Q1 2024 Mitek Systems Inc Earnings Call

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Operator: Hello and welcome to Mitek's Fiscal 2024 First Quarter Earnings Conference Call. All participants will be in listen-only mode.

Speaker Change: Hello, and welcome to my tax fiscal 'twenty 'twenty, four first quarter earnings conference call.

Speaker Change: All participants will be in listen only mode.

Operator: Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on your telephone keypad, and to withdraw from the question queue, please press star, then 2. As a reminder, this conference is being recorded. I would now like to hand the call to Todd Kehrli of MKR Investor Relations. Todd, please go ahead.

Speaker Change: If you need assistance. Please signal a conference specialist by pressing the star key followed by zero.

Speaker Change: After todays presentation, there will be an opportunity to ask questions.

Speaker Change: I ask a question you May press Star then one on your telephone keypad to withdraw from the question queue. Please press Star then jail.

Speaker Change: As a reminder, this conference is being recorded.

Speaker Change: I would now like to hand, the call to Todd currently up and our Investor Relations call.

Todd: Please go ahead.

Todd Kehrli: Thank you, operator. Good afternoon, and welcome to Mitek's fiscal 2024 first quarter earnings conference call. With me on today's call are Mitek's CEO Max Carnecchia and CFO Dave Lyle. Before I turn the call over to Max and Dave, I'd like to cover a few quick items. Today, Mitek issued a press release announcing its financial results for its fiscal 2024 first quarter, as well as preliminary results for its fiscal second quarter ending March 31st, 2024. That release is available on the company's website at MitekCCH.com.

Todd: Thank you operator, good afternoon and welcome to biotech.

Todd: 24 first quarter earnings conference call with me on today's call are my texts CEO Max <unk>.

Speaker Change: Yes, I would say it was before.

Todd: I turn the call over to Max and Dave I'd like to cover a few quick items today Mitek issued a press release announcing its financial results for its fiscal 2020 for first quarter as well as preliminary results for its fiscal second quarter ended March 31st before.

Todd: That release is available on the company's website at Mitek.

Todd: Oh.

Todd Kehrli: 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 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 for legal statements. These sorts of new statements may include comments about the company's plans and expectations of future performers.

Speaker Change: Big broadcast live over the Internet for all interested parties webcast will be archived on the Investor Relations page.

Speaker Change: Right.

Max: To remind everyone that on today's call management will discuss certain factors lovely.

Scott: This is Scott.

Scott: 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.

Todd Kehrli: 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, April 15, 2024, 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.

Scott: Forward looking statements are subject to a number of rest of uncertainties, which could cause actual results to differ sure.

Scott: We encourage all of our listeners to review, our SEC filings, including our most.

Scott: Through June.

For a complete description of these risks our statements on this call are made as of today April 15th 2024, 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.

Scott: Or otherwise.

Todd Kehrli: Additionally, throughout this call, we'll be discussing certain non-GAAP financial measures. Today's earnings release of the Related Current Report on Form 8-K describes the differences between our non-GAAP and GAAP reporting and present the reconciliation between the two for the periods reported in the Related Current Report. With that said, I'll now turn the call over to Mitek's CEO, Max Carnecchia. Thanks, Todd.

Scott: 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 periods reported.

Scott: Thanks.

Scott: With that said I'll now turn the call over to biotech CEO Baxter Nokia, Thanks, Todd and welcome everyone to our fiscal year 'twenty for Q1 earnings conference call as always we appreciate that you joined US today and thank you for your continued support and trust in my Tech today I'll make some brief.

Max Carnecchia: Welcome, everyone, to our fiscal year 24.

Max Carnecchia: Q1

Max Carnecchia: As always, we appreciate that you joined us today and thank you for your continued support and trust in Mitek. Today, I'll make some brief comments about Mitek's results and update you on business priorities. I'll then turn the call over to Dave Lyle, our CFO, to review the first quarter financial results and provide our outlook.

Baxter Nokia: Comments about my tax results and update you on the business priorities I'll, then turn the call over to Dave Lyle.

David B. Lyle: Now to review the first quarter financial results and provide our outlook.

Max Carnecchia: As previously discussed, in the first quarter of last year, we had a large, one-time, multi-year mobile deposit reorder that pulled forward three years of revenue into that quarter, creating a very difficult year-over-year comparison. It's important to note that this quarter's results are not representative of a business trend. On the contrary, with our fiscal 2024 guidance, we expect our deposits product revenue to grow 10-12% year-over-year on a normalized basis and our identity product revenue to grow 10-12% year-over-year on an organic basis. We anticipate that much of this growth will occur in the second half of the fiscal year, with growth continuing in fiscal 2025.

As previously discussed in the first quarter of last year, we had a large one year onetime multiyear mobile deposit reorder that pulled forward three years of revenue interact quarter, creating a very difficult year over year comparison.

David B. Lyle: Important to note that this quarter's results are not representative of the business trend in fact to the contrary.

David B. Lyle: With our fiscal 2024 guidance, we expect our deposits product revenue to grow 10% to 12% year over year on a normalized basis and our identity product revenue to grow 10% to 12% year over year on an organic basis.

David B. Lyle: We anticipate that much of this growth will occur in the second half of the fiscal year with the growth continuing in fiscal 2025.

Max Carnecchia: Our conviction in Mitek's significant market opportunity continues to grow as we leverage our collective AI-powered data solutions to answer the accelerating fraud management needs in markets and geographies we serve. Evidence of this can be seen in three factors. Number one, the accelerated need for identity verification as fraud and cybercrimes grow in sophistication and continue to plague banks and enterprises of all sizes. Number two, the rapidly growing misuse of deepfakes and voice cloning poses a significant threat to personal and financial security. As a result, our award-winning biometric authentication technology is seeing rapidly increasing use.

David B. Lyle: Our conviction in Mitek significant market opportunity continues to grow as we leverage our collective AI powered data solutions to answer and accelerating fraud management needs in markets and geographies we serve.

David B. Lyle: Evidence of this can be seen in three factors number one the accelerating need for identity verification as fraud, and cyber crimes grow in sophistication and continue to place banks and enterprises of all sizes.

David B. Lyle: Number two the rapidly growing misuse of deep face and voice cloning poses a significant threat personal and financial security.

As a result, our award winning biometric authentication technology is seen rapidly increasing demand.

Max Carnecchia: And number three, the momentum we are seeing with our check fraud defender product offering is exceeding our expectations and highlights the rise in fraud across the board as a critical problem to solve. These factors reinforce our purpose and strengthen our market opportunity. As a reminder, our purpose is to empower regulated businesses to say yes to more good customers, more deposits, and more transactions with increased intelligence and customer savings. We focus on regulated businesses because the consequences are highest for those businesses, and our core competency best suits those needs.

David B. Lyle: And number three the momentum we're seeing with checkpoint defender product offering is exceeding our expectations and highlights the rise in fraud across the board as a critical problem to solve these factors reinforce our purpose and strengthen our market opportunity.

David B. Lyle: As a reminder, our purpose is to empower our regulated businesses to say, yes to more good customers more deposits and more transactions with increased intelligence and customer safety.

David B. Lyle: We focus on regulated businesses, because the consequences are highest to those businesses and our core competency best suit those needs.

Max Carnecchia: Our mission informs our business decisions, and over the past decade, we've steadfastly developed solutions to fulfill this objective. With that said, let me briefly take you through our product evolution so you can better understand why we win.

David B. Lyle: Our mission informs our business decisions and over the past decade, we steadfastly steadfastly developed solutions.

David B. Lyle: To fulfill this objective.

With that said, let me briefly take you through our product evolution. So you can better understand why we win.

Max Carnecchia: First, we leveraged computer vision to develop the advanced image processing capabilities that underpin all our solutions today. Let's call that Mitek 1.0, which began in 2008 and remains the undisputed leader in mobile capture and deposit technology with over 90 patents and 99 of the top 100 banks in the U.S. using our solution. In Mitek 2.0, which we began about seven to eight years ago, we applied machine learning and AI to automate identity verification, mainly by providing document verification.

David B. Lyle: First we leveraged computer vision to develop the advanced image processing capabilities that underpin all of our solutions today, let's call that Mitek, one point out which began in 2008 and remains the undisputed leader in mobile capture and deposit technology with over 90 patents and 99 of the <unk>.

David B. Lyle: Top 100 banks in the U S using our solution.

David B. Lyle: In Mitek to point out we began about seven to eight years ago, We applied machine learning and AI to automate identity verification, mainly by providing document verification anticipating the need for more advanced identity attributes. We then integrated the unparalleled technology and biometrics from IV R&D.

Max Carnecchia: Anticipating the need for more advanced identity attributes, we then integrated the unparalleled technology and biometrics from IDR&D acquisition in 2021 to prove blindness and support identity authentication. Then we added our low-code orchestration platform from Huyu acquisition in 2022, yielding a solution today ready to tackle omni-channel identity fraud across the organization. Today, harnessing the latest advancements in Gen AI coupled with the expansive capabilities of our orchestration platform, Mitek 3.0 is poised to be the leading authority in identity verification, authentication, and fraud management.

David B. Lyle: Acquisition in 2021 to prove why this and support identity authentication.

David B. Lyle: We added our low code orchestration platform from Julio <unk>.

Acquisition in 2022, using a solution today ready to tackle omnichannel identity fraud across the organization.

David B. Lyle: Today harnessing the latest advancements in jet AI, coupled with the expansion of capability of our orchestration platform Mitek three point out is poised to be the leading authority in identity verification authentication and fraud management.

Max Carnecchia: By demonstrating our industry leadership, we are winning new channels within banks and helping drive new benefits and efficiency gains for our banking customers, most recently by reducing check fraud. Banks are getting crushed by check fraud.

David B. Lyle: By demonstrating our industry leadership, we are winning new channels within the bank and helping drive new benefits and efficiency gains for our banking customers. Most recently by reducing check drop.

David B. Lyle: Banks are getting crushed by check fraud, which has reached an all time high and rivals credit card fraud in the United States in 2023 financial institutions reported unprecedented financial losses due to soaring check fraud, one institution reported $135 million in losses, while total losses.

Max Carnecchia: All Time High and Rivals Credit Card Fraud in the United States. In 2023, financial institutions reported unprecedented financial losses due to soaring check fraud. One institution reported $135 million in losses, while total losses in the Americas were over $20 billion, according to NASDAQ's Global Financial Crime Report. We launched CheckFraud Defender two years ago to help banks address this growing problem. Our solution offers banks a secure, cloud-hosted consortium that strengthens their existing fraud prevention and helps them significantly reduce financial losses. One of our CFE customers reported saving over $16 million in less than six months, derived from both reductions in fraud check losses and reductions in operational expenses of dealing with this exploding problem.

David B. Lyle: In the Americas, we're over $20 billion. According to Nasdaq's Global financial crime report.

David B. Lyle: We launched checkpoint defender two years ago to help banks address this growing problem. Our solution offers banks to secure cloud hosted consortium that strengthens their existing fraud prevention and helps them significantly reduce financial losses.

David B. Lyle: One of our CMT customers reported saving over $16 million in less than six months derived from both reductions in fraud checks losses and reductions in operational expenses of dealing with this exploding problem. This significant cost savings benefit is driving substantial pipeline growth for this new product.

Max Carnecchia: This significant cost savings benefit is driving substantial pipeline growth for this new product offer. At the end of fiscal 2023, we had a handful of CFD customers, and we exited the March ending quarter with over 20. By the end of fiscal 2024, which ends in September, we're targeting to have over 50 CFE customers contracted to participate in the consortium.

David B. Lyle: Right.

David B. Lyle: At the end of fiscal 2023, we had a handful of cfd customers and we exited the march ending quarter with over 20.

By the end of fiscal 2024, which ends in September we're targeting to have over 50 cfd customers contracted to participate in the consortium.

Max Carnecchia: Even with this rapid customer adoption, we're just scratching the surface as we target our nearly 8,000 Mitek Banking customers. Also, starting to contribute to this pipeline are our channel partners. The channel has been a trusted blueprint for selling mobile deposits, and we're thrilled with the initial momentum we're seeing with the channel and check fraud defenders. As I noted on our last call, CFD represents a noteworthy growth opportunity for Mitek. We estimate CFD has the potential to contribute $200 billion in annual revenue within the next five to seven years. CFD is also leading the way into adjacent opportunities for Mitek to help banks with new AI-driven fraud and identification.

David B. Lyle: Even with this rapid customer adoption, we're just scratching the surface as we target our nearly 8000 mitek banking customers.

David B. Lyle: Starting to contribute to this pipeline are our channel partners. The channel has been a trusted blueprint for selling mobile deposit and we're thrilled with the initial momentum we're seeing with the channel and check fraud defender.

David B. Lyle: As I noted on our last call CFT represents a noteworthy growth opportunity for Mitek, we estimate CFT has the potential to contribute $200 billion in annual revenue within the next five to seven years.

David B. Lyle: He is also leading the way into adjacent opportunities for mitek to help banks with new AI, driven fraud and identity management.

Max Carnecchia: by leveraging our unique access to rare and privileged customer data and transactional intelligence.

David B. Lyle: By leveraging our unique access to rare and privilege customer data and transactional intelligence, we can deliver additional differentiated value to our customers and drive increased shareholder value.

Max Carnecchia: We can deliver additional differentiated value to our customers and drive increased shareholder value. Regarding the identity line of business, we continue to execute our strategic priorities.

David B. Lyle: Regarding the identity of line of business, we continue to execute our strategic priorities.

Max Carnecchia: While it is early and we have more to do, we are starting to see improved growth and increased market share for our identity orchestration platform, which we believe will drive higher returns over time. Market tailwinds continue to fuel the identity opportunity In 2023, fraud scams and bank fraud schemes totaled $485 billion in losses globally, according to the Global Financial Crime Report from NASDAQ. Also, in 2023, consumers reported losses exceeding $10 billion to fraud, a 14% increase from the previous year.

David B. Lyle: While it is early and we have more to do we are starting to see improved growth and increased market share for identity orchestration platform, which we believe will drive higher returns over time.

David B. Lyle: Market tailwind to continue to fuel the identity opportunity in 2023 fraud scams and bank fraud schemes totaled $485 billion in losses globally. According to the global financial crime report from NASDAQ also in 2023 consumers reported losses exceeding.

David B. Lyle: $10 billion to fraud, a 14% increase from the previous year.

Max Carnecchia: Digital identity verification is no longer a back office concern but a front line in the fight against fraud. There has never been a greater need for banks and technology providers to innovate together. NatWest is a great example of one such partnership and why our customers select Mitek's Verified Identity Platform, MyVIP, to take on these challenges. Like all major banks, NatWest faces rising threats from fraud rings and impersonation but also needs to instill consumer confidence in their fraud defenses. Leveraging MyVIP, NatWest can configure different identity verification services to suit differing customer and business needs, as well as adjust for changing risk environments.

David B. Lyle: Digital identity verification is no longer a back office concern, but a frontline in the fight against fraud. There has never been a greater need for banks and technology providers to innovate together.

David B. Lyle: Natwest is a great example of one such partnership and why our customers select Mitek verified identity platform My VIP to take these challenges take on these challenges.

David B. Lyle: Like all major banks Natwest faces rising threat from fraud rings, and impersonation, but also the need to instill customer consumer confidence in their fraud defenses, leveraging my VIP Natwest can configure different identity verification services to suit different customer and business needs.

David B. Lyle: As well as adjust for changing risk environment as mandatory loggers detection becomes increasingly critical in digital identity processing Natwest has enjoyed leveraging the platform to apply new biometric signals against growing use cases.

Max Carnecchia: As mandatory liveness detection becomes increasingly critical in digital identity processing, NatWest has enjoyed leveraging the platform to apply new biometric signals against growing use cases. As the Wall Street Journal reported this month, these fakes are coming for the financial sector. Companies using photos or audio to verify customers' identities are preparing for bad actors gaming the system with generative AI. The surge in deepfake-related fraud underscores the need for vigilance and robust detection mechanisms. Facial Liveness Detection Technology stands at the forefront of combating these challenges, offering a sophisticated way to distinguish genuine human presence from fraudulent and deepfake attempts.

David B. Lyle: As the Wall Street Journal reported this month. These states are coming for the financial sector comp.

David B. Lyle: Company is using photos audio is to verify customer's identities are preparing for bad actors gaining the system with generative AI the surge in deep take related broad underscores the need for vigilance and robust detection mechanisms facial lines. This detection technology stands or front of combating this.

David B. Lyle: Challenges offering a sophisticated way to distinguish genuine human presence from fraudulent and deep fake accounts.

David B. Lyle: Ivy live based plus is designed to detect injection attacks and prevent deep they brought in a passive way thus dramatically improving the overall customer experience most of todays facial largest technologies are active requiring users to blink turn their heads are moved their phones back in for <unk>.

Max Carnecchia: Live Face Plus is designed to detect injection attacks and prevent deepfake fraud in a passive way, thus dramatically improving the overall customer experience. Most of today's facial liveness technologies are active, requiring users to blink, turn their heads, or move their phones back and forth. These systems are frustrating to the customer and can be tricked by fraudsters using computer-generated images, masks, or videos. Mitek's award-winning IDR&D teams have worked relentlessly to ensure our customers don't have to sacrifice usability for security.

David B. Lyle: Systems are frustrating to the customer and can be tricked by fraudsters using computer generated images maps or videos Mitek Award winning E. R&D team teams have worked relentlessly to ensure our customers don't have to sacrifice usability for security.

Max Carnecchia: ID.Live! Face Plus combines groundbreaking presentation attack detection with a unique approach to injection attack detection to prevent deepfakes and other fraudulent digital content. Instead of just focusing on the content of digital fakes like the image, it helps shut down the channel used to deliver them, such as a virtual camera.

David B. Lyle: Eli based plus combines groundbreaking presentation attack protection with a unique approach to injection attack detection to prevent deep base and other fraudulent digital content instead of just focusing on the content of digital face like the image. It helps shut down the channel used to deliberate such as a virtual camera.

Max Carnecchia: Customers and partners who have made the switch from active to passive facial aliveness report a significant reduction in abandonment, lower false rejections of real users, and highly accurate presentation attack detection. Our IDR&D team's ongoing innovation continues to be at the center of our identity verification solution, and their rapid integration of Gen-AI solutions continues to yield outstanding products. Leveraging the significant opportunities within burgeoning sectors influenced by AI and identity and fraud trends, Mitek is strategically positioned to expand its revenue and profitability.

David B. Lyle: Customers and partners, who have made the switch from.

David B. Lyle: From active to passive facial likeness reported a significant reduction in abandonment.

David B. Lyle: Lower false positive false rejections of real users and highly accurate presentation attack protection.

David B. Lyle: Our IV R&D teams ongoing innovation continues to be at the center of our identity verification solutions and their rapid integration of Gen. AI solutions continues to yield outstanding products.

David B. Lyle: Leveraging the significant opportunities within burgeoning sectors influenced by AI and identity and fraud trends Mitek is strategically positioned to expand its revenue and profitability.

Max Carnecchia: Mitek remains at the technological forefront, providing advanced machine learning and AI solutions, enabling businesses to effectively counter fraud while improving trust and convenience in digital transactions through our leading orchestration platform. Lastly, I'm thrilled that with the filing of our 10-Q today, we are now current and back on track to file our quarterly and annual filings in the normal fashion. This has been a long and difficult process. However, with significantly improved financial controls and reporting in place, we are confident in our ability to maintain our filings going forward. I will now turn the call over to Dave to discuss the financial results in more detail. Following Dave's remarks, we will open the call for questions. Go ahead.

David B. Lyle: <unk> remains at the technical logical forefront, providing advanced machine learning and AI solutions, enabling businesses to effectively counter fraud, while improving trust and convenience and digital transactions through our leading orchestration platform.

David B. Lyle: Lastly, I'm thrilled that with the filing of our 10-Q today. We are now current and back on track to file our quarterly and annual filings in the normal fashion.

David B. Lyle: This has been a long and difficult process with significantly improved financial controls and reporting in place. We are confident in our ability to maintain our filings going forward.

David B. Lyle: I will now turn the call over to Dave to discuss financial results in more detail. Following Dave's remarks, we will open the call for questions. Dave. Please go ahead.

David B. Lyle: Thanks, Max. I'll begin by taking you through the fiscal Q1 2024 financial results and then comment on our outlook. Looking first at fiscal Q1 revenue, top-line revenue for the fiscal quarter defined 19% year-over-year to $36.9 million due primarily to a large multi-year mobile check deposit reorder with one customer, where Mitek...

David B. Lyle: Thanks, Max I'll begin by taking you through the fiscal Q1 2024 financial results and then comment on our outlook.

David B. Lyle: Looking first at this in Q1 revenue top line revenue for the fiscal quarter declined 19% year over year to $36 9 million due primarily to a large multi year mobile check deposit reorder that one customer where mitek recognize additional licensed rather now insist to.

David B. Lyle: We recognize additional licensed revenue in Fiscal Q1 2023 relating to future years of approximately $7 million and which deducted approximately $2.7 million from Fiscal Q1 2024. Adjusting for that entry, top line revenue would have grown by 3% year-over-year.

David B. Lyle: Fiscal Q1, 2023 relating to future years of approximately $7 million and which deduct it approximately $2 7 million for fiscal Q1 2024, adjusting for that entry topline revenues would have grown by 3% year over year.

David B. Lyle: Software and hardware revenue declined 39% to $16 million in fiscal Q1 2024, primarily due to the multi-year contract just discussed. Services and other revenue grew 8% to $20.9 million in FYSBQ1 2024. This increase was primarily due to strong growth in SAS revenue, as well as increased maintenance revenue associated with FADA's product software sales. Shifting to revenue for our two major product categories, deposits, and identity, let's start with deposits. Deposits revenue declined 30% year over year in fiscal Q1 2024 to $21.1 million, for reasons just described. However, adjusting for that multi-year contract deposits revenue.

David B. Lyle: Software and hardware revenue declined 39% to $16 million in fiscal Q1, 2024, primarily due to the multiyear contract just discussed.

David B. Lyle: Services and other revenue grew 8% to $29 million consistent with Q1 2024. This increase was primarily due to strong growth in SaaS revenue as well as increased maintenance revenue associated with deposits products software sales.

David B. Lyle: Shifting to revenues for our two major product categories deposits and identity, let's start with deposits.

David B. Lyle: Wireless revenue declined 30% year over year in fiscal Q1, 2024 to $21 1 million for reasons just described.

David B. Lyle: Adjusting for that multiyear contract deposits revenue would have grown about 4% year over year.

David B. Lyle: I would have grown by about 4%.

David B. Lyle: The quarter's revenue was also impacted by timing of reorders. Please note that 67% of deposits revenue was in Mitek software and hardware revenue, and 33% was in services and other revenue. Identity revenue for the first fiscal quarter grew 3% year over year, to $15.8 million, driven by our SaaS products revenue, growth from our newer Identity Authentication products.

David B. Lyle: <unk> revenue was also impacted by timing of rewards.

Note that 60, 70% that deposits revenue within Mitek software hardware revenue and 33% was in services and other revenue.

David B. Lyle: Identity revenue for the fiscal first fiscal quarter grew 3% year over year.

David B. Lyle: $215 $8 million driven by our SaaS products revenue.

David B. Lyle: Growth from our newer identity authentication products, including IV IP, My task and IV, RMB biometrics, which grew faster than the market was somewhat offset by the sunsetting of our legacy <unk> hardware and software products as well as some pressure from Commoditization.

David B. Lyle: including

David B. Lyle: MyVIP, MyPass, and IVR&V Biometrics, which grew faster than the market, was somewhat offset by the sunsetting of our legacy iCar hardware and software products, as well as some pressure from commoditization in the document verification market. Approximately 12% of identity revenue was in Mitek software and hardware revenue, and 88% was in services and other revenue for the first fiscal quarter of fiscal year 2004. Moving on to gross margin, the total gross margin for Fiscal Q1 2024 was 85%, down from 89% in Fiscal Q1 2023 due to a product mix shift, which included less revenue in Fiscal Q1 2024 from a strong gross margining deposits product. We continue to deliver strong software and hardware gross margins of close to 100% for Fiscal Q1 2024, while on services and other revenue, our gross margin was 74%.

David B. Lyle: In the document verification market.

David B. Lyle: Approximately 12% of identity revenue within Mitek software and hardware revenue and 88% within services and other revenue for the first fiscal quarter.

David B. Lyle: Fiscal year 'twenty four.

David B. Lyle: Moving onto gross margin. The total gross margin for fiscal Q1, 2024, with 85% down from 89% anticipate Q1 2023 due to a product mix shift which included less revenue in fiscal Q1 2024 from a strong gross margin in composites product.

David B. Lyle: We continued to deliver strong software and hardware gross margins.

David B. Lyle: Those two 100% for fiscal Q1, 2024, well on services and other revenue our gross margin was 74%.

David B. Lyle: GAAP operating expense for fiscal Q1 2024 was $38.3 million, compared to $32.3 million a year ago. Non-GAAP operating expense for fiscal Q1 2024 was $25.8 million, compared to $22.2 million last year, and favorable when compared to the prior quarter, fiscal Q4 2023. The year-over-year increase in non-GAAP operating expense was primarily related to fees associated with our delayed filing, including audit, accounting, and legal support, and to a lesser extent, the addition of resources to our corporate services to accommodate our scalating business.

GAAP operating expense for fiscal Q1, 2024, with $38 3 million compared to $32 3 million a year ago.

David B. Lyle: non-GAAP operating expense for fiscal Q1, 2024, it was $25 8 million compared to $22 2 million last year and favorable when compared to the prior quarter fiscal Q4 2023.

David B. Lyle: The year over year increase in non-GAAP operating expense was primarily related to fees associated with our delayed filings, including audit accounting and legal support and to a lesser extent. The addition of resources to our corporate services team to accommodate our scanning business.

David B. Lyle: Excluded from our non-GAAP operating expense was $12.5 million of non-recurring items, of which $7.3 million were non-cash accounting items and $5.2 million were cash items. The non-cash items were comprised of amortization and purchase intangibles, and stock-based compensation expense. Cash items were comprised of non-recurring fees from delayed filings, legal, and other expenses.

David B. Lyle: Excluded from our non-GAAP operating expense was $12 $5 million that nonrecurring items.

David B. Lyle: Seven 3 million were noncash accounting items and $5 2 million were cash items the noncash items.

David B. Lyle: The amortization of purchased intangibles and stock based compensation expense.

David B. Lyle: The cash items were comprised of nonrecurring fees from delayed filings legal and other expenses.

David B. Lyle: Please see our earnings release for a more detailed reconciliation. Our non-GAAP operating income was $5.6 million in fiscal Q1 2024, or a 15% non-GAAP operating margin. Excluded from non-GAAP operating income was $12.5 million, and expenses as described above and as detailed in our GAAP to non-GAAP reconciliation included in today's earnings. The gap net loss for fiscal Q1 2024 was $5.8 million, or a loss of $0.13 per basic share versus net income of $4.7 million, or $0.10 per diluted share in the prior fiscal year.

David B. Lyle: See our earnings release for a more detailed reconciliation.

David B. Lyle: Our non-GAAP operating income was $5 6 million in fiscal Q1, 2024, or 15% non-GAAP operating margin.

David B. Lyle: Excluded from non-GAAP operating income was $12 5 million in expenses as described above and as detailed in our GAAP to non-GAAP reconciliation, including included in today's earnings release.

David B. Lyle: GAAP net loss for fiscal Q1, 2024 was $5 8 million or a loss of 13 cents per basic share versus net income of four.

$4 7 million.

David B. Lyle: Or 10 cents per diluted share in the prior fiscal year.

David B. Lyle: Non-GAAP net income for fiscal Q1 2024 was $6.3 million, or $0.14 per diluted share, versus $14.3 million, or $0.31 per diluted share, in the prior fiscal year. Our diluted share count for the year was 46.3 million compared to 45.6 million a year ago.

David B. Lyle: non-GAAP net income for fiscal Q1, 2024 was $6 3 million or <unk> 14 per diluted share versus $14 3 million or <unk> 31 per diluted share in the prior fiscal year.

David B. Lyle: Our diluted share count for the year was $46 3 million compared to $45 six shares a year ago.

David B. Lyle: Turning to our balance sheet, our cash and investments declined sequentially $11 million from $134 9 million in fiscal Q4 of 23 to $123 9 million at the end of fiscal Q1.

David B. Lyle: Turning to our balance sheet, our cash and investments declined sequentially $11 million from $134.9 million in fiscal Q4-23 to $123.9 million at the end of fiscal Q1-2024, primarily because in fiscal Q1, we paid out $7.8 million in cash for 2023 taxes and also paid $4.6 million for the cash portion of the final earn out for the IVR and deacquisition. Moving on to guidance, we are reiterating our fiscal year 2024 revenue guidance range of $180 to $185 million.

Speaker Change: Sure primarily because fiscal Q1, we paid out $7 $8 million in cash for 2023 taxes and also pay $4 6 million for the cash portion of the final earn out for the IV R&D acquisition.

Speaker Change: Moving onto guidance, we are reiterating our fiscal year 2020 for revenue guidance range of $180 million to $185 million.

Speaker Change: Looking more closely at fiscal Q2, we are providing a preliminary revenue range of $46 million to $47 million almost $9 million sequentially higher in fiscal Q1 2024 at the midpoint of the range driven by a return to a more typical quarter from our deposits product revenue.

David B. Lyle: Looking more closely at fiscal Q2, we are providing a preliminary revenue range of $46 to $47 million, almost $9 million sequentially higher than fiscal Q1 2024, at the midpoint of the range, driven by a return to a more typical quarter from our Deposit Spark revenue. From a quarterly trending perspective, we continue to expect top-line revenue to grow year-over-year and, sequentially, Q3 and, with Q4, expected to be in the range of Q3 revenue.

Speaker Change: From a quarterly trending perspective, we continue to expect top line revenue did grow year over year and sequentially Q3, and Q4 expected to be in the range of Q3 revenue.

Speaker Change: Quarter to quarter Chinas deal timing may influence these expectations.

Speaker Change: We continue to expect our identity business to be stand alone profitability on a fully burdened basis in the fourth.

Speaker Change: This fiscal quarter.

Speaker Change: With regard to taxes, we expect to be a taxpayer in fiscal 2024 for the tax rate in the 25% plus or minus range of GAAP pre tax net income.

David B. Lyle: Quarter-to-quarter changes to deal timing may influence these expectations. However, we continue to expect our identity business to reach standalone profitability on a fully burdened basis in the fourth fiscal quarter. With regard to taxes, we expect to be a taxpayer in fiscal 2024 with a tax rate in the 25% plus or minus range of GAAP, pre-tax, net income. In addition, we are reiterating our full-year fiscal 2024 non-GAAP operating margin guidance range of 30 to 31 percent.

Speaker Change: In addition, we are reiterating our full year fiscal 2024, non-GAAP operating margin guidance range of 30% to 35%.

Speaker Change: Before I conclude I would like to touch on where we are with our SEC filings with our 10-K filing done in March and the filing of our 10-Q today. We are now current on our filings and are already working diligently on our fiscal second quarter 10-Q for the period ended March 30 <unk>.

David B. Lyle: Before I conclude, I would like to touch on where we are with our SEC filings. With our 10-K filing done in March and the filing of our 10-Q today, we are now current with our filings and are already working on our 10-Q.

Speaker Change: One 2024 and are targeting to file in a timely manner.

Speaker Change: Operator that concludes our prepared remarks, please open the line for questions.

Speaker Change: Certainly thank you.

Operator: on the fiscal second quarter, 10-Q, for the period ended March 31st, 2024, and are targeting to file it in a timely manner. Operator, that concludes our prepared remarks. Please open the line for questions.

Speaker Change: We will now begin the question and answer session.

Speaker Change: To ask a question you May press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys.

Speaker Change: I had a question you May press Star then two.

Operator: Certainly, thank you. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, you may press star, then 2. At this time, we will pause momentarily to assemble our roster. Today's first question comes from Jacob Roberge with William Blair. Please go

Speaker Change: At this time, we will pause momentarily to assemble our roster.

Speaker Change: Today's first question comes from Jacob Broberg with William Blair. Please go ahead.

Jacob Roberge: Hey, thanks for taking the questions.

Jacob Roberge: Appreciate the color on the one time contract that was pulled forward last year, but even excluding that the full year guide assumes a fairly large a back half ramp. So could you just walk us through the building blocks that give you confidence in that guide whether it be the new products like check fraud defender ramping more meaningfully.

Jacob Roberge: Easier comps just given the large contracts and end of life products would just be helpful to unpack, what's what's exactly driving that that strong brac have ramp in the guide.

Jacob Roberge: Hey, thanks for taking the question. Appreciate the color on the one-time contract that was pulled forward last year, but even excluding that, the full-year guide assumes a fairly large back-half ramp. So could you just walk us through the building blocks that give you confidence in that guide, whether it be the new products like CheckFraud Defender ramping up meaningfully, or easier comps just given the large contracts and end-of-life products. It would just be helpful to unpack what's exactly driving that strong back-half ramp in the guide.

Speaker Change: Sure Hey, Jake Thanks for call I'll, let the.

Speaker Change: I'll, let David give you the building blocks I think the top cap comment I would make is.

David: We've tried to as we.

David: Sure. If you guys before we've tried to kind of provide some guidance around the idea that you need to look at these businesses not on a month to month week to week basis, you've got to look over a longer span of time and I think that's definitely what's going to come into play here, but I'll, let the illicit building blocks come from Dave Yeah. I think you were characterizing it correct.

Max Carnecchia: Hey Jake, thanks for calling. I'll let... I'll let Dave give you the building blocks. I think the top cap comment I would make is... You know, we've tried to, you know, as we've shared with you guys before, we've tried to kind of provide some guidance around the idea that you need to look at these businesses not on a month-to-month, week-to-week basis, you've got to look over a longer span of time, and I think that's definitely what's going to come into play here, but I'll let the building blocks come from Dave.

David B. Lyle: We have now.

David B. Lyle: Our heritage business in mobile deposit as well as kind of document verification and those kinds of products and we've got these new products and actually stop that.

Last couple of earnings calls.

David B. Lyle: On the deposit side, the checkpoint defender product, which we.

David B. Lyle: I think it's it's very promising and it's just now starting to pick up momentum and so we think that will drive growth in the second half.

David B. Lyle: Fiscal this fiscal year.

David B. Lyle: And then also on the kind of I E RMB biometrics as well as the my VIP platform, including my past are all opportunities for growth in the second half all of which are kind of ramping at the same time.

David B. Lyle: On the deposit side, the CheckFraud Defender product, which we are using, I think it's very effective.

David B. Lyle: It's kind of just now starting to pick up momentum, and so we think that will drive growth in the second half of this fiscal year. And then also, ID, R&D, biometrics, as well as the MyBIT platform, including MyPASS, are all opportunities for growth in the second half, all of which are kind of ramping at the same time.

Speaker Change: Okay very helpful. And then yeah, great to hear that you had over 20 customers using check fraud defender and exiting that March quarter could you just give us a little more detail on those deals and maybe walk through how long those sales cycles took a what those customers were using before check fraud defender and then if you could just give us any insight into.

Max Carnecchia: Okay, very helpful. And then, yeah, great to hear that you had over 20 customers using CheckFraud Defender during that March quarter. Could you just give us a little more detail on those deals and maybe walk through how long those sales cycles took, what those customers were using before CheckFraud Defender, and then if you could just give us any insight into just how large an annual contract value could be for some of those bigger deals that you've landed thus far? That would just be helpful in understanding the kind of opportunity with CheckFraud.

Speaker Change: Just how large our annual contract value could be for some of those theres bigger deals that you've landed thus far that would just be helpful. In understanding kind of the opportunity with check fraud.

Speaker Change: Sure there's lots of attack in there so if I Miss anything you just remind me, which elements I missed the question Jake So it was a rider for folks we co created checkpoint defender in conjunction with one of the top five banks in the United States.

Speaker Change: Obviously, using the intellectual property and Knowhow and kind of all of our frameworks around computer vision and machine learning.

Max Carnecchia: Sure, there's a lot to unpack in there, so if I miss anything, you just remind me which elements I missed with the question, Jake. So as a reminder for folks, you know, we co-created Czech Broad Defender in conjunction with one of the top banks, five banks in the United States, obviously using the intellectual property and know-how and kind of all of our framework.

Speaker Change: Visually inspect the check in use over 20 different elements to pull that checkup part determine whether it is fraudulent or not and so we've been at that as I said, we introduced the product about two years ago and as you would imagine with any kind of consortium, especially in a banking environment that so highly regulated and so full of lawyers and compliance for.

Speaker Change: <unk>.

Speaker Change: The first sales cycle, there was well over 12 months and if you kind of laid down the <unk>.

Max Carnecchia: on computer vision and machine learning and how to visually inspect a check and use over 20 different elements to pull that check apart and determine whether it's fraudulent or not. And so we've been at that, as I said, we introduced the product about two years ago, and as you'd imagine with any kind of consortium, especially in a banking environment that's so highly regulated and so full of lawyers and compliance professionals, you know, the first sale cycle there was well over 12 months.

Speaker Change: Contracted.

Speaker Change: Customers, we have today youre almost watching the sales cycles all into half lives right. So to give you a sense of if I had to kind of.

Speaker Change: Paint a picture of those 20 participating consortium members, we focused very heavily on the top 100 banks. So we've got a healthy dose of the top 100 banks, but we also about four or five months ago announced in our relationship with <unk> and if we go back in February intra.

Max Carnecchia: And if you kind of laid down the 20, um... contracted customers we have today. You're almost watching the sales cycles fall into half-life, right? So to give you a sense of what if I had to pick out the kind of those 20 participating consortium members, we focus very heavily on the top 100 banks, right? So we've got a healthy dose of the top 100 banks. But we also, about four or five months ago, announced that we were in a relationship with...

Speaker Change: <unk>, they're kind of their first product based on CSD and.

Speaker Change: And in the quarter had success in this quarter the March ending quarter past success closing some smaller financial institution. So now we've got some really big guys and we're focused on that in a very direct way with our direct sellers and now we're starting to light up that channel that has been so successful for mobile deposit.

Speaker Change: Positive starting with <unk>.

Speaker Change: Starting with the relationship I, just mentioned, but to be followed very very quickly by some of.

Max Carnecchia: At Abrigo, back in February, introduced their first product based on CSD. And in the quarter, had success in this quarter, the March ending quarter, closing some smaller financial institutions. So now we've got some really big guys and we're focused on that in a very direct way with our direct sellers. And now we're starting to light up that channel that has been so successful for mobile deposit, starting with the relationship I just mentioned, but followed very, very quickly by some of the other traditional channel partners we've had, the core banking service providers.

Speaker Change: The other traditional channel partners, we've had the core service or banking service providers. So that hopefully gives you a flavor for it.

Speaker Change: It's hard to give you an average if you think about top 100 banks those those contracts are multi hundreds of thousands of dollars a year or two low millions of dollars a year and then some of these ones that we're now seeing in the longer tail through the <unk> relationship.

Speaker Change: They are under $100000 a year, but there are so many of them. There's just such a big opportunity there with the 8000 financial institutions that are already know.

Speaker Change: Enjoy your relationship with Mitek.

Max Carnecchia: So that hopefully gives you a flavor for it. It's hard to give you an average, but if you think about the top 100 banks, those contracts are multi hundreds of thousands of dollars a year to low millions of dollars a year.

Speaker Change: Okay, very very very helpful. There and then if I could just sneak one more in now that you're current on the filings have the 10-Q published working on the <unk> filing just curious if you could just give us any updated thoughts around capital allocation, whether it be buybacks or converts just how you're thinking.

Max Carnecchia: And then some of these ones that we're now seeing in the longer tail through

Max Carnecchia: There are those under $100,000 a year, but there are so many of them. There's just such a big opportunity there with the 8,000 financial institutions that already know and really enjoy your relationship.

Speaker Change: About the capital allocation, whether Max being at their home for a few years now or Dave now to or you're taking a new look at the business. Just curious how you too or are thinking about those plans moving forward.

Max Carnecchia: Okay, very, very, very helpful there. And then if I could just sneak one more in, now that you're current on the filings, have the 10-Q published, working on the 2-Q filing, just curious if you could just give us any updated thoughts around capital allocation, whether it be buybacks or converse, just how you're thinking about capital allocation, whether Max being at the helm for a few years now, or Dave, now that you're taking a new look at the business, just curious how you two are thinking about those plans moving forward.

Speaker Change: Yeah, I don't think we have anything new to announce today I will remind you that almost on a monthly basis, certainly no less than quarterly were reviewing our capital allocation approach with our board with our senior team and with our outside advisors.

Let us get that let's get to Q2 on file and let us get current and see if we've got more to talk about the next call.

Speaker Change: Sounds great. Thanks for taking the questions.

Jake: You got Jake.

Jake: Thank you. The next question comes from Mike Grondahl with Northland Securities. Please go ahead.

Michael John Grondahl: Hey, Thanks, guys a couple of follow up questions on check fraud defender.

The first one is you guys said that was exceeding.

Max Carnecchia: Yeah, I don't think we have anything new to announce today. I will remind you that, you know, almost on a monthly basis, certainly no less than quarterly, we're reviewing our capital allocation approach with our board, with our senior team, and with our outside advisors. Let us get that, let us get the Q2 on file, and let us get current and see if we've got more to talk about on the next call.

Michael John Grondahl: Your internal expectation just curious what that relates to what that revenue number a bank maybe if you can cover that.

Michael John Grondahl: And then secondly.

Michael John Grondahl: And you're expanding that reseller channel path briegel.

Michael John Grondahl: Is that going to include like Fiserv, and Jack Henry <unk> of the World.

Michael John Grondahl: How extensive will your retail park.

Jacob Roberge: Sounds great. Thanks for taking the questions.

Michael John Grondahl: Your reseller partners be and when do you expect that to start.

Max Carnecchia: You've got it, Jake.

Operator: Thank you. The next question comes from Mike Grondahl with Northland Securities. Please go ahead. Hey, thanks guys.

Speaker Change: Yeah, some great questions in there Mike. So obviously, we're very bullish about check for our defender both in the near term, but also on the more intermediate term.

Michael John Grondahl: A couple follow-up questions on CheckFraud Defender. Um, the first one is, you guys said that was exceeding your internal expectations. Just curious what that relates to, is that revenue, number of banks? Maybe if you can cover that. And then, secondly. As you're expanding that reseller channel past Brego, is that going to include like the Fiservs, Jack Henry, and FISs of the world? Like, how extensive will your reseller partners be, and when do you expect that to start?

Speaker Change: <unk>.

Speaker Change: The other callers or listeners here just to state the top cap point of this check fraud has become a board level issue for every financial institution in the United States. If you have a board meeting in a bank in the United States doesn't matter, whether you are a small.

Community bank or whether you're Jamie Diamond and <unk>. This is coming up and that would be I mean, that's the level of losses, and the kind of disruption and damaged customer relationships theres going on with this activity.

Speaker Change: Back to your question.

Speaker Change: I put the spotlight on frito, because they started to have success and they turn.

Speaker Change: Turning to sales cycles very very quickly.

Max Carnecchia: Yeah, some great questions in there, Mike. So, obviously, we're very bullish about check fraud offender, both in the near term but also in the more intermediate term. For the other callers or listeners here, just to state the top cap point of this, check fraud has become a board-level issue for every financial institution in the United States. If you're at a board meeting in a bank in the United States, it doesn't matter whether you're a small community bank or whether you're Jamie Dimon at JPMC; this is coming up in that meeting.

Speaker Change: We're quite impressed and Crestwood, but you pointed to some of the longer term much larger institutions that service for service providers to the banks and they have for the better part of 15 years been very trusted partners, both to the banks and to Mitek and I don't want to use any of the names, but we're very.

Speaker Change: Close to getting those folks signed up and getting them online with check brought defender.

Speaker Change: Start of your question was around our internal expectations and I think if you sat down with me and asked at the beginning of the year on October one the beginning of the fiscal year.

Max Carnecchia: I mean, that's the level of losses and the kind of disruption and damage to customer relationships that is going on with this activity. So, back to your question, you know, I put the spotlight on Brigo because they've started to have success, and they've turned... You know, they've turned these sales cycles very, very quickly, which we're quite impressed with. But you pointed to some of the longer-term, much larger institutions that serve as core service providers to the banks and that have, for the better part of 15 years, been very trusted partners, both to the banks and to Mitek.

Speaker Change: How many consortium contracted customers will you have coming out of March auto said.

Speaker Change: We do this the right way, we will have 15.

Speaker Change: We're over 20. So that's the reason that I feel like were ahead of expectations is largely around that.

Speaker Change: Got it and then just.

Speaker Change: One question on mobile check deposit.

Speaker Change: You talked about.

Speaker Change: For the year 2024 sort of like 10% to 12% normalized growth.

Speaker Change: Roughly.

Speaker Change: Half of that coming from price and half of that coming from transaction. How do we just get a feel for the mix there.

Max Carnecchia: And I don't want to use any of the names, but we're very close to getting those folks signed up and getting them online with CheckFraud Defender. The start of your question was about our internal expectations. And I think if you had sat down with me and asked, you know, at the beginning of the year, on October 1st, the beginning of the fiscal year, you know, how many consortium-contracted customers you would have coming out of March, I'd have said... If we do this the right way, we'll have it fit. And we're over 20. So the reason that I feel like we're ahead of expectations is largely around that.

Speaker Change: Yeah, I'll, let safety if he wants to take a swing at how we break the mix up but.

Safety: When we set the normalized again, it's trying to do the math.

Safety: Backing out the additional three years of the <unk>.

Safety: Contracts are very large contract we took in Q1.

Safety: Fiscal year 'twenty, three and then laying in one third of that into Q1 of 'twenty four I think we've laid that back out either in the press release.

Safety: In the press release yet.

Safety: As far as that 10% to 12%.

Safety: It's.

Safety: Part of it is price increases and part of it is increased adoption of mobile banking I don't know if you break it out.

Michael John Grondahl: Got it. One question on mobile check deposit. I think you talked about, for the year 2024, sort of like 10 to 12 percent normalized growth. Roughly, is half of that coming from price and half of that coming from transactions?

Safety: And broken out.

Safety: Further than that publicly but those are the two variables there.

Speaker Change: We shouldn't do that today.

Speaker Change: Okay, Hey, thanks, guys.

Speaker Change: You got it Mike.

Speaker Change: Thank you. The next question is from Allen Klee with Maxim. Please go ahead.

Max Carnecchia: How do we just get a feel for the mix there?

David B. Lyle: You know, I'll let Dave see if he wants to take a swing at how we break the mix up. But, you know, when we said the normalized, it's trying to do the math. You know, backing out the additional three years of the contract, the very large contract we took in Q1 of fiscal year 23, and then laying in one-third of that into Q1 of 24. I think we laid that math out in the press release. Anyway, in the press release, yeah. As far as, you know, that 10 to 12 percent, you know... Part of it is price increases, and part of it is increased adoption of mobile banking.

Allen Robert Klee: Yes, hi, plus some.

Allen Robert Klee: The add backs you have for coming up with your.

Allen Robert Klee: With your adjusted numbers.

Allen Robert Klee: I had questions. If you could kind of go into what was happening there and if you're expecting any large ones in the first quarter in the March quarter, you had a $2 2 million litigation costs.

Allen Robert Klee: In the December quarter or.

Allen Robert Klee: Legal costs.

Allen Robert Klee: And what is enterprise risk portfolio positioning and other related costs. Thank you.

David B. Lyle: I don't know if you'll break it,

Speaker Change: Yes. Thanks.

Speaker Change: Good question Ken.

David B. Lyle: I haven't broken out further than that.

Speaker Change: In fiscal quarter one.

David B. Lyle: [inaudible]

Speaker Change: Taking out that will address the legal questions.

David B. Lyle: And we probably shouldn't do that today either.

Michael John Grondahl: Okay. Hey, thanks, guys. You got it, Micah. Thank you. The next question is from Allen Klee with Maxim. Please go ahead.

Speaker Change: But in this quarter, one we use third party experts to evaluate our product portfolio positioning competitive landscape enterprise risk as well as some other related analysis and that's really a one time pad.

Allen Robert Klee: Yes, hi. Just some of the ad hocs you have for coming up with your adjusted numbers. I had questions if you could kind of go into what was happening there and if you're expecting any large ones in the first quarter, in the March quarter. You had a $2.2 million litigation cost in the December quarter for legal costs, and what is enterprise risk portfolio positioning and other related costs? Thank you.

Speaker Change: Study costs. So you won't see that come back in fiscal quarter, two and then on the legal side I guess, we had it at $2 million.

Speaker Change: Higher legal expense.

Look back into the details with fiscal quarter one we.

Speaker Change: We used the legal team he has quite a few third party legal experts to do a variety of important activities. Some of those activities include getting our SEC filings current navigating the nasdaq's.

David B. Lyle: Yeah, I think it's a good question. In fiscal quarter one... We'll address the legal questions in a second, but in Fiscal Quarter 1, we used third-party experts to evaluate our product portfolio positioning, competitive landscape, enterprise risk, as well as some other related analyses, and that's really a one-time kind of study cost, so you won't see that come back in Fiscal Quarter 2. And then on the legal side, yes, we had a $2 million higher legal expense, and if you look back into the details of Fiscal Quarter 1, we used quite a few third-party legal experts to do a variety of important activities. Some of those activities...

The potential be listing activities that happened with NASDAQ there is some ongoing litigation.

Speaker Change: We show in the Q in the <unk>.

Speaker Change: <unk> there were some.

Speaker Change: Outside legal expert help there and then lastly.

Speaker Change: Providing some support for customers and their economy litigation. So it was a combination of events not necessarily one thing that was specific.

Speaker Change: Okay. Thank you.

Speaker Change: Thank you.

Speaker Change: A reminder to ask a question you May press Star then one.

Speaker Change: The next question is from Chad Bennett with Craig Hallum. Please go ahead.

Chad Bennett: Great. Thanks for taking my questions.

Chad Bennett: Just maybe shifting over to the I'd verification business and then the 10% to 12% growth expectations. There is is there a way to think about that side of the business.

David B. Lyle: We also included getting our SEC filings current, navigating the NASDAQs, the potential delisting activities that happen with NASDAQ, there's some ongoing litigation that we show in the queue that continues, and there were some outside legal experts to help there, and then lastly, providing some support for customers in their own litigation. So it was a combination of events, not necessarily one thing that was specific.

Speaker Change: From you know a.

Chad Bennett: A transaction growth kind of same store sales standpoint versus a cross sell up sell or might be my VIP EMI pass idea R&D type offerings and kind of how you think about that and just generally.

David B. Lyle: Okay, thank you.

Operator: Thank you. As a reminder, to ask a question, you may press star, then 1. The next question is from Chad Bennett with Craig Hellam. Please go ahead.

Chad Bennett: From a transaction growth rate standpoint.

Are we seeing just year over year volume or transaction growth in that business.

Chad Bennett: Great, thanks for taking my questions. So maybe, just maybe, shifting over to the ID verification business and the 10 to 12% growth expectations there, is there a way to think about that side of the business? from, you know, a transaction growth kind of same-store sales standpoint versus a cross-sell-up sell of MyVIP, MyPass, IVR&D type offerings and kind of how you think about that. And just generally, from a transaction growth rate standpoint, are we seeing just year-over-year volume or transaction growth in that business?

Chad Bennett: This year and in and do you see that strengthening throughout the year.

Chad Bennett: And then maybe last one tied to all of it is its Max you mentioned in the press release.

Chad Bennett: I think product market fit for my VIP My pass an idea R&D, how do you kind of define that or what are examples of that thanks.

Speaker Change: Sure a lot to unpack there Chad I'll do my best.

Max: Maybe to start with.

Max: A little bit of a bigger picture here.

Chad Bennett: This year, and do you see that strengthening throughout the year? And then maybe the last one tied to all of it is Max, which you mentioned in the press release. I think product market fit for MyVIP, MyPath, and IDR&D. How do you kind of define that, or what are examples of that?

Max: <unk>.

Max: The market the identity market has changed pretty significantly in the last two or three years with all that's happened with.

Interest rates and the slowing of maybe some of the.

Max: New competitor formation and them trying to get funding and we've definitely seen some some pressure on some of our high flying competitors from last three or four years, which I think both in the intermediate term and long term is going to benefit is going to benefit mitek.

Max Carnecchia: Thanks.

Max Carnecchia: Sure.

Max Carnecchia: Sure, there are lots of acts there, Chad. I'll do my best.

Max Carnecchia: Maybe to start with a little bit of a bigger picture here. The identity market has changed pretty significantly in the last two or three years with all that's happened with interest rates and the slowing of maybe some of the new competitor formation and them trying to get funding. And we've definitely seen some pressure on some of our high-flying competitors over the last three or four years, which I think, both in the intermediate term and long term, is going to benefit Mitek.

Max: Reason I start there is today our model is very much a land and expand model. We're targeted on these regulated industries. The top companies within those regulated industries, primarily in North America and in Europe.

Max: The majority of the identity business is done through our direct selling activity. So about 80% of the revenues come from our direct selling activities in about 20% from our valued partners that get us into geographies use cases, and certain industries that we don't necessarily focus on.

Max Carnecchia: And the reason I started there is today, our model is very much a land and expand model. We're targeted at these regulated industries, the top companies within those regulated industries, primarily in North America and in Europe. The majority of the identity business is done through our direct selling activities, so about 80% of the revenues come from our direct selling activities and about 20% from our valued partners that get us into geographies, use cases, and certain industries that we don't necessarily focus on.

Max: But if I had to look back on the last 18 months to tell you that probably 75% of the growth that we've enjoyed in identity has been from the expand part of land and expand new we've reported this before but new logo acquisition has become.

Max: Very very hard fought battle.

Max: Both because of the desperation of some of the competitors that I started.

Max Carnecchia: But if I had to look back on the last 18 months, I'd tell you that probably 75% of the growth that we've enjoyed in identity has been from the expanding part of land and space. We've reported this before, but new logo acquisition has become a very, very hard-fought battleground, both because of the desperation of some of the competitors that I started with explaining, but also just because of the uncertainty, the geopolitical landscape, and the global economic uncertainty.

With explained but also just because of the uncertainty the geopolitical landscape and the global economic uncertainty.

Max: And so we've really been able to enjoy the relationships that we have with these big institutions, where we might start in the retail bank in one geography with an Onboarding journey and then two to three years later, we woke up and throw our activities and working with that customer the success that they're having we will find ourselves in five or six different use cases.

Max: Some of which are onboarding summer in new geographies, but many are identity authentication. So those are those step up transactions or.

Max Carnecchia: And so we've really been able to enjoy the relationships that we have with these big institutions, where we might start in a retail bank in one geography with an onboarding journey, and then two to three years later, we wake up, and through our activities and working with that customer, and the success that they're having, we'll find ourselves in five or six different use cases, some of which are onboarding, some are in new geographies, but many So those are some of those step-up transactions or re-verifications of identity in the real world. So when I come back to your question, and then I'll talk about product-market fit, when I come back to your question, we have seen transaction volumes grow.

Max: Re verifications of identity in the in the real World. So when I come back to your question and then I'll talk about product market fit when I come back to your question, we have seen transaction volumes grow in some geographies and some areas grow quite nicely.

Max: Also been able to do a good job of cross selling so some of the new capabilities that we have back into again that expand within the previously landed logo.

Max: But we've also as Dave alluded to in some of the <unk>.

Max: Heritage areas.

Max Carnecchia: We've also been able to do a good job of cross-selling, so some of the new capabilities that we have back into, again, that expand within the previously landed logo. But we've also, as Dave alluded to, in some of the... So when it all washes out, I think you get the complexion of where we are today.

Max: Identity attributes we've seen some some per unit pricing pressure.

Max: So when it all washes out I think you get the complexion of where we are today from a from a product market fit perspective, right. I mean these are some some basic value proposition things right do you have all the do you have all the key features that are needed right does the audience really care and do you have a business model.

Max Carnecchia: From a product market fit perspective, right, I mean, these are some basic value proposition things, right? Do you have all the key features that are needed, right? Does the audience really care, and do you have a business model that is enticing? And, you know, if all of that resonates, then you've established product-market fit in a given segment. And our segments are based on industries, they're based on geographies, and they're based on use cases. So that's what I'm referring to.

Max: That is enticing and you know if all of that resonates then you've established product market fit in a given segment and our segments are based on industries. They are based on geographies and they are based on use cases, so that's what I'm afraid.

Speaker Change: Got it.

Speaker Change: No that's great color and then just in terms of you know.

Speaker Change: The ability to to get and maybe timing more importantly to get to what I think you guys have talked about on the <unk> part of the business as it is.

Chad Bennett: Got it. And no, that's a great color.

Chad Bennett: And then just in terms of, you know, the ability to get to and maybe timing, more importantly, to get to what I think you guys have talked about on the identity part of the business, it's kind of an industry or market growth rate of, you know, kind of the high teens. Is that, you know, a potential fourth quarter event or fiscal year 25 event? Is there anything?

Speaker Change: Kind of a industry a market growth rate of kind of high teens.

Speaker Change: It is that you know a potential fourth quarter event or fiscal year 'twenty five event is there anything.

Max Carnecchia: What is it that specifically needs to happen to achieve those growth rates, or is it macro-related, or none of the above?

Speaker Change: Company specific that needs to happen to achieve those growth rates or is it macro related or another depot.

Max Carnecchia: No, I think it's a combination of those things. Yeah, so if we talk about, you know, 14 to 16 percent revenue growth over the next five years, those numbers come from third parties like Gartner or Liminal, you know, third-party analyst firms that focus on this identity category. You know, that is a five-year contract, right? So that's going to bounce around a little bit. We talked about macroeconomic circumstances, but if we go back to some of the comments that, you know, both I made in the prepared remarks but also Dave made in the prepared remarks, the composition of the Mitek identity portfolio today is just, you know, head and shoulders over where it was three or four years ago.

Speaker Change: No I think it's a combination of those things.

Speaker Change: If we talk about 14% to 16% CAGR growth over the next five years those numbers come from third parties like Gartner or <unk>.

Speaker Change: Third party analyst firms that focus on this <unk> category.

Speaker Change: That is a five year CAGR rate, so that's going to bounce around a little bit we talked about the macroeconomic circumstance, but if we go back to some of the comments that.

Speaker Change: Both I made in the prepared remarks, but also being made in the prepared remarks, the composition of the Mitek identity portfolio. Today is just head and shoulders over where it was three or four years ago between the biometrics and liveliness category creation that we're doing with IV R&D, then translating that into something that can be cloud consumed.

Speaker Change: For customers through my VIP or through my past, obviously plugging that into my VIP. The end to end low code no code orchestration layer.

Speaker Change: So many things going on there that we have to offer customers that just a short three years ago, we didn't have.

Max Carnecchia: Between the biometrics and liveness category creation that we're doing with IDR&D, then translating that into something that could be cloud-consumed for customers through MyPaaS, obviously plugging that into MyVIP, the end-to-end low-code, no-code orchestration layer, there are just so many things going on there that we have to offer customers that just a short three years ago, we didn't have. Those are the growth drivers on the identity side of things. And I think you'll see that in this, you know, second half of this year, but you'll see it going into 25 as well.

Speaker Change: Those are the growth drivers on the identity side of things and I think youll see that in the second half of this year, but you'll see it going into 'twenty five as well.

Speaker Change: And that's without even I don't want to reach back, but that's without even talking about cfd again, which very much is a digital banking offering but I've said this many times now but there is this very growing important intersection between what we do for fighting fraud for these financial institutions and what we do from an identity perspective.

Speaker Change: It's very rare for somebody to.

Speaker Change: Perpetrates check fraud without simultaneously perpetrating identity fraud, and the access that we're having to these customers for checkout defender the insights of the kind of challenges that they face is helping us in both lines of business.

Max Carnecchia: And that's without even – I don't want to reach back, but that's without even talking about CFD again, which is very much a digital banking offering. But I've said this many times now, that there's this very important intersection between what we do to fight fraud for these financial institutions and what we do from an identity perspective. It's very rare for somebody to perpetrate check fraud without simultaneously perpetrating identity fraud. And the access that we're having to these customers for Check Fraud Defender, the insights, and the kind of challenges that they face, is helping us in both lines of business.

Speaker Change: Got it thanks, so much nice job.

Speaker Change: Thanks.

Speaker Change: Thank you. The next question is from Scott Buck with H C. Wainwright. Please go ahead.

Scott Christian Buck: Hi, Good afternoon, guys just one just one for me.

Scott Christian Buck: With the IV business moving towards breakeven in the fourth quarter, what kind of margin tailwind on a consolidated basis should we be thinking about for fiscal 'twenty five.

Scott Christian Buck: You didn't guide for 'twenty, yes.

Scott Christian Buck: For 2005 outside of what we already did.

Chad Bennett: Got it. Thanks much. Nice job.

Speaker Change: Yes, but I wouldn't say, we're going to see directionally material changes to policy in the past.

Scott Christian Buck: Thanks.

Scott Christian Buck: Thank you. The next question is from Scott Buck with H.C. Wainwright. Please go ahead.

Speaker Change: Okay I appreciate that thanks, guys.

Scott Christian Buck: Good afternoon, guys. Just one from me. With the I.D.

Speaker Change: Thanks Scott.

Speaker Change: Thank you. This concludes our question and answer session I would like to turn the call back over to Todd currently used for closing remarks.

Scott Christian Buck: With business moving towards breakeven in the fourth quarter, what kind of margin tailwind on a consolidated basis should we be thinking about for fiscal 2020?

Todd: Thank you operator, and thank you all for joining us today and for your continued support as always if you have any follow up questions. We'd like to meet with management. Please feel free to reach out to me and I'll set something up thanks, again and have a great day.

David B. Lyle: https://www.scipio.com

Scott Christian Buck: Okay, I appreciate that. Thanks, guys.

Speaker Change: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.

Scott Christian Buck: Thanks, Scott.

Operator: Thank you. This concludes our question and answer session.

Todd Kehrli: Thank you, Operator, and thank you all for joining us today and for your continued support. As always, if you have any follow-up questions or would like to meet with management, please feel free to reach out to me, and I'll set something up. Thanks again, and have a great rest of your day.

Speaker Change:

Speaker Change: [music].

Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.

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