Mitek Systems, Inc. — FY2011 Form 10-K
Reporting period: Fiscal year ended September 30, 2011; filed December 15, 2011. Although the request refers to 2011 Q4, this filing reports annual results. It does not provide clear standalone Q4 income-statement or cash-flow figures.
Business context
Mitek develops mobile imaging and intelligent character recognition software. Mobile Deposit was its primary growth product and the principal driver of license revenue. By year-end, 161 financial institutions had signed agreements to deploy Mobile Deposit, including seven of the top 10 U.S. retail banks; 35 had completed implementation and launched it. Other mobile products and the Mobile Imaging Cloud platform were newer or in evaluation. The company reported one operating segment.
Financial performance
| Metric | FY2011 | FY2010 |
|---|---|---|
| Total revenue | $10.266 million | $5.119 million |
| Software revenue | $8.123 million | $3.211 million |
| Maintenance and professional services | $2.143 million | $1.908 million |
| Gross profit and gross margin | $9.094 million; approximately 88.6% | $4.169 million; approximately 81.4% |
| Operating income (loss) | $256,398 | $(383,685) |
| Net income (loss) | $(125,057) | $(682,353) |
| Net loss per share, basic and diluted | $(0.01) | $(0.04) |
| Operating cash flow | $316,168 | $(806,064) |
Revenue increased 101%, primarily from a $4.688 million increase in Mobile Deposit license sales. Gross margin improved as higher-margin mobile products made up a larger share of revenue. Operating expenses rose substantially: selling and marketing to $2.411 million, research and development to $2.996 million, and general and administrative to $3.431 million. Research and development expense increased 50%; management expected it to increase again in FY2012. Interest and other expense included convertible-debt accretion and expense recognized when the debt converted.
Liquidity, debt, and financing
- At September 30, 2011, cash and cash equivalents were $5.656 million and investments were $10.605 million, for approximately $16.261 million combined, versus $1.305 million in cash and no investments at FY2010 year-end.
- Working capital was $17.344 million, versus $1.420 million a year earlier. The company reported total liabilities of $1.796 million and stockholders’ equity of $18.055 million.
- Operating cash flow was positive but modest relative to the net loss; the increase in accounts receivable used approximately $1.750 million of cash. Investing activities used $10.819 million, mainly for investment purchases; financing activities provided $14.854 million.
- The May 2011 private placement raised $15.0 million gross and approximately $13.845 million net. The company also sold shares in October 2010. Convertible debentures were converted into 1,418,573 common shares in December 2010; no convertible debt remained at year-end.
- A secured revolving credit facility allowed borrowing up to $400,000 through January 2013; nothing was outstanding at year-end. Management said available resources and expected operating cash flow should cover working-capital needs and capital expenditures for at least 12 months.
Outlook, commentary, and risks
- No quantified revenue or earnings guidance is provided. Management’s stated priorities included continued product development and expansion into insurance and other mobile-imaging applications.
- Implementation cycles can take at least three to six months and may delay revenue. License revenue depends on partner and customer implementation, purchases, and renewals; sales timing can be uneven, including late in quarters.
- Revenue remains concentrated in the company’s core imaging technology and Mobile Deposit. A channel partner represented 22% of FY2011 revenue, and a direct customer represented 11%. Management said partner timing drove concentration and did not indicate reliance on a single partner.
- Key risks include market acceptance of newer products, stronger or better-resourced competitors, pricing and margin pressure, product defects, intellectual-property challenges, customer or channel concentration, economic weakness, and volatile operating results. The company had a history of losses and an accumulated deficit of approximately $15.619 million.
- The board periodically considered strategic alternatives, including financing, alliances, acquisitions, or a possible sale; the filing reported no commitment to a specific transaction. The company also filed a proposed $100 million universal shelf registration statement, not yet effective at the filing date.
- No material adverse legal proceedings were identified. Management concluded disclosure controls and internal control over financial reporting were effective as of September 30, 2011; the independent auditor did not audit internal control effectiveness.
Important facts for investors to verify
- Whether signed Mobile Deposit deployments convert into launches, sustained usage, and recurring license revenue; only 35 of 161 signed deployments were live at year-end.
- Revenue-recognition timing, license renewals, and channel-partner concentration, including the reported 22% contribution from one partner.
- Cash generation excluding financing proceeds, receivable collections, and the company’s ability to reach sustained profitability as operating expenses and R&D rise.
- Potential dilution from equity financing, outstanding options and awards, and the proposed shelf registration; shares outstanding were 24.144 million at September 30 and 24.530 million at November 30, 2011.
- The company’s ability to compete, protect its patents and technology, and execute expansion beyond Mobile Deposit.