Q4 2021 Mitek Systems Inc Earnings Call
Ladies and gentlemen, thank you for your precision and halting. Please continue to hold this conference will begin in approximately one minute.
[music].
Good day, ladies and gentlemen, and welcome to the Mitek systems fourth quarter and fiscal 2021 financial results Conference call.
Today's conference is being recorded.
At this time, it's my pleasure to turn the conference over to Todd Kelsey MTR group, Sir please begin.
Thank you operator, good afternoon, and welcome to my tax fourth quarter and full year fiscal 2021 earnings conference call.
With me on today's call are Mitek, CEO, Max <unk> and CFO Frank drought.
Before I turn the call over to Max and frankly, I'd like to cover a few quick items. This afternoon Mitek issued a press release announcing its fourth quarter and full year fiscal 2021 financial results that release is available on the company's website at Mitek systems Dotcom.
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.
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 <unk>.
These plans and expectations of future performance forward.
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 November 4th 2021, 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'll 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 periods reported in the release.
With that said I'll now turn the call over to Mitek CEO Max Thanks, Pat Good afternoon, everyone and thank you for joining us today.
Fiscal 2021 was another outstanding year for Mitek as we achieved record revenue earnings and cash flow from operations, our market, leading fraud fighting offerings delivered strong growth during the fiscal year as our customers and partners accelerating their digital transformation and increase their fight against fraud.
Before looking at the numbers I'd like to first congratulate my technician on another stellar year Mitek has never seen better execution or greater momentum and each of you showed commitment and tenacity to deliver the best solutions and services for fighting the never ending increase in fraud in the world of digital Commerce and.
In the fourth quarter and throughout fiscal 2021 we've delivered strong results against the backdrop of economic uncertainty and the lingering impact of the Covid pandemic in doing so you have each demonstrated the resiliency of our business and validated our growth strategy.
Quickly looking at the numbers for fiscal 2020, one we recorded record revenue of $119 $8 million representing growth of 18% year over year. We also generated record non-GAAP net income of $34 $2 million or 76 cents per diluted share up 19.
Percent year over year and record cash flow from operations of $37 $4 million.
We accomplished a lot in our fiscal 2021 beyond just our record financial performance, we provided exceptional customer value to the world's leading banks fin techs and marketplaces as they look to move more and more of their businesses online in a secure and trusted way.
Hi Tech is distinguishing itself as a critical component in the fight against fraud and during the year, we made key investments in people and technology as we look to expand the breadth of our product offerings and the markets we serve.
With our acquisition of I D. R&D, We added award winning AI based voice and face biometrics and liveliness detection technology, providing increased protection against today's most sophisticated fraud threats rapid advances in AI are enabling novel forms of fraud and increase scale and frequency of breaches, which is.
Adding heightened pressure on organizations to protect their customers' data and access.
R&D is multimodal approach to identity authentication directly addresses these threats by combining leading passive facial likeness and voice anti spoofing technologies. So that we can accurately identify and prevent advanced AI based deceptions and ensure each transaction is being completed by a real person and the right person.
One.
Organizations no longer have the luxury to simply verify access at the point of Onboarding <unk>.
They need to continuously authenticate their customers throughout the customer journey.
Our acquisition of I D. R&D Mitek is again, leading the industry with its use of advanced Linkedin layered identity signals to continuously fight fraud from the initial user onboarding with documents devices in biometrics to authentication and re verification and continuous identity fraud detection Mitek is the only enterprise.
As class provider with this breadth of offering in the identity market.
As a result, we continue to see customers choose my tech to provide trust in the digital world and the 32% revenue growth. We saw in our identity business. This year is evidence of our success our customers globally represent hundreds of the world's best known brands in banks and our proven track record of success continues to grow as we expand.
Our reach into this growing market.
During the year. We also further executed on our product roadmap with the launch of check fraud defender, which bolsters our already highly successful deposits business check fraud defender is the first AI powered cloud hosted network for financial institutions to counteract check fraud in 2020 one.
Tempted check fraud totaled a staggering $15 $1 billion in the U S alone check fraud defender helps protect against the growing complexity of check fraud attacks, enabling banks to reduce fraud losses, lower false positives and reduce the substantial operational costs associated with managing check fraud.
Launched only last quarter, 20% of the top 25 U S. Banks have already licensed check fraud defender technology and are experiencing up to 90% operational cost savings following its initial deployment. This.
This savings doesn't include the reduce fraud losses. They are experiencing as a result of using this new powerful signal to fight fraud.
By automating check fraud detection and lowering false positives that require manual review mitek can decrease banks operational costs as well as fraud losses. We are very excited about this new deposits product offering that joins our already highly profitable mobile check deposit business, which continued to grow during the year with its revenues increasing <unk>.
11% year over year.
Looking to fiscal year, 2022, I'm going to speak more broadly today about the key reasons why we believe that mitek is even better positioned for growth than before the pandemic.
Digital engagement is a key driver of economic growth and inclusive participation requires access to high trust identity verification services from a consumer perspective everyday access is enabled by identity based technology front from unlocking of phone to signing up for grocery deliveries our identities are.
The way, we access goods and services from a business perspective verifying the real identity is a critical and April enabler from a regulatory and compliance perspective, and an essential step for a trusted customer experience.
Recent research from markets and markets confirms that the biometric segments will hold the largest market share in the digital identity solutions category, We believe biometric offer greater security and convenience for consumers, who don't have to worry about remembering complicated passwords or compromised KBA questions Enel.
Their concern our deep fakes, which we addressed today with liveliness detection, a computer vision technology that detects the presence of a living user rather than a photo recording masked person or manipulated media such as voice or video.
As the shift to digital transactions picks up so did fraudsters. So businesses have an urgent need to adopt new identity verification approaches in the financial services sector for instance percentage of banking products consumers can open through a digital channel has jumped from 43% to 76% over just the past two.
Two years and about 90% of these can be opened from a mobile device, so getting identity right, especially where there is a high consequence to getting it wrong has never been more important as a key component in the identity authentication and authorization layer, our ability to combine our multimodal biometric analytics Harman.
Nation of digital identities to real world authentic government issued documentation and global view of identity uniquely positions us to resolve identity. When it is most matters.
Our investment in R&D demonstrates our continued commitment to fighting fraud in the identity market and our determination to provide trust in this digital world just last week I E. R&D released I D lives docks to help our customers prove the legitimacy of a document bad actors use digital images of valley.
Or alter driver's licenses passports and other identity identification documents in their attempt to spoof identity verification processes I D life Docs tests for document likeness and uses AI and computer vision to distinguish between an original document and a digital image of a document shown on a mobile device or a computer.
Peter display.
R&D will continue to develop the sophistication of their face likeness solutions, which we believe is essential in any effective.
Identity management solution today.
Asia Liveliness is rapidly emerging as the preferred method to ensure the integrity of face biometrics for digital access and enhance the customer experience face recognition can accurately accurately answer. The question is this the right person. It doesn't answer. The question is this the real person, hence the need for like us detection.
Ivy R&D offers the leading solution in this regard.
In fiscal 2022, we expect to invest further in strategic acquisitions to accelerate our innovation in the fight against fraud in FY 'twenty to our investments in biometrics and rising role they play in managing online fraud, and enabling imperceptible access will increase.
In closing our ability to rapidly respond and execute to the accelerated requirements for digital access yields record financial performance in fiscal 2021, the growing demand for our market leading fraud fighting offerings shows the pivotal use that those our products are playing in providing trust in the digital.
<unk> economy.
We're humbled by our role as a trusted partner in business enabler in this pursuit as we enter fiscal 2022, we believe we are well positioned to take more share as the clear leader in digital identity verification strong growth with our innovative biometric authentication technologies scaled automation solutions and the rise of our fraud network will continue.
<unk> to position us as a market leader.
Our globally trusted brand and team fraud experts remain committed to all of our customers and partners and our collective quest to fight fraud and abuse and enable trusted digital access.
Now I'll turn the call over to Frank to discuss the financial results in more detail following Frank's remarks, well open the call up for questions. Frank. Please go ahead. Thank you Max Congratulations Mitek nation on so many great accomplishments and another great year and thank you everybody for joining us. This afternoon I'd like to start with Q4 revenue and operating results for the fourth quarter of <unk>.
2021, Mitek generated record revenue of $33 3 million, a 9% increase year over year software and hardware revenue was $17 8 million down 1% year over year. The decline in software and hardware revenue was due primarily to lower software revenue from our legacy on Prem I'd products, which are being discontinued as well as timing.
Mobile deposit Reorders services and other revenues, which includes transactional SaaS revenue maintenance and consulting services was $15 5 million for the quarter, an increase of 22% over Q4 of last year. This increase is due to primarily the growth in transactional SaaS revenue, which increased 26% year over year to $10 2 million for Q4 of <unk>.
'twenty, one deposits revenue increased 2% year over year to $21 9 million identity verification revenue increased 24% year over year to $11 3 million, we delivered strong software and hardware gross margins of 99% for the quarter gross margins on services and other revenue was 81% for the quarter and our total gross margin for the quarter was 90%.
Compared to 88% in Q4 of last year.
Total GAAP operating expenses, including the cost of revenue were $28 9 million compared to $24 6 million in Q4 of last year and this increase is due to investments to grow our identity business and the additional costs associated with the R&D acquisition.
Sales and marketing expenses for the quarter were $8 4 million compared to $7 3 billion a year ago R&D expenses were $8 2 million compared to $6 1 million last year, and our G&A expenses were $6 1 million compared to $5 9 million a year ago GAAP net income for the quarter was $2 2 million or <unk> <unk> per diluted share our diluted share count was four.
$6 2 million shares compared to 43 point million shares a year ago now as a reminder, our earnings releases include 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 like excluding acquisition related costs and expenses stock compensation expense and litigation expense and the related.
Tax impact of these items non-GAAP net income for Q4 decreased to $10 1 million or 22 cents per diluted share compared to $11 4 million or <unk> 26 cents per diluted per diluted share a year ago. Our non-GAAP adjustments include $3 million of stock compensation expense $2 9 million of acquisition related costs and expenses $1 3 million of amortization.
Of debt discount and issuance costs $2 2 million in cash tax differences and $330000 in litigation expense for the quarter. This was all offset by income tax effect of pretax adjustments of $1 8 million.
Now looking to the results for full 2021.
Revenue for the total for the year, a record $119 8 million, an increase of 18% year over year software and hardware revenue was $60 1 million up 11% from the prior year due primarily to the growth in mobile deposits offset by lower software revenue from our legacy on Prem I'd products, we maintained very strong.
On the software and hardware gross margins of 96% for the year compared to 94% in 2020.
Services and other revenue was $59 7 million for the fiscal year and.
An increase of 27% over the $47 2 million in 2020. This increase is primarily due to the growth in transactional SaaS revenue, which increased 38% to $40 2 million SaaS transactional volumes increased 40% year over year and services and other gross margins was 80% for the year up from 79% in 2020.
For our full fiscal 2021 deposit revenue increased 11% to $75 5 million driven primarily by increased consumer adoption of mobile deposits.
Denny verification revenue increased 32% to $44 3 million driven by 36% growth in transactional revenue, which was partially offset by a decline in revenue from our legacy on Prem solutions, which are being discontinued.
Total GAAP operating costs and expenses for 2021 were $106 1 million, an increase of 15% compared to total operating expenses of $92 4 million. In 2020. This increase is due to additional investments made throughout the year to fuel our growth in the identity business and additional costs associated with the acquisition of <unk> R&D GAAP net income for 2021 was <unk>.
Point 4 million or <unk> 19 per diluted share compared to GAAP net income of $7 8 million or 18 cents per diluted share in fiscal 2020.
Non-GAAP net income increased 90%, 18% for the year to $34 2 million or <unk> 70, 676 cents per diluted share compared to non-GAAP net income of $28 6 million or <unk> 67 cents per diluted share in 2020.
The fully diluted share count for 2021 was $45 1 million, both for GAAP and non-GAAP earnings per share for the year. Our non-GAAP adjustments include $11 5 million and stock compensation expense $8 5 million of acquisition related costs and expenses $4 4 million in amortization of debt discount and issuance costs $6 million in cash tax differences.
$974000 in litigation expense and $428000 of executive transition costs. This was all offset by income tax effect of pre tax adjustments of $6 million.
As of September 32021, our head count was 469 compared to 399, a year ago now, let's turn to the balance sheet, we generated $12 $3 million in cash flow from operations during the quarter and a record 37.4 million for the full year, bringing our total cash and investments to $227 4 million.
As of September 30th during the quarter, we repurchased approximately 10000 shares for $190000 at an average price of $17 97 per share.
As a reminder, our board authorized a $15 million $15 million share buyback program in June of 2021, which runs through June of 2022.
In closing we are very pleased with our results which include record revenue for both the fourth quarter and our full fiscal year of 2021 as well as a record non-GAAP net income and cash flow for the full fiscal year, we look forward to continuing to deliver amazing fraud prevention identity services and continuing to support our customers globally with that operator that concludes our call.
And we open the line for questions.
Thank you.
At this time, we will open the floor for questions.
Like to ask a question you may do so by pressing star one on your telephone.
Thank you Pat.
Please make sure that your mute function is turned off to allow your signal to reach our equipment.
Again that is star one.
<unk>.
Our first question comes from Ivan <unk> with William Blair <unk> Company.
In fact team congratulations that was a solid quarter.
Nicely done.
I guess, let me start off on the Czech defend a product you're launching four months ago, you sort of commented.
Many of the top 25 have adopted and that's been steady for a couple of quarters I guess I'm just wondering sort of how is that sales process going is that evangelical sale, yes.
Or is it something that customers are just sort of understand is kind of a necessity and need to have like how much of that is a push versus pull sale, maybe I'll start there.
Yeah. So <unk>. Thanks for the thanks for the comments and the question. So just as a reminder.
Check fraud defender technology has existed we had kind of the bones are the components of this.
For the last two years and so we've had some customers very large banks implemented on premise with a lot of help from our services organization. So.
What we announced back in June I guess, maybe it was may was the idea that we were going to now pop this up into the cloud do a lot of technical work to make it secure and scalable and getting it up on AWS and then provided so that there was cross tenant capability and being able to look at those checks across a spectrum of Institute.
<unk> and we were asking those institutions to basically joined that network quasi consortium and so the progress that we've made some we talk about the revenues or we've talked about what we've learned in the kind of impact from a from an ROI in our operational efficiency perspective, it's from what we've seen on premise and we've got a.
Hub group of those folks who have now joined the network the consortium and we're still working to build that product.
That was announced back in back in June and we'll have that online here in the coming months. So back to your question about kind of what the sale is like.
There's a good deal of poll from the folks that have already seen the kind of benefits and value they get with an on prem solution, where they are only seeing the checks.
That come through their doors.
With the idea that they would have a much larger ecosystem to be able to do this across some of the larger top 2025 banks.
It's a little more evangelical if you will with the smaller midsized banks, where we've never really kind of expose them to it.
But I would tell you that those pipelines are very robust there banks the big banks. So they manage to go at a pretty glacial pace because they've got a lot of lawyers and a lot of compliance folks but yeah.
Over time this is going to with every passing week and month I think it only validates what we think this should be able to turn into in the coming years, frankly anything you'd add to that yeah. The one thing I would add to that I've been to talk to you by the way grid for the outreach as Max indicated.
The interest is strong.
You saw you heard from Max's release check fraud in the U S alone is a staggering number so I think there's a high degree of interest in how we're doing this thing and also we've got some great history. So the on Prem solution has functioned incredibly well and so to <unk> point on the pull for those folks to understand how it works it's pretty good Paul.
Yeah, Yeah, I mean, I think obviously the cloud solution, we can start to see the cross organizational piece ultimately ultimately and I think it's happening soon and make it becomes a no brainer.
Let me turn to the I'd verification side quickly here and I know youre not giving guidance.
But two questions I guess there are two parts of this question. One I know you said, 24% growth, but that's obviously something on Prem business could you give us some sense of what normalized growth was like.
That business, if I did like for like and then what is what should we think of the growth rate of this business going forward sort of as we think about demand and usage heading into fiscal 'twenty. Two how are we thinking this is an acceleration type business. How should we think about that without sort of giving a specific time frame. That's sort of what are you seeing the pipe on demand environment to offset that so just kind of a quick number.
Question, that's a more something more strategic about sort of how that pipeline drives into growth for that business. Obviously, the next 12 to 18 months.
Yeah, Great question I'm going to this is Frank I'm going to handle the first one then I'll pass the baton over to to Max for the second question.
Look I think it's a we play in a market. If you look at the overall market is growing at a really good clip the imperative to get it right continues to grow as you know we don't provide numbers in guidance, but we feel strongly that you know there's a you know.
As we've indicated in the past the kind of growth rates that we expect to see out of identity. We continue we think we continue to reach those growth rates, so without providing numbers in guidance, we're very bullish on what's happening in IDB, especially when you think of the extensibility of these new products that we're layering in.
The multimodal biometrics, the the ability for us to expand deeper in that marketplace, I think bodes really well for us so not getting into the numbers that we feel that we feel pretty good pretty good about where that business is doing it's safe to say that if it was 24% with the legacy net of legacy it's only superior to that I think when we kind of lift our heads up and then answer your question on the pipeline I got that one figure it out.
That's right yeah.
I would say.
Clearly the other folks out there bovine listening I know you had it but you know.
Yeah, it's a good one.
If we lift our heads up and kind of think about the pipeline. There is some pretty good I think in the last 12 months have been some pretty good analysts reports.
That can help the group juniper came out with with some information in the markets that we serve it's estimated in 2021.
Spend for ITV this isn't even identity authentication just proofing for Onboarding journey for banks in the United States or call. It the Americas and Western Europe is something like an $800 million spend category and that when they run that out to 2025, it turns into like a $1 2 billion dollar spend in.
So they are predicting a CAGR that's right around 15% for that that doesn't include any of the biometric, which as we said in the prepared remarks is probably an even larger opportunity.
So.
I don't want to say kind of market is 15%, but if it's someplace at 15%, 20%. We think that we should be able to grow beyond that take share again in the segments that we're focused in the geographies and the industries we're focused in.
One quick thing I would point out as well.
With IV R&D now those are components that ended up.
On Prem and and we license those the idea R&D team license those on a subscription basis that revenue is identity revenue, but it's going to show up in the software line of our income statement.
And some of the things that you'll see us announce in the coming months around identity authentication will be less transactional driven from a revenue model there'll be in the cloud, but there'll be more traditional subscription. So I think youll start to see the mix of of how that identity revenue kind of comes together to build up that growth.
Those higher rates it.
It came from check fraud defender and any sense, what an average top 25 banks should be paying for the product in a in let's say a year.
Yeah, So just as a reminder.
The historical check fraud defender has been this on premise set of components that we help assemble and do some services around the new given consortium network in the cloud.
It's still a work in progress we have a couple of charter customers that are working through that with us the revenues in queue for were de Minimis relative to the cloud based check for a defender.
Your question around how we would license and how we price it really comes back to kind of incredible value that these institutions are getting from it and so we've got those insights from beyond Prem instances that are out there and that's both very high dollars in check fraud prevention and a like.
Their records and using both the biometric but also been.
Hi assurance government issued identity document that's something that you have combined with the face that something that you that you are.
That's a that's a rising use case I don't know if I would call that a new one I think we've talked about in the last couple of quarters, but it's definitely something that's gaining.
It's gaining momentum, yes, I might think of it. This way is Max indicated these identity attributes have half lives and if you got to have some way to re verify and rebind that keeps the customers happy that they can still trust that combination of device.
<unk> and an identity so.
It's good stuff.
Got it thank you guys.
Yep.
Our next question comes from.
Missouri Jeffrey.
Hi, This is Mary a quarter laci filling in for homes.
My first question Mary around.
We're here.
Good.
My first question is just around new product introduction.
And maybe you could just give us a sense for for what that new product introduction to look like an ivy and fraud over the coming months.
I believe that the previous questions just about new new use cases, and and just just I'm wondering is growth more about introducing new use cases or about actually introducing new products and then once a new products are introduced how long does it normally take for that product to ramp or hockey sticker.
I guess contribute to growth in a meaningful way.
Yeah. So.
Hi to unpack that question. So so first just a recap so we introduced we announced and introduced check for a defender.
Back in the June timeline.
This quarter I guess technically it was October but part of this call.
I'd like dark was introduced at money 2022 weeks ago in Las Vegas, and then in the coming months, you'll hear from my Tech with the identity authentication solution and so your question around.
That's the pattern that's that's what we're doing.
Use cases versus products, sometimes it's uncovering new use cases with the products and solutions that we have.
Then there's also we see these adjacent use cases I'd just talked about the binding the re binding of devices.
The ability to do that today with face and a government issued identity document is compelling the ability to do it in the future with just a face and a voice and no government edition identity document or in addition to a step up with a government issued identity document.
The R&D, it's just such a great match.
That counts and then the financial question is one.
We get hung up on we get hung up on valuations and we get hung up on structure and.
I would say of the dozens of things that we tried to action and the last 100 days.
Typically the place where we've.
Once you kind of sort through those other screens that I just outlined for you. The place we get hung up as folks have some very unrealistic expectations around their growth prospects.
And then what that translates into in value, but we're not we're not slowing down we're not giving up we see this as a great opportunity there is new companies coming over the transom all the time and we'll just continue to persist on it.
Yeah.
Great. Thank you so much.
Alright. Thank you again to ask a question. Please press star one.
Our next question comes from Allen Klee with Maxim Group.
Yeah.
Thanks.
Thank you.
Alright, there are no further questions in the queue at this time, so I'd like to turn the call back over to Mr. Todd Curly for closing remarks.
Thank you operator, and thank you everyone for joining us today.
Or to updating again next quarter.
Our call has concluded have a wonderful day.
Thank you ladies and gentlemen, this concludes today's teleconference and we thank you for your participation you may now disconnect.
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