Good day. And welcome to Mitek's Fiscal 2023 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 fiscal 2023 fourth quarter and year-end earnings conference call. With me on today's call are Mitek's CEO, Max Carnecchia; and CFO, Dave Lyle. Before I turn the call over to Max and Dave, I'd like to cover a few quick items. Today, Mitek issued a press release announcing its financial results for its fiscal 2023 fourth quarter and full year. 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 Web site. I want to remind everyone that on today's call, management will discuss certain factors 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, March 19, 2024, 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 two for the periods reported in the release. With that said, I'll now turn the call over to Mitek's CEO, Max Carnecchia.

Thanks, Todd. Good afternoon, everyone. Thank you for joining us today. I want to extend a warm welcome to our investors, employees, customers and partners joining us today. Thank you for your continued support and trust in Mitek. I'm excited to provide insights into our fiscal '23 performance, spell out our strategic direction going forward and then hand the call over to Dave Lyle, our new CFO, to provide more financial details. At Mitek, our mission is clear. We help regulated businesses say yes to more customers, more deposits and more transactions with increased intelligence and customer safety. We achieve this by providing unique signals that seamlessly bring identity transaction intelligence together. Over the past decade, we've diligently developed solutions in pursuit of this mission. Today, leveraging our most current applications of AI and machine learning, we are proud to enable over 7,900 organizations with new levels of security and control while protecting the digital consumer from the most sophisticated fraud threats. I'm very proud of our 200 machine learning and AI engineers, data scientists, developers and cloud op team members, who are dedicated to ensuring that our award winning product offerings remain at the forefront of the industry and their vital role in developing solutions to combat evolving fraud and enhance digital security. Thank you all my technicians for your ongoing commitment to our mission and the incredible work you do. Before we discuss our financial results for fiscal 2023, I'd like to introduce Dave Lyle, our newly appointed CFO. Later in the call, Dave will provide further insights into our financial performance and outlook for fiscal 2024. Dave joined us in early January and has already made a substantial impact. With his broad experience across multiple business functions, Dave brings invaluable expertise to our team. We're thrilled to…

Thanks, Max. I couldn't be more excited to be here at Mitek. It's a privilege to join a company that is not only a pioneer and a category creator in its space, but it also established itself as a clear market leader while demonstrating profitability. I'm looking forward to continuing my work with the team towards growth for years to come. I'm also looking forward to getting to know our shareholders and sell side analysts. With that said, let me take you through our financial results for fiscal year 2023, which ended September 30, 2023. Looking first at revenue, it would be valuable to spend a few minutes describing how we talk about some of our revenue streams for those of you who are new to Mitek, like myself. Our 10-K filings talk about two revenue categories, software and hardware and services and other. On the software and hardware revenue side, we included mainly software term license revenue and to a limited extent hardware scanner boxes and on-premise appliance products revenue. Our deposits products contribute the vast majority to that revenue category as the mobile check deposits product is primarily an on-premise software license model. The only deposits product that will be primarily in the services and other revenue category is our Check Fraud Defender product. On the services and other revenue side, we include transactional SaaS revenue, maintenance and professional services revenue. Our identity products have historically contributed the vast majority to that revenue category as almost all identity products, except our ID R&D biometrics and some legacy hardware products are SaaS delivered, as they are cloud hosted solutions to our customers. Our Check Fraud Defender product revenue is also primarily a SaaS delivered model so does contributing to the services and other revenue stream as well. So with…

[Operator Instructions] Our first question today will come from Chad Bennett of Craig-Hallum.

Just a couple of things. Just it was great kind of laying out the linearity of the year from a revenue standpoint. I guess, as much as you can say now that we're effectively almost halfway through the year and maybe it more pertains to the identity part of the business, just in terms of the macro and demand environment and volume environment on that side of the business. Any insight, Max, into kind of what you're seeing there or your thoughts on the demand or macro environment on that part of the business right now?

I don't know that I have a substantive update for you, Chad. I think things are similar to when we've talked previously at least in the recent past. With where interest rates are, we definitely see challenges on anything that's kind of loan origination or interest rate sensitive refinancing, new mortgages, HELOCs, even credit card issuance at these rates. But I do feel like we see some stabilization across the more revenue generation areas. And I think as we've talked about in the past, when times get tough, fraud increases, right? And so we're seeing that on both sides of the business, both the identity side but obviously, with Check Fraud Defender. I could go on for hours on kind of the stats and what's being perpetrated on that side. So hopefully, that's helpful.

And just in terms of the penetration you're seeing with MiVIP in MiPass in the biometric solutions. I guess, can you give a sense of where you are in terms of penetration in your existing base with those solutions?

I would say we're in the very early stages. For our international audience, I don't want to use a baseball example. But first 10%, 15%, I don't know -- first inning, I use baseball anyway. For me, the gen AI hype that's been out there over the course of the last five or six quarters, when you bring that to the fraud and identity space, it changes almost everything. What company's regulated organizations are confronted with the changing expectations of consumers, the regulators who are trying to help but can't move fast enough and the regulations that are in place, things like IDAS-II in Europe and FIDO2, which is really more protocol and framework here in the US. Those were built and delivered and kind of conceptualized before the real rollout of transformer large language model gen AI. And it's a wind up to say every one of these large regulated entities, whether they're banks, telcos, healthcare, they've got to figure out liveness. Who's on the other side of that device and how do I make sure -- not only who they say they are, but that it's actually a live human. And we are just so well positioned with the be-first be-best approach to face and voice, I feel really good about it. It's going to take some time, right? I mean, early days, it's going to take some time. But I don't know how you solve that problem otherwise, I really don't know how you do that in a gen AI world.

And just on -- I like the way you laid out the opportunity in Check Fraud Defender. And I mean it certainly seems like you guys are seeing traction with that product. I guess maybe the best way to ask it is, have you rethought kind of the growth potential of the deposit side of the business, Max? I think it's certainly outgrown, I think, at least my expectations, maybe yours, the last couple of years. But I think we've just generally thought about that business being maybe kind of high single digits, 10%, it's certainly outgrown that materially. But just -- are you thinking any differently about that side of the business and kind of the growth rate the next three to five years?

No. We continue to believe the base check business, mobile check deposit and the check intelligence business will continue to be contributing growth to Mitek from a revenue perspective and continue to throw off impressive operating margins and profitability. We're going to do that because the adoption of mobile banking is still in the very early days, right? When you use a stat about we processed in FY23, 1.2 billion checks, that sounds amazing. And then you say, hey, 8 billion checks were in the system. So you've only kind of scratched the surface, and you published some reports that kind of both the Bank of Americas and the Wells and the JPMC. So there's a lot more to go there, as you know, because we're a dominant market player. We have pricing power, both with the end using banks as well as with the core service channel providers that we rely on. So I think between the idea of those two things, we anticipate this continuing to be a growth element of the business. And CFD, the Check Fraud Defender, just because of the explosive growth of check fraud, we think that's going to be -- we see it around, right? It's a -- one of the fastest growing things I've ever seen right now.

Our next question today will come from Jake Roberge of William Blair.

This is [Jacob] [Indiscernible] on for [Jake Roberge]. So obviously, Check Fraud Defender is seeing solid adoption,but just curious from a go-to-market perspective. Are you dedicating teams to the product yet or is it still combined with the classic check deposit business and leveraging those preexisting relationships? And then I have another question.

So the first part of that question, since its inception, since we announced going back almost two years ago and introduced Check Fraud Defender, we have had a dedicated team of sellers, presales engineers, customer success and implementation. So it started out as a very small team, it's about almost 3 times the size of what it started out to today. But yes, it is a dedicated series of individuals that make their mortgage payment and make their car payments based on the success of helping customers fight fraud in the check area.

And then just to touch on what you're seeing in the market from like a competitive perspective, given the more difficult funding environment for private ID verification providers. Are you seeing competitive benefits in the pipeline as a result of the uncertain macro, so kind of a tailwind given the macro environment?

I think the answer for sure is yes. If we went back in the Wayback Machine, two and half, three years ago, you couldn't open crunch base any week without reading about a new company that was being created to take on the identity category, you couldn't go a week without seeing additional eye popping funding rounds. And most of those new formed competitors, they spent a lot of that money on sales and marketing and they were not investing in innovation and things that were both proprietary and differentiated. And over the course of the last two years, we've absolutely seen that come home to roost. And so as I said, when Chad asked the question, there's still uncertainty in the economy, there's still a lot of geopolitical stuff going on. But the lay of the land, the competitive lay of the land for us has shifted and we believe shifted in our favor. I mean when you're going to look around as a -- you're a mobile operator, you're a bank, you're a healthcare institution, who are you going to partner with, who are you relying on, who's going to be able to kind of come out the other side of this and not just have great product but be able to support you and have the vendor viability. And I'll stand on the FY23 10-K, that's vendor viability.

Your next question today will come from Owen Rickert of Northland Capital Markets.

This is Owen on for Mike Grondahl. I just have two questions. So first, what are your priorities for Mobile ID in 2024?

Can you be a little more specific as to what you mean by that?

I guess just priorities going forward in terms of go-to-market, what you're doing to improve the product, et cetera?

We're really excited about the progress that we're making with MiVIP, right? So this end-to-end orchestration, low-code no-code environment, our ability to take on these really [gnarly] problems for regulated organizations. I talked about what those vertical industries are. But to be able to do that, not just for onboarding journeys and to get new accounts open but what is often referred to as in life journeys, right? The ability to help somebody with a password reset, you forgot your credentials instead of sitting for a half hour on a call center line and burning up a lot of time and having a terrible experience using MiVIP and now MiPass the multimodal biometric identity authentication system, those are great opportunities for us. And as we've talked about in the past, our model is land and expand, right? You land the initial piece of business with a bank or a mobile operator and inevitably within a year or two, we're in two, three, four different use cases. Some of those are onboarding journeys, which are transaction driven. But now with what we're doing with MiPass and, of course, the ID R&D biometrics and liveness componentry, having recurring revenue associated with more of a conventional subscription model we're really excited about how that's growing the business, and not just what we're going to do for the rest of FY24 but really the future of this business over the intermediate term.

And then lastly, are there any incremental updates on the sales team?

Well, coming into FY24, as we just said for Jacob, we've made some additional investments in what we're doing with Check Fraud Defender and now MiControl, so putting more, if you will, logs on the fire to really kind of get that cooking. On the identity side of the business, we've been investing in really kind of upgrading the team. We're probably halfway through a pretty big transformation, right? If you go back in the way back machine before we came together with HooYu and had MiVIP, we were basically selling a point solution where we would be able to do identity verification using a government issued identity document and a facial liveness test. Now with MiVIP, I've got an end-to-end enterprise solution that can be used in a lot of different places by a lot of different businesses. And the sales motion, the positioning of that, who we're targeting as far as the buyer cohort within our target accounts, all of those things have changed and we've been making changes to our team and our selling motions to exploit that. And then with ID R&D, separately, very much the selling of those componentry just again bringing -- it's not huge investments but going from three sellers to five sellers makes a really big difference and to have those folks located in places like Singapore or Brazil or Eastern Europe, just because that's where the action is.

[Operator Instructions] And our next question will come from Allen Klee of Maxim.

Question on your guidance, I think you're guiding to non-GAAP operating margin of 30% to 31%. I think that compares to 31% you did in fiscal '23. So my question is, if the mobile identity business is going to move from losing money to breakeven during the year, so that should improve results. What's the offset that is making margins not go up?

It's a couple of different -- just doing the high-level math first. If you take our revenue guidance and assume kind of gross margin similar to 2023, looking at 2024 and backing into operating expense, we're growing operating expense somewhere in the kind of $7 million range year-over-year, $23 million to $24 million. Most of that it's going to be investment in R&D from a cost perspective. And that's going to be a combination of products that we're investing in, particularly CFD but also in some of the other kind of earlier stage growth products that we have.

And then in terms of capital allocation, I think the last call, you guys said once you got out of a blackout, you would consider a buyback. How are you thinking about that today?

I said in the prepared remarks, I talked a little bit about the capital allocation plan, the management team, Max and myself are working with our Board of Directors on a routine kind of basis to figure out what that capital allocation will look like going forward. We're looking at all alternatives, which could include a buyback. But we haven't specifically talked, I think, historically more than just that on our earnings call.

Last question is, is it possible at some point as mobile identity grows that you might be able to break out the more metrics related to it, either the basics of profitability or certain KPIs?

Dave's in the chair here about 60 days, and he brings a lot of fresh thinking, a lot of new eyes and CFO at six other public companies before being here. I think you’ll see us definitely learn some new tricks from him. So the answer is yes. Let’s give him a chance to get a [sea legs] and kind of find his way around and start to put his fingerprint on things here, and stay tuned.

At this time, we will conclude our question-and-answer session. I'd like to turn the conference back over to Todd Kehrli for any closing remarks.

Thank you, operator. Thank you, everyone, for joining our call today and for your continued support. As always, if you have any follow-up questions or I'd like to meet with management, please feel free to reach out to me, and I'll set something up. Thanks for everything, and have a great day.

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