Yahoo Finanza Mitek Systems, Inc. (NASDAQ:MITK) Q1 2024 Earnings Call Transcript
Mitek Systems, Inc. (NASDAQ:MITK) Q1 2024 Earnings Call Transcript April 15, 2024
Mitek Systems, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Hello, and welcome to Mitek's Fiscal 2024 First Quarter Earnings Conference Call. All participants will be in listen-only mode [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to hand the call to Todd Kehrli of MKR Investor Relations. Todd, please go ahead.
Todd Kehrli: Thank you, operator. Good afternoon. And welcome to Mitek's fiscal 2024 first quarter earnings conference call. With me on today's call are Mitek's CEO, Max Carnecchia; and CFO, Dave Lyle. Before I turn the call over to Max and Dave, I'd like to cover a few quick items. Today, Mitek issued a press release announcing its financial results for its fiscal 2024 first quarter as well as preliminary results for its fiscal second quarter ended March 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 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 could 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, April 15, 2024, 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 non-GAAP and 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, Max Carnecchia.
Max Carnecchia: Thanks, Todd. Welcome, everyone, to our fiscal year ‘24 Q1 earnings conference call. As always, we appreciate that you joined us today and thank you for your continued support and trust in Mitek. Today, I'll make some brief comments about Mitek's results and update you on the business priorities. I'll then turn the call over to Dave Lyle, our CFO, to review the first quarter financial results and provide our outlook. As previously discussed, in the first quarter of last year, we had a large one-time multi-year mobile deposit reorder that pulled forward three years of revenue into that quarter, creating a very difficult year-over-year comparison. It's important to note that this quarter's results are not representative of a business trend, in fact, to the contrary.
With our fiscal 2024 guidance, we expect our Deposits of product revenue to grow 10% to 12% year-over-year on a normalized basis and our Identity product revenue to grow 10% to 12% year-over-year on an organic basis. We anticipate that much of this growth will occur in the second half of the fiscal year with the growth continuing in fiscal 2025. Our conviction in Mitek's significant market opportunity continues to grow as we leverage our collective AI-powered data solutions to answer an accelerating fraud management need in markets and geographies we serve. Evidence of this can be seen in three factors. Number one, the accelerated need for identity verification as fraud and cybercrimes grow in sophistication and continue to plague banks and enterprises of all sizes.
Number two, the rapidly growing misuse of deepfakes and voice cloning poses a significant threat to personal and financial security. As a result, our award-winning biometric authentication technology is seeing rapidly increasing demand. And number three, the momentum we are seeing with Check Fraud Defender products offering is exceeding our expectations and highlights the rise in fraud across the board as a critical problem to solve. These factors reinforce our purpose and strengthen our market opportunity. As a reminder, our purpose is to empower regulated businesses to say yes to more good customers, more deposits, and more transactions with increased intelligence and customer safety. We focus on regulated businesses because the consequences are highest to those businesses and our core competency best suits those needs.
Our mission informs our business decisions and over the past decade we've steadfastly developed solutions to fulfill this objective. With that said, let me briefly take you through our product evolution so you can better understand why we win. First, we leveraged computer vision to develop the advanced image processing capabilities that underpin all our solutions today. Let's call that Mitek 1.0, which began in 2008 and remains the undisputed leader in mobile capture and deposit technology with over 90 patents and 99 of the top 100 banks in the US using our solution. In Mitek 2.0, we began about seven to eight years ago. We applied machine learning and AI to automate identity verification, mainly by providing document verification. Anticipating the need for more advanced identity attributes, we then integrated the unparalleled technology and biometrics from ID R&D acquisition in 2021 to prove why this and support identity authentication.
Then we added our low code orchestration platform from HooYu acquisition in 2022, yielding a solution today, ready to tackle omni-channel identity fraud across the organization. Today, harnessing the latest advancements in GenAI, coupled with the expansive capabilities of our orchestration platform, Mitek 3.0 is poised to be the leading authority in identity verification, authentication, and fraud management. By demonstrating our industry leadership, we are winning new channels within the banks and helping drive new benefits and efficiency gains for our banking customers. Most recently, by reducing check fraud. Banks are getting crushed by check fraud, which has reached an all-time high and rivals credit card fraud in the United States. In 2023, financial institutions reported unprecedented financial losses due to soaring check fraud.
One institution reported $135 million in losses, while total losses in the Americas were over $20 billion, according to NASDAQ's global financial prime report. We launched Check Fraud Defender two years ago to help banks address this growing problem. Our solution offers banks a secure cloud hosted consortium that strengthens their existing fraud prevention and helps them significantly reduce financial losses. One of our CFD customers reported saving over $16 million in less than six months derived from both reductions in fraud check losses and reductions in operational expenses of dealing with this exploding problem. This significant cost savings benefit is driving substantial pipeline growth for this new product offering. At the end of fiscal 2023, we had a handful of CFD customers and we exited the March ending quarter with over 20.
By the end of fiscal 2024, which ends in September, we're targeting to have over 50 CFD customers contracted to participate in the consortium. Even with this rapid customer adoption, we're just scratching the surface as we target our nearly 8, 000 Mitek banking customers. Starting to contribute to this pipeline are our channel partners. The channel has been a trusted blueprint for selling mobile deposits and we're thrilled with the initial momentum we're seeing with the channel and Check Fraud Defender. As I noted on our last call, CFD represents a noteworthy growth opportunity for Mitek. We estimate CFD has the potential to contribute $200 billion in annual revenue within the next five to seven years. CFD is also leading the way into adjacent opportunities for Mitek to help banks with new AI-driven fraud and identity management.
By leveraging our unique access to rare and privileged customer data and transactional intelligence, we can deliver additional differentiated value to our customers and drive increased shareholder value. Regarding the identity line of business, we continue to execute our strategic priorities. While it is early and we have more to do, we are starting to see improved growth and increased market share for our identity orchestration platform, which we believe will drive higher returns over time. Market tailwinds continue to fuel the identity opportunity. In 2023, fraud scams and bank fraud schemes totaled $485 billion in losses globally, according to the Global Financial Crime Report from NASDAQ. Also in 2023, consumers reported losses exceeding $10 billion to fraud, a 14% increase from the previous year.
Digital identity verification is no longer a back office concern, but a front line in the fight against fraud. There has never been a greater need for banks and technology providers to innovate together. NatWest is a great example of one such partnership and why our customers select Mitek verified identity platform, MiVIP to take these channels -- to take on these challenges. Like all major banks, NatWest faces rising threats from fraud rings and impersonation, but also the need to instill consumer confidence in their fraud defenses. Leveraging MiVIP, NatWest can configure different identity verification services to suit different customer and business needs, as well as adjust for changing risk environments, as mandatory liveness detection becomes increasingly critical in digital identity processing, NatWest has enjoyed leveraging the platform to apply new biometric signals against growing use cases.
As the Wall Street Journal reported this month, deep fakes are coming for the financial sector. Companies using photos or audios to verify customers' identities are preparing for bad actors gaining the system with generative AI. The surge in deepfake-related fraud underscores the need for vigilance and robust detection mechanisms. Facial Live detection technology stands at the forefront of combating these challenges, offering a sophisticated way to distinguish genuine human presence from fraudulent and deepfake attempts. IDLive Face Plus is designed to detect injection attacks and prevent deepfake fraud in a passive way, thus dramatically improving the overall customer experience. Most of today's Facial liveness technologies are active, requiring users to blink, turn their heads, or move their phones back and forth.
These systems are frustrating to the customer and can be tricked by fraudsters using computer-generated images, masks, or videos. Mitek’s award -winning ID R&D teams have worked relentlessly to ensure our customers don't have to sacrifice usability for security. IDLive Face Plus combines groundbreaking presentation attack detection with a unique approach to injection attack detection to prevent deepfakes and other fraudulent digital content. Instead of just focusing on the content of digital face like the image, it helps shut down the channel used to delivery, such as a virtual camera. Customers and partners who have made the switch from active to passive facial liveness report a significant reduction in abandonment, lower false top false projections of real users, and highly accurate presentation attack detection.
Our ID R&D team's ongoing innovation continues to be at the center of our identity verification solutions, and their rapid integration of Gen-AI solutions continues to yield outstanding products. Leveraging the significant opportunities within burgeoning sectors, influenced by AI and identity and fraud trends, Mitek is strategically positioned to expand and its revenue and profitability. Mitek remains at the technological forefront providing advanced machine learning and AI solutions, enabling businesses to effectively counter fraud while improving trust and convenience in digital transactions through our leading orchestration platform. Lastly, I'm thrilled that with the filing of our 10-Q today, we are now current and back on track to file our quarterly and annual filings in the normal fashion.
This has been a long and difficult process. With significantly improved financial controls and reporting in place, we are confident in our ability to maintain our filings going forward. I will now turn the call over to Dave to discuss financial results in more detail. Following Dave's remarks, we will open the call for questions. Dave, please go ahead.
Dave Lyle: Thanks, Max. I'll begin by taking you through the fiscal Q1 2024 financial results and then comment on our outlook. Looking first at fiscal Q1 revenue, top line revenue for the fiscal quarter defined 19% year-over-year to $36.9 million due primarily to a large multi-year mobile check deposit reorder with one customer where Mitek recognized additional licensed revenue in fiscal Q1 2023 relating to future years of approximately $7 million and which deducted approximately $2.7 million from fiscal Q1 2024. Adjusting for that entry, top line revenue would have grown by 3% year-over-year. Software and hardware revenue declined 39% to $16 million in fiscal Q1 2024 primarily due to the multi-year contract just discussed. Services and other revenue grew 8% to $20.9 million in fiscal Q1 2024.
This increase was primarily due to strong growth in SaaS revenue as well as increased maintenance revenue associated with deposits, product and software sales. Shifting to revenue for our two major product categories, Deposits and Identity, let's start with Deposits. Deposits revenue declined 30% year-over-year in fiscal Q1 2024 to $21.1 million for reasons just described. Adjusting for that multi-year contract, deposits revenue would have grown about 4% year-over-year. The quarter's revenue was also impacted by timing of reorders. Please note that 67% of deposits revenue was in Mitek software and hardware revenue and 33% was in services and other revenue. Identity revenue for the first fiscal quarter grew 3% year-over-year to $15.8 million driven by our SaaS products revenue.
Growth from our newer identity authentication products, including MiVIP, MiPass and ID R&D biometrics, which grew faster than the market, was somewhat offset by the sun setting of our legacy ICAR hardware and software products, as well as some pressure from commoditization in the document verification market. Approximately 12% of Identity revenue within Mitek software and hardware revenue, and 88% within services and other revenue for the first fiscal quarter of fiscal year 2024. Moving on to gross margin, the total gross margin for fiscal Q1 2024 was 85%, down from 89% in fiscal Q1 2023, due to a product mix shift which included less revenue in fiscal Q1 2024 from a strong gross margin in Deposits products. We continue to deliver strong software and hardware gross margins of close to 100% for fiscal Q1 2024, while on services and other revenue our gross margin was 74%.
GAAP operating expense for fiscal Q1 2024 was $38.3 million compared to $32.3 million a year ago. Non-GAAP operating expense for fiscal Q1 2024 was $25.8 million compared to $22.2 million last year, and favorable when compared to the prior order fiscal Q4 2023. The year-over-year increase in non-GAAP operating expense was primarily related to fees associated with our delayed filings, including audit accounting and legal support, and to a lesser extent the addition of resources to our corporate services team to accommodate our scaling business. Excluded from our non-GAAP operating expense was $12.5 million of nonrecurring items, of which $7.3 million were noncash accounting items and $5.2 million were cash items. The noncash items were comprised of amortization and purchase intangibles and stock-based compensation expense.
Cash items were comprised of nonrecurring fees from delayed filings, legal, and other expenses. Please see our earnings released for more detailed reconciliation. Our non-GAAP operating income was $5.6 million in fiscal Q1 2024, or a 15% non-GAAP operating margin. Excluded from non-GAAP operating income was $12.5 million, and expenses as described above, and as detailed in our GAAP to non-GAAP reconciliation included in today's earnings release. GAAP net loss for fiscal Q1 2024 was $5.8 million or a loss of $0.13 for basic share versus net income of $4.7 million or $0.10 per diluted share in the prior fiscal year. Non-GAAP net income for fiscal Q1 2024 was $6.3 million or $0.14 per diluted share versus $14.3 million or $0.31 per diluted share in the prior fiscal year.
Our diluted share count for the year was 46.3 million compared to 45.6 shares a year ago. Turning to our balance sheet, our cash and investments declined sequentially $11 million from $134.9 million in fiscal Q4 23 to $123.9 million at the end of fiscal Q1 2024 primarily because fiscal Q1, we paid out $7.8 million in cash for 2023 taxes and also paid $4.6 million for the cash portion of the final earnout for the ID R&D acquisition. Moving on to guidance. We are reiterating our fiscal year 2024 revenue guidance range of $180 million to $185 million. Looking more closely at fiscal Q2, we are providing a preliminary revenue range of $46 million to $47 million, almost $9 million sequentially higher than fiscal Q1 2024 at the midpoint of the range, driven by a return to a more typical quarter from our Deposits product revenue.
From a quarterly trending perspective, we continue to expect top line revenue to grow year-over-year and sequentially Q3 and with Q4 expected to be in the range of Q3 revenue. Quarter-to-quarter changes due to deal timing may influence these expectations. We continue to expect our Identity business to reach standalone profitability on a fully [inaudible] basis in the fourth fiscal quarter. With regard to taxes, we expect to be a taxpayer in fiscal 2024 with a tax rate and 25% plus or minus range of GAAP pretax net income. In addition, we are reiterating our full year fiscal 2024 non-GAAP operating margin guidance range of 30% to 31%. Before I conclude, I would like to touch on where we are with our SEC filings. With our 10-K filing done in March and the filing of our 10-Q today, we are now current on our filings and are already working diligently on the fiscal second quarter 10-Q for the period ended March 31, 2024 and are targeting to file in a timely manner.
Operator, that completes our prepared remarks, please open the line for questions.
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