Mitek Systems, Inc. — Q2 FY2017 Form 10-Q
Reporting period: Quarter and six months ended March 31, 2017; comparisons are with the same periods in 2016. Amounts are in U.S. dollars; financial figures below are in millions unless stated otherwise.
Business context
Mitek provides mobile capture and identity-verification software, primarily to financial-services organizations. Revenue is mainly from software licenses, with growing SaaS, maintenance and consulting revenue. The company reported serving approximately 5,600 financial-services organizations and highlighted continued mobile check-deposit growth and adoption of identity-verification products.
Financial results and year-over-year changes
| Metric | Q2 FY2017 | Q2 FY2016 | Six months FY2017 | Six months FY2016 |
|---|---|---|---|---|
| Revenue | $11.42 | $8.52 | $20.69 | $15.93 |
| Operating income | $1.22 | $0.63 | $0.55 | $0.29 |
| Net income | $1.22 | $0.58 | $0.61 | $0.26 |
| Diluted EPS | $0.03 | $0.02 | $0.02 | $0.01 |
| Operating cash flow | Not stated quarterly | $4.37 | $5.19 |
- Q2 revenue grew 34%; software-license revenue increased 40% to $7.80 million and SaaS, maintenance and consulting revenue rose 22% to $3.62 million. Management attributed license growth mainly to mobile deposit and service growth partly to Mobile Verify SaaS.
- For the six-month period, revenue grew 30%, with software licenses up 34% and SaaS, maintenance and consulting up 22%. Net income rose, while operating cash flow declined year over year.
- Gross margin was approximately 92.7% in Q2 versus 91.6% a year earlier, and 91.7% for the six-month period versus 89.6%. Operating margin was approximately 10.7% versus 7.4% in Q2 and 2.7% versus 1.8% for six months.
- Operating expenses increased, particularly selling and marketing (up 45% in Q2 and 50% for six months) and research and development (up 32% and 38%, respectively), mainly reflecting higher personnel costs and increased activity.
Financial position and liquidity
- At March 31, 2017, cash and cash equivalents were $12.96 million and investments were $26.95 million, totaling approximately $39.9 million. Working capital was $34.0 million.
- Total liabilities were $8.95 million, including $3.68 million of current deferred revenue. The balance sheet reports no borrowings; the filing does not identify material debt.
- Six-month operating cash flow was $4.37 million. Investing activities used $0.42 million, primarily reflecting capital expenditures and net investment purchases; financing activities provided $0.03 million.
- Management stated that cash and expected operating cash generation should meet working-capital needs for the next 12 months. No off-balance-sheet arrangements were reported.
Outlook, risks and unusual items
- The filing gives no specific numerical revenue or earnings guidance. Management’s outlook emphasizes sustaining growth through mobile banking and expansion of identity-verification products into additional markets.
- Revenue can vary with the timing of software-license purchases and renewals. One customer accounted for 23% of six-month revenue; two customers accounted for 14% and 12% of Q2 revenue. Management said it did not believe it depended on any single channel partner.
- The company identified competition, demand for mobile applications, product concentration, and foreign-currency movements as risks. International sales were approximately 14% of revenue in both Q2 and the six-month period, up from approximately 10% in the comparable 2016 periods.
- In the RMII patent litigation, the Patent Trial and Appeal Board ruled all claims asserted in the four patents unpatentable. The matter was not described as fully concluded: Mitek sought judgment or dismissal with prejudice, while RMII moved to dismiss without prejudice. Mitek said it did not expect a material adverse effect.
- Stock-based compensation was $2.31 million for six months. The company granted 1.3 million performance-based executive RSUs, subject to stock-price and relative-performance conditions. The 2012 Incentive Plan share reserve was increased.
- Management reported effective disclosure controls and no material changes to risk factors from the prior annual report.
Investor verification priorities
- Assess whether license-revenue growth and renewal timing are sustainable, and whether recurring SaaS revenue continues to expand.
- Track operating-expense growth, especially sales and marketing and R&D, against revenue growth and operating-margin improvement.
- Monitor customer concentration and the effect of large license purchases or renewals on quarterly results and receivables.
- Review stock-based compensation, share-plan capacity and potential dilution from outstanding and performance-based awards.
- Follow developments in the RMII litigation and evaluate foreign-exchange and competitive risks.