Mitek Systems, Inc. — Q1 Fiscal 2021 10-Q
Reporting period: Three months ended December 31, 2020; comparisons are to the three months ended December 31, 2019 unless otherwise noted. Mitek provides mobile image capture, check-deposit and digital identity-verification software and services.
Financial performance
| Metric | Q1 FY2021 | Q1 FY2020 | Change |
|---|---|---|---|
| Revenue | $26.0 million | $22.1 million | +18% |
| Software and hardware revenue | $12.3 million | $11.5 million | +7% |
| Services and other revenue | $13.7 million | $10.6 million | +30% |
| Operating income | $1.5 million | $0.3 million | Up $1.2 million |
| Net income | $2.2 million | $0.6 million | Up $1.6 million |
| Diluted EPS | $0.05 | $0.01 | Up $0.04 |
| Cash from operations | $8.7 million | $5.2 million | Up $3.5 million |
Gross margin was approximately 84% versus 87%; operating margin was approximately 5.9% versus 1.4%; net margin was approximately 8.3% versus 2.5%. Cost of revenue rose 41% to $4.1 million, outpacing revenue growth, mainly due to hardware costs and higher hosting and personnel costs associated with Mobile Verify transactions.
Identity-verification revenue increased to $10.4 million from $7.4 million, while deposits revenue rose to $15.6 million from $14.7 million. Management attributed services growth principally to Mobile Verify transactional SaaS revenue, up $2.2 million, or 42%. Software and hardware growth reflected Mobile Deposit, CheckReader and identity-verification hardware, partly offset by declining legacy on-premise identity products.
Liquidity, debt and balance sheet
Cash and cash equivalents were $26.7 million at December 31, 2020, and investments totaled $45.8 million, for combined cash and investments of $72.6 million. Working capital was $64.3 million. Cash and investments increased $10.6 million from September 30, 2020. Management said available funds and expected operating cash flows should cover working-capital needs for the next 12 months.
Mitek reported $0.7 million of non-interest-bearing Spanish government borrowings. The former $10 million revolving credit facility was not renewed after its September 30, 2020 maturity; no borrowings were outstanding at September 30, 2020. Operating lease liabilities totaled $6.8 million. No off-balance-sheet arrangements were reported.
Operating cash flow of $8.7 million included $2.2 million of net income, noncash charges and favorable working-capital movements. Investing activities used $4.4 million, primarily net investment purchases; financing activities provided $1.9 million, mainly from equity-plan stock issuance.
Outlook, risks and notable items
- No quantified revenue or earnings guidance was provided. Management expects growth opportunities in deposits and identity verification, citing digital adoption, online transactions and regulatory needs.
- Management cautioned that COVID-19’s duration and effects remain uncertain. Remote work and reduced travel continued; the pandemic could both accelerate digital adoption and weaken customer and market activity.
- Risks include competition, product concentration, lengthy sales and implementation cycles, and revenue variability from the timing of channel-partner license purchases and renewals. One customer represented 15% of quarterly revenue, compared with two customers at 20% and 17% in the prior-year quarter. International sales were approximately 31% of revenue, versus 25%.
- Significant legal matters include USAA patent litigation against Mitek customers, related indemnification demands, and Mitek’s declaratory-judgment and patent-validity proceedings. Mitek was not named as an infringer in the Wells Fargo or PNC lawsuits and said it did not believe it was obligated to indemnify customers; potential exposure could nevertheless entail substantial costs. A separate ICAR claim seeks €0.8 million plus interest, with indemnification rights under the acquisition agreement. Mitek is also pursuing a contract-payment claim against UrbanFT.
- The quarter included a $0.5 million income-tax benefit, producing a negative 33% effective tax rate, primarily due to excess tax benefits from equity awards and other tax items. Net income therefore includes a favorable tax effect.
- Foreign-currency translation contributed $2.8 million of other comprehensive income. Goodwill rose by $1.7 million due to foreign exchange; management reported no new impairment indicators.
Most important facts for investors to verify
- Whether Mobile Verify SaaS growth and deposits revenue growth persist, and how the legacy on-premise decline develops.
- Whether higher transaction, hosting and hardware costs affect gross margins as revenue scales.
- Customer and channel-partner concentration, including the timing-related variability of license renewals and purchases.
- Developments and potential financial exposure in the USAA-related matters, ICAR claim and UrbanFT dispute.
- The sustainability of cash generation and liquidity, and the effect of the unusual quarterly tax benefit on comparisons.
- COVID-19 impacts, competitive conditions and foreign-exchange exposure; management provided no quantified forward guidance.