Mitek Systems, Inc. — Form 10-Q Summary
Reporting period: Fiscal first quarter ended December 31, 2016. Unless otherwise noted, financial amounts below are in millions of dollars. The statements are unaudited.
Business context and key financial metrics
Mitek develops mobile image-capture and identity-verification software for enterprise customers, including banks and other regulated businesses. Its products include Mobile Deposit, Mobile Verify and Mobile Fill. More than 5,500 financial institutions had signed agreements to deploy Mobile Deposit; the company said all of the top 10 and nearly all of the top 50 U.S. retail banks use its technology.
| Metric | Quarter ended Dec. 31, 2016 | Prior-year quarter |
|---|---|---|
| Software revenue | $5.983 | $4.730 |
| SaaS, maintenance and consulting revenue | $3.286 | $2.674 |
| Total revenue | $9.269 | $7.404 |
| Gross profit and gross margin | $8.378; 90.4% | $6.462; 87.3% |
| Operating loss | $(0.672) | $(0.342) |
| Net loss | $(0.607) | $(0.322) |
| Basic and diluted loss per share | $(0.02) | $(0.01) |
| Operating cash flow | $(1.229) | $1.018 |
Revenue increased 25% year over year: software license revenue rose 26% and SaaS, maintenance and consulting revenue rose 23%. Gross margin improved as cost of revenue declined to $0.891 million from $0.942 million. Operating expenses increased to $9.941 million from $7.746 million, led by selling and marketing (up 56%) and research and development (up 44%). Operating and net losses therefore widened despite revenue growth. The company reported no income tax provision this quarter.
At December 31, 2016, cash and cash equivalents were $6.215 million and investments were $28.314 million, for combined cash and investments of approximately $34.5 million. Total assets were $46.686 million, total liabilities $6.750 million, and stockholders’ equity $39.936 million. Working capital was $35.1 million. The filing reports no debt balance; interest paid was zero. Operating cash use reflected the net loss and working-capital movements, including reductions in accrued payroll and deferred revenue. Investing cash use was $1.575 million, mainly net purchases of investments; financing provided $0.019 million from option exercises.
Material changes and notable items
- Cash and cash equivalents fell $2.795 million from September 30, while total cash and investments declined approximately $1.3 million. All $28.3 million of investments were classified as current at quarter-end.
- Deferred revenue, current and non-current combined, declined to $2.873 million from $3.650 million at September 30.
- Two customers accounted for 31% and 11% of quarterly revenue, respectively. International sales represented approximately 25% of revenue, compared with 10% in the prior-year quarter.
- Stock-based compensation expense was $1.085 million. The company had $12.6 million of unrecognized compensation expense related to outstanding options and restricted stock units, expected to be recognized over a weighted-average 2.6 years.
- Foreign currency translation reduced other comprehensive income by $0.370 million; accumulated other comprehensive loss was $0.433 million at quarter-end.
Outlook, risks and contingencies
Management stated that cash and expected operating cash generation should be adequate for working-capital needs over the next 12 months. The filing provides no quantified revenue or earnings guidance. Management cited mobile-banking adoption as supporting growth and plans to extend identity-verification products into additional markets. It also cautioned that competition, reduced demand for mobile applications, adverse publicity, or changes in software environments could pressure revenue and margins; reliance on a concentrated technology offering adds exposure.
The company maintained a full valuation allowance against deferred tax assets because of its sustained operating losses. A patent dispute brought by Rothschild Mobile Imaging Innovations remained a contingency: the Patent Trial and Appeal Board had ruled the asserted claims in four patents unpatentable, and Mitek sought judgment of non-infringement or dismissal with prejudice; RMII sought dismissal without prejudice. Mitek stated it did not expect the matter to materially affect its financial condition or results. The company reported no material changes to its previously disclosed risk factors, no off-balance-sheet arrangements, and effective disclosure controls.
Important facts for investors to verify
- Whether revenue growth—particularly software-license growth—continues, given channel-partner renewal timing and customer concentration.
- Whether increased sales and R&D spending can translate into improved operating leverage and profitability.
- Cash generation and working-capital trends, including deferred revenue and accrued payroll movements.
- Customer concentration, international revenue exposure, and competitive or technology risks affecting mobile products.
- Developments in the RMII litigation and the realization of tax-loss carryforwards, for which a full valuation allowance was recorded.
- Potential future dilution and compensation expense associated with outstanding equity awards and acquisition-related shares.