Mitek Systems, Inc. (MITK) Q3 2012 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Third Quarter 2012 Mitek Systems Earnings Conference Call. My name is Deanna, and I'll be the operator for today. [Operator Instructions] As a reminder, today's conference is being recorded for replay purposes. I would now like to turn the conference over to your host, Ms. Julie Cunningham, Vice President, Investor Relations. Please go ahead.

Thanks, Deanna. Good afternoon, and thank you for joining us for the Mitek Systems third quarter fiscal 2012 conference call. Joining me on the call today is James DeBello, President and CEO; and Russ Clark, Chief Financial Officer. The agenda for today's call includes commentary from Jim, followed by a discussion of the financial results from Russ. This afternoon, Mitek issued a news release announcing its third quarter fiscal 2012 financial results, and that's available on our website at www.miteksystems.com. This call is being broadcast live over the Internet to all interested parties, and the audio of this call will be available on the Investor Relations page of our website and archived there for 30 days. As a reminder, this conference call may contain forward-looking statements that are not historical facts, but rather are based on the company's current expectations and beliefs. Mitek's results may differ materially. Please refer to Mitek's SEC filings for detailed information. In addition, we'll be using non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures are included in the earnings release on our website. And now I'd like to turn the call over to Jim Debello.

Thanks, Julie, and good afternoon, everyone. I'll begin by reviewing our third quarter results and provide some commentary on Mitek's progress. Then Russ will go over the Q3 financials, and we'll open the call for your questions. For the third quarter of fiscal 2012, we posted revenues of $3.2 million and a non-GAAP net loss of $1.2 million. The return to revenue growth was obviously a key focus for us. But also we continued laying the foundation for future growth by investing in new product development and building the management team appropriately as we scale our business. Toward that end, we made 2 recent strategic hires, both of whom are industry veterans to add further bench strength to our management team. Mike Strange joins us from Green Dot where he was CTO, and he brings 20 years of experience in payments, prepaid and hosted services to Mitek. As Mitek's Chief Technology Officer, Mike's proven track record in engineering management and product development will be invaluable as we grow and diversify our product offerings. Mike Diamond also joined us as Senior Vice President of Sales and New Business Development. He brings a wealth of payments industry knowledge to Mitek. And previously Mike held senior level business development roles at IBM and S1 Corporation. I view Mike's role as pivotal as we extend our partner and customer relationships to insurance and other vertical markets. Mitek has developed and patented mobile capture and data extraction software solutions and continues to lead the industry with innovations. We are investing heavily in R&D to build out our existing product roadmap, as well as bring new products to market. We are on track with the latest release of our mobile photo bill pay product to our pilot banks and remain confident that this product is our second killer app. As a leader in mobile imaging, we've helped hundreds of corporations like Chase and Progressive engage in a new and powerfully unique way with their consumers. This is a phenomenon driven by the extraordinary consumer experience that Mitek enables. The delight to consumers is almost magical, as depicted in the latest national TV advertisement from Chase, in which the mother and daughter captured a lion with a snap of a smartphone camera, and sent it to the bank instead of the check. This kind of whimsical marketing has put fun back in banking and the demand for it is growing. Research firm, Forrester, calls mobile check deposit table stakes. Brian Moynihan, the CEO of Bank of America, was recently quoted counting mobile banking saying, "It's just a much more efficient and, frankly, stronger service model." This is the promise of our suite of mobile imaging applications that let consumers enroll in new services, fund their prepaid card and bank accounts, shop for new credit cards and auto insurance and pay their bills. All with a simple snap of a camera on their smartphone or tablet. And we're just scratching the surface to use our technology in ways that the consumer never realized possible. A recent survey from Gartner says that only 29% of consumers are aware of mobile check deposit. As a result, we believe that the opportunity for growth for mobile deposit and our future mobile imaging solutions is very large. Last May, we participated in the Mobile Banking Summit in San Francisco, and it was gratifying to see scores of banks and other financial institutions actively pursuing new ways to enhance their mobile strategy. In fact, multiple companies mentioned Mitek by name during their presentations as a valued technology partner. Clearly, mobile imaging is enabling the strategic layer of mobile banking applications for document processing and identity verification. It's interesting to note that according to Javelin Research, 58% of the over 10,000 U.S. financial institutions plan to deploy Mobile Remote Deposit Capture over the next 12 months. Indeed, our Mobile Deposit product has already been adopted by 25 of the top 40 banks in the United States. The 3 key drivers of our business are: one, the number of companies we signed; two, the number of mobile consumers using our product; and three, the total number of transactions being consumed. Here is the latest statistics as of June 30, 2012: first, we've crossed a new milestone of over 400 banks and financial institutions signed for a cumulative total of 408 financial institutions. And we've achieved another major milestone with a record number of 93 additions during the quarter. This includes BMO Harris bank which is the 15th largest retail bank in the U.S. Secondly, 137 banks are now live which includes Chase and Citibank, Bank of New York Mellon, PNC, U.S. Bank and Wells Fargo. Notably, Wells Fargo launched in 7 locations so far, and plans to be nationwide by year end. And I'm very happy to announce a report that was published by Reuters just yesterday announcing that Bank of America plans to begin offering mobile check deposit later this week. Adoption of Mobile Deposit continues to be strong, and transaction usage grew by more than 25% compared to the prior quarter. We're focused on mobile imaging use cases that enable consumers to enroll, shop, fund and pay, but demand for our technology and our solutions is not limited to banks. Recently, we signed an agreement with Smart Tuition, an innovative company. While it's not a material deal in a financial sense, it is a consumer-based application for enrolling in K-12 tuition payment programs. That's a great example of how mobile imaging can be used to automate the enrollment process and engage and empower the consumer. This is just one of the many areas where we believe we can leverage our technology to enhance people's everyday lives. We've invested millions of dollars in R&D and many years to create and perfect our mobile imaging technology. We've created this category and our products have enabled Fortune 500 companies to provide a unique and valued service to their customers. We believe that mobile imaging use cases are virtually limitless and span multiple vertical markets. We're happy to report that Mobile Deposit adoption and launch momentum continues unabated. And we're excited about bringing our next products, Mobile Photo Bill Pay and Mobile Balance Transfer, to market over the coming weeks and months. Now I'd like to take a few minutes to talk about the litigation with USAA. First, we are determined to protect our intellectual property in defense against baseless allegations in a suit filed against Mitek by USAA. We continue to believe that USAA's suit is meritless and that our legal case is solid. We invented this technology, we have patented it, with not 1 but 5 separate patents, and we have worked hard to enable the financial industry and USAA to engage with their consumers in an important new way using our mobile imaging algorithms and inventions. As you know, on April 12, Mitek filed its own suit against USAA for patent infringement and breach of contract. We believe that USAA has infringed 5 of Mitek's patents related to advanced imaging and analytic software to authenticate and extract data from image checks and other financial documents using a smartphone or tablet. Last week, we added 2 additional claims to our case against USAA for defamation and unfair business practices. We're a group of scientists here at Mitek and engineers who formed a small technology company, worked hard over a period of years to invent this mobile imaging technology and brought it to market. We take umbrage with being unfairly attacked and maligned by an industry giant who benefited from our technology. That is simply preposterous. While we didn't choose the litigation path, we will do what is necessary to protect our rights for our customers and our shareholders, as well as our business reputation. Despite the ongoing litigation, our company remains intensely focused on the development and delivery of innovative and high-quality products. We do not expect the litigation to have any impact on our planned product offerings or on our customers. We believe that our return to revenue growth this quarter, along with our blue-chip customer roster of over 400 financial institutions, including 93 newly signed banks are evidence of our continued positive momentum. And with that, I'd like to turn the call over to Russ Clark to review the financial statement. Russ?

Thanks, Jim, and good afternoon everyone. As I review the numbers, all figures quoted are on a GAAP basis unless specifically noted as non-GAAP. We provided a full reconciliation from GAAP to non-GAAP, along the earnings release on our website. For the third quarter of fiscal 2012, revenue totaled $3.2 million compared to total revenue of $3 million for the year-ago period. Of that total, approximately $2.5 million was software and $698,000 was maintenance and professional services. Of the deals completed during the third quarter, 4 were reorders. Cost of revenue in Q3 was $359,000 and about evenly split between the software and maintenance and PS categories. This compares to $438,000 in the year-ago period. Gross margins for Q3 were 89% compared to 85% in the year-ago period. Total operating expenses were $4.8 million compared to $2.2 million in the year-ago period, and included $831,000 of noncash, stock compensation expense compared to $362,000 in the year-ago period. Now let me break down the expenses by category. Selling and marketing expenses were $1.1 million in Q3, compared to $668,000 in the year-ago period. R&D expenses were $2.1 million in Q3, compared to $738,000 in the year-ago period. The year-over-year increase in R&D expenses reflects our continued investment in developing new products. G&A expenses were $1.6 million in Q3 compared to $785,000 in the year-ago period. Our headcount at the end of Q3 remained around 50, and our hiring this year has been primarily focused in the R&D area. GAAP net loss was $2 million or $0.08 per share in the third quarter. This compares to net income of $325,000 or $0.01 per diluted share in the year-ago period. Non-GAAP net loss was $1.2 million or $0.05 per share, compared to net income of $687,000 or $0.03 per diluted share in the year-ago period. Non-GAAP net income excludes stock-based compensation expense and noncash interest and amortization expense related to convertible debt. Our share count for Q3 was 25.6 million basic and fully diluted shares. Turning now to the balance sheet. As of June 30, 2012, we had cash, cash equivalents and investments of $15.4 million, compared to $16.3 million at September 30, 2011. During the first 9 months of fiscal 2012, we've used around $1 million of cash to fund our operating activities, and we believe that our current capital resources are sufficient to fund our business plan. Accounts receivable was $3.2 million, as of the end of Q3, versus $3 million at September 30, 2011. With that, I'll ask the operator to please open the line for questions.

[Operator Instructions] And our first question comes from the line of Bhavan Suri, William Blair & Company. Bhavan Suri - William Blair & Company L.L.C., Research Division: One of the things I want to point out was a good metric that illustrated the increase in transactions since the last quarter. I wonder if you can confirm that's just transactions for Mobile Deposit and I guess the question I had is how are you getting the metric and what -- and on what frequency? Because in the past, I guess, there've been some concern about, sort of, even arriving at this metric?

Bhavan, what we've experienced in the marketplace is dramatic growth in the usage of the product. When we invented and launched this product, our first objective was to sign channel partners who could help us sell it and scale the business. Secondly, to secure agreements with large banks to deploy it. The remaining question always was, will the consumers find it delightful as a consumer experience. And I think we've answered that question affirmatively with the kind of growth that we're seeing in these transactions. As part of our agreements, with our channel partners and ultimately with the banks, we can and are collecting usage data on a quarterly basis. And so as a result, we are collecting trends and we're analyzing those trends. We are not, however, allowed to reveal individual bank performance with regard to usage. We're hoping the banks do that soon. But in the meantime, we're aggregating the information. And as the number of banks grow that are live, and that is happening every quarter, we're getting more and more data. It is all universally positive with regard to usage growth, and we find that very, very encouraging. The other part that's important to us is that this portends well for our future products. What we're seeing is a change in the consumer habit using the camera on the smartphone or the tablet as an on-boarding method, a device that allows them to avoid keystroking in the data, and by simply snapping a picture is becoming a consumer habit that they're finding useful, convenient and without error. And that's, I think, very encouraging, not only for our current Mobile Deposit product, but for the future products that we expect to be commercial before the end of the year. Bhavan Suri - William Blair & Company L.L.C., Research Division: Right. Right. Jim, that's helpful. And again I understand you don't wanted to give out the bank information in detail. But I guess the question I would have is, so any -- even just a range of what the aggregate number of transactions is, so we have a base to work off of.

Bhavan, a very fair question, but we're prevented from doing that. I tell you even JP Morgan Chase in their analyst call portrayed their growth in consumption without a scale. Meaning they had an increasing month-to-month bar chart. It was dramatic, but they didn't have a scale because they are not ready yet to reveal their numbers to the marketplace. We believe once Citibank and Wells Fargo and Bank of America get rolling that we can anonymize the data in the future ultimately aggregated and then share that information in the future. We're not quite there yet. Bhavan Suri - William Blair & Company L.L.C., Research Division: Okay. Fair enough. And then just on reorders, you mentioned some reorders, could you provide some color on where the reorders were from, is that sort of customers you've sold directed to or partners? What types of partners?

Yes. Sure, Bhavan. It's Russ. One of the 4 reorders we discussed on the last call, that was one of the channel deals that slipped out the last quarter, that we did get closed in this quarter. That was one of the 3. The other 3 were also with channel partners. Smaller in size than the one. But again just all reorders from channel partners who had purchased initial blocks over the course of the last 2 years. Bhavan Suri - William Blair & Company L.L.C., Research Division: Got it. Got it. And on the services line, and I'll wrap up with another one -- with one more quick one. But on the services line, how much of that roughly 700,000 is maintenance and how much is actual delivery services?

Bhavan, it's virtually all maintenance. We may do in any given quarter in the neighborhood of $50,000 to $150,000 of professional services work, but it's virtually maintenance.

The next question comes from the line of Tom McCrohan, Janney Capital Markets.

Jim, do you believe the remote deposit capture addressable market is still -- I think it was $200 million in revenues, an apology if I got the number wrong. But I think you have spoke about the addressable market brining about $200 million in revenues. I'm just wondering if that's changed at all and what your expectations are in terms of kind of seeing those revenues through the P&L?

Tom, what we have reflected in our investor presentations in the past are numbers presented to us in -- by AlixPartners who have calculated a total of 2.1 billion checks to be deposit using the mobile channel by year 2016. So that's how we derived the top end of a potential market size of 200 million based on AlixPartners' study directly with consumers. What we have and can report on for Mitek from our perspective is that the market for Mobile Deposit, we think, continues to strengthen and expand. Currently, the activity in the market is driven by retail banks directly to their consumers. What we are also seeing more recently, is the use of Mobile Deposit among merchant or commercial accounts. That would include organizations and companies like distributors or people who provide services in the field for which they get paid in check at the point of service. So we think that's a growth opportunity. There've been some articles written about a beer distributor, the third largest in the country who is currently working through Chase Treasury to offer mobile check deposit through the Chase bank. The third area of growth we see is in the prepaid market, particularly for the underserved or other banks segments. And we think that number of Americans ranges somewhere in the order of 60 million to 80 million Americans, who are currently underserved through banking and financial services, but whom -- many carries smartphones. And that's a new market. We announced that capability to use Mobile Deposit to not deposit into a bank account, but to simply top up a prepaid card by imaging a payroll check or other item. And so that is another area of growth and opportunity. So again, we believe very strongly in the potential of growth. We're at the tip of the iceberg here, Tom. But whatever metaphor you'd like to use, top of the second inning, scratching the surface, whatever the case is, we're seeing tremendous demand surging from the consumers who have been made aware of this technology, have used it successfully and happily and through viral growth are talking about it and others are adopting it. And if you'd like evidence of that, I suggest that our shareholders could go to the Apple Store, download or review the consumer reviews that are offered and written, independent of Mitek, on pages of the Bank of America app or the Wells Fargo app or the Citibank app. It's all very telling about consumers who have demanded this technology because it saves them time and is more convenient.

And can you -- and this is my last question [indiscernible] give it -- to give opportunity for other people. Can you provide an update, Jim, on all the use cases we talked about and have been live now, the mobile quoting service with Progressive and also any expectations around the mobile bill pay being released by your unnamed banking partner?

Well, we haven't revealed with whom our product is being piloted. Mobile Photo Bill Pay is currently in pilots. We think it is looking very strong right now. And that we expected it would be commercially available very soon. So we're on track there. Separately, we have discussions with Mobile Balance Transfer. This enables you, as we've talked about Tom in the past to image, a credit card statement and to receive an offer from a different credit card issuer to compare the interest rates and the terms and conditions and to make an option to transfer your balance to a new credit card issuer. That automates the marketing process. It's a way for the bank issuer to engage in new consumer, and it's less costly for them than direct mail. So we think the prospect for that product is also very strong. The technology is rock solid. In addition, I mentioned in my remarks earlier, the company Smart Tuition. They actually have deployed a product we call ACH Enrollment. It's the ability for individuals to snap a photograph of a voided check. We extract the banking, routing and transit information and other bank information that's pertinent. And we assist the consumer enrolling in new services. In this case, a K-12 tuition payment program. And so we're seeing the use of our technologies in new ways that we didn't even anticipate here at Mitek. And the use cases continue to grow. We frequently get contacted by industry members of the health care vertical market, who have an interest enrolling insurance cards or assisting in payment or facilitating reimbursements through flex spending accounts. Again all within the wheelhouse of our technology of our algorithms that enabled capturing information from printed documents. So we're very encouraged by the expanding universe of use cases today.

Your next question comes from the line of Mike Grondahl, Piper Jaffray.

The first one is just did you disclose the volume or the number of transactions related to the 4 reorders? And then secondly, on the Bill Play, the new product, how many pilots are you running? Is that just one or is it several? And then lastly maybe, in terms of Progressive, any revenue there so far or kind of when do you think you'll begin to generate revenue from that relationship?

Mike, it's Russ. On reorders, we haven't disclosed any metrics or sizing on those other than that we had 4. And as I mentioned, a minute ago, we had a larger one through a channel partner all 4 of them were through channel partners as well. We have the same issue from an NDA perspective on sizing on particular customer deals and there's a small basket of them. So I think in terms of quantifying the number we've given out which is 4, and that's probably all the information we can provide at this point. Your second question was Bill Pay.

The number of Bill Pay pilots. Yes.

Number of Bill Pay pilots. So we're working through as Jim mentioned on Bill Pay. We're talking to 2 current deposit customers about the product and have pilot agreements with them. So once we're working through that. As Jim mentioned, we're looking forward to the getting through those processes and getting a deal signed here in the near future.

Great. And then lastly just on Progressive, any revenue currently or when do you think that relationship could generate revenue?

Sure, Mike. So on that one. Again, we signed a, what I call, a limited license agreement a few quarters ago with Progressive. The app is live in around 30 states today. We're working with them to fill out the rest of the map and be in a position to enter the next phase of an arrangement with them that covers the map in the U.S. So we're focused on that as well. We're working towards it and hope to be able to have something to announce there in the near future as well.

Great. And then maybe just lastly, your operating expense levels, are those good levels to think about going forward or was there any onetime items in there?

Yes. There were some, what I'd love to call, onetime items when we get into litigation expenses and so forth, although it might be a little tough to describe those as onetime. But we did, as I mentioned in my remarks, the $4.8 million in OpEx for the quarter included $800,000 or so of stock comp. So call it around a $4 million run rate there that has obviously increased during the year. We continue to invest in hiring additional engineers and scientists. And to a lesser extent, add people to the sales team. So we will continue to invest on the OpEx line, but we have had a fair amount of growth during the year. And as we move ahead into our next fiscal year, we'll take a look at that and see how it plays out. But again, the $4 million, kind of, non-GAAP OpEx for the quarter, I wouldn't expect that we creep up as much as we have during recent quarters, but we will. I just want to be clear, we will continue to invest in R&D and in the sales team as well.

The next question comes from line of David Chamberlain [ph], [indiscernible].

Quick question just on the 25% transaction growth, can you give any kind of comparison in the previous quarters to give us -- I understand you don't want to give exact numbers, but, I think, since the progression in the transaction growth that would be helpful.

David, it's -- the 25% quarter-over-quarter that we reported here, we've seen, and I guess Jim mentioned, we're still in the early stages. So as volumes increased over the last 4 or 5 quarters. There's some lumpiness again as the sample size in the population continues to increase. So when we looked at the metrics this quarter, and ended up with the -- greater than 25% which we disclosed earlier. And we think that's a good kind of metric to think about going forward. And I hesitate to throw out some of the prior quarter growth rates because they have bounced around as the sheer base line of transaction has continued to grow.

I think additionally, we are collecting more information from the channel and from our customers, and so we're able now to present for the first time what we see is the dramatic consumption growth, based on some hard numbers that we are now collecting. And we will continue to do that, David, moving forward.

Okay. And just dovetailing on Mike's question on expenses, do you foresee -- so in R&D my sense of what you're saying is that the rate of growth kind of sequentially and perhaps R&D still increase, but you won't see this kind of, let's just say, year-over-year kind of tripling in R&D? You think the rate of growth is going to, at some point, start to slow? Is that fair to say?

I guess I would come back to we'll continue to invest in commercialized products that we've been talking about getting to market on over the last few minutes. So our number one focus for investment dollars, in terms of our budget cycle is going to be in the R&D area, engineering and scientists, product management as well. So with that said, if you look at sheer rates again, as our baseline grows. It's difficult to continue to invest at the same percentages. So I guess from that perspective, I wouldn't expect the same percentage increases on a go-forward basis. But certainly, I would continue to expect that line to grow. And also, sales and marketing as well as we focus and make the transition from Mobile Deposit into Bill Pay and insurance quotation and some of the other applications, we will need to add not a huge sales force but add some heads in the sales and marketing area.

Okay. Final question was just on the Photo Bill Pay product. It sounds like something maybe not intermittent, but do you expect in -- something in the second half of the calendar year in terms of when this product is going live?

Absolutely. We've been continually working on the algorithm's refining, and we think we have a very solid product candidate that is in pilot right now, and we think we'll be through the pilot phase in the near future, meaning within months, and commercially available within that same timeframe. We have a strong appetite for the product to become commercial in this fall selling season, beginning with this end-of-summer period. And therefore we're supporting that with a lot of energy right now in our R&D team for refinement, completion and delivery. So all systems are go, David, in that one. We really think it's very critical for this company to deliver our second killer product. So it's a major focus in what we're doing here to complement what we're doing with Progressive and drivers licenses, and of course, continuing refinement and innovation with Mobile Deposit.

And the next question comes from line of Mayank Tandon, Needham & Company. Mayank Tandon - Needham & Company, LLC, Research Division: Jim, I wanted to just get a sense on the pricing. I think you've talked about $0.10 per transaction on the Mobile Check Imaging business. I know you're not giving specifics on the 4 reorders, but just wanted to get some color in terms of those reorders. Have they been around that level or have you seen any of your partners come back and try to renegotiate pricing?

Mayank, how we look at pricing and what we've discussed in the past has been an average and arranged. And we're consistent within that average and range on the bulk of the orders that we've conducted over the course of Mobile Deposit and it's life in the product arena. So we feel very positively about sustaining its price point. Obviously, it's a volume-based pricing model and so we're looking to encourage, not only consumption by consumers, but to reflect that additional reorders by our partners. That is happening. And some partners are making larger reorders than others, as they see and seek how to satisfy the demand being created. So in summary, we are consistent in that range. We don't like to talk about details for obvious reasons because it disadvantages us in the marketplace in negotiation with the market. So however, we have made public statements with regard to the range, and we are consistent within that range. Mayank Tandon - Needham & Company, LLC, Research Division: Got it. Appreciate that. And also, maybe Russ, could you share some -- I know you haven't provided a cash flow statement, but could you provide some color on the key cash flow metrics? I'd be particularly interested in terms of how much you've spent on the litigation, so far, and what your expectations may be?

Sure, Mayank. Key cash flow metrics I mentioned in my remarks, we've used about $1 million in cash from operations on a year-to-date basis for the 9 months. We had about $200,000 in CapEx over that period of time as well, just IT maintenance and so forth. In terms of legal spend in this most recent quarter, obviously that's when things kicked off. So there was maybe higher activity than I guess maybe back up. There was a relatively higher level of activity in this last quarter. It will be spotty, depending on court schedules and when things get going. But we did have around $300,000 of legal expenses in the quarter related to the USAA matter.

The next question comes from the line of Bhavan Suri, William Blair & Company. Bhavan Suri - William Blair & Company L.L.C., Research Division: Just a follow-up on Progressive here. It's been a couple of quarters since that's rolled out and it's great to hear they're growing nationwide. Any sense on sort of the growth as they rolled out through states again, is it sort of single-digit, double-digit kind of growth that you're seeing in transactions? And I guess the follow-up to that is, is there repeatability to those transactions or those, sort of, tend to be more onetime type things?

Bhavan, let me address that. This is something that's repeatable and it is universal with regard to appealing to a broad section of consumers. What they're discovering, what we're told, is that not only consumers 21 and above, but for the young consumer who are getting their first auto insurance quotation using their smartphone is also a target market. They're very satisfied with the results that they're seeing, in terms of adoption and transactions as it relates to snapping a photograph of a DL and also the VIN number to get a mobile quotation. So we're very encouraged by that. We have not been enabled by providing you with any statistics and we allowed Progressive to do that when they're ready to do that. But know that they continue to advertise the product nationally. You may have seen the TV commercial featuring their slogan [ph]. And that continues, which I think is a good indication of their -- how pleased they are with the technology and how much further they'd like to go with nationwide coverage of that application. Bhavan Suri - William Blair & Company L.L.C., Research Division: Great. Great. And then just a quick one. With the Olympics coming up,, were there any partners that had indicated, or any clients that indicated, sort of a increase in spend in marketing during this time? Just so -- a, I'll keep an eye out for the ad, but more just so to get a sense of if people are ramping up spend during the summer here?

We have not been told that anyone is increasing their advertisement during the games. If they are sponsors, of course they expect to do that. But I don't believe Chase is a sponsor. I'm not sure if they are, actually, of the Olympic Games, but they've been consistent in their advertising as Progressive. We have seen Citibank launch a national campaign featuring 2 Olympic tennis players, and that's been effective, and one Olympic runner. But it's not directly tied to the Olympics. They're not authorized by the IOC to use the 5 rings because they're not an official sponsor. But they're using the opportunity of sporting -- a sporting event to capitalize on marketing their products. So in sum and substance, Bhavan, we don't know if it's benefiting any additional advertising or not. But we certainly like to see. I certainly am hopeful for organizations like Wells and BofA at some point to put a little marketing clout behind their launches.

The next question comes from the line of Tom McCrohan, Janney Capital Markets.

Jim, in the pricing for Mobile Photo Bill Pay, has anything been finalized now that you can have that -- some of your customers are getting closer to the launch?

Tom, we have not signed a commercial license deal for the commercial launch of that product. However, our approach to that product will be slightly different. I should say entirely different really than how we're conducting our approach to Mobile Deposit. As you know, with deposit, you buy blocks of transactions, deposits, up front. With our mobile imaging solution, that include Photo Bill Pay, Balance Transfer and our future products, we are evolving the model where we would secure a platform fee for the core mobile imaging platform. And then a quick charge for the usage of the technology for particular use case. So it would be less front-end loaded and more back-end loaded. Evening out what we have had in the case of lumpiness in the past, due to all of our concentration in Mobile Deposit is we diversify the product line, and particularly in light of this new revenue model, we'll able to do what we think will even out the lumps and have a more predictable path as these other products take root.

The next question comes from the line of Joel Achramowicz, Merriman Capital.

I wanted to ask Jim, first of all, you've expressed, particularly on schedule, to see Photo Bill Pay perhaps come online one of the pilots by summertime, are you still on that schedule?

We really think we are, Joel. I mean, we haven't deviated from that at all. We have been working very hard behind the scenes and with our pilot customers. But we believe that is true and we stay firm with that expectation.

Great. And then one question, Russ, for you. Do you see potential revenue -- sequential increases in revenue from the third quarter to the fourth quarter?

Yes, Joel. We haven't given revenue guidance historically. I don't think we're going to change that at this point. Obviously we have had some lumpiness in the past. We're pleased to see results this quarter back on track in the range that we've had prior to our fiscal Q2 and hope to continue that.

Okay. Then let me rephrase that. Is it possible that we could see Photo Bill Pay revenues in the fourth quarter?

It is possible. Again with the timeframe that we're talking about. Summertime, that would fall into our fiscal fourth quarter. So that would assume a signing on a Bill Pay deal.

Very good. Fair enough. And finally a question on the legal side. Jim, could you perhaps give us some color on maybe some of your major RDC deposit capture customer geography working with huge banks, how they're reacting to this legal situation that's obviously disconcerting. But obviously you don't want it to affect your operations going forward. But could you maybe give us color on how they're reacting to that and what -- how that might be affecting or perhaps even helping you in some regards in terms of moving forward?

I'd be happy to, Joel. We take this very seriously here and we intend to very vigorously defend our rights. We very -- we feel strongly. The customers that we have for our products have been extraordinarily supportive. We have seen big banks launch their products commercially even after the advent of the USAA allegations. Secondly, we've seen new banks sign on and go live. And so we're seeing continued momentum and support from the industry. Obviously, people have questions and we are responding to those questions. But we're doing so in an affirmative way and we believe they feel comfortable moving forward. This is a phenomenon driven by consumer demand. The banks are responding to that and it's growth. I like to point you, Joel, and everyone else on the call to a special micro-site on our website that has a clear timeline of the sequence of events from our invention and our patents all the way through providing technology to USAA and then their false allegations against us. It is located at www.miteksystems.com/usaa/litigation. I encourage all of you to review that. It is very compelling. We have a very compelling record of e-mail exchanges, meetings that occurred and information that we provided to USAA. And we feel very strongly that our invention is what fueled their go-to-market strategy. And so we will defend it. We'd like you to review that, and anxious to get this settled once and for all.

And there are no more questions at this time.

We'd like to thank everyone for joining us. We look forward to speaking with you in 90 days.