Mitek Systems, Inc. — Q1 Fiscal 2015 Form 10-Q
Reporting period: Three months ended December 31, 2014; comparisons are with the three months ended December 31, 2013 unless noted. Mitek develops and sells mobile imaging software, including remote check deposit and mobile account-opening solutions.
Financial results and liquidity
| Metric | Q1 FY2015 | Q1 FY2014 | Change |
|---|---|---|---|
| Revenue | $5.39 million | $4.46 million | Up 21% |
| Gross profit / margin | $4.89 million / 90.8% | $3.89 million / 87.2% | Margin up 3.6 percentage points |
| Operating income (loss) | $133,874 | $(1.48) million | Turned profitable |
| Net income (loss) | $146,180 | $(1.47) million | Turned profitable |
| Basic and diluted EPS | $0.00 | $(0.05) | 2015 amount rounded to cents |
| Cash from operations | $921,966 | $(1.54) million | Improved |
Software revenue rose 18% to $3.75 million; maintenance and professional services revenue rose 27% to $1.64 million. Cost of revenue was $497,401, or 9% of revenue, compared with $570,697, or 13%. Selling and marketing fell 22% to $1.44 million and research and development fell 24% to $1.16 million; general and administrative expense increased 8% to $2.16 million. Management attributed lower selling and R&D costs mainly to lower personnel-related costs.
At December 31, 2014, cash and cash equivalents were $12.78 million and available-for-sale investments were $14.16 million, for total cash and investments of $26.94 million. Working capital was $24.53 million; current assets were $31.01 million and current liabilities $6.48 million. Total assets were $32.25 million and total liabilities $7.34 million. The filing reports no conventional borrowings; it records capital-lease obligations but does not clearly state their ending balance in the supplied text.
Operating cash flow benefited from a $950,712 increase in deferred revenue and included a $572,520 increase in accounts receivable. Investing activities provided $4.09 million, principally reflecting investment sales and maturities exceeding purchases. Management said cash on hand and expected operating cash generation should cover working-capital needs for the next 12 months.
Business developments and material comparisons
- Mitek reported 3,304 financial institutions with agreements to deploy Mobile Deposit; 2,744 had launched it. These included all of the top ten and nearly all of the top 50 U.S. retail banks, as ranked by SNL Financial for Q3 2014.
- Management attributed software-license growth primarily to Mobile Deposit and Mobile Photo Account Opening sales and the timing of license renewals. It said maintenance growth reflected additional software-license arrangements that typically include maintenance contracts.
- Revenue concentration eased: two customers represented 29% and 10% of quarterly revenue, versus 33% and 21% in the prior-year quarter. International sales were approximately 2% of revenue, versus 8%.
- Cash and investments increased by $836,596 from September 30, 2014. All investments were classified as current at quarter-end, versus $2.07 million classified as long-term at September 30.
Outlook, risks, contingencies, and other items
- No specific revenue or earnings guidance was provided. Management cited continued growth in mobile banking and mobile imaging as opportunities, while saying sustained growth depends on developing technology for these markets.
- Risks discussed include competition, reliance on mobile imaging technology, customer and channel-partner license timing, and implementation cycles that often take three to six months or longer. License renewals and purchases can make quarterly revenue fluctuate.
- RMII lawsuits allege infringement of four patents by certain mobile imaging products and name Mitek and banking customers. Trial was scheduled for April 3, 2017; motions remained pending. Mitek said it considered the claims without merit and did not expect a material adverse effect. It accepted defense and indemnity demands from three bank defendants.
- The company maintained a 100% valuation allowance against deferred tax assets, citing uncertainty about future realization and its history of operating losses. The quarter included $814,060 of stock-based compensation expense.
- Management reported effective disclosure controls as of December 31, 2014 and no material change in internal control over financial reporting. The filing reported no material changes to the risk factors disclosed in the prior Form 10-K.
Key facts investors should verify
- Whether revenue growth and the return to operating profitability continue beyond a quarter affected by license-renewal timing and lower personnel costs.
- Customer concentration, renewal patterns, deferred-revenue conversion, and the pace at which signed Mobile Deposit institutions complete implementation.
- The outcome and potential financial exposure of the RMII patent litigation, including the implications of indemnity obligations to bank customers.
- Cash generation relative to stock-based compensation, working-capital movements, and the company’s ability to sustain growth investment.
- Future realization of deferred tax assets and any resulting change to the full valuation allowance.