Mitek Systems, Inc. — FY2015 Form 10-K
Reporting period: Fiscal year ended September 30, 2015. The filing also reports fourth-quarter results. Mitek develops mobile image-capture and identity-verification software, with Mobile Deposit its largest product by revenue. IDchecker was acquired on June 17, 2015; its results are included from that date.
Financial performance
| Metric | FY2015 | FY2014 |
|---|---|---|
| Revenue | $25.37 million | $19.15 million |
| Operating income (loss) | $1.89 million | $(5.41) million |
| Net income (loss) | $2.53 million | $(5.29) million |
| Diluted EPS | $0.08 | $(0.17) |
| Operating cash flow | $6.11 million | $(2.47) million |
| Cash and cash equivalents | $2.75 million | $7.77 million |
| Short-term investments | $23.92 million | $16.27 million |
| Working capital | $24.00 million | $21.48 million |
| Total assets | $38.75 million | $31.10 million |
| Total liabilities | $8.31 million | $7.16 million |
Revenue grew 32%: software revenue rose 34% to $17.87 million, while maintenance and professional-services revenue increased 28% to $7.50 million. Gross margin was approximately 90% (up from 89%); operating margin was approximately 7.5%. Net margin was approximately 10%, including a $543,020 income-tax benefit. The filing reports $26,342 of capital-lease obligations and no material off-balance-sheet arrangements.
FY2015 investing cash use was $11.34 million, including $5.42 million paid for the IDchecker acquisition. Cash and cash equivalents plus short-term investments totaled $26.67 million at year-end. Management said available capital and expected operating cash flow should cover working-capital needs for at least 12 months.
Fourth quarter: Revenue was $7.87 million versus $5.54 million in FY2014 Q4. Operating income was $962,000 versus an operating loss of $65,000; net income was $955,000 versus $2,000.
Material changes versus prior year
- Revenue growth and lower operating expenses moved the company from a $5.29 million net loss to $2.53 million net income.
- Operating expenses fell overall despite $1.37 million of acquisition-related costs. General and administrative expense declined 20%, principally because of lower intellectual-property litigation costs; R&D declined 7%.
- Operating cash flow improved by $8.57 million, from cash use to cash generation.
- The acquisition added cloud-based identity-document verification, international customers and new integration, foreign-currency and compliance exposures. IDchecker contributed $752,027 of FY2015 revenue, approximately 3% of total revenue.
Outlook, risks and unusual items
- Management expected FY2016 R&D expense to increase as product-development efforts continued. No specific revenue or earnings guidance is provided in the filing.
- One customer generated 25% of FY2015 revenue ($6.27 million), compared with 30% in FY2014. Revenue also varies with channel-partner license purchases and renewals, which can make results uneven between periods.
- The company identified dependence on mobile-imaging technology, competition, customer implementation delays, product defects and data-security breaches as risks. It also cited IDchecker integration, international operations, foreign exchange, regulatory compliance and potential limits on tax-loss carryforwards.
- RMII sued over alleged infringement of four mobile-imaging patents. The company said it believed the claims were without merit and did not expect a material adverse effect. Litigation was stayed pending Inter Partes Review proceedings; trial had been scheduled for April 2017.
- The $543,020 tax benefit included a $634,930 discrete benefit related to acquisition accounting. The company maintained a valuation allowance against deferred tax assets and had not completed a study to determine whether ownership changes could limit use of tax attributes.
- Goodwill of $2.87 million from the acquisition was not impaired in the FY2015 annual test. The filing warns that a significant stock-price decline could affect future impairment assessments.
Important facts for investors to verify
- Whether license growth and renewals, particularly for Mobile Deposit, continue to support revenue after FY2015’s 32% increase.
- Whether operating cash generation and profitability persist, excluding acquisition-related and discrete tax effects.
- Whether IDchecker meets earnout targets and integration plans deliver expected commercial benefits; up to $2.0 million in stock earnout consideration was contingent on targets.
- Developments in the RMII patent proceedings and any resulting defense costs, indemnification exposure or customer impact.
- Customer concentration, future tax-attribute limitations, and whether acquired-company controls and systems are fully integrated. Management’s FY2015 control assessment excluded IDchecker; the auditor issued an unqualified opinion on Mitek’s controls as assessed.