Mitek Systems, Inc. — Form 10-Q Summary
Reporting period: Fiscal first quarter ended December 31, 2012; comparisons are with the three months ended December 31, 2011 unless noted. Mitek develops and sells mobile imaging and intelligent character recognition software, including Mobile Deposit. At quarter-end, 708 financial institutions had signed Mobile Deposit agreements and 318 had launched the product.
Financial performance
| Metric | Q1 FY2013 | Q1 FY2012 |
|---|---|---|
| Revenue | $3.310 million | $3.519 million |
| Gross profit / margin | $2.970 million / 89.4% | $3.217 million / 91.4% |
| Operating income (loss) / margin | ($1.366 million) / (41.3%) | $24,000 / 0.7% |
| Net income (loss) | ($1.360 million) | $26,000 |
| Operating cash flow | $796,000 | $1.161 million |
- Software revenue declined 11% to $2.571 million; maintenance and professional services revenue rose 18% to $739,000. Total revenue declined 6%.
- Operating expenses increased to $4.676 million from $3.496 million. Selling and marketing rose 49% to $1.264 million, R&D rose 19% to $1.403 million, and G&A rose 43% to $1.669 million. Management attributed increases mainly to staffing and related compensation; G&A also reflected higher legal costs.
- Cash and cash equivalents were $9.593 million; short- and long-term investments totaled $5.491 million. Combined cash and investments were $15.084 million at December 31, up from $14.607 million at September 30. Working capital was $11.789 million.
- No borrowings were outstanding under the $400,000 bank credit facility at December 31. The agreement was scheduled to expire January 31, 2013. The filing reports compliance with its financial covenants.
- Stock-based compensation was $657,000, up from $502,000. Potentially dilutive options, warrants, and restricted stock units totaling 4.506 million shares were excluded from diluted loss per share as antidilutive.
Changes, outlook, and risks
- The revenue decline reflected lower software license sales, timing of mobile product sales, and deferral of certain current-period license revenue expected to be recognized later. License timing and renewals can cause quarterly revenue fluctuations.
- Management said cash, investments, and expected operating cash generation should fund working capital needs for the next 12 months. No specific revenue or earnings guidance was provided.
- Three customers accounted for approximately 60% of revenue, as reported by the company. Mitek noted that license purchases by channel partners may vary with renewal timing and that implementation cycles can take three to six months or longer.
- Mitek is defending against USAA claims involving patents, confidential information, false advertising, and the parties’ license agreement, while pursuing its own claims. It also sued Top Image Systems and TIS America for alleged patent infringement; the defendants denied the allegations. Management did not expect the USAA claims to materially affect financial condition or results.
- The San Diego lease was extended through June 30, 2019, with annual base rent of approximately $471,000, subject to annual increases; a standby letter of credit permits landlord draws up to $210,000.
- Management identified competition, market demand, product concentration, implementation delays, and timely product development as business risks. It reported no material change in risk factors from the prior annual report and concluded disclosure controls were effective.
Key facts for investors to verify
- Whether deferred license revenue and channel-partner renewal timing support a recovery in software revenue, given the quarter’s decline and customer concentration.
- The status and potential financial or operating impact of the USAA and Top Image Systems litigation.
- Whether the credit facility was renewed or replaced after its January 31, 2013 expiration date.
- The note reports approximately $2.347 million of receivables associated with customers exceeding 10% of revenue, which appears greater than the balance-sheet net accounts receivable of $1.624 million; verify this apparent inconsistency.
- The extent to which higher operating costs, stock-based compensation, and outstanding equity awards may affect profitability and shareholder dilution.