Mitek Systems, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended March 31, 2015. Financial statements are unaudited. Mitek develops mobile image-capture and identity-authentication software, primarily for financial and business applications.
Financial performance
| Metric | Three months ended March 31, 2015 | Six months ended March 31, 2015 |
|---|---|---|
| Revenue | $5.67 million, up 26% year over year | $11.06 million, up 24% |
| Operating income (loss) | $0.49 million, versus a $2.21 million loss | $0.62 million, versus a $3.69 million loss |
| Net income (loss) | $0.51 million; $0.02 per diluted share | $0.65 million; $0.02 per diluted share |
| Operating cash flow | Not separately reported for the quarter | $2.53 million provided, versus $2.53 million used |
- Quarterly software revenue was $3.99 million, up 28%; maintenance and professional services revenue was $1.68 million, up 23%. Management attributed growth primarily to Mobile Deposit license sales.
- For the six-month period, software revenue rose 23% and maintenance and services revenue rose 25%. Management cited Mobile Deposit, Mobile Photo Account Opening, license-renewal timing, and increased professional services engagements.
- Gross margin was approximately 90% in both the quarter and six-month period. Operating margin was approximately 8.6% and 5.6%, respectively, compared with operating losses in the prior-year periods.
- Operating expenses fell year over year: selling and marketing by 27% for the quarter and 24% for six months; R&D by 15% and 19%; and G&A by 32% and 15%. Management cited lower personnel-related expenses and lower litigation costs.
- Cash and cash equivalents were $5.74 million at March 31, 2015. Short- and long-term investments totaled $22.48 million, bringing cash and investments to $28.22 million, up 8% from September 30, 2014. Working capital was $23.42 million.
- Six-month investing cash outflow was $4.56 million, mainly reflecting net investment purchases. Financing cash outflow was negligible. No material borrowings are reported; liabilities included small capital-lease payments.
- Total assets were $33.39 million and total liabilities $7.10 million at quarter-end. Available-for-sale securities were corporate debt securities, classified as Level 2 fair-value assets.
Changes, outlook, and risks
- The company moved from a substantial prior-year operating and net loss to modest profitability, with revenue growth accompanied by materially lower operating expenses.
- Management said existing cash and expected operating cash generation should meet working-capital needs for the next 12 months. The filing gives no specific revenue or earnings guidance.
- Management cautioned that license revenue can fluctuate with channel-partner renewals and purchases; customer and partner implementation cycles can take three to six months or longer. Two customers represented 29% and 11% of quarterly revenue.
- Competition, reliance on mobile-capture technology, product demand and pricing, implementation delays, and timing of license renewals are identified business risks. The company reported no material changes to the risk factors in its 2014 Form 10-K.
- RMII lawsuits allege infringement of four mobile-imaging patents and name Mitek and customer banks. Mitek is defending the claims, has accepted defense and indemnity demands from the bank defendants, and says it believes the claims lack merit and will not materially affect results. Trial was scheduled for April 3, 2017.
- The company maintained a full valuation allowance against deferred tax assets because of its history of losses. Disclosure controls were assessed as effective, with no material change in internal control reported.
Important facts for investors to verify
- Whether revenue growth and profitability continue when channel-partner license renewals and purchases vary by period.
- The sustainability of expense reductions, particularly in selling, R&D, and legal costs, while the company continues developing products.
- Customer concentration and the timing and completion of implementations and deployments.
- Developments, potential costs, and any indemnification exposure related to the RMII patent litigation.
- Investment portfolio liquidity and credit exposure, and the potential effect of market changes; management said a 100-basis-point rate move would not materially affect fair value.
- Potential dilution: the filing reports outstanding options and restricted stock units, and approximately $6.27 million of unrecognized stock-based compensation expense.