Mitek Systems (MITK) - A small cap glance

<a href="Mitek Systems">[](</a> came across my radar a few months ago and I had been meaning to take a deeper dive.  Here's my attempt and I welcome any feedback.  It's my belief that practicing the analysis will enable me to improve the methodology moving forward.  Many thanks in advance for any feedback and discussion that follows.  

 **A Bit About MITK** 
Based in San Diego, CA since 1986 with offices in London and Amsterdam, you've probably used this company's technology without knowing it.  MITK is officially described "is a software company that specializes in digital identity verification and mobile capture built on artificial intelligence algorithms"

- Mobile Check Deposits
- Mobile Document Verification (think using your phone to scan your drivers license)
- Mobile ID verification through facial recognition. 

 **Foundational Market - Mobile Check Deposit**
Dominant in Mobile Deposit Space
- 6,100 customers (including MoneyGram, Synchrony, Amex, etc) 
- 10 out of 10 largest financial institutions in US
- In 100% of UK banks, 90% US Banks, 90% French Banks, 90% Brazilian Banks
- Over 80,000,000 banking customers use the technology
- Processed over $1.5 trillion in deposits
- Expanding service offering to include mobile onboarding (scan your DL and open a bank account) following the May 2018 passage of mobile standards by Congress to do so

 **Growth Market - Mobile Identification** 
- Customers include Experian, MoneyGram, etc
- Verification by scanning and evaluating documents (DL) for identity verification and even in some instances utilizing facial recognition
- Recently purchased leading company 
- TAM forecasts at $10B with a 16% CAGR
- Helps financial institutions meet Know Your Client (KYC) and Anti Money Laundering (AML) regulations
- Offering services as a SaaS reporting 91% YOY growth of $3.3M in Q2 2018
- ID business grew 109% in latest Q2 2018 reports

 **Moats, Tailwinds, Headwinds** 
++ No Competition in Financial Sector for Financial Checking ++
++ Strong Network opportunity to roll out mobile verification tools ++
++ IP - MITK owns 39 patents on technology with 16 pendings

++ Regulatory:  "Know Your Client" and "Anti Money Laundering" regulations are requiring increased identification validation 

- Mobile check deposit competes with mobile payment substitutes with superior TAM

 **MITK - The Business by the Numbers** 
Market Cap: ~330MM
Income: $11MM
Sales: $51MM

P/E Ratio: 31.7
Forward P/E Ratio: 23.1
P/S: 6.5

<b>Fiscal Year Ended            2013       2014       2015       2016       2017    
Revenue Dollars             $14.8M     $19.2M     $25.4M     $34.7M     $45.4M
Revenue Percent                          29%        32%        37%        31%

**Gross Cost of Revenue** 
Cost of Goods Sold          $1.6M      $2.2M      $2.5M      $3.4M       $4.0M
Cost of Goods Percent                    34%        15%        37%        19%

**Gross Margin Profit**
Gross Margin Dollars        $13.2M     $17.0M     $22.9M     $31.3M      $41.4M
Gross Margin Percent                     29%        35%        37%        32%  

**Operating Expenses**
SG&A                         $13.7M     $16.4M     $14.1M     $19.5M      $25.8M
R&D                           $6.8M      $6.0M      $5.6M      $7.8M      $10.4M 
Total Operating Expense      $20.5M     $22.4M     $19.6M     $27.3M      $36.2M

Unusual Expense                                     $1.4M      $2.2M       $2.8M

**Operating Loss after Unusual Expense**
Operating Margin Dollars     -$7.3M     -$5.4M      $1.9M      $1.8M       $2.8M
Operating Margin Percent                  27%        137%       -1%         62% 

**Operating Loss w/o Unusual Expense**
Operating Margin Dollars     -$7.3M     -$5.4M      $3.3M      $4.0M       $5.6M
Operating Margin Percent                  27%        161%       21.1%        35% 

**Net Income including Unusual Expense**
Net Income Dollars           -$7.3M     -$5.3M      $2.5M      $2.0M       $14.0M
Net Income Percent                        27%        147%       -22.4%       620% 

**Just a Fool's Take on MITK**
What I like about this business is the shift from mobile check deposit to using that technology for other services that are emerging, i.e., mobile onboarding (I take a picture of my DL and open my bank account), mobile ID verification for sending money (i.e., money gram, western union), and the fact that they are selling the ID services as a SaaS (I could not find good numbers besides most recent quarter where they provided color at rate of growth).  

The company has been quietly acquiring other mobile image processing companies, along with their IP and banking relationships at a global scale.  In their latest conference call, their CEO stated that they are in the right business at the right time with cell phone cameras become sharper, their ability to process and analyze images for forgery becoming greater, and the social need to move past older data verification methods (SSN, etc) for more security. 

This company trades on very low volumes and strongly suspect its micro cap keeps larger institutions.  It's stock price has quietly gone up in the past few months.

I'll continue to follow, the other company I considered evaluating (which I have a position in) is AAXN, but I thought MITK was less well known and might spurn more focused conversation.  

**Links used to support this analysis**
<ahref = "[](">Latest) Investor Presentation</a>

I was in it for about a year in 2016. Here are all my notes. Unfortunately I don’t remember why I exited because I stupidly forgot to write it down, but I may have just found something I liked better.

Mitek MITK

Dec 2015 - Neil’s analysis
The Business - Mitek is a small tech company that licenses software to banks, etc that allow them to leverage their customers’ mobile device cameras to deposit checks, verify their identity, and automatically pre-fill form data (especially application forms) using a photo of a customer’s driver’s license, passport, or other form of ID. Their intellectual property is protected by 22 patents granted, with another 21 patent applications pending.

Mobile check deposit - If you’ve ever deposited a check using your mobile phone (by snapping a picture of the front and back of the check), you’ve probably used Mitek’s technology: they’re used by half of U.S. banks, including all of the top ten banks. Mobile check deposit has been their primary business, and continues to drive significant growth.

Regardless of what you think about the future of physical checks, only 5% of those checks are deposited using mobile devices today. And 2/3 of all checks are deposited by small businesses, where checks continue to serve an outsized role.

Mobile deposits are a win-win: much more convenient for customers, but also much cheaper for banks to process compared to in-branch and ATM deposits (1/10th the cost in some cases). So banks are enthusiastic about the technology and push customers to use it, which in turn benefits Mitek.

Mitek sees the small-medium business (SMB) space as a huge source of potential growth, and has recently released technology for capturing multiple checks at once to make the process more compelling for these businesses.

Identity Verification But mobile deposit is only one aspect of their business. They also offer technology that can verify that a driver’s license is authentic, and pull the data from it, and can use it to pre-fill forms on a mobile device (like bank or insurance application forms), saving a potential customer from having to type it all in on a tiny keyboard. Banks have seen account enrollment applications in their mobile channel jump from less than 10% of all applications just 24 months ago to 40% of applications today. Abandonment rates can be very high, especially if the potential customer has to go through a manual process to verify their identity. Financial institutions are required by law to Know Your Customer (KYC), so Mitek’s automatic identity verification and authentication technology is important for minimizing the hassles for potential customers. Even better, it will auto-fill many of the application form fields from the data found on the license (the company refers to this as Photo Fill).

To bolster its Identity Verification business, Mitek acquired IDChecker in June, 2015. Based in the Netherlands, IDChecker supports verification and authentication of over 3500 different types of passports, international driver’s license and identity cards from nearly every country in the world.

Identity verification provides a huge avenue of future growth, not only as it can be cross-sold to existing banking customers, but because it’s important to many other industries as well. For example, a top insurance company receives 40,000 applications per day in their mobile channel, and was seeing a huge rate of abandonment despite spending millions of dollars on advertising because it was so inconvenient to type in all of the required information. After adding Mitek’s Photo Fill, allowing applicants to quickly snap a pic of their driver’s license, the insurance company saw a significant uplift in mobile completions that resulted in a substantial addition of new customers and revenue.

IDChecker also had facial recognition technology, and Mitek is now beginning to roll that out for 2-factor authentication: in addition to providing a password during login, users can snap a quick selfie to verify their identity for an added layer of security in case their password was stolen (users tend to use the same password at multiple sites). That can be much more convenient than other forms of 2-factor authentication, such as waiting for an email or text message with one-time codes (or installing a special app that generates them) and then having to type them in to the banking app.


Mitek’s fiscal year ends in September. As of the end of FY 2015, the company had about $26.7M in cash and short-term investments, and no debt. Revenue growth was 32% YoY. The company is profitable on both a GAAP and non-GAAP basis, and has been profitable on a non-GAAP basis for 6 quarters.

Approximately 30% of revenues are recurring, primarily from maintenance and service contracts sold along with licenses.

Price: $4.11 1YPEG: 0.05 Adjusted P/E: 16

Adjusted Earnings - Historical Stats
| Fiscal Q. Adj. EPS TTM EPS YoY TTM Growth |
| Q4 2015 $0.09 $0.26 333.3%
| Q3 2015 $0.07 $0.23
| Q2 2015 $0.05 $0.16
| Q1 2015 $0.05 $0.11
| Q4 2014 $0.06 $0.06
| Q3 2014 $0.00
| Q2 2014 $0.00
| Q1 2014 $0.00

Revenue - Historical Stats
| Fiscal Q. Revenue TTM Revenue YoY TTM Growth
| Q4 2015 $7.90M $25.4M 32.7%
| Q3 2015 $6.44M $23.0M
| Q2 2015 $5.67M $21.3M
| Q1 2015 $5.39M $20.1M
| Q4 2014 $5.54M $19.1M
| Q3 2014 $4.66M
| Q2 2014 $4.48M
| Q1 2014 $4.46M

Insiders own about 11% of the company, and the Chairman owns about 3%.

Primary Risks

There is increasing competition in the space, but that’s offset somewhat by the company’s IP protection and patent portfolio. However, that portfolio has to be defended, which has led to the next risk: litigation.

The company has been embroiled in lawsuits since at least 2012, either defending its IP or defending against claims of infringement, and probably will be for years to come. This is expensive and a distraction. The company recently began excluding litigation costs from its non-GAAP results, but at this point they seem likely to be an ongoing cost of business.

Mitek is expanding its cloud offerings, which should be a long-term benefit to the company, but it brings increased risk of a security breach and the risk of consumers’ confidential financial information being compromised or stolen.

Ongoing integration risk with IDChecker, especially as it’s a foreign company.

Conclusion: Mitek is already the first-mover and top dog in mobile deposits, and yet the entire industry has only captured 5% of physical check deposits, leading to lots of room for growth even if physical checks themselves are in decline.

But I think the big future opportunity is in Identity Verification, both domestically and internationally. The company will be heavily investing in FY 2016 to expand its direct sales force as it looks to cross-sell its Identity Verification services (and fledgling 2-factor Authentication services) and enter new vertical markets. The company estimates its Total Addressable Market to be $3.8 billion, meaning there is tremendous runway for growth and plenty of room for multiple winners to boot. But given the heavy investment next year, it’s possible that investors will need to be patient waiting for future earnings growth. Fortunately, the market seems to be pricing that in, leaving today’s valuation on an adjusted P/E basis at a very reasonable 16.

My real-money portfolio rating: 4 stars out of 5.

My CAPS call: outperforms the market over the next 2-4 years

But then Neil continued:

I highly recommend doing your own due diligence before starting a position. There are a few things worth considering.

First, 2016 will be an investment year for Mitek. To put that in perspective, Adj Net Income was $8.1 million in 2015. For 2016 they expect revenue of about $32 million and “adjusted profit margin for 2016 to be at least 20% for the year” which would put net income around $6.4 million. They do say “at least”, so let’s hope it’ll be higher, but I wouldn’t expect to see earnings growth until 2017.

Second, it’s important to understand how they’re calculating adjusted earnings. If you go through the quarterly press releases and start adding up their adj EPS, you’ll find that it doesn’t tally with the adj EPS they report for the full year in the Q4 release. The reason is because in Q3 they changed how they calculate non-GAAP, and started adding back their litigation expenses (prior to that it was just stock-based compensation). Given that they’ve been embroiled in lawsuits since 2012 and the trial date for a current suit is set for 2017, litigation seems like an ongoing cost of business to me rather than a “one-time” event. So just be aware of that. They’re also now adding back acquisition-related costs for IDChecker.

And finally, the 1YPEG needs to be taken with a huge grain of salt: it’s inflated because they’re coming off such small numbers. In fact, if the company hadn’t decided to back out litigation expenses, the 1YPEG wouldn’t be calculable.

Now having said all of that, I do think the company is interesting for someone who’s willing to be patient and basically accept that the stock could be “dead money” (or worse) for the next year. As I mentioned in my writeup, I think that’s one big reason it’s possible to get it at an adjusted P/E of 16 (and 23% off its highs at the end of November). Investors today clearly need to be buying with a multi-year timeframe.

A few other random notes:

  • The annual report says that 25% of their revenue comes from a “single customer”. But that customer is one of their channel partners that is selling licenses on to end customers, and those end customers can do business with multiple channel partners. So the company doesn’t believe it would be harmed if that channel partner disappeared – its end customers would just buy from a different partner.

  • The business is seasonal, in part because of the bulk purchases by those channel partners. Fiscal Q1 (which just ended Dec 31) is weakest, with subsequent quarters getting stronger and peaking in fiscal Q4. So we’ve just come off the company’s strongest quarter and the next earnings release will be for their weakest quarter.

  • About 30% of their revenues are recurring, coming from maintenance and service contracts. But they’re beginning to offer cloud services as well (acquired with IDChecker) on a subscription model, which could be an opportunity to increase recurring revenues. End-customers will have a choice between on-site or cloud. I generally see this as a positive step, but it does also presents a new set of security challenges and risks for Mitek.

  • Only 5% of revenue is international. Use of physical checks are primarily a North American phenomenon (along with the U.K. apparently). I believe management said that the entire international market is about the same size as the U.S. market, and they’re not focusing on it beyond partnering up in a few places. But I do think there is likely an opportunity for international expansion of their Identity services, and IDChecker might help with that given that it’s based on the Netherlands. But right now the company is obviously focused on building up its domestic Identity Verification sales teams and gaining solid traction, taking advantage of cross-selling opportunities and breaking into new verticals.

  • The CEO, James DeBello, has been in the job since 2003, and has been a director since 1996. He’s 56 years old.

  • They have a small local auditor, Mayer Hoffman McCann P.C. Those guys were also the auditor for the city of Bell, CA, which suffered from rampant financial abuses. (Not good)

  • They have a poison pill that makes a takeover hard unless the board agrees with it, and it also indemnifies board members against just about anything, including criminal behavior if the board member didn’t think it was illegal at the time. So as a shareholder, you’re going to have to accept that you could be taken for a ride with basically no recourse.

Anyway, those are just a few things from my own look at the company. Again, I highly recommend doing your own due diligence and making sure you’re comfortable with everything.

I commented:
Hi Neil, the more I read of your concerns, the more cautious I became. I’m referring to:

  1. Suddenly deciding to add back all their continuing legal expenses to adjusted net, thus portraying adjusted earnings as more than they are.

  2. Lot’s of expenses during the next year, and no growth to negative growth in 2016. Adjusted net in 2015 was 8.1 million. Adjusted net in 2016 predicted to be at least 20% of $32 million (which comes to $6.4 million). If they beat that by a full 25% that’s $8.0 million, which is barely flat with 2015. And that’s beating their estimate by 25%. They may beat even that, and handily, but who knows?

  3. Their reliance on an external auditor who is not only tiny, but was associated with a big scandal.

  4. Checks fading out, that’s still their bread and butter.

  5. Their poison pill.

I am more and more hesitant

Neil responded: I agree, Saul, except on the decline of physical checks: they only have 5% of the market, so plenty of room for growth, and really I think an investment would be about the Identity Verification services. But yes, I’d be cautious.

Ian Richards responded:
Sure, this is not a perfect investment. Window dressing of non-GAAP, insider sales, litigation, an investment year ahead. All these are valid concerns.

But there are some very strong positives.
The millennial generation are mobile-centric. Banks, insurance companies and others are experiencing high rates of abandonment from prospective customers that do not like filling in forms on mobile devices.

Mitek’s ID software provides a solution to a problem that is causing a lot of problems. Better than that, they already have established relationships with their target customers.

And they can build this market without raising development capital, because their mobile deposit product is providing a steady, growing stream of cash flow to finance R&D and development of the market.

The total addressable market is huge compared to their current revenue. They are a business that has proven that they can execute, and they have no debt.

I like risk/reward scenarios where the upside is huge. The downside is mitigated by the mobile deposit business.

Jan 2016 - Brian Bolan bought MITK for Zacks Stocks Under $10
He doesn’t seem to know much about the company though.

Nov 2015 - Sept Quarter and 2015 Fiscal Year Results

Sept Quarter Financial Highlights
• Revenue of $7.9 million, up 42%.
• Adjusted net income of 9 cents, up 50%.
• Op Cash Flow of $1.9 million, up $2.1 million.
• Cash was $26.7 million, up $2.0 million sequentially, but up only $0.6 million from a year ago as money was used for the acquisition.

Fiscal 2015 Full Year Financial Highlights
• Revenue of $25.4 million, up 32%.
• Adjusted Net income of 26 cents, up 333% (from a very low base)
• Op Cash Flow of $6.1 million, up $8.6 million.

Our industry leading mobile check deposit product continued to be the primary driver of revenue growth in fiscal 2015, enabling us to achieve record revenue, net income and EPS.

With our successful acquisition of IDchecker and launch of our Photo Verify product, we intend to further expand into the multi-billion-dollar mobile ID verification market in the coming year. Mitek has become the de facto standard in mobile capture in financial services and we intend to leverage this position by expanding into this new, high growth market.”

Jan 2016 - My Conclusions
Okay for a small position to watch (up to 1%).

Jan 2016 - News Announcement
Harland Clarke and Mitek collaborate to strengthen mobile deposit security.
They announced a new product launch that will improve security of mobile deposits. Checks printed by Harland Clarke now include new Photo Safe Deposit" features recognized only by the advanced computer vision embedded in Miteks Mobile Deposit software. These features increase the integrity and security of checks deposited through the mobile channel.

The added benefits require no additional steps for consumers. Checks are printed and delivered to customers with the Photo Safe Deposit" icon, placed on the front. When this is recognized by a mobile device via Miteks back-end software, the checks are scanned for key features.

Image Match" is the identical magnetic ink character recognition, code lines printed on both sides of the check. This duplicate data assures financial institutions that the checks front and back side images are from the same document, a process that minimizes endorsement forgery while also eliminating depositor errors when photographing multiple checks in a single deposit. Mobile MarkSM is a box for users to checkmark when a deposit is made via smartphone, reducing the risk of inadvertently depositing the same check in the future. When one or both add-ons are recognized, transaction integrity is greatly improved.

Our combined technology does all the work to increase security and mitigate depositor errors without any extra steps required by consumers or banks. Through this collaboration, the highest level of mobile deposit protection is provided.

Jan 2016 - Dec quarter results
Fiscal First Quarter 2016 Highlights
Revenue up 37% to $7.4 million

Mobile Fill ID Capture signed four new Fortune 500 companies across several different verticals

Op Cash Flow $1.0 million

Cash was $27.6 million, up sequentially from $26.7 million.

We are very pleased to report another strong quarter for Mitek, driven by increased revenue contribution from both of our new ID capture and verification product offerings, and continued growth in our industry leading mobile check deposit product.

“We licensed our ID solutions to several new logos including four new Fortune 500 companies across several different verticals. These new customers will be using our Mobile Fill product.

With our two new ID products, Mobile Fill and Mobile Verify, we are focused on further expansion into the multi-billion-dollar mobile ID verification market in the coming year. Mitek has become the de facto standard in mobile capture in the financial services industry and we are well positioned to leverage this leading position by expanding into the new, high growth mobile ID capture and verification market.

Mobile check deposit remains a tremendous growth opportunity as we continue to see increased adoption in both the consumer and commercial markets.

Our recently launched Mobile Multi-Check Capture is aimed squarely at addressing the untapped commercial mobile deposit market, which makes up two-thirds of the checks deposited annually.

Fiscal 2016 First Quarter Results
Total revenue was $7.4 million, up 37% from $5.4 million.

Adj net income for the first quarter of fiscal 2016 was $1.3 million, or 4 cents, compared to $1.5 million, or 5 cents.

Jan 2016 - Conference Call
I’m happy to report our seventh consecutive quarter of non-GAAP profitability.

We’ve also made significant progress in our new ID capture and verification business. Our solution provides a significant value proposition by increasing their new customer conversion rates. As I mentioned earlier, we’ve added several new customers including four new Fortune 500 companies. These included a Top 5 bank for a new account opening, a Top 5 carrier for auto insurance quotation, a Top 5 pharmacy and healthcare company for mobile account opening and a Top 5 private label credit card issuer for a new account opening. We set a goal to sign 10 Fortune 500 companies in fiscal 2016 to use our new ID capture and verification solutions and we’re well on our way to achieving that goal.

Many of the new deals signed were outside of our stronghold financial services. We signed our first online gaming company, our first retailer, our first cryptocurrency company and our first customer on the Forbes Fortune 10 list. All of these new deals were for Mobile Fill highlighting the importance that’s being placed on improving the new customer acquisition experience through the rapidly growing mobile channel.

The opportunity however doesn’t stop there. We believe that many of these new Mobile Fill customers will soon evolve into Mobile Verify customers to allowing us to cross sell. So now let’s talk a little bit about Mobile Verify. The second major pain point that businesses face as they seek to meet growing customer demand in the mobile self-service channel is the inability to accurately verify the identity of mobile customers. This is particularly important in highly regulated markets due to know-your-customer anti-money laundering requirements otherwise known as KYC and AML.

Our second ID product Mobile Verify addresses this challenge. Mobile Verify which we announced at the end of last year enables banks and other businesses to improve their KYC process using mobile images for ID document authentication.

Mobile Verify instantly verifies the authenticity of an underlying identity document with computer vision algorithms. The authenticity of that ID can be verified entirely through a mobile device eliminating the need for a new customer to appear in person to prove their identity. It’s been proven that when a new customer prospect are asked to leave the mobile channel and physically present their identity abandonment can be as high as 90%. Today we have one of the largest global payment processing companies using our product to provide ID verification. And we’re expanding with them every day. This customer is using Mobile Verify to verify the identity of its customers worldwide enabling them to transact safely, securely and efficiently. With Mobile Verify this customer has seen their time to verify a customer go from days to minutes, greatly improving customer satisfaction.

Through the acquisition of ID Checker last year we obtained facial comparison capabilities which we have implemented at a large European Bank. Our facial comparison offering matches photo of an ID with a selfie taken by the mobile user there by adding a second factor of mobile verification. We will further develope our facial comparison offering in fiscal 2016 as well as providing additional multi-factor ID verification capabilities either through acquisition or partnership to help us further capitalize on the multi-billion dollar ID verification market.

Mobile deposit products. We continue to dominate this growing market. With another 300 financial institutions added this quarter we now have 4800 financial institutions in the country licensing our technology. Yesterday we announced a significant alliance with Harland Clarke, the number one check printing company in the world. Personal checks printed by Harland Clarke now carry new photo safe deposit features that can only be recognized by the advanced computer vision software embedded in Mitek’s mobile deposit solution.

On the consumer side of mobile deposit a growth driver will be increased deposit limits set by financial institutions. Many of our bank customers today set low dollar amounts on checks that can be deposited via mobile for their own risk mitigation. We’re seeing increasing numbers of financial institution address this issue by creating advanced KYC engines so they can raise deposit limits where appropriate. Many of our customers are implementing this type of system in hopes of driving further adoption of mobile deposit and one of our customers told us they were able to reduce holds on the deposited funds down to same day availability while increasing the deposit limit per check to $30,000 for individuals and up to $36,000 for small business checks. They were able to increase their number of mobile deposits by 365% in one year and increased the number of accounts using mobile deposit by 500% in 18 months.

We also believe that our partnership with Harland Clarke and the new photo safe deposit feature it provides will further mitigate risk on the part of the financial institution and may result in higher deposit limits which will in turn drive increased adoption of mobile deposit and increased number of transactions.

As I noted earlier, three quarters of the 19 billion checks deposited annually are deposited by business. Just like the retail side of the banks the commercial and treasury divisions recognize the substantially lower transaction costs associated with processing checks. They are highly motivated to drive more mobile deposit transactions as an alternative to branch or ATM deposits. In addition businesses themselves are seeking to lower their costs with mobile tools that enable them to quickly access their funds and process payments.

Last quarter we announced mobile multi-check capture, a powerful new capability that enables businesses to make batched deposits with a mobile device and also includes advanced risk management and business intelligence features including endorsement detection. Mobile multi- check capture is aimed squarely at addressing the untapped commercial mobile deposit market.

Commercial mobile check deposit is an untapped market, businesses are just beginning to turn the mobile deposit to process payments building the habits we created in the consumer market. And we believe it represents a substantial opportunity to drive further growth.

In conclusion we had a strong first quarter giving us a great start to fiscal 2016. Our new ID products exponentially expand our addressable market, while also increasing our mix of recurring revenue through the cloud.

Now I’ll turn the call over to Russ to discuss the quarter in more detail.
Russ Clark - Q1 was another strong quarter for Mitek and I’m pleased to provide some additional details on our results. Let’s start with revenue and operating results. In Q1 Mitek generated total revenue of $7.4 million, a 37% increase year over year. As Jim, mentioned we also achieved non-GAAP net income in Q1 of $1.3 million or $0.04 per diluted share representing our 7th consecutive quarter of non-GAAP net income.

Q1 software revenue of $4.7 million included 11 Mobile Deposit reorders and is up 26% compared to revenue of $3.7 million in the year ago quarter. Mobile Deposit fuel most of this growth however Mobile Fill for U.S. drivers licenses also made a meaningful contributions to Q1 software revenue. In addition we maintain strong software gross margins at 92% for the quarter. Q1 services revenue of $2.7 million increased 63% over last year’s Q1 revenue of $1.6 million due primarily to the addition of transactional SAS revenues for our mobile verify product. Q1 services gross margins were 79%, total Q1 operating expenses were $7.7 million compared to $5.3 million in the year ago quarter.

Selling and marketing expenses were $2.5 million up from $1.4 million
R&D expenses were $1.7 million up from $1.2 million
Gen & Admin expenses were $2.1 million down from $2.2 million
(This means they are putting the extra money in selling and R&D, which is great!)

Turning to the balance sheet, we generated $1 million of operating cash flows raising our total cash to $26.7 million.

Now moving to guidance for fiscal 2016, we’re reiterating our previous guidance of annual revenue about $32 million for our fiscal year. This guidance reflects our increased investment in sales and marketing to drive adoption of our new ID products as well as our continuing efforts to add more top talent to our world class software engineering, science and computer vision teams.

Feb 2016
Partnering with IdentityMind Global, a provider of risk management for digital commerce, to add Mitek’s Mobile Verify™ to their Fraud Prevention and Risk Management platform.

The ability to verify physical documents is an important tool for validating the identity of underbanked or international customers. We are excited to partner with Mitek to provide this fully integrated service within the platform so our customers will be sure their users are presenting genuine, unaltered ID documents.

Mitek’s Mobile Verify was selected by IdentityMind Global for its unmatched ability to read passports, driver’s licenses, and national IDs cards from almost every country around the world.

Feb 2016
A Fortune 50 healthcare company has selected Miteks Mobile Fill identity capture solution

Mar 2016
A top five U.S. bank has selected MITK’s Mobile Deposit for multi-check capture to enable business customers to make batch deposits with a mobile device, reducing the need for scanners and eliminating trips to the ATM or the branch.

Mar 2016 – Won Award
MITK won the Innovation Award at the BAI Payments Connect 2016 event for Mobile Verify. BAI is among the financial services industry’s most prestigious advocates for excellence in bank operations, and this award recognizes Mitek’s Mobile Verify as the most cutting edge new technology in the payments landscape this year.

The Innovation Showcase is designed to spotlight groundbreaking solutions providers. Attendees vote for the most innovative presentation, and Mitek’s Mobile Verify received the most votes to become the Innovation Showcase Award winner.

Conclusion: That’s actually pretty impressive.

Apr 2016 – My Review
This is even a smaller company than PN. It has some great things going for it and it is expanding as fast as it can. In fact, that expansion and hiring new sales teams for cross selling will cut earnings growth to zero or less this year. The good news is that they keep signing up large new clients. The bad news is the expenses mentioned above, and the constant legal expenses that they are now taking out when figuring their adjusted earnings. I bought at $4.10 up to $4.70, and to my amazement they are now at $6.12 (it’s been as high as $6.70). This means their PE has grown to 24.5! Granted, they have a huge open field in front of them, but a PE of 24.5 with little or no earnings growth expected for this year, is a bunch. My position is small (3rd smallest at 3.3% of my portfolio). I’m not sure what to do with this one either. I’ve been tending to add a tiny bit when it gets down to $5.85 or $5.90, and it usually finishes the day over $6.00. I’m probably going to just hold now and see how everything comes out.

Apr 2016 – Mar quarter results -

Revenue up 50% to $8.5 million

Signed three new Fortune 500 companies for our mobile ID offerings bringing the total to seven in the last six months

Adj net income up 45% to $2.4 million or 7 cents per share

Cash was $32 million, up from $28 million sequentially. No Debt.

May 2016 – Patent Awarded - Mitek granted patent for MiSnap™ industry leading automatic image capture technology
It was issued U.S.Patent “Mobile image quality assurance in mobile document image processing applications” by the U.S. Patent Office. Mitek now has 26 patents issued and 17 patents pending.
As the mobile capture functionality that powers all of Mitek’s solutions, MiSnap™ provides real-time feedback on positioning mobile device and then automatically makes the necessary adjustments to ensure that users successfully capture the optimal image every time.

This patent recognizes MiSnap’s unique image quality assurance tests which enable it to recognize the type of document being captured (such as a check, driver’s license, passport, receipt, utility bill or other document) and make automatic adjustments to account for lighting, focus, image resolution of the camera, user movements and other attributes in order to capture the best possible image.

May 2016 – Won another Award
Won the Innovation Showcase Award at the Barlow Research Business Banking Conference held May 2-3, for its Commercial Mobile Deposit Capture solution.
May 2016 – Top 5 bank
A top five U.S. bank has selected Mobile Fill™ and Mobile Verify™ to optimize the user experience and mitigate the risk of application fraud for its checking/savings and credit card mobile acquisition programs.

May 2016 – Partnering
Mitek and Avoka, the leader in frictionless digital customer acquisition for financial services, today announced a partnership that integrates Mitek’s Mobile Fill with the Avoka Transact digital sales platform. The integrated mobile solution makes it simple for financial institutions across the globe to acquire new customers for deposit accounts, originate loans and onboard new wealth management customers.

This pre-built integration combines the benefits of mobile capture, taking a photo of a driver license to pre-fill information into an application, with Avoka’s robust digital sales platform. The combined solution is currently being introduced by a top 10 global bank for retail account opening. (I can’t be sure if this is good or bad news. I would have thought that this is something that Mitek could do themselves)

June 2016 – New customer
A leading multinational financial services provider has selected Mobile Verify to increase the success of its credit card customer acquisition initiatives. The provider plans to implement both employee assisted and mobile self-service, domestically and internationally. This is the eighth Fortune 500 to sign with us for our mobile ID solution this fiscal year.

June 2016 – Response to Short Attack (by Cliffside on SeekingA) - Pullback provides entry point
A short report by The Street Sweeper

Mitek was the topic of a recent short attack by The Street Sweeper. It sure looks like a juicy candidate for a short. It’s had recent insider sales and a huge run over the past several months from the $3 level in November to over $9 per share recently. We thus were curious about the short case against MITK.

We carefully read the short piece and a few things immediately stood out to us as misleading and incomplete. We’ll take a look at the points made in the piece one by one and then provide our thoughts.

The Street Sweeper Point 1. Insiders sales
It argues that as the stock has made its incredible run upwards, insiders have “dumped about $9 million worth of company stock.”

It fails to note that 79% of the sales came from the RETIRED Chairman. John Thornton retired March 9th, 2016. He was the Chairman since 1987 and is 83 years old! We do not see his selling as a reason to be concerned. Effectively, he blew out his stock and the overhang is gone. This is a positive for shareholders, not a negative.

Regarding the CEO’s sale of 59,091 shares in May, this was a sale as part of a 10b5-1 plan. The shares were options that he paid $1.10 for that were set to expire in July. Here’s the kicker… the same day he sold those shares he also bought 89,247 shares that were part of his option package also at $1.10. So his shares of MITK stock actually increased by 89,247 shares to a total of 803,789.
StreetSweeper Point 2. Company’s intellectual property is weak

The Street Sweeper tries to make the case that MITK’s intellectual property is weak. We believe that is “patently” false. MITK has 25 patents with another 18 patents pending. Its mobile check deposit business, which currently constitutes the majority of revenue, is licensed by 5,000 financial institutions, all of the top 10 US retail banks and most of the top 50 US retail banks. With only $8.5mil in revenue in the most recent quarter, mobile deposit clearly is a small market, but it’s one it dominates. Why would major financial institutions pay it for its technology if its patents are garbage? Street Sweeper focuses on two parts.

Part A. The company thought so little of its own IP that it withdrew its patent infringement lawsuit.
MITK sued Top Image in 2012 for infringing on five patents relating to image capture on mobile devices. Mitek dropped the suit in 2014, claiming that the cost of litigation would be higher than any potential financial benefit.

MITK stated that " Top Image does not meaningfully operate in our space." However, it maintained its right to pursue legal action if conditions change in the future. This case related specifically to mobile capture for check deposits, not mobile fill or mobile verify which are MITK’s newer products. MITK has a very large lead in mobile deposit vs. competition. TISA is an Israeli company with little US exposure in mobile deposit. The international opportunity in mobile deposit is tiny in comparison. So when MITK says TISA is not a threat, this is probably why.
Part B. A patent infringement lawsuit bloodies Mitek’s nose - and damages a major revenue source.
Regarding this, we think it is extremely important to note that USAA was the organization that originally hired MITK to create its mobile deposit solution. In fact, the work MITK did with USAA is what got it started in mobile deposit! It all started in 2006 when USAA was looking to develop remote deposit capture (mobile deposit) for its military members deployed worldwide. MITK was actually invited to work in USAA’s office to help it develop mobile deposit. They both separately filed patents relating to the technology.

Fast-forward to 2012 when USAA sued MITK for stealing trade secrets related to mobile deposit. Apparently, it all started when a MITK vice president accused USAA of infringing on Mitek’s patents because it was using the technology without a license. USAA was very surprised by the claim because it believed it was the owner of the technology. The cases against each other were finally settled in 2014 with both sides’ patents remaining intact. The Street Sweeper said that “Mitek has forever lost part of a revenue stream.” This is true, but it never had it to begin with and it likely would have amounted to very little. We see the case with USAA as a particularly unique set of circumstances that neither side will likely look to repeat. USAA is not in the business of selling mobile solutions and MITK is not in the insurance business.

TSS Point 3. The Nemesis
This point says that USAA is making moves in the mobile banking industry by becoming the first to roll out facial and voice recognition for its mobile banking app. This sounds like cool technology, but even if MITK had it, how would it make money off it? For example, if you’re using it to log on to your account, there is no transaction taking place. It’s a neat trick, but not a business model. Yes, it adds convenience for the customer, but frankly I’d hope MITK is focusing on technology that banks and others will actually pay for. This doesn’t seem to fit the bill.
TSS Point 4. The Big Picture: Watch The Crowd

Apparently the facial and voice recognition technology that USAA rolled out is owned by a company called Daon, and Str. Sweeper says this is really “ominous” for MITK. Daon has landed Master Card as a customer for its biometric authentication for secure online payments. I hate to break it to the shorts, but MITK isn’t in this business. MITK is in the business of cashing checks and verification of actual physical government issued IDs.

Admittedly these categories are related, and MITK does offer facial recognition with mobile verify, but it’s used to compare a person’s selfie to their ID photo. Again, the ID MITK is after is for onboarding of new customers.

MasterCard is more concerned with competing solutions like Apple Pay or PayPal than it is with MITK. MITK’s mobile fill and mobile verify software is squarely focused on helping its customers generate new revenue streams by landing new customers. This is where it should be focused because generating revenue for a customer provides value. Authenticating existing customers via biometrics is a cost center for that business and a tough sell.

TSS Point 5. IDChecker: Over-Rated, Faces Fierce Competitors
Yes, in the world of mobile technology, you are going to face fierce competition.
IDChecker was acquired May 2015. IDChecker provided MITK access to customers internationally in mobile fill and mobile verify, but it already had been selling these products in the US. The international market is important because unlike mobile deposit of checks, mobile mobile verify is a very large market internationally.

The acquisition gave it access to not only customers and patents, but also to “3,500 different types of passports, driver licenses and identity cards from nearly every country in the world.” Also, the price point for mobile verify is “significantly higher” than mobile deposit. So yeah, there’s going to be more competition. Simply put, mobile fill and mobile verify open up a huge untapped market for MITK.

TSS Point 6: Stock’s Too Expensive
Admittedly, after its last quarterly report, the stock was getting fairly lofty over $9. Over $9, you have to assume it will continue to beat estimates the way it did in April with a 3c beat. That said, valuing a growth stock based on past 12-month revenue and earnings is almost always uncalled for, because if you are looking backward, you’re not accounting for any future growth. We also feel price to sales is fairly useless for profitable companies.

Estimated earnings are 24c for this year and 31c for next. We’ll assume it’s somewhere in the middle around 28c. MITK closed at $7.56 recently, post the short report. At that level, it is trading 27x earnings. If you factor in net cash of approximately $1 per share, it’s closer to 23x. Certainly not cheap, but for a high-growth tech company, it’s justifiable.
TSS Point 7. Execs are living like kings

Yup. No disagreements here. We’ll simply note that this is hardly any different than most other public companies and not in itself a reason to short a stock.
Some points that were not mentioned that we feel are relevant

The short piece left out what we feel are some compelling positive recent developments:

  1. MITK raised its full-year revenue guidance in the recent quarter from $31-33mil to $32-34mil.

  2. MITK mobile deposit customers have been raising deposit limits and eliminating hold times on deposits when appropriate. This is wind at its back as banks become more comfortable with the technology. It makes for a stickier client and adds to revenue as it is paid on number of transactions. We feel this point is underappreciated.

  3. Mobile deposit is basically a recurring revenue business for the company at this point and it represents over 70% of revenue. It has near 100% customer retention in mobile deposit, and $1mil in sales per quarter is now SAAS. This provides nice visibility into its forecasts.

  4. The success in mobile deposit makes for an easier cross sale of mobile verify and shortens the sales cycle with financial institutions.

  5. Beginning in January, Harland Clarke, the industry’s largest check printer, has integrated a special icon on the front and back of its checks that only MITK can read. This helps prevent check fraud and further ingrains MITK’s technology into the banking system.

Risks to Our thesis

  1. Since it’s secured most of the large financial institutions for checks, incremental client accounts may not be as meaningful as in the past.

  2. Checks as a way to make payments will likely continue declining over time. That said, MITK estimates that only 5% of checks are cashed via mobile deposit, and that number should continue to increase over time, especially if it is able to meaningfully tap the commercial market which it is just now beginning to focus on.

  3. Losing market share in mobile deposit would be a concern since its over 70% of sales.

  4. We feel the current valuation is justifiable if the company is able to continue showing strong revenue and earnings growth. We note operating expenses were somewhat light in the last quarter as the timing of new hires was back-end loaded. Q3 operating expenses could be higher and if so, the company will need increased revenue growth to offset additional expenses. While hiring sales and marketing staff should ultimately pay off in revenue growth, MITK could see quarterly fluctuations that negatively impact the stock.

MITK’s retention rate in mobile deposit is 100%. With over $1mil per quarter in SaaS revenue and a very sticky client base in mobile deposit, we feel the majority of its business is recurring in nature. These types of companies command premium valuations.

Over the past four quarters, MITK has seen revenue growth between 37% and 50% . Consensus estimates have the company growing revenue a modest 20% next year with 31 cents in EPS. If it is able to simply hit consensus, it’s hard to imagine the stock below an 18x P/E multiple. When we add back net cash, we get to a worst-case downside of $6.58. However, as it has been consistently beating estimates, we expect to see MITK back to at least $10 per share over the next 12 months and perhaps much higher.

June 2016 – Two new significant patents
Mitek now has 26 patents issued and 17 patents pending.

These latest patents cover Mitek’s technology for automatically identifying different types of remittance and invoice documents facilitating the extraction of data from an image captured with a mobile device. This innovation, which is integral to commercial mobile deposit capture, enables employees to capture invoices and checks at point of presentment, making processing a payment accepted from a customer in the field easier. These patents illustrate Mitek’s technological advantages over conventional systems which require foreknowledge of document layouts and labor-intensive setup processes in order to extract data from these documents.

The amazing capability here is that our mobile capture engine can not only figure out whether it is looking at a remittance or invoice, but is smart enough to find and extract key data elements such as account number and amount due, without ever having seen a prior example of that particular document.

June 2016 – And another patent…
Mitek announced that it has been issued another patent, and now has 26 patents issued and 17 patents pending. It was issued to Mitek for its unique system for processing and extracting content from the image of a driver license using a mobile device. Specifically, this patent illustrates Mitek’s robust capture capability.

June 2016 – Added to Indexes
Mitek announced that it has been added to the Russell 2000 and Russell 3000, effective immediately.

July 2016 – Wins Patent Suit
It has successfully defended its technology in the patent infringement case brought forth by Rothschild Mobile Imaging.
In 2014, Rothschild sued Mitek and several of its customers, alleging that Mitek products infringed on four of its patents. In 2015, the Patent Office agreed to review the validity of Rothschild’s patents. At the time, Rothschild conceded the invalidity of one of its patents. The Patent Office review continued with respect to the remaining three patents, fianally ruling in favor of Mitek with findings that all remaining patent claims are invalid.

July 2016 - Mobile Verify selected by a leading ticket exchange
A top exchange for concerts, sporting events and theater tickets around the globe has selected Mobil Verify to validate the identities of customers who are conducting high-value transactions. The addition of Mitek’s ID verification solution will help the company mitigate the risk of fraud by enabling legitimate customers to easily verify their identities during the purchase.

Aug 2016 – New Patent
It has been issued a new patent for advanced mobile ID document classification technology. Mitek now has 27 patents issued.

We continue to invent new scientific algorithms to optimize our mobile identity verification solutions. The new patent protects our ID document classification technology which is the ability to accurately classify the document type. This capability is an integral component of our Mobile Verify solution, which can verify the authenticity of more than 3,500 different global ID documents.

The unique method for classifying ID documents described in this patent is an essential piece of Mitek’s Core Flow process which provides the document classification, extraction and authentication capabilities powering all of our mobile solutions.

Aug 2016 – One of 10 largest banks in US selects Mobile Fill.
One of the ten largest banks in the US has selected Mobile Fill to improve its onboarding process, easily fund accounts and better engage with Millennials who are increasingly using mobile as their primary channel for banking.

68% of Millennials said that they would always rather use mobile capture instead of manually typing information on their smartphone. They represent 90% of smartphone owners and banks are looking for ways to attract this highly desirable demographic.

Aug 2016 – Leading online mortgage provider selects Mobile Fill

A leading online mortgage provider in North America has selected Mobile Fill to support its goal of creating the fastest and easiest mobile loan application available.

“With digital business models, the initial customer enrollment experience is extremely important to get right and sets the tone for the customer relationship with the company. Our Mobile Fill creates a digital application process that is unmatched for ease of use, accuracy and providing a superior user experience for mobile lending platforms.”

Aug 2016 –Online foreign currency exchange selects Mobile Fill
The online foreign currency exchange b-Sharpe has selected Mobile Verify for validating customers’ identities upon enrollment.

“As a leader in cross border currency exchange for SMEs, as well as private individuals, verifying our new customers’ identities is an essential part of conducting business for us. We selected Mobile Verify because it is a proven technology that we can implement rapidly to help our new customers quickly verify their identities as well as help us meet regulatory requirements for identity verification while maintaining strong security.”

Sept 2016 – Availability of a new Mobile Multi-Check Capture Software Developer’s Kit(SDK) for Commercial Mobile Deposit Capture. This new kit is designed to help banks and app developer partners easily deploy mobile banking apps for businesses faster than ever.

Sept 2016 – New client - Gambit Financial Solutions, a provider of wealth management software solutions, has selected Mobile Verify to provide fast and easy identity verification for new account enrollment in its advisor service.

Oct 2016 – New client - One of the world’s leading payments processors is using Mobile Verify to quickly and easily verify the identities of users sending and receiving money. This dramatically reduced the time needed to verify users’ ID documents and lifted 92% of temporary restrictions halting money movement.

Prior to using Mobile Verify, this customer was forced to temporarily suspend users’ accounts while they reviewed the user’s ID. Their users understandably grew frustrated waiting up to seven days for their ID review to be completed and many abandoned the process, turning to a competitor. Now they’ve slashed the time needed to verify a user’s ID from seven days to just minutes and almost totally eliminated temporary account restrictions.

Mobile Verify is able to instantly determine the authenticity of the ID, allowing the customer to proceed immediately with their transaction. As a result, the payment processor has been able to reduce its customer churn rate while at the same time complying with strict Anti-Money Laundering and Know Your Customer requirements.

Nov 2016 – Sept Quarter results
• Revenue up 23% to a record $9.7 million
• Adj net income of $2.5 million, or 7 cents per share, down from $2.8 million, 9 cents

Full Fiscal Year
• Revenue up 37% to a record $34.7 million
• Adj net income - $8.7 million, or 26 cents up from $8.1 million, or 26 cents a year ago.
• Cash flow from operations - $7.9 million
• Cash up to $35.8 million from $26.7 million

Our record revenue results for fiscal 2016 were driven by growth from both our new mobile ID solutions and our industry leading Mobile Deposit. We made significant progress during the year establishing Mitek as a leading provider of mobile ID verification solutions to banks and other enterprises in the rapidly growing mobile self-service market. With our market momentum in both mobile ID and mobile deposit we are well positioned for continued growth in fiscal 2017 and beyond.


Good notes - thanks! Apologies for the formatting, hit submit while trying to dust off the ol’ HTML skills.

Here are some more useful links:
Latest Quarterly Presentation…
• $45.4M revenue, up 31% YOY
• 71% Payments (up 23%)
• 29% ID (up 54%)
• SaaS revenue $7.8M, up 51% YOY
• 24% Non-GAAP Operating Margin
• $14.1M GAAP net income or $0.40 per diluted share*
• $10.9M non-GAAP net income or $0.31 per diluted share
• $10.4M in cash flow from operations

Presser on acquisition of A2iA, which brought with it IP and significant footprints in Brazil, France, and England, as well as 75,000 ATMs.…

Piggy backed news following acquisition is rolling out mobile enrollment to European customers…

Latest Q2 Conference Call Transcript b>…

1 Like

Thanks for bringing this to the board, looks very interesting and a bit different than the usual.

It’s a small cap, so liquidity is a concern. My other concerns would be any legal trouble and management’s ability to change the image from a legacy financial services company to a modern Fintech (SaaS) company. Your comments about SaaS rev are encouraging, but doesn’t the market know this about the stock? Is it in the same conversations as SQ or TREE?

~30% Rev growth fro P/S of 6 is a good value, imo. And management looks like they understand their business and forward guidance (earnings and revs beat as far back as 2014).

Gross margins of 86% leads me to believe that revenue will continue to grow.
SGA are held steady, and the cost of goods seems to be decreasing versus the growth of rev
Shares outstanding is steady as well, which is nice for shareholders.

Overall a great looking company. I am interested in TAM as well, but it being so small I would assume even if its 1B that’s a triple.


Latest Q2 Conference Call Transcript b>…

Ok, this might be a quick response, but the conf call was a great read. I am impressed with their President & CEO.

ID SaaS transactions grew 80%, rev grew 91% and overall business grew 109%. They have a product that people want and a business model that is growing. Combine that with the gross margins of 86% and this could be a high growth company (at 25-30% I am hesitant to call it that right now, as funny as that might sound).

His comments on the current political climate (FB ads and new regulation) are welcome and a good warm hearted story I want to invest in.

“Physical documents, such as driver licenses, will continue to be the cornerstone of identity verification. In other words, today, and for several years to come, nothing can beat government- issued documents for establishing trust for digital transactions. We believe that Mitek’s ID solutions bridge the gap between the physical and digital worlds for identity verification and are what’s needed right now to keep the digital economy humming into the next decade.”
I think this is true (DoD still uses common access cards from 2005), and if they have a solution it could be very profitable.

“So how do we do this? Our identity verification cloud platform is continuously learning from the millions of authentic ID documents we process and the fakes that we find. We can quickly add and update new document types from around the globe, which further trains our AI platform and provides global identity coverage to our customers.”
Ok, now they are both a cloud service and AI? Not your gen X ATM/mobile deposit company anymore.

They also recently increased rev guidance from $57-59M to $59-60M, rev growth of over 30% (remember, they haven’t missed since 2014 and that’s a tight guidance). Maybe sandbagging? But that is better than missing.

Have I mentioned they are positive earnings yet? 30% growth, P/S of 6, and positive earnings? With increased guidance?

Thanks again for bringing this up. The Q&A at the end is worth reading for itself, answering the mobile checking growth issues and sales team onboarding.



It looks like they’ve increased their sales force, perhaps less profitability / more revenue growth in the near term?

They just completed an acquisition of A2iA…

They have an investor presentation:…

They estimate their market at $10 Billion Globally with 16% Growth
SaaS Revenue 7.8MM and growing faster than overall Revenue.

I think there is plenty to like here.

1 Like

Is there any relevant competitors ?

Is there any relevant competitors ?

Moats, Tailwinds, Headwinds
++ No Competition in Financial Sector for Financial Checking ++
++ Strong Network opportunity to roll out mobile verification tools ++
++ IP - MITK owns 39 patents on technology with 16 pendings

And according to their recent conf call they said they don’t have any competition (patents and intellectual property prevent it). I found that in 2014 USAA (bank) had a lawsuit with them, but now USAA uses them. They are in every large bank in the US and have been able to retain them for years. Plus they are upselling their products (109% growth for ID).

Pretty amazing.


I think this one is interesting.
Over time, they may or may not take a hit on the check biz as more people go digital, although I think they just won’t get as much newer business from younger generation types vs gen X / Boomers changing their checking habits significantly. This is just thinking out loud, as first I have looked at this company.

The investor presentation is interesting:…

I note they already seem to have raised guidance again to $62-63m if I am reading the slides correctly.

The big catalyst here is the ID business, which is in a SaaS model and growing rapidly, albeit off a small base.

FY17 highlights
• $45.4M revenue, up 31% YOY
• 71% Payments (up 23%)
• 29% ID (up 54%)

The ID business is where the growth seems to be.

Q2-2018 highlights

  • $14.3 revenue, up 25% YOY
    • SaaS revenue $3.3M, up 91% YOY
    • ID business up 109% YOY

If I read this correctly, ID accelerated to 109% y/y for Q2, whereas it was 54% y/y for 2016 to 2017. That is a good sign.

From their Q1-2018 (and they appear a full calendar Q behind the traditional, fyi)…
During the quarter SaaS ID transactions increased 117% year over year, and we ended the quarter with 29% more ID customers than a year ago.

I like this pick…thanks for bringing it to the board!



Threre are other companies that have this same ID technology or at least one, Trusona. It’s not a public company and it also uses your driver’s license. They also have several patents although I don’t know what they are.


1 Like

A couple things from the conf call that I think are relevant to sales personnel/cost and check deposit biz.

“We have increased the headcount in sales and marketing. I think, entering the year, we were probably between 30 to 40 people in that group, and we’re well over 50 – I think we’re actually above 60 in the sales and marketing team now. So definitely, headcount investments there. The reason we’re making the investments is we’re seeing a lot of opportunity, lead flow and building pipeline.”

  • They also said they do this in Q1, takes 3-6 months to get them to produce, but is already priced into FY18.

“Deposit’s been in the market now for 8 years, and it’s – it continues to dominate its space. And again, all of the growth is coming from additional consumers and frequency of use. We’ve actually have seen indications from studies independent from Mitek that check volumes are holding steady, or their decline is reduced. So we are encouraged by the opportunity and growth prospects ahead of us. We continue to innovate in the product. We’re on our 30th release and have added features that have helped us maintain our current ASP in market. We believe that we have outdistanced any competition. In fact, we face very little competition, so the natural assumption is that we have pricing power.”

I use USAA and deposit checks monthly, and don’t see that changing. I also use a bunch of digital payment apps, but would welcome some better authentication from them (FB, venmo, cash, etc). Right now I have to use their account they created (like FB profile) and who knows if that is legit.

$62-63m if I am reading the slides correctly
I saw that as well, and yes, that’s an increase from their conf call of $59-60M. Q2-4 has typically grown, with a slight reducition Q1, of revs (slide 16 of investor presentation). So they could have 37-40% rev growth for fY18 (at P/S of 6).

disclaimer: I did make an initial purchase of the stock today.



It was also highlighted in a recent Motley Fool podcast:…

MasterCard (MA), PayPal (PYPL), Skechers (SKX) and Square (SQ) Ticker Guide
See all my holdings at


incredible amount of notes, Saul…thank you for sharing that.

Given your note-taking, i figured there would be history on the board, so went back and looked.

You can see the below, but just from an outsider reading these, it seemed both you and Bear were doubting company, frustrated a bit at the stock action (it went from $9 in May 2016 to $5.60 in Nov 2016) and you both cut it loose.

I wonder with the SaaS growth we are now seeing, the increased revenue growth of over 100% y/y in past 2 quarters in the ID segment, if the company is finally now where you were hoping it would go. I took a small position based on what I have liked so far, but will keep digging. This board is a great repository of info!…
Finally Mitek (MITK). is my smallest position at 3.45%. It’s dropped to last place mostly because the price dropped to $6.60 from $8.29 on no bad news that I’m aware of. I’m cautious because Mitek is truly a small company, with a small float. Its PE is now 24. It hasn’t announced earnings yet this quarter, however it keeps announcing new patents granted and new contracts signed.

Bear on 10/31/2016…
MITK - growing like a weed, but incredibly tiny. Seems like a great bargain now, but there’s just no news, so I’m waiting to learn more.

Mitek (MITK)
I find some reason for the impatience with Mitek. I know that they announced a year ago that they would be investing in growth this year, but…
Revenue was up 23% for the quarter and 37% for the fiscal year, and on that
Adjusted Earnings were 7 cents down from 9 cents on the quarter and flat at 26 cents for the fiscal year.

They keep announcing new deals signed and new patents granted, but nothing happens earnings-wise, and I guess people are getting impatient. When your revenue is up 37% for the fiscal year, you ought to set some money aside for growing profit. How has the stock reacted? Mitek is down about 17.8% in the past nine trading days.

11/11/2016 Bear wrote:
Is this another PN? Too hard to know what’s going on? I keep wanting to take advantage of the share price being down 30-40% (depending on when you start counting) and add more shares…but I can’t convince myself I shouldn’t rather sell it all and move on.

Why should we believe in this company?

Is it time to fish? Or cut bait?

11/17/2016 Bear sell MITK

Mitek, my smallest position has continued to sink, and has fallen in two months from $8.30 to 5.95, a drop of 28%. There is no reason for the drop that I’m aware of except revenue growing without earnings growing. They had announced beforehand that 2016 would be an investment year, investing in grabbing market share in the spaces of verifying identity and of filling forms from mobile devices, so, to tell you the truth, I’m not sure what’s going on. And as I don’t understand what was going on, rather than adding to this small position, I reduced some of my position on the way down.

and you finally sold Mitek in Dec, per your end of year Port note on 12/31/2016…
Why did I exit Mitek? Here’s what I wrote a month ago:

…my smallest position has continued to sink, and has fallen in two months from $8.30 to 5.95, a drop of 28%. There is no reason for the drop that I’m aware of except revenue growing without earnings growing. They had announced beforehand that 2016 would be an investment year, investing in grabbing market share …so, to tell you the truth, I’m not sure what’s going on. And as I don’t understand what was going on, rather than adding to this small position, I reduced some of my position.

This is really a tiny company. Their total trailing 12 month revenue is just $35 million dollars! I didn’t understand what was going on, but when they increased revenue last quarter by 23%, but decreased earnings per share by 22% it was enough for me and I sold the rest of my position. It may do fine. All three of these companies may do fine. But I’m trying to find better places for my money.


The question I’ve always had about MITK is if they’re so absolutely dominant in the mobile check deposit arena (which they are…sounds like almost every bank everywhere uses them, 80,000,000 banking customers, and over $1.5 trillion in deposits processed), yet they make so little money off of that huge base!

Why is that???

BTW, I do still own some MITK myself (only about 1%), but have never resolved the above…


Recent articles on MITK.
These are all focused on the ID segment. They appear to be getting the word out aggressively.…

In an e-mail, Marsal wrote, “For fiscal year 2018 we guided the market that the mobile deposit business will grow 15–20 percent, and the identity verification business will grow 65-70 percent. However those figures were before we acquired A2iA. After the acquisition, we now expect our identity verification business to grow even more.”–of-eu-us-crypto-exc…

“Wallets and exchanges want to change perceptions of lawlessness and it’s a relatively straightforward fix. Identity verification processes can be—if implemented correctly—simple for the customer and no barrier to signing up,” said Kalle Marsal, COO, Mitek. “By incorporating systems that are just as future-looking as cryptocurrency itself, exchanges and wallets can be both competitive and compliant with regulatory demands."…

“When it comes to combatting fraud, businesses need to be vigilant in protecting people’s identities. The use of data and analytics can help them make more informed decisions to better recognize legitimate customers and detect fraudulent activity. At the same time, they still need to ensure a positive experience for the customer,” said Steve Platt, Experian’s group president of Decision Analytics and Data Quality. “The addition of Mitek’s advanced technology with our robust set of fraud capabilities, means businesses have more options to address both of those objectives.”

A survey from Forrester recently found Experian to be the most popular vendor in the identity verification market.

Twitter feed: Check out Mitek Systems (@miteksystems):

Upcoming webinar:…

The Making Online Banking Initiation Legal and Easy (MOBILE) Act officially became law on May 24, 2018, authorizing a national standard for banks to scan and retain information from driver’s licenses and identity cards as part of a customer online onboarding process, via smartphone or website.

Another webinar with Mitek participation…

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Mitek Contact:
Ann Reichert
Senior Director of Marketing

Katherine Verducci
MIX Public Relations

Mitek Investor Contacts:
Todd Kehrli or Jim Byers
MKR Group, Inc.



Dreamer, many thanks to your additions to this thread of past present and future endeavors. It’s really painted a much fuller picture!

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After derailing Saul and bear what makes u think Mitek is gonna turn into the holy grail now?

After derailing Saul and bear what makes u think Mitek is gonna turn into the holy grail now?

I dont believe in holy grail, santa claus, or tooth fairy.

But the ID business growth i posted about of 56% y/y from 2016 to 2017, followed by q1 of 117% and q2 of 109%, all point towards a shift in their growth and revenue mix moving forward.

I posted a ton of links/articles on the ID focus and market which you can read for yourself and make your own decision.

What is your opinion, beyond what saul, bear, myself, or anyone else thinks…what do you think?


Double bottom worth a look if it breaks 10.50.

Been a public co since 2008 so in 10 years can’t get rev up past 60 m, not a good sign.

As ntnx pointed out only 10% of cos can get rev to 1 b level. These cos mite b a more fertile area.

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Thanks for bringing this to the board, JAFbrblev, and for all the notes, Saul.

This looks like a really interesting company. I see it has some warts, but it is on my watch list, and I’m going to be looking at this one closely in the next bit, when I have some time. I’m sure I’ve worked with them before, but I can’t remember where - it may have been when I had a consulting company in the financial sector in California.

They are in a great space for where the financial industry is going. This one deserves a look.