Good day, ladies and gentlemen, and welcome to the Mitek Systems Fourth Quarter and Fiscal 2021 Financial Results Conference Call. Today's conference is being recorded. At this time, it's my pleasure to turn the conference over to Todd Kehrli, MKR Group. Sir, please begin.

Thank you, operator. Good afternoon, and welcome to Mitek's Fourth Quarter and Full Year fiscal 2021 Earnings Conference Call. With me on today's call are Mitek's CEO, Max Carnecchia; and CFO, Frank Teruel. Before I turn the call over to Max and Frank, I'd like to cover a few quick items. This afternoon, Mitek issued a Press Release announcing its fourth quarter and full year fiscal 2021 financial results. That release is available on the company's website at miteksystems.com. This call is being broadcast live over the Internet for all interested parties, and the webcast will be archived on the Investor Relations page of the company's website. I want to remind everyone that on today's call, management will discuss certain factors that are likely to influence the business going forward. Any factors discussed today that are not historical facts, particularly comments regarding our long-term prospects and market opportunities should be considered forward-looking statements. These forward-looking statements may include comments about the company's plans and expectations of future performance. Forward-looking statements are subject to a number of risks and uncertainties, which could cause actual results to differ materially. We encourage all of our listeners to review our SEC filings, including our most recent 10-K and 10-Q for a complete description of these risks. Our statements on this call are made as of today, November 4, 2021, and the company undertakes no obligation to revise or update publicly any of the forward-looking statements contained herein, whether as a result of new information, future events, changes in expectations or otherwise. Additionally, throughout this call, we'll be discussing certain non-GAAP financial measures. Today's earnings release and the related current report on Form 8-K describe the differences between our non-GAAP and GAAP reporting and present the reconciliation between the 2 for the periods reported in the release. With that said, I'll now turn the call over to Mitek's CEO, Max.

Thanks, Todd. Good afternoon, everyone, and thanks for joining us today. Fiscal 2021 was another outstanding year for Mitek as we achieved record revenue, earnings and cash flow from operations. Our market-leading fraud fighting offerings delivered strong growth during the fiscal year as our customers and partners accelerated their digital transformation and increase their fight against fraud. Before looking at the numbers, I'd like to first congratulate Mitek mission on another stellar year. Mitek has never seen better execution or greater momentum and each of you showed commitment and tenacity to deliver the best solutions and services for fighting the never-ending increase in fraud in the world of digital commerce. In the fourth quarter and throughout fiscal 2021, we have delivered strong results against the backdrop of economic uncertainty and the lingering impacts of the COVID pandemic. In doing so, you have each demonstrated the resiliency of our business and validated our growth strategy. Quickly looking at the numbers for fiscal 2021, we recorded record revenue of $119.8 million, representing growth of 18% year-over-year. We also generated record non-GAAP net income of $34.2 million or $0.76 per diluted share, up 19% year-over-year and record cash flow from operations of $37.4 million. We accomplished a lot in the fiscal 2021 beyond just our record financial performance. We provided exceptional customer value to the world's leading banks, fintechs and marketplaces as they look to move more and more of their businesses online in a secure and trusted way. Mitek is distinguishing itself as a critical component in the fight against fraud. And during the year, we made key investments in people and technology as we look to expand the breadth of our product offerings and the markets we serve. With our acquisition of ID R&D, we added award-winning AI-based voice and face…

Thank you, Max. Congratulations Mitek on so many great accomplishments and another great year. And thank you, everybody, for joining us this afternoon. I'd like to start with Q4 revenue and operating results. For the fourth quarter of fiscal 2021, Mitek generated record revenue of $33.3 million, a 9% increase year-over-year. Software and hardware revenue was $17.8 million, down 1% year-over-year. The decline in software and hardware revenue is due primarily to lower software revenue from our legacy on-prem ID products, which are being discontinued as well as timing of Mobile Deposit reorders. Services and other revenue, which includes transactional SaaS revenue, maintenance and consulting services, was $15.5 million for the quarter, an increase of 22% over Q4 last year. This increase was due to primarily the growth of transactional SaaS revenue, which increased 26% year-over-year to $10.2 million. For Q4 2021, deposits revenue increased 2% year-over-year to $21.9 million. Identity verification revenue increased 24% year-over-year to $11.3 million. We delivered strong software and hardware gross margins of 99% for the quarter. Gross margin on services and other revenue was 81% for the quarter, and our total gross margin for the quarter was 90% compared to 88% in Q4 of last year. Total GAAP operating expenses, including the cost of revenue were $28.9 million compared to $24.6 million in Q4 of last year, and this increase is due to investments to grow our identity business and the additional costs associated with the ID R&D acquisition. Sales and marketing expenses for the quarter were $8.4 million compared to $7.3 million a year ago. R&D expenses were $8.2 million compared to $6.1 million last year, and our G&A expenses were $6.1 million compared to $5.9 million a year ago. GAAP net income for the quarter was $2.2 million or $0.05 per diluted…

[Operator Instructions]. Our first question comes from Bhavan Suri with William Blair & Company.

Mitek team, congratulations. That was a solid quarter, nicely done. I guess, let me start off on the Check Defender product. You launched it 4 months ago, you sort of commented 20 of the top 25 have adopted, and that's been steady for a couple of quarters. I guess, I'm just wondering sort of, how is that sales process going? Is that an evangelical sale yet? Or is this something that customers are just sort of understand this is kind of necessity and need to have. Like how much of that is a push versus pull sale -- Maybe I'll start there.

Yes. So Bhavan, it's Max. Thanks for the comments and the question. Just as a reminder, Check Fraud Defender technology has existed. We had kind of the bones or the components of this for the last, I guess, 2 years. And so we've had customers very large banks implemented on-premise with a lot of help from our services organization. So what we announced back in June, I guess, maybe it was May was the idea that we were going to now pop this up into the cloud, do a lot of technical work to make it secure and scalable and get it up on AWS and then provide it so that there was cross tenant capability in being able to look at those checks across a spectrum of institutions. And we were asking those institutions to basically join that network quasi consortium. And so the progress that we've made when we talk about the revenues or we talk about what we've learned and the kind of impact from an ROI and an operational efficiency perspective, it's from what we've seen on premise. And we've got a subgroup of those folks who've now joined the network consortium. And we're still working to build that product that was announced back in June, and we'll have that online here in the coming months. So back to your question about kind of what the sale is like, there's a good deal of pull from the folks that have already seen the kind of benefits and value they get with an on-prem solution, where they're only seeing the checks that come through their doors with the idea that they would have a much larger ecosystem to be able to do this across some of the larger top 20, 25 banks. It's a little more evangelical, if you will, with the smaller midsized banks where we've never really kind of exposed them to it. But I will tell you that those pipelines are very robust. They're banks, right? They're big banks, so they managed to go at a pretty glacial pace because they got a lot of lawyers and a lot of compliance folks, but over time, this is going to -- with every passing week and month, I think it only validates what we think this should be able to turn into in the coming years. Frank, anything you'd add to that?

Yes. The 1 thing I would add to talk to you, by the way, great for the outreach. As Max indicated, the interest is strong. You saw -- you heard from Max's release, Check Fraud n the U.S. alone is a staggering number. So I think there's a high degree of interest in how we're doing this thing. And also, we've got some great history. So the on-prem solution has functioned incredibly well. And so to Max's point, on the pull for most folks who understand how it works, it's a pretty good pull.

Yes. Yes. And I mean I think obviously, the cloud solution where you can sort of see that cross organization piece ultimately, and not saying it's happening soon and becomes a no-brainer. Let me turn to the ID verification side quickly here. I know you're not giving guidance, but 2 questions, I guess, or 2 parts of this question. One, I know you said 24% growth, but that's obviously sometime in the on-prem business. Can you give us some sense what normalized growth was like ex the on-prem business, if I did like-for-like? And then what should we think of the growth rate of this business going forward? Sort of as we think about demand and usage heading into fiscal '22, are we thinking this is an acceleration type business? How should we think about that without specific guidance just frame us sort of what you see in the pipeline demand environment to offset that. So just kind of a quick numbers question and some more -- something more strategic but sort of how that pipeline drives into growth for that business over, say, the next 12 to 18 months?

Yes, Bhavan, great question. I'm going to -- this is Frank. I'm going to handle the first 1 then I'll pass the baton over to Max for the second question. Look, I think it's a -- we play in a market. If you look at the overall market, it's growing at a really good clip. The imperative to get it right, continues to grow. -- as you know, we don't provide numbers and guidance, but we feel strongly that there's -- as we've indicated in the past, the kind of growth rates that we expect to see out of identity, we think we continue to reach those growth rates. So without providing numbers in guidance, we're very bullish on what's happening in IDV, especially when you think of the extensibility of these new products that we're layering in, the multimodal biometrics, the ability for us to expand deeper in that marketplace, I think bodes really well for us. So not getting into the numbers that we feel pretty good about where that business is going.

Yes. It's safe to say that if it was 24% with the legacy -- net on legacy it's only superior to that. We can kind of lift our heads up and then answer your question on the pipeline.

I thought on one figured it out, Max. That part...

I would say for the other folks out there, Bhavan, listening. I know you had it, but you know how it worked. If we lift our heads up and kind of think about the pipeline, there's some pretty good, I think in the last 12 months, there have been some pretty good analyst reports that can help the IK Group. Juniper came out with some information. And for the markets that we serve, it's estimated in 2021 that the spend for IDV, this isn't even identity authentication, just proofing for on-boarding journeys for banks in the United States or call it the Americas and Western Europe is something like an $800 million spend category. And that when they run that out to 2025, it turns into like a $1.2 billion spend. And -- So they're predicting a CAGR that's right around 15% for that. That doesn't include any of the biometrics which, as we said in the prepared remarks is probably an even larger opportunity. So if -- I don't want to say kind of market is 15%, but if in some place, at 15%, 20%, we think that we should be able to grow beyond that, take share again, in the segments that we're focused in that's the geographies and the industries we're focused in. The one quick thing I would point out is with ID R&D now, those are components that end up on-prem, and we license those, the ID R&D team license those on a subscription basis. net revenue is identity revenue, but it's going to show up in the software line of our income statement. And some of the things that you'll see us announce in the coming months around identity authentication will be less transactionally driven from a revenue model, they will be in the cloud, but there will be more traditional subscription. So I think you'll start to see the mix of how that identity revenue kind of comes together to build up that growth at those higher rates. It will come from a number of different buckets just because the portfolio that we're going to have -- the portfolio we have today is different than the when we had a year ago, it'll be more different over the course of the next 6 to 9 months.

Fair enough. Fair enough. I think just as a sort of reiterate this, I think, over time, separating those 2 because there is obviously this concept of the check deposit business take check part aside sort of a business that has a headwind, which as checks ultimately tend to decline, whereas the ID verification obviously has much more stronger secular tailwinds. It may help to separate those even if they are in sort of different buckets, but just conversational time. I appreciate the answers gentlemen and the candor.

Yes. It's a good tip. I think the 1 thing we see is definitely the legacy of the historical checks business where we're doing transactions certainly is not an identity signal, but Check Fraud Defender is absolutely an identity signal, certainly a financial fraud signal. So we still got to figure out what the best way to present this so that investors understand where all this growth is coming from.

Our next question comes from Mike Grondahl with Northland Securities Inc.

And did you say a rough number of revenue that came from Check Fraud Defender. And any sense on what is average top 25 banks should be paying for the product in, let's say, a year.

Yes. So just as a reminder, the historical Check Fraud Defender has been this on-premise set of components that we help to assemble and do some services around. The new consortium network in the cloud is still work in progress. We have a couple of charter customers that are working through that with us. The revenues in Q4 were de minimis relative to the cloud-based check fraud Defender. Your question around how we would license and how we price it, really comes back to the kind of incredible value that these institutions are getting from it. And so we've got those insights from the on-prem instances that are out there, and that's both very high dollars in Check Fraud prevention and a like high number of operational costs that get to be reduced because you don't need to have a whole bunch of humans running back and checking out these false positives on potential check for us. And that obviously leads to better customer satisfaction and experience as well. So Frank make sure I didn't miss anything.

Yes. No, I think that's right, Mike. Great speaking with you again. We're going to figure out as we go along. I think as Max indicated, if you look at the early results and the value they're seeing, I think as this thing grows and it kind of grows and gets to where we think it will be, it will be compelling. We're going to evolve the pricing, and we'll figure out as we go along. But I think what we can say with certainty is the value our customers are getting on-premise is significant.

Got it. Got it. In Mobile ID any new use cases in the recent quarter?

Yes. I think Mobile ID is a very interesting space. So think of it this way. We're -- We're building a platform here that has dynamic as the market is. So if you think of use cases, the use cases are abundant in fraud prevention, as you know. So how we verify people, how we harmonize that identity physically and digitally to a device with a halo effect of a real-world authenticated government document, that's a compelling differentiator. And we think that, that ability to combine identities, harmonize them to a real-world document and then provide a higher degree of trust, as Max indicated, in the talk track to our customers is compelling. And I think it lends itself to all kinds of great potential new use cases, and we're working with our customers to see how we spend. So as those use cases change, their fraud vectors are changing costly, their requirements are changing constantly, where there is to adapt and try to figure it out with them. So I'd say there's a real opportunity there to really proliferate that degree of trust that we provide to different use cases and different fraud vectors.

I would say, Mike, 1 of the things we're seeing on a more consistent basis now is introducing Mobile Verify with some of the biometric capabilities that we've incorporated from ID R&D for the reverification or rebinding of a device, right? So the idea that you've got in an established relationship with whoever your financial service provider is fintech, big bank, whatever. And you go get a new phone or you lose your phone and you've got to rebind that phone. That device is part of your -- it is 1 of the major attributes that these institutions are using to establish identity. But once you get a new phone for whatever reason, it's got to now be -- it's got to be retethered to their records. And using both the biometric but also then high assurance government-issued identity document, that's something that you have combined with the face to something that you are, that's a rising use case. So I don't know if I would call that a new one. I think we've talked about it in the last couple of quarters, but it's definitely something that's gaining momentum.

Yes. I think of it this way, as Max indicated, these identity attributes have half-lives -- And if you got to have some way to reverify and remind that keeps the customers happy that they can still trust that combination of device behavior and identity. So it's good stuff.

Our next question comes from Hamzah Mazari with Jefferies.

This is Mario Cortellacci filling in for Hamza. Just my first question -- How are you -- My first question is around new product introduction. And maybe you can just give us a sense for what that new product introduction will look like in ID and fraud over the coming months? And I believe that the previous question is just about new use cases. And just -- I'm wondering, is growth more about introducing new use cases or about actually introducing new products. And then once the new product is introduced, how long does it normally take for that product to ramp or hockey stick or I guess, contribute to growth in a meaningful way?

Yes. So I'll try to unpack that question. So first as a recap. So we introduced -- We announced and introduced Check Fraud Defender back in the June time line. This quarter, I guess, technically, it was October, but part of this call, ID LiveDoc was introduced at Money20/20 2 weeks ago in Las Vegas. And then in the coming months, you'll hear from Mitek with the identity authentication solution. And so your question around that's the pattern, that's what we're doing use cases versus products. Sometimes it's uncovering new use cases with the products and solutions that we have. Then there's also -- we see these adjacent use cases. I just talked about the binding, the rebinding of devices. The ability to do that today with a face and a government-issued identity document is compelling. The ability to do that in the future with just a face and a voice and no government identity document or in addition to a step-up with a government issued identity document, there's an instance of -- we've got an extended use case, we've got to add product, we've got to add capabilities to the offering. So I don't know if I covered the full series of questions there, but those are the ones I remember.

No, no, that's super helpful. And I guess just my follow-up is around your acquisition pipeline. Just -- could you just give us a quick update on what that looks like in both the near and long term? And then as you guys are assessing targets. I guess is there any financial criteria that you're looking for? Or is it simply more about capabilities and technology that you could integrate into your platform and allow for more product innovation?

Yes. So that's a really good question, Mario. So we kind of look back over the last kind of, call it, 90, 100 days since last we all spoke, we've been very active. We've been very active at targeting an outreach at pursuing opportunities, some of which have been brought to us because companies are for sale. More likely, it's our own outreach in the areas that we've targeted as being strategic capabilities that we'd like to partner with these organizations for. As you well know, because you're in the banking business, valuations in every area of technology have gone through the roof and at borderline crazy in some instances. So your question, typically, what we're doing is starting with the strategy, what are the areas that we're trying to expand our offering or fill gaps through acquisition, change the game. There's a -- certainly does it fit the need? Do they have the right stuff? Does it work? Is it effective? We think about matching fit from a personality perspective, right, the culture and the environment and having people that you want to work with, like we do with ID R&D, it's just such a great match, that counts. And then the financial question is one, that we get hung up on. We can hung up on valuations and we get hung up on structure. And I would say of the dozens of things that we tried to action in the last 100 days, typically the place where we've -- once you kind of sort through those other screens that I just outlined for you. The place we get hung up is folks have some very unrealistic expectations around their growth prospects and then what that translates into -- in value. But we're not slowing down. We're not giving up. We see this as a great opportunity. There's new companies coming over the transom all the time, and we'll just continue to persist on it.

[Operator Instructions] Our next question comes from Allen Klee with Maxim Group.

This is Derek Greenberg on for Allen. With you guys is identity services, I was wondering if that's a profitability or not? And if not, what the path towards that looks like and when do you guys expect to achieve profitability?

It's Frank. Great speaking with you. We're building a model around that is disciplined. We've got -- we're way ahead of our profitability goes today. The Identity business is still a cash consumer. The deposit business is a great cash contributor. But we're way ahead of path and our expectation is that probably a year before we thought we'd get there, we'll get there. We're targeting coming out of FY '23, the identity business being breakeven to cash flow positive.

Awesome. And then 1 more, just how do you guys see your operating expenses growing in relation to revenues?

Slower than revenues.

Slower than revenues. We're going to make the right investments, as Max just indicated to kind of flesh out and extend the offering. But we're disciplined here in terms of how we look at it. So it will grow, but it will grow based on very deliberate specific investments, and it certainly won't match the revenue growth.

There are no further questions in the queue at this time. So I'd like to turn the call back over to Mr. Todd Kehrli for closing remarks.

Thank you, operator, and thank you, everyone, for joining us today. We look forward to updating you again next quarter. Our call has concluded. Have a wonderful day.

Thank you, ladies and gentlemen. This concludes today's teleconference, and we thank you for your participation. You may now disconnect.