first half of the year, and the growth rate of these expenses will slow in the second half of the year.

We expect acquisition-related costs and expenses to be between $600,000 and $800,000 and stock comp expense to be between $2.1 million and $2.3 million for Q2.

Operator, that concludes our prepared remarks. Please open the line for questions.

(Operator Instructions) And we'll take our first question from Bhavan Suri with William Blair.

I guess, I wanted just first touch on the core Mobile Deposit business. Obviously, a little more volatility in that than I guess we might have been thinking, seasonality and tough comps. But as you think about that business, Jim, how should we think about sort of the sustainable growth here?

I mean, you sort of suggested, this has been -- it could healthily grow, given early penetration rates and continued growth in mobile adoptions sort of in the 15%, 20% range. So when you think about 3 to 5 years, do we still think that's a sustainable growth rate for that business?

We do, Bhavan. We've consistently reported to the street in our travels a 10% to 20% growth factor for Mobile Deposit for the foreseeable future. The product continues to grow as it gains adoption and frequency of use. Bank of America, Wells and Chase recently reported separately their growth in their mobile banking business, driven largely by Mobile Check Deposits. I think, and other people have written about that, and it's public information from those reports.

So we remain confident in the product. We still run across people who don't know it even exists, which is remarkable to us. But the reports we get from the field from people who do know it exists were very positive: a delightful experience saves people time from waiting in line as you know, at the bank. And from the bank's perspective, it reduces their cost footprint as they can reduce branches and teller costs. So it's a win-win and it will continue to grow.

Yes, that's helpful, Jim. And I do know, believe me. And then turning to sales and marketing expense, you've sort of given us the year now, but if I think about 2 to 3 years, and you think about the opportunity, really, dramatically in the mobile side, ID verification side? What is -- how do you guys think about balancing, sort of, the operating margin expansion on the growth opportunity there, given it's a fairly greenfield market? Just some sense of not -- maybe not guidance, but how should we think you guys are thinking about the sales and market line over 2, 3 years?

I think Jeff reflected in his comments that we anticipate over 70% growth in the ID business in the upcoming quarter and beyond. We don't expect that to abate. So we consider this an opportunity to accelerate. We are investing in sales professionals to call on major enterprise accounts. But in addition to that, and where we'll get some leverage ultimately, is working with channel distribution partners. As I mentioned in my remarks, we are working with Experian, as our premier partner, and who's our largest partner globally, but also other very interesting partners like IdentityMind and VASCO, who's just coming online. And we think that channel of partnership will grow. So we are actively working with channel partners, new and prospective, to sell our products. And I think, Bhavan, we do have a history of success doing that, as you know that's exclusively how we sell our Mobile Deposit product. So we understand the channel well, how to manage that and also how to manage direct sales, and we are winning. And I like that. So we've had a lot of very interesting logos, as I mentioned, both the global airline, the car rental agency, the large investment group. Those are all direct deals. But we'll gain additional leverage from using the channel in the future.

Got it. Got it. That's helpful. I guess, the channel is largely -- thinking about financial service is focused. And it feels like airlines and all the rest of it is a shift, are you thinking, sort of, expanding the verticals; we've discussed this before. It feels like the verticals just seem to be broadening. I would love to get a sense of, sort of, how you guys are thinking about that?

Well, there's 2 areas, really, we have to think about, one is geographic coverage and secondly, our beachhead vertical. So specifically on geos, we are focused on North America, Europe and the U.K. primarily and as you know, through ICAR, we've expanded in the Latin America. That's a handful and we are very focused on that. But within those geographies, we are focused primarily on financial services. And in that, I would consider payments, lending and credit providers, especially digital lenders. And then beyond financial services, what I would consider a distinct vertical market is travel, which would include airlines and car rental companies. Shared economy players, as you would know, those would be individuals or companies that provide rental homes or rooms and other services, even rental cars on a temporary basis. And then beyond that, we look at other industries such as telco, and so we like those a lot.

Now to broad beyond that, I think, we'll be opportunistic. We do get a lot of incoming calls and inquiries from a variety of players, one of which I've mentioned in the past is a major player in healthcare market. Well naturally, we'll pursue that opportunity and discover what the use case is and how we can affect that in a more broadly revealed way. So our goal is to keep focus on those geos and those verticals, what we call beachheads. And then as opportunities arise, explore other vertical markets and move adjacently.

We'll take our next question from Joel Fishbein with BTIG.

Sorry for the noise in the background, I'm actually traveling right now. But I wanted to follow-up on some of these comments on ICAR. I know it's early on, but I'd love to understand a little bit about how that's going so far and how you see that really growing your opportunity to expand here.

I like ICAR a lot because they bring a couple of things to the table. First, let's just focus on their IP. They are very proficient in certain authenticity checks that they've deployed in their product that complement Mobile Verify, and we're in process of integrating all of that today. Secondly, they bring to us deep knowledge in their labs and combined with our Mitek labs, we do believe we have one of the strongest, if not the strongest, research team in the industry. And lastly and importantly, they do broaden our geographical region to Latin America. So those are the 3 reasons we looked at them to acquire them.

They are terrific people; the cultural fit is very strong. That is a major gate for our decisions to make sure that once we buy a company we can integrate well, and we have. So they will factor into our geographic expansion plans and our technical roadmap immediately, and they have, and they've performed well, in fact, even better than we anticipated. So we like them, and they will continue to grow.

For our next question, we'll go to Mike Grondahl with Northland Securities.

First question is just the 3 new ID verify wins that you talked -- the large investment manager, the large airline and the global rental car company, could you talk a little bit about what the RFP process was like and kind of who you are winning against?

Well, I will, Mike. Clearly, this is an established -- a category getting established, as more and more companies are discovering that many of their consumers are coming into their systems via their mobile devices. And the problem, as I identified, is lack of clarity of who that individual is and the veracity of that application. So in the case of the airline, the use case is specifically for international check-in, meaning, we capture an image of the passport and we are able to extract information and verify that, facilitate that process. There are benefits to the airline with regard to interacting with consumers on their mobile app. It's more immediate, it's more intimate and there's opportunities for cross-selling other services. So it's a win-win for both the consumer from convenience and friction, reducing that friction, and from the airline. We were in competition, we did beat the competition. In that particular case, we've eliminated the incumbent. And so we felt very good about that, which is a testimonial, I think, of the veracity of our platform and the ability that it provides.

With the other wins, we find that we have a competitive set, and we believe in our cloud model and our coverage globally, that we compete very well. And we are able to win these accounts against competition. So competitively, we feel that our AI Machine Learning platform is the finest in the globe. It's continuing to get better, and we get better by seeing more documents. So time to market, being in market early, is really to our strategic advantage on a technical side as well as an account win side.

And Jim, are either -- or any of those 3 live yet? Or do you -- if they're not, do you expect them to be live soon?

So Mike, the answer is they are not yet. Those are new wins and typically, with the companies that are of these -- this size, they go through several processes internally to align with their release schedules on their particular apps. So we expect to be live at the latter part of this fiscal year, is what our expectation is with all 3 of these accounts. And that's consistent generally with our experience with other major accounts. So again, the beauty of working directly is that we control the sale cycle, the conversation, we are able to convey the benefits of the technology more crisply. The negative in dealing the large accounts is that they have their own agenda and timeline and resources, and we have to conform to that.

Yes, those are nice wins though, nice use cases, too. You mentioned on Mobile Deposit that a top 5 bank renewed in the U.S. Any changes in the terms?

There are none. Actually, that wasn't the Mobile Deposit, that was an ID.

That was ID, okay. I got that wrong then, okay. And then on the ID side guys, Jim, if you remember several years ago, you put forth a few numbers that said, "Hey, if you walk into a bank and use the teller, it's going to cost the bank a couple bucks." At an ATM, the deposit costs the bank $1, if they do it with Mobile Deposit it's $0.10, roughly. Have you guys thought through or came up with the math on what that savings is for a customer who's using mobile ID for check-in or account opening?

I think we know it well, on the bank side and the banks are clearly embracing it. How does it stack up on the account opening side or kind of the check-in side?

Well, we look at it a little bit differently, Mike. We look at the cost of customer acquisition; published reports in the banking industry, speak to anywhere from $200 to $300 for new customer acquisition. Meaning, that's the total amount of funds it cost to acquire a new customer. So adding our cost is de minimis in light of what that overall cost is. So we think there is tremendous return on the investment of deploying Mobile Verify into that cycle because the risk without doing that is that you lose customers. They abandon the mobile enrollment process. Very difficult to type in your name and additional information with your thumb on a screen, on a smartphone. And often you get interrupted. We call that abandonment and what the enterprise speaks to is funnel metrics. They spend a lot of marketing dollars to get people in the funnel as prospects, but there was a 20% attrition rate often, when people get fed up with the process or it's cumbersome or it has a lot of friction. So we help solve that friction, and furthermore, once they completed their application, we can help verify that identity more quickly, more accurately and release the -- or relieve the individual from having to present credentials in the branch or in the location. So there's a lot of benefits, one, completing the form; two, validating an ID and preventing the individual from having to walk in and physically display that. So we like that and we think it's a fraction of the cost of the overall acquisition.

Got it, got it. Can you look at (inaudible) differently?

I'll just add onto that a little bit. You know that different customers have a different use case. Some are focused on, like you mentioned, a cost reduction on that capture, but others may have a use case where they're actually looking for higher touch with their customers, and the more they can get them into their mobile app, then they have an opportunity for up sell or cross sell. So in the case of, say an airlines, for example, they may want to get you to come in and check in on the mobile app so they can sell you an upgraded seat or maybe a meal. So that's a revenue opportunity for them as well.

Good point. Good point. And then lastly, for both of you, or either one of you, what was the biggest surprise in the quarter? Or on the Mobile Verify side? Anything really stick out?

I think we are really pleased with how Mobile Verify did for Q1. We had good traction with our bookings and really pleased with the customers that we signed. We signed some great names. We shared 3 of them with you and there are more beyond that. So I guess, that's where I end up.

We were probably surprised also that we are able to hire the quality of salespeople that we have brought in. It is early; we conducted global sales meeting just recently, and obviously, it will take those individuals some time to get up to speed to be productive. But they're hitting the ground running. There are experienced executives that sell, and so we think they'll be paying -- we'll be paying some dividends on that, in terms of higher revenues as a result of the investment that we made this quarter.

(Operator Instructions) We'll take our next question from Mark Schappel with Benchmark.

So just one question for me tonight here. Jim, software revenue grew about 20% in the quarter in that line, which is typically Mobile Deposit. It's probably one of the lower growth rates we have seen in 5 or 6 quarters here. Was there something in the Mobile Deposit business this quarter that caused the growth rate to fall off?

This is Jeff. So we provided guidance at the end of the year for Q1 because we expected it to come down a little bit, and that really is very similar to what we are looking at in Q2. The first half of this year timing of reorder transactions is just giving us a little lighter growth rate on the Mobile Deposit business. But we -- as we said in our prepared remarks, the transactions we are seeing go through the systems are 20%, those are great. And we are expecting to see that growth rate really tick up in Q3 and Q4. And I just would follow on with that, that we are reiterating the guidance for the full year as well.

We'll go next to Darren Aftahi with Roth Capital Partners.

This is Dillon on for Darren. I wanted to talk a little bit about, sort of, the vertical expansion opportunities. You've had some good customer wins there, and I wanted to know, maybe, if you are seeing some higher demand in certain verticals and maybe that's the healthcare with the biometric really (inaudible) a couple of days ago. But just sort of curious to, if there's some opportunities there a little bit bigger than others? And just what you're seeing there with -- demand-wise?

Yes, nice to have you on the call today. I Understand Darren is traveling on business. We do see tremendous opportunity in a cross section of verticals. We are trying to be disciplined to focus on a few key ones, but we constantly get inbound sales leads that are from other industries and we will pursue some of those, based on size and geography. But to give you an idea, we think lending -- digital lending, particularly is of unique value. Imagine this, you are a digital lender, your customers are coming in through a mobile device or remotely, and you need to validate them quickly and then approve terms, and you do need KYC -- and know your customer compliance. You need an identity verification, and we provide that. So we got even a step further, as we've learned more about this sector, is that we've added access through our platform to bank information, indicating whether or not there is an active bank account or not. Just simply that is a clue for a lender to understand the capacity of the customer to repay them and that's an important critical factor. So therefore, we begin to learn more about these verticals and package them more specifically for this specific use case.

So I think what I'm indicating to you, not only is there depth in some of these verticals, and lending being I think at the top of the list, as I mentioned earlier, travel on its heels were some major wins this last quarter. But we are also learning as an early-stage market where this can be applied and how to package it for repeat business.

So what you see in this emerging market is a broader array of very capable, very significant logos, specifically targeted in the certain verticals. But as we mature and as this industry grows, we are going to see greater depth within those verticals as we understand more clearly the sales processes, how we package the solution, and how we conduct the integration and time to market should get shorter. So I like this, because, a, we are winning or growing 31% on a combined basis. We have a very targeted approach today, but we as we get more and more information, we can go deeper in each of those verticals. Long answer to your short question, but I think it portends great growth in the future.

That's helpful. And then, one other. I know, in the past you have mentioned, with some of your deposit customers, them switching to minimums versus pay-as-you-go and I was just wondering if there is any update or trend you're seeing there?

Well, it's a little bit different. On deposit, the model is fixed. You buy in blocks of transactions, you consume those blocks, or as we say urn them down, and then you reorder. So it's a constant reordering process through our distribution partners who provide these transactions to banks for deposits. So park that to the side. What we had talked about earlier in the identity market is a little different nuance on that transaction model. We still sell transactions but in that case in this emerging market, again, reflecting my earlier comment, we sell on a pay-as-you-go basis. So I am a customer; I'm using Mobile Verify. I am consuming every month; I pay up at the end of the quarter.

Now ultimately, once people get comfortable, these customers, with their transaction consumption rate, once they understand the dynamics of the mobile identity market in their own experience, they're going to want to convert to a more consistent, I would call, SaaS model, where there are minimums over a period of time; it could be a year or 2, or 3. Right now, we are PAYGO in most of our cases with some minimums. But we ultimately want to migrate to a more traditional SaaS model. Would you concur, Jeff?

Yes. It's -- we are still seeing a fair number of PAYGO customers, Some of them with minimums. And when we do put minimums in, they tend to be on the conservative side, as Jim said, because the customers are still figuring out how it's going to work in their application.

This concludes today's question-and-answer session. At this time, I'll turn the conference back to management for any closing remarks.

Thank you, operator, and thank you for joining us today. Mitek's management will be presenting at the 30th Annual ROTH Conference in March, as well as the Craig-Hallum FinTech Innovators Conference in Boston. If you are planning on attending either of these conferences, please stop by and say hi. We hope to see you there. This concludes our call. Have a great day.

This does conclude today's conference. Thank you for your participation. You may now disconnect.