Good afternoon, and welcome to the Mitek Systems Fiscal 2022 Fourth Quarter and Full Year Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note, 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 Fourth Quarter and Full Year Fiscal 2022 Earnings Conference Call. With me on today's call are Mitek's CEO, Max Carnecchia; and Interim CFO, Fuad Ahmad. Before I turn the call over to Max and Fuad, I'd like to cover a few quick items. This afternoon Mitek issued a press release announcing its Fourth Quarter and Full Year 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 as 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, June 29, 2023 and the Company undertakes no obligation to update or revise 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'll now turn the call over to Mitek's CEO, Max.

Thanks, Todd. Good afternoon, everyone. Thank you for joining us today. I'm very excited to finally report our full-year fiscal 2022 results. The listing of BDO has enhanced our financial controls and governance and while it temporarily impacted the filing of periodic fiscal reports, we are now a stronger business. Fiscal 2022 was another record year for Mitek, record revenue, record earnings, and strong cash flow from operations. Product innovation also continued during that time. We launched Mitek's integrated identity platform MiVIP, ID Live [indiscernible] and enhanced check intelligence within the Check Fraud Defender product. We were also awarded patents recognizing our commitment to Biometrics Excellence. This ongoing momentum reinforces our optimism about our long-term prospects and our ability to further penetrate our large target addressable markets. Quickly looking at the numbers for fiscal 2022. We reported record revenue of $143.9 million, representing growth of 20% year-over-year. We also generated record Non-GAAP net income of $40 million or $0.87 per diluted share, up 17% year-over-year, as well as strong cash flow from operations of $26 million. We accomplished a lot in fiscal 2022 beyond just our record revenue and earnings performance. We provided exceptional customer value through our world-leading banks, fintechs, and marketplaces as they are interested to move more of their businesses online in a secured and trusted way. Mitek continues to distinguish itself as a critical component in the fight against fraud, and during the year, we expanded the breadth of our product offerings and the markets we serve. With that now, let me touch on our two lines of business and their performance during the fiscal year. Our deposits line of business continues to grow in fiscal 2022 with revenue growth of 14% year-over-year. Mobile check deposit is used by over 7,500 financial institutions and continues to…

Thanks, Max, and thank you, everyone, for joining us today this afternoon. I will start with Q4 revenue and operating results. For Q4 of fiscal 2022, Mitek generated $38.8 million of revenue, a 17% increase year-over-year. Software and hardware revenue was $19.8 million, up 11% year-over-year. The increase in software and hardware revenue is primarily due to the growing contribution of ID R&D as ID R&D had another strong quarter and continued mobile deposit reorders. FX, we are pleased with the continued progress in the deposit business. As we've noted previously, ID R&D revenue is transactional in nature and is part of our identity business. However, since it's offered on-prem, we put that revenue into the software line for accounting purposes. Services and other revenue which includes transactional SaaS revenues, maintenance and professional services revenue was $19 million for the quarter, up 23% year-over-year. Notably, our transactional SaaS revenue increased 31% year-over-year to $13.4 million . Driving this growth in transactional SaaS value was increased Mobile verified volumes as well as the addition of HooYu SaaS revenue. For Q4 2022, deposits revenue increased 7% year-over-year to $23.6 million, driven by global deposit reorders. Identity revenue increased 34% year-over-year to $15.2 million driven by addition of the new SaaS revenue and strong contribution from ID R&D and growth in our Mobile verified product line. We delivered software and hardware gross margins of 98% for the quarter. Gross margin on services and other revenue was 74% for the quarter and total gross margin for the quarter was 87% compared to 90% in Q4 of last year. Total GAAP operating expenses, including cost of revenue were $35.8 million compared to $29.3 million in Q4 of last year. This increase is due to investments into our identity business and additional costs associated with the…

We will now begin the question-and-answer session [Operator Instructions] Our first question is from Mike Grondahl with Northland Securities. Please go ahead.

Hey, guys. In both Mobile Check and Mobile ID, could you talk a little bit about transaction activity and trends and pricing? Just trying to get a feel for volume and price trends in both areas.

So for the periods that we're talking about FY 2022 in both total deposits, as well as mobile verify -- excuse me, the transaction volume has increased, right? So we continue to see increased transaction volumes from existing customers and then the addition of new customers for the identity verifications and for mobile check deposit similarly, although, as you know, Mike, that business can be a little lumpy, and when customers reorder or when those orders actually hit and you refill the tanks. I think in the case of Mobile Deposit, we know that we have continuously tried to push price and be able to push price increases we've been methodical about that. I think it's no surprise. Our partners and customers pushback on equity part, but we've been able to do it consistently. And that has set us continued to see that reflected in addition to the adoption of mobile banking and increased usage of Mobile Check Deposit, you're seeing the other side of that which may be the increase in pricing.

Got it. And then, are you breaking out the number of banks you have signed up for Check Fraud Defender or the revenue in the fourth quarter of 2022?

No, we're not. And you probably won't see us do that for a while. We continuously increase the number of customers, but it's coming off a very small base we're watching some customers adopt and jump straight into the network and use the online offering. Some are starting with a small on-premise implementation to kind of get their arms [indiscernible]. But I think we'll talk about it when we drop the queues as well. We continue to see just a big, big interest in that product pipelines are strong. We do testing with customers, pretty elaborate testing with customers and we've got a number of those underway. I think as we've talked before, Mike, just Check Fraud has exploded in the course of the last 18 months. So this is a very big topic for retail banks.

Sure. Yeah, no, we're trying to track it. So the number of banks or revenue, I guess it will keep bugigng you. Lastly, what should our expectations be for the timing on the 10-K and then December and March?

Yes, Mike, so I think news release our numbers now are unaudited. We will follow it up with the 10-K with the next week to 10 days. We're talking about -- we just need to -- we can make sure that we get everything buttoned down, but we felt comfortable releasing the numbers today to you guys. In terms of Q that process will continue once the K is filed and we feel that in a few weeks we can be more precise on that at this point. So in weeks not months we will follow it up and the idea for us our expectation is to start becoming current on our filings soon after that in its entirety including Q3. So that's the expectation right now. I can't be more precise on the quarterly numbers as of today.

But we are looking forward to getting back on a regular schedule.

Sounds good. Sounds good. Hey, thanks, guys.

Yeah, Mike.

The next question is from Jake Roberge with William Blair. Please go ahead.

Hey, thanks for taking my questions. Max, could you just talk about how the macro is impacting each of your business units more specifically? From your comments, it seems like ID verification may be impacted a little bit more than Mobile Deposit, but we would love to hear kind of the puts and takes that you're seeing in each business as it relates to the macro.

Yes, I don't think in the timeline that we're talking about here FY 2022 and September any quarter, there's probably not a lot to talk about from a macro impact, a little bit on the identity. We had a very relative to our competitors in the identity space, we have very little exposure to crypto and it was at June of 2022, July and then kind of a crypto went through that follows from there. We had a handful of crypto customers who watch them retrace pretty hard, but nothing more kind of pointing out. Since then we get into the queue definitely the law has changed and in some regards we just started off check for our defender and all the things that are happening with Check Fraud. I think that's been a positive on our deposits business. On the identity business if you're interest sensitive business like mortgage refinancing or blocks and things like that, we seem to be tough on those businesses. So more to come as we drop those skews, Jake.

Okay, helpful. And then, just wanted to touch on Generative AI. It seems to me like there could be some secular tailwinds around AI and how that could impact the fraud and identity universe. But would love to get your thoughts on that. And then how you could plan to integrate the technology in your core platform?

Sure. So much inconsistency still on Gen-AI. I want to be -- I won't be mindful that I don't know that I have a lot to add. We're generally is clearly going to be transformative. In our business we see us through two lenses. The first is what we will be able to do using the technology. I mean, we've got very long and robust history with machine learning and AI. So this is just built on top of a very deep base of that knowledge and experience our engineers and scientists have. So our ability to use that in model building, model testing, and that's already underway. I mean, you see it with our biometrics teams. We're seeing the core identity teams around documents, the basis of voices. So in that regard, I think there's some very interesting things for us to increase velocity of development, new ideas that could be tested much more cheaply or much more quickly. That's for us internally and things that then result in customer-facing offerings. I think the bigger challenge, just generally, not just for banks, but for anybody out there, right? These same tools can be used as weapons and we anticipate we're already seeing the deep fakes and the kind of things that could happen owing to the faces and every other images and videos all stuff that you're seeing every day that can be applied towards trying to create identity fraud with banks with other finance financial institutions. So I think it just puts a bigger focus and more meaning on having the right defenses and partnering with the right organization like Mitek.

Yeah, agreed. Very, very helpful and that interesting opportunity as we move forward. And then if I could just sneak one more in. I understand you've been working a lot with your consultants and auditors, but what is your dialog with the NASDAQ looks like throughout the process and what type of feedback have they've been providing you on regaining compliance just over the past few weeks since we passed over that June 12 timeline?

Sure. Well, you know, Jake obviously NASDAQ was the market that we sit on, the SEC is the regulator, and being current with the SEC is the requirement for the NASDAQ. So NASDAQ has a very rigorous and structured process under which we're currently working. I think we're working at a very positive and constructive way with them but we're late, right? So we've brought in advisors. As you mentioned at this point we have high confidence, based on the performance of our business. The fact that we are cash flow positive and cash in the bank. We continue to grow. There are no allegations of misconduct here. We have high confidence that we will regain that filing status. Hopefully the NASDAQ is the arbitrator, the ultimate arbitrator of that. But working hard towards it every day.

Very helpful. Thank you. Thanks for taking my questions.

The next question is from Stephanie Moore with Jefferies. Please go ahead.

Hi, good afternoon, and thanks for the update. I wanted to touch on your targets for your ID segment and the target to turn a profit in 2024 the second half of 2024. Could you maybe talk a little bit about what you need to see for that target to be achieved, what needs to happen maybe is for that to happen earlier or on the flip side, what could delay you can actually achieving this target? It would be helpful. Thanks.

Sure. Well, thanks for the questions, Stephanie. For those who maybe a little newer to the story, we've been working -- we've got a very profitably deposits and we want to get our identity business to that as well. We've seen that by the end of fiscal 2024, we'd like to be able to get to breakeven with that business, with the identity business put that in isolation. And we believe we're on path, but still the current is next year. The things that could make that happen sooner is the top line growth happening faster. The things that could make it takes longer is if we didn't get the top line, that we're currently forecasting that we're guiding to here in the current guidance. When I kind of think about as we've laid those markers down and we've worked to operate the business both in our budgeting and then day-to-day discipline of living those budgets. Probably the biggest thing is, the world has changed pretty considerably in the course of the last five quarters relative to just uncertainty in the macroeconomic circumstance. So I think that's probably the biggest unknown or biggest question mark.

Great, that's really helpful and appreciate it. And I know that the last time we spoke a couple weeks ago, I think you touched a little bit about maybe within the ID business a slight shift in strategy where you're offering your customers more of an end-to-end platform kind of managing their entire life cycle. Could you talk a little bit, I'd love to hear because I think it's really an interesting point, if you could kind of speak to any cross-sell opportunities do you think this opens up or pricing or why this is you've kind of come to terms that this isn't the incremental kind of right strategy versus maybe what you were originally thinking about as you are moving inside the space and I'd love to hear kind of the opportunity there. Thanks.

Sure, thanks. Well, I think this is not some sudden change or anything like that. I mean, we've been working towards this for the better part of three years. It was the underpinning of the acquisition of ID R&D from a world-leading biometrics capability in liveness and then really the foundational associated with the HooYu acquisition and capturing a platform an end-to-end easy to manage no-code local platform for orchestrating multiple signals, not just for onboarding new customers and opening new accounts, but those in the life, the lifecycle use cases a persistent identity for knowing your customer and being able to do it [indiscernible] checks well after somebody signs up for a new account or a new card or something. So that's been the strategy here going back three years. I think we've been able to fine-tune it as we go. That's where the market is. That's where the market's going. And I think we're very fortunate to have not just capture the incredible capabilities or the talent and the teams that go with that. And you'll see us continue to leverage that, continue to evolve that strategy so that it's beyond it and not just beyond identity but identity and fraud and you're starting to see that with the first signals that we're getting as a result of our deposits business and being able to intersect our deposits business with Check Fraud Defender as a broad signal with our identity business.

Great. Really appreciate the time. That's all from me. Thank you.

Thanks, Stephanie.

[Operator Instructions] The next question is from Allen Klee with Maxim Group. Please go ahead.

Good afternoon. Can you give us some color on how you think about the relative growth rates of the deposits versus the identity business in fiscal 2023?

Sure. Hey, Allen, we're probably not going to break the guidance down by line of business, but I'm happy to give you a sense of it. We've expected that and I think we're on record and it's been a while since we've talked about it. But we are on record relative to the deposits with Check Fraud Defender and many of the new things that have been introduced and we see that business as being a high-single digit, low double-digit growth business. Obviously, we just talked about fiscal year 2022 and 14% growth, so very much on the high end of that range. But I think we stand behind that. We anticipate that the traditional Check business will slowly modulate relative to its growth and will continue to grow. Just maybe more gross fastest in 2021, 2022 and that will be offset by the continued uptake of Check Fraud Defender. So that's on the deposit side. And on the identity side, we definitely see the market for identity being a little different, not just for us but the market itself being looks different today than it was year, year-and-a-half ago. But the idea that we can deliver high-teens growth in that business in FY 2023. I think that's a good number, maybe a good range to have in your mind.

Thank you. And when we look at operating expenses, how do you think about to the extent that you're kind of positioned that you've already spent for some future growth or do you think that this continues to kind of grow kind of in track with revenues?

Yeah, I would say without getting into very specifics or maybe Fuad has something to add here but as we get bigger with scale, we should be able to increase our leverage. We've done a lot to integrate both the ID R&D and the HooYu teams, product, systems. So, starting to get some of the synergies and starting to see that kind of make its way through the P&L. But as we continue to grow the business, we expect that we're going to be able to take more and more to the bottom line to be able to expand operating.

And I just kind of add a little bit. I don't think you see that in our guidance for 2023, that our operating, and non-GAAP operating margin guidance is 29.5% to 35% and on the high end it's higher than where we ended 2022 at and we're still obviously growing the business and consolidating and going through consolidation of the HooYu business and the synergies that will come from that so we will have to be included in. But despite all of that, we're projecting slightly higher non-GAAP operating margin for 2022.

Thank you. Last question is, do you think once you caught up on your financials that you might be able to release your Qs and Ks on the same day that you report your earnings?

At this point, I wouldn't set that expectation. I think we will do that in sequentially and that's just the way the auditor profits to work. They will complete all their work for fiscal 2022 and then they'll move to 2023. So we'll do that sequentially. As I said earlier on the call, we'll be talking about at least 10 days for the K and then weeks after that for the Qs after the auditors finish their work and completed, then we'll release those and with the expectation that we get back to the normal cadence starting in Q3 and thereafter.

Okay. Thank you very much.

Thanks, Allen.

This concludes our question-and-answer session. I would like to turn the conference back over to Todd Kehrli for any closing remarks.

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

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