Good day, and welcome to Mitek's Third Quarter 2022 Earnings conference call. All participants will be in a listen-only mode. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Todd Kehrli of MKR Investor Relations. Please go ahead.

Thank you, operator. Good afternoon, and welcome to Mitek's Third 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 third quarter fiscal 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, July 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 and thanks for joining us today. Once again, I'm happy to report that we delivered record revenue for the quarter with revenue growth of 24% year-over-year. Congratulations to all Mitek teams for their standout work and thank you for your ongoing commitment to this important mission and our customers all over the world. Before Frank reviews the financials in more detail, I want to focus on our significant market opportunity we are addressing. As consumers transact more business online than ever, identity verification has become essential to safe digital access. In 2021, traditional identity fraud and identity fraud scams affected 42 million consumers and cost companies a staggering $52 billion. While this is a very large number, the number of people online today is growing rapidly and is in the billions. And identity fraud and the cost of this fraud is only going to get bigger. Mitek's identity solutions have been developed to address these growing challenges by providing organizations with the insights, technology and solutions needed to determine if the individual accessing their digital account is verified, authenticated or in fact real. With growing digital usage, verifying the identity of consumers before they can make a transaction or access to service enables organizations to prevent identity fraud keep their consumer information safe and meet the rising pressure of global regulation. Two notable use cases, driven by increased regulation are right-to-work and right-to-rent laws in the UK. Both require identity verification. The right-to-work law, also known as Workplace Choice, gives workers the freedom to choose, whether or not to join a labor union in the marketplace -- in the workplace. This law also makes it optional for employees to immunize workplaces to pay for union dues or other membership fees required for union representation. The…

Thanks Max and thank you my technician for all of your significant contributions this past quarter. Bridging from Max's remarks, the consumers raise the digital channels has meant that fraud attacks continue to accelerate and the increasing complexity costing companies billions in fraud losses and significant operating costs. As discussed, the torrid pace of these attacks has been especially difficult for organizations that lack the internal technical resources, infrastructure and the expertise to respond at the speed of fraud and as such, has created urgency for orchestration enabled solutions like our Mitek Verified Identity Platform or MiVIP. During the third quarter, we fully integrated the orchestration technology from our HooYu acquisition and we launched MiVIP. We also continue to integrate our go-to-market teams and are already building a sales pipeline for our new orchestration platform here in the U.S. As Max mentioned, during the quarter we saw several new use cases for our digital identity verification solution such as the regulatory requirements for the U.K. around as Max stated right-to-work and right-to-rent initiatives; verification for this new interactive gaming customer for in-game purchases; and also excitingly attendee verification for important events all of which bolster our view that digital identity verification is an essential, ongoing step throughout a customer's digital commerce journey. To that end we are excited about the launch this quarter of our end-to-end identity platform MiVIP which significantly expands our addressable market and will position us to accelerate our identity revenue growth. With that preamble, let's unpack the Q3 revenue and operating results in more detail. Mitek generated third quarter results of $39.3 million, a 24% increase year-over-year. Software and hardware revenue was $19.8 million, up 17% year-over-year. The increase in software and hardware revenue is primarily due to the growing contribution of ID R&D continued mobile…

We will now begin the question-and-answer session. [Operator Instructions] Our first question will come from Jake Roberge with William Blair. Please go ahead.

Hey guys. Thanks for taking my questions and congrats on a great quarter. It sounds like business was actually really strong. But I think everyone knows what's out there. And I was just wondering if you could actually touch a little bit on what you're seeing in the macro environment and specifically what you're seeing with customer buying behaviors. Have you seen any deals get pushed out whether it be mobile deposit or ID verification, or have you seen any customers decrease in usage volumes as a result of the macro environment? I know that there are likely puts and takes, but I would love to just get some color on how the macro has impacted your business?

Yes. Thanks for the question Jake. And I appreciate the positive comments. Obviously, there's a lot of uncertainty out there. You can't read a new story or listen to radio and not come trip across it. The SaaS transactional nature of our identity business, as we use some of the examples in the prepared remarks, that fluctuates with, not just the cadence of an individual business, but also kind of the economic environment that their end consumers are working within. And the direct answer to your question is, so far we have not seen that impact, individual customers or individual use cases or individual geographies, period, full stop. Related thought, it's illogical that it wouldn't start to show up, right? So if we think about the increase in interest rates and we've got a lot of financial services customers, we've got a lot of FinTech’s. If you're doing mortgage origination, if you're doing HELOCs, you're doing refinancing, as those interest rates go up, the number of new loan originations is likely to go down. And that may not be a huge part of our business, but that would be an example that I would anticipate to start to see some headwind in transaction volumes for use cases like that. But the direct answer to your question is, so far, no.

Yes, that's great. And like I said, the numbers would show that, but just I had to ask. And then, just a second question. So you mentioned in your prepared remarks that the MiVIP platform has opened up new use cases with both customers and partners. So, on that partner front, now that you may actually be more competitive with some of your old orchestration partners like HooYu, have you seen any changes to those relationships, or are those kind of status quo, and you're actually seeing some expansion opportunities with other partners because of the added functionality?

Yes. I think we've had some smaller partners that have felt that they view it as competitive and threatening. But our larger partners and prospective larger partners in that area of the world, information service providers, view it very much as an opportunity. You've got the best-in-class offering and solution, matched with a public company with great standing, a rock-solid balance sheet, all of the transparency that comes with being that public company. And we just look like a great partner of choice with an enterprise class offering.

Great. And then just if I could sneak one more in. Could you talk a little bit more about how the initial customer reception has been for MiVIP? I know it's early, but have you seen any changes to the typical customer profile that your platform can target as well as have you seen any increase in velocity in terms of what you're filling up the pipeline with as a result of adding that functionality?

Yes, that's a nested set of questions. Just as a reminder for those maybe, who aren't recalling or aren't as close to it, the MiVIP is basically the HooYu platform, which had been up until our acquisition of HooYu, exclusively offered and delivered in the UK. It is that platform rebranded, relabeled and then, hosted here in the United States and then throughout Europe for GDPR purposes, integrated along with our best-in-class biometrics of face and voice from ID R&D, and then, our world-class document identity verification solution Mobile Verify. So, that's basically what MiVIP is. And we announced that -- we launched that at the end of June and it is now available here in the United States. We've been demonstrating it to interested prospects. We've been engaging in sales cycles. And I would say at this point, we've probably had three dozen serious engagements to be able to kind of test the hypothesis. And it's been going well up to and including doing demonstrations and now starting to do some lightweight proof of concepts. The direct answer to your question as far as it does allow us to get to businesses that maybe are more agile, more nimble than the world's largest banks right? These born digital-native businesses that are moving very, very rapidly don't have huge development teams, but do have identity compliance requirements whether those are anti-money laundering, know your customer or just straight up something like age verification. So, we're -- just early days but we're quite encouraged from what we've seen. Those examples I just used there Jake were here in North America, but we have likewise on the continent in Europe had similar engagement and similar kind of traction initial traction.

Great. Thanks for taking my questions and congrats again on the quarter.

Thanks Jake.

Our next question will come from Mike Grondahl with Northland Securities. Please go ahead.

Hey guys, thank you. First question is just kind of on the revenue outperformance. Was that primarily HooYu? Was it more legacy mobile ID? Where would you kind of put performance?

Yes. Hey Mike it's Frank. Great to hear from you. Really as I said in my prepared remarks it's been a very interesting quarter. Our Mobile Verify product in some of the use cases Max discussed had a fantastic volume quarter and performed well. So, I would say it's a combination of both the contribution from HooYu, but also these new use cases the developer conference, the in-game kind of purchasing opportunity those are all big Mobile Verify opportunities for us. So, we had the benefit of some pretty good Mobile Verify performance as well as the HooYu performance.

Got it. And those three use cases that were mentioned I won't re-mention them. But were those related to the HooYu sales force and Mobile ID legacy sales force? And then kind of related to that, it is a little bit different than I'll say historical customers? Meaning, I don't want to call it a one-off event, but clearly this advertising thing that the bank did and this gaming in-game purchase those seem to have more of maybe a one or two quarter big benefit than maybe slow off until an event happens again and especially a conference. So do you think this is a big new opportunity for you guys going after, I'll say a customer profile that might be more I'll say, event-driven or shorter term but a lot of transactions?

Yes. So great question. I'm going to start with the latter and especially as a grand dad who buys their kids games right, this is a phenomenal market opportunity. I think it represents a great kind of test case for us to look at that new vertical is a great way to expand to other companies that are providing in-app purchases, in-game purchases new lives enhancements new features available to characters and so forth. And same with the event business. I think these are great proof points for whether or not our technology is able to scale to handle the volumes that were significant and it did while doing that. So I think rather than viewing as one-offs, I think, there are great entrees potentially into these markets and create a great learning experience for us to turn that into kind of an ongoing revenue opportunity. As it relates to the sales force as Max mentioned in his comments the use cases we mentioned were both the HooYu sales force and the Mitek sales force. Obviously, right-to-work in the UK, the right-to-rent those are UK initiatives that were driven by our HooYu teams. But also the pipeline we're building as Max mentioned what we're seeing in the US is a combination of those two workforces cross-pollinating, and kind of, learning both products. So, I think, we've done a really good job in bringing the go-to-market teams together fostering that kind of cross-pollination in collaboration. And I think that plus these interesting new opportunities, events, games, the right-of-work all of these are interesting new use cases for us that I think have real legs and fruition could be very interesting.

Related to that, the three or four use cases also help with outperformance in the quarter? It seems like a couple of them would have been big enough to drive some real dollars?

Yes. Without a doubt.

Okay. And then just on the MiVIP or call it the new HooYu if you will almost. Are you -- is your sales force like all set to go in your pipeline? Are you – is that -- are they on the ground and running hard, or is it still sort of, hey, we're educating these guys and they're slow to get? I'm just trying to understand how quick this pipeline can fill up.

Yes, it's a good question Mike. So we're still investing in capacities in sales force and cross-pollination. Some are on the ground some more will come. So as we mentioned I think last quarter it's going to be an exercise in getting there and building the right kinds of skill sets necessary to sell both products. So we're not there yet. We're still investing. You know, more to come in the coming quarters. But the good news is we've seen some pretty interesting pipeline growth already and we're still not at maturity in terms of fleshing out that workforce.

Great. Lastly, I'll just say, it sounded like Mobile Check Deposit and Check Fraud Defender had 5% year-over-year growth. Those points were Check Fraud Defender?

We had a very strong contribution from Check Fraud Defender. What's happening if you're following fraud Mike it's so interesting the fraud vector around checks and the average dollar value of fraudulent check has kind of really put the klieg light if you will on that industry. So a lot of folks are looking at it. It was a strong contributor without a doubt. Yes, we don't break it up, but it was a strong contributor.

Got it. Thank you.

Yes. For sure, Mike. Thanks.

Our next question will come from Scott Buck with H.C. Wainwright. Please go ahead.

Hi. Good afternoon, guys. Thanks for taking my question. A bit of a follow-up on Mike's question on MiVIP. Could we get a little bit more color on the go-to-market strategy? I mean have you cast a pretty wide net at this point, or are you targeting certain industries, certain companies within certain industries? What's that look like?

Sure, Scott. Thanks for the call. Thanks for the question. The -- first off MiVIP will be sold by all Mitek salespeople, the existing sales organization for HooYu, the existing sales organization for Mitek Identity. And the second part of your question as far as, who we're segmenting and targeting, if I had to just put a big label on it, it really is the regulated industries, which is not dissimilar to what we've focused exclusively with Mobile Verify. So I think, fintech, financial services, aiming utilities, anything that's really regulated is a great opportunity for us. The difference now with MiVIP is it really opens the aperture on those segments, so that you don't have to be just the largest Tier 1 bank that has armies of developers to configure and build your own workflows and your own orchestration systems to integrate the various identity signals. This really allows us to get to some of the faster-moving, very fast-growing businesses that are out there that maybe are a little constrained on application developer resources, but still need to go quite quickly and need to get good answers, need to have an effective system. So that's where we are so far. Similar to Frank's response to Mike, it's still early days, right? We basically got this thing launched. It was the end of June. Thanks to our team for all the hard work in making that a point of focus. And now we're enabling our selling organization and training them and making sure that they're targeting the right organizations. And we're learning, right? It's a little bit of an iterative process. It's going to take some time to figure out where the sweet spots are for us and to make those course corrections. But as Frank indicated, we've started to build those pipelines, both here in North America as well as in Europe and we'll continue to report to you guys on the progress we're making with that.

Great. That's helpful. And second, on the uptick in sales and marketing and in R&D costs, both sequentially and year-over-year, how much of that is tied to the initial launch year of MiVIP versus -- is this more of the run rate going forward here?

Well, there's certainly some associated with the onetime launch. But remember, you've now got the HooYu organization in those line items and that will be ongoing, right? We held on to all of the HooYu folks.

Okay, great. And then, last one for me. Can you tell us what legacy HooYu revenue was in the quarter?

We're not breaking that out. I will -- I think we shared that in the last call, we gave you a sense of what the baseline was the day that we came together in the trailing 12 months. And they continue to grow at their very nice historic growth rate or better.

Okay. Super. Appreciate the time, guys. Thank you.

Thanks, Scott.

Thanks, Scott.

[Operator Instructions] Our next question will come from Allen Klee with Maxim Group. Please, go ahead.

Good afternoon. Can you just say again when you expect the identity segment to reach profitability?

Yes. Hey, Allen, good to hear from you. As we've mentioned in the past and in today's prepared remarks, we're looking for the second half of fiscal 2024 for that identity business to turn the corner.

Yes. So I wanted to follow up on that. So identity did around $17 million this quarter. So we're talking an annual run rate of close to $70 million. And so, I wanted -- the market has changed and just revenue growth with not profitability is not being awarded the same way it may have been a year ago. And I'm trying to figure out if this is a good business or not pretty much. And maybe you can help me understand, why should it take so long to get to profitability? Do you have to do something with the tech to use more technology and to automate it more, or is it purely just scaling up? Because it seems like $70 million is a pretty good run rate. I'm not sure I really understand why this is going to lose money for such a long period of time.

Well, so Allen, great question. Two things. One, and Max mentioned in his remarks identity is an unsolved problem. This is an arms race, right? Threat vectors change. Fraud vectors change. We adapt. They adapt. And we kind of leapfrog each other. By they I mean the bad guys and then the providers come up with solutions. So there's a lot that goes into properly verifying identity right to really understanding who's behind that transaction as an important consequence. And that's a lot of work. In addition to that, you've got the sustaining efforts we've had and you're carrying along some of the acquisitions we've done and those kinds of things. So we think certainly profit is important running march towards profitability. And that's a driving focus of this management team is growth as well as profitability. We think as you look at what it takes to address this market get identity right, we're laser-focused on getting to that fiscal 2024 kind of time frame. But it is a very difficult problem. And getting there, getting the right models, getting the right information, getting the right data and then recognizing that everything we do today will likely change tomorrow because some new threat vector will manifest itself. That makes us a very dynamic and rich market to operate in, but also a complicated market to operate in.

Yeah. But what I'm trying to understand is how much of the issue is that you have to do something with your technology to upscale it versus just the scale of volume to turn the business profitable? And is there anything -- maybe you can answer that by talking about your technology a little bit how you would say it compares to the competitors?

Yeah. So Allen this is Max. I think first, the direct answer to your question is, this is a very good business. The second is we're focused here on identity, but when you zoom out and just let's recall that Mitek in composite or the entire portfolio is a rule of 50 business right getting both the growth and the very nice EBITDA profitability. I think to come to your specific question around the technology, we've got world-leading technology. We've also done what we think are very important and differentiated acquisitions ID R&D in the biometric space and then obviously the most recent HooYu with the workflow and end-to-end low-code no-code orchestration. We are going to need some quarters to get all of these things kind of sorted out. There is some redundant capabilities across the portfolio that need to be ironed out. And it may take us three or four quarters to make all that happen. On the other side of it though, we think this is not just a very scalable system that's highly differentiated. We think that it's also scalable from a profitability and a leverage perspective.

Okay. Thank you very much.

You bet. Thanks, Allen.

This will conclude our question-and-answer session. I would now like to turn the conference back over for any 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.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.