Mitek Systems Inc (MITK) 2022 Q4 法說會逐字稿

Good day, and welcome to the Mitek's Business Update Conference Call and Webcast. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Todd Kehrli, MKR Investor Relations. Please go ahead.

Thank you, operator. Good afternoon, and welcome to Mitek's conference call. With me on today's call are Mitek's CEO, Max Carnecchia; and Interim CFO, Fuad Ahmad.

Before I turn the call over to Max, I'd like to cover a few quick items. Today, after the close of the market, Mitek issued a press release announcing an update regarding its NASDAQ listing status as well as fiscal 2022 preliminary results and fiscal 2023 guidance. 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 want 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 complete description of these risks. Our statements on this call are made as of today, June 13, 2023, 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.

With that said, I'll now turn the call over to Mitek's CEO, Max Carnecchia.

Gosh, I hope I remember how to do this. I got to knock the rust off of it. Thanks, Todd, and warm greetings to all of you. I'm delighted to finally have the opportunity to address you and share the substantial progress of our company has achieved over the past 10 months. This overdue conversation is a chance for us to bring everyone up to date, celebrate our collective efforts and reaffirm our commitment to open and transparent communication.

But prior to that, I'd like to provide an update on the status of our filings and our listing with NASDAQ. As you know, Mitek has been delayed in filing its 10-K for its fiscal year ended September 30, 2022, and subsequent 10-Qs for the quarters ended December 31, 2022, and March 31, 2023.

The delay in our filing of these periodic reports is the result of a change in auditors and not a result of misconduct. As disclosed in our current report on Form 8-K filed with the SEC on May 27, 2022, Mitek received formal notice of the resignation of our previous independent auditors. And although their resignation did not stem from improprieties or financial disagreements, it prompted us to swiftly engage a new audit firm to facilitate the closure of our 2022 fiscal third quarter and year-end.

We are fortunate to have enlisted the services of BDO, a nationally recognized audit firm. Their expertise has not only strengthened our financial controls, but also fostered a valuable collaborative partnership, enhancing our overall governance. However, bringing on a new auditor in the middle of a fiscal year is definitely not ideal and required BDO to conduct the full year audit -- full year end audit in a matter of months, which is something that is normally done throughout the whole year. As we noted in our press release today, BDO is getting very close to completing the full year 2022 year-end audit, and we expect to file our 10-K in the next few weeks and soon thereafter the outstanding 10-Qs.

Unfortunately, the delay in our filings has resulted in the start of a delisting proceedings with NASDAQ, which we are working diligently to resolve. As detailed in our press release, we intend to request the hearing before the NASDAQ Hearings Panel and to request an extended stay of the suspension of trading of our common stock until the date of the hearing. Hearings are typically scheduled to occur approximately 30 to 45 days after the date of the hearing request and we have developed a detailed plan to present the hearings panel in an effort to regain compliance with the listing rule.

We are fully committed to addressing this matter with the utmost seriousness. We are dedicating all of our available resources towards promptly getting this issue resolved. While the process of onboarding BDO and getting our filings current has taken much longer than anticipated, we want to take this time to assure you all, Mitekans, customers, partners, shareholders and investors that our business remains sound, and we will have all the financial data to support this statement when we file our Form 10-K and subsequent 10-Qs. Once we have the 10-K filed, we will host a formal earnings call to discuss all fiscal year 2022 results in more detail.

In the meantime, I'd like to use this moment to update everybody on the notable progress and accomplishments Mitek has made since our last communication. I am thrilled to inform you that we expect to report record revenues for fiscal 2022 with revenue growth of between 19% and 20% year-over-year and strong non-GAAP operating margins of between 29% and 30% as well as a meaningful cash flow. As a result, our cash and cash equivalents at the end of March 31, 2023, was $114.5 million, up 26% from the $90.6 million at the end of June 2022 when we last reported.

I would like to extend my heartfelt congratulations to each and every member of my technician for your exceptional work. Your unwavering commitment to our important mission and our valued customers worldwide is truly commendable. I am deeply grateful for your dedication and impact you continue to make month after month, year after year.

Since we last spoke, we have delivered exceptional product innovation, both from our new growth products such as MiVIP, MiPass and Check fraud Defender and also sustained performance from our heritage products, Mobile Check Deposit, Mobile Verify and MiSnap.

Starting with the deposits line of business. Mobile Check Deposit continues its growth trajectory with its industry-leading solution used by over 7,500 financial institutions and their millions of customers. The adoption of Mobile Check Deposit has steadily continued to grow as more and more banking consumers become aware of its ease of use and convenience. But as Mobile Check Deposit becomes easier, so does check fraud. According to a March 2023 Javelin report, check-related suspicious activity reports to the Financial Crimes Enforcement Network, FinCEN nearly doubled from 2021 to 2022. And they expect that without robust check fraud detection and mitigation controls in place, financial institutions can expect the increases to continue. As long as checks circulate, criminals will exploit the technology and consumers for easy financial gain.

As you may remember, we launched a new product called Check Fraud Defender to address this issue and provide financial institutions with a new tool to address this massive problem. With Check Fraud Defender, banks of all sizes can better identify and defend against fraudulent activities and dramatically reduce fraud losses associated with check fraud. We have a growing high-profile group of banks using our solution and contributing to our consortium. These clients value our partnership and our ongoing commitment to innovation, the most recent of which is Check Liveness.

Check Liveness provides the capability to determine if a check is authentic and not a picture of a picture of a check. Available to our clients who use Check Fraud Defender, it improves the detection of forgeries and fraudulent activities otherwise missed by traditional fraud management methods. It adds an essential new layer of defense, particularly in times of growing concerns around AI and synthetic checks and enables banks of all sizes to better identify and defend against fraudulent activities and dramatically reduce fraud losses.

We are very proud of our deposits business and its continued growth and significant profitability, and we expect that trend to continue for the foreseeable future. Let's move on to discuss the substantial market opportunity we are addressing in the field of identity and the significant progress we have made in addressing this market.

With the increasing number of online transactions, secure digital access through identity verification has become indispensable. Fraud continues to rise in sophistication. And in 2022, consumers lost nearly $8.8 billion to fraud in the U.S. alone, an increase of 30% over 2021.

Considering the rapidly growing online population and the accelerating sophistication of AI-related fraud, the prevalence and cost of identity fraud are expected to escalate further. Mitek's identity solutions have been developed to address these growing challenges by providing organizations with the insight, technology and solutions needed to determine if the individual accessing their digital account is verified, authenticated or in fact, real.

I am hugely proud of the innovation we are achieving with biometrics. IDLive Face Plus is a further innovation to our face liveness product designed to protect against fraudulent digital imagery. IDLive Face Plus combines award-winning presentation attack detection with the unique approach to injection attack detection to prevent deepfakes and other fraudulent digital content. Instead of focusing on the content of digital fakes, it shuts down the channels used to delivery, such as virtual cameras and desktop browsers and sophisticated hardware attacks.

With our solution, desktop and mobile browsers as well as mobile apps are protected in a way that is completely transparent to the user. What we are most proud of is that this technology enables organizations to apply deepfake countermeasures without adding user friction, which is a primary concern for our clients. We knew voice biometrics would be huge, but the onslaught of generative AI, it's coming quicker than we thought. Detecting spoof attacks is essential to protecting people from fraud, where bad actors attempt to impersonate their victims using an online -- an audio recording or synthetically generated speech.

ID R&D's IDLive Voice is a product that is being used to help protect people from identity fraud by ensuring that when a voice is used for biometric verification, it is that of a live human and not a recording or synthetic voice. Our patented product offerings exemplifies our commitment to solving these hard problems and being first to market with solutions that make access to digital services safer and easier for millions of people globally. Voice is just one aspect of our biometric innovation.

In 2022, we released MiPass, the first multimodal biometric solution which has positioned us as a market leader in continuous authentication and has garnered recognition, including being named Infosec product of the month by Help Net Security in November 2022. MiPass allows customers to enroll their face and their voice biometrics, providing a double layer of defense while meeting the requirement for effortless login and access.

It provides the convenience of using a passive login, a real alternative to replace the dreaded password and the security of 2 biometric checks. Consumers love it, which is why a leading bank in the U.K. has already bought it and will be integrating it into its overall fraud stack imminently.

The increasing usage of digital payments and the challenges associated with keeping personally identifiable information secure has created the need for continuous authentication, and we are at the forefront with our multimodal biometric binding approach. These innovations, amongst others, are delivered to our growing customer base through the newly launched Mitek Verified Identity Platform, MiVIP, built to make digital access faster and more secure than ever, MiVIP gives companies comprehensive and secure control over the entire customer identity journey, saving them time and money.

Mitek's new platform is the culmination of our best technologies, our acquisition of HooYu, the integration of our proprietary biometrics and our ongoing commitment to putting our customers in control of their consumers' experiences. Having a single platform that can easily orchestrate and configures a KYC or know your customer journey, to manage identities, minimize friction on good customers and identify bad actors is imperative for digital commerce.

With HooYu, KYC technology at its core and ID R&D biometrics and Mobile Verify verification integrated, we believe that MiVIP is the most comprehensive integrated identity platform on the market today. The platform's true value is unlocked by its ability to orchestrate across the entire customer consumer journey from registration to authentication and returning login.

At each digital interaction, we provide AI-driven intelligence for the enterprise and improve user experience for the consumer. MiVIP's low-code, no-code capabilities enable us to offer the platform to businesses of all sizes and quickly set them up to manage the KYC processes without needing an army of developers. This results in a significantly larger addressable market with more vertical segments to target more geographies to serve and, of course, more use cases for our existing customers and partners.

Organizations want control over their customers' ongoing authentication needs called PKYC or Perpetual Know Your Customer experiences. MiVIP provides an easy to deploy, highly adaptable and robust identity verification platform that can integrate with a company's fraud and risk workflows in hours. Journeys can be configured to fit varying needs, ensuring customers are verified quickly and with minimum friction.

Nationwide Building Society is our newest British banking customer, taking full advantage of the collective strength of MiVIP and MiPass. They were looking for a holistic identity verification and reverification approach. And after a competitive bid chose the Mitek platform. Our solution integrates various capabilities, combining the necessity of registration with a document the convenience of biometrics for returning effortless login and the low-code capabilities for rapid implementation and ongoing intelligence for the enterprise.

All Mitek technology working in unison. We are excited about how MiVIP and MiPass expand our offering and addressable market. Our Identity business addresses a large market opportunity driven by evolving fraud, stringent government regulations and the rise of digitization initiatives. With our new growth products, MiVIP and MiPass, and our heritage products, Mobile Verify and MiSnap, we are well positioned to capture share in this large and growing market.

At our Customer Summit in London last week, I was struck by the significance of our work. It was incredibly rewarding to see so many top global financial institutions utilizing our integrated identity platform and benefiting from our latest advancements in fraud management. Our platform is not only making fraud management easier and more compliant, but it is also being widely adopted by their valuable consumers. Our growing customer base in the U.S. is further evidence of our success.

Since its launch in 2022, we have added several new customers using MiVIP in North America, as well as a number of customers using and piloting MiPass. It's not just our customers that are validating the positive impact of our solutions.

Since we last spoke, we have been awarded a handful of impressive awards. First, IDLive Doc won the 2023 Big Innovation Award awarded by the Business Intelligence Group. ID R&D was also named a finalist in the Tech of the Future category for our biometric and liveness detection technology that help prevent deepfake and chat bot fraud across identification, authentication and verification. Congratulations to our research and product teams and a heartfelt shout out to the ID R&D teams for their commitment and delivery of this innovative technology.

In conclusion, we're thrilled with the progress we've made over the last 10 months. Our product innovation and customer wins validate our leadership position in the category, which we will continue strengthening as we remain committed to delivering value to our customers. And as a result of our efforts, we currently expect to grow our fiscal 2023 revenue 14% year-over-year at the midpoint of our guidance of $162 million to $165 million, despite the current uncertain macro environment.

In addition, Mitek expects its full year fiscal 2023 non-GAAP operating margin to be in the range of 29.5% to 30.5%.

With that, I'll turn the call over to the operator to open the call for questions for Fuad and I. Operator, please go ahead.

(Operator Instructions) Our first question comes from Michael Grondahl with Northland Securities.

Thanks a lot for holding this call and kind of provide an update to the best you can. My first question is just trying to drill down a little bit more on Mobile Check Deposit and Mobile ID. For '22 and '23, can you kind of break out ID revenues and check revenues for the $143 million? And then kind of the midpoint of the $162 million to $165 million?

Mike, once we get the 10-K on file, we'll be happy to kind of provide that traditional information. But in today's call, we're probably not going to go that deep on it. I would say just maybe to add some color. I think you'll see it very consistent with where we were Q1, Q2 and Q3 of FY '22.

Got it. Sort of similar growth rates expected. Is that fair?

I think it's fair.

Got it. And then on Mobile ID, if there's 1 or 2 things that you want us to kind of take away from this call? It's almost been a year since we've got an update on Mobile ID. What's the 1 or 2 things that we should really understand better or get a feel for your new products and whatnot?

How do I boil that down. Well, I would say we're very well positioned. The market has changed very significantly since the last time we had a public call or any call. And that's a result of the changing macroeconomic situation. I think you know that identity -- digital identity has been a really hot category over the course of the last 4 or 5 years. There was a lot of company formation, a lot of investment and a lot of spending by those companies that we're invested in. That world completely got turned on its head as of February 2022.

And I think it's still -- it's a big, fast-growing significant category that touches every geography and every industry. We're definitely seeing the competitive dynamic change. We're seeing less companies formation. We're seeing companies that were formed struggling to run functional businesses. And I tie that back to what I was saying, I think we're just really well positioned with our platform. This is a major transition for us, having gone from being an API kind of endpoint provider of a single signal to something more comprehensive that can help not just with onboarding journeys but with in-life authentication and reverification rebinding use cases. So I think those would be the handful of things I would want you to walk away from, Mike, big opportunity well positioned for Mitek.

Got it. And then it seems like you've made a lot of progress on Check Fraud Defender. A year ago, it was a couple of big banks, maybe just tell us, could you talk to how many banks you're in today, what the pipeline looks like, what the revenue model looks like? Just kind of an update there with a little bit more data behind it, if you could?

Sure. Well, I think the last time we spoke, we literally had a single organization that was starting the consortium, and then we had some on-prem, maybe 2 on-prem customers. Maybe just talk about the market first, right? Because anybody who is paying attention to the news, whether you follow a fraud or not. I mean if you have broadcast television or if you're watching your streaming or your news feed, check fraud has just exploded.

And there's not a week that goes by if there isn't a new story about some U.S. postal service worker who's been mugged, where their keys have been stolen and lock boxes are being broken into. And all of that is around basically getting a hold of those active live checks that can be washed and then turned into really substantial financial fraud. The dark web is just loaded with these folds that are out there that can be acquired very, very cheaply and on the download.

Anyway, so it's a real problem. It's a growing problem even though checks as a payment instrument obviously continue to decline. And so what we've seen is both within big banks and medium-sized banks, just a lot of interest in trying to figure out a different way, a better way to mitigate this fraud and mitigate the operational costs associated with all the false positives that are signaled out there. So we've had a really material increase in the number of participants and users of Check Fraud Defender.

I'm not going to give you a specific number. It may be a little misleading only because we were coming off such a low base, we've made a lot of progress there. The system itself has been -- has proven in the real world in real life to be bulletproof, to be very stable, very reliable. And we've also seen that the pipeline -- our pipeline now is everything we would have hoped to be at this point. So stay tuned, more to come. This is -- it's a big opportunity for us. And we think there's more to it than just checks and the signal for checks that can help us in identity as well.

Next question comes from Jacob Roberge with William Blair.

This is Jacob Roberge for William Blair. Just wanted to ask a question on MiVIP. It's obviously been a while since the launch of MiVIP and the integration of the HooYu acquisition. So just some color on the adoption trends you're seeing for the platform so far. And obviously, especially given the macro environment would be helpful.

Sure. Jacob, thanks for joining us on a relatively short notice. So the platform has been a really big thing for us. You'll recall we came together with HooYu, it was late March 2022. We were able to get the platform kind of lifted, shifted and rebranded to MiVIP in the United States is really Q4 -- calendar Q4 of 2022. And since then, we've continued to get good traction. We've got the right initial customers here in the U.S., we've got a growing pipeline for Continental Europe, where we've also stood up AWS instances for MiVIP. And we continue to have a really strong business in kind of the home country of the U.K. where HooYu/MiVIP originated.

And going forward, obviously, all of our Mobile Verify customers are good prospects over time to migrate to MiVIP as well as just it opens up all kinds of new markets because of the no code, low code, end-to-end nature of the system, just it opens up kind of smaller organizations, not say smaller, I mean, don't have to exclusively be focused on Tier 1 banks. We can really help out a lot of different organizations that have KYC and AML challenges that don't necessarily have the resources -- the technical resources to roll their own and create their own platforms.

Got it. That was really helpful. And I guess just 1 question on the delisting situation. So obviously, this depends on your auditor BDO. But you said a couple of weeks. Do you expect to get these filings out of the way within the time frame allotted for your hearing? You said in the filing that you could possibly have an extension and stay listed on the NASDAQ until then, do you expect that to go over or just any color on that would be helpful.

We're optimistic that we will be able to get back on file before we exhaust any of the many, many ways to escalate this and appeal this. Fuad, I don't know if you want to add any color to that. But yes, we feel like we've got this in hand. It's obviously taken longer than we want.

Yes. I mean I'll just add. I mean, I think this will be a sequential process. So first and foremost, next weeks, we'll get current with our 10-K. That is the expectation. We're in the final throws of that. In the meantime, the auditors BDO have begun commenced working on just the Q1 and Q2 as well. So that process is taking place simultaneously. And we expect that to finish off in a few weeks after that.

So by then, we will have been current in a few weeks, looking ahead on the 10-K and both of the Qs. And then we'll -- obviously we'll be in Q3, and we'll be focused on Q3 at that point.

The goal for the company is and all the investments that we've made over the last 4 or 5 months in both people, resources, processes and bring on new service providers is to allow us to be back to normal by the time we're issuing like our Q3. And a lot has to get done, but that's the goal and the fact that we're having this conversation with you today is to kind of acknowledge that a lot of work is done and that we're comfortable with those time lines.

Got it. And if I could just sneak one in on the slight, I guess, slight chance it doesn't happen that there is a delisting and you do eventually file the 10-K and 10-Qs. What would a relisting process look like? Would it be a couple of months? Would it be a year? Just any color on that on the slight chance that it happens.

Yes. I don't -- Jacob, I don't think we're in a position to give you color on that. That's -- if it looks like we're heading in that direction, we'd make the plans around it. We've got a lot of advisers -- expert advisers, professionals in this area that can help us, but I think it's premature to start talking about that.

The next question comes from Stephanie Moore with Jefferies.

This is Hans Hoffman on for Stephanie Moore. Just wondering if you could give maybe a further update on the ID verification strategy in terms of any areas of the market you'd like to further penetrate or maybe new markets -- new areas of the market as well. I know you guys have previously kind of discussed iGaming be an important vertical for you. So if you could comment on how that vertical has trended as well.

Sure. Well, the gaming is a big part of our business in Europe, and so certainly something we continue to want to pursue. The bigger picture, I think we zoom out the identity strategy is really all about digital identity, right? We talked about the idea that virtually every geography, every industry, every size of organization needs to be able to interact with students, customers, citizens, health care patients be able to do that in a digital way.

And so really being able to help these organizations not just open accounts or set up new users digitally, but then to be able to perpetually and persistently help with the identity authentication and do that in a very frictionless easy but highly accurate and spoof-proof way, that's our strategy right there.

Got it. That's helpful. And then if you could just update us on maybe your appetite and ability to sort of do M&A.

Yes. Well, I guess, certainly, the market has kind of come to us a little bit, if you remember a year ago, maybe a little bit longer before the Ukraine-Russia situation -- the Ukraine-Russia war, things were out of control, expensive. There's a lot of just multiples in which you had to pay. And I think those things have obviously started to come back to earth. We've got a healthy balance sheet, a really solid cash balance sheet. And obviously, we're continuing to generate cash.

All of that said, Hans, I think our #1, #2 and #3 priority in the short term here is to get current back on file and to be able to record and report our financials in a timely, accurate and consistent manner. And once we've got that under our belts, then we'll lift our heads up and start looking around for the right strategic good deals that could potentially be acquisition targets for us.

Got it. Appreciate the color.

(Operator Instructions) The next question comes from Scott Buck with H.C. Wainwright.

Just a couple of questions for me. First, Max, should we feel comfortable that the only restatement to the financials were the ones that were released last month? Or is there expectation for some additional changes?

I don't have any expectation for additional changes. But Scott, I want to say very, very quickly that until we are done and these things are filed, BDO and our team are doing a very diligent job and until it's over, it's not over, and Fuad, I don't want to put you on the spot, anything you want to add?

No, I think you hit it right. I mean, I think as a company, it's obviously our obligation that should something like that happen that we inform the market and the investors immediately, but our next goal is to finish the 10-K and get that on file.

That's fair, guys. I appreciate that. And then a second one for me, Max, just given the changes in the macro environment since we last spoke, is there -- are there any changes that you guys have made to the way you run the business? For example, some cost-cutting, risks, anything like that, that we should be aware of?

Yes. So coming into the new fiscal year, we definitely made some adjustments. We organized the business a little differently to create some focus on the lines of business. We did, in terms of sales in a couple of places, I guess, to get to use a euphemism, to be a little bit more efficient. I think we also see, regardless of what's happening in the macroeconomic environment, what I touched on, our go-to-market activities in the identity side of the business are changing pretty dramatically, right?

We're no longer just selling to an endpoint and a single signal around document or biometric, we're selling this end-to-end comprehensive platform that's very easy to get implemented and can be used for a lot of different use cases. So that has brought around some things where we've got to rethink or reengineer the way that we want to market, sell, support, service.

The one I would kind of go on the other side is in the deposits business, continue -- back to the Check Fraud Defender and the new opportunity there. We've made investments there. And you heard the numbers. I don't think it's shown up in any kind of increase in our costs dramatically. But we feel that there's a really big opportunity there. We're seeing the results already. We've been able to prove -- the team has been able to prove product market fit. And so we're going to continue to be on that like a dog with the bone.

Great. That's helpful. That's it for me, guys.

This concludes our question-and-answer session. I would like to turn the conference back over to Todd Kehrli for any closing remarks.

Thank you, operator, and thank you, everyone, for joining us today. We look forward to updating you again on our next call. Have a wonderful day.

The conference has now concluded. Thank you for attending today's presentation. You may all now disconnect.