Mitek Systems, Inc. — Q1 FY2019 Form 10-Q
Reporting period: Three months ended December 31, 2018; unaudited. Mitek develops mobile capture and digital identity verification software and serves more than 6,100 financial-services organizations and other brands.
Financial performance and liquidity
| Metric | Q1 FY2019 | Q1 FY2018 |
|---|---|---|
| Revenue | $17.7 million | $12.1 million |
| Gross profit / margin | $14.8 million / 83.7% | $10.5 million / 86.7% |
| Operating loss | $4.6 million | $2.3 million |
| Net loss | $3.2 million; $0.08 per share | $5.7 million; $0.17 per share |
| Operating cash flow | $2.3 million | $2.6 million |
Revenue increased 46% year over year. Software and hardware revenue rose 39% to $10.0 million; service and other revenue rose 56% to $7.7 million. Deposits revenue was $11.9 million versus $7.1 million, while identity-verification revenue was $5.8 million versus $5.0 million.
Gross margin declined as cost of revenue grew faster than sales, partly reflecting higher Mobile Verify transaction and hosting costs and A2iA service-delivery costs. Operating expenses increased to $22.2 million from $14.4 million, leaving operating loss wider despite higher sales. Net loss narrowed mainly alongside a $1.4 million tax benefit in the current quarter; the prior-year period included a $4.4 million tax charge related to U.S. tax reform.
Cash and cash equivalents were $10.4 million and short-term investments $9.2 million at quarter-end, totaling $19.7 million. Working capital was $17.9 million. The company reported $0.6 million of interest-free Spanish government borrowings; no borrowings were outstanding under its $10 million revolving credit facility. The facility matures May 3, 2019. Management said cash and expected operating cash generation should cover working-capital needs for the next 12 months.
Changes, outlook, and notable matters
- Revenue growth reflected the A2iA acquisition, completed in May 2018, as well as higher Mobile Deposit sales and Mobile Verify SaaS growth. A2iA contributed to higher operating costs, including amortization of acquired intangibles.
- Reported Q1 revenue includes a $0.69 million increase from adopting ASC 606 compared with the amount that would have been reported under the prior accounting method. Prior-year figures were not restated, limiting direct comparability.
- General and administrative expense included $0.9 million of costs related to unsolicited ASG proposal activity. Selling and marketing included $0.2 million of executive-transition costs. Stock-based compensation was $2.7 million, up from $1.9 million.
- No quantitative revenue or earnings guidance was provided. Management described continued investment in identity-verification innovation and broader adoption of those solutions through its mobile-deposit customer base.
- Two customers generated $5.5 million of revenue, or 20% and 11% of total revenue, respectively. International sales were approximately 35% of revenue. Management noted that channel-partner license timing can make revenue fluctuate.
- A claim against ICAR seeks €0.8 million (about $0.9 million), plus interest; proceedings were ongoing. Mitek stated it is entitled to indemnification under the ICAR purchase agreement. The company also cited exposure to foreign-currency movements and competition or reduced demand for its concentrated product technologies.
- The company adopted a Section 382 rights agreement in October 2018, with rights generally expiring by October 22, 2021, subject to earlier termination events. Management reported effective disclosure controls; an ERP implementation is underway, and A2iA was excluded from management’s internal-control assessment while integration proceeds.
Investor verification checklist
- Assess how much reported growth came from acquired businesses, organic demand, and the ASC 606 adoption adjustment.
- Track gross-margin recovery and the costs of Mobile Verify transaction growth, acquisition integration, amortization, and stock compensation.
- Review cash conversion, working-capital needs, the May 2019 revolver maturity, and repayment of Spanish government borrowings.
- Monitor customer concentration, channel-renewal timing, international and foreign-exchange exposure, and the ICAR claim and indemnification.
- Review the rights agreement’s shareholder-approval and expiration provisions, and progress integrating A2iA and implementing the ERP system.