Mitek Q4

Just to review Mitek, which was a Saul stock at one time:

Mitek (NASDAQ: MITK) is a global leader in mobile capture and identity verification software solutions built on the latest advancements in AI and machine learning. Mitek’s identity verification solutions allow an enterprise to verify a user’s identity during a digital transaction. This enables financial institutions, payments companies and other businesses operating in highly regulated markets to mitigate financial risk and meet regulatory requirements while increasing revenue from digital channels. Mitek also reduces the friction in the users’ experience with advanced data prefill and automation of the onboarding processes. Mitek’s innovative solutions are embedded into the apps of more than 5,800 organizations and used by more than 80 million consumers. For more information,
Following the acquisition, Mitek will offer extensive identity document coverage in North America, Europe, and Latin America. ICAR will increase Mitek’s digital identity verification capabilities with several new factors of authentication. The acquisition also further enhances Mitek’s desktop capture capabilities, which will enable customer on-boarding and authentication using computers in addition to mobile devices.

Last month they acquired ICAR. ICAR’s computer vision experts are tightly aligned with the Computer Vision Center of the Universitat Autónoma de Barcelona and dedicated to ongoing research and development. The merging of these experts with the Mitek Labs’ machine learning and computer vision scientists will create one of the most powerful research and development teams in the digital identity verification industry. This added geography of Spain and Latin America as well as the technology. Mitek’s strength was mobile verification, application and check deposit.

The problem with Mitek has been that sales and marketing, R&D, and G&A expense increases have kept pace or exceeded revenue growth. Revenue growth in 2017 was 31% and eps +19%, but they do have profits and a p/e of 27. Not a screaming 1yrPEG but not bad.

They would seem to be in the right arena, particularly with online verification of identity and more secure than compromised social security numbers and personal info questions. Gross margins are 96% on software and 81% on SAAS and services. But, as % of total revenue, sales is 32%, R&D is 23% and G&A is 25%. I don’t mind the R&D so much, but it would be nice to see the sales come down with increasing total revenue.

I have a median sized position but half of that is a trading block that is underwater at the moment. This is small cap–maybe not by definition but at $285 million it is too small for Saul. He makes too big of waves in this wading pool. For reference, the ICAR purchase was $15 million.

We will see how the market likes the 2017 results in 4 or 5 hours