Leslie Philips - Investor Relations James DeBello - President and CEO Russell Clark - CFO.

Bhavan Suri - William Blair.

Greetings, and welcome to the Mitek Systems Incorporated Second Quarter Fiscal 2014 Conference Call. At this time, all participants are in listen-only mode. (Operator Instructions) As a remainder, this conference is being recorded. It is now my pleasure to introduce you to your host, Leslie Philips, Investor Relations for Mitek. Thank you. Ms.

Philips, you may begin..

Thank you. Good afternoon, everyone. Thank you for joining us. Before I turn the call over to Jim DeBello and Russ Clark, I'd like to cover a few quick items. This afternoon, Mitek issued a press release announcing its second quarter of fiscal 2014 financial results. That release is available on the company's website at www.miteksystems.com.

This call is being broadcast live over the Internet to all interested parties, and the webcast will be archived on the Investor Relations pages of the company's Web site. On today's call we 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 our plans and expectations of future performance.

Forward-looking statements are subject to a number of risks and uncertainties which could cause actual results to differ materially. We encourage all of our listeners to review our SEC filings, including our most recent 10-K for a more complete description of these risks.

Our statements on this call are made as of May 1, 2014, 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, for any reason.

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 describe the differences between our non-GAAP and GAAP reporting and present the reconciliation between the two for the periods reported in the release.

And with that, I'd like to turn the call over to Jim DeBello, President and Chief Executive Officer of Mitek.

Jim?.

Thanks, Leslie, and good afternoon, everyone. Driven by our growing user base and our solutions ease-of-use, revenues for the quarter increased 39% year-over-year to $4.5 million. I'm pleased by Mitek's strong second quarter results by the fact that this is our third quarter in a row where revenue has exceeded $4 million.

We ended the March quarter with 2222 banks signed for Mitek's Mobile Deposit, crossing the 2000 bank threshold. As you recall, it was only three quarters ago that we exceeded the 1000 bank level. Everyone here is very excited to have reached this milestone.

Included in the 442 banks that were added during the quarter we announced the top 30 banks that signed for two solutions. I'm looking to catch the attention of the mobile-only customer.

This bank is implementing Mobile Deposit and/or Mobile Photo Bill Pay joining the growing number of financial institutions that have adopted multiple solutions from our mobile imaging platform. We now have 1759 banks live, an increase in the quarter of 397 banks that went live.

In addition to the success we had in growing the number of banks we are also very proud of our 100% customer retention rate for mobile deposit, including all of the top 10 U.S. retail banks.

Since launching mobile deposit we estimate users of our technology have deposited over a $150 billion; that's a 250% increase in cumulative mobile deposit volume in the last 12 months alone.

This volume increase is driven by increasing consumer adoption as well as by a higher average check deposit, thanks in part to banks raising their Mobile Deposit limits. We remain focused on creating the industry's most innovative and user-friendly mobile imaging solutions.

Leveraging our first-mover advantage we continue to improve our existing solutions in increased Mitek's offerings. With our patented technology raising the bar in the industry, Mitek is increasingly more valuable to our customers and remain several steps ahead of our competition.

We see great potential for our mobile imaging solutions as they embody two crucial elements; first, user self-service, and secondly, anytime anywhere access. The concept of self-service is very, very familiar to banking consumers, ATM have resulted in great convenience since they were first introduced in the 60s.

For that era they were the ultimate convenience. While it took years for the widespread adoption of ATMs to occur, nowadays you see ATMs at nearly every corner of a major city. So service banking has become the norm, not the exception, and we think the same thing will happen with Mobile Deposit.

Meanwhile mobile imaging brings consumers an even better experience by offering them the convenience of transacting from their home, their car, their place of work, you name it, anywhere but the bank branch.

Well, I'm fairly confident that those listening to this call use Mobile Deposit on a regular basis; we estimate that only 10% of consumers nationwide have tried it. That leaves roughly 90% of consumers who have not yet enjoyed the experience of snapping a picture to deposit a check.

Further validating this point, a couple of leading banks have reported that only a small, but growing percentage of their overall customer base are regular users of mobile check deposits. Increasing consumer awareness, converting that 90% to users is key to driving volume in our revenues.

Mitek has been actively working with banks and our partners to implement smart limits. That is instead of having one size fit all policy for deposit limits we are helping banks determine and begin to implement risk tolerance and deposit limits based on various customer data points.

The good news is we anticipate that a number of banks will implement models based on smart limits in 2014. Ultimately the best consumers will have higher limits which we believe would drive increased usage of our Mobile Deposit application and increase revenues for us.

With over 60% of bills equipped with smartphones and growing, we believe steady adoption will continue as consumers gravitate towards the most convenient method, let's face it the easiest way that always wins. Mitek, we believe is at the forefront of this change. But we see this is an evolution as consumer habits change, not a revolution.

And while we believe we have a great head start we think to capitalize on our first-mover advantage and position the company for future growth, we need to continue to innovate and expand our technology with additional investment. One of the innovative features enhancing our platform is Mitek MiSnap. This is our touchless capture technology.

Emerging from our R&D lab, MiSnap's patent pending technology is designed to improve the consumer user experience. And over time we see MiSnap powering the technology behind all of our solutions. A handful of customers are already live with MiSnap. And we are excited about the excellent reviews that are already appearing on the app store.

One user stated "The check image capture is a great experience; this app will change how I manage my life." The more customers in the pipeline including several of our largest financial institutions, the MiSnap user experience will soon be familiar to millions of Mobile Deposit users.

We also see great potential in extending our mobile imaging solutions to new markets. With this in mind, Mitek is the first company to offer mobile photo payments designed for companies that send bills frequently and directly to consumers.

One of the most appealing features of the solution is that you can pay your bill by snapping the photo without even logging in. During the quarter we announced that our solution is in production with a leading nationwide media company.

In addition to the mobile image capture capabilities that we developed, we realized that there are many other ways to leverage our technology. And as a result during the quarter we officially launched the Mitek developers program.

The goal of the program is to create new and innovative use cases for our mobile imaging technology, both domestically and abroad while using minimal company resources.

We've been very pleased to follow by the interest and variety of ideas that have come across from very different developers and many different vertical industries and geographic markets. Our mobile imaging solutions are backed by a strong IP portfolio. This portfolio is comprised today of 19 patents currently issued with another 23 pending.

Of those issue eight apply to Mobile Deposit, two apply to Bill Pay, one to balance transfer, and eight more are related to signature validation. As you are aware we have patents infringement losses against top image systems and USAA, both suits are ongoing.

In the USAA lawsuit the deadline to file motions for a summary judgment is mid May with the trial date set for early September. As we've said from the beginning Mitek developed the idea and invented the technology for Mobile Deposit. We believe very, very strongly in the merits of both our cases and we'll vigorously defend our position.

We spent years developing our strong IP and our IP portfolio, and we will defend our IP when it's appropriate to do so. In closing, we believe the market opportunity for mobile image capture is strong and that will continue to see it evolve and grow.

As affirmed by the recent Federal Reserve Bank's publication mobile banking usage has never been as high as it is today and it continues to grow. Mitek is at the epicenter of a fundamental shift to consumer baking habits. Over the past few months the chatter surrounding competition has increased.

While some companies have tried to emulate our success, none have made a significant inroad to the mobile banking market as compared to Mitek. We believe we have a very strong first-mover advantage evidenced by our ability to sign up over 2000 banks for our patented Mobile Deposit product.

Furthermore, we remain focused on protecting our core solutions improving the user experience and working closely with our end users and channel partners to reduce or remove barriers to growth. We continue to invest in new solutions such as enrollment identity and verification.

And in addition, we have made our platform available to third-party developers for interesting ideas and potential global expansion. With that, I'll turn the call over now to our Chief Financial Officer, Russ Clark.

Russ?.

Thanks, Jim, and thank you everyone for joining us on today's call. As usual I'll discuss our quarterly results on a GAAP basis unless I specifically call out a figure as non-GAAP. Our earnings release includes reconciliations between the two measures.

Total revenue for the second quarter of fiscal 2014 was $4.5 million compared to total revenue of $3.3 million for the year ago period. Second quarter revenue was comprised of $3.1 million in software revenue, including revenue from nine Mobile Deposit reorders, and $1.4 million in maintenance and professional services or PS revenue.

This compares to year earlier software of approximately $2.2 million and maintenance and PS revenue of $1 million. Our maintenance base continues to top $1 million per quarter. Total operating expenses were $6.7 million compared to $5.6 million in the year ago period.

This year-over-year increase was primarily driven by investments in sales and marketing personnel as well as litigation costs related to protecting our IP. Non-cash stock compensation expense during the second quarter of fiscal 2014 was $916,000 compared to $704,000 in the year ago period.

Selling and marketing expenses were $1.9 million compared to $1.4 million in the year ago period. The year-over-year increase results primarily from additional personnel we have hired to support our sales, marketing and product management effort. R&D expenses were $1.6 million in Q2, consistent with the year ago period.

G&A expenses were $2.7 million during the second fiscal quarter compared to $2.1 million in the year ago period. The year-over-year increase in G&A was primarily driven by IP litigation expenses, which totaled $1.2 million during the fiscal second quarter.

As we mentioned on the last earnings call, Q2 litigation expenses were higher than previous quarters due to the timing of expert testimony moving into Q2. GAAP net loss was $2.2 million or $0.07 a share compared to a net loss of $2.4 million or $0.09 per share in the year ago period.

Non-GAAP net loss which excludes non-cash stock compensation expense was $1.3 million or $0.04 per share compared to $1.7 million or $0.06 per share in the year ago period. Mitek achieved this year-over-year narrowing of both the GAAP and non-GAAP net losses despite an increase in fiscal Q2 litigation expenses of around $500,000.

It's also important to note that the $1.2 million in litigation expenses in Q2 of the current year comprised almost all of the $1.3 million non-GAAP net loss in the quarter. Our non-GAAP results will be very close to breakeven if not for these expenses. Our retail share count for fiscal Q2 was approximately 30.5 million basic and fully diluted shares.

We expect total fiscal Q3 OpEx to be between $5.5 million and $6 million excluding litigation expenses.

Although it's difficult to accurately forecast the timing in extensive litigation activities in any given quarter, we currently expect litigation expenses to decrease to less than $1 million in Q3 given the expected timing of our litigation activity as Jim discussed earlier.

Turning to balance sheet as of March 31, 2014 cash, cash equivalents and investments totaled $26.2 million compared to $29 million at September 30, 2013. Our accounts receivable balance of $3.1 million represented a DSO of 63 days for fiscal Q2 roughly consistent with last quarter. That concludes our prepared remarks.

Operator, please open the line for questions..

(Operator Instructions) The first question is from Bhavan Suri from William Blair & Company. Please go ahead, sir..

Hi, guys thanks for taking my question, and nice job on the business there..

Hi, Bhavan..

First I have to touch on the reorders; you obviously had a nice uptick in the number of reorders.

I guess I was just starting to wonder, are the reorders becoming smaller? Is that something you guys are strategically pushing to drive towards more frequent reorders?.

Hi, Bhavan, with the cadence of the business, as you mentioned we saw nine reorders this last quarter. I think it was four, quarter before that and eight, a quarter before that. So, there is still a measure of timing in the cadence of the reorders.

I would say in general in terms of trends, what we have seen is that when an end user bank will come into licensing Mobile Deposit, go to the implementation cycle, get live and see a lot of success in that customer base.

Many times when they come back they have purchased a larger order on (indiscernible) order size just because they're are more comfortable with run rates and so forth. So, I see that, but it's a caveat there that in any given quarter reorders can range in size from less than a $100,000 to maybe a few hundred thousand dollars in general..

Okay. Okay, helpful. And then, Jim provided some color on the competitive environment. I think it was helpful. Just one question on that, if you look at the top 40 banks today, how many of those have purchased multiple solutions from you where that sort of creates a most stickier environment.

These are the event the guys with my claim to have sort of check imaging capability..

Sure. Bhavan, if you take a look at the numbers that Jim threw out there with over 2200 banks signed.

When you look at some of our other products from Bill Pay and some of our other MIP applications, we have at least a couple dozen in that category, so without a specific cross reference, but given the assumption that most of the banks out there have Mobile Deposit that have gone on for multiple products. It's more than a couple of dozen..

I might add this, Bhavan, that one day in particular U.S. bank has three of our applications live today..

Okay. Yeah, helpful.

And then as you look at the quarter, either one of you guys, were there any insurance companies coming in for any reorders or any new insurance client signed up?.

Bhavan, we didn't have any larger insurance company sign production level deals. We are engaged with several large carriers for proof-to-concept and other ways to test our quotation and claims software..

Okay. And then last one from me before I turn it over. Obviously the whole application development environment opening up to that is really interesting given that people can then create their own apps using a part of the technology.

Are there any sort of apps you've seen start to get developers or anything we could look at where folks are using the Mitek technology embedded in something outside of the mobile banking space?.

Yeah, Bhavan. I think you can appreciate when we have been on the road and so forth; we get questions in different use cases thrown at us all the time. So think about any type of documents out there that might have multiple digits on them.

We specialized our core business on financial documents, but when you get outside that, again, there any number of documents with multiple digits and other information input there..

But not sort of like consumer type asset we could actually go and take a look at today..

Bhavan, those are in progress, and we will be making announcements in the upcoming months, but we do have activity in that regard from developers who have contacted us..

Great. Yeah, because I think that's just interesting. So it just had the capabilities that third-parties could use. Anyway, guys, that's it from me. Nice to talk ….

I agreed..

Yeah, and I'll jump back in queue, thanks..

Okay..

(Operator Instructions) Ms. Philips, at this time we have no further questions..

Thank you. Before closing the earnings call I'd like to inform everyone that Mitek will be presenting at the William Blair 34th Annual Growth Stock Conference to be held June 10th through June 12th in Chicago at the Four Seasons Hotel. We will publish a press release before the event indicating the day and time management will be presenting.

Thank you for joining us today for Mitek's fiscal second quarter earnings call. We appreciate your interest in the company. Have a great day..

Ladies and gentlemen, at this time the conference is now complete. You may disconnect your telephones. Thank you for calling. Bye..