MITK - NASDAQ

Good afternoon, and welcome to the Mitek Fiscal 2025 First Quarter Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Todd Kehrli of PondelWilkinson. Please go ahead.

Thank you, operator. Good afternoon, and welcome to Mitek's fiscal 2025 first quarter earnings conference call. With me on today's call are Mitek's CEO, Ed West, and CFO, Dave Lyle. Before I turn the call over to Ed, I'd like to cover a few quick items. Today, Mitek issued a press release announcing its financial results for its fiscal '25 first quarter ended December 31, 2024. That release is available on the company's website at miteksystems.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. I want to remind everyone that on today's call, management will discuss certain factors that are likely to influence the business going forward. Any factors discussed today that are not historical facts, particularly comments regarding our long-term prospects and market opportunities, should be considered forward-looking statements. These forward-looking statements may include comments about the company's plans and expectations of future performance. Forward-looking statements are subject to a number of risks and uncertainties, which 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, February 10, 2025, and the company undertakes no obligation to revise or update publicly any of the forward-looking statements contained herein, whether as a result of new information, future events, changes in expectations or otherwise. Additionally, throughout this call, we'll be discussing certain non-GAAP financial measures. Today's earnings release and the related current report on Form 8-K describe the differences between our 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 CEO, Ed West.

Thank you, Todd, and good afternoon, everyone. For those who are new to Mitek, let me start with a quick overview of who we are, the problems we solve and why our mission-critical solutions are becoming increasingly more important in today's market environment. Mytek Systems is a global leader in computer vision, digital identity verification, biometric authentication and fraud prevention, trusted by over 7,900 organizations worldwide, including financial institutions, telecoms, fintechs and marketplaces. We empower businesses to combat growing threats like AI-driven fraud, deepfakes and cyberattacks using advanced AI, proprietary biometrics and automation technologies, all delivered as software solutions. Our mobile check deposit solution, enabled by industry-leading computer vision technology, has revolutionized consumer banking, processing approximately 1.2 billion transactions annually. It has become a foundational element of North American financial services. This deep expertise in serving high-assurance industries has positioned us to expand our total addressable market with innovative solutions like MiVIP, an end-to-end identity verification, orchestration and authentication platform, along with advanced fraud prevention tools such as Check Fraud Defender and Digital Fraud Defender. These offerings are designed to tackle sophisticated fraud threats using industry-leading technology. We generate revenue through term license agreements for our heritage check-related products and standalone biometrics, as well as SaaS agreements for our identity and fraud platform solutions. Our focus in fiscal '25 is on enhancing our solutions, operational excellence and strengthening our foundation to position us for a durable, profitable revenue growth in fiscal '26 and beyond. As digital check deposits remain essential and the demand for fraud solutions intensifies in the face of sophisticated AI-driven threats, we are uniquely positioned to lead innovation and help secure the future of online transactions. Now, last quarter, we introduced a four-pronged framework to guide our transformation. Today, I'll provide some updates on our progress across the four pillars, which are: one, strengthening the foundation to provide a platform for durable profitable growth in fiscal '26; two, scaling our identity platform business to drive it towards the fulcrum point on profitability; expanding our -- third, expanding our leadership in fraud solutions; and fourth, maintaining operational excellence as the cornerstone of organic revenue growth, free cash flow generation and driving shareholder value. Now, let's walk through the progress we've made on each of these pillars since the end of last fiscal year. In Q1 and early Q2, we made meaningful progress on the first pillar of our strategy, which is strengthening our foundation for durable profitable growth in fiscal '26 and beyond. I'd like to highlight a few key achievements. First, we're fostering greater collaboration across our go-to-market teams by breaking down silos and enhancing cross-functional execution for new and expanded business. I know it sounds pretty fundamental, but this effort is already bearing fruit by closing new business in Q1. We also have additional meaningful contract negotiations, as well as new product developments currently underway as a result of these efforts. These are early validation points that leverage Mitek's extensive relationships and credibility with financial institutions with the growing request for identity and fraud use cases. Second, we have realigned our R&D resources and team structures to better support our growth objectives. We're advancing the One Mitek ethos by introducing a product-driven framework, centralizing engineering and AI machine learning resources, and fostering deeper cross team collaboration. These initiatives get the machine learning engineers closer to the customer and are already driving greater effectiveness and accelerating innovation, particularly within our identity portfolio, which I will quantify later. Our operational and cultural integration efforts serve as the catalyst for our technological integration, as I highlighted on our prior call. The key initiative is consolidating our identity verification, or IDV, engines into a single, unified platform on MiVIP. By integrating our IDV and fraud prevention capabilities, we are simplifying the customer experience while enhancing our competitive position. In short, the walls within our business have remained after multiple acquisitions are rapidly coming down and we expect to see measurable benefits from this in our P&L in fiscal '26. Now, turning to our second pillar, our progress towards the $80 million to $85 million fulcrum point in identity. At the end of the first quarter, our last 12 months identity revenue was $70.7 million, up from $68.5 million at the end of fiscal '24, demonstrating progress towards this critical milestone. Now, it's important to note that the SaaS transaction volumes and timing of software license sales can create upward and downward movement on a quarter-to-quarter basis. It's also important to recognize that the tipping point is dynamic. Any improvements in our unit economics and contribution margins along the way effectively lower the revenue threshold required to reach this key target. The two key drivers that we're closely monitoring in identity that are driving us towards our fulcrum point are as follows: one, an increased mix of MiVIP identity transactions, which carry more attractive unit economics compared to our heritage standalone document verification solutions due to the platform's greater intrinsic value; and two, a higher mix of automated identity transactions, which carry on lower cost per transaction and reflect improvements in our algorithm efficacy. Together, these factors drive a higher contribution profit per transaction, and coupled with ongoing transaction growth, contribute to a growing bottom-line. On the first of these two drivers, the 26% year-over-year growth observed in identity SaaS revenue was driven by accelerating transaction volume across the board, and most notably, in MiVIP with over 60% transaction volume growth in the quarter, primarily driven through expansion with existing customers. Currently, a minority of our identity transactions are running through our MiVIP platform, but as we improve our go-to-market execution with MiVIP and begin migrating customers from our standalone point solutions to our platform, we expect an increased mix of these higher value transactions. On the second driver, we had a double-digit percentage reduction in direct cost per transaction year-over-year as our enhanced algorithms improved our MiVIP agent productivity versus last year, and automated transactions continue to increase both sequentially and year-over-year. This shift towards higher margin automation drove the 300-basis-points year-over-year improvement in gross margin in our services and other revenue, which Dave will discuss in more detail a little later. Finally, our go-to-market optimization efforts are yielding results as demonstrated by the transaction growth of recently acquired customers, expansion into new use cases with our existing customers and acquiring new customers across geographies and industries. Looking at our customer cohorts, identity-related customers acquired just one year ago, in Q1 of '24, are now spending almost 40% more with us, driven by higher transaction volumes and expanded use cases. Our Q1 2023 cohort, which are customers who have been with us for two years, have increased spending by more than 3 times compared to their initial spending levels. And looking at our top 10 identity customers today, their spending is now 80% higher than it was two years ago, underscoring the expanding scope of our relationships. Notably, among this top 10 are a number of leading financial institutions who initially partnered with Mitek for identity verification in online account openings, but have since significantly increased their investment. Today, they rely on Mitek as an end-to-end enterprise verification solution partner, with our solutions empowering a wide range of critical identity and fraud prevention workflows. These solutions enable our customers to provide best-in-class customer experience and safely expand the products they can offer in their digital channels. Examples of these expansions include digital mortgages, commercial onboarding, telephony authentication, mobile password resets, fraud and dispute clients, commercial KYC, document verification and retail fraud prevention. Overall, this deepening adoption highlights the increasing strategic value we provide to some of the world's largest high assurance businesses, at the same time, our ability to win and scale new business across industries and geographies reflects this early success of our go-to-market enhancements. Now, let's dive into our third pillar, which is expanding the reach and impact of our fraud solutions with a spotlight on Check Fraud Defender, or CFD. By harnessing the power of our growing consortium data network, this strategy drives compelling results for both our customers and Mitek. CFD's annual contract value, or ACV, experienced considerable growth in fiscal '24, as highlighted on our prior call, with this momentum continuing in Q1 with ACV now approaching $12 million at the end of Q1 of '25. As mentioned, we have now seen checks from nearly all FIs in the country and we now have accumulated data sets on approximately 18% of all checking accounts in the country, up from 17% last quarter, reflecting our expanding footprint. While we successfully onboarded more paying customers in Q1, penetration remains below 1% of US financial institutions, signaling the substantial untapped growth opportunity. Our confidence in this opportunity remains strong, reinforced by customer feedback indicating a clear preference for addressing check fraud through our consortium or shared data model. Mitek's competitive advantage lies in our credibility and expertise in check imaging and computer vision combined with the machine learning and fraud scoring. This is supported by our multi-decade track record of execution with these banking clients. Now, looking ahead, our goal remains to double CFD's ACV in fiscal '25 from our fiscal '24 exit, driven by an exciting pipeline of opportunities. While we expect variability in the quarterly pacing towards this goal, the momentum remains clear. Just last week, we signed another top 10 FI in CFD with the planned go-live early next quarter. Each incremental institution strengthens the network, increasing the value of the data and insights for all participants. As the fraud landscape continues to evolve, MiTek is uniquely positioned to deliver industry-leading solutions and tackle our customers' most pressing challenges, from payment fraud to identity and digital fraud, helping them stay ahead of emerging threats. And finally, our fourth pillar, which is operational excellence, remains the cornerstone of our strategy. This is supported by durable organic growth, SaaS expansion, cost efficiency and strong free cash flow conversion to maximize shareholder value. While overall revenue growth was clouded by the timing of mobile deposit reorders, total SaaS revenue grew 29% year-over-year during the first quarter, with deposit SaaS revenue up 64% and identity SaaS revenue up 26%, driven by CFD and MiVIP, respectively. Total SaaS revenue for the last 12 months reached $67.8 million, a 13% year-on-year increase, now representing over 39% of our last 12-months revenue, a notable sequential improvement. As mentioned last quarter, looking out to fiscal '26, we're pursuing a goal for SaaS revenue to approach half of our total revenue. On the profitability front, adjusted EBITDA increased 32% year-on-year in the first quarter, driven by our commitment to cost discipline and operational efficiency. Last 12-month free cash flow conversion improved during the quarter to 83%, which has benefited by positive changes in net working capital and reductions in our non-GAAP adjustments, reflecting disciplined management of these non-recurring costs. So, in summary, it's still early in the year, but we are encouraged by the company's progress in Q1, positioning Mitek for durable profitable growth in fiscal '26 and beyond. With that, let me turn the call over now to Dave for a few comments on the financials.

Thanks, Ed. I'll start by walking you through our results for the quarter, highlighting the drivers behind our performance. From there, I'll share some additional insights into how we're approaching the balance of the year. First, our fiscal Q1 '25 results. Our total revenue for fiscal Q1 was slightly ahead of last year's at $37.3 million, consistent with the revenue phasing remarks on our last earnings call. As expected, deposit products revenue was impacted by mobile deposit deal timing, declining 9% year-over-year. Our identity products revenue increased by 13% year-over-year, underscored by accelerating transaction volumes and a sequential acceleration in revenue growth from the fourth quarter. Our non-GAAP gross profit for the quarter was $31.5 million, representing an 84% non-GAAP gross margin, and an adjusted EBITDA came in at $7.8 million, representing a 21% margin. Both exceeded our expectations due to benefits of cost efficiencies within our identity product portfolio and our company-wide focus on cost controls. More on this in a moment. Turning now to the specifics of our revenue performance, let's start with deposit products. Deposit revenue declined 9% year-over-year to $19.3 million in Q1, primarily due to a 21% decline in our deposit software license revenue. This decline reflects the anticipated timing air pockets in mobile deposit renewals, as highlighted in our prior call. Given the nature of the term license revenue lumpiness, we would encourage investors to look at longer term trends to assess the health of this revenue stream and, therefore, would highlight that LTM deposit revenue for fiscal Q1 '25 was $101.8 million. I'd like to provide additional insight into the nature of renewal timing in mobile deposit solutions. Customers and channel partners typically purchase one or more years' worth of transaction inventory in advance to ensure uninterrupted support and avoid disruptions. While purchase timing and usage generally move in tandem, they can occasionally diverge. Importantly, our revenue recognition occurs at the time of purchase rather than when the transactions are actually used. This dynamic creates variability in our revenue phasing. Renewal timing is influenced by two key factors: the number of years of transaction inventory purchased upfront, and the rate at which transactions are consumed. While we have good visibility into consumption patterns and can reliably anticipate when customers will need to replenish their inventory, the intermittent nature of their purchasing behavior contributes to the uneven revenue phasing. That said, our transactional volumes are more stable indicator of the product's health continue to maintain an annual run rate of approximately 1.2 billion transactions. Deposit revenue highlights this quarter included deposit maintenance revenue, which posted steady 3% year-over-year growth and deposit SaaS revenue, led by CFD, which grew over 60% year-over-year, accelerating from a 40% growth rate in the fourth quarter of last fiscal year. Now, turning to identity. Revenue from identity products grew 13% year-over-year to $18 million, driven primarily by a 26% year-over-year increase in identity SaaS revenue. This growth resulted from accelerating transaction growth in both MiVIP and Mobile Verify, which due to less impactful pricing pressures for Mobile Verify this quarter allowed the transaction growth to shine through to revenue. All in all, we were pleased to see Mobile Verify revenue growth year-over-year for two quarters in a row and to see MiVIP continue its growth trajectory. Now, to tie this altogether, our total revenue increased nearly 1% year-over-year as 21% year-over-year growth in our services revenue streams were offset by a 25% decline in software and hardware sales. SaaS revenue grew 29% year-over-year, driving the increase in services revenue, helping to counterbalance the decline in total software and hardware revenue, which reflected fluctuations in our biometrics point solution software sales and the timing of mobile deposit software renewals. Moving down the P&L, we maintained strong unit economics, achieving an 84% non-GAAP gross margin in the quarter. This was driven by over 99% gross margins on our software license revenue and, more notably, a 77% gross margin on our services and other revenue, an improvement of nearly 300 basis points year-over-year and our highest quarterly services gross margin in three years. As Ed highlighted, these results reflect the early financial benefits of our efforts to increase automation, improve cost efficiencies, and drive cultural integration, particularly within our identity portfolio. Non-GAAP operating expense for the quarter totaled $24 million, a $1.9 million sequential increase from $22.1 million in fiscal Q4. The sequential increase was primarily due to the annual management bonus accrual reset, which occurred in our first fiscal quarter and a return to normalized operational spending levels after enforcing some near-term cost controls on certain discretionary spending during the fourth quarter. We ended up approximately $2 million below the expected $26 million operating expense level, which we communicated in December, primarily due to delaying hiring and other discretionary spending while we finalized our go-forward plan with Ed as our new CEO. The $10.4 million bridge between our non-GAAP operating expense of $24 million and GAAP operating expenses of $34.4 million consists of $2.4 million in cash adjustments and $8 million in non-cash accounting adjustments, as detailed in our earnings release. Focusing on our non-cash adjustments, this amount has decreased from $5.1 million or 14% of revenue in the first quarter of 2024 to $2.4 million or 6% of revenue in this quarter. This 700-basis-point free cash flow conversion improvement reflects disciplined management of non-recurring costs such as executive transition, legal and one-time audit fees, all of which have declined both sequentially and year-over-year. Elevated restructuring costs this quarter are attributable to the cultural and operational integration initiatives that occurred, particularly during December as discussed earlier by Ed. Tying this altogether, adjusted EBITDA for Q1 2025 reached $7.8 million, up 32% year-over-year, representing a 21% adjusted EBITDA margin. After factoring in other income, interest expenses and taxes, this equates to $6.6 million in non-GAAP net income or $0.15 per diluted share based on 45.2 million diluted shares outstanding. Moving on to our balance sheet and capital allocation framework. Over the last 12 months, we generated $40.2 million in free cash flow and spent $27.2 million of this repurchasing 2.6 million shares at a weighted average cost of $10.44 per share. At the end of Q1 '25, our cash and investments balance was $137.9 million and we have $22.8 million remaining under our current share repurchase authorization. As outlined on our December earnings call, we moderated our share repurchase activity in Q1 '25 to maintain balance sheet flexibility, while we actively assess and implement the optimal capital structure for our business. The key near-term priority in our capital structure strategy remains addressing our $155 million convertible senior notes, which mature on February 1, 2026. These notes feature an attractive 75-basis-points annual cash coupon, a conversion price of $20.85, and an effective dilution threshold price of over $26 per share due to note hedges and warrants. We remain confident in our ability to retire these notes when economically advantageous, supported by our existing cash balance and cash flow generation, as well as any external financing options that will be available to us. Now, turning to the fiscal 2025 guidance. We are reiterating our revenue guidance range of $170 million to $180 million, and we are flowing through the cost benefits realized in the first quarter into our adjusted EBITDA margin range by raising the lower end of the range by 100 basis points, resulting in a new guidance range of 25% to 28%. From a revenue phasing perspective, we continue to expect quarterly revenue seasonality in fiscal 2025 to follow a similar pattern to that of fiscal 2024. Now, to help with operating expense modeling, for Q2, we expect non-GAAP operating expense to increase sequentially to approximately $26 million, plus or minus $1 million, with depreciation expense around 70 basis points of revenue. Looking ahead, we anticipate non-GAAP operating expense will continue to modestly increase sequentially throughout the remainder of the year as we invest in R&D and sales to support our new products. And finally, our Excel-based supplemental financial package containing trended historical financials has been updated for Q1 '25 and is now available on our Investors Relations website. Operator, that concludes our prepared remarks. Please open the line for questions.

We will now begin the question-and-answer session. [Operator Instructions] Our first question is from Jake Roberge with William Blair. Please go ahead.

Yeah, thanks for taking the questions, and congrats on the solid results. Ed, great to hear about some of the early wins on the go-to-market integration, the bigger push to MiVIP. Can you just talk about some of the near-term opportunities from here? And then, if you take a step back, now that you've been with Mitek a bit longer, do you still feel confident this is a business that can return to that double-digit growth CAGR following these transitions?

So, good afternoon, Jake. Let me start with the second part, is, yes, I think with what we've been going through the business and some of the actions already experienced this past quarter, what we have ahead of us here for this year that we're executing against is all very encouraging. In particular, which I particularly enjoy is meeting with customers and prospects and spending time with our go-to-market team out in the market and just hearing the level of dialogue and conversations that we have, in particular, around fraud and helping solve some of their growing issues that they have, leveraging our capabilities in financial services and on the identity side around -- the metrics around, as I mentioned earlier, around AI and digital kind of threat vectors that are continuing to increase significantly. And as they recognize our capabilities with the platform, with not just on the identity side, but authentication, orchestration, bringing in deepfake and injection attack capabilities, and then, in particular, within financial services is now combining in check fraud into the dialogue is very encouraging. Obviously, as we talked about kind of muddling and kind of clouding the growth this year really gets back to some of the timing on license sales on -- in particular, in mobile deposits. But as Dave talked about on that, we just have to look at that on an LTM basis and hopefully that just kind of stabilizes itself out. So, going forward, it's really around those key areas, the SaaS and that attractive growth level. And we'll progress more this year. As I mentioned on the last call, we'll report back closer to the end of the year some of the things that we have underway, product, new products, other activities and report back about how we're feeling about '26 and beyond, but so far, quite encouraged by the progress today.

That's helpful. Thanks. And then, on the Check Fraud Defender front, great to hear the momentum there and signing that top 10 FI last week. Can you talk about how the partner channel for that solution is trending now? I know you all have a few partners already live on the platform, so it would be great to hear how those relationships are building. And then, is there any update on the potential for some of your larger mobile deposit partners to shift over and start selling that solution as well?

Yes. On both fronts there, the partnerships that we have today are growing. You got to remember, CFD is an early stage, earlier product and solution with the FIs. We've rolled out with several partners. Those are growing. The opportunity list is growing with those as they get their seat legs and having the conversation and the dialogue in addition to the conversations we're having with some of the larger channel partners as well, and that's -- those conversations progress. I think as banks continue and all FIs continue to experience growing fraud and seeing the value of this solution, they will also continue to push on their partners being some of the indirect channels through the channel partners there of ours and pushing up for this solution. And obviously, our direct conversations continue on [and now] (ph). It's pretty compelling when we can sit there and have a conversation. Even though this solution has only been around for a short period of time, we've already now seen 18% -- our data sets were built on 18% of all accounts in the country, even though we have fewer than 1% of the FIs in the network. So, just the value of that continues to grow. We can sit down with them and talk about, "hey, what we're already seeing in your portfolio." And it's a very compelling ROI because of the level of fraud that we're able to assess and see and we have those conversations. So, it's compelling as a quick return for them on a growing threat.

Okay, great. And then, if I could just sneak one more in. The past few quarters, you've talked about the larger ID R&D deals and then the two banking campaigns for ID verification that were pushed out of it. Can you just give us an update on how those deals are trending through the pipeline and just how they've been accounted for in the guide?

Yeah, I'll turn it to Dave on the prior quarter, previous campaigns.

Yeah, it's a good question. We talked about that back in the Q4 timeframe initially at a reset there as you know. During that time and even last quarter, we kind of reiterated we think these are deals that eventually will close. This is going to be a long sales cycle and that we should start seeing some benefit for that in the second half of '25 and into '26.

And let me -- if I might, take -- as a step back on ID R&D, whereas you were talking about earlier and [where it's seen] (ph), the capabilities that Mitek has with that platform, that team, frankly now, adjusted by US Department of Homeland Security with our passive liveness capabilities, that is second to none worldwide in terms of those capabilities around passive liveness, which is increasingly more important on this digital fraud that we're sitting on and frankly what's just growing significantly on a day-to-day basis. And that captured a lot of the conversations that we've been having with a lot of these high assurance businesses. So, we're very enthusiastic about that and continue to evolve different products and solutions that we sell directly into the market or also how those are integrated into broader platform solutions here. So, glad you asked. Thanks.

Yeah, very helpful. Thanks for taking the questions.

Thank you.

Thanks, Jake.

The next question is from Mike Grondahl with Northland Securities. Please go ahead.

Hey, guys. Thanks. The top 10 bank you signed up for Check Fraud Defender, can you talk a little bit about how long the sales cycle was there? And what kind of revenue can this customer generate over the next couple of years?

Well, the -- good afternoon, Mike. The sales cycle is long. This is a comprehensive, and I think you noticed the company has talked about that in previous calls and quarters. It's a long cycle, because you have a lot of people involved with it. Validation, many of them have some other solutions, some internal, some external solutions, and just kind of going through the validation and seeing it. But then, once you get into the data and see, it's very compelling. And the value to it and frankly, the more the network grows, the more valuable it is for all parties involved, all the parties in the network as well as Mitek. So, this is...

Was it over a year, Ed?

...I think, we'll continue to grow. What's that?

Was it over a year, the sales cycle?

That particular one, I would say, yes, but that particular one -- other ones are shorter. We've had other ones that have come in, in a very short period of time. But obviously, that's a very large FI going through a lot of different validations, a lot of tests, a lot of validations throughout the business.

And what would the revenue potential be, a range, if you will, like in year three or four for this bank?

Yeah, we can't get into specifics on a particular institution. I would just say, it's compelling for both them and it's very attractive for all of us.

Got it. And then...

Great to have them as a partner in the network.

It's nice to see a top 10 bank, that's for sure. Mobile check reorders, did they come in a little bit more than you expected, or how did that shake out in the December quarter?

Dave, do you want to talk about...

Yeah, that wasn't much different than we expected. I'd say it was just a relatively solid quarter relative to what we thought.

Got it. Okay. Hey, thanks, guys.

Thank you, Mike.

Thanks a lot, Mike.

The next question is from Allen Klee with Maxim Group. Please go ahead.

Yes, hi. You talked about outside of MiVIP that the Mobile Verify product had less pricing pressure this quarter. So that -- and that was different than the quarter before. Could -- can you comment on the change maybe in the competitive environment, and how you're also thinking about selling -- more pushing on MiVIP? Thank you.

Yeah, good afternoon, Allen. I would start with the latter where that is our focus is growing MiVIP. Obviously, having that full orchestration platform, bringing in more signals, more capabilities for our partners and greater intrinsic value for everybody involved. That is our focus. And we've integrated in VIP and the algorithms in the process. Having that integrated in and bringing these others doesn't make any sense to have historically four versus let's have the best algorithms going into from an IDV standpoint into VIP. So that's coming along, and I would just say that will increasingly, over time, as we have more of the business shifting as a percentage into VIP, I think some of those pricing pressures will be less so. Obviously, it's always competitive and always going to have different situations, but we like this direction.

Thank you. And I just wanted to -- I was just -- I know you don't give any '26 guidance, but if you did hit double-digits, low-double-digits and if I assume that the deposit transaction-related business is flat and then some growth assumptions in check defender and the identity, it seems like the identity segment would be at least in your target of probably higher than of $80 million to $85 million, which would mean that it would no longer be -- at least it wouldn't be a drag on your margins compared to what you said last year. It was like a high-single-digit impact on EBITDA margins. Is that, that could go away? Is there anything I'd say that I'm missing something?

Yeah. It's Dave. I don't think you're missing anything. Again, it's going to depend on all the work we're doing now. We're actually seeing great results on the things Ed was talking about on how we're optimizing some of the way we operate. If that continues and we're able to achieve what we want, then I think that can be -- the answer can be yes.

As we said last quarter, we'll come back later in the year in terms of the progress on that, but it's -- our objective here is to pass that fulcrum point sooner rather than later and just do it there but in a durable way. And we'll keep you updated.

Great. Thank you very much.

Thank you.

Thanks, Allen.

The next question is from Surinder Thind with Jefferies. Please go ahead.

Thank you. Ed, I'd like to start with some of the restructuring that's been going on internally. Can you maybe expand upon when we think about the sales force, we think about the engineering departments, where we are in that process, and what does it mean for like headcount and just the ability to sell? Is there some sort of resetting that or some air pocket that we should be aware of as you kind of work through some of these changes?

So, good afternoon. We worked through those near-term changes this past quarter back in Q1. And Dave mentioned, we had some restructuring charges in December. As we executed on that, which kind of went early thoroughly throughout the business, working with the teams, how do we get these different platforms integrated together, how do we get our R&D resources closer to the customer, tighten tightly with product and go-to-market side and aligning people around the organization. Yes, we did have some reductions. That was done then. Now, we're focused on rolling up the sleeves and executing and driving the business and continuing to try to simplify. We're different, still a lot of work to be done. This is really kind of assessing the situation and beginning to execute, but now we got to deliver and get the -- make sure the product enhancements, other things that we talked about throughout this year.

I guess, as a clarification, I guess what I was trying to ask was, so you're effectively at target at this point. So, there's -- you just kind of went from where you were to target. We shouldn't expect any more changes, meaning we have stability at this point. And from here, we kind of build out with respect to kind of -- as people can start to get comfortable in their roles and start asking whether it's building pipelines, all of that kind of stuff, I guess that's kind of where I was trying to get to with this.

Yes, we are at a level where it's execute, we know what we have to do. There's nothing -- you never say never, these things can change. But based on what we know right now, we have the team that we're executing on, we're going to continue to have enhancements and changes, but that's just going to be small ups and downs, but it's about focus and execute from here.

Got it. And then, in terms of just, as you go through the simplification of your product lineup, as you go through some integration efforts, what does that do to the actual sales process? I mean, is there a chance that clients kind of pause a little bit rather than implementing what you have versus maybe willing to wait? And I think that was what I was trying to get at is in terms of if there's any potential for air pockets.

No. I think what we have right now is a go-to-market team who's actually spent -- there's been a lot of change in our sales team and who are now getting more and more familiar with the solutions, the dialogue in the market, what's been evolving in the market around fraud, our broadening things that we've rolled out like DFD on the identity side, that, and then how better -- since now we're focused on MiVIP, that is the solution. Then, with the additional signals on that, I think now just having focus and execution is very much a positive for everybody involved. The customer, the dialogue we've had there as well on both prospects and expansions, I think that was one of the reasons why I went through is the breadth of the expansions in our -- some of our core customers, existing ones, is pretty -- is very impressive, especially as they see these increased threat factors coming in.

Got it. And then, the final one for me, just on Check Fraud Defender, following up on an earlier question, when we think about the revenue opportunity at a given client, is there a way that you can maybe compare it to the opportunity from a mobile deposits perspective? So, I assume it's higher, or how should we think about that or any magnitude? Can you get to twice what it might be for mobile or is it an equal? Any characterization you can do there?

I mean, I'm not going to get into what exactly that would be in terms of size. I would say, we feel like that is a key platform for growth opportunity, because it's about fraud and financial institutions have an increasing amount of fraud. We bring in a particular credibility and capability because of our history with check fraud, but that's the beginning of fraud that they're exposed with, and it allows us to bring in and look at potentially over time other signals. So, we feel like it offers a lot more for Mitek for the future and to be as part of the future of the business where over time you just see the starts with checks or it evolves into other forms going forward in addition to all the verification, authentication, orchestration capabilities and other digital fraud.

Thank you.

Thank you.

[Operator Instructions] The next question is from George Sutton with Craig-Hallum. Please go ahead.

Hey, good afternoon, guys. This is Logan on for George. I want to follow-up. You guys gave some helpful commentary on kind of the MiVIP cohorts and how those have trended over time. And as we think about that $80 million to $85 million range where the ID segment becomes margin accretive, I mean, how much of that growth could come through kind of just organic growth with cross-sell and expanding transactions with those existing customers versus kind of the need for new customers? How would you frame that, I guess?

I mean, we like all new business, whether it's continued expanding growth with existing, as you can see from some of the numbers that threw out there, how that has expanded. I think it will be a combination of all the above. We'll know in hindsight what exactly it was, but all we care about is getting there and driving and the organization and continue to grow our relationships with our customers and having them to see them wanting to use more and more value and bring in new customers to platform. So, there's really no magic target. We'd rather continue to expand and do new.

Yeah. I think just to add on to that, a little color on to that, I think the opportunity for expansion in revenue is actually pretty large and we're pretty excited about it. In fact, a lot of the revenue growth we're expecting even this year in '25 is through the expansion opportunities.

Got it. That's helpful. That is all for me. I appreciate it, guys.

This concludes our question-and-answer session. I would like to turn the conference back over to Ed West for any closing remarks.

I just want to say thank you. We appreciate the support and interest. As we mentioned in last quarter and this time, we'll continue to report back on the progress as we position the company for the durable profitable growth going forward in '26 and beyond. So, have a great day. Thank you.