Q3 2025 Mitek Systems Inc Earnings Call

Speaker #2: Good afternoon , ladies and gentlemen , and welcome to the My Tech Reports fiscal 2025 third quarter financial results . At this time , all lines are in listen only mode .

Speaker #2: Following the presentation , we will conduct a question and answer session . If at any time during this call you require immediate assistance , please press star zero for an operator .

Speaker #2: This call is being recorded on Thursday , August 7th , 2025 . I would now like to turn the conference over to Ryan Flanagan ICR .

Speaker #2: Please go ahead .

Speaker #3: Thank you . Operator . Good afternoon , and welcome to my fiscal 2025 third quarter earnings conference call . With me on today's call are Mitek CEO , Edward West and CFO Dave Lyle .

Speaker #3: Before I turn the call over to Ed , I'd like to cover a few quick items today . a press release announcing its financial results for the fiscal 2020 third quarter ended June 30th , 2025 .

Speaker #3: That release is available on the company's website at Mitek Systems . 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 .

Speaker #3: 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 .

Speaker #3: These forward looking statements may include comments about the company's plans and expectations for future performance . Forward looking statements are subject to a number of risks and uncertainties , which could cause actual results to differ materially .

Speaker #3: We encourage all our listeners to review our SEC filings , including our most recent 10-K and 10-q , for a complete description of these risks .

Speaker #3: Our statements on this call are made as of today , August 7th , 2025 , and the company undertakes no obligation to revise or update publicly any forward looking statements contained herein , whether as a result of new information , future events , changes in expectations or otherwise .

Speaker #3: Additionally , throughout this call , we will be discussing certain non-GAAP financial measures , today's earnings release , and the related Current Report on Form 8-K .

Speaker #3: Describe the differences between our GAAP and non-GAAP reporting , and present the reconciliation between the two for periods reported in the release . With that said , I'll now turn the call over to Mitek CEO Edward West editor .

Speaker #4: Great . Thanks , Ryan . Good afternoon , and thank you for joining us today . And welcome to our Q3 update call .

Speaker #4: This has been a solid quarter in terms of business performance , but even more importantly , it marks a quarter of disciplined execution against the objectives that we outlined at the beginning of the year .

Speaker #4: Let me start with three key takeaways from the quarter . First , based on the growth and operational efficiencies that we've implemented , we are rapidly approaching the fulcrum point for durable profitability in our identity product portfolio .

Speaker #4: Second , our identity solutions fraud and continue to grow in scale , posting 23% year over year SaaS revenue growth and representing over 41% of total revenue for the last 12 months .

Speaker #4: And third , we're running the business with sharper operational discipline . cash flow for the last 12 months was $56 million , representing a 99% conversion rate .

Speaker #4: Now , for those of you newer to the Mitek story , we provide the core identity and fraud infrastructure that high assurance businesses rely on to operate securely in today's dynamic threat environment .

Speaker #4: Our technology verifies identities and documents , authenticates users , and detects fraud from onboarding to login to transactions . We serve over 7000 organizations globally , including top banks , fintechs and telecom providers .

Speaker #4: Mitex platform has become important for companies that need to balance security with a seamless user experience , especially today when fraud is increasingly driven by generative AI and synthetic identity attacks .

Speaker #4: Generative AI has essentially allowed fraud to be democratized . Our solution spanned the customer journey , from onboarding to authentication to transaction monitoring .

Speaker #4: This includes our identity verification and orchestration platform , my VIP , which helps customers onboard users securely and at scale . Biometric authentication tools like Mypass and our mobile deposit technology , which has revolutionized consumer banking and supports approximately 1.2 billion transactions annually .

Speaker #4: Each solution is underpinned by advanced AI , proprietary biometrics and automation technologies , and are all delivered via software solutions . Underlying this platform is a powerful and growing data asset .

Speaker #4: Our fraud prevention consortium , now encompassing approximately a quarter of all US checking accounts or around 100 million accounts . That footprint and continues to expand as we onboard new financial institutions and as existing members contribute more data , whether through newly opened accounts or checks received from customers at other banks .

Speaker #4: In either case , the data flows through our systems to detect fraud . Now let's move to the progress against the four strategic pillars that we outlined in prior quarters .

Speaker #4: As a reminder , those four pillars are first , strengthening our foundation . Second , scaling identity . Third , expanding fraud solutions .

Speaker #4: And fourth , driving operational excellence . On the first pillar , which is strengthening our foundation this quarter , we continue transforming how we operate with tangible changes now visible across every function of the business teams across R&D , marketing , product engineering , and G&A are being aligned on platform execution with simpler systems and clear accountability , enabling reinvestment without increasing our cost base .

Speaker #4: As we position Mitek to drive durable , profitable growth in fiscal 26 and beyond . Over the last 12 months , we improved our unit economics by automating more of our transactions and modernizing our technology stack , which has improved our cost of goods sold overall .

Speaker #4: Our non-GAAP operating expense intensity has improved from 64% down to 55% of last 12 months revenue , driven primarily by reductions in vendor spend .

Speaker #4: These actions have not only lowered our structural cost base , but they've also sharpened our execution with a heightened focus on profitability . On the technology front , we made further progress automating key workflows and laying the groundwork for a unified , scalable platform .

Speaker #4: We've also expanded our use of AI assisted development tools across engineering , helping us activate customers more efficiently . Behind the scenes . We've continued building out our data science capabilities , which is an important evolution in our shift towards intelligence driven fraud prevention .

Speaker #4: Now moving on to the second pillar , which is scaling identity . We're nearing the fulcrum point where our identity product portfolio is contributing positively on a fully burdened and durable basis .

Speaker #4: We're making excellent progress towards this important milestone . Trailing 12 month identity , revenue has reached $75 million , up 13% year over year .

Speaker #4: During this time , we have also improved the fulcrum point to less than $80 million on a fully burdened basis and a result of the efficiency and scale gains .

Speaker #4: This is not just a financial milestone , it's a structural turning point . Identity , which was previously a margin drag , is now helping fund the broader business .

Speaker #4: It's important to note that on a contribution basis , before allocating overhead , identity is contributing positively today . That shift reflects a disciplined execution over the past year , driven by increased automation , improved gross profit per transaction , and transaction volumes , reaching a scale that efficiently leverages a predominantly fixed cost base .

Speaker #4: My VIP continues to lead the portfolio in transaction growth , with more identity journeys incorporating advanced verification steps like liveness detection , face match , deepfake analysis , and behavioral signals .

Speaker #4: These multi-layered workflows are materially improving unit economics . Just as important , we're seeing real convergence between identity and fraud . Customers are increasingly looking to deploy both together across onboarding , transaction verification , and step up authentication .

Speaker #4: This convergence is accelerating our evolution into a unified , full stack platform that secures the customer journey from first touch , through transaction verification to ongoing engagement .

Speaker #4: As fraud continues to grow more sophisticated , we are seeing increased customer interest from Ipass Mobitex authentication solution . We're fielding more authentication opportunities in embedding identity verification at critical points in the user journey to build trust , reduce friction , and strengthen security .

Speaker #4: Our solution encompasses a highly secure passwordless biometric authentication all back to a verified identity . As an example , a leading UK financial institution significantly expanded its commitment to Mitek this quarter by deploying Mypass in multiple new use cases .

Speaker #4: What began as a single authentication use case has grown into a broad set of high risk scenarios , such as payment authorization and changes to personal information .

Speaker #4: Unlike traditional verification , which is typically used once at signup , Mypass enables transactional authentication that secures interactions across the bank's existing customer base by replacing outdated tools , Mypass is helping the institution deliver faster , more secure digital experiences at scale , saving time for consumers while strengthening fraud defenses .

Speaker #4: Now , naturally , the expanding role in identity is closely linked to the growing demand for real time fraud prevention , which is our third pillar .

Speaker #4: Check Fraud Defender continues to scale , with annual contract value reaching approximately 13.1 million , up 56% year over year . Enterprise banking deployments at Check Ball Defender tend to unfold through multi-stage rollouts , with validation cycles and complex procurement processes .

Speaker #4: We continue to run test cycles , all the while negotiating the contracts to enroll several large , well-known FIS . Accordingly , we have good visibility towards a potential step up in ACV growth .

Speaker #4: We're also seeing strong momentum through our channel partner network . In Q3 alone , we closed nearly 40 new FIS who joined as partners through partners , expanding our reach into the long tail of community and regional institutions .

Speaker #4: As I mentioned earlier , check for defender now has visibility into check activity from approximately a quarter of all US checking accounts , which includes mostly production and a small amount of pilot data .

Speaker #4: This trajectory highlights the growing engagement with our platform and its increasing relevance as a source of real time , industry wide fraud intelligence .

Speaker #4: What we're building with check for defenders is just the starting point . We see this as a foundation towards a broader enterprise fraud platform .

Speaker #4: Now on to our fourth and final pillar building a more durable , cash generative and fully integrated business model powered by disciplined operational excellence .

Speaker #4: While we continue to scale our fraud and identity solutions , we're equally focused on how we run the business , driving operational excellence as first and foremost about the customer experience that delivers incremental value and insight while enabling us to do more with less .

Speaker #4: The latter is driven by leverage and focus . SaaS revenue now represents over 41% of trailing 12 month revenue , up from last quarter .

Speaker #4: steady strategic mix shift that improves visibility , enhances scalability and positions us for long term margin expansion . At the same time , we're instilling stronger financial discipline through tighter cost controls and more focused execution .

Speaker #4: We accelerate accelerated EBITDA growth and achieved a 99% free cash flow conversion rate on an LTM basis , giving us the flexibility to reinvest where it matters most .

Speaker #4: This quarter , we launched a series of company wide efficiency initiatives spearheaded with precision and urgency by our new COO , Gary Gaffke , including a comprehensive vendor audit , renegotiation of A legacy infrastructure .

Speaker #4: These efforts are already freeing up resources we're using to reinvest directly into the platform advancing automation , improving performance , and ultimately enhancing the customer experience .

Speaker #4: We're also evaluating new opportunities to better align our go to market resources to support growth in our current geographies , strategic relationships , and channel partnerships .

Speaker #4: As we look ahead to year end , we anticipate ongoing changes to ensure our operating model is in alignment with the most compelling opportunities in fraud and identity .

Speaker #4: In short , we're operating with greater focus , tighter integration , and a growing ability to convert operational discipline into a product . Enhancements and innovation margin expansion and free cash flow per share .

Speaker #4: In closing , I would like to summarize our journey over the past three quarters and how the business is evolving . My tech comes from a history of several strong assets , ranging from pioneering model mobile deposit , which led to the credibility with thousands of financial institutions to leading technologies and nascent but evolving digital identity space , all supported by terrific technical talent and capabilities , all of which are the very reasons that I joined .

Speaker #4: These assets were clouded by CEO and CFO turnover , material weaknesses , years of late filings as a public company in Unintegrated acquisitions .

Speaker #4: Now we have made clear progress in putting that chapter behind us . We have executed against the initiatives that we outlined at the beginning of the year , streamlining and integrating the business and moving the identity product portfolio towards durable profitability .

Speaker #4: We are approaching the fulcrum point for an adorable basis for identity , and believe we are well situated to reposition Mitek as a fraud and identity business that works with its customers to detect and prevent fraud .

Speaker #4: As a result of growing and persistent AI driven fraud , customers are asking for integrated platforms that unify identity authentication and fraud detection .

Speaker #4: Purpose built to protect what's real across every digital interaction . That is Mitac's purpose . With that , I'm going to turn it over to Dave for some financial highlights and discussion of our improved outlook .

Speaker #5: Thanks , Ed . I'll begin with a review of our Q3 financial results , including the key drivers behind our performance , and then provide context on how we're approaching the final quarter of the year and discuss our updated full year outlook .

Speaker #5: For the for the third quarter , total revenue was $45.7 million , up 2% year over year , driven primarily by our identity products , which grew 24% year over year , fueled by 19% growth in identity SaaS and continued strength in transactional volumes .

Speaker #5: Deposits revenue came in as expected and in line with the quarterly seasonality associated with mobile deposit renewal timing . As we outlined in prior calls , our non-GAAP gross margin for the quarter was 85% , about 100 basis points less than a year ago , due to a slight mix shift away from our higher margin deposits products .

Speaker #5: non-GAAP operating expense came in at 26.3 million at the lower end of our previous guidance range . This represents a 3% year over year improvement , driven by a broader focus on cost , discipline and operational excellence .

Speaker #5: Adjusted EBITDA was 13.1 million , representing a solid 28.6% margin and 170 basis points better than a year ago . Turning now to the specifics of our revenue performance , starting with deposits , products revenue was 26.2 million .

Speaker #5: As we've noted before , term license revenue , which is roughly 70% of the deposits mix , can fluctuate meaningfully based on renewal timing .

Speaker #5: So we focus on trailing 12 months trends for a clearer view . Trailing 12 month license revenue totaled 69.1 million , just below our long term average of 70 million , reflecting the continued resilience of the 1.2 billion mobile deposit annual transactions .

Speaker #5: Even as overall check volumes decline . Notably , maintenance revenue in the deposits portfolio grew 4% year over year , supported by healthy renewal cycles and a few early renewal pull ins , helping to smooth quarterly license variability .

Speaker #5: Turning to our fraud solutions within deposits , Check Fraud Defender continues to gain traction deposit SaaS revenue , where this product is primarily recognized , delivered growth of 55% year over year , albeit off of a small base .

Speaker #5: This was driven by organic usage , growth , and expansion across both direct and partner channels . In summary , our deposits product portfolio generated $103 million in revenue over the last 12 months , up modestly from $100 million a year ago , a reflection of the resilient but slower growth profile in deposit solutions , especially as the market for check based workflows matures .

Speaker #5: Those pressures are increasingly being offset by growth in our fraud prevention solutions that solve a fundamentally different and more urgent problem . Detecting and preventing fraud before losses occur .

Speaker #5: Now , turning to identity , which delivered another strong quarter with revenue up 24% year over year to 19.5 million , driven by a 19% increase in SaaS and solid performance across both our my VIP platform and mobile Verify point solutions .

Speaker #5: SaaS growth was fueled by deeper adoption within existing accounts , especially in high assurance verticals and increased usage of complex multi signal journeys .

Speaker #5: We also saw higher than expected overages from several large customers , further boosting revenue . My VIP continues to account for a growing share of identity journeys , reflecting growing demand for end to end orchestration .

Speaker #5: Importantly , customers are not only running more identity checks , they're embedding more verification steps across the user life cycle , from onboarding to authentication and fraud remediation .

Speaker #5: These deeper integrations make the platform stickier and drive more durable revenue . As Ed mentioned , identity is progressing in the right direction with improving contribution and greater scale efficiency .

Speaker #5: Turning to SaaS revenue and building on what Ed outlined , we continued to see strong SaaS momentum , with SaaS revenue becoming an increasingly larger share of our mix today , representing 41% of total trailing 12 month revenue .

Speaker #5: Moving down the PNL , we delivered a non-GAAP gross margin of 85% in Q3 , supported by strong unit economics across the business .

Speaker #5: This includes nearly 100% gross margin on software license revenue , primarily driven by mobile deposit and a 74% gross margin on services and other revenue , including our identity SaaS offerings , which improved by approximately 200 basis points year over year .

Speaker #5: This expansion reflects operating leverage within our fixed cost services infrastructure as identity volumes scale , combined with ongoing improvements in automation and delivery efficiency .

Speaker #5: These gains reflect the efficiency of our platform and the automation improvements discussed earlier . These trends reinforce our confidence that as the business continues shifting towards SaaS , the underlying margin profile will continue to strengthen , giving us greater flexibility to either expand profitably or reinvest in growth as attractive opportunities arise .

Speaker #5: non-GAAP operating expense for the quarter were 26.3 million , up modestly from 25.7 million in Q2 , driven by higher sales commissions and fiscal year end audit costs , partially offset by lower marketing and personnel related expenses .

Speaker #5: We're particularly pleased with the continued improvement in G&A efficiency on an LTM basis . non-GAAP G&A expenses improved by 18% year over year , reflecting our progress in streamlining external services and building a more scalable , cost effective corporate function .

Speaker #5: Adjusted EBITDA for Q3 2025 reached 13 million , up 8% year over year , and representing a 28.6% adjusted EBITDA margin . After factoring in other income , interest and a modest increase in tax expense .

Speaker #5: This translated to $10.2 million in non-GAAP net income , or $0.22 per diluted share , on 46.8 million diluted shares outstanding . Turning to our balance sheet and capital allocation strategy .

Speaker #5: Over the last 12 months , we generated 55.8 million of free cash flow , a 99% conversion of adjusted EBITDA reflecting strong earnings quality , higher interest income and improved working capital efficiency .

Speaker #5: As the impact of interest arbitrage goes away . When our convertible notes are retired and working capital improvements are left , we expect free cash flow to be predominantly driven by recurring contributions from our core operations .

Speaker #5: We ended Q3 in a healthy net cash position , with over $175 million in cash and investments and $155 million in face value of convertible notes due February 2026 , with the notes carrying a low 75 basis points coupon and a convertible feature .

Speaker #5: Trading well out of the money , we're earning favorable carry and intend to retire them at the most economically advantageous point to support our flexibility .

Speaker #5: We already secured a $100 million credit facility in May , which remains undrawn . Our strong financial position allows us to balance reinvestment in the business with shareholder returns .

Speaker #5: Since the authorization of our current $50 million buyback program was made in May of 2024 , we've returned $29 million to shareholders , which includes 27.5 million executed through the end of Q3 25 and 1.5 million since quarter end through end of trading yesterday , August 6th , leaving $21 million remaining on the authorization .

Speaker #5: We remain focused on disciplined capital allocation and building a more efficient , scalable business that delivers sustained free cash flow per share and long term value .

Speaker #5: Against this backdrop , we are tightening our full year fiscal 2025 revenue guidance to a range of 174 million to 177 million , with a 175.5 million midpoint modestly above our prior guidance .

Speaker #5: This implies fourth quarter revenue of between 39 million and $42 million . This range reflects seasonally low mobile deposit revenue due to renewal deal timing , with the high end reflecting potential higher usage based activity in identity , which could drive incremental overages in Q4 .

Speaker #5: On profitability , we are raising our full year adjusted EBITDA margin guidance to a range of 28 to 29% , up from 26 to 29% previously .

Speaker #5: This increase reflects the flow through of our continued improvements in operational efficiency , a leaner G&A structure and stronger , stronger unit economics across both identity and deposits .

Speaker #5: For the fourth quarter , we expect non-GAAP operating expenses to be in the range of 25 to $26 million , with depreciation at approximately 80 basis points of revenue .

Speaker #5: While we remain disciplined on cost , we will continue to invest in strategic priorities , particularly in unifying and enhancing our product portfolio .

Speaker #5: Overall , we're encouraged by continued sales momentum , improving unit economics and positive signals across key KPIs as we build on the operational discipline and strategic progress of the past year .

Speaker #5: Looking ahead at Fiscal Year 26 , our strategy centers on scaling a unified platform that integrates identity , authentication and fraud product investments and go to market .

Speaker #5: Efforts are aligned around this foundation , and while the groundwork is well underway , we expect the benefits to build gradually over time , positioning fiscal year 26 as a year of continued execution and set up for scalable , durable growth .

Speaker #5: Lastly , an important housekeeping item our updated investor presentation and Excel based supplemental financial package for Q3 are now available on our newly revamped and redesigned Investor Relations website .

Speaker #5: over to the operator for questions .

Speaker #2: Thank you so much , ladies and gentlemen . We will now begin the question and answer session . Should you have a question , please press star followed by one on your touchtone phone .

Speaker #2: You will hear a prompt that your hand has been raised . Should you wish to remove your hand from the queue , please press star followed by two .

Speaker #2: If you are using a speakerphone , please lift the handset before pressing any keys . Just a moment for your first question .

Speaker #2: And your first question comes With that , I'll turn the call back from Mike Grondahl with Northland Securities . Please go ahead .

Speaker #6: Hey guys this is Logan on for Mike . Thanks for taking our question first . So now with SaaS revenue up 23% year over year and being 41% of trailing 12 month revenue , how are you guys thinking about return to double digit growth in 2026 ?

Speaker #6: Is there any updates to call on your strategy ?

Speaker #5: No , we're a couple of things here . We're not going to guide 2026 in this call . We'll do that in our next earnings call .

Speaker #5: But just to provide some preliminary color on on 2026 , we think next year is going to be a year of continued execution , where we'll focus on unifying our platform and continuing to strengthen our foundation .

Speaker #5: We anticipate also revenue growth to come out of the SaaS solutions , primarily the fraud and identity products . And we also anticipate that cost discipline will allow us to reinvest in the areas that matter most , which is really the long term platform transformation .

Speaker #6: Yeah , thank you for that . Then is there anything to call out ? I saw that deposit software revenue was down 20% year over year .

Speaker #6: How are you guys viewing that going forward ? Is that expected to stabilize in the coming quarters ?

Speaker #5: Well , we've seen on on the transaction volume side , we've seen real stability quarter to quarter LTM . So we're pretty happy about that .

Speaker #5: We've managed to offset any reduction that we see out there in in potential revenue declines with increases in ASPs over time . So we've done a good job there .

Speaker #4: I think overall there Logan is again , I think it's important for the mobile deposit side of the business is to look at that on a trailing 12 month basis .

Speaker #4: And as Dave mentioned in his points , you know , trailing 12 month revenue , there is pretty , pretty well in line with historical , historical levels .

Speaker #4: And as we've mentioned on previous calls that we've seen transactions , you know , around approximately around that 1.2 billion transactions a year on the underlying use of , of the solution .

Speaker #4: So overall , it's been been relatively stable . It's just not to get caught up . That's part of the problem . On how it was originally set up in terms of selling the software .

Speaker #4: So it's just led to a very jumpiness , which is why strategically , to the first part of your question , one of our clear priorities is growing the SaaS part of the business .

Speaker #4: And now seeing that at 41% , and we outlined a while back , you know , it's our goal to try to get to where the business , the majority of that is , is SaaS driven to give better visibility and stability to the business .

Speaker #5: Yeah . And I'll just add one more thing here , Logan , which is if you actually look at what we said in the last earnings call about Q2 , Q2 was our largest revenue quarter , really , I think in the history of my tech , my tech history , that was driven by the deposit side .

Speaker #5: And some of that uptick that we saw was just deal timing , timing on the renewal side , where we actually saw some revenue get pulled in from the the quarter .

Speaker #5: We had expected it , which was this third quarter . So this is kind of all where we think it would be going forward .

Speaker #5: And on an LTM basis , we're feeling pretty good about it .

Speaker #6: Yeah . Thank you for the color . That was helpful . Then switching over to Check Fraud Defender . How is the pipeline looking for new partners and anything big to call out .

Speaker #6: Kind of in the near term .

Speaker #4: Well , I would tell you in terms of the ongoing dialogue and conversations , they're excellent . We're having conversations with multiple multiple partners .

Speaker #4: As you know , we're we're we're we have significant relationships with many of the large OEM and processors in the industry . And we continue the ongoing dialogue there .

Speaker #4: Our current partners have been doing terrific . As I mentioned , you know , nearly 40 new institutions came into the consortium this past quarter , and there's more underway .

Speaker #4: At the same time , we have some fairly large institutions that are in a pilot phase right now and who are ongoing and testing and evaluating .

Speaker #4: And , you know , we're having conversations and discussions with contracts there . So we're we're optimistic and seeing some of those convert over time and have good visibility to it .

Speaker #4: So far , the performance there has been has been great . And the fact that we now have visibility to a quarter of all checking accounts in the in the United States , having just built up over the last , last couple of years is very encouraging .

Speaker #4: So we feel like this is a an ongoing long term opportunity . And as I mentioned in my points , strategically as a foundation for an enterprise solution for fraud detection .

Speaker #6: That's great . Thank you . And then one last one from us . What are you guys most excited about for the rest of fiscal year 25 and heading into 2026 ?

Speaker #6: Yeah . Thank you .

Speaker #4: Just executing on exactly what we talked about . I mean , we're a team is appointed out . You know , we outlined our goals and objectives earlier in the year .

Speaker #4: And just executing against those hitting singles and doubles , integrating this business , pulling these acquisitions in , consolidating the platform , starting to see growth .

Speaker #4: We're really enthusiastic about seeing the SaaS growth , stability in the in the mobile deposit business and overall deposit software solutions , the stability there and the growth potential .

Speaker #4: I would tell you personally , I'm most encouraged by every time I talk to customers and prospects , because what we have here , I think is a terrific asset with the history and the credibility of financial institutions and the capabilities and technical capabilities with where the puck is going in terms of fraud , synthetic fraud , mostly by generative AI .

Speaker #4: We're well positioned , we're digital identity and ongoing , I think was one of the reasons I touched in on one of the institutions who expanded with us this past quarter , where they're now recognizing the ability they need to take this level of security .

Speaker #4: Now on ongoing authentication , where , you know , we do have that closed loop network where we can verify biometrically on a password list based back to a verified identity for their base .

Speaker #4: I just think we're well positioned for it . And , you know , it'll it'll continue to evolve over time and just about executing .

Speaker #6: Yep . For sure . Thanks , guys . Congrats on the quarter .

Speaker #7: Thanks a lot .

Speaker #2: Your next question comes from Jake Ropers with William Blair . Please go ahead .

Speaker #8: Yeah . Thanks for taking the questions . Could you talk a little bit more about what you're seeing on the demand front for for Check Fraud Defender ?

Speaker #8: Do you still feel confident in that that product hitting your your 20 million ACV target . And now that you've gotten more customers on that solution , do you feel like the new logo opportunities are maybe better understanding the ROI of the solution , that you can start getting these new deals across the finish line quicker ?

Speaker #8: Thanks .

Speaker #4: Hey , Jake . Good afternoon . Yeah , I would just say just going back to and consistent with the last discussion around the opportunities that we currently have underway and in discussion with in terms of the test , we have ongoing additional partners that we're in conversations with , as well as several very large financial institutions that that , you know , are all evaluating and going through in the data that we see through that .

Speaker #4: And with most of those we're in contract discussions with right now . So we're we're optimistic about getting to our we talked about with our goals and wanting to see ACV double .

Speaker #4: It's a matter of time when that occurs , whether you know which month or when it occurs , can , you know , give you a definitiveness on that .

Speaker #4: But we're optimistic about achieving that . And frankly , just the ones that we have visibility to right now , the , the the ROI is , is very real .

Speaker #4: People see it . It just takes time , you know , evaluating it and then kind of going through the whole procurement process .

Speaker #4: And these are significant changes for the institutions , many coming off of other internal systems that they may use or others . There's a is a is a big change , but so far the results speak for itself .

Speaker #8: Okay . Very helpful . And then obviously last year you had the larger R&D deals that that had pushed out a little bit .

Speaker #8: Can you give us an update on how those deals are trending , and then just how the integration of that R&D team has been into the broader fraud and ID verification suite ?

Speaker #5: Yeah , and you're talking about the standalone biometrics revenue that shows up as software revenue the way we disclose it . That and I think you're also talking about it was about a year ago that a bunch of larger deals got pushed out from some larger potential customers out there .

Speaker #5: You know , I think some of those have changed . Some of those have are still staying the course and just taking longer .

Speaker #5: So we're we're we're not betting on it , but we're certainly focused on closing those deals . Still .

Speaker #4: I would say to the second part of your question strategically is , you know , some of the changes we've been making is integrating the business all in tightly with with overall mitek and part of the sales , in particular , on a go to market in the team , they're you know , we're seeing , as I mentioned earlier , where identity and fraud are becoming closer and closer , interlinked with one another .

Speaker #4: A lot of our transactional growth is some of the new solutions we've rolled out with the capabilities there around whether it's liveness , injection , attack detection , presentation , attack detection , deepfake detection , those were all strong capabilities from AI R&D and now integrated into to our platforms .

Speaker #4: And you know , that's just the team integrating in on the evolution and now getting tighter and tighter from a product . Again , part of the efforts that we've been outlining over the last couple of calls .

Speaker #8: Okay . That's helpful . And then if I could just sneak one more in you , you all obviously brought in Garrett a couple of quarters ago .

Speaker #8: Can you just talk about some of the the low hanging fruit that he's been able to to identify within the organization to , to help improve some of the operational efficiencies around the business ?

Speaker #4: Yeah , as I mentioned , you know , that was last quarter . And frankly , I would just say , as I pointed out in here where we , you know , kicked off various cost exercises and streamlining that and also just accelerating the pace of change in the organization , bringing focus to integrating these solutions .

Speaker #4: As we talked about at the beginning of the year , we're very serious about integrating this business , as opposed to having multiple platforms from multiple acquisitions over the years .

Speaker #4: We need to be highly integrated and being able to capture the data , insight and leverage that as a business . And he is absolute champion of that .

Speaker #4: And I would just say accelerating that pace , then ultimately , you know , getting it to where the data and capabilities with that becomes a stronger and stronger asset for the company and our customers .

Speaker #8: Great . Thanks for taking the questions . Appreciate it .

Speaker #4: Thank you .

Speaker #7: Thanks .

Speaker #2: Your next question comes from George Sutton with Craig-hallum . Please go ahead .

Speaker #9: Thank you . First I just want to make sure I have the numbers right . So on the identity side , I believe you mentioned you last 12 months have had $75 million of identity revenues and $80 million of fully burdened costs .

Speaker #9: So that fulcrum you speak to is in front of us . Did I did I get those numbers correct ?

Speaker #5: Yeah , the $75 million . You're correct . That's on an LTM basis . When it comes to the fulcrum point . You know , you've heard editor and myself talk about having durable , profitable growth .

Speaker #5: We've already seen some profitability out of a out of identity . We're now focused on making sure that that durable , we think we're nearing that point pretty quickly here .

Speaker #4: And what I mentioned , George , is there is that from previous conversations where we talked about that kind of fulcrum point is roughly 80 to 85 million , because of all the actions that we've been taking over the last few quarters , we've actually been able to move that breakeven point below $80 million and seeing , you know , positive contributions now .

Speaker #4: And frankly , what we want to see is as to Dave's point on that last statement , the second point there that is durable , that frankly , we've seen it over a trailing 12 month basis , and we're pretty close to getting there .

Speaker #4: And once that's achieved , we'll , you know , kind of declare it and move on . But I would tell you , just based on the actions , the activity , current visibility , it's very close to happening as we speak .

Speaker #9: And and just so I'm clear in identity , the goal is still to migrate customers to the platform away from the point solutions is that is that effort continuing accelerating ?

Speaker #4: Yes . That's all all correct . Where , you know , seeing the benefit of the platforms I mentioned in my comments on VIP , that's actually where we've seen the largest amount of growth in the transactional growth , where we also , you know , having more and more journeys there , but also more transactions per journey .

Speaker #4: So additional insights coming in , additional signals , as I mentioned on there . So absolutely , that's ongoing . And it'll take time because obviously , you know , there's migration .

Speaker #4: But in terms of new efforts going forward for new relationships , come on . The focus is on a platform approach versus just selling a point solution .

Speaker #9: So separate from this conversation , you've begun to talk about taking the check fraud defender concept and migrating it to the broader payment market .

Speaker #9: Is this similar to what you're now starting to refer to as the enterprise fraud platform ?

Speaker #4: Well , that's it's one one use . So obviously with checks right now , we've continued to grow and grow with checks . And is that as a platform in payments .

Speaker #4: And then can we go beyond just checks because of the credibility frankly we have with checks and checking accounts , those transactions , their fraud that's taking place every day with financial institutions outside of checks .

Speaker #4: We have the visibility with checks . Is there any interoperability with that through other payment types ? An example would be like check kiting and with check kiting also then gives you visibility into other payment types such as wires or ACH or other things .

Speaker #4: So, the more we can do here, the better insight for the financial institution. More fraud signals to help them detect and prevent fraud.

Speaker #4: At the same time, for some of those financial institutions, we may be doing verifications for them, which again provides additional signals and additional insights that can be brought forth.

Speaker #4: The conversations that we have now , George , where we've kind of moved from a particular conversation on a product or in a , you know , particular department in Fi to now , you know , the head of fraud , fraud is looking across the business , whether that be in payments , which may be a check or other form of payment and verification and authentication account takeover .

Speaker #4: They care about fraud and are looking to us about being a signal rich environment to help them prevent fraud . So that's where we see this evolving into more of an enterprise solution .

Speaker #4: And we we're pretty unique of being able to bring forth these various assets and have the deep relationships with many financial institutions .

Speaker #9: Gotcha . Last question for me . You mentioned that you're seeing positive signals across a number of your KPIs . I'm wondering if you could just be more specific what you're referring to there .

Speaker #5: Well , as we see , especially on the fraud and identity side , as we start to see improvements in , for instance , gross profit per per transaction or per per journey , as well as , you know , rapid growth in our transaction volumes , more journeys with more transactions , all of those kinds of KPIs are really important to us watching closely .

Speaker #9: Gotcha . Okay . All right . Thanks , guys .

Speaker #4: Thank you .

Speaker #7: Thanks , George .

Speaker #2: Your next question comes from Derek Greenberg with Maxim Group . Please go ahead .

Speaker #10: Hi . I was wondering just looking at the balance sheet with $175 million in cash and then generating 55 million , 56 million over the last 12 months .

Speaker #10: I was wondering if you could maybe talk a little bit about how you plan to allocate cash and cash flow going forward . I know part of that will be used towards paying off the debt in February , but thereafter , just wondering how you plan to use your resources ?

Speaker #5: Yeah , at this point we talked about we have $100 million credit facility , as you know , that we put in place to help us repay the debt if we choose to use it .

Speaker #5: It's a it's a I got a $75 million delayed draw term loan associated with it for that purpose . We don't have to make that decision now .

Speaker #5: You know , we're we're we have a healthy arbitrage opportunity on our 75 basis points loan . We also kind of have a balanced approach on our capital allocation here .

Speaker #5: Invest in the business and return capital to shareholders . We still have $21 million in left in our share repurchase program . We will take advantage of opportunistically .

Speaker #5: Once we get through paying the debt off , we'll determine how much of that we're using our own cash for and how much we've borrowed .

Speaker #5: And then we'll determine our capital allocation approach after .

Speaker #4: So I would just say there's also kind of a second part of that where , you know , maybe unsaid in your question is in something we've been consistent and clear about , you know , for this past year , the last three quarters we have , you know , a very strong focus on organic growth and deploying capital back into the business or returning it to shareholders and driving organic growth in the company .

Speaker #4: You know , integrating the business and then having growth from our own product expansions . So that's where 100% of our focus is right now in generating the free cash flow .

Speaker #10: Okay . Got it . And then my other question is just in prior quarters , you had outlined some of the margin improvement you received from automation on costs .

Speaker #10: I think last quarter was around 230 basis points in the services gross margin . I was wondering if you had any statistics like that for this quarter and going forward , if you still see potential incremental improvements from automation , or if you think you've largely tapped that avenue as a driver of margin expansion .

Speaker #5: Yeah , we saw this quarter a 200 basis points year over year improvement already again . So we're feeling really good about , you know , delivering that the benefit of automation into our gross margins .

Speaker #5: We think we can continue to do that . We're not tapped out in terms of ability to to automate more , you know , especially as we move from our mobile verify point solution to our VIP platform , it becomes more and more important .

Speaker #5: So we've got room to grow there.

Speaker #4: And that's just a mindset of when we talk about operational excellence . It's just a mindset of continuing to drive improvement in the business at 11 flow , you know , from quarter to quarter .

Speaker #4: But how do we continue to expand Margin Delight customers , deliver more and more value and operate more efficiently and expand margins and free cash flow .

Speaker #10: Yeah . Got it . Thank you .

Speaker #4: Thank you .

Speaker #7: Thank you .

Speaker #2: There are no further questions at this time . I would like to turn the call back over to Edward West .

Speaker #4: Great . Well thank you . Thank you very much for your time today , and we look forward to seeing you in person and talk about talk about the business .

Speaker #4: So thank you for your support and good day .