Todd Kehrli - IR, MKR Group Jim DeBello - CEO Russ Clark - CFO.

Bhavan Suri - William Blair.

Good day and welcome to the Mitek System's Fiscal 2015 Fourth Quarter and Year End Financial Results Conference Call. At this time, I would like to turn the conference over to Mr. Todd Kehrli of the MKR Group. Please go ahead..

Thank you, operator. Good afternoon, and welcome to Mitek fiscal 2015 fourth quarter and year-end earnings conference call. With me on today’s call are Mitek’s President and CEO, Jim DeBello; and CFO, Russ Clark. Before I turn the call over to Jim and Russ, I’d like to cover a quick few items.

This afternoon, Mitek issued a press release announcing its fiscal 2015 fourth quarter and full year 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. I'd like 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 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, November 05, 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.

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

Jim?.

Thanks, Todd and good afternoon, everyone. I'm happy to report the best quarter and in fact the best year in Mitek's history. Our outstanding results included record revenue, record net income and record earnings per share on both the GAAP and non-GAAP basis. We had a strong fiscal 2015 and we think fiscal 2016 is going to be even better.

These record results for the year were driven primarily by the continued sustained growth of our industry leading Mobile Check Deposit product. While our record fourth quarter results also highlight the rapidly growing revenue contribution from a pair of powerful new product offerings from mobile ID capture and verification.

We're now perfectly positioned to broaden our industry leadership by helping companies transform their businesses to leverage the rapidly growing mobile channel. Accordingly we're highly confident that fiscal 2016 will be another excellent year for Mitek.

With the successful acquisition of ID Checker, we're now providing the enterprise customer with unparalleled choice between a cloud or on premise offering and increasing our recurring revenue mix. We're addressing a huge opportunity estimated at $3.8 billion.

Our deep experience in serving over 60 million consumers today strongly suggests that our dominance in mobile deposit can be replicated in the multi-billion dollar ID Capture and verification markets where our successful launch of groundbreaking products already confirms our strategic direction and unique game-changing capabilities.

For example, no one else can read an imperceptible code on a US driver's License to instantly verify a photo ID, a tremendous differentiator. And no one else can capture an identity document through the mobile browser. We can, we're seeing a deepening pipeline and have the balance sheet to exploit these emerging opportunities quickly and profitably.

We planned to sign 10 marquee Fortune 500 customers in the financial services, healthcare and telecom verticals this year. Their size and scope will underscore the business value that our new mobile ID capture and verification offerings bring to organizations.

Safe secure solutions that optimize the mobile channel for customer acquisition and payments.

To illustrate this demand for mobile convenience I'd like to briefly highlight the results of a recent survey conducted by Zogby Analytics entitled millennial to the next mobile disrupters, which examined the mobile preferences of more than 1000 consumers ages 18 to 34.

Of those surveyed, 83% think mobile capture meaning taking a picture instead of typing will be part of all mobile transactions within the next five years.

In addition, 86% already make purchases and conduct transactions from their mobile phones, and 42% have made a decision on where to spend their money versus which companies based on what the organization allowed users to accomplish with the mobile device.

The results clearly show that Millennial are embracing adoption of a mobile self-service channel. They expect to be able to use their mobile device's camera to deliver an easy mobile commerce experience. And the mobile camera is the key for businesses looking to engage with this important demographic.

Mitek's mobile deposit was the Millennial's first exposure to mobile capture. The popularity of mobile deposit with its high quality fast and easy user experience continues to dominate the market.

Mobile deposit has been broadly adopted by the top banks in the world including all of the top 10 US retail banks and it continues to grow among both consumers in and financial institutions that serve them and we haven't lost a single customer.

With another 400 banks added this quarter we now have over 4500 of the 8000 banks in the country licensing our technology. Today according to industry analysts select over 60 million consumers are using our mobile deposit solution. While consumers love the convenience of ease of use.

Financial institutions recognize the substantially low transaction cost associated with processing checks through the mobile channel. In fact on our recent earnings call, the Chairman and CEO of Bank of America stated that mobile is one tenth the cost relative to the processing of financial centers and more convenient for customers.

With our dominant position in mobile capture technology, Mitek is well positioned to benefit from the continued adoption of mobile check deposit in retail banking among consumers. With that said, while adoption and usage of mobile check deposits continues to grow rapidly.

It still represents less than 5% of the approximately 19 billion checks deposited in the U.S. each year representing a significant opportunity for future growth in the years to come.

A recent American bankers’ association study highlighted this growth opportunity within the consumer mobile deposit market by noting that while the number of American using mobile deposit is increasing. Only one in 7 Americans has deposited a check using a mobile device in the past year.

Separately our commercial mobile deposit product for businesses is also gaining traction and represents an even bigger market opportunity.

Of the 19 billion checks deposited annually 2/3rd of them are commercial checks just like the retail side of base the commercial and treasury divisions servicing small and medium size businesses recognize the substantially lower transaction cost associated with processing checks through the mobile channel.

And they are highly motivated to drive more mobile deposit transactions as an alternative to branch or ATM transactions. In addition businesses themselves are seeking a lower their cost with mobile tools that enabled and the quickly process payments without a trip to the bank or desktop scanner or the interchange fees associated with credit cards.

Earlier this week we announced Mobile Multi-Check Capture. A powerful new capability that enables businesses to make best deposits with the mobile device thereby reducing their need for scanners and eliminating trips to the ATM or the branch.

Available next month Mobile Multi-Check Capture is aimed squarely and addressing the untapped commercial mobile deposit market and represents the most significant enhancements we've made to our mobile deposit product since its introduction.

While businesses are increasingly turning to mobile to process payment, adoption of mobile deposit in the commercial banking sector is just beginning and we believe it represents a substantial opportunity to drive further growth from Mitek this fiscal year and well beyond and as an example one of our partners recently engaged a large food distribution company with over a 1000 delivery trucks who collect 1000s of checks each week.

As we continue to build on the success of mobile deposit, we are also leveraging our mobile capture expertise to significantly expand the scope of our business globally to include the multi-billion dollar identity verification and authentication markets.

Our new mobile ID captured verification solutions significantly increase our addressable market and ASPs and are aimed at a two major paid point the financial institutions and other B2C businesses face as I seek to meet growing customer demand for a mobile self-service channel.

The first paying point is the high level of abandonment of customers who become frustrated with the difficulties of trying to apply for a product or services through a company’s mobile app or mobile optimize website. The second is fraud and the ability to accurately verify the identity of mobile customers.

Our mobile ID capture and verification solutions enable businesses to clear the hurdles of new mobile customer acquisition and fraud. To underscore our excitement about the new opportunities we have these solutions and others.

We estimated the total addressable market for these products currently stand at $3.8 billion annually and is growing and that includes just our currently served verticals and financial services, insurance and telecom. Let me illustrate. These challenges with the real life example from within the insurance industry.

One of the top insurance companies in the world told us that they receive 40,000 new policy inquiries a day through the mobile channel. Despite spending millions of dollars a year advertising their service and building their tunnel.

Their conversion rates on these inquiries were severely impacted by the inability of their mobile channels across SPs potential customers in a timely, easy and efficient manner. And this problem is not only live spread throughout the insurance industry but it stems across the board to financial services, healthcare and telecom.

Our banking customers tell us that 40% of new account enrollments now come through the mobile channel compared to the less than 10% just 24 months ago, but they too are experiencing what they call a soft decline of successful new customer acquisition due to abandonment from the mobile process due to the awkwardness of trying to fill up the form on a small touch screen.

Photo Fill are mobile identity capture solution directly addresses the mobile customer acquisition paying point by allowing the mobile customer to use their camera as a key board creating a great user experience.

Using Photo Fill which includes our touch free auto-capture experience MySnap a consumer can pre-fill any form with personal data quickly by capturing an image of a driver’s license, eliminating the hurdles that mobile customers currently experience while trying to type in all of this information into the mobile web browser where businesses made of app by providing a superior user experience that’s easy and efficient and reduces friction.

Photo Fill significantly reduces customer abandonment and improves completion rates through the mobile channel it’s a great value for enterprise customers.

In the case of one of our early Photo Fill customers in the insurance industry they’ve seen a significant uplift in their mobile completion resulting in a substantial addition of new customers in revenue.

Our Photo Fill solution provides a significant value of proposition for any business seeking it more efficiently acquire new customers to the mobile channel. This value extends just beyond banking and insurance to a variety of other industries. Photo Fill is helping businesses meet the growing customer demand for our mobile self-service channel.

Now the second major pay point that financial institutions and B2C businesses space as they seek to meet growing customer demand for mobile self-service is the inability to accurately verify the identity of mobile customers. Our newest product PhotoVerify addresses this challenge.

PhotoVerify which we made generally available just two weeks ago enables banks and other businesses to improve know your customer KYC processes using mobile imaging for ID document authentication. PhotoVerify advanced instantly finds decode in encrypted security feature hidden on a driver’s license and imperceptible to the human eye.

When PhotoVerify detects the security feature the license is instantly confirmed to be a 100% authentic resulting in zero across positive. The authenticity of the ID can be verified entirely on the mobile device eliminating the need for customers that are applicant to appear in portion.

If customers can’t complete verification on their mobile device and are required to prove their identity in person abandonment at least high as 90%, to broaden our mobile ID verification offering we acquired ID chapter in June of this year expanding our mobile ID verification to the Cloud and adding their ability to verify the authenticity of ID documents from all over the world.

ID checkers, customers included global payments, financial services and information services companies, its flagship product commonly known as strong ID expands our ID document verification capabilities through its ability to authenticate 3500 different types of passports, international driver’s license and identity cards from nearly every country in the world.

Through the addition of ID Checker into our PhotoVerify family of products we’ve already implemented our solution with one of the largest payment processing companies in the United States to provide ID verification.

This company has begun using PhotoVerify to verify the identity of its customers worldwide enabling them to transact safely, securely and efficiently. And with PhotoVerify the company is making significant improvements in customer experience as well as business processes to verify any customer’s identity.

It used to take these payments companies five days to verify their identity. We have a photograph family of products we believe we lead the market with our ground breaking mobile ID document verification solutions.

However our goal is to further extend our capabilities to also offer our customers multi-factor ID verification solution in combination with our ID document verification offering. Just last week we demonstrated our facial recognition capabilities at the Money 2020 Payment Conference.

Once fully developed our facial recognition offering will be able to verify a match between a person and an ID and selfie taken by the mobile user.

We're focused on completing development of our facial recognition offering in fiscal 2016 as well as providing additional multi-factor ID verification capabilities through acquisition or partnership to help us further capitalize on the multi-billion dollar ID verification market.

With our innovative new products, we believe we've got a substantial opportunity ahead we're focused on targeted verticals that are seeking to improve new customer acquisition and ID verification via the mobile channels.

As I mentioned earlier our goal this fiscal year is to sign 10 Fortune 500 customers which we can then use as reference accounts to further expand within these key verticals.

This is a large and growing market and we believe we have the right solutions to address the pinpoints that these companies are encountering as they try and offer a mobile self-service environment. In conclusion we had a strong fiscal 2015 and we think fiscal 2016 is going to be even better.

We'll see continued growth in mobile deposit driven by increasing adoption and usage by the retail banking customer as well as penetration of the even larger market for commercial mobile deposit.

And as we further grow mobile deposit, we're also focused on leveraging our success and mobile capture to expand into the ID capture and verification market space this year which will more than double our addressable market and enable us to drive higher ASPs.

We're energized by these significant growth opportunities and look forward to updating you on our progress in the upcoming months. And with that now I like to turn the call over to Russ Clark to discuss the quarter and the year in more detail..

Thanks Jim. Hi everyone and thank you for joining us on today's call. As a reminder, all financial figures I site today are on a GAAP basis and unless I specifically call that number as non-GAAP. Our earnings release includes a reconciliation between these two measures.

Also as a reminder, September 30 is the end of our fiscal fourth quarter and fiscal year. So any references to quarters or years are on that basis. As Jim mentioned, Q4 total revenue was a record $7.9 million a 42% increase year-over-year.

We’re also achieved a record non-GAAP net income in Q4 of $2.8 million or $0.09 per diluted share representing our sixth consecutive quarter of non-GAAP net income. Q4 software revenue of $5.5 million included 13 mobile deposit reorders and was up 42% compared to revenue of $3.8 million in the year ago quarter.

Q4 services revenue of $2.4 million increased 42% over last year's Q4 revenue of $1.7 million and includes recurring identity verification SAS revenue around $600,000 generated by ID Check or which we acquired in June. Total Q4 operating expenses were $6.9 million compared to $5.6 million in the year ago quarter.

Q4 selling and marketing expenses were $1.9 million compared to $1.2 million in the year ago quarter. We continue to invest in direct sales and marketing personnel and programs for our identity products including international sales personnel who joined us with the ID Checker acquisition.

Q4 R&D expenses were $1.7 million compared to $1.3 million a year ago. This increase reflects our investment in personnel to continue to build world-class ID Capture and verification products including talented software engineers and computer vision scientists in our new ID Checker Office in the Netherlands.

Our Q4, G&A expenses were $1.9 million down from $2.6 million in the year ago period. Due to a year-over-year decrease in IT litigation cost of around $700,000.

We incurred $552,000 in cost and expenses in Q4 related to amortization or ID checker intangible assets and acquisition related stock compensation as well as direction acquisition and integration cost for the deal. Non-cash stock compensation expense during Q4 was $873,000 compared to $777,000 in the year ago quarter.

GAAP net income in Q4 was $1 million or $0.03 per diluted share compared to break even net income and EPS in the year ago quarter. As I mentioned Mitek reported non-GAAP net income of $2.8 million or $0.09 per diluted share for the quarter compared to non-GAAP net income of $1.9 million or $0.06 per diluted share for Q4 of 2014.

Our diluted share count for Q4 was 31.7 million shares. Now, looking at our results for the full year. Revenue for 2015 totaled $25.4 million and increase of 32% year-over-year and was comprised of $17.9 million in software licenses and $7.5 million in services which includes maintenance, tax and PS revenues.

As Jim mentioned the year-over-year growth was due primarily by continued adoption of our mobile deposit product. This growth also drove an increase in our already strong gross margins from 89% to 90%. Total operating expenses for 2015 were $23.5 million a decrease of $1.1 million compared to total operating expenses of $24.6 million in 2014.

The decrease is primarily due to a year-over-year reduction of IP litigation expenses of $2.3 million. GAAP net income for 2015 was $2.5 million or $0.08 per diluted share compared to a net loss of $5.3 million or $0.17 per diluted share in 2014. This is based on EPS share count for fiscal 2015 of 31.5 million fully diluted shares.

Excluding acquisition related cost and expenses IT litigation expenses, stock compensation and tax benefits related to the acquisition of ID checker. Non-GAAP net income for fiscal 2015 was $8.1 million or $0.26 per diluted share. Compared to non GAAP net income of $1.9 million or $0.06 per diluted share in the year ago period.

Stock compensation was $3.4 million for both fiscal 2015 and fiscal 2014. As of September 30, 2015 our head count was around 80 employees. Turning to the balance sheet.

It's important to note in an addition to our strong results of operations for Q4 in fiscal 2015 we also generation $1.9 million of operating cash flows during Q4 and $6.1 million of operating cash flows during fiscal 2015 representing year-over-year increases of $2.1 million and $8.6 million respectively.

At the end of Q4 cash, cash equivalents and investments totaled $26.7 million an increase of $2 million from the end of Q3. Our accounts receivable about the $3.9 million represented DSO of 46 days for Q4. Now turning to our guidance for fiscal 2016 we expect annual revenue to be between $31 and $33 million for our fiscal year ending September 2016.

Our guidance is based on continued growth in mobile deposit as well as contribution from our new ID capture and verification product offering. We are not alone in the belief that there is a multi-billion dollar market opportunity in the multiple ID capture and verification space. And this creates a significant growth opportunity for Mitek.

In order to pursue these markets we expect to increase our investments in sales and marketing to drive sales of our ID product offering. We also expect to increase our investment in R&D as we continue to make targeted hires of talent in mobile and software engineers and computer vision scientist.

Having said all that we still expect our non GAAP profit margin for fiscal 2016 to be at least 20% for the year. For the first quarter of fiscal 2016 although we have not typically provided quarterly guidance and do not expect to do still next quarter.

It is important to remember that we have delivered consistent quarterly revenues for the past 12 quarters and just for the 6 handle on a quarterly revenue for the first time in Q3 of fiscal 2015 reporting $6.4 million in revenue for that quarter.

The Q4 revenue of $7.9 million that we announced earlier to-date benefited from seasonality as well as some optimal timing for mobile deposit.

As such we expect revenue for Q1 of fiscal 2016 to be more consistent with our Q3 fiscal 2015 revenue as Q1 is seasonally our softest with each quarter growing sequentially throughout the remainder of the year as we've seen in past years.

We expect Q1 OpEx to be between $5.75 million and $6.25 million excluding all the ad backs listed in our non-GAAP net income reconciliation table which is attached the earnings release.

As a reminder, our non-GAAP net income excludes acquisition related cost and expenses acquisition related expenses for amortization of intangible assets and stock compensation. Litigation cost and regular stock compensation expenses. That concludes our prepared remarks. Operator, please open the line for question..

Thank you. [Operator Instructions]. And we go to Bhavan Suri with William Blair..

Hey guys, can you hear me okay?.

Yes we can..

Great. Hey Jim hey everybody, congrats there. Nice job and thank you for the forward-looking guidance. Appreciate that as I'm sure all the investors do. I guess let me just touch first on the mobile deposit business done really well. But we see some conversions there obviously between signed versus live thing and that natural assume that happening.

But we should expect that gap to continue because given the tenant friction rate in the actual number of banks that have signed up.

Is that the right way to think about it?.

Yeah Bhavan you're right and absolutely have seen that gap close over the last several years and several quarters. We're getting to the point now where we've added 400 banks over the last couple of quarters and 300 to 400 for several quarters before that. So it sort of chasing a moving targets and the number of banks in any quarters increased as well.

So we see the gap close but I think most importantly we continue to sign 400 new banks a quarter..

Yeah.

And when you look at that any update in sort of the international expansion around mobile deposit, how should we think about that opportunity obviously - that you guys already have a nice presence but how do we think about the broader opportunity with Checks maybe not in Europe but in another parts of the world it's still certainly have reduced..

Bhavan, this is Jim and hello and I think to answer that includes a phrase compared to what. So as we look at the international opportunity in England it's about 1 billion to 1.5 billion checks numbers. You might get number is approaching that in Brazil, but fundamentally the check market is a North America including Canada.

The big opportunity really for us we believe is in the commercial side. And that's why we've invested in launched this mobile multi-check capture feature it allows small businesses to capture multiple checks as opposed to having a scanner connected to their PC of the added expense and inconvenience of doing that.

So we think the number of commercial checks it works. The number of international checks combined here in the US alone. So we look at the bigger opportunity, so we are working in parallel for UK opportunities two partners. We're doing the same in Brazil, Brazil has yet to pass their laws allowing image capture and transmittal of an item check.

So again that's going to be slow growth an opportunity that will occur overtime but low compared to what we're going to experience I think this year in the commercial side..

Got it. And then maybe on that Jim just on the mobile check deposit before you jump at the sort of Photo Fill and PhotoVerify. But two quick things, one how ASPs of mobile deposit trended. And then two have you seen any banks raise their limits on deposits. Because that's always been a little bit of a slog or on sort of the growth of that business too..

Hey Bhavan its Russ. On ASP side you can continue to see consistency there I think as customers have gotten more comfortable with volumes and order bigger blocks they've leveraged volume discounts. So as we seen revenue continue to grow we seen some volume discounting but overall that the pricing schedule remains pretty well intact..

Hey Bhavan let me add to that also. We see volumes going up. We see consumption continue to percolate into the consumer world. In addition to banks which you mentioned earlier, two other key drivers that are important that the number of consumers who are exposed to mobile deposit and use it.

And then among those consumers the amount of usage the frequency of these. We think those later two are the most important in terms of driving our growth. And we'll give you an example on to your point on raising limits. We did and have seen P&C bank recently raised limited for what was an anemic of $1000 per customer per month or per item.

And too much greater numbers in fact one of our directors who was a P&C customer recently mentioned that through a fund raiser he collected a bunch of checks and personally was able to deposit in the amounts approaching over $10,000.

So we see this trend happening among several banks where individuals are allowed to make bigger deposits and more frequent deposits. Secondly we also see certain banks getting very, very clever about how their market we love their advertising. Don't make any mistake about it Serena Williams hit the tennis ball and then deposit the check we love that.

But you know what there other things you can do is and certain banks are doing it. They're having contest. One bank in particular gives a $100 check as a promotion to introduce the idea of mobile deposit to their consumers. Allowing them to not only deposit the dollar to their account which is of the trust but to get them involved in the contest.

Deposit a buck get involved with their contest easy can win a $100 or $1000 or $10,000 a week. So we really like those kind of very innovative market and to keep this product in front of customers. So again one of the seven Americans growing and we think that usage consumption will continue to grow with innovative marketing that's happening..

Great. And then turning to PhotoVerify, just a little bit on the pipeline there. I mean you touched on expanding into new verticals. Any specifics about what you're thinking government services commerce travel will be helpful as we think about sort of where those market to go..

Yeah Bhavan familiar territory for us is financial services and insurance and telco. And we continue to be very active in those verticals in the past.

But I think the point is that our Photo Fill and PhotoVerify products are truly horizontal products and they're not limited to opening accounts or helping process transactions and just as three verticals but they can apply do any vertical.

So with that being said we are very focused on those three initially but we are definitely out in other verticals meeting with digital marketers at those companies as well.

so financial services we have a big beachhead there and a strong hold that we want to make sure we win there P&C insurance we've been in for a long time and wireless especially on the telco side as well. But adding sales staff we have people calling on company's another verticals also..

Yeah let me add Bhavan also, we are selling this product direct enterprise, number one. Number two is this product will be sold primarily in a cloud as a service. Although we offer on promise as well there is not key differentiator for us. And thirdly this is native in an app and through the browser through the mobile web.

So we really have some core differentiators and value add for enterprise customers. They can consume and how they wish. So it's interesting we are leveraging our success with mobile deposit the 60 million consumers out there to use this product.

And these experiences are pleasant it's a magical experience, when you deposit a check it settling in your bank account and then it have to go to the branch. And so we're getting call some other enterprise customers and another vertical. And one that will be announcing shortly that learned about it.

So they're experience with one of the top 3 banks just as a consumer. So having that base of business, having that experience with the mobile market is allowing us to leveraging into other verticals.

So in the course of the 10 that we announced in terms of marquee Fortune 500 companies they will not all be in the banking industry and we're proud of that. And we think as Russ said, this is a product that extends beyond financial services and to important B2C e-commerce, healthcare, telecom and beyond..

That's really helpful Jim actually just doing for that color. And then one last sort of just housekeeping question for me. Hey Jim a quick update on your status of your 10b5 plan on the options. Just too how many elect that to be exercise..

Bhavan good question I'm happy to tell you and others that I have discontinued the 10b5-1 plan. It no longer is in effect. So I will not be selling any additional shares to the 10b5-1 for the remainder of this period..

Got it. Well guys thanks for taking my questions, appreciate. And nice job on that on the quarter there and look forward to another solid quarter next quarter. Thanks..

Yeah. Thanks..

Thanks Bhavan..

[Operator Instructions]. And there are no other questions at the moment. That concludes our question-and-answer session. I'd like to turn the call back to the company for closing remarks..

Thank you operator and thank you everyone for joining us today. This concludes our call and we look forward to talking to you next quarter..

Once again ladies and gentlemen that does conclude today's conference. We thank everyone for joining us..