Mitek Systems, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended September 30, 2023. Filed March 19, 2024. Mitek develops mobile image-capture, check-deposit, and digital identity-verification software for financial institutions, fintechs, and marketplaces; it reported serving more than 7,900 organizations. The company reports one operating segment.
Financial performance
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Revenue | $172.6 million | $144.8 million | +19% |
| Operating income | $15.6 million | $12.2 million | +28% |
| Operating margin | 9.0% | 8.4% | +0.6 percentage points |
| Net income | $8.0 million | $3.7 million | +117% |
| Diluted EPS | $0.17 | $0.08 | +$0.09 |
| Cash from operations | $31.6 million | $21.1 million | +$10.5 million |
Revenue comprised $88.4 million of software and hardware (+21%) and $84.2 million of services and other (+17%). Deposits revenue was $104.1 million; identity-verification revenue was $68.4 million. Approximate gross margin, calculated from reported revenue and cost of revenue, was 86.7%, versus 86.2% in FY2022.
FY2023 results included a sharp sequential slowdown: Q4 revenue was $37.7 million, operating loss $3.3 million, and net loss $1.4 million (diluted loss per share $0.03). This followed positive operating and net income in each of the first two quarters.
Liquidity, cash flow, and debt
- At September 30, 2023, cash and cash equivalents were $58.9 million and investments were $76.0 million; working capital was $138.5 million, compared with $89.4 million a year earlier.
- Operating cash flow was $31.6 million; investing activities used $6.8 million and financing activities provided $1.7 million. Management said cash and expected operating cash flows should cover working-capital needs for at least 12 months from filing.
- Convertible notes due 2026 had $155.3 million principal outstanding and a $135.5 million balance-sheet carrying amount. They bear 0.75% stated interest, mature February 1, 2026, and generated $9.1 million of reported interest expense in FY2023, including $7.5 million of noncash discount and issuance-cost amortization.
- After year-end, Mitek entered into a secured revolving credit facility of up to $35 million, with an additional $15 million available at the bank’s discretion. The filing does not report a draw at inception.
Material changes and notable items
- Revenue growth was driven in part by a large multiyear Mobile Deposit contract: license revenue for the full contract term was recognized in Q1. Management also cited SaaS growth, including HooYu-related revenue, and growth in Mobile Deposit and IDLive products.
- General and administrative expense rose 63% to $43.3 million, principally from higher professional, audit and accounting, IT, and legal costs. Amortization and acquisition-related costs increased to $19.0 million; restructuring costs were $2.1 million.
- Other income was $3.8 million versus a $0.4 million expense in FY2022, reflecting higher interest income, a favorable Instacart litigation outcome, and realized investment gains.
- The 2023 Form 10-K revised FY2022 financial statements for errors management assessed as immaterial to the previously issued statements. Adjustments included correcting revenue recognition on multiyear licenses, accounts-receivable/deferred-revenue netting, and acquisition-related deferred taxes. Separately, FY2023 revenue, net income, non-GAAP net income, and operating cash flow were adjusted upward by $0.7 million, $0.2 million, $0.6 million, and $0.2 million, respectively, versus the December 2023 earnings release.
- One customer generated $27.7 million, or 16% of FY2023 revenue, versus 17% in FY2022.
Outlook, risks, and contingencies
- The filing provides no numeric FY2024 revenue or earnings guidance. Management cited expected liquidity sufficiency for at least 12 months, while noting possible need for additional capital to support longer-term growth.
- Material weaknesses in financial-reporting controls persisted at September 30, 2023. Management concluded disclosure controls and internal control over financial reporting were ineffective; the auditor issued an adverse opinion on internal control. Weaknesses covered revenue recognition, close and reconciliation processes, business-combination and tax accounting, risk assessment, IT controls, and control evidence. Remediation was ongoing.
- Late SEC filings also affected Nasdaq compliance and note covenants. The company disclosed a Nasdaq delisting determination and a pending hearing as of the filing, and was again out of compliance with certain note covenants after failing to timely file its December 2023 Form 10-Q. The notes had previously accrued additional special interest during an earlier reporting delinquency. Delisting could trigger a debt default and accelerated repayment.
- Patent disputes involving USAA and Mitek’s banking customers have generated indemnification demands. Mitek says it does not believe it is obligated to indemnify the customers; its own non-infringement appeal remained pending. Truist’s USAA litigation was settled and dismissed in October 2023. A separate BIPA class action was dismissed without prejudice in September 2023.
- Other key risks include dependence on a few technology categories, possible decline in check usage, competition and pricing pressure, long and variable sales cycles, cybersecurity and biometric-data privacy regulation, acquisition integration, foreign exchange exposure, and potential customer or channel-partner concentration.
Important facts for investors to verify
- Track quarterly revenue and profitability after the Q4 FY2023 operating and net losses, including the repeatability of the large multiyear license contribution and growth in recurring SaaS revenue.
- Confirm remediation of the material weaknesses, timely filing of subsequent reports, and any auditor or management updates on financial controls.
- Check the outcome of Nasdaq listing proceedings and the status of compliance with the 2026 notes’ covenants and any related special interest or default provisions.
- Review terms, utilization, and collateral requirements of the new secured revolving facility, alongside cash, investments, and the 2026 note repayment or refinancing plan.
- Monitor exposure to customer indemnification claims and the remaining USAA-related proceedings, as well as the collectability of the $2.3 million UrbanFT judgment.
- Review revenue-recognition judgments for multiyear licenses and contract assets: contract assets rose to $23.9 million, while deferred revenue declined to $18.3 million.