Q3 2024 Mitek Systems Inc Earnings Call

August 8, 2024

Welcome to the Mitek Fiscal 2024 Third Quarter Financial Results Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session.

Operator: Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session.

Operator: At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. I would now like to turn the call over to your host, Todd Kehrli, MKR Investor Relations. You may begin.

Todd Kehrli: I would now like to turn the call over to your host, Todd Kehrli, MKR Investor Relations.

I would now like to turn the call over to your host, Todd Kehrli, MKR Investor Relations. You may begin.

Todd Kehrli: You may begin. Thank you, operator.

Todd Kehrli: Thank you, Operator. Good afternoon, and welcome to Mitek's Fiscal 2024 Third Quarter Earnings Conference Call. With me on today's call are Mitek's Executive Chairman and Interim CEO, Scott Carter, and CFO, Dave Lyle. Before I turn the call over to Scott, I'd like to cover a few quick items. Today, Mitek issued a press release announcing its financial results for its fiscal 2024 third quarter ended June 30, 2024. That release is available on the company's website at MitekSystems.com.

Todd Kehrli: Good afternoon and welcome to my Texas School 2024, third quarter earnings conference call. With me on today's call are my tech executive chairman and interim CEO, Scott Carter, and CFO, Dave Lyle. Before I turn the call over to Scott, I'd like to cover a few quick items. Today, My Tech issued a press release announcing its financial results for its fiscal 2024 third quarter and a June 30, 2024. That release is available on the company's website at mytechsystems.com. This call is being broadcast live over the internet for all interested parties, and the webcast will be archived on the investor relations page of the company's website.

Todd Kehrli: Thank you, operator. Good afternoon and welcome to my technical 20-24 third quarter earnings conference call. With me on today's call, my tech's Executive Chairman and in terms of CEO Scott Carter and CFO Dave Lyle. Before I turn the call over to Scott, I'd like to cover a few quick items.

Today, my tech issue to press release announcing its financial results for its fiscal 2024, 3rd quarter, and the June 30, 2024. That releases available on the company's website at mytechsystems.com.

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 forward-looking statements. Such forward-looking statements may include comments about the company's plans and expectations of future performance.

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.

Todd Kehrli: 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 forward-looking statements. These forward-looking statements may include comments about the company's plans and expectations of future performance. Forward-looking statements are subject to a number of risks and uncertainties, which could cause actual results to differ materially.

Speaker Change: I want to remind everyone that on today's call, management will discuss certain factors likely to enclose 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 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, August 8, 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.

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.

Todd Kehrli: 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, August 8, 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.

Speaker Change: Our statements on this call are made as of today on this 8, 2024, and the company undertakes no obligation to revise or update publicly. Any of the forward-looking statements contained here in whether as a result of new information, future events, changes and expectations or otherwise.

Todd Kehrli: 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 described the differences between our GAAP and non-GAAP reporting and present the reconciliation between the two for the periods reported in the release.

Todd Kehrli: Additionally, throughout this call, we'll be discussing certain non-GAAP financial measures, today's earnings release, and the related current report on Form 8K, describe the differences between our GAAP and non-GAAP reporting, and present the reconciliation between the two for the periods reported in the release. With that said, I'll now turn the call over to Mitek's Executive Chairman and Interim CEO, Scott Carter.

Speaker Change: Additionally, throughout this call, we'll be discussing certain non-gap financial measures. Today's earnings release and the related current report on form 8K described the differences between our gap and non-gap reporting and present the reconciliation between the two for the periods reported in the release.

Scott Carter: With that said, I'm entering the call over to my tech executive, executive chairman, and interim CEO, Scott Carter. Good afternoon, everyone, and welcome. I appreciate your time today and your interest in my tech.

Scott Carter: With that said, I'll now turn the call over to MITEC's Executive Chairman and Interim CEO, Scott Carter.

Scott Carter: Good afternoon, everyone, and welcome. I appreciate your time today and your interest in Mitek. As you may know, on May 13th, we announced my appointment as Interim CEO. In the three months since then, I have conducted deep dives into all aspects of the business, and I have received invaluable feedback from shareholders, clients, and countless members of the Mitek team. Several important themes emerged, and I will discuss those today. Although there are revenue challenges we will address head-on today, my first 90 days as interim CEO have amplified my deeply held conviction in the exciting opportunities ahead for Mitek and our shareholders.

Scott Carter: Good afternoon, everyone, and welcome. I appreciate your time today and your interest in Mitek.

Scott Carter: As you may know, on May 13, we announced my appointment as Interim CEO. In the three months since then, I have conducted deep dives into all aspects of the business and have received invaluable feedback from shareholders, clients, and countless members of the my tech team. Double important themes emerge, and I will discuss those today. Although there are revenue challenges, we will address head on today. My first 90 days as interim CEO that's amplified my deeply held conviction and the exciting opportunities ahead for my tech and our shareholders. We have superior technology, important intellectual property, a high quality team, and are well positioned to capitalize on new and emerging market tailwinds.

Scott Carter: As you may know, on May 13th, we announced my appointment as interim CEO. In the three months since then, I have conducted deep dives into all aspects of the business.

Scott Carter: and have received invaluable feedback from shareholders, clients, and countless members of the

Scott Carter: Although there are revenue challenges we will address head-on today, my first 90 days as interim CEO has amplified my deeply held conviction in the exciting opportunities ahead for Mitek and our shareholders.

Scott Carter: We have superior technology, important intellectual property, a high-quality team, and are well positioned to capitalize on new and emerging market tailwinds. Before discussing this quarter's results, which are candidly mixed, I want to reaffirm the investment thesis behind our GenB product portfolio. Our initial vision has grown stronger, and our strategic investments have positioned us to capture significant opportunities in the evolving identity verification landscape. After pioneering mobile check deposit technology,

Scott Carter: We have superior technology, important intellectual property, a high quality team, and are well positioned to capitalize on new and emerging market tailwinds.

Scott Carter: Before discussing this quarter's results, which are candidly mixed, I want to reaffirm the investment thesis behind our identity product portfolio. Our initial vision has grown stronger, and our strategic investments have positioned us to capture significant opportunities in the evolving identity verification landscape. After pioneering mobile tech deposit technology, a space where Mitek remains the market leader with proprietary technology trusted by the largest banks worldwide and thousands of others, we leverage our expertise in verification technology to diversify into adjacent new markets, which we see as offering longer-term growth opportunities. We started with document verification, and we then evolved to include solutions that serve the entire customer life cycle, including advanced biometrics and passive liveness, the ability to determine if there was a real human being behind the image or voice, and doing so with minimal consumer friction.

Scott Carter: Before discussing this quarter's results, which are candidly mixed, I want to reaffirm the investment thesis behind our identity product portfolio.

Scott Carter: Our initial vision has grown stronger, and our strategic investments have positioned us to capture significant opportunities in the evolving identity verification landscape.

Scott Carter: In a space where Mitek remains the market leader with proprietary technology trusted by the largest banks worldwide and thousands of others, we leverage their expertise in verification technology to diversify into adjacent new markets, which we see as offering longer-term growth opportunities. We started with document verification, and we then evolved to include solutions that serve the entire customer lifecycle, including advanced biometrics and passive liveness, the ability to determine if there is a real human being behind the image or voice, and doing so with minimal consumer friction. My VIP serves to highlight our evolution from point solution to platform provider. My VIP clients conduct a complete know-your-customer, or KYC, process through a single interface.

Scott Carter: After pioneering mobile check deposit technology, a state where Mitek remains the market leader with proprietary technology trusted by the largest banks worldwide.

Scott Carter: thousands of others. We leverage their expertise in verification technology to diversify into adjacent new markets which we see is offering longer-term growth opportunities.

Scott Carter: We started with document verification and we then evolved to include solutions that serve the entire customer lifecycle.

Scott Carter: Including advanced biometrics and passive-likeness, the ability to determine if there is a real human being behind the image of your voice and doing so with minimal consumer friction.

Scott Carter: My VIP serves to highlight our evolution from point solution to platform provider. My VIP clients conduct a complete know-your-customer or KYC process with a single interface. We've reinforced our position as a leader in the financial service technology industry as a one-stop shop for identity verification. This is a much stickier product than our historical sales motion of selling individual point solutions. While our identity revenue was disappointing this quarter, we remained confident in our strategic direction. The synergies between our identity and deposit product portfolios, leveraging our core expertise and overlapping customer base, will enable us to deliver sustained value and continue building a robust and integrated identity verification platform.

Scott Carter: MyBIP serves to highlight our evolution from point solution to platform provider.

Scott Carter: My VIP clients conduct a complete know-your-customer, or KYC, process through a single interface.

Scott Carter: We've reinforced our position as a leader in the financial technology industry as a one-stop shop for identity verification. This is a much stickier product than our historical sales motions of selling individual points solutions. While our DENDE revenue was disappointing this quarter, we remain confident in our strategic direction. The synergies between our identity and deposits product portfolios, leveraging our core expertise and overlapping customer base, will enable us to deliver sustained value and continue building a robust and integrated identity verification platform. Now moving on to the third quarter.

Scott Carter: We've reinforced our position as a leader in the financial service technology, financial technology industry as a one stop shop for identity verification. This is much sticky year product that our historical sales motions are selling individual point solutions.

Scott Carter: While our den-day revenue was disappointing this quarter, we remain confident in our strategic direction.

Scott Carter: The synergies between our identity and deposits product portfolios, leveraging our core expertise and overlapping customer base, will enable us to deliver sustained value and continue building a robust and integrated identity verification platform.

Scott Carter: Now moving on to the third quarter, while our deposits revenue continued at solid performance, our identity product portfolio revenue was materially impacted by the IDR&D biometrics part of our business, and execution challenges associated with scaling our IDR&D product portfolio. Through lesser extent, but also material, we experienced a timing shift related to promotional campaign-driven transaction volume from two large banking clients. This pushed out some additional expected my VIP and mobile verify product revenue. Based on customer input, we now expect these campaigns to occur in Fiscal 2025.

Scott Carter: Well, our deposits revenue continued to perform solidly. Identity Product Portfolio revenue was materially impacted by the IDR&D biometrics part of our business and execution challenges associated with scaling our IDR&D product portfolio. To a lesser extent, but also material as we expected, we experienced a timing shift related to promotional campaign-driven transaction volume from two large banking clients. This pushed out some additional expected MyBIP and MobileVerify revenue.

Scott Carter: Now moving on to the third quarter.

Speaker Change: Well, our deposits revenue continued at solid performance.

Speaker Change: Our Kennedy product portfolio revenue was materially impacted by the IDR&D by metrics part of our business.

Speaker Change: and execution challenges associated with scaling our IDR and D-product portfolio. Through lesser extent, but also material, we expect that we experience a timing shift related to promotional campaign driven transaction volumes from two large banking clients.

Speaker Change: This pushed out some additional expected MyBIP and Mobile Verified product revenue.

Speaker Change: Based on customer input, we now expect these campaigns to occur in fiscal 2025.

Scott Carter: Based on customer input, we now expect these campaigns to occur in fiscal 2025. Now, let's dig deeper into the IDR&D-related revenue shortfall. As a reminder, IDR&D solutions are delivered as on-premise software term licenses. Given software revenue recognition standards, term license revenue associated with new deals is typically recognized in the quarter in which the deal is closed. You may recall that during our last earnings call, we discussed some uncertainty regarding the timing of some prospective larger deals across Q3 and Q4 of fiscal 2024.

Scott Carter: Let's dig deeper into the IDR&D-related revenue surfall. As a reminder, IDR&D solutions are delivered as on-premise software term licenses. Given software revenue recognition standards, term license revenue associated with new deals is typically recognized in the quarter in which the deal is closed. You may recall that during our last earnings call, we discussed some uncertainty regarding the timing of some prospective larger deals across Q3 and Q4 of fiscal 2024. In the June timeframe, we conducted deep dives and deal-by-deal inspection, and it became apparent to us that the prior forecast for IDR&D biometric product revenue was unlikely to be achieved in the second half of this fiscal year.

Speaker Change: Let's dig deeper into the IDR&D-related revenue shortfall. As a reminder, IDR&D solutions are delivered as on-premise software term licenses.

Speaker Change: Given software revenue recognition standards, term license revenue associated with new deals is typically recognized in the quarter in which the deal is closed.

Speaker Change: You may recall that during our last earnings call, we discussed some uncertainty regarding the timing of some prospective larger deals across Q3 and Q4, a fiscal 2024.

Scott Carter: In the June timeframe, we conducted deep dives and deal-by-deal inspections, and it became apparent to us that the prior forecast for IDRMD by metric product revenue was unlikely to be achieved in the second half of this fiscal year. IDRD had a number of promising six- and seven-figure opportunities, which were anticipated to close in the second half of our fiscal 2024. However, upon review, these deals proved to be more complex than anticipated.

Speaker Change: In the June timeframe, we conducted deep dives and deal-by-deal inspection, and it became apparent to us the prior forecast for IDRMG biometric product revenue was unlikely to be achieved in the second half of this fiscal year.

Scott Carter: IDR&D had a number of promising six- and seven-figure opportunities, which were anticipated to close in the second half of our fiscal 2024. However, upon review, these deals proved to be more complex than anticipated. These are deals with large multinational corporations for disruptive new applications of our biometrics technology. Dealing with customers of this size and complexity often leads to longer sales cycles.

Speaker Change: IDRD had a number of promising six and seven-figure opportunities which were anticipated to close in the second half of our fiscal 2024.

Speaker Change: However, upon review, these deals prove to be more complex than anticipated. These are deals with large multi-national corporations for disruptive new applications of our biometrics technology.

Scott Carter: These are deals with large multinational corporations for disruptive new applications of our biometrics technology. Dealing with customers of this size and complexity often leads to longer sales cycles. Now let's talk about our go-forward. Following our acquisition of IDR&D in 2021, our goal was to foster innovation and to leverage the entrepreneurial spirit, speed, and agility of the IDR&D teams by maintaining their original organizational and operating structure. As such, this team continued to operate with its own CRM and forecasts.

Speaker Change: Dealing with customers of this size and complexity often leads to longer sales cycles.

Scott Carter: Now, let's talk about our Go Forward Plan. Following our acquisition of IDR&D in 2021, our goal was to foster innovation and to leverage the entrepreneurial spirit, speed, and agility of the IDR&D teams by maintaining their original organizational and operating structure. As such, this team continued to operate with its own CRM and forecasting tools. As we look forward, the opportunities for biometric solutions are expanding. The IDR&D customer mix and use cases are much more diversified, and the vertical markets are large. Given these expanding opportunities, we have taken action to fully integrate IDR&D's technology, product development, sales and marketing, and operations into the rest of the company to improve execution.

Speaker Change: Now let's talk about our go-forward plan.

Speaker Change: Following our acquisition of IDR&D in 2021, our goal with the Foster Innovation and to leverage the Oscarneral, entrepreneurial spirit, speed, and agility of the IDR&D teams by maintaining their original organizational and operating structure.

Speaker Change: As such, this team continued to operate with his own CRM and forecasting tools.

Scott Carter: As we look forward, the opportunities for biometric solutions are expanding, the IDR&D customer mix and use cases are much more diversified, and the vertical markets are large. Given these expanding opportunities, we have taken action to fully integrate IDR&D's technology, product development, sales, marketing, and operations into the rest of the company to improve execution. The new structure is in place today.

Speaker Change: As we look forward, the opportunities for biometric solutions are expanding, the IDR and the customer mix and use cases are much more diversified, and the vertical markets are large.

Speaker Change: Given these expanding opportunities, we have taken action to fully integrate IDR&D's technology, product development, sales and marketing, and operations into the rest of the company to improve execution.

Scott Carter: The new structure is in place today. This will also include a gradual migration of the IDR&D brand into Mitek. I want to underscore the significant opportunity we have with IDR&D as customer and third-party evaluations confirm the superior efficacy of our proprietary biometrics technology. Our new organizational structure will improve our ability to execute upon that opportunity, playing through our respective strengths across the company.

Scott Carter: This will also include a gradual migration of the IDR&D brand into Mitek. I want to underscore the significant opportunity we have with IDR. As customer and third-party evaluations confirm the superior efficacy... of our proprietary biometrics technology, our new organizational structure will improve our ability to execute upon that opportunity, playing to our respective strengths across the company. A recent Wall Street Journal article reported a staggering 700% increase in deepfake incidents in 20

Speaker Change: The new structure is in place today. This will also include a gradual migration of the

Speaker Change: I want to underscore the significant opportunity we have with IDRD, as customer and third party evaluations confirm the superior efficacy.

Speaker Change: of our proprietary biometrics technology.

Speaker Change: Our new organizational structure will improve our ability to execute upon that opportunity, playing to our respective strengths across the company.

Scott Carter: A recent Wall Street Journal article reported a staggering 700% increase in deep-fake incidents in 2023. And according to a recent Liminal article, the deep-fake detection market was valued at $5.5 billion last year and is expected to reach $15.7 billion by 2026, a cager of 42%. In a few weeks, we will plan to launch Mitek's deep-fake detection product to address this problem. This launch follows several quarters of critical R&D work. Built on IDR&D technology, we believe this product is at the leading edge of combating the ballooning deep-fake problem. It is designed to verify a user's authenticity, ensuring they are real humans and not computer-generated or digital imposter.

Speaker Change: A recent Wall Street Journal article reported a staggering 700% increase in deep fake incidents in 2023.

Scott Carter: And according to a recent Liminal article, the deepfake detection market was valued at $5.5 billion last year and is expected to reach $15.7 billion by 2026, a CAGR of 42%. In a few weeks, we plan to launch Mitek's DeepFake Detection product to address this problem.

Speaker Change: and according to a recent liminal article, the Deep Take Detection Market was valued at $5.5 billion last year and it was expected to reach $15.7 billion by 2026, a cagre of 42%.

Speaker Change: In a few weeks, we will plan to launch my tech deep fake detection products to address this problem. This launch follows several quarters of critical R&D work.

Scott Carter: This launch follows several quarters of critical R&D work built on IDR&D technology. We believe this product is at the leading edge of combating this ballooning deep-sink problem. It is designed to verify a user's authenticity, ensuring they are real humans and not computer-generated or digital impostors.

Speaker Change: Built on IDR&D technology, we believe this product is at the leading edge of combating this ballooning deepfake problem.

Speaker Change: It is designed to verify a user's authenticity, ensuring they are real humans and not computer-generated or digital impostors.

Scott Carter: We have commenced early-stage conversations with our unsolved base of IDR&D partners and are pleased with their favorable response and interest. They tune for a press release on this new product soon.

Scott Carter: We have commenced early-stage conversations with our installed base of IDR&D partners and are pleased with their favorable response and interest. Stay tuned for a press release on this new product soon. Now, turning our attention to the rest of our identity product portfolio. Identity Transactional SAS revenue came in moderately short of our expectations in the third quarter.

Speaker Change: We have commenced early-stage conversations with our installed base of IDR&D partners and are pleased with their favorable response and interest. Stay tuned for a press release on this new product soon.

Scott Carter: Now, turning our attention to the rest of our identity product portfolio. Our identity transactional SaaS revenue came in moderately short of our expectations in the third quarter. As I said before, this is mainly due to two of our largest dendee customers delaying promotional campaigns until our fiscal 2025. Expansion revenue remains a large opportunity for Mitek and with a strong component of a dendee revenue in Q3. And our almost 100% customer renewal rate is strong validation of our industry-leading identity solutions. Today, the vast majority of a dendee transactional SaaS sales are in financial services, but there is much more opportunity within this vertical.

Speaker Change: Now, turning our attention to the rest of our identity product portfolio.

Speaker Change: Our Denity Transactual Saps revenue came in moderately short of our expectations in the third quarter. As I said before, this is mainly due to two of our largest Denity customers delaying promotional campaigns until our fiscal 2025.

Scott Carter: As I said before, this is mainly due to two of our largest identity customers delaying promotional campaigns until our fiscal 2025. However, expansion revenue remains a large opportunity for Mitek and was a strong component of identity revenue in Q3. And our almost 100% customer renewal rate is strong validation of our industry-leading identity solution. Today, the vast majority of identity transactional SaaS sales are in financial services, but there is much more opportunity within this vertical.

Speaker Change: Expansion revenue remains a large opportunity for Mitek and was a strong component of identity revenue in Q3, and our almost 100% customer renewal rate is strong validation of our industry-leading identity solutions.

Speaker Change: Today the vast majority of a candidate transactional staff sales are in financial services, but there is much more opportunity within this vertical. Bear in mind that over 7,000 banks and the U.S. alone benefit from my check mobile deposit.

Scott Carter: Bear in mind that over 7,000 banks in the U.S. alone benefit from Mitek Mobile Deposit. Yet, we have only penetrated a single-digit percentage of banks across our core geographic markets in the U.S., U.K., and EMEA with our identity solutions. We are now laser-focused on cross-selling the combined ID, R&D, and Mitek identity and deposit story to senior executive audiences. This has served to significantly elevate our conversation.

Scott Carter: Bear in mind that over 7,000 banks in the U.S. alone benefit from Mitek mobile deposits. Yet, we have only penetrated a single-digit percentage of banks across our core geographic markets in the US, UK, and AMIA with our dendee solutions. We are now laser focused on cross-selling the combined IDR&D and Mitek identity and deposit story to senior executive audiences. This has served to significantly elevate our conversation. One of those cross-file opportunities is with MyPass. Our MyPass product combines voice and facial biometrics in a single transaction, replacing legacy approaches, such as user name and passwords, with more modern, face and frictionless authentication.

Speaker Change: Yet, we have only penetrated a single-digit percentage of banks across our core geographic markets in the U.S., U.K., and EMEA with our Identity Solutions.

Speaker Change: We are now laser-focused on cross-selling the combined IDR&D and Mitek identity and deposit story to senior executive audiences. This has served to significantly elevate our conversations.

Scott Carter: One of those cross-sale opportunities is with MyPass. Our MyPass product combines voice and facial biometrics in a single transaction, replacing legacy approaches, such as username and password, with more modern, safe, and frictionless authentication. MyPASS is being used or tested by five of the top 10 banks in the UK, further validating interest in this disruptive product offer. MyPath leverages technology from IDR&D but is sold and delivered through traditional Mitek sales channels and as a transactional SaaS business model.

Speaker Change: One of those cross-sell opportunities is with my past. Our mypass product combines voice and facial biometrics in a single transaction, replacing legacy approaches such as user name and passwords with more modern, face and frictionless authentication.

Scott Carter: MyPass is being used or tested by five of the top-end banks in the UK, further validating interest in this disruptive product offering. MyPass leverages technology from IDR&D, but is sold and delivered through traditional MyPass sales channels and as a transactional SaaS business model.

Speaker Change: MyPASS is being used or tested by five of the top 10 banks in the UK further validating interest in this disruptive product offering.

Speaker Change: My past leverage is technology for my DRND, but it's sold and delivered through traditional my tech sales channels and as a transactional SaaS business model.

Scott Carter: Looking ahead, we are keenly focused on product portfolio optimization, close inspection of customer level profitability, growth and contribution margin, by geographic and vertical market and by use case and product, reveal opportunities to target our resources in a way that drives the best ROI. In identity, we will increasingly target direct spelling efforts towards the most profitable customer segments, while adjusting pricing and channel strategies for unprofitable customer segments. Let's use MyVIP as an example. MyVIP is a platform that provides customers with the ability to integrate a variety of MyTech proprietary and third-party partner point solutions into a one-stop shop for dandy verification.

Scott Carter: Looking ahead, we are keenly focused on product portfolio optimization. Close inspection of customer-level profitability, growth, and contribution margin by geographic and vertical market and by use case and product reveals opportunities to target our resources in a way that drives the best ROI. For Identity, we will increasingly target direct selling efforts toward the most profitable customer segments while adjusting pricing and channel strategies for unprofitable customers. Let's use MyVIP as an example.

Speaker Change: Looking ahead, we are keenly focused on product portfolio optimization.

Speaker Change: Close inspection of customer level profitability, growth, and contribution margin by geographic and vertical market and by use case and product reveal opportunities to target our resources in a way that drives the best ROI.

Speaker Change: In Identity, we will increasingly target direct selling efforts towards the most profitable customer segments while adjusting pricing and channel strategies for unprofitable customer segments.

Scott Carter: MyVIP is a platform that provides customers with the ability to integrate a variety of Mitek proprietary and third-party partner point solutions into a one-stop shop for identity verification. This creates a stronger value proposition and a stickier customer relationship, therefore supporting higher price points and driving higher contribution. Accordingly, we are refining the go-to-market motion so that we can capitalize on this opportunity for improved quality of earned earnings. Likewise, when it comes to document verification, whether that be in our Mobile Verify offering or as an individual point solution within MyVIP, Automated transactions provide a higher contribution margin than agent transactions.

Speaker Change: Let's use my VIP as an example.

Speaker Change: My VIP at the platform that provides customers with the ability to integrate a variety of my tech proprietary and third-party partner point solutions into a one-stop shop for Dandy Verification.

Scott Carter: This creates a stronger value proposition and a stickier customer relationship; therefore, supporting higher price points and driving higher contribution margins. Accordingly, we are refining good market motions so that we can capitalize on this opportunity for improved quality of earnings in our identity business. Likewise, when it comes to document verification, whether that be in our mobile verify offering or as an individual point solution within MyVIP, automated transactions provide a higher contribution margin than agent transactions. This, too, further informs our pricing and sales strategies as well as our assessment of product market fits going forward. These and other portfolio optimization efforts further increase our conviction and the opportunities ahead to drive improved return on invested capital in our dandy business.

Speaker Change: This creates a stronger value proposition and a stickier customer relationship, therefore supporting higher price points and driving higher contribution margins.

Speaker Change: Accordingly, we are refining go-to-market motions so that we can capitalize on this opportunity for improved quality of earnings in our identity business.

Speaker Change: Likewise, when it comes to document verification, whether that be in our mobile verify offering or as an individual point solution within MyBIP,

Speaker Change: automated transactions provide a higher contribution margin than agent transactions. This too further informs our pricing and sales strategies as well as our assessment of product market fit going forward.

Speaker Change: These and other portfolio optimization efforts further increase our conviction and the opportunities ahead to drive improved, return on invested capital in our Gendi business.

Scott Carter: This, too, further informs our pricing and sales strategies as well as our assessment of product market fit going forward. These and other portfolio optimization efforts further increase our conviction in the opportunities ahead to drive improved return on invested capital in our identity bank. Now, turning our attention to our deposits product portfolio, I'll start by highlighting our mobile deposit franchise, which we are pleased to report continues to deliver growth in this highly cash-generative revenue.

Scott Carter: Now, turning our attention to our deposit product portfolio. I'll start by highlighting our mobile deposit franchise, which we are pleased to report continued to deliver growth in this highly cash-generative revenue stream. Revenue for this product grew year-to-year in Q3 due to a combination of increased consumer adoption, finding of checkery orders, and continued price increases, catching up in our efforts to capture our fair share values. That we created through this technology, which has transformed the entire retail banking industry.

Speaker Change: Now, turning our attention to our deposits product portfolio. I'll start by highlighting our mobile deposit franchise.

Speaker Change: which we are pleased to report continued to deliver growth in this highly cash-generative revenue stream.

Scott Carter: Revenue for this product group increased year-over-year in Q3 due to a combination of increased consumer adoption, signing of check reorders, and continued price increases, catching up in our efforts to capture our fair share of value that we created through this technology, which has transformed the entire retail banking industry. Now I want to turn our attention to ChexRobDefender, or CFD, which continues to grow its customer base, underscoring the strong interest from banks for this industry-leading innovative offer. As a reminder, CheckFraud Defender, our cloud-hosted product building consortium data and AI technology and powered by MyVIP, enables customers to identify fraudulent checks.

Speaker Change: Revenue for this product grew...

Speaker Change: year-over-year in Q3 due to a combination of increased consumer adoption, signing of check reorders, and continued price increases, catching up in our efforts to capture our fair share value.

Speaker Change: that we created through this technology, which has transformed the entire retail banking industry.

Scott Carter: Now, I want to turn our attention to CheckSrob Defender for CFD, which continues to grow its customer base, underscoring the strong interest from banks for this industry-leading innovative offering. As a reminder, that Fraud Defender, our cloud-hosted product, building consortium data, and AI technology, and powered by my VIP, enables customers to identify fraudulent checks. This quarter, a top five US bank went live on the consortium. This bank implemented CFD in its real-time mode and is live in all of its 2,000-plus branches. Real-time mode enables CFD to evaluate check deposits where the true mobile deposit, ATM, or in branch, to instantly flag likely fraudulent checks.

Speaker Change: Now, I want to turn our attention to Czech Rob Defender, or CFD, which continues to grow its customer base.

Speaker Change: underscoring the strong interest from banks for this industry-leading innovative offering.

Speaker Change: As a reminder, tech fraud defender, our cloud-hosted product, building consortium data and AI technology and powered by my VIP, enables customers who identify fraudulent checks.

Scott Carter: This quarter, a top five U.S. bank went live on the consortium. This bank implemented CFD in its real-time mode and is live in all of its 2,000-plus branches. Real-time mode enables CFD to evaluate check deposits, whether through mobile deposit, ATM, or in-branch, to instantly flag likely fraudulent checks. There are now over 40 banks under contract for the consortium. This should position us well to achieve our goal of 50 plus CFD customers by the end of this fiscal year.

Speaker Change: This quarter, a top five U.S. bank went live on the consortium.

Speaker Change: This bank implemented CFD in its real-time mode and is live in all of its 2,000-plus branches.

Speaker Change: Real-time mode enables CFD to evaluate check deposits, whether through mobile deposit, ATM, or in-branch, to instantly flag likely fraudulent checks.

Scott Carter: There are now over 40 banks under contract for the consortium. This should position as well to achieve our goal of 50 plus CFD customers by the end of this fiscal year. Already in Q4, we've signed another top 30 banks, and we expect another top 10 banks signing Q4. As you can see, demand for CFD is strong, and as the consortium continues to grow, the flywheel effect of this network model will continue to take hold. As I just mentioned, a top 5 bank went live on Check Fraud Defender during the third quarter. Importantly, three of the top 5 banks are already using a prior on-premise generation of CFD.

Speaker Change: There are now over 40 banks under contract for the consortium.

Speaker Change: This should position us well to achieve our goal of 50 plus CFD customers by the end of this fiscal year. Already in Q4, we've signed another top 30 bank, and we expect another top 10 bank to sign in Q4.

Scott Carter: Already in Q4, we've signed another top 30, and we expect another top 10 bank to sign in Q4. As you can see, demand for CFD is strong, and as the consortium continues to grow, the flywheel effect of this networked model will continue to take hold. As I just mentioned, a top-five bank went live on CheckFraud Defender during the third quarter.

Speaker Change: As you can see, demand for CFD is wrong, and as the consortium continues to grow, the flywheel effect as this networks model will continue to take hold.

Speaker Change: As I just mentioned, a top five bank went live on CheckFraud Defender during the third quarter.

Scott Carter: Importantly, three of the top five banks are already using a prior on-premise generation of CFD. These stand-alone implementations provide the banks with protection for only their individual customers. However, even they are quickly realizing the power of our AI-based cross-bank consortium and are actively evaluating CFD as the next step in their check fraud migration strategy. Check fraud continues to be an acute problem for banks.

Operator: Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session.

Speaker Change: Three of the top five banks are already using a prior on-premise generation of CFD. These standalone implementations provide the banks with protection for only their individual institutions.

Scott Carter: These standalone implementations provide the banks with protection for only their individual institutions. However, even they are quickly realizing the power of our AI-based cross-bank consortium and are actively evaluating CFD as the next step in their check fraud migration strategy. As check fraud continues to be an acute problem for banks and continues to grow rapidly, the ability to leverage AI and machine learning to observe industry-wide patterns and activity and develop sophisticated profiles of both normal consumer behavior and bad actor activity across the ecosystem drives the demonstrably high ROI.

Todd Kehrli: I would now like to turn the call over your host, Todd Kehrli, MKR Investor Relations. You may begin. Thank you, operator.

Speaker Change: However, even they are quickly realizing the power of our AI-based cross-bank consortium and are actively evaluating CFD as the next step in their check fraud migration strategy.

Todd Kehrli: Good afternoon and welcome to my Texas School 2024, third quarter earnings conference call with me on today's call or my tech executive chairman and interim CEO Scott Carter and CFO Dave Lyle. Before I turn the call over to Scott, I'd like to cover a few quick items. Today, my tech issued a press release announcing its financial results for its fiscal 2024, third quarter, and a June 30, 2024. That release is available on the company's website at mytechsystems.com.

Speaker Change: As check fraud continues to be an acute problem for banks and continues to grow rapidly, the ability to leverage AI and machine learning to observe industry-wide patterns

Scott Carter: The ability to leverage AI and machine learning to observe industry-wide patterns and activity and develop sophisticated profiles of both normal consumer behavior and bad actor activity across the ecosystem drives a demonstrably high ROI. In summary, over the past three months, we've identified some key challenges and opportunities, and taken decisive action to address the challenge and capitalize on the opportunity. While our Gen D revenue performance has been underwhelming, strong client engagement suggests it's a temporary setback.

Speaker Change: and activity and develop sophisticated profiles of both normal consumer behavior and bad-after activity across the ecosystem drives the demonstraly high ROI.

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 forward-looking statements. These forward-looking statements may include comments about the company's plans and expectations of future performance.

Scott Carter: In summary, over the past three months, we identified some key challenges and opportunities. We've taken decisive action to address the challenges and capitalize on the opportunities. While our agenda revenue performance has been underwhelming, strong client engagement suggests it's a temporary sub-setback. Our identity product portfolio has shown solid renewals and expansions. As digital transformation and secure online access become increasingly critical, we are well positioned to capitalize on a massive market opportunity, leveraging our strong banking customer base. Also, as mobile deposit continues to grow and generate cash flow, CFD is gaining momentum and poised to be a significant future revenue driver for my check.

Speaker Change: In summary, over the past three months we've identified some key challenges and opportunities.

Speaker Change: We've taken decisive action to address the challenges.

Speaker Change: and capitalized on the opportunities.

Speaker Change: While our Gen D revenue performance has been underwhelming, strong client engagement suggests it's a temporary setback.

Scott Carter: Our Genity product portfolio has shown solid renewals and expansion. As digital transformation and secure online access become increasingly critical, we are well positioned to capitalize on a massive market opportunity, leveraging our strong banking customer base. Also, as mobile deposit continues to grow and generate cash flow, CFD is gaining momentum and poised to be a significant future revenue driver for Mitek. Lastly, I want to provide an update on our CEO. While we are still interviewing new candidates, several have advanced to later stages of our process, and each has a strong track record of simultaneously driving growth and margin improvement within or within or adjacent to the markets where Mitek already operates.

Speaker Change: Our identity product portfolio has shown solid renewals and expansions.

Speaker Change: As digital transformation and secure online access become increasingly critical, we are well positioned to capitalize on a massive market opportunity, leveraging our strong banking customer base.

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 10K and 10Q for a complete description of these risks. Our statements on this call are made as of today, August 8, 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.

Speaker Change: Also, as mobile deposit continues to grow and generate cash flow, CFD is gaining momentum and poised to be a significant future revenue driver for Mitek. Lastly, I want to provide an update on our CEO search.

Scott Carter: Lastly, I want to provide an update on our CEO's search. While we are still interviewing new candidates, several have advanced to the later stages of our process, and each has a strong track record of simultaneously driving growth and margin improvement within or adjacent to the markets where my tech already operates. We are confident we will be able to hire a new CEO who builds shareholder value by leveraging our industry-leading product offerings and driving growth, while at the same time driving sustained profitability across all of my tech's businesses.

Speaker Change: While we are still interviewing new candidates, several have advanced to later stages of our process, and each has a strong track record of simultaneously driving growth and margin improvement, within or adjacent to the markets where Mitek already operates.

Todd Kehrli: Additionally, throughout this call, we'll be discussing certain non-gap financial measures. Today's earnings release and the related current report on form 8K described the differences between our gap and non-gap reporting and present the reconciliation between the two for the periods reported in the release.

Scott Carter: We are confident we will be able to hire a new CEO who will build shareholder value by leveraging our industry-leading product offerings and driving growth while at the same time driving sustained profitability across all of Mitek's businesses. Before I hand it over to Dave, I'd like to acknowledge his impact as our CFO over the past seven months. He led us through audit and NASDAQ compliance challenges, improved our finance and accounting teams, and has invaluable experience from his previous technology-related public company CFO role. Dave, I want to thank you for these contributions, and I look forward to continuing this partnership. Now it is over to you to provide an update on our Q3 financial results and outlook.

Speaker Change: We are confident we will be able to hire a new CEO who will build shareholder value by leveraging our industry-leading product offerings and driving growth, while at the same time driving sustained profitability across all of Mitek's businesses.

Scott Carter: With that said, I'm entering the call over to my tech executive executive chairman and interim CEO Scott Carter.

Scott Carter: Before I hand it over to Dave, I'd like to acknowledge his impact as our CFO over the past seven months. He led us through audit and NASDAQ compliance challenges, improved our finance and accounting teams, and has invaluable experience from his previous technology-related public company CFO roles. Dave, I want to thank you for these contributions, and I look forward to continuing this part.

Scott Carter: Good afternoon, everyone, and welcome. I appreciate your time today and your interest in my tech. As you may know, on May 13, we announced my appointment as interim CEO. In the three months since then, I have conducted deep dives into all aspects of the business and have received invaluable feedback from shareholders, clients, and countless members of the my tech team. Double important themes emerge, and I will discuss those today. Although there are revenue challenges we will address head on today, my first 90 days as interim CEO that's amplified my deeply held conviction and the exciting opportunities ahead for my tech and our shareholders.

Speaker Change: Before I hand it over to Dave, I'd like to acknowledge his impact as our CFO over the past seven months.

Speaker Change: He led us through audit and NASDAQ compliance challenges, improved our finance and accounting teams, and has invaluable experience from his previous technology-related public company CFO roles. Dave, I want to thank you for these contributions, and I look forward to continuing this partnership.

David Lyle: Now over to you to provide an update on our Q3 financial results and that look. Thanks, Scott. I'll begin by taking you through the fiscal Q3 2024 financial results and then comment on our outlook. Looking first at revenue, total revenue for fiscal Q3 increased 4% year over year to $45 million. We saw a solid 18% year-over-year revenue growth from deposits. With mobile check deposit revenue being the primary growth driver and Check Fraud Defender showing a double digit growth rate year over year. Mobile check deposit revenue saw a healthy cluster of earlier than expected renewals, as continued strong transaction volumes led customers to utilize their prepaid transaction inventory faster than anticipated.

Dave: Now over to you to provide an update on our Q3 financial results and outlook.

David Lyle: I'll begin by taking you through the fiscal Q3 2024 financial results and then comment on our outlook. Looking first at revenue, total revenue for fiscal Q3 increased 4% year over year to $45 million. We saw a solid 18% year-over-year revenue growth from deposits, with mobile check deposit revenue being the primary growth driver, and check fraud defender showing a double-digit growth rate year-over-year. Mobile check deposit revenue also saw a healthy cluster of earlier-than-expected renewals as continued strong transaction volumes led customers to utilize their prepaid transaction inventories faster than anticipated.

Dave: Thanks, Scott.

Dave: I'll begin by taking you through the fiscal Q3 2024 financial results and then comment on our outlook.

Scott Carter: We have superior technology, important intellectual property, a high quality team, and are well positioned to capitalize on new and emerging market tailwinds. Before discussing this quarter's results, which are candidly mixed, I want to reaffirm the investment thesis behind our identity product portfolio. Our initial vision has grown stronger, and our strategic investments have positioned us to capture significant opportunities in the evolving identity verification landscape. After pioneering mobile tech deposit technology, a space where Mitek remains the market leader with proprietary technology trusted by the largest banks worldwide and thousands of others, we leverage our expertise in verification technology to diversify into adjacent new markets, which we see as offering longer-term growth opportunities.

Dave: Looking first at revenue, total revenue for fiscal Q3 increased 4% year-over-year to $45 million.

Speaker Change: We saw a solid 18% year-over-year revenue growth from deposits, with mobile check deposit revenue being the primary growth driver, and Check Fraud Defender showing a double-digit growth rate year-over-year.

Speaker Change: Mobile check deposit revenue saw a healthy cluster of earlier-than-expected renewals as continued strong transaction volumes led customers to utilize their prepaid transaction inventories faster than anticipated.

David Lyle: Identity product revenue declined 14% year over year, with IDR&D biometrics revenue softness contributing to much of that decline. For reasons described earlier by Scott, pricing pressure on our mobile verify product, as well as sunsetting e-car hardware revenue, contributed to the decline to a lesser extent. Looking more closely at mobile, verify the year-over-year decline was mostly attributable to some of our large customers renewing contracts at lower pricing. Notably, mobile verify transaction volume increased year over year, and we saw close to zero customer term during fiscal Q3, signaling healthy demand despite the competitive pricing environment. I'll talk more about how this could play out in my outlook commentary near the end of my remarks.

David Lyle: Identity product revenue declined 14% year over year, with IDR&D biometrics revenue softness contributing to much of that decline for reasons described earlier by Scott. Pricing pressure on our mobile verify product as well as declining e-car hardware revenue contributed to the decline to a lesser extent. Looking more closely at MobileVerify, the year-over-year decline was mostly attributable to some of our large customers renewing contracts at lower prices. Notably, mobile verified transaction volume increased year-over-year, and we saw close to zero customer churn during fiscal Q3, signaling healthy demand despite the competitive pricing environment. I'll talk more about how this could play out in my Outlook commentary near the end of my remarks.

Scott Carter: Identity product revenue declined 14% year over year, with IDR&D biometrics revenue softness exhibiting to much of that decline, for reasons described earlier by Scott.

Scott Carter: Pricing pressure on our mobile verify product as well as sun setting E-Car hardware revenue contributed to the decline to a lesser extent.

Scott Carter: We started with document verification and we then evolved to include solutions that serve the entire customer life cycle, including advanced biometrics and passive liveness, the ability to determine if there was a real human being behind the image or voice and doing so with minimal consumer friction. My VIP serves to highlight our evolution from point solution to platform provider. My VIP clients conduct a complete know-your-customer or KYC process with single interface. We've reinforced our position as a leader in the financial service technology industry as a one-stop shop for identity verification.

Scott Carter: Looking more closely at MobileVerify, the year-over-year decline was mostly attributable to some of our large customers renewing contracts at lower pricing.

Scott Carter: Notably, Mobile Verified Transaction Volume increased year over year, and we saw close to zero customer churn during fiscal Q3, signaling healthy demand despite the competitive pricing environment.

Scott Carter: I'll talk more about how this could play out in my outlook commentary near the end of my remarks.

David Lyle: Looking at revenue by reporting category, software and hardware revenue grew 6% to $22.7 million in fiscal Q3, mostly driven by mobile check deposit, but offset by declined and IDR&D biometrics product revenue. Services and other revenue grew 3% to $22.3 million year over year. As we saw, check fraud defender begin to contribute to our transactional SaaS revenue with additional contribution for mobile check deposit maintenance revenue growth. Gap operating expense for fiscal Q3 2024 was 37.8 million compared to 35.6 million a year ago. The increase was primarily driven by $900,000 in compensation related cost of living adjustments for employees we relocated from our offices in Russia, which have now been shut down, as well as $300,000 of investments in our AWS cloud service technology and $300,000 in retention expense associated with key go to market and technical product personnel.

Scott Carter: Looking at revenue by reporting category, software and hardware revenue grew six percent to twenty two point seven million dollars in fiscal Q3, mostly driven by mobile check deposit, but offset by declines in IDR and biometrics product revenue.

Scott Carter: This is much stickier product than our historical sales motion of selling individual point solutions. While our identity revenue was disappointing this quarter, we remained confident in our strategic direction. The synergies between our identity and deposit product portfolios, leveraging our core expertise and overlapping customer base, will enable us to deliver sustained value and continue building a robust and integrated identity verification platform. Now moving on to the third quarter, while our deposits revenue continued at solid performance, our identity product portfolio revenue was materially impacted by the IDR&D biometrics part of our business, and execution challenges associated with scaling our IDR&D product portfolio.

Scott Carter: Services and other revenue grew 3% to 22.3 million year-over-year as we saw CheckFraud Defender begin to contribute to our transactional SAS revenue with additional contribution for mobile check deposit maintenance revenue growth.

Scott Carter: Gap operating expense for fiscal Q3 2024 was $37.8 million.

David Lyle: The increase was primarily driven by $900,000 in compensation-related cost-of-living adjustments for employees we relocated from our offices in Russia, which have now been shut down, as well as $300,000 of investments in our AWS cloud service technology and $300,000 in retention expense associated with key go-to-market and technical product personnel. Non-GAAP operating expense for fiscal Q3-24 was $27.1 million compared to $25.5 million a year ago and The year-over-year increase in non-GAAP operating expense was primarily due to employee-related costs associated with the move from Russia and, to a lesser extent, due to the investment in AWS cloud services for our growing transactional SaaS business and biometrics technology.

Scott Carter: compared to $35.6 million a year ago. The increase was primarily driven by $900,000 in compensation-related cost-of-living adjustments for employees we relocated from our offices in Russia, which have now now been shut down.

Scott Carter: Through lesser extent, but also material, we experienced a timing shift related to promotional campaign-driven transaction volume from two large banking clients. This pushed out some additional expected my VIP and mobile verify product revenue. Based on customer input, we now expect these campaigns to occur in fiscal 2025. Let's dig deeper into the IDR&D-related revenue surfall. As a reminder, IDR&D solutions are delivered as on-premise software term licenses. Given software revenue recognition standards, term license revenue associated with new deals is typically recognized in the quarter in which the deal is closed.

Scott Carter: as well as $300,000 of investments in our AWS cloud service technology and $300,000 in retention expense associated with key go-to-market and technical product personnel.

David Lyle: Non-GAAP operating expense for fiscal Q3 24 was 27.1 million compared to 25.5 million a year ago and down $900,000 sequentially from 28 million in Q2 24. The year-over-year increase in non-GAAP operating expense was primarily due to employee-related costs associated with the move from Russia and, to a lesser extent, due to the investment in the AWS cloud services for our growing transactional SaaS business and biometrics technology. The $900,000 sequential decrease in non-GAAP operating expense was due mainly to lower sales expenses from cost optimizations made in the quarter, lower management bonus accrual, as well as lower external contract support costs as we begin our path to normalization following previous filing delays.

Scott Carter: non-GAAP operating expense for fiscal Q3-24 was $27.1 million compared to $25.5 million a year ago and down $900,000 sequentially from $28 million in Q2-24.

Scott Carter: The year-over-year increase in non-gap operating expense was primarily due to employee-related cost associated with the move from Russia and to a lesser extent due to the investment in the AWS Cloud Services for our growing transactional SaaS business and biometrics technology.

Scott Carter: You may recall that during our last earnings call, we discussed some uncertainty regarding the timing of some perspective larger deals across Q3 and Q4 of fiscal 2024. In the June timeframe, we conducted deep dives and deal-by-deal inspection, and it became apparent to us the prior forecast for IDR&D biometric product revenue was unlikely to be achieved in the second half of this fiscal year. IDR&D had a number of promising six and seven-figure opportunities which were anticipated to close in the second half of our fiscal 2024.

David Lyle: The $900,000 sequential decrease in non-GAAP operating expense was due mainly to lower sales expenses from cost optimizations made in the quarter, lower management bonus accruals, as well as lower external contract support costs as we began our path to normalization following previous filing delays. Excluded from our non-GAAP operating expense was $10.8 million of non-recurring items, of which $7.3 million were non-cash accounting items, and 3.5 million were cash items. The non-cash items were comprised of the amortization of purchased intangibles from prior acquisitions and Stock Based Compensation.

Scott Carter: The $900,000 sequential decrease in non-GAAP operating expense

Scott Carter: was due mainly to lower sales expenses from cost optimizations made in the quarter, lower management bonus accrual, as well as lower external contract support costs, as we began our path to normalization following previous filing delays.

David Lyle: Excluded from our non-GAAP operating expense was $10.8 million of non-recurring items, of which $7.3 million were non-cash accounting items and $3.5 million were cash items. The non-cash items were comprised of the amortization of purchased intangibles from prior acquisitions and stock-based compensation expense. The cash items were primarily comprised of about $1.3 million in executive transition costs, $1.1 million in restructuring costs associated with our cost optimization efforts, and $1 million in non-reoccurring audit fees. Please see our earnings release for more detailed reconciliation. Gap operating income was $0.7 million in fiscal Q324, or a Gap operating margin of 2%. Our non-Gap operating income was $11.6 million in fiscal Q324, or a non-Gap operating margin of 26%.

Scott Carter: excluded from our non-GAAP operating expense was 10.8 million dollars of non-recurring items, of which 7.3 million were non-cash accounting items.

Scott Carter: and 3.5 million were cash items. The non-cash items were comprised of the amortization of purchased and tangibles from prior acquisitions.

Scott Carter: However, upon review, these deals proved to be more complex than anticipated. These are deals with large multinational corporations for disruptive new applications of our biometrics technology. Dealing with customers of this size and complexity often leads to longer sales cycles.

David Lyle: The cash items were primarily comprised of about $1.3 million in executive transition costs, $1.1 million in restructuring costs associated with our cost optimization efforts, and $1 million in non-reoccurring audit fees. Please see our earnings release for more detailed reconciliation. Gap-bothering income was $0.7 million in fiscal Q3-24, or a gap operating margin of 2%. Our non-gap operating income was $11.6 million in fiscal Q3-24, or a non-gap operating margin of 26%. Gap net income for fiscal Q3-24 was $0.2 million, which rounds to $0.00 per diluted share on 48 million shares. Non-GAAP net income grew 27% to $12 million, and earnings per diluted share was $0.25.

Scott Carter: and Stock Based Compensation Expense.

Scott Carter: The cash items were primarily comprised of about 1.3 million in executive transition costs.

Scott Carter: 1.1 million in restructuring costs associated with our cost optimization efforts.

Scott Carter: and $1 million in non-reoccurring audit fees. Please share earnings release for more detailed reconciliation.

Speaker Change: Gap Auburning income.

Scott Carter: was $0.7 million in fiscal Q3-24, or a gap operating margin of 2%. Our non-gap operating income was $11.6 million in fiscal Q3-24, or a non-gap operating margin of 26%.

David Lyle: Gap net income for fiscal Q324 was $0.2 million, which rounds to 0 cents per diluted share on 48 million shares. Non-GAAP net income grew 27% to $12 million, and earnings per diluted share was 25 cents. Turning to our balance sheet, our cash and investments at the end of fiscal Q3 were $133.2 million, $2.9 million higher sequentially versus fiscal Q2. It's important to note that during fiscal Q3 we repurchased, we repurchased about 820,000 I-Tech shares at an average share price of $12.12 and 25 cents, including trading costs, totaling about $10 million. Therefore, adjusting for share repurchases, our cash and investments balance would have increased by $12.9 million during the quarter.

Speaker Change: Gapneden, come for fiscal Q324, was 0.2 million, which rounds to zero cents per diluted share on 48 million shares.

Scott Carter: Given these expanding opportunities, we have taken action to fully integrate IDR&D's technology, product development, sales and marketing and operations into the rest of the company to improve execution. The new structure is in place today. This will also include a gradual migration of the IDR&D brand into Mitek. I want to underscore the significant opportunity we have with IDR&D as customer and third-party evaluations confirm the superior efficacy of our proprietary biometrics technology. Our new organizational structure will improve our ability to execute upon that opportunity playing through our respective strengths across the company.

Scott Carter: non-GAAP net income grew 27% to $12 million and earnings per diluted share was $0.25.

Scott Carter: Turning to our balance sheet.

Scott Carter: Our cash and investments at the end of Fiscal Q3 were $133.2 million, $2.9 million higher sequentially versus Fiscal Q2. It's important to note that during Fiscal Q3, we repurchased about 820,000 Mitek shares.

Scott Carter: at an average share price of $12.25.

Scott Carter: including trading costs.

David Lyle: Therefore, adjusting for share repurchases, our cash and investments balance would have increased by $12.9 million during the quarter. Let's now shift to our fiscal 2024 outlook. With regard to revenue, we are resetting our fiscal 24 revenue range to $169 to $173 million from our previous range of $180 to $185 million, which implies fiscal 24 revenue to be in the range of $40.1 to $44.1 million. This is primarily due to the shortfall in larger pipeline deals from our IDR&D biometrics products that were expected to close in the second half of fiscal 2024, as well as expected softness from two large identity customers delaying promotional campaigns until our fiscal year 2025.

Scott Carter: totaling about $10 million.

Scott Carter: Therefore, adjusting for share repurchases our cash and investments balance would have increased.

Scott Carter: A recent Wall Street Journal article reported a staggering 700% increase in deep-fake incidents in 2023. And according to a recent liminal article, the deep-fake detection market was valued at $5.5 billion last year and is expected to reach $15.7 billion by 2026, a cager of 42%. In a few weeks, we will plan to launch Mitek's deep-fake detection product to address this problem. This launch follows several quarters of critical R&D work. Built on IDR&D technology, we believe this product is at the leading edge of combating the ballooning deep-fake problem.

David Lyle: Let's now shift to our fiscal Q324 outlook. With regard to revenue, we are resetting our fiscal Q324 revenue range to $169 to $173 million from our previous range of $180 to $185 million, which implies fiscal Q4 revenue to be in the range of $40.1 to $44.1 million. This is primarily due to the shortfall in larger pipeline deals from our IDR and D biometrics products that were expected to close in the second half of fiscal 2024, as well as expected softness from two large identity customers delaying promotional campaigns until our fiscal year 2025. These revenue shortfalls also require us to lower our previous guidance for fiscal year 2024 non-GAAP operating margin.

David Lyle: These revenue shortfalls also require us to lower our previous guidance for fiscal year 2024 non-GAAP operating margins. We now expect our non-GAAP operating margin to be in the range of 23 to 25 percent due primarily to the revenue shortfall from the IDR&D Biometrics products, as software term license revenue has very little cost of revenue associated with it. Given the challenges we are seeing with the identity product revenue shortfall in the second half of this year, our updated forecast models indicate that the total identity product portfolio will not be profitable in fiscal Q4 on a fully burdene Therefore, we don't expect to achieve our previously communicated target.

Scott Carter: by 12.9 million during the quarter.

Scott Carter: Let's now shift to our fiscal 2024 outlook.

Scott Carter: With regard to revenue, we are resetting our fiscal 24 revenue range to $169 to $173 million.

Scott Carter: from our previous range of $180 to $185 million, which implies fiscal Q4 revenue to be in the range of $40.1 to $44.1 million.

Scott Carter: This is primarily due to the shortfall in larger pipeline deals from our IDR&D biometrics products.

Scott Carter: that were expected to close in the second half of fiscal 2024, as well as expected softness from two large identity customers delaying promotional campaigns until our fiscal year 2025.

Scott Carter: It is designed to verify a user's authenticity ensuring they are real humans and not computer-generated or digital imposter. We have commenced early-stage conversations with our unsolved base of IDR&D partners and are pleased with their favorable response and interest. They tune for a press release on this new product soon.

Scott Carter: These revenue shortfalls also require us to lower our previous guidance for fiscal year 2024 non-GAAP operating margin.

David Lyle: We now expect our non-GAAP operating margin to be in the range of 23 to 25 percent due primarily to the revenue shortfall from the IDR and D biometrics products, as software term license revenue has very little cost of revenue associated. with us. Given the challenges we are seeing with the identity product revenue shortfall in the second half of this year, our updated forecast models indicate that the total identity product portfolio will not be profitable in fiscal Q4 on a fully burdened basis. Therefore, we don't expect to achieve our previously communicated target.

Scott Carter: We now expect our non-gap operating margin to be in the range of 23% to 25% due primarily to the revenue shortfall from the IDR&D biometrics products as software term license revenue as very little cost of revenue associated with it.

Scott Carter: Given the challenges we are seeing

Scott Carter: with the identity product revenue shortfall in the second half of this year.

Scott Carter: Our updated forecast model models indicate that the total identity product portfolio will not be profitable in fiscal Q4 on a fully burdened basis. Therefore, we don't expect to achieve our previously communicated target.

David Lyle: At this time, we feel prudent to reassess the achievement and timeline for this target following our annual operating planning process, and we will share the plan to achieve profitability and identity with you on our next earnings call. We want to assure you that achieving long-term sustainable profitability across all of my text business remains a primary objective. We will continue to be laser-focused on disciplined operating expense control and optimization while ensuring sufficient investment in our significant market opportunities. Moving on to our previous GNA expense outlook, we are reiterating that we expect our non-GAAP GNA operating expense to be approximately $8.5 million in fiscal Q4.

David Lyle: At this time, we feel it prudent to reassess the achievement and timeline for this target following our annual operating planning process, and we will share the plan to achieve profitability and identity with you on our next earnings call. We want to assure you that achieving long-term sustainable profitability across all of Mitek's businesses remains a primary objective. We will continue to be laser-focused on disciplined operating expense control and optimization while ensuring sufficient investment in our significant market opportunities.

Scott Carter: At this time, we feel it prudent to reassess the achievement and timeline for this target following our annual operating planning process and we will share the plan to achieve profitability and identity with you on our next earnings call.

Scott Carter: Today, the vast majority of a dendee transactional SaaS sales are in financial services, but there is much more opportunity within this vertical. Bear in mind that over 7,000 banks in the US alone benefit from Mitek mobile deposits. Yet, we have only penetrated a single digit percentage of banks across our core geographic markets in the US, UK, and Amia with our dendee solutions. We are now laser focused on cross-selling the combined IDR&D and Mitek identity and deposit story to senior executive audiences. This has served to significantly elevate our conversation.

Scott Carter: We want to assure you that achieving long-term sustainable profitability across all of Mitek's business

Scott Carter: Remains a primary objective. We will continue to be laser-focused on disciplined, operating expense control and optimization, while ensuring sufficient investment in our significant market opportunities.

David Lyle: Moving on to our previous G&A expense outlook, we are reiterating that we expect our non-GAAP G&A operating expense to be approximately $8.5 million in fiscal Q4. Looking ahead to fiscal 2025, we expect Q1 total revenue to be down year over year due to the timing of mobile deposit or reorder. Historically, Q1 is our weakest quarter of the year.

Scott Carter: Moving on to our previous G&A expense outlook, we are reiterating that we expect our non-GAAP G&A operating expense to be approximately 8.5 million dollars in fiscal Q4.

Scott Carter: One of those cross-file opportunities is with MyPass. Our MyPass product combines voice and facial biometrics in a single transaction, replacing legacy approaches, such as user name and passwords, with more modern, face and frictionless authentication. MyPass is being used or tested by five of the top end banks in the UK, further validating interest in this disruptive product offering. MyPass leverages technology from IDR&D, but is sold and delivered through traditional MyPass sales channels and as a transactional SaaS business model.

David Lyle: Looking ahead to fiscal 2025, we expect Q1 total revenue to be down year over year due to the timing of mobile deposit or reorders. Historically, Q1 is our weakest quarter of the year. We anticipate that we will resume year-over-year revenue growth in fiscal Q225, led by mobile deposits, with growth also expected from identity. In the second half of fiscal 2025, growth will be driven primarily by CheckFraud Defender, MyDIP and MyPASS, and IDRD biometrics products. For the full fiscal year 2025, we expect identity to return to double-digit growth.

Scott Carter: Looking ahead to fiscal 2025, we expect Q1 total revenue to be down year-over-year due to timing of mobile deposit or reorders.

David Lyle: We anticipate that we will resume year-over-year revenue growth in fiscal Q2-25, led by mobile deposits, with growth also expected from identity. In the second half of fiscal 2025, growth will be driven primarily by CheckFraud Defender, MyVIP, and MyPass, and IDRD Biometrics products. For the full fiscal year 2025, we expect identity to return to double-digit growth. Let's talk more about each of these products going forward, starting with Checkfraud Defender. One of our original customers, a major money center bank, uses Mitek's on-premise check fraud solution with software term license revenue recognized all up front in Q3 for this customer.

Scott Carter: Historically, Q1 is our weakest quarter of the year. We anticipate that we will resume year-over-year revenue growth in fiscal Q2-25, led by mobile deposits, with growth also expected from identity.

Scott Carter: In the second half of fiscal 2025, Gross will be driven primarily by CheckFraud Defender, my VIP in my past, and IDRD Biometrics products.

Scott Carter: For the full fiscal year 2025 we expect identity to return to double-digit growth.

David Lyle: Let's talk more about each of these products going forward. Starting with CheckFraud Defender, one of our original customers, a major money center bank, uses MyTeX on-premise CheckFraud solution with software term license revenue recognized all up front in Q3 for this customer. This causes about a $4 million revenue spike in Q3 of each fiscal year until they transition to a cloud-based SaaS model, which will result in smoother quarter-to-quarter revenue recognition. For most all other banks, the solution will be offered only as a cloud-based SaaS solution with radical revenue recognition of the contract period.

Scott Carter: Let's talk more about each of these products going forward, starting with Checkfraud Defender, one of our original customers, a major money center bank, uses Mitek's on-premise checkfraud solution with software term license revenue recognized all up front in Q3 for this customer.

David Lyle: This causes about a $4 million revenue spike in Q3 of each fiscal year until they transition to a cloud-based SaaS model, which will result in smoother quarter-to-quarter revenue recognition. For most other banks, the solution will be offered only as a cloud-based SaaS solution with routable revenue recognition during the contract period. Now, let's look at MyVIP and MyPASS.

Scott Carter: This causes about a $4 million revenue spike in Q3 of each fiscal year until they transition to a cloud-based SaaS model.

Scott Carter: Let's use MyVIP as an example. MyVIP is a platform that provides customers with the ability to integrate a variety of MyTech proprietary and third-party partner point solutions into a one-stop shop for dandy verification. This creates a stronger value proposition and a stickier customer relationship, therefore supporting higher price points and driving higher contribution margins. Accordingly, we are refining good market motions so that we can capitalize on this opportunity for improved quality of earnings in our identity business.

Scott Carter: which will result in smoother quarter-to-quarter revenue recognition.

Scott Carter: For most all other banks, the solution will be offered only as a cloud-based SaaS solution with routable revenue recognition over the contract period.

David Lyle: Now let's look at MyDIP and MyPASS. We are witnessing a shift in our existing customer behavior as many migrate from point solutions, like mobile verify, to our comprehensive MyDIP orchestration platform, which more holistically addresses growing fraud detection and prevention needs. To be clear, customers moving to MyDIP may continue to use Mobile Verify inside the MyDIP platform, and therefore have access to expanded identity offerings, such as MyPASS. This trend also includes new customers seeking a unified solution for verification and authentication. Finally, we expect solid revenue growth from our IDR&D biometrics products through customer expansion, increased transactions, and new product launches.

David Lyle: We are witnessing a shift in existing customer behavior as many migrate from point solutions like MobileVerify to our comprehensive MyVIP orchestration platform, which more holistically addresses growing fraud detection and prevention needs. To be clear, customers moving to MyBIP may continue to use MobileVerify inside the MyBIP platform and therefore have access to expanded identity offerings such as MyPAS. This trend also includes new customers seeking a unified solution for verification and authentication.

Scott Carter: Now let's look at MyVIP and MyPASS. We are witnessing a shift in our existing customer behavior as many migrate from point solutions, like MobileVerify, to our comprehensive MyVIP orchestration platform, which more holistically addresses growing fraud detection and prevention needs.

Scott Carter: Likewise, when it comes to document verification, whether that be in our mobile verify offering or as an individual point solution within MyVIP, automated transactions provide a higher contribution margin than agent transactions. This, too, further informs our pricing and sales strategies as well as our assessment of product market fits going forward. These and other portfolio optimization efforts further increase our conviction and the opportunities ahead to drive improved return on invested capital in our dandy business.

Scott Carter: To be clear, customers moving to MyBIP may continue to use MobileVerify inside the MyBIP platform and therefore have access to expanded identity offerings such as MyPAS.

Scott Carter: This trend also includes new customers seeking a unified solution for verification and authentication.

David Lyle: Finally, we expect solid revenue growth from our IDR and E-Biometrics products through customer expansion, increased transactions, and new product launches. However, as Scott mentioned earlier, penetrating new market verticals with larger deals may take time, with growth from these deals most likely in fiscal 2025. In fiscal 2025, we also expect some modest headwinds in our mobile deposit product and mobile verify product. First, as I mentioned earlier, mobile deposit is facing some renewal timing-related headwinds in fiscal Q1.

Scott Carter: Finally, we expect solid revenue growth from our IDR&D biometrics products through customer expansion, increased transactions, and new product launches.

David Lyle: However, as Scott mentioned earlier, penetrating new market verticals with larger deals may take time, with growth from these deals most likely later in fiscal 2025. In fiscal 2025, we also expect some modest headwinds in our mobile deposit product and mobile verified products. First, as I mentioned earlier, mobile deposit is facing some renewal timing-related headwinds in fiscal Q1. We expect first half 2025 deals to be more concentrated in the second quarter as a result. Given the high margin profile of mobile deposit product deals, it will also cause a temporary headwind to our non-GAAP operating margin for the first quarter.

Scott Carter: However, as Scott mentioned earlier, penetrating new market verticals with larger deals may take time, with growth from these deals most likely later in fiscal 2025.

Scott Carter: In Scipio 2025, we also expect some modest headlines in our mobile deposit product and mobile verify products.

Scott Carter: First, as I mentioned earlier, Mobile Deposit is facing some renewal timing related headwinds in fiscal Q1.

David Lyle: We expect first half 2025 deals to be more concentrated in the second quarter as a result. Given the high margin profile of mobile deposit product deals, it will also cause a temporary headwind to our non-GAAP operating margin for the first quarter. However, we expect this margin to return to levels similar to fiscal 2024 and fiscal Q2 2025. Now on to MobileVerify. We continue to face competitive pricing pressure, but it is important to note that a large portion of this revenue comes from banks that use products from our deposits product portfolio, presenting significant cross-sell synergies opportunities. In our 2024 fiscal year and earnings call, we will introduce our revenue and operating target ranges for fiscal 2025 and provide more detail. Operator, that concludes our prepared remarks. Please open the line for questions.

Scott Carter: Now, I want to turn our attention to CheckSrob Defender for CFD, which continues to grow its customer base, underscoring the strong interest from banks for this industry leading innovative offering. As a reminder, that Fraud Defender, our cloud-hosted product, building consortium data, and AI technology, and powered by my VIP, enables customers to identify fraudulent checks. This quarter, a top five US bank went live on the consortium. This bank implemented CFD in its real-time mode and is live in all of its 2,000 plus branches.

Scott Carter: We expect first half 20-25 deals to be more concentrated in the second quarter as a result.

Scott Carter: Given the high margin profile of mobile deposit product deals,

Scott Carter: It will also cause a temporary headwind tour, non-gap operating margin for the first quarter. However, we expect this margin to return to level similar to fiscal 2024 and fiscal Q2 2025.

David Lyle: However, we expect this margin to return to level similar to fiscal 2024 in fiscal Q2 2025. Now on to mobile verify. We continue to face competitive pricing pressure, but it is important to note that a large portion of this revenue comes from banks that use products from our deposits product portfolio, presenting significant cross-cell synergy opportunities.

Scott Carter: Now on to MobileVerify, we continue to face competitive pricing pressure, but it is important to note that a large portion of this revenue comes from banks that use products from our deposits product portfolio, presenting significant cross-sell synergy opportunities.

Scott Carter: Real-time mode enables CFD to evaluate check deposits where the true mobile deposit, ATM, or in branch, to instantly flag likely fraudulent checks. There are now over 40 banks under contract for the consortium. This should position as well to achieve our goal of 50 plus CFD customers by the end of this fiscal year. Already in Q4, we've signed another top 30 banks and we expect another top 10 banks signing Q4. As you can see, demand for CFD is strong and as the consortium continues to grow, the flywheel effect of this network model will continue to take hold.

David Lyle: In our 2024 fiscal year and earnings call, we will introduce our revenue and operating target ranges for fiscal 2025 and provide more detail.

Scott Carter: In our 2024 fiscal year earnings call, we will introduce our revenue and operating target ranges for fiscal 2025 and provide more detail.

Operator: Operator, that concludes and prepare remarks.

Operator: Please open the line for questions. Thank you. At this time, we will conduct a question-and-answer session. If you would like to ask a question, please press star one on your phone now, and you will be placed into the queue in the order received. Once again, to ask a question, please press star one on your phone now.

Operator: Thank you. At this time, we will conduct a question and answer session. If you would like to ask a question, please press star 1 on your phone now, and you will be placed in the queue in the order received. Once again, to ask a question, please press star 1 on your phone now. And our first question comes from Mike Grondahl from Northland Securities. Please go ahead, Mike.

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

Speaker Change: Thank you. At this time we will conduct a question and answer session. If you would like to ask a question, please press star 1 on your phone now and you'll be placed into the queue in the order received. Once again, to ask a question, please press star 1 on your phone now.

Mike Randall: And our first question comes from Mike Randall from Northland Securities. Please go ahead, Mike. Hey, guys.

Speaker Change: and our first question comes from Mike Rondal from Northland Security. Please go ahead, Mike.

Mike Grondahl: Uh, guys, pretty disappointing. Um... Can you help? I mean, there's about seven weeks to go in the year, and it looks like you're down 11 to 12 million in revenue. And it sounds like it's because of RD, ID, and RD, and a couple promotions in mobile ID slipping. I don't know, can you just allocate the shortfall between those two buckets?

Scott Carter: As I just mentioned, a top 5 bank went live on check fraud defender during the third quarter. Importantly, three of the top 5 banks are already using a prior on-premise generation of CFD. These standalone implementations provide the banks with protection for only their individual institutions. However, even they are quickly realizing the power of our AI-based cross-bank consortium and are actively evaluating CFD as the next step in their check fraud migration strategy.

Mike Randall: Pretty disappointing. Can you help? I mean, there's about seven weeks to go in the year, and it looks like you're down 11 to 12 million in revenue. And it sounds like it's because R.D., ID, and R.D., and a couple promotions in mobile ID slipping. I don't know. Can you just allocate the shortfall between those two buckets?

Mike Rondal: Hey guys, um, pretty disappointing.

Speaker Change: Can you help? I mean, there's about seven weeks to go in the year.

Speaker Change: And it looks like you're down $11 to $12 million in revenue.

Speaker Change: And it sounds like it's because RD, ID and RD.

Speaker Change: and a couple promotions.

Speaker Change: In mobile ID slipping, I don't know, can you just allocate the shortfall between those two buckets?

Scott Carter: As check fraud continues to be an acute problem for banks and continues to grow rapidly, the ability to leverage AI and machine learning to observe industry-wide patterns and activity and develop sophisticated profiles of both normal consumer behavior and bad actor activity across the ecosystem drives the demonstrably high ROI.

Scott Carter: Yeah, Mike, you're... Thanks for the question.

Scott Carter: Yeah, Mike. Thanks for the question. I'll start, and Dave, of course, elaborate if I missed anything important.

Scott Carter: I'll start and Dave, of course, will elaborate if I missed anything important. Both those items are material, Mike. I would say that the IDR and DMIS were much more material than the timing issue with those promotional campaigns. We had a number of, and very substantial, seven-figure opportunities, as I mentioned in the script. And based on the client's feedback and the superior efficacy of this technology, there's an expectation that those deals will close in Q3 and Q4.

Mike Rondal: Yeah, Mike, sure.

Mike Rondal: Thanks for the question. I'll start and Dave, of course, elaborate if I missed anything important. Both those items are material, Mike. I would say that the IDRD miss was much more material than the timing issue with those promotional campaigns. We had a

Scott Carter: Both of those items are material. Mike, I would say that the ID R and D miss was much more material than the timing issue with those promotional campaigns. We had a surge in very promising decks and very substantial seven-figure opportunities, as I mentioned in the script, and based on the client's feedback, the superior efficacy of the technology, there was an expectation that those deals were closed in queue three and queue four. But again, as I mentioned in the script, as Dave and I dug into that, it just became clear that those would push, but they're still very viable opportunities that we expect a good portion of those to remain viable going forward.

George: George in very promising.

Dave: and very substantial seven-figure opportunities.

Dave: as I mentioned in the script.

Dave: And, you know, based on the, you know, the client's feedback, the...

Dave: the superior efficacy of this technology.

Scott Carter: But again, as I mentioned in the script, as Dave and I dug into that, it just became clear that those would be a challenge, but they're still very viable opportunities, and we expect a good portion of those to remain viable going forward.

David Lyle: Um, you know, there's an expectation that those deals with closing Q3 and Q4, but again, as I mentioned in the script, is David Lyle dug into that. It just became clear that, you know, those would push, but they're still very viable.

Dave: opportunities, and we expect a good portion of those.

David Lyle: Yeah, I'm just to get provide a little more color on the numbers you're right for the mid-party guidance you're talking about, an $11 million shortfall. The majority of the vast majority of that is related to identity products, and I would say that the majority of that identity shortfall was from the IDR and D biometrics revenue. And remember, the IDR and D biometrics revenue because of software term license, and it has a very high gross margin. You know, a dollar in revenues that's missed drops straight to the bottom line. Got it.

David Lyle: Yeah, and just to give you a little more color on the numbers. You're right, from the midpoint of guidance, you're talking about an $11 million shortfall. The majority, the vast majority of that, is related to identity products. And I would say that the majority of that identity shortfall was from the IDR&D biometrics revenue. And remember, the IDR&D biometrics revenue, because of the software term license, and it has a very high gross margin, you know, a dollar in revenue that's missed drops straight to the bottom line.

Dave: to remain, you know, viable going forward.

Speaker Change: Yeah, and just to...

Speaker Change: Get provide a little more color on the numbers, you're right from the reporting guidance you're talking about an $11 million shortfall. The majority of the vast majority of that is related to identity products.

Scott Carter: Lastly, I want to provide an update on our CEO's search. While we are still interviewing new candidates, several have advanced to the later stages of our process, and each has a strong track record of simultaneously driving growth and margin improvement, within or adjacent to the markets where my tech already operates. We are confident we will be able to hire a new CEO who builds shareholder value by leveraging our industry-leading product offerings and driving growth while at the same time driving sustained profitability across all of my tech's businesses.

Speaker Change: and I would say that the majority of that identity shortfall was from the IDR&D biometrics revenue and remember

Speaker Change: The IDR&D biometrics revenue because it's a software term license and it has a very high gross margin, you know, a dollar in revenue that's missed drops straight to the bottom line.

Mike Grondahl: Got it. Um, and I don't know guys, you seem to have a lot of confidence in mobile ID. But it's just been so disa-

Scott Carter: And I don't know, guys, you seem to have a lot of confidence in mobile ID, but it's just been so disappointing. I mean, have you thought about selling it or splitting the company? Yeah, I appreciate the question. Like, I mean, just sort of go back, you followed the company for a long time, you understand the original thesis, you know, was that, you know, gross could eventually sort of defelrate in the mobile deposit business who wanted to diversify our revenue streams, and there are significant adjacencies between what we did and mobile deposit and the sort of original identity products.

Speaker Change: Got it. Um, and I don't know, guys, you seem to have a lot of confidence in mobile ID.

Speaker Change: But it's just been so disappointing, I mean, have you thought about selling it or splitting the company?

Scott Carter: Yeah, I appreciate the question, Mike. I mean, just sort of go back.

Scott Carter: You've followed the company for a long time. You understand the original thesis, you know, was that growth could eventually sort of decelerate in the mobile deposit business. We want to diversify our revenue streams. And there are significant adjacencies between what we did in mobile deposit and the sort of original identity products. For quite some time, these businesses were, in fact, very distinct and separate.

Speaker Change: Yeah, appreciate the question like, I mean, just sort of go back, you fall to company for a long time.

Speaker Change: You understand that the original thesis, you know, was that, you know, growth could eventually sort of decelerate in the mobile deposit business, we want to diversify our revenue streams, and there are significant adjacencies between what we did and

David Lyle: Now over to you to provide an update on our Q3 financial results and that look Thanks Scott, I'll begin by taking you through the fiscal Q3 2024 financial results and then comment on our outlook. Looking first at revenue total revenue for fiscal Q3 increased 4% year over year to $45 million. We saw a solid 18% year over year revenue growth from deposits. With mobile check deposit revenue being the primary growth driver and check fraud defender showing a double digit growth rate year over year.

Scott Carter: For quite some time, these businesses were, in fact, very distinct and separate. You know, despite these resources quarter, it's interesting because we're actually now beginning to see much more sort of validation of this thesis that the two belong together. Right, so CFD in particular is a gateway for that. For the first time, we're seeing the same buyer, right? So the check fraud defender buyer is very often the same person or very adjacent to the person that's buying our verification solutions. It's important to remember that, you know, the Maya VIP platform fuels the check fraud defender proposition, so that's an example of sort of where these capabilities are coming together and are integrated.

Speaker Change: and the sort of original identity products. For quite some time, these businesses were, in fact, very distinct and separate. Despite these resources quarter, it's interesting because we're actually now beginning to see.

Scott Carter: You know, despite these results this quarter, it's interesting because we're actually now beginning to see much more sort of validation of this thesis that the two belong together, right? So CFD in particular is a gateway for that. For the first time, we're seeing the same buyer, right?

Speaker Change: much more sort of validation of this thesis that the two belong together, right? So, CFD in particular is a gateway for that. For the first time, we're seeing

Scott Carter: So the check fraud defender buyer is often the same person or very adjacent to the person that's buying our verification solutions. It's important to remember that, you know, the MyVIP platform fuels the check fraud defender proposition, so that's an example of sort of where these capabilities are coming together and are integrated. I believe that, as we get smarter about the portfolio optimization that I mentioned in the script, we can significantly change the mix shift of where we're focusing, because underlying demand remains strong.

Speaker Change: The same buyer, right? So the Czech crowd defender, buyer is very often the same person or very adjacent to the person that's buying our verification solutions. It's important to remember that, you know, the Maya VAT platform.

David Lyle: Mobile check deposit revenue saw a healthy cluster of earlier than expected renewals as continued strong transaction volumes led customers to utilize their prepaid transaction inventory faster than anticipated. Identity product revenue declined 14% year over year with IDR&D biometrics revenue softness contributing to much of that decline for reasons described earlier by Scott pricing pressure on our mobile verify product as well as sunsetting e-car hardware revenue contributed to the decline to a lesser extent.

Speaker Change: Fueled the check fraud defender proposition. So that's an example of sort of where these capabilities are are coming together and are integrated

Scott Carter: I believe that, you know, as we get smarter about the portfolio optimization that I mentioned in the script, we can significantly change sort of the mixed shift of where we're focusing. Underlying demand remains strong. So mobile verify, for example, has significant growth in transaction volumes, so that speaks to sort of the growth in the market. And as we migrate those customers to the Maya VIP platform, which has a stronger value proposition, we see much better margin profiles. Maya VIP is a nice growth contribution to the company. We believe that we have evidence that we'll continue to have increased validation of the synergy between these businesses.

Speaker Change: I believe that, you know, as we get smarter about the portfolio optimization that I mentioned in the script, we can significantly change sort of the mix shift.

Scott Carter: So mobile verify, for example, has seen significant growth in transaction volumes. So that speaks to sort of the growth in the market. And as we migrate those customers to the MyVIP platform, which has a stronger value proposition, we see much better margin profiles. MyVIP is a nice growth contribution to the company. We believe that we have evidence that we'll continue to have increased validation of the synergy between these businesses, and particularly with this integration now of the IDR&D business into the rest of the company.

Speaker Change: of where we're focusing, underlying demand remains strong, so MobileVerify, for example, has significant growth in...

David Lyle: Looking more closely at mobile verify the year over year decline was mostly attributable to some of our large customers renewing contracts at lower pricing. Notably mobile verify transaction volume increased year over year and we saw close to zero customer term during fiscal Q3 signaling healthy demand despite the competitive pricing environment. I'll talk more about how this could play out in my outlook commentary near the end of my remarks. Looking at revenue by reporting category software and hardware revenue grew 6% to $22.7 million in fiscal Q3 mostly driven by mobile check deposit but offset by declined and IDR&D biometrics product revenue services and other revenue grew 3% to $22.3 million year over year.

Speaker Change: Transaction volume. So that speaks to sort of the growth in the market.

Speaker Change: And as we migrate those customers to the MyVIP platform, which has a stronger value proposition, we see much better margin profiles. MyVIP is a nice growth contribution.

Speaker Change: to the company. We believe that we have evidence that we'll continue to have increased validation of the synergy between these businesses.

Scott Carter: And particularly with this integration now, the IDR and deep business into the rest of the company. You know, we've had, I've been involved in recent conversations, for example, where we've brought together experts from our IDR and deep biometric story, experts in check fraud and our traditional identity, you know, verification folks. And we're telling a combined story that's allowing us to get access into much more senior audiences in the bank. And that's been very well received, and it's encouraging to us.

Speaker Change: and particularly with this integration now, the IDR indeed goes into the rest of the company.

Scott Carter: You know, we've had, I've been involved in recent conversations, for example, where we brought together experts from our IDR&D biometric story, experts in check fraud, and our traditional identity verification folks, and we're telling a combined story that's allowing us to get access to much more senior audiences in the bank. And that's been very well received, and it's encouraging to us.

Speaker Change: You know, we've had, I've been involved in recent conversations, for example, where we've brought together.

Speaker Change: experts from our IDR&D biometric story.

Speaker Change: experts in check fraud and our traditional identity verification folks and we're telling a combined story that's allowing us to get access into much more senior audiences in the bank and that's that's been very well received and it's encouraging to us.

David Lyle: As we saw check fraud defender begin to contribute to our transactional SaaS revenue with additional contribution for mobile check deposit maintenance revenue growth. Gap operating expense for fiscal Q3 2024 was 37.8 million compared to 35.6 million a year ago. The increase was primarily driven by $900,000 in compensation related cost of living adjustments for employees we relocated from our offices in Russia which have now now been shut down as well as $300,000 of investments in our AWS cloud service technology and $300,000 in retention expense associated with key go to market and technical product personnel.

Mike Grondahl: A follow-up, I mean... Clearly, you're not going to be break-even in mobile ID and 4Q. You said that. I mean, is there any chance you're going to be late break-even there? I mean, it seems like it's a multi-year chance to break even at this.

Speaker Change: a follow-up, I mean

Speaker Change: Clearly you're not going to be breakeven in Mobile ID and 4Q, you said that. I mean, is there any chance you're going to be late 25 breakeven there? I mean, it seems like it's a multi-year...

Speaker Change: Chance to break even at this point.

David Lyle: Dave, do you want to start there now, Phil, in the footage? Yeah, a couple of things there. You know, we have to remember that we've got a few products in their nascent stage moving into the accelerated growth stage. And we really have to see how those play out, you know, as evidenced by what happened with the IDR&D biometric products in the current quarter and what we expect next quarter. So we have to see how that plays out to make that determination.

David Lyle: Yeah, Dave. Would you start there and I'll follow?

David Lyle: Yeah, a couple things there. You know, we have to remember that we've got a few products in their nascent stage moving into the accelerated growth stage. And we really have to see how those play out, you know, as evidenced by what happened with the iGuarantee biometric products in the current quarter and what we expect next quarter. So, we have to see how that plays out to make that determination. That's why we, you know, I talked a little bit about my remarks that we'll come back to you in the next earnings call after we get through our annual operating plan and get more specific there. But, you know, I think... Did you say what revenue was in Q3 for Check Fraud Defender?

Speaker Change: [inaudible]

Speaker Change: Yeah, a couple things there. You know, we have to remember that we've got a few products in their nascent stage moving into the accelerated growth stage, and we really have to see how those play out, you know, as evidenced by what happened with the iGuarantee.

David Lyle: Non-gap operating expense for fiscal Q3 24 was 27.1 million compared to 25.5 million a year ago and down $900,000 sequentially from 28 million in Q2 24. The year over year increase in non-gap operating expense was primarily due to employee related costs associated with the move from Russia and to a lesser extent due to the investment in the AWS cloud services for our growing transactional SaaS business and biometrics technology. The $900,000 sequential decrease in non-gap operating expense was due mainly to lower sales expenses from cost optimizations made in the quarter, lower management bonus accrual, as well as lower external contract support costs as we begin our path to normalization following previous filing delays.

Speaker Change: biometric products in the current quarter and what we expect next quarter. So we have to see how that plays out to make that determination. That's why we you know I talked a little bit about in my remarks that we'll come back to you in the next earnings call after we get through our annual operating plan and get more specific there.

David Lyle: That's why we, you know, I talked a little bit about my remarks that will come back to you in the next earnings call after we hit through our annual operating plan and get more specific there. But, you know, I think lastly, did you say what revenue was in Q3 for Czech Fraud Defender?

Speaker Change: I think last week. Did you say what revenue was in Q3 for Czech fraud defender?

David Lyle: We did not. We're not just closing that product level. Yeah. Yeah, just at the deposit level.

David Lyle: We're not disclosing that at the product level yet, though. Yeah.

Speaker Change: We did not. We're not just closing that in the front of the level yet. Yeah.

Scott Carter: Yeah, just at the deposits level. Yeah, I remind you, Mike, you know,

Scott Carter: Yeah, I remind you, Mike, you know, the focus right now with this consortium flywheel kind of model is to get to a critical mass of adoption. We think we're quickly approaching that, you know, underscoring the adoption of the top five customers, the top 10 customers. We top 10 bank rather and top five bank that we, the top 10 bank, we expect to close this quarter. You know, as you well know, you've followed the company a long time. They're long sales cycles with banks. They're then further sort of lags to implementation and then ramping, right? And with assess, assess model, take a while for that to ramp.

Scott Carter: Yeah, I remind you, Mike, the focus right now with this consortium flywheel kind of model is to get to a critical mass of adoption. We think we're quickly approaching that, you know, underscoring the adoption of the top five customer, the top 10 customer, or rather, the top 10 bank, and the top five bank that we, the top 10 bank, we expect to close this quarter. You know, as you well know, you follow the company for a long time; there are long sales cycles with banks.

Speaker Change: Yeah, just at the deposits level.

Mike Rondal: Yeah, I remind you Mike, you know, the focus right now with this consortium flywheel kind of model is to get to a critical mass of adoption. We think we're quickly approaching that, you know, underscoring the the adoption of the top five customer, the top ten customer, top ten bank rather.

David Lyle: Excluded from our non-gap operating expense was $10.8 million of non-recurring items of which $7.3 million were non-cash accounting items and $3.5 million were cash items. The non-cash items were comprised of the amortization of purchased intangibles from prior acquisitions and stock-based compensation expense. The cash items were primarily comprised of about $1.3 million in executive transition costs, $1.1 million in restructuring costs associated with our cost optimization efforts, and $1 million in non-reoccurring audit fees.

Mike Rondal: The Top Ten Banks we expect to close this quarter. As you well know, you've followed the company a long time. There are long sales cycles with banks. There are then further sort of lags to implementation and then ramping, right, and with Assess.

Scott Carter: There are then further sort of lags to implementation and then ramping, right? And with a SaaS model, it'll take a while for that to ramp, but we're getting terrific validation from customers. The proof of concepts are very compelling. We have customers switching from other competitive products. All signs are quite positive, but we're focused more on getting to scale and getting that flywheel going.

Scott Carter: But we're getting just terrific validation from customers; the proof of concepts are very compelling. We've customers switching from other competitive products. All signs are quite positive, but we're focused more on getting the scale and getting that flywheel going. Got it. Okay.

Mike Rondal: SAS model will take a while for that to ramp, but we're getting just terrific validation from customers. The proof of concepts are very compelling. We have customers switching from other competitive products. All signs are quite positive.

David Lyle: Please see our earnings release for more detailed reconciliation. Gap operating income was $0.7 million in fiscal Q324, or a gap operating margin of 2% our non-gap operating income was $11.6 million in fiscal Q324, or a non-gap operating margin of 26%. Gap net income for fiscal Q324 was $0.2 million which rounds to 0 cents per diluted share on 48 million shares. Non-gap net income grew 27% to $12 million and earnings per diluted share was 25 cents.

Mike Rondal: We'll focus more on getting to scale and getting that flywheel going.

Speaker Change: Got it. Okay.

Jake Robert: And our next question. Jake Robert is from William Blair. Please go ahead, Jake. Yeah. Thanks for taking the question. Scott, can you just help us understand when it became clear IDRD wasn't going to meet numbers. And then you talked about the two banking campaigns that were pushed out into Fiscal 2025. And then a few six- and seven-figure transactions that were a bit more complex. Just to confirm, did any of those deals and campaigns fall completely out of the pipeline? Or is your expectation now just that they push into fiscal 2025? Yeah, the campaigns definitely shifted into 2025, the two that we highlighted.

Operator: And our next question comes from Jake Roberge of William Blair. Please go ahead, Jake.

Speaker Change: And our next question comes from Jake Roberge from William Blair. Please go ahead, Jake.

Jake Roberge: Yeah, thanks for taking the question. Scott, can you just help us understand when it became clear IDR&D wasn't going to meet our numbers? And then you talked about the two banking campaigns that were pushed out into fiscal 2025, and then a few six and seven-figure transactions that were a bit more complex. Just to confirm, did any of those deals and campaigns fall completely out of the pipeline? Or is your expectation now just that they will push into?

Jake Roberge: Scott, can you just help us understand when it became clear IDR&D wasn't going to meet numbers? And then you talked about the two banking campaigns that were pushed out into fiscal 2025 and then a few six- and seven-figure transactions that were a bit more complex. Just to confirm, did any of those deals and campaigns

Speaker Change: All completely out of the pipeline, or is your expectation now just that they push into fiscal 2025?

David Lyle: Turning to our balance sheet, our cash and investments at the end of fiscal Q3 were $133.2 million, $2.9 million higher sequentially versus fiscal Q2. It's important to note that during fiscal Q3 we repurchased, we repurchased about 820,000 I-Tech shares at an average share price of $12.12 and 25 cents, including trading costs, totaling about $10 million. Therefore, adjusting for share repurchases our cash and investments balance would have increased by $12.9 million during the quarter.

Scott Carter: Yeah, the campaigns, you know, definitely shifted into 2025, the two that we highlighted. In terms of the timing on this, you know, the surprise, as I said in the script, I was appointed May 13th, the role became official June 1st, Dave and I immediately began to conduct deep dives into all aspects of the business. I was personally conducting deep dives into these large IDR&D biometrics opportunities. I think Dave will tell you I was probably the last one to give up on them and the last one to give up on their profitability for Q4.

Speaker Change: and Scott Carter. Thank you. Thank you.

Scott Carter: Yeah, the campaigns, you know, definitely shifted into 2025, the two that we highlighted. In terms of the timing on this, you know, this surprise,

Scott Carter: In terms of the timing on this surprise, as I said in the script, I was appointed May 13th. The role became official June 1st. Dave and I immediately began to conduct deep dives into all aspects of the business. I was personally conducting deep dive reviews of these large IDRD biometrics opportunities. I think Dave will tell you I was probably the last one to give up on them and the last one to give up on their profitability for Q4.

Speaker Change: As I said in the script, I was appointed May 13th, the role became official June 1st.

Speaker Change: Dave and I immediately began to you know conduct deep dives into all aspects of the business. I was personally conducting

Speaker Change: deep dive reviews of these large DR&D biometrics opportunities. I think Dave will tell you I was probably the last one to give up on them.

David Lyle: Let's now shift to our fiscal Q324 outlook. With regard to revenue, we are resetting our fiscal Q324 revenue range to 169 to $173 million from our previous range of $180 to $185 million, which implies fiscal Q4 revenue to be in the range of 40.1 to 44.1 million. This is primarily due to the shortfall in larger pipeline deals from our IDR and D biometrics products that were expected to close in the second half of fiscal 2024, as well as expected softness from two large identity customers delaying promotional campaigns until our fiscal year 2025.

Speaker Change: And the last one to give up on their profitability for Q4. And as a side note, in addition to the organizational change that I talked about, I also immediately appointed a new sales leader for the IDR&G business, who is someone that I think very highly of.

Scott Carter: And as a side note, in addition to the organizational change that I talked about, I also immediately appointed a new sales leader for the IDRD business, who is someone that I think very highly of, was a senior executive at a much larger biometrics company, scaled them from the startup stage to much larger than where my text biometrics businesses today. So I think we've got the right team in place today. This is a case of playing the strengths we've got. Honestly, I've worked with lots of machine learning scientists over the years, very impressive ones. This is a world-class team of machine learning scientists.

Scott Carter: And as a side note, in addition to the organizational change that I talked about, I also immediately appointed a new sales leader for the IDR&D business, who is someone that I think very highly of, was a senior executive at a much larger biometrics company, and scaled them from the startup stage to much larger than where Mitek's biometrics business is today. So, I think we've got the right team in place today. This is a case of playing to strengths; we've got, honestly, I've worked with lots of machine learning scientists over the years, very, very impressive ones.

Speaker Change: was a senior executive at a much larger biometrics company, scaled them from a startup stage to much larger.

Speaker Change: and then we're my text by metric physicists today.

Speaker Change: So I think we've got the right team in place today. This is a case of playing the strengths. We've got, honestly, I've worked with lots of...

Scott Carter: This is a world-class team of machine learning scientists. I'm excited about what we can do in integrating their best practices and driving R&D efficiency with the rest of the company. And at the same time, we can bring more rigor to how we evaluate product market fit, the business model, the revenue model, and that's where we'll be focused going forward with this portfolio optimization effort.

Speaker Change: machine learning scientists over the years, very very impressive ones.

Scott Carter: I'm excited about what we can do in integrating their best practices and driving R&D efficiency with the rest of the company. And at the same time, we can bring more rigor in how we evaluate product market fit, the business model, and the revenue model. And that's where we'll be focused going forward with this product, portfolio optimization effort.

Speaker Change: This is a world-class team of machine learning scientists. I'm excited about what we can do in integrating.

David Lyle: These revenue shortfalls also require us to lower our previous guidance for fiscal year 2024 non-gap operating margin. We now expect our non-gap operating margin to be in the range of 23 to 25 percent due primarily to the revenue shortfall from the IDR and D biometrics products, as software term license revenue as very little cost of revenue associate, with us. Given the challenges we are seeing with the identity product revenue shortfall in the second half of this year, our updated forecast models indicate that the total identity product portfolio will not be profitable in fiscal Q4 on a fully burdened basis.

Speaker Change: their best practices in driving R&D efficiency with the rest of the company. And at the same time, we can bring more rigor in how we evaluate product market fit, the business model, the revenue model, and that's where we'll be focused going forward with this portfolio optimization effort.

David Lyle: Okay, helpful. And then Dave, can you just help us understand the expectations that underlie the guidance that you laid out for fiscal 2025? Are you expecting those big IDR and D deals to close next year?

Speaker Change: Okay, helpful. And then Dave, can you just help us understand the expectations that underline the guidance that you laid out for fiscal 2025? Are you expecting those big IDR and D deals to close next year? Just would be helpful to understand the expectations that underlie that.

David Lyle: Just would be helpful to understand the expectations that underlie that? Yeah, back to your original question also. Some of those deals we did take out of the forecast completely. And they could come back, but nothing that we want to rely on, obviously.

David Lyle: Yeah, back to your original question also; some of those deals we took out of the forecast completely, and they could come back, but nothing that we want to rely on, obviously. And then in terms of what's going to happen in 2025, one of the reasons I made the comment about IDRD product portfolio revenue starting to grow more in the second half is that we don't have enough clarity on exactly when those deals could close.

David Lyle: Therefore, we don't expect to achieve our previously communicated target. At this time, we feel prudent to reassess the achievement and timeline for this target following our annual operating planning process, and we will share the plan to achieve profitability and identity with you on our next earnings call. We want to assure you that achieving long-term sustainable profitability across all of my text business remains a primary objective. We will continue to be laser-focused on disciplined operating expense control and optimization while ensuring sufficient investment in our significant market opportunities.

Speaker Change: Yeah, back to your original question also, some of those deals we did take out of the forecast completely.

Speaker Change: And, you know, they could come back, but nothing that we want to rely on, obviously. And then in terms of the what's going to happen in 25.

David Lyle: And then in terms of what's going to happen in 25, one of the reasons I made the comment about IDR and D product portfolio revenue starting to grow more in the second half is because we don't have enough clarity on exactly when those could close. Candidly, they could close in the short term, or they could close in the next 18 months. That's kind of the range of prospects there. But we're working hard to make those close as fast as possible. With these big multinational guys, as you know, they just take a long time to get to that process.

Speaker Change: One of the reasons I made the comment about IDRD product portfolio revenue starting to grow more in the second half is because

David Lyle: Candidly, they could close in the short term, or they could close in the next 18 months. That's kind of the range of prospects there. But we're working hard to make those close as fast as possible. With these big multinational guys, as you know, they just take a long time to get through that process.

Speaker Change: We don't have enough clarity on exactly when those coasts closed, candidly they could close in the short firm or they could close in the next 18 months. That's kind of the range of prospects there, but we're working hard to make those close.

David Lyle: Moving on to our previous GNA expense outlook, we are reiterating that we expect our non-GAP GNA operating expense to be approximately $8.5 million in fiscal Q4. Looking ahead to fiscal 2025, we expect Q1 total revenue to be down year over year due to timing of mobile deposit or reorders. Historically, Q1 is our weakest quarter of the year. We anticipate that we will resume year over year revenue growth in fiscal Q225, led by mobile deposits, with growth also expected from identity. In the second half of fiscal 2025, growth will be driven primarily by CheckFraud Defender, MyDIP and MyPASS, and IDRD biometrics products. For the full fiscal year 2025, we expect identity to return to double-digit growth.

Speaker Change: As fast as possible, with these big multinational guys, as you know, they just take a long time to get to that process.

David Lyle: Okay, that makes sense.

Jake Roberge: Okay, that makes sense. And then just one last one on my end.

David Lyle: And then just one last one on my end. You said most of the myths was driven by ID verification, but that would imply that mobile deposit also had a slight miss in the quarter. Was that more related to core mobile deposits volume, or did check fraud defender come in a bit a bit lighter than you expected? No, I think it was more deal timing than anything else. It was a very small number in terms of that 11 million.

Speaker Change: Okay, that makes sense. And then just one last one on my end. You said most of the miss was driven by ID verification, but that would imply that mobile deposit also had a slight miss in the quarter. Was that more related to core mobile deposits volume, or did check fraud defender come in a bit lighter than you expected?

Speaker Change: No, I think it was more deep.

Speaker Change: Deal timing than anything else was a very small number.

Mike Randall: Okay, thanks for continuing the questions.

Speaker Change: in terms of that $11 million.

George Sutton: And our next question comes from George Sutton from Craig Hall in Capitol. Please go ahead, George. Thank you. I wondered if you could walk through the renewal dynamics. You talked about repricing issues as you were going through renewals. My assumption has been that you're moving folks from point solutions to the broader platform and therefore you would see fairly good pricing dynamics. Is that happened? Can you just give me some clarity on that? Yeah, it's a great question. So what we've seen with my VIP, as you move up the value proposition, I think this is fairly intuitive.

David Lyle: You said most of the miss was driven by ID verification, but that would imply that mobile deposit also had a slight miss in the quarter. Was that more related to core mobile deposit volume? Or did check fraud defender come in a bit lighter than you expected?

Speaker Change: Okay, thanks for taking the questions.

David Lyle: No, I think it was more deep. Deal timing was, more than anything else, a very small number in terms of that $11 million.

Speaker Change: And our next question comes from George Sutton from Craig Hallam Capital. Please go ahead, George.

Jake Roberge: Okay, thanks for taking the questions.

Speaker Change: Thank you. I wondered if you could walk through the renewal dynamics. You talked about repricing issues as you were going through renewals. My assumption...

David Lyle: Let's talk more about each of these products going forward. Starting with CheckFraud Defender, one of our original customers, a major money center bank, uses MyTeX on-premise CheckFraud solution with software term license revenue recognized all up front in Q3 for this customer. This causes about a $4 million revenue spike in Q3 of each fiscal year until they transition to a cloud-based SaaS model, which will result in smoother quarter to quarter revenue recognition. For most all other banks, the solution will be offered only as a cloud-based SaaS solution with radical revenue recognition of the contract period.

George Sutton: has been that you're moving folks from point solutions to the broader platform and therefore you would see fairly good pricing dynamics as that happened. Can you just give me some clarity on that?

Operator: And our next question comes from George Sutton from Craig Hallam Capital. Please go ahead, George.

Speaker Change: Yeah, it's a great question. So, what we've seen with MyVIP, you know, as you move up the value proposition, I think this is fairly intuitive.

George Sutton: Thank you. I wondered if you could walk through the renewal dynamics. You talked about repricing issues as you were going through renewals. My assumption has been that you're moving folks from Point Solutions to the broader platform, and therefore you would see fairly good pricing dynamics as that happens. Can you just give me some clarity on that?

Scott Carter: You offer a stronger product. The price elasticity improves, right? So, you know, for those customers that are orchestrating more than just the sort of document verification piece, which is, I think, as Max talked about in prior call, been commoditized. The more of those signals and data sources you're combining into that single platform, the stronger the value proposition and the higher the price point that can bear. We're also seeing, I alluded to this in the script, significant differences in the unit economics between agent review transactions and auto transactions. And that has the agent transactions are diluted, right?

Scott Carter: Yeah, it's a great question. So, what we've seen with MyVIP, you know, as you move up the value proposition, I think this is fairly intuitive: you offer a stronger product, the price elasticity improves, right? So, you know, for those customers that are orchestrating more than just the sort of document verification piece, which is, I think, Max talked about in a prior call, commoditized, the more of those sort of signals and data sources you're combining into that single platform, the stronger the value proposition and the higher the price point that can bear.

Speaker Change: you offer a stronger product, the price elasticity improves, right. So, you know, for those customers that are

Speaker Change: orchestrating more than just the sort of document verification piece which is

Speaker Change: I think is Max talked about a prior call in commoditized the more of those sort of signals and data sources you're combining into that single platform with stronger the value proposition and the higher the price point that can bear. We're also seeing I alluded to this in the script.

David Lyle: Now let's look at MyDIP and MyPASS. We are witnessing a shift in our existing customer behavior as many migrate from point solutions, like mobile verify, to our comprehensive MyDIP orchestration platform, which more holistically addresses growing fraud detection and prevention needs. To be clear, customers moving to MyDIP may continue to use mobile verify inside the MyDIP platform, and therefore have access to expanded identity offerings, such as MyPASS. This trend also includes new customers seeking a unified solution for verification and authentication.

Scott Carter: We're also seeing, and I alluded to this in the script, significant differences in the unit economics between agent review transactions and auto transactions, and that has, the agent transactions are diluted, right? As we look at things like profitability by geographic market or vertical, we have an opportunity to, without tipping our hands to competitors, sort of increase emphasis in some of these segments, decrease emphasis in others, and aggressively sort of help migrate customers to best practices, both as they migrate mobile verified to MyVIP, but also to model the best practices that some of our most successful customers have had with MyVIP that also happen to drive very attractive contribution margins.

Speaker Change: Significant differences in the unit economics between agent review transactions and auto.

Speaker Change: Transactions, and that has the Asian Transactions are deludes, right?

Scott Carter: As we look at things like profitability by geographic market or vertical, we have an opportunity, without tipping our answer to competitors, to increase emphasis in some of these segments, decrease emphasis in others, and aggressively sort of help migrate customers to best practices, both as they migrate mobile verified to my VIP. But also to model the best practice that some of our most successful customers have had with my VIP that also happen to drive very attractive contribution margins. On the lower end of our base, we see that there's relatively high-calc to support smaller customers, right? So we think there's a pretty intuitive opportunity for us to get smarter about pizzas for the direct versus channel model, pricing strategies for those customers, and sort of where we focus from a product market for its standpoint.

Speaker Change: As we look at things like profitability by geographic market or vertical, we have an opportunity to, without tipping our hands to competitors...

Speaker Change: So, increase emphasis in some of these segments, decrease emphasis in others, and aggressively sort of help migrate customers to best practices, both as they migrate.

David Lyle: Finally, we expect solid revenue growth from our IDR&D biometrics products through customer expansion, increased transactions, and new product launches. However, as Scott mentioned earlier, penetrating new market verticals with larger deals may take time with growth from these deals most likely later in fiscal 2025.

Speaker Change: Mobile Verify to MyVIP, but also to model the best practices that some of our most successful customers have had with MyVIP that also happen to drive very attractive contribution margins. On the lower end of our base, we see that there's

Scott Carter: On the lower end of our base, we see that there is, you know, relatively high CAC to support smaller customers, right? So, we think there's a pretty intuitive opportunity for us to get smarter about either sort of the direct versus channel model, pricing strategies for those customers, and sort of where we focus from a product market fit standpoint. And with ICAC, you might, you know, you might revert to inbound only or, you know, channel strategy. And these are the things that, now that we've done this much deeper dive, that we're taking a close look at.

David Lyle: In fiscal 2025, we also expect some modest headwinds in our mobile deposit product and mobile verified products. First, as I mentioned earlier, mobile deposit is facing some renewal timing related headwinds in fiscal Q1. We expect first half 2025 deals to be more concentrated in the second quarter as a result. Given the high margin profile of mobile deposit product deals, it will also cause a temporary headwind to our non-gap operating margin for the first quarter. However, we expect this margin to return to level similar to fiscal 2024 in fiscal Q2 2025.

Speaker Change: You know, relatively high CAC to support smaller customers, right, so we think there's a pretty intuitive opportunity for us to get smarter about either sort of the direct versus channel model, pricing strategies for those customers.

Scott Carter: and with the eye-catch, you know, you might revert to inbound only or, you know, channel strategy.

Speaker Change: and sort of where we focus for a product market fit standpoint.

Speaker Change: and with eye-cacking, you know, my reverts have been on the channel strategy and these are the things now that we've done this much deeper dive that we're taking a close look at.

Scott Carter: These are the things now that we've done that's much deeper dive that we're taking a close look at. Gotcha. So, on the CheckFraud Defender side, I think there's been some skepticism that a top five bank would not use your system given their broad range of what they were seeing and therefore not benefiting from the network effect. So, the fact you did sign a top five bank, I think, is very important. I just want you to confirm that in your marketing. But can you talk more broadly about, you mentioned the demonstrably high ROI. Obviously, as banks are seeing this, I mean it just seems simplistically to me, this would be a very easy offering to sell given that high ROI.

Scott Carter: Got you. So, on the check fraud defender side, I think there's been some skepticism that a top five bank would not use your system given their broad range of what they were seeing and, therefore, not benefiting from the network effect. So, the fact you did sign a top five bank is, I think, very important. I just want you to confirm that in your marketing. But can you talk more broadly about, you mentioned the demonstrably high ROI. Obviously, as banks are seeing this, I mean, it just seems, to me, this would be a very easy..., offering to sell given that higher ROI. So any updates on the sales process there?

Speaker Change: Gotcha. Um, so on the check fraud defender side, I think there's been some skepticism that a top five bank would...

David Lyle: Now on to mobile verify. We continue to face competitive pricing pressure, but it is important to note that a large portion of this revenue comes from banks that use products from our deposits product portfolio presenting significant cross-cell synergy opportunities.

Speaker Change: Not use your system given their broad range of what they were seeing and therefore not benefiting from the network effect. So the fact you did sign a top five bank I think is very important. I just want you to confirm.

David Lyle: In our 2024 fiscal year and earnings call, we will introduce our revenue and operating target ranges for fiscal 2025 and provide more detail.

Speaker Change: that in your marketing, but can you talk more broadly about, you mentioned the demonstrably high ROI. Obviously, as banks are seeing this, I mean, it just seems simplistically to me this would be a very easy...

Operator: Operator, that concludes and prepare remarks.

Operator: Please open the line for questions. Thank you. At this time, we will conduct a question and answer session.

Scott Carter: So, any updates on the kind of the sales process there? Yeah, first of all, the first party point I want to address, which is, you know, some of these banks do have a variety of sort of internally and other sort of third party solutions, and some banks are more sophisticated than others in terms of the data science capabilities they have and so forth. What really turbocharges the value proposition for CheckFraud Defender is that we can look in real-time mode across the entire ecosystem. So, a top five bank will only have visibility of what's happening on the checks that are happening in their environment.

Operator: If you would like to ask a question, please press star one on your phone now, and you will be placed into the queue in the order received. Once again, to ask a question, please press star one on your phone now.

Speaker Change: Offering to Sell, given that high ROI. So any updates on the kind of the sales process there?

Scott Carter: Yeah, first of all, the first part of your point I want to address, which is, you know, some of these banks do have a variety of internal and other sort of third-party solutions. And, you know, some banks are more sophisticated than others in terms of the data science capabilities they have and so forth, right? What really turbocharges the value proposition for Check For All Defender is that we can look in real-time mode across the entire ecosystem, right?

Speaker Change: Yeah, first of all, the first part of your point I want to address, which is, you know, some of these banks do have a variety of sort of internally and other sort of third party solutions and some banks are more sophisticated than others in terms of the...

Mike Randall: And our first question comes from Mike Randall from Northland Securities. Please go ahead, Mike. Hey, guys.

Scott Carter: Pretty disappointing. Can you help? I mean, there's about seven weeks to go in the year, and it looks like you're down 11 to 12 million in revenue. And it sounds like it's because R.D., ID and R.D., and a couple promotions in mobile ID slipping. I don't know. Can you just allocate the shortfall between those two buckets? Yeah, Mike. Thanks for the question. I'll start and Dave, of course, elaborate if I missed anything important.

Speaker Change: the data science capabilities they have and so forth, right?

Speaker Change: what really turbocharges the value proposition for check fraud defender

Scott Carter: So, a top-five bank will only have visibility into what's happening on the checks that are happening in their environment. So, if there is, for example, a high velocity of activity elsewhere with indications that there's bad actor activity, they wouldn't have visibility into that, right?

Speaker Change: is that we can look in real-time mode across the entire ecosystem, right?

Speaker Change: A top five bank will only have visibility to what's happening on the checks that are happening in their environment. So if there is, for example, a high velocity of activity elsewhere with indications that there's bad actor activity, they wouldn't have visibility to that, right?

Scott Carter: But there is, for example, a high velocity effect to the elsewhere with indications that there's bad act of activity; they wouldn't have visibility to that. So, that's an example of why this consortium-based approach is, in fact, very additive to these top five banks. The challenges at the same time, they're big banks and there's a lot of inertia, and it takes them a while to get things done. So, I think I would underscore that the sales, like, as they're just long and it takes them a while to sort of get things done and through their internal processes.

Scott Carter: So, that's an example of why, you know, this consortium-based approach is, in effect, very additive to these top-five banks. But the challenge is, at the same time, they're big banks, and there's a lot of inertia, and it takes them a while to get things done. So, I think I would underscore that the sales cycles are just long, and it takes them a while to sort of get things done through their internal processes. But all signs remain positive.

Speaker Change: So that's an example of why.

Speaker Change: you know, this consortium-based approach is, in effect, very additive to these top five banks.

Speaker Change: The challenge is, at the same time, they're big banks and there's a lot of inertia and it takes them a while to get things done.

Speaker Change: So I think I would underscore that, that the sales cycles are just long and it takes them a while to sort of get things done and through their internal processes. But all signs remain positive. The ROI piece,

Scott Carter: But all signs remain positive. There are a wide piece. You know, anecdotes that I would tell you: we've had very compelling examples of customers saving tens of millions of dollars in the first number of months with the product. We're targeting, typically, I think when Dave walked through is a sizing model. And we talked about like a 10-to-1 ROI, which we think is very conservative. I think over time, as the consortium is established and the fraudsters, by the way, then migrate from the banks that are protected to those that aren't. We think we can capture prices as a sort of higher percentage than ROI over time.

Scott Carter: The ROI piece. You know, anecdotally, I would tell you we've had very compelling examples of customers saving tens of millions of dollars in the first number of months with the product. We're targeting typically, I think, when Mike and Dave walked through theirs, a sizing model, and we talked about a 10 to 1 ROI, which we think is very conservative. I think over time, as the consortium is established and the fraudsters, by the way, then migrate from the banks that are protected to those that aren't, we think we can capture prices as a higher percentage of that ROI over time.

Speaker Change: You know, anecdotally, I would tell you, you know, we've had, you know, very compelling examples of customers saving, you know, tens of millions of dollars in the first

Speaker Change: first number of months with the product. We're targeting, typically, I think when Mike, when Dave walked through his...

Scott Carter: But again, as I mentioned in the script, as Dave and I dug into that, it just became clear that those would push, but they're still very viable opportunities that we expect a good portion of those to remain viable going forward. Yeah, I'm just to get provide a little more color on the numbers you're right for the mid-party guidance you're talking about, an $11 million shortfall, the majority of the vast majority of that is related to identity products, and I would say that the majority of that identity shortfall was from the IDR and D biometrics revenue. And remember, the IDR and D biometrics revenue because of software term license and it has a very high gross margin, you know, a dollar in revenues that's missed drops straight to the bottom line. Got it.

Mike Rondal: is a sizing model and we talked about like a 10 to 1 ROI which we think is very conservative I think over time as the consortium is established.

Speaker Change: And the fraudsters, by the way, then migrate from the banks that are protected to those that aren't. We think we can capture prices as a sort of higher percentage of that ROI over time.

Scott Carter: I understand.

George Sutton: I understand. Okay, that's it for me. Thank you.

Scott Carter: Okay, that's it from me.

Operator: Thank you. As a reminder, if you would like to ask a question, please press a dollar one on your phone now.

Mike Rondal: Understand, okay, that's it for me. Thank you.

Operator: As a reminder, if you would like to ask a question, please press star 1 on your phone now. And our next question comes from Allen Klee from Axum Group. Please go ahead, Allen.

Speaker Change: As a reminder, if you would like to ask a question, please press star 1 on your phone now.

Derek Greenberg: And our next question comes from Alan Clee from Axon Group. Please go ahead, Alan.

Speaker Change: And our next question comes from Allen Klee from Axiom Group. Please go ahead, Allen.

Derek Greenberg: Hi, this is Derek Greenberg on for Alan. My first question was just on; you had mentioned the transition from agent-reviewed transactions to more automated. I was wondering if maybe you just had any metrics in terms of what percent is automated versus agent-reviewed, and what the relative margin difference is as this continues to shift, as well as just the capacity in terms of the percentage that can be automated versus manually. Yeah, I appreciate the question. I don't know that we have data kind of off top of available right now and talk about in terms of those specific metrics.

Allen Klee: Hi, this is Derek Greenberg on behalf of Allen. My first question was on the transition from agent-reviewed transactions to more automated ones. I was wondering if maybe you just had any metrics in terms of what percent is automated versus agent-reviewed and what the relative margin difference is as this continues to shift, as well as just the capacity in terms of the percentage that can be automated versus manually reviewed.

Scott Carter: Yeah.

Speaker Change: Hi, this is Derek Greenberg on for Allen. My first question was just on...

Speaker Change: You had mentioned the transition from...

Speaker Change: agent-reviewed transactions to more automated.

Scott Carter: And I don't know guys, you seem to have a lot of confidence in mobile ID, but it's just been so disappointing. I mean, have you thought about selling it or splitting the company? Yeah, I appreciate the question like, I mean, just sort of go back, you followed the company for a long time, you understand the original thesis, you know, was that, you know, gross could eventually sort of defelrate in the mobile deposit business who wanted to diversify our revenue streams, and there are significant adjacencies between what we did and mobile deposit and the sort of original identity products.

Derek Greenberg: I was wondering if maybe you just had any metrics in terms of what person is automated versus aging reviewed and what the relative margin difference is as this continues to shift.

Derek Greenberg: as well as just the capacity in terms of the percentage that can be automated versus manually reviewed.

Scott Carter: Yeah, I appreciate the question. I don't know that we have data kind of off the cuff, available right now to talk about in terms of those specific metrics. I don't think we've disclosed those previously. We can talk offline and figure out what we can provide you after the fact.

Speaker Change: Yeah, I appreciate the question.

Speaker Change: I don't know that we have data kind of off top of the top of, I bet we'll right now talk about in terms of those specific metrics that I don't think we've disclosed those previously. We can talk offline and figure out what we can provide you after the fact.

Scott Carter: I don't think we've disclosed those previously.

Scott Carter: We can talk offline and figure out what we can provide you after the fact. The point I would emphasize is that Asian transactions are dilutive. There are, you know, it's highly variable depending on the customer and the use case and so forth. Scale matters, so customers, you know, large banks that have, you know, say sort of an 80 percent automation rate would just by virtue of scale economies have better sort of margin profile than those on the smaller end, right? So that's something to think about. So what we have is, you know, an emphasis on having our sales teams and other client-facing teams take a more consultative approach to helping customers understand, you know, when they need to use Asian transactions. There are certain regulatory dynamics in certain markets and, again, we'll take a sort of case-by-case basis.

Scott Carter: The point I would emphasize is that agent transactions are dilutive. It's highly variable, depending on the customer and the use case and so forth. Scale matters.

Scott Carter: For quite some time, these businesses were in fact very distinct and separate. You know, despite these resources quarter, it's interesting because we're actually now beginning to see much more sort of validation of this thesis that the two belong together. Right, so CFD in particular is a gateway for that. For the first time, we're seeing the same buyer, right, so the check fraud defender buyer is very often the same person or very adjacent to the person that's buying our verification solutions.

Speaker Change: You know, the point I would emphasize is that, you know, agent transactions are dilutive. There are, you know, it's highly variable depending on the customer and the use case and so forth. Scale matters, so customers, you know, large banks that have

Scott Carter: Customers, large banks that have, you know, say sort of an 80% automation rate would, just by virtue of the scale economies, have a better sort of margin profile than those on the smaller end, right, so that's something to think about. So, what we have is, you know, an emphasis on having our sales teams and other client-facing teams take a more consultative approach to helping customers understand when they need to use agent transactions.

Speaker Change: You know, um...

Speaker Change: State sort of an 80% automation rate would just by virtue of scale economies have better.

Speaker Change: sort of margin profile than those on the smaller end, right? So that's something to think about. So what we have is, you know, an emphasis on having

Scott Carter: It's important to remember that, you know, the Maya VIP platform fuel the check fraud defender proposition, so that's an example of sort of where these capabilities are coming together and are integrated. I believe that, you know, as we get smarter about the portfolio optimization that I mentioned in the script, we can significantly change sort of the mixed shift of where we're focusing underlying demand remains strong. So mobile verify, for example, as significant growth in transaction volumes, so that speaks to sort of the growth in the market.

Speaker Change: are...

Speaker Change: Our sales teams and other client-facing teams take a more consultative approach.

Scott Carter: There are certain regulatory dynamics in certain markets, and again, we'll take a sort of case-by-case basis. I'll underline again and just sort of repeat the theme about, you know, as we migrate these single-use case customers that are on, say, MobileVerify and just doing the document authentication on the MyDFP platform, we can instantly provide a stronger value proposition and improve the margin profile. And as they orchestrate those other data sources and so forth, frankly, there's less and less need for step-up authentication by the agent because you can handle that through digital other digital sources.

Speaker Change: To help in customers understand, you know, when they need to use agent transaction, there are certain regulatory dynamics.

Scott Carter: I'll underscore again and just to repeat the theme about, you know, as we migrate the single use case customers that are on state mobile verify and just in the document authentication to the my DNP platform, we can instantly provide, you know, stronger value proposition and improve the margin profile. And as they orchestrate those other data sources and so forth, frankly, there's less need for the step of authentication by the agent because you can handle that through digital, other digital sources. Okay, got it. That makes sense.

Sirton Markins: and Sirton Markins.

Sirton Markins: And again, we'll take a sort of case by case basis.

Sirton Markins: I'll underscore again and just sort of repeat the theme about, you know, as we migrate the single-use case customers that are on, say, MobileVerify and just doing the document authentication to the MyBFP platform, we can instantly provide, you know, a stronger value proposition and improve the margin profile. And as they orchestrate those other...

Scott Carter: And as we migrate those customers to the Maya VIP platform, which has a stronger value proposition, we see much better margin profiles. Maya VIP is a nice growth contribution to the company. We believe that we have evidence that we'll continue to have increased validation of the synergy between these businesses. And particularly with this integration now, the IDR and deep business into the rest of the company. You know, we've had, I've been involved in recent conversations, for example, where we've brought together experts from our IDR and deep biometric story, experts in check fraud and our traditional identity, you know, verification folks. And we're telling a combined story that's allowing us to get access into much more senior audiences in the bank. And that's been very well received and it's encouraging to us.

Sirton Markins: Data sources and so forth. Frankly, there's less need for the step-up authentication by the agent because you can handle that through digital other digital sources

Derek Greenberg: Okay, got it. That makes sense. And then my other question is just about the partnerships you have with like Experian and Equifax, maybe some color and some updates on how that's progressing.

Scott Carter: And then my other question is just with the partnerships you had with like Experience and Equifax, just maybe some color and some updates on how that's progressing. Very pleased with both of those partnerships, you know, experience ones that we've highlighted, I think, publicly. And, you know, it kind of comes back to the, again, the portfolio optimization theme. You know, as we think about putting a large channel partner like that to work for us, they have an ability to go to, you know, Jason vertical markets or other, frankly, non-Jason vertical markets where they have access granting relationships, they've got the distribution reach, and they know the customer domain and language, right?

Speaker Change: Okay got it that makes sense and then my other question is just with the partnerships you had with like Experian and Equifax just maybe some color and some updates on how that's progressing

Scott Carter: Very pleased with both of those partnerships. You know, Experian is one that we've highlighted, I think, publicly. And, you know, it kind of comes back to the, again, the portfolio optimization theme. As we think about putting a large channel partner like that to work for us, they have the ability to go to, you know, adjacent vertical markets or other, frankly, non-adjacent vertical markets where they have access to granting relationships, they've got the distribution reach, and they know the customer domain and language, right?

Speaker Change: Very pleased with both of those partnerships, you know, Experian is one that we've highlighted, I think, publicly and, you know, it kind of comes back to the, again, the portfolio optimization theme, you know, as we think about putting a large channel partner like that to work for us.

Sirton Markins: They have an ability to go to adjacent vertical markets or other, frankly, non-adjacent vertical markets.

Sirton Markins: They have access-granting relationships, they've got the distribution reach.

Scott Carter: So we've, you know, for example, signed a very large healthcare provider in the UK with one of those partners. And, you know, I would suspect as we move forward with the portfolio optimization work, we'll be able to get smarter and smarter about where and how we leverage those channel partners. All right, got it.

David Lyle: A follow-up, I mean, clearly you're not going to be break even in mobile ID and 4Q. You said that. I mean, is there any chance you're going to be late 25 break even there? I mean, it seems like it's a multi-year chance to break even at this point. Dave, do you want to start there now, Phil, in the footage? Yeah, a couple of things there. You know, we have to remember that we've got a few products in their nascent stage moving into the accelerated growth stage.

Sirton Markins: And they know the customer domain and language, right? So we've, you know, for example, signed a very large

Scott Carter: So, we've, you know, for example, signed a very large healthcare provider in the UK with one of those partners, and yeah, I would suspect as we move forward with the portfolio optimization work, we'll be able to get smarter and smarter about where and how we leverage those channel partners.

Derek Greenberg: All right, I got it. Thank you.

Sirton Markins: health care provider in the UK with one of those partners. And yeah, I would suspect as we move forward with the portfolio optimization work, we'll be able to get smarter and smarter about where and how we leverage those channel partners.

Derek Greenberg: Thank you.

Operator: And at this time, there are no further questions.

Operator: And at this time, there are no further questions. I would like to turn the call back over to Todd for closing remarks.

Speaker Change: All right, got it. Thank you.

Todd Kehrli: I would like to turn the call back over to Todd for closing remarks. Thank you, operator. And thank you for joining our call today, and for your continued support. As always, if you have any follow-up questions, please feel free to contact me, and I'll be happy to answer your questions. Thank you, and have a great rest of your day.

Speaker Change: And at this time, there are no further questions. I would like to turn the call back over to Todd for closing remarks.

Todd Kehrli: Thank you, operator, and thank you for joining our call today and for your continued support. As always, if you have any follow-up questions, please feel free to contact me, and I'll be happy to answer your questions. Thank you, and have a great rest of your day.

David Lyle: And we really have to see how those play out, you know, as evidenced by what happened with the IDR&D biometric products in the current quarter and what we expect next quarter. So we have to see how that plays out to make that determination. That's why we, you know, I talked a little bit about my remarks that will come back to you in the next earnings call after we hit through our annual operating plan and get more specific there.

Operator: This concludes today's conference call. Thank you, first.

Operator: This concludes today's conference call. Thank you for attending.

Operator: The host has ended this call.

Operator: Goodbye.

David Lyle: But, you know, I think lastly, did you say what revenue was in Q3 for Czech fraud defender? We did not. We're not just closing that product level. Yeah. Yeah, just at the deposit level. Yeah, I remind you Mike, you know, the focus right now with this consortium flywheel kind of model is to get to a critical mass of adoption. We think we're quickly approaching that, you know, underscoring the adoption of the top five customer, the top 10 customer.

David Lyle: We top 10 bank rather and top five bank that we, the top 10 bank, we expect to close this quarter. You know, as you well know, you've followed the company a long time. They're long sales cycles with banks. They're then further sort of lags to implementation and then ramping, right? And with assess, assess model, take a while for that to ramp. But we're getting just terrific validation from customers, the proof of concepts are very compelling. We've customers switching from other competitive products. All signs are quite positive, but we're focused more on getting the scale and getting that flywheel going. Got it.

Operator: Okay.

Jake Robert: And our next question. Jake Robert is from William Blair. Please go ahead, Jake. Yeah. Thanks for taking the question.

Scott Carter: Scott, can you just help us understand when it became clear IDRD wasn't going to meet numbers. And then you talked about the two banking campaigns that were pushed out into fiscal 2025. And then a few six and seven figure transactions that were a bit more complex. Just to confirm, did any of those deals and campaigns fall completely out of the pipeline? Or is your expectation now just that they push into fiscal 2025? Yeah, the campaigns definitely shifted into 2025, the two that we highlighted.

Scott Carter: Honestly, I've worked with lots of machine learning scientists over the years, very impressive ones. This is a world class team of machine learning scientists. I'm excited about what we can do in integrating their best practices and driving R&D efficiency with the rest of the company. And at the same time, we can bring more rigor in how we evaluate product market fit, the business model, the revenue model. And that's where we'll be focused going forward with this product, portfolio optimization effort.

David Lyle: Okay, helpful.

David Lyle: And then Dave, can you just help us understand the expectations that underline the guidance that you laid out for fiscal 2025? Are you expecting those big IDR and D deals to close next year? Just would be helpful to understand the expectations that underline that? Yeah, back to your original question also. Some of those deals we did take out of the forecast completely. And they could come back but nothing that we want to rely on, obviously.

David Lyle: And then in terms of what's going to happen in 25, one of the reasons I made the comment about IDR and D product portfolio revenue starting to grow more in the second half is because we don't have enough clarity on exactly when those could close. Candidly, they could close in the short term or they could close in the next 18 months. That's kind of the range of prospects there. But we're working hard to make those close as fast as possible. With these big multinational guys, as you know, they just take a long time to get to that process.

Scott Carter: Okay, that makes sense. And then just one last one on my end. You said most of the myths was driven by ID verification, but that would imply that mobile deposit also had a slight miss in the quarter. Was that more related to core mobile deposits volume or did check fraud defender come in a bit a bit lighter than you expected? No, I think it was more deal timing than anything else. It was a very small number in terms of that 11 million.

Operator: Okay, thanks for continuing the questions.

George Sutton: And our next question come from George Sutton from Craig Hall in Capitol. Please go ahead, George. Thank you.

Scott Carter: I wondered if you could walk through the renewal dynamics. You talked about repricing issues as you were going through renewals. My assumption has been that you're moving folks from point solutions to the broader platform and therefore you would see fairly good pricing dynamics. Is that happened? Can you just give me some clarity on that? Yeah, it's a great question. So what we've seen with my VIP, as you move up the value proposition, I think this is fairly intuitive.

Scott Carter: You offer a stronger product. The price elasticity improves, right? So, you know, for those customers that are orchestrating more than just the sort of document verification piece, which is, I think is Max talked about in prior call, been commoditized. The more of those signals and data sources you're combining into that single platform, the stronger the value proposition and the higher the price point that can bear. We're also seeing, I alluded to this in the script, significant differences in the unit economics between agent review transactions and auto transactions.

Scott Carter: And that has the agent transactions are diluted, right? As we look at things like profitability by geographic market or vertical, we have an opportunity without tipping our answer to competitors to increase emphasis in some of these segments, decrease emphasis in others and aggressively sort of help migrate customers to best practices, both as they migrate mobile verified to my VIP. But also to model the best practice that some of our most successful customers have had with my VIP that also happen to drive very attractive contribution margins.

Scott Carter: On the lower end of our base, we see that there's, relatively high-calc to support smaller customers, right? So we think there's a pretty intuitive opportunity for us to get smarter about pizzas for the direct versus channel model, pricing strategies for those customers, and sort of where we focus from a product market for its standpoint, and with the eye-catch, you know, you might revert to inbound only or, you know, channel strategy. These are the things now that we've done that's much deeper dive that we're taking a close look at. Gotcha.

Scott Carter: So, on the CheckFraud Defender side, I think there's been some skepticism that a top five bank would not use your system given their broad range of what they were seeing and therefore not benefiting from the network effect. So, the fact you did sign a top five bank I think is very important. I just want you to confirm that in your marketing. But can you talk more broadly about, you mentioned the demonstrably high ROI.

Scott Carter: Obviously as banks are seeing this, I mean it just seems simplistically to me, this would be a very easy offering to sell given that high ROI. So, any updates on the kind of the sales process there? Yeah, first of all, the first party point I want to address, which is, you know, some of these banks do have a variety of sort of internally and other sort of third party solutions and some banks are more sophisticated than others in terms of the data science capabilities they have and so forth.

Scott Carter: What really turbocharges the value proposition for CheckFraud Defender is that we can look in real time mode across the entire ecosystem. So, a top five bank will only have visibility of what's happening on the checks that are happening in their environment. But there is, for example, a high velocity effect to the elsewhere with indications that there's bad act of activity, they wouldn't have visibility to that. So, that's an example of why this consortium-based approach is, in fact, very additive to these top five banks.

Scott Carter: The challenges at the same time, they're big banks and there's a lot of inertia and takes them a while to get things done. So, I think I would underscore that the sales like as they're just long and it takes them a while to sort of get things done and through their internal processes. But all signs remain positive. There are a wide piece. You know, anecdotes that I would tell you, we've had very compelling examples of customers saving tens of millions of dollars in the first number of months with the product.

Scott Carter: We're targeting, typically, I think when Dave walked through is a sizing model. And we talked about like a 10-to-1 ROI, which we think is very conservative. I think over time, as the consortium is established and the fraudsters, by the way, then migrate from the banks that are protected to those that aren't. We think we can capture prices as a sort of higher percentage than ROI over time. I understand.

Operator: Okay, that's it from me. Thank you.

Derek Greenberg: As a reminder, if you would like to ask a question, please press a dollar one on your phone now.

Operator: And our next question comes from Alan Clee from Axon Group. Please go ahead, Alan. Hi, this is Derek Greenberg on for Alan. My first question was just on, you had mentioned the transition from agent-reviewed transactions to more automated. I was wondering if maybe you just had any metrics in terms of what percent is automated versus agent-reviewed, and what the relative margin difference is as this continues to shift, as well as just the capacity in terms of the percentage that can be automated versus manually.

Operator: Yeah, I appreciate the question. I don't know that we have data kind of off top of available right now and talk about in terms of those specific metrics. I don't think we've disclosed those previously. We can talk offline and figure out what we can provide you after the fact. The point I would emphasize is that Asian transactions are delutive. There are, you know, it's highly variable depending on the customer and the use case and so forth.

Operator: Scale matters, so customers, you know, large banks that have, you know, say sort of an 80 percent automation rate would just by virtue of scale economies have better sort of margin profile than those on the smaller end, right? So that's something to think about. So what we have is, you know, an emphasis on having our sales teams and other client-facing teams take a more consultative approach to helping customers understand, you know, when they need to use Asian transactions, there are certain regulatory dynamics in certain markets and again, we'll take a sort of case-by-case basis.

Operator: I'll underscore again and just to repeat the theme about, you know, as we migrate the single use case customers that are on state mobile verify and just in the document authentication to the my DNP platform, we can instantly provide, you know, stronger value proposition and improve the margin profile. And as they orchestrate those other data sources and so forth, frankly, there's less need for the step of authentication by the agent because you can handle that through digital, other digital sources.

Operator: Okay, got it. That makes sense. And then my other question is just with the partnerships you had with like experience and Equifax, just maybe some color and some updates on how that's progressing. Very pleased with both of those partnerships, you know, experience ones that we've highlighted, I think, publicly. And, you know, it kind of comes back to the, again, the portfolio optimization theme, you know, as we think about putting a large channel partner like that to work for us, they have an ability to go to, you know, Jason vertical markets or other, frankly, non-Jason vertical markets where they have access granting relationships, they've got the distribution reach, and they know the customer domain and language, right?

Operator: So we've, you know, for example, signed a very large healthcare provider in the UK with one of those partners. And, you know, I would suspect as we move forward with the portfolio optimization work, we'll be able to get smarter and smarter about where and how we leverage those channel partners. All right, got it. Thank you. And at this time, there are no further questions.

Q3 2024 Mitek Systems Inc Earnings Call

Request a DemoDemo

MITK

Mitek Systems

Earnings