Release Date: April 15, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Mitek Systems Inc (MITK, Financial) expects deposits product revenue to grow 10% to 12% year over year on a normalized basis.
- Identity product revenue is anticipated to grow 10% to 12% year over year on an organic basis.
- The Check Fraud Defender product offering is exceeding expectations with over 20 customers contracted by the end of the fiscal quarter.
- Mitek Systems Inc (MITK) is winning new channels within banks and driving new benefits and efficiency gains for banking customers.
- The company is now current with SEC filings and has improved financial controls and reporting in place.
Negative Points
- The fiscal Q1 2024 revenue declined 19% year over year to $36.9 million, primarily due to a large multi-year mobile check deposit reorder from the previous fiscal year.
- Software and hardware revenue declined 39% to $16 million in fiscal Q1 2024.
- Total gross margin for fiscal Q1 2024 was down to 85% from 89% in fiscal Q1 2023.
- GAAP operating expenses for fiscal Q1 2024 increased to $38.3 million from $32.3 million a year ago.
- GAAP net loss for fiscal Q1 2024 was $5.8 million, or a loss of $0.13 per basic share.
Q & A Highlights
Q: Could you walk us through the building blocks that give you confidence in the full-year guide, whether it be new products like Check Fraud Defender ramping more meaningfully, easier comps just given the large contracts and end-of-life products?
A: CEO Max Carnecchia mentioned that the growth is expected to come from both the heritage business in mobile deposit and document verification, as well as new products like Check Fraud Defender and ID R&D biometrics. CFO David Lyle added that Check Fraud Defender is just starting to pick up momentum and is expected to drive growth in the second half of the fiscal year, along with newer identity authentication products.
Q: Could you give us more detail on the deals for Check Fraud Defender and any insight into how large annual contract value could be for some of the bigger deals that you've landed thus far?
A: CEO Max Carnecchia explained that the sales cycle for Check Fraud Defender started at over 12 months with the first customer and has since decreased. The product has been adopted by a mix of top 100 banks and smaller financial institutions, with contracts ranging from multi-hundreds of thousands to low millions of dollars per year for larger banks, and under $100,000 per year for smaller ones.
Q: Now that your current on the filings, have the 10-Q published, working on the 2Q filing. Just curious if you could just give us any updated thoughts around capital allocation, whether it be buybacks or converts?
A: CEO Max Carnecchia indicated that there is nothing new to announce regarding capital allocation at this time, but the company regularly reviews its capital allocation approach with the Board and outside advisors.
Q: Could you provide some color on Check Fraud Defender exceeding internal expectations?
A: CEO Max Carnecchia stated that Check Fraud Defender is ahead of internal expectations, with over 20 contracted customers as opposed to the expected 15 by the end of March. The company is also close to signing up larger banking service providers to expand the channel.
Q: How do you think about the 10% to 12% normalized growth in mobile check deposit? Is the growth coming from price increases or increased adoption of mobile banking?
A: CEO Max Carnecchia and CFO David Lyle mentioned that the growth is partly due to price increases and partly due to increased adoption of mobile banking, but did not provide a specific breakdown.
Q: In terms of the add-backs for adjusted numbers, can you explain what was happening there? Are you expecting any large ones in the first quarter?
A: CFO David Lyle explained that in fiscal Q1, there were one-time study costs for evaluating product portfolio positioning and competitive landscape, which won't recur in fiscal Q2. Legal expenses were higher due to activities such as getting SEC filings current, potential Nasdaq delisting, ongoing litigation, and supporting customers in their litigation.
Q: How do you think about the 10% to 12% growth expectation in the ID verification business? Is it from transaction growth or cross-sell upsell of MiVIP, MiPass, ID R&D type offerings?
A: CEO Max Carnecchia explained that the identity market has changed, and Mitek's model is land-and-expand, with about 75% of growth in identity coming from expanding within existing customer relationships. Transaction volumes have grown, and the company has been able to cross-sell new capabilities, but there has also been some pricing pressure in heritage areas of identity attributes.
Q: When do you expect to get to the industry or market growth rate of high-teens for the identity part of the business?
A: CEO Max Carnecchia mentioned that the 14% to 16% CAGR growth over the next five years is based on third-party analyst firms' projections. The growth drivers for Mitek's identity business include biometrics and liveness, MiVIP, MiPass, and the orchestration layer. The company expects to see this growth in the second half of the year and going into fiscal 2025.
Q: With the ID business moving towards breakeven in the fourth quarter, what kind of margin tailwind on a consolidated basis should we be thinking about for fiscal '25?
A: CFO David Lyle did not provide specific guidance for fiscal '25 but indicated that there wouldn't be directionally material changes in the past.
