Mitek Systems, Inc. — Fiscal 2018 First-Quarter 10-Q
Reporting period: Three months ended December 31, 2017, compared with the three months ended December 31, 2016. Mitek develops mobile deposit and digital identity verification software and services. It acquired ICAR Vision Systems in October 2017, expanding identity-verification and desktop-capture capabilities.
Financial performance
| Metric | Q1 FY2018 | Q1 FY2017 |
|---|---|---|
| Revenue | $12.1 million | $9.3 million |
| Gross profit and margin | $10.5 million; 86.7% | $8.4 million; 90.4% |
| Operating loss | $2.3 million | $0.7 million |
| Net loss / diluted loss per share | $5.7 million / $0.17 | $0.6 million / $0.02 |
| Operating cash flow | $2.6 million provided | $1.2 million used |
- Software and hardware revenue rose 20% to $7.2 million; SaaS, maintenance, and consulting revenue rose 50% to $4.9 million. Management attributed growth to mobile-deposit sales, ICAR products, Mobile Verify SaaS, and related maintenance.
- Operating expenses increased to $14.4 million from $9.9 million. Higher costs included selling and marketing, R&D, general and administrative, and acquisition-related expenses. Gross margin declined as cost of revenue grew faster than sales, including higher Mobile Verify transaction royalties and ICAR costs.
- The $3.6 million income-tax provision included a $4.4 million expense related to the Tax Cuts and Jobs Act, partly offset by a tax benefit associated with the pretax loss. The reported effective tax rate was approximately 170%.
Liquidity, balance sheet, and cash flow
- At December 31, cash and cash equivalents were $6.3 million, and investments were $39.5 million, for combined cash and investments of $45.8 million. Working capital was $35.2 million, down from $41.3 million at September 30, 2017.
- Total assets were $88.9 million and total liabilities were $16.5 million. The balance sheet reports no debt; the filing does not provide a separate debt metric. Management said cash and expected operating cash generation should meet working-capital needs for the next 12 months.
- Operating cash flow was $2.6 million, versus cash use of $1.2 million a year earlier. It included significant noncash adjustments, notably $4.4 million of deferred taxes and $1.9 million of stock-based compensation. Investing activities used $8.6 million, including $3.0 million net cash for ICAR and net investment purchases; financing activities provided $0.1 million.
Material changes, outlook, and risks
- ICAR consideration included $3.0 million cash, net of cash acquired, and 584,291 shares valued at $5.6 million; further milestone payments may bring aggregate consideration to approximately $13.9 million. The acquisition added $6.9 million of goodwill and $6.4 million of identifiable intangible assets. Purchase-price allocations remained preliminary.
- ICAR met the specified calendar fourth-quarter 2017 revenue target, triggering an additional $0.3 million of acquisition-related expense. The acquisition-related contingent-consideration liability was $3.1 million at quarter-end.
- No specific revenue or earnings guidance was provided. Management cited mobile banking adoption and identity-verification opportunities as growth drivers, while noting competition, demand and pricing pressure, technology obsolescence, and concentration in mobile-related products as risks.
- One customer represented 21% of quarterly revenue. International sales were 29% of revenue. Management reported no material change to previously disclosed risk factors. The RMII patent cases were dismissed with prejudice; Mitek’s motion for attorneys’ fees and expenses remained pending.
- The company reported effective disclosure controls. Its assessment did not include ICAR’s internal controls, which were still being integrated. The filing also identifies foreign-currency exposure and potential volatility in quarterly taxes.
Investor verification points
- Separate underlying operating performance from the one-time tax-reform charge and other acquisition-related costs; confirm the $4.4 million tax-reform expense and $3.6 million total tax provision.
- Track whether SaaS and identity-verification growth continues and whether gross margins recover as transaction and acquired-product costs develop.
- Review ICAR’s contribution, final purchase-price allocation, and achievement of remaining revenue and net-income milestones tied to contingent payments.
- Monitor customer and product concentration, cash and investment balances, and the conversion of reported operating cash flow into sustainable cash generation.