Q4 2020 Mitek Systems Inc Earnings Call

Opinion faster more accurate verification and a smooth additive layer of defense to fraud.

Most recently, we further advance the speed and accuracy of our identity verification workflow with the introduction of a single point near field communication solution for Authenticating NFG NFC chip enabled I'd documents for each documents via a mobile device are.

Our proprietary NFC enabled solution is centered around simplicity for users and speed and accuracy for the enterprises, who use it NFC increases the speed and accuracy of verification by authenticating users through biographical and biometric information stored in the NFC chip available in any documents such as an E passport.

Our intuitive capture technique swiftly locates the NFC chip and securely extracts the data for rapid authentication.

All consumers have to do a scan their NFC enabled I'd document and take a selfie to check likeness and face comparison Mitek technology takes care of the rest.

This technology dramatically reduces abandonment rates and improved conversion rates for customers, while supporting regulatory compliance requirements. The solution is a critical next step in reducing the risk of synthetic identity fraud, which is the fastest growing type of financial fraud today, According to Mckinsey and company.

As we continue to innovate we remain committed to exploring all alternatives to achieve product superiority, whether through partnership acquisition or increased R&D innovation.

Looking ahead to fiscal 2021, we are re committing to our focus on execution and our dedication to enabling trust and convenience in this digital economy.

I will I believe we have an incredible incredible opportunities in front of us and we will navigate the pandemic in the most effective way possible to deliver against our customers' priorities and long term growth.

I'm also pleased to announce that we have added a new member to our board of directors Kevin Stevenson.

Kim is a technology innovator, who has transformed processes at some of the industry's leading companies, including Lenovo Intel and IBM. She is currently a senior vice President and general manager at net App, a publicly traded cloud data services provider.

Kim's experience in cloud software is a tremendous addition in the helping guide mitek.

We're excited to welcome her to our board of directors.

Before I conclude I want to touch on the USAA situation as most of you know the two USAA verdicts against Wells Fargo for patent infringement related to remote deposit systems are subject post trial motion that could overturn the rulings or result in new trials.

Either way the two cases will be subject to appeal in the US court of appeals for the federal circuit.

Also the US patent office is currently reviewing the validity of several of the patents at issue in the Wells Fargo cases, a final resolution of these issues may still be over a year away.

Additionally, mitek continues to vigorously prosecute its case for declaratory relief that our products do not infringe the patents at issue in the Wells Fargo lawsuit that case remains pending in the eastern district of Texas.

We also filed six petitions with the US patent office challenging the validity of the four patents at issue in the first Wells Fargo lawsuit and the two at issue in the second Wells Fargo lawsuit.

We expect preliminary decisions on whether those challenges will be instituted in the coming months.

Lastly, USAA continued its unprecedented attack on its fellow financial institutions by filing a patent infringement lawsuit against PNC bank alleging infringement on two patent relate related to remote banking and mobile deposit.

The patents relate to the overall process flow of remote deposit and mobile deposit and do not focus on specific techniques utilized during the process.

PMT through a third party partner.

Partner utilizes certain mitek software solutions as part of its mobile deposit service. The complaint does not mention any mitek products for specific Mitek technologies and Mitek is not a party to the lawsuit.

The Miteks knowledge USAA is the only user of its technology and USA does not make market sell license or offer any software technology than the banking industry, which is now attacking.

All while USAA continues to utilize miteks proprietary check processing software in its own operations and continues to rely on digital payments platforms and a vast network of ATM is created and maintained by the very banks USAA now seeks to profit from through their litigation efforts.

Mitek on the other hand directly and through our partners provides our proprietary an award winning mobile deposit and check processing solutions to more to more than 7000, U.S. financial institutions now more than ever as we deal with the uncertainty of the COVID-19 pandemic people rely on my text technology for the safety and convene.

Since it provides.

While USAA attempts to profit from an ecosystem that it neither participates in nor contributes to mitek has continued to innovate on behalf of our customers and consumers during.

During the past year Mitek filed six new patent applications three of these claim innovations related to the I'd document authentication and three claim innovation in the capture and processing of mobile images. We were awarded 10, new patents during the last year. Mitek. Currently has 20 active patent applications and hold 67 issued patents.

36 of the patents are preliminary related to mobile check deposits 17 are preliminarily, primarily related to our I'd verification and 14 related to specific techniques for digital extraction of data, which applies to all of our product lines.

While the record is clear that mitek invented mobile deposit our success as a result, not just of our own innovations, but of the trust and partnership we have built with financial institutions over the past 13 years. Since we first introduced the world to mobile check deposit we look forward to our continued industry partnerships and to improving the convenience and six.

Surety of the digital World.

In closing we are pleased with our results, including record financial performance for both the full year and the fourth quarter crossing the $100 million revenue threshold is a significant accomplishment and an important milestone I'm proud of the mitek workforce rallied without question to deliver the technology products and services that our customers need and.

Value during these unusual times.

I'll now turn the call over to Jeff to discuss the financial results in more detail and following jeffs remarks, we'll open the call up to questions.

Jeff. Please go ahead.

Thanks, Maxim. Thank you everyone for joining us this afternoon, let's start with the Q4 revenue and operating results.

For the fourth quarter of fiscal 2020, Mitek generated record revenue of $30.6 million, a 22% increase year over year.

Software and hardware revenue was $18 million, an increase of 25% year over year.

Services and other revenue, which includes transactional SaaS revenue maintenance and consulting services was $12.7 million for the quarter, an increase of 19% over Q4 last year.

This increase is due to growth in transactional SaaS revenue, which increased 28% year over year to 8.1 million for the quarter.

For Q4, 2020 deposits revenue increased 25% to $21.5 million and identity verification revenue increased 17% to $9.1 million.

We delivered strong software and hardware gross margins of 94% for the quarter gross margin on services and other revenue was 80% for the quarter equal to Q4 last year.

Total gross margin for the quarter was 88% up from 87% in Q4 last year.

Total GAAP operating expenses, including cost of revenue were $24.6 million compared to $20.5 million in Q4 last year.

The increase is due to our investments in operations to grow our business and increased litigation expenses, partially offset by lower acquisition related cost and expenses.

In our year end financial statements, we have reclassified our product management expenses from sales and marketing expense to research and development expenses.

This reclassification has made for all periods presented to conform to the current year presentation for comparison purposes.

Sales and marketing expenses for the quarter were $7.3 million compared to $5.9 million a year ago.

R&D expenses were $6.1 million compared to $5.1 million last year, and our DNA expenses were $5.9 million compared to $4.1 million a year ago.

GAAP net income for the quarter was $5 million or 12 cents per share compared to net income of $3.3 million or eight cents per share a year ago.

Our diluted share count for the quarter was 43.1 million shares compared to 41.6 million shares 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 the company's operating results by excluding acquisition related cost and expenses. So a couple of stones litigation expenses and the related tax impacts of these items.

Non-GAAP net income for Q4 increased 31% to $11.4 million or 26 cents per diluted share compared to $8.7 million or 21 cents per diluted share a year ago.

Our non-GAAP adjustments include $2.4 million of stock comp expense $1.7 million of acquisition related cost and expenses and $1.2 million of litigation expenses for the quarter.

Now looking at results for the fiscal 2020 full year.

Revenue totaled $101.3 million, an increase of 20% year over year.

Yeah.

This increases due to the additional investments made throughout the year to fuel our growth and the identity business and additional litigation expenses and 2020.

GAAP net income for 2020, with 7.8 million or 18 cents per diluted share compared to a GAAP net loss of 724000, a loss of two cents per share for fiscal 2019.

Non cap net income increased 66% for the year 228.6 million or 67 cents per diluted share compared to non-GAAP net income of 17.3 million or 42 cents per diluted share for fiscal 2019.

Fully diluted share count for 2020 was 42.5 million for both gap and non-GAAP EPS.

The driver of that like that so so starting from mobile check deposit for mobile I'd verification.

You know that they need to go in and show something for all sorts of things.

Loans more just things like that I'd love to understand sort of if you think about.

Providing some color we'd love to get some color on how much of that growth. You think has been driven by cobot and then more importantly, the durability of the sustainability of the growth in that business because it is a nascent market. So it feels like that could accelerate at least sustained to let us know how you think about that for the next three to five years in terms of all the drivers behind it.

Yeah, It's a great question and thanks for the kind words build on.

You know 56 companies get formed in venture private equity and then Theres, a shakeout right Theres a fight for relevance in a fight for domination.

Three or four come out the other side is as real dominant players and that's our intention and I think thats well underway I think last year. If you look over the last 18 months, there's been there's been some consolidation.

And I think you'll continue to see that the folks who can invest and can't really deliver effective solutions are going to fall by the wayside and folks like mitek that are that are improving go from strength to strength.

Great that was very helpful. Thanks, guys. Congrats again.

You got it thanks Bill on sales.

Thank you and as a reminder to our audience you may ask your question by pressing star one.

And next we will go to Mike Grondahl with Northland Securities. Please go ahead.

Hey, Thanks, guys and congratulations on a 100 million that's a that's pretty impressive.

Mobile deposit could you talk a little bit about what you're seeing there you know bank branches. Some are still closed [noise] people don't like to drive up tellers as much. It really seems like the last six months has been I deal for mobile deposit.

And are you seeing that across your network it it.

Isn't that growth last quarter, we saw repeat of that this quarter, it's still strong usage and so despite the pressure on you know the total check volume declining we're seeing really nice growth in mobile deposit usage. So consumer adoption is definitely you know increase during this <unk>.

All the time and you know when you try to translate it to our revenue you think about our revenue and how it works and we sell the large blocks of front and they wanted him down we may have seen a little bit of that in the corner, it's kind of hard for me to drill into it and actually assign you know this increase here is definitely do the covid because the.

Processors, they buy into smart box, but you know they used to just figures are really good which bodes well for you know mobile deposit revenue in the future for us as the Reorders come back in.

Our one now.

And gentlemen, it appears that we have no additional questions at this time.

Okay. Thank you operator, and thank you everyone for joining US today, we look forward to updating you again next quarter.

The call has concluded have a wonderful day.