Mitek Systems, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended September 30, 2020. The filing also reports unaudited fiscal fourth-quarter results. Mitek develops mobile image-capture, mobile deposit, and digital identity-verification software for financial institutions, fintechs, and other businesses; it reported serving more than 7,500 financial institutions and related customers.
Financial performance
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $101.3 million | $84.6 million |
| Operating income (loss) | $8.9 million | $(4.6) million |
| Net income (loss) | $7.8 million | $(0.7) million |
| Diluted earnings (loss) per share | $0.18 | $(0.02) |
| Cash from operating activities | $24.1 million | $14.3 million |
| Cash and cash equivalents | $20.0 million | $16.7 million |
| Working capital | $59.8 million | $34.1 million |
- Revenue grew 20%. Software and hardware revenue rose 16% to $54.2 million; services and other revenue rose 25% to $47.2 million. Mobile Verify transactional SaaS growth and increased Mobile Deposit and CheckReader sales were key drivers.
- Gross margin was approximately 87%, up from approximately 85% in FY2019, as cost of revenue grew more slowly than sales. Operating margin was approximately 8.8%, compared with negative 5.4%; net margin was approximately 7.7%.
- Fiscal Q4 revenue was $30.6 million, operating income $6.1 million, and net income $5.0 million, compared with $25.0 million, $4.5 million, and $3.3 million, respectively, in Q4 FY2019.
- Operating cash flow increased to $24.1 million. Investing activities used $24.7 million, largely reflecting $23.9 million of net investment purchases; financing activities provided $3.4 million.
- Cash and investments totaled approximately $62.0 million at year-end, including $42.0 million of available-for-sale investments. Other borrowings were $0.7 million; the $10 million revolving facility was not renewed after its September 2020 maturity and had no balance outstanding at year-end.
- Deposits products generated 67% of revenue and identity verification 33%. International sales were 24% of revenue, down from 31% in FY2019. One customer accounted for $15.8 million, or 16%, of FY2020 revenue.
Changes, outlook, and risks
- Return to profitability followed a FY2019 operating loss and net loss. Revenue growth and improved expense ratios contributed; however, general and administrative expense included higher intellectual-property litigation costs. FY2020 included $3.2 million of legal fees related to third-party claims involving customers.
- Management expects research and development expense to increase in FY2021 as product-development efforts continue. The filing gives no quantified FY2021 revenue or earnings guidance.
- The A2iA restructuring was completed in FY2020; the company reversed $0.1 million of previously accrued costs. Management cautions that integration benefits and anticipated savings from acquisitions and restructuring may not be achieved.
- COVID-19 had not caused significant adverse effects on results, financial condition, or cash flows as of September 30, 2020, according to the filing. Remote work and limits on travel and events continued, and the company said the pandemic’s future effect remained uncertain.
- Material risks include intense competition, lengthy sales and implementation cycles, reliance on a limited set of technologies, customer and channel-partner purchasing timing, and possible continued decline in check usage. Cybersecurity, privacy, foreign-currency, international regulatory, and talent risks are also disclosed.
- USAA litigation against Wells Fargo resulted in jury awards of $200 million and $102 million against Wells Fargo; Mitek was not a defendant in those cases. Mitek’s declaratory-judgment action and related patent proceedings remained unresolved, and NCR made an indemnification demand concerning a separate USAA action against PNC. Mitek said it did not believe it was obligated to indemnify in these matters; exposure and outcomes remain uncertain.
- Other disclosed proceedings include a €0.8 million claim against ICAR, for which Mitek says it is entitled to indemnification under the acquisition agreement, and Mitek’s litigation with UrbanFT over unpaid amounts and patent assertions. No final outcomes were reported.
- The company reported effective disclosure controls and internal control over financial reporting. Its auditor gave an unqualified opinion on the financial statements; the auditor was not engaged to opine on internal-control effectiveness.
Key investor verification points
- Assess whether FY2020 growth—especially SaaS and services growth—can continue and how revenue timing and customer concentration may affect future quarters.
- Track the resolution, legal costs, and any potential indemnification obligations from USAA-related, NPE, UrbanFT, and ICAR matters.
- Reconcile cash generation with investment purchases, working-capital movements, and the $62.0 million cash-and-investments balance; confirm liquidity remains adequate after the revolving facility expired.
- Monitor R&D spending, acquisition integration, and whether restructuring delivers the expected operating benefits.
- Evaluate the effects of COVID-19, competition, changing check usage, and evolving data-transfer and privacy rules on demand and margins.