Good day, and welcome to the Mitek Systems’ Second Quarter 2022 Financial Results Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Todd Kehrli of MKR Group, please go ahead.

Thank you, operator. Good afternoon, and welcome to Mitek’s second quarter fiscal 2022 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 would like to cover a few quick items. This afternoon, Mitek issued a press release announcing its second quarter 2022 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, April 28, 2022, 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 will 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 two for the periods reported in the release. With that said, I will now turn the call over to Mitek’s CEO, Max.

Thanks, Todd. Good afternoon, everyone. Thank you for joining us today, and a warm welcome to our HooYu team members who are joining for the first time as members of Mitek Nation. I’m happy to report that we again, delivered strong financial results in the quarter with revenue growth of 21% year-over-year, non-GAAP net income up 49% year-over-year, and cashflow from operations of $7.4 million. Rather than review the quarter, I want to focus on the transformative acquisition we announced a little over a month ago that dramatically expands our addressable market and positions us for accelerated growth in the identity verification and identity authentication markets. On March 23rd, we announce the acquisition of HooYu’s, the UK’s leading KYC or know your customer technology pioneer. HooYu is an orchestration provider for identity verification and identity authentication processes. Orchestration is an elaborate way of saying that the end-to-end KYC process is optimized through a platform so that customers can easily manage users journeys and accelerate identity decisioning when it matters most. Having a single platform that easily orchestrates and configures a KYC journey to manage identities and identify bad actors is becoming a prerequisite for businesses transacting digitally. To quote partner from their 2022 market guide for identity proofing and affirmation, a good orchestration solution will reduce the cost and complexity of multiple vendor integrations while also enabling granular risk and trust assessment across a range of user events. Bringing together Mitek’s leading document and biometric verification techniques with HooYu’s KYC and configuration services simplifies identity management and puts customers in control of digital access. Furthermore, the platforms low code, no code capabilities allows businesses of all sizes to quickly set up and manage the process without needing an army of developers. With this acquisition, Mitek is able to address a…

Thanks Max. And thank you Mitek Nation for all your significant contributions this past quarter. Bridging for Max’s remarks, the consumers raised a digital channel as that fraud attack vectors continue to accelerate an increase in complexity. As discussed the toured pace of a these attack has been especially difficult for small organizations that lack the internal technical resources and infrastructure to respond and as such has created an urgency for orchestration enabled solutions. While this market momentum emphasizes and magnifies the relevance of identity platforms, we anticipate some headwinds within our core identity business. As we gear up for greater growth, integrating our capabilities and harmonizing our go-to-market efforts is our number one priority. The quarters following the integration of HooYu will allow us to minimize the impact to these market dynamics and deliver a platform that is poised to capitalize on growing market opportunities. With that preamble, let’s look at Q2 revenue and operating results. Mitek generated second quarter revenue of 34.7 million, a 21% increase year-over-year. Software and hardware revenue was 19.3 million up 48% year-over-year. The increase in software and hardware revenue is primarily due to the contribution of ID R&D, and the timing of mobile deposit reorders. Services, another revenue, which includes transactional SaaS revenue, maintenance and consulting services was 15.4 million for the quarter down 2% year-over-year, primarily due to the transition of one customer and the completion of the strategic identity verification project in Europe. As a result, our transactional SaaS revenue decreased 4% year-over-year to 10.5 million. For Q2 2022, deposit revenue increased 24% year-over-year to 21.3 million, identity revenue increased 16% year-over-year to 13.4 million. We delivered strong software and hardware gross margins of 98% for the quarter. Gross margin on services and other revenue was 81% for the quarter and…

Thank you. [Operator Instructions] And we will go first to Jake Roberge of William Blair.

Hey everyone. Congrats on the great quarter. And thanks for taking my questions. So just first off, now that you have compiled a more comprehensive platform with orchestration and biometrics and document verification. I would love to hear how your initial customer and partner conversations are changing. Are customers understanding ROI of combining these technologies, and one platform are they still primarily looking for point solution sales that they can stitch together themselves?

Yes. Jake, thanks. Thanks for the question. It is max. The transformation that both Frank and I were referring to in our prepared remarks, this is something that we have been working to for five or six quarters,. Even pre acquisition of ID R&D. And so we gave you a quote out of the most recent Gartner study when it comes to identity and we have seen this we have seen this coming as far as the need for organizations to have a place to coordinate and orchestrate these various signals to reduce their own efforts and all of the big investments they have to make from an application development perspective for large companies. But as you get into even large companies that just don’t have those application developers there is a big need there. And as you kind of go down to more modern digital businesses that are moving very rapidly, writing an orchestration layer is just not something that they are going to be doing. So I think, Jake, our customers, our prospective customers, the targets were after the heart of your question. They see this, they have been talking about it. That is what triggered our interest going back four, five, six quarters start to assemble these capabilities and orchestration has been on our shopping list that entire period of time.

Great. Thanks. And then I don’t think you made any comments on it, but you have announced a string of new products over the past few quarters with IDLive Doc, and Check Fraud Defender. Can you just talk about how initial customer conversations have been and tracking for those products and then maybe some color on the TAM expansion opportunities within these segments? I mean, still putting up some pretty impressive growth and mobile deposit. Just curious if you are seeing any signs of that being impacted by some of the new products you are offering.

Yes, absolutely. And again, apologize for not covering too many of the new things. Everything seems to be falling in the shadow of the HooYu acquisition and now getting to the integration and all of the transformation we have to do to our go-to-market and our product integration, but good call out. Check Fraud Defender was something we announced going back, I guess it was about 10 months ago and that was the announcement of our intent to build it and get it out there. We lit that thing up. It was February of this year with the first set of customers for the networked hosted, cloud offering. It has gone really well both the adoption, the learning as with any 1.0 offering, there is just a lot of places for us to make improvements and to make it better in a very short amount of time. So the 1.0 was kind of the MVP the most - the minimum viable product, most lovable product kind of offering there. But the broader interest from large financial institutions that suffer from check fraud and those hard dollar losses and the operating costs associated with them has been very positive. We are watching our pipelines grow with the top 50 banks, the top 50 financial institution. So that is a quick update on Check Fraud Defender. With the deposits business. IDLive Doc was something that was announced by the ID R&D team, I guess it was at money 2020 back in the fall. And then went live with that. Just in the last quarter, as far as a production system, they have got a handful of customers for that already. We are watching transaction volumes go up really nicely with these partners and then we have adopted it ourselves. So we are out in the market here in Q3 our Q3 with IDLive Doc in a sandbox, ensuring that it is performing well and additive for our offerings and the initial data and the initial kind of results of those experiments and the analysis have been very positive. So, excited about both of those things and a lot more that we probably didn’t cover already.

Great. congrats again on a great quarter and thanks for taking my questions.

Thanks Jake.

Thanks Jake.

And we will go next to Allen Klee of Maxim Group.

Yes, good afternoon. Congrats on the quarter. I just wanted to make sure I heard, did you say that HooYu did 10 million in revenue last year and if so, and then can you give us some sense of how to think about the margins and the losses that they had done historically?

Yes Allen thanks for the question. Yes the first part of that is correct, the last 12-months a little under, I don’t know, how little under $10 million in revenue, SaaS transaction revenue similar to our identity business. It was a loss making business. It was a startup that was bootstrapping their way to the success and to building out their platform. We haven’t disclosed what that is. We recognize that as a bootstrap startup, they were trying to do everything they could to conserve cash and while they ran a very good business and they have a fantastic team. We have identified places that we know we are going to have to shore up and make some additional investments there, as well as we just want to accelerate the integration for all the reasons we have talked about this big opportunity that we have together. And that is I think that is an investment worth making. So, it is not overwhelming investment, but it is substantial.

So, how do you think about a potential timeline for when you think it will be integrated and you can sell this to your bigger customers?

Yes, so we are on a very aggressive path, both to our existing customers, but also the target that we have in some of these segments that have evolved to require orchestration that we want to target. Some of the industries we just talked about, we would like to be able in the next 90-days be out in the market with something that is demonstrateable, that shows the integration of mobile verify and biome along with the core HooYu platform offering, and then be able to turn that into pipeline sales cycles for that kind of business. At least historically for HooYu have been 90 to 180-days so three months to six months. So, kind of building out that pipeline and starting to knock down deals first here in the U.S. but then also into continental Europe. So to give you a sense of how we think about that.

Great. And then I just wanted to - last question, you mentioned that your services and other business - and other was down and you also - and I think there was a completion you said of a European identity customer project. Could you explain a little and you also said there might be some headwinds in identity of I’m not sure I understand. I thought most of the identity customers were more transactional of kind of what you are alluding to for the identity segment. Thank you.

Sure. So we don’t normally do a lot of project based business, but we did have an existing customer that uses us on a transaction basis that came to us about two years ago and asked us to do a substantial re-verification project. That project lasted about two years. It was quite successful, but it is now concluded. And so, it is just created a very difficult comp for us in the period that was a substantial, we consider a headwind and we are going to have to deal with that comp over the next three quarters. And then the other headwinds that Frank was alluding to was just the ongoing evolution of some of these market segments that are requiring orchestration. And we have seen that coming, we have been actioning that looking for, for targets and acquisitions to kind of fill that requirement. And now we have it, and that kind of brings us back to the exciting transformation that we have now in combination with HooYu.

Great. Congrats, thanks so much.

Thanks Allen.

Thanks.

[Operator Instructions] And we will go next to Mike Grondahl of Northland Securities.

Yes. Thanks guys and good afternoon. Hey Frank, could you just repeat mobile check, mobile ID growth in the revenue numbers year-over-year and then what you said about transactional fast, you were going pretty quick there and I don’t think I caught it all.

Yes. Happy to do that. Let me just go to the notes real quick. Let’s see. So, just from the beginning again, 34.7 for the total, software and hardware was 19.3, up 48%. Obviously big contribution that was ID R&D and the timing of mobile deposits and then deposit revenue was up 24% year-over-year to 21.3 million.

Up 24% to 21.3. And then mobile ID was up 16% to 13.4.

That is right. That right Mike. Identity revenue is 16% to 13.4.

Okay. And what was the transaction SaaS revenue? Did I hear that is down 4%?

Yes. And that as Max just indicated, largely driven by the, as we discussed the completion of that large project based work we did for that customer.

Got it. And flipping the mobile check for a minute. Were the reorders on the high side for you? I know it is lumpy, if you could just kind of frame that a little bit and then just any comment on pricing and mobile check.

I don’t think there is a big update Mike, on pricing. We have been doing what we have been doing now for 2.5 years from pricing discipline perspective. We can to continue to do that. I don’t think there is anything outsized or significant that we would in Q2 with that. And then as far as just kind of how the reorder’s laid in nothing unnatural. These are the folks that were scheduled to be reordering now and they did it. And, I think we have talked before some of the 10 year history we have in this business of the being able to do regression analysis and determine when some entity’s going to be prepared for a reorder has been a little more uncertain in the COVID times, just because they had such big reorders in the beginning, because of the adoption, the increased adoption of depositing checks through mobile devices in the beginning of COVID. But it seems like that behavior is sticking, folks aren’t reverting to going back to the branch to deposit checks.

Sure, sure. Well, 24% growth is pretty nice, that is for sure. Frank, you kind of, you talked about you are going to be making additional investments and you use the word substantial as it related to HooYu. Is that $5 million to $10 million, kind of like a couple million dollars a quarter, that we layer in ? Just give us a little framework around that?

Yes. I think Mike, just briefly as Max indicated, we knew coming into it because as you said, they kind of bootstrapped their way to what they were doing, there were some areas we could shore up, and there is also an accelerant we can pour into this in making those investments. So we are looking at that, we know where we have to invest, we are not quantifying it, but it is all designed as Max indicated to get it into a demonstrable product in market 90-days, and then starting to build pipeline 90 to 120-days. So, we factored that in, that was part of the acquisition thesis, what we would have to do to shore it up and to accelerate and that is those costs are we are focusing on now what areas to shore up and how to do it, but that is through how we focus on it.

Got it. okay, thanks a lot.

Thank you.

Thank you Mike.

And at this time we have no further questions. I would now like to turn the call back to representative for any additional or 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.

And again, this concludes today’s call. Thank you for your participation. You may now disconnect.