Mitek Systems, Inc. — Form 10-Q Summary
Reporting period: Quarter ended June 30, 2013; results are compared with the quarter and nine months ended June 30, 2012. Mitek develops and sells mobile imaging and intelligent character-recognition software, including Mobile Deposit. At quarter-end, 1,059 financial institutions had agreements to deploy Mobile Deposit, and 559 had launched it.
Financial performance
| Metric | Three months ended June 30, 2013 | Three months ended June 30, 2012 | Nine months ended June 30, 2013 | Nine months ended June 30, 2012 |
|---|---|---|---|---|
| Revenue | $3.88 million | $3.16 million | $10.42 million | $7.87 million |
| Gross profit / margin | $3.41 million / 87.9% | $2.80 million / 88.6% | $9.19 million / 88.2% | $6.90 million / 87.7% |
| Operating loss | $2.06 million | $2.02 million | $5.82 million | $4.86 million |
| Net loss | $2.05 million | $2.01 million | $5.80 million | $4.83 million |
| Net loss per share, diluted | $0.08 | $0.08 | $0.22 | $0.19 |
- Quarterly revenue rose 23%; nine-month revenue rose 32%. Software license revenue grew 9% for the quarter and 27% year to date. Maintenance and professional services revenue increased 70% and 48%, respectively.
- Despite higher revenue, the nine-month operating and net losses widened. Sales and marketing costs increased 57% year to date, and general and administrative costs increased 43%, with management citing sales-force expansion, personnel costs, and litigation-related legal fees. Research and development costs were nearly flat year over year for the nine-month period.
- Cash provided by operating activities was $1.62 million for the nine months, versus cash used of $1.03 million in the prior-year period. The filing attributes the improvement partly to higher accounts payable, other liabilities, and deferred revenue, as well as noncash stock compensation.
- Cash and cash equivalents were $22.95 million, and short-term investments were $6.52 million at June 30, 2013. The company reported working capital of $24.20 million and total liabilities of $7.82 million. It had no borrowings when its $400,000 bank facility expired in January 2013.
- Financing cash flow included $13.88 million net proceeds from a June public offering of 2,857,142 shares. The underwriter’s over-allotment closed July 3, adding approximately $2.1 million in net proceeds after quarter-end.
Changes, outlook, and risks
- Management said growth reflected increased mobile banking adoption, license-sale timing, recognition of previously deferred license revenue, more maintenance agreements, and higher billable services. License revenue can fluctuate with channel-partner purchases and renewals; contracts generally do not require minimum purchases.
- Management believed cash, short-term investments, and expected operating cash generation would be sufficient for working capital and capital expenditures for the next 12 months. The filing provides no specific revenue or earnings guidance.
- Revenue concentration remained material: one customer accounted for 25% of nine-month revenue, while two customers represented 44% of quarterly revenue. Management said sales to channel partners can vary with license timing and did not consider itself dependent on any single partner.
- Pending disputes include USAA litigation involving patent, confidential-information, and contract claims, and Mitek’s patent-infringement action against Top Image Systems. Mitek said it did not expect the USAA claims to materially affect its financial condition or results, but litigation costs contributed to higher administrative expense.
- Other disclosed risks include competition and product concentration, lengthy implementation cycles, volatile quarterly results and license timing, potential limits on tax-loss carryforwards after ownership changes, potential dilution from future share sales and equity awards, and security breaches involving customer information. Deferred tax assets had a 100% valuation allowance.
- The company reported effective disclosure controls as of June 30, 2013 and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether revenue growth and Mobile Deposit deployments translate into recurring customer usage, renewals, and sustained license sales.
- How much of operating cash generation depends on the timing of payables, accrued liabilities, and deferred revenue.
- The continuing effects of litigation, including costs, potential outcomes, and any impact on intellectual-property rights or product sales.
- The dilution and use of proceeds from the June offering and July over-allotment, along with future equity issuance under the shelf registration.
- Customer and channel-partner concentration, implementation delays, competitive developments, and potential restrictions on tax attributes.