Mitek Systems, Inc. — Q1 FY2022 Form 10-Q
Reporting period: Three months ended December 31, 2021; comparisons are with the three months ended December 31, 2020 unless otherwise stated. Mitek provides mobile image capture, identity verification and authentication, and mobile deposit software and services. Figures below are in U.S. dollars; financial statement amounts are shown in millions unless noted.
Financial performance and liquidity
| Metric | Q1 FY2022 | Q1 FY2021 |
|---|---|---|
| Revenue | $32.5 | $26.0 |
| Gross profit / gross margin | $29.1 / 89.7% | $21.8 / 84.1% |
| Operating income / margin | $4.8 / 14.9% | $1.5 / 5.9% |
| Net income / diluted EPS | $3.1 / $0.07 | $2.2 / $0.05 |
| Cash from operating activities | $2.3 | $8.7 |
- Revenue rose 25%. Software and hardware revenue increased 26% to $15.4 million; services and other revenue increased 25% to $17.0 million. Deposits revenue was $19.1 million, up from $15.6 million; identity verification revenue was $13.4 million, up from $10.4 million.
- Gross margin improved as cost of revenue fell to 10% of sales from 16%, primarily reflecting lower costs in identity-verification hardware. Operating expenses increased overall, including research and development, selling and marketing, general and administrative, and acquisition-related costs.
- Operating cash flow declined to $2.3 million from $8.7 million, mainly reflecting working-capital movements, including decreases in accrued payroll and deferred revenue. Operating cash flow less $0.3 million of capital expenditures was approximately $2.0 million.
- Cash and cash equivalents were $24.2 million; investments totaled $194.0 million ($137.8 million short-term and $56.3 million long-term). Combined cash and investments were $218.2 million, down from $227.4 million at September 30, 2021. Working capital was $155.6 million.
- Convertible senior notes had a $122.6 million carrying amount and $155.3 million principal amount at quarter-end. The notes mature in 2026 and bear 0.75% coupon interest; quarterly interest expense was $2.0 million, including $1.7 million of noncash discount and issuance-cost amortization. Lease liabilities totaled $8.0 million.
Material changes and notable items
- Revenue growth reflected higher Mobile Deposit, CheckReader, IDLive Face, and Mobile Verify sales, among other factors. Mitek acquired ID R&D in May 2021; the acquisition added voice and face biometrics and liveness detection. The filing does not separately quantify ID R&D’s contribution to reported Q1 revenue.
- Quarterly share repurchases were $10.1 million, approximately 599,000 shares at an average $16.95 per share. Mitek subsequently repurchased another $4.7 million through January 19, 2022, completing its $15 million program.
- Accumulated other comprehensive loss increased to $2.5 million from $0.9 million, including a $1.3 million foreign-currency translation loss and a $0.3 million unrealized investment loss in the quarter.
- Two customers accounted for 15% and 10% of quarterly revenue. International sales were approximately 32% of revenue.
Outlook, risks, and contingencies
- No quantified revenue or earnings guidance is provided. Management said current cash, cash equivalents, and expected operating cash generation should meet working-capital needs for at least 18 months from the filing date. Management expects continued opportunity in deposits and identity verification but cautions that actual demand and results remain uncertain.
- Risks discussed include competition, product concentration, potentially lengthy sales and implementation cycles, channel-partner renewal timing, and uncertainty from COVID-19. Foreign-currency movements and changes in investment values are additional exposures. Management stated a hypothetical 100-basis-point interest-rate move would not materially affect investment fair value.
- The ID R&D acquisition includes up to approximately $22.1 million in additional earnout payments tied to milestones; contingent consideration was valued at $16.8 million at quarter-end.
- Legal matters include patent-related proceedings involving customers and USAA, an ongoing ICAR claim for €0.8 million (approximately $0.9 million) for which Mitek says it is entitled to indemnification under the acquisition agreement, and Mitek’s lawsuit against Instacart seeking more than $2.0 million. The company says it does not believe it is obligated to indemnify certain customers facing patent claims; outcomes remain uncertain.
- Mitek reported disclosure controls were effective and said a previously identified material weakness relating to valuation controls for ID R&D contingent consideration had been remediated as of December 31, 2021. The company said operating effectiveness still required demonstration through the fiscal 2022 year-end assessment.
Key facts for investors to verify
- Whether revenue growth and margin improvement persist, particularly in Mobile Verify and deposits, and how much growth is attributable to the ID R&D acquisition.
- Why operating cash flow fell despite higher net income, and whether working-capital outflows reverse.
- Potential earnout payments, the valuation of contingent consideration, and the impact of convertible-note accounting and share-reservation requirements.
- Progress and potential financial exposure from the disclosed legal proceedings and customer indemnification demands.
- Execution of the share-repurchase program and remaining share count; the filing reports 44,297,583 shares outstanding as of January 31, 2022.