Peter Salkowski - IR Jim DeBello - CEO Russ Clark - CFO.

Bhavan Suri - William Blair Andrew Boyce - Piper Jaffray Elizabeth Colley - Needham & Company.

Welcome to the Mitek Fiscal First Quarter 2015 Financial Results Conference. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Peter Salkowski, Mitek Investor Relations. Please go ahead, sir..

Thank you, Greg. Good afternoon everyone and thank you for joining us. With me on today’s call are Mitek’s CEO Jim DeBello and CFO, Russ Clark. Before I turn the call over to Jim and Russ, I’d like to cover a few quick things. This afternoon, Mitek issued a press release announcing its first quarter fiscal 2015 financial results.

That release is available on the company's website at www.miteksystems.com. This call is being broadcast live over the Internet for all of the interested parties and the webcast will be archived on the Investor Relations page of the company's website.

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 today, January 29, 2015 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.

Now I’ll turn the call over to Mitek’s CEO Jim DeBello.

Jim?.

Well hello everyone, last couple of months were very productive for Mitek. First we recorded our biggest quarter ever for Mobile Photo Account Opening, our product that allows a consumer to open an account with a simple photo of their driver license.

Our performance demonstrates traction in the global identity management marketplace an area which is expected to grow to $7 billion by 2017. The second we strengthened dominant position in mobile deposit this quarter by retaining 100% of our existing customers as well as signing another 278 banks.

We now have a total of 3304 banks and financial institutions that have signed and licensed our technology of which 2744 are actually deploying our industry leading and patented solution today.

With consumer penetration approaching 20%, we see tremendous upside for mobile deposit here in North America and has even more potential from the UK and Brazil as these countries are expected to adopt image check deposit legislation in 2015 and 2016 respectively as we have done here in the United States and in Canada.

Third, we invested in breakthrough mobile web technology that broadens our markets by allowing consumers to take photos from their smartphone browser. Mobile web is currently in several pilots with major customers and lastly we recently added a new board member with identity verification and facial recognition technologies and MIT credentials.

We believe Mitek's proprietary computer vision technology provides the best consumer experience to complete a transaction or enroll in a new account. Our fiscal first quarter performance demonstrates growing demand for our Mitek mobile imaging platform. For the quarter Mitek recorded another profitable quarter growing revenue to $5.4 million.

With all Top 10 U.S. retailer banks in over 3000 additional financial institutions licensing our mobile deposit, we estimate that 33 million Americans used our mobile deposit product last year and there is still plenty of room to grow. With mobile deposit penetration approaching 20% of the U.S.

adult population usage is expected to grow to 47 million consumers by the end of 2015.

Mitek is the leader in mobile deposit and we remain focused on leveraging this success in the areas of identification and account opening, we understand that consumers want to simplify their lives which is why we’re continuing to invest in innovations to make the experience of conducting a financial transaction or signing up for a new service or product as easy as possible on a small screen.

Take MySnap as a prime example, it improves the user experience by reducing key strokes and increases the number of successful repeat transactions by simply hovering the camera and letting the computer do the rest.

As MySnap continues to flourish we believe we’re creating a trusted and consistent way for millions of consumers to easily and accurately take photos of any document, card of license making it habit forming in a universal way to conduct a photo transaction which paves our way for even more growth.

Today in less than a year more than 30 financial institutions including three of the Top 5 U.S. banks have deployed MySnap on top of mobile deposit making it available to more than half of the 33 million mobile deposit users today.

And given the ability to auto capture drivers licenses and credit cards, MySnap helps build Mitek's brand and is a competitive advantage. The success of our mobile imaging platform allows us to attract talent with exceptional mobile identify and entrepreneurship experience.

For example earlier this week we announced the appointment of Bill Aulet to the Board of Directors. Bill, has a 25 year track record of success in both private and public companies.

He was instrumental in the turnaround of the Viisage Technology, a publically listed security technology company with a dual focus in the areas of driver licenses and facial recognition. During Bill's time at Viisage, it's market value increased from $50 million to over $500 million in just 2.5 years.

Given Bill Aulet's exceptional entrepreneurial success since 2009 he served as the Managing Director in the Martin Trust Center for MIT Entrepreneurship and is a Senior Lecturer at the Sloan School of Management. I'm very excited to have Bill join us.

Before diving deeper into our products, I want to reiterate why our mobile first strategy is so important to our customers. Smartphones and tablets have already had a large impact on how consumers interact with businesses.

It's amazing that the majority of Americans are now using their smallest screen to engage online and we believe the percentage will only increase.

By 2018 Gartner expects 90% of all phones to be smartphones and we expect their proliferation to further revolutionize the way in which people interact with their money, their financial institution and almost any other transaction.

Just this month we went live with Bank Mobile, a new digital bank and among their other features Bank Mobile will allow consumers to enroll in a new account using Mitek's Photo Account Opening no matter where they are located.

While smartphones will affect the interaction between customers in almost every business, here is a couple of recent anecdotes related to the financial industry. The Wall Street Journal reported that mobile makes up 35% of all bank interactions and that mobile is the most common channel for interacting with the bank.

In the most recent earnings call, Wells Fargo's Chairman and CEO stated that mobile is the fastest growing, fastest adopted channel in the history of the bank. Today Wells has over 14 million mobile customers and that number was zero just five years ago.

Research also indicate that preference to make a deposit with a teller has dropped from 54% to 34% in 2014 and we certainly think mobile deposit was a part of that and lastly even Bill Gates referenced the convenience of mobile deposit technology and his plans to deliver mobile banking innovations to people in poor and emerging countries.

Have a trusted brand in a widely deployed mobile deposit product is a natural beachhead [ph] from which Mitek will continue to grow and do adjacent markets and with new products. Our focus has gone beyond mobile deposit and includes mobile imaging for identity capture and account opening.

For example based on actual pilots that we have conducted with customers using our mobile photo account opening in an app, we estimate and increase in form completion rates of 30% to 50% for new bank accounts, credit card applications and other applications using our innovative account opening technology.

It's evident that in financial services going mobile is table stakes for institutions both large and small and the mobile only way of doing business is obviously prevalent in other industries as well.

We want to make our technology even more accessible and with our new mobile web technology we hope that reducing friction we can transform account opening and identity processing in the same way we transformed check deposit. And let me shed some light on what I mean by mobile web.

Currently many businesses require you do download their app in order to perform the same activities you would on your computer.

With Mitek's mobile web offering our computer vision technology will be available directly in the Safari or Chrome browser on the phone thereby eliminating the friction of downloading an app to use on our mobile imaging technology.

This quarter we had a driver license capability to mobile web, it's a major advancement given that the driver's license is the key identity formed to open an account, apply for a credit card or loan and receive an insurance quote.

So for example to open a new account someone can start the process directly from the phone's browser and use Mitek's technology to snap a picture of his or her license to finish the process. According to ComScore mobile devices account for more than 55% of internet usage in the U.S.

With mobile web our mobile imaging process is accessible without an app and enables our customers to achieve higher conversion rates and capture those shopping online for new financial or insurance services using mobile devices. We made progress in Q1 to broaden our distribution channel for our mobile account opening and identification products.

In addition to previously announced partnerships with Ensenta we expanded our partnership with NCR to provide mobile photo accounting opening to their customers, importantly NCR will feature MySnap in their offering and adding to this in mid-November we had a chance to showcase our technology at the Citi Bank mobile challenge in Miami.

Working with the partner we demoed an innovative credit card acquisition solution and featured our mobile photo account opening in combination with the proximity based offer and Apple Pay, it was a great way to show how our technology can be integrated into a broader offering in addition to being an innovative standalone product.

I believe that Mitek's future is very bright, we have been able to report several quarters of consistent revenue growth and profitability for the past couple of quarters. We’re making continued progress growing in the market for mobile deposit and mobile photo account opening.

We have established a universal and trusted way for people to MySnap photo's that's extensible to other applications and we’re laying the groundwork for our mobile web offering. We’re at the tip of the iceberg when it comes to the impact that smartphone proliferation is going to have on everyday life.

Smartphones and their built in camera capabilities will drive an amazing number of new business opportunities. At Mitek we’re investing in opportunities to augment our market position and expand with new products, we have the people, the customers and the balance sheet to do this given where we’re headed I'm very optimistic about the future.

And with that I will turn the call over to Russ Clark, our Chief Financial Officer for more detailed review of our quarterly results..

Thanks, Jim. Hi, everyone. Thank you for joining us on today's call. As a reminder all financial figures I will cite today are on a GAAP basis unless I specifically call out the numbers non-GAAP. Our earnings release includes a reconciliation between these two measures.

We believe that excluding non-cash stock compensation and IP litigation expenses from non-GAAP earnings provide the useful measure of the company's operating results. Also as a reminder our fiscal year-end at September 30, so any quarters or years that I note will be on that basis.

During Q1, we experienced a 21% year-over-year increase in revenue to $5.4 million resulting in a non-GAAP net income of $1.5 million. This was the 6th consecutive quarter with revenue over $4 million and the third consecutive quarter of non-GAAP net income.

Q1 software revenue of $3.7 million included seven mobile deposit reorders and increased 18% compared to a year earlier software revenue of $3.2 million.

Mobile deposit reorders continued to comprise a lion share of license revenue, however our other mobile product lines including account opening made significant contributions to our year-over-year revenue growth. Q1 maintenance in PS revenue of $1.6 million increased 27% over last year's Q1, maintenance and PS revenue of $1.3 million.

We continue to benefit from consistent growth on our maintenance stream as a result of growth in the mobile deposit base. PS engagements related to MySnap implementation assistance also drove almost 300,000 in Q1 revenue. Total Q1 operating expenses were $5.3 million compared to 5.9 million in the year ago period.

The year-over-year decrease resulted primarily from lower selling and marketing and R&D expenses, Q1, selling and marketing expenses were $1.4 million compared to $1.8 million in the year ago period and $1.2 million in Q4. As we continue to make targeted investments in sales and marketing, programs and personnel.

R&D expenses were $1.2 million in Q1 compared to $1.5 million in the year ago period and $1.3 million in Q4. While we have seen some quarterly fluctuations in R&D expenses primarily as a result of outside contractor spend, we continue to invest in this area and seek to find additional talent in software engineering, mobile and computer vision.

Our Q1, G&A expenses were $2.2 million, a roughly consistent with $2.0 million in the year ago period. IP litigation expense were roughly consistent year-over-year at around $500,000. As we’re litigating against the troll and file inter partes review or IPRs with the United States Patent and Trademark offers.

These IPRs document our positions as to why the patents asserted against us by the troll are not valid. Non-cash stock compensation expense during Q1 was 814,000 compared to 829,000 in the year ago period. GAAP net income in Q1 was a $146,000 or breakeven per share compared to a net loss of $1.5 million or $0.05 per share in the year ago period.

As I mentioned excluding non-cash stock compensation expense and IP litigation cost, Mitek reported non-GAAP net income of $1.5 million or $0.05 per share for the quarter compared to a non-GAAP net loss of $135,000 or break even per share for Q1 of fiscal 2014. Our EPS share count for Q1 was 30.6 million basic and 31.2 million diluted shares.

We expect Q2 OpEx to be between $5.25 million and $5.75 million excluding litigation expenses as we continue to make targeted investments in sales and marketing, programs and personnel and recruit top engineering talent.

Following the litigation and IPR work conducted last quarter by us and our attorneys, we feel even more strongly about our positions in the litigation brought against us by the troll and we will continue to aggressively defend our IP.

Going forward we expect that litigation expenses will be around $200,000 to $300,000 per quarter for the remainder of the fiscal year. Turning to the balance sheet, at the end of Q1, cash, cash equivalents and investments totaled $26.9 million compared to $26.1 million at the end of Q4.

Mitek generated $800,000 of positive cash flows during Q1 as a result of our revenue growth, targeted spending, relatively low DSOs and growing deferred revenue. Our accounts receivable balance of $3.5 million represented the DSO of 60 days for Q1 which is higher than last quarter's DSO of 49, but remains within our normal historical range.

That concludes our prepared remarks. Operator please open the line for questions..

[Operator Instructions]. And we will take first Bhavan Suri with William Blair..

Just a couple of quick questions, first Jim just talk about the numbers you threw out there for second, 33 million users using mobile check deposit going through 47 I believe it was.

You know when you look at that number do you think that, I'm not asking for guidance clearly, but do you think there is the opportunity for you guys to grow revenue, 20% is great but that should bring that up to 35% - 40%, 40% - 45% type of growth rate given that the usage numbers are certainly seem to be growing that fast..

We really think there are three key drivers for mobile deposits continuing to grow.

The first of which is number of banks, you can see we continue to perform at the rate of 250 to 300 a quarter, we believe ultimately though that’s going to be a diminishing returns as we already are penetrated into all of the Top 10 banks and most of the Top 50 and that drives most of the volumes.

So the question then remains on the second driver which is number of consumers which is what you’re referring to and thirdly their usage. So we’re actually implementing a couple of things that we think will help drive that on a continued basis.

We talked about MySnap and some of the technologies that ease the user experience but we haven't talked about is some of the risk mitigation measures that we’re implementing individually as technology here at Mitek and in with partnerships to actually reduce any kind of risk profile, allowing the banks to raise these limits on the value of each check that is deposited.

You know that there is some hard limits that are allowed to be accepted. Many banks limits at 2500. SunTrust Bank recently raised that to $8000, so we do see progress in that area and that will drive usage. We think that ultimately we will reduce itself or rather manifest itself in more usage and that should continue to drive our revenue growth..

And then as you look at the MySnap technology which is clearly the large banks seem to have embraced, is that an incremental fee on top of mobile deposit or is that bundled into this part of deposit to ease the friction issue with consumers?.

We have some of the early adopters of MySnap bundled that in, we think it's an enhancement that does reduce friction and helps give lift on a number of transaction, provides a better user experience. So it's an enhancement that I think the banks have rolled it out, so far I’ve good success with..

They have seen success and for us it becomes a universal capture experience which means that people become familiar, it's a consumer habit forming experience and one which we think is extensible to ease the path for our new products to be introduced by the banks in other enterprises like insurance companies.

So therefore if their users are comfortable with the user experience it's likely they will be extending and using that for other apps as well. So we think that’s a real strategy advantage for us..

You got into my next question direction which was, how was the insurance product going? I know clearly there is one of the largest insurers out there using it obviously with the facial recognition, the license part of MySnap, are you seeing more adoption in that vertical?.

We continue to see a lot of interest in the insurance vertical, we have 3 or 4 large insurance carriers who are working with us on quotation and mobile photo payments as well with that product. So a lot of interest, our guys are spending a lot of time out there.

Sales cycles as with the banking sector are fairly long but I think in terms of looking at opportunity and current industry vertical focus anyway, insurance still remain strong..

It does move on and let me just amplify a little bit on that as it relates to mobile web, you can imagine insurance companies are in the business of providing quotations to gain new customers and so the least amount of friction to provide the quotation is important.

Mobile image is terrific, they can take a picture of a driver's license and also the [inaudible] number and get an instant quote but wouldn’t it be better to do that in a browser environment without having to download the app from the provider first and that’s exactly what mobile web is intended to do.

We have invested on locking mechanism, one is going to be very, very important for us as we continue to grow this market. Tremendous interest in the area but I think with an anxious expectations that mobile web is coming and will be delivered to them shortly..

Okay. And then just a couple in the expense line and then one on deferred, let me jump on deferred one first.

The deferred revenue picked up nicely, I clearly called that out too but it jumped quite dramatically, it's the largest amount was that I think you had in balance [Technical Difficulty] along those lines?.

Bhavan, you broke up a little bit there at the end but I think your question was about the deferred revenue balance. So it did increase sequentially very strongly this quarter, it was down two quarters ago.

So we see some quarterly fluctuations just based on the timing of maintenance signings and renewals, so mobile deposit as it fuels the revenue is fueling the deferred revenue as well.

It's primarily you know one year advance payments on maintenance contracts and there is some seasonality but you’re right, 3.8 million in the current line is a record deferred revenue for us. Again so we would continue to expect to see a little bit of variability there but overall the tide continues to raise there..

And it's largely maintenance Russ or is there some subscription in that?.

It is largely maintenance contracts for mobile deposit and our other mobile product, little bit of legacy and there is a smaller amount of subscription revenue also..

Okay and then just on cost line, I will jump off, obviously it's nice to get your guys to EPS positive and nicely above breakeven and generating cash but obviously as a sales and marketing and R&D lines came down and I guess there is such a fine balance there but the concern is are you investing enough.

On the sales and marketing growth but I think obviously with the banks I think Jim pointed to diminishing returns [inaudible], but certainly on the R&D stuff they sort of stay in front of the ankle bitters or at least people claiming they might have competing offerings, just seems a 1 million or plus 1 million, a half quarter spend, I guess I was just a little concerned about that given sort of the need to maintain a lead in the technology front..

Let me be clear, we’re continuing to invest in the R&D area.

Sales and marketing to the lesser extent but we’re out on the recruiting path for talent as I mentioned in CV, software engineering and mobile and we will continue to add to that and that’s the biggest reason that I provided guidance for OpEx excluding litigation next quarter for 5.25 million to 5.75 million which is up fairly significantly sequentially..

And Bhavan, we’re also adding into the sales initiatives as well. Our pipelines are deepening and we think there is new and even more enriching opportunities above and beyond mobile deposit, so we see what you see as well and we continue to be very bullish on the business..

Next we will go to Andrew Boyce with Piper Jaffray..

Real quick, I might have missed it, did you guys say how many mobile deposit reorders you had during the quarter?.

I did Andrew, there were seven during the quarter..

And then also going back to the expenses, obviously you guys had clear declines. I was wondering if you could shed any new light on what was driving that decline obviously instead of a pickup there again in the second quarter. I was wondering why it was depressed during this quarter obviously..

Yes if you look at the year-over-year numbers as I discussed in R&D lines, in the sales and marketing lines, you know we refocus some of our efforts on the product areas and the growth areas that Jim highlighted earlier but as we sit here today we’re looking to get more guys in the ranks and continue to invest there.

So I pointed out in my remarks some of the sequential trends as well as we continue to hire more people on but there was refocusing on efforts year-over-year and as we mentioned we moved from a primarily direct sales strategy for some of our mobile products to engage our channel partners as well and that influenced the sales and marketing line.

But sequentially we’re up this quarter and we expect to continue to invest more on the OpEx line..

And I guess obviously as you guys gained traction with more institutions and you will get more customers on-board, but kind of going to your third objective, did you give us any color on per person usage? I mean there was somebody using it three times a quarter, now they are using it five or is there anything you can tell us about that/.

Yes, I think there is some statistics out there that some of the banks are releasing on that. We don’t get a lot of that data just as part of our normal quarterly reporting process with our channel partners. But again I think there is industry data out there that shows increasing usage and transactions on an annual or monthly basis..

And my last question, I guess you were talking about expansion overseas.

Have you guys being talking with any financial institutions over there in [inaudible] or you’re still in the process of working out how you do that logistically?.

So there is two answers to your question and the first answer is yes, we’re through our channel partners and that is for mobile deposit as we see the market opportunities emerging in the countries I’ve mentioned during my remarks.

The second part of my answer is also yes, as it relates to mobile photo account opening and capturing identity documents that go beyond our border. So we’re exploring opportunities in that area as well. The bulk of our revenues are still in North America, but we anticipate that mix to change, albeit overtime and the upcoming quarters and years..

And next from Needham & Company we have Elizabeth Colley..

On the seven mobile deposit, the block transactions, how does this pipeline look going forward and have there been any increases in visibility for this revenue stream?.

Sure, as the pipeline looks very strong, I think maybe to add more color to that seven number. We’ve reported in previous quarters some mobile deposit reorder numbers that are higher than that.

However I point out the trend is that we have seen ASPs for the average reorder size increasing over the last several quarters as well as maybe a bank gets into mobile deposit, they get it implemented, they see the usage be very successful and they see it continue to grow many times, they are more comfortable coming back and ordering a large block the second or third time.

So pipeline remains very strong there. In terms of visibility, do we have more visibility? Yes we do.

So, on the bottom-end we had $1.3 million in very predictable maintenance revenue in the quarter but then when you get to the license line and mobile deposit in particular, the revenue model is the same in that we close block transactions and recognize the revenue upfront.

However the base is expanded enough now, that the population of potential reorders in anyone quarter is bigger and gives us more visibility..

And also on the new bank signings, do you guys expected this rate will stay study or do you think that at this certain point this will given your scale this will start to maybe pace down a little bit?.

In my remarks I had mentioned that the penetration is approaching 20% of all U.S. adults, that means as 80% or more remaining. So I don’t think that we will see abate.

Mobile deposit has become a part of the mobile banking vocabulary and mobile banking is table stakes for any competitive bank of which there are about 8000 financial institutions in the U.S., of which 3000 or so have licensed our technology primarily through our channel partners.

So, we think that pace will continue to -- for the next several quarters ultimately, there will be high penetration at such time it will slow down at that point but we think it will be a high penetration rate.

Now as I mentioned it to Bhavan, there are diminishing returns when you get smaller and smaller banks and banks which aren't laggards signing on their customer base isn't quite as mobile centric. So really the volume for all check deposit is driven by the top 50 bank and primarily within the top 10 banks and we have got that covered.

So our real mission is to again increase the number of consumers within those banks by fostering a better consumer experience, A, that’s offense and B, defense providing greater risk management tools to the banks so they can lift those artificial limits which is a natural governor on the number of checks being deposited through the mobile channel.

All system seem to be working, we’re seeing lift in risk limits and we’re also seeing lift in usability through the implementation of MySnap which currently is being used by over 20 million people, most recently Bank of America on top of Wells Fargo have gone live with MySnap..

And I know that historically you guys haven't broken out your revenue mix by product, is there any color you can offer us.

Is mobile deposit still would you say a majority of revenue right now?.

It is a majority, I think as I mentioned in my remarks but we also described for the quarter we had a significant contribution from account opening and our other mobile products as well. So, definitely see some growth potential there also..

And this does conclude the question and answer session. At this time I will turn it back to Peter Salkowski for any additional or closing remarks..

Thanks, Greg. Before closing the fiscal first quarter earnings call, I would like to inform everyone that Jim DeBello will be participating in the Barclays Emerging Payments Forum being held in New York City in late March. We will publish a press release with the forum details closer to Mitek's presentation date.

Thank you for joining us today for Mitek's fiscal first quarter earnings call. We appreciate your interest in Mitek systems. Have a good day..

Once again ladies and gentlemen that does conclude today's conference. Thanks for your participation..