MITEK SYSTEMS, INC. This Quarterly Report on Form 10-Q (this "Form 10-Q"), contains "forward-looking statements" that involve risks and uncertainties, as well as assumptions that, if they never materialize or they prove incorrect, could cause our results to differ materially and adversely from those expressed or implied by such forward-looking statements. The forward-looking statements are contained principally in Part I, Item 2-"Management's Discussion and Analysis of Financial Condition and Results of Operations" and Part II, Item 1A-"Risk Factors," but appear throughout this Form 10-Q. Forward -looking statements may include, but are not limited to, statements relating to our outlook or expectations for earnings, revenues, expenses, asset quality, volatility of our common stock, financial condition or other future financial or business performance, strategies, expectations, or business prospects, the duration and impact of the novel COVID-19 pandemic on our business, our customers, and markets generally, or the impact of legal, regulatory, or supervisory matters on our business, results of operations, or financial condition. Forward-looking statements can be identified by the use of words such as "estimate," "plan," "project," "forecast," "intend," "expect," "anticipate," "believe," "seek," "target", "will," "would," "could," "can," "may", or similar expressions. Forward-looking statements reflect our judgment based on currently available information and involve a number of risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in Part II, Item 1A-"Risk Factors" in this Form 10-Q and in our other filings with theU.S. Securities and Exchange Commission (the "SEC"), including our Annual Report on Form 10-K for the fiscal year endedSeptember 30, 2019 , filed with theSEC onDecember 6, 2019 (the "Form 10-K"). Additionally, there may be other factors that could preclude us from realizing the predictions made in the forward-looking statements. We operate in a continually changing business environment and new factors emerge from time to time. We cannot predict such factors or assess the impact, if any, of such factors on our financial position or results of operations. All forward-looking statements included in this Form 10-Q speak only as of the date of this Form 10-Q and you are cautioned not to place undue reliance on any such forward-looking statements. Except as required by law, we undertake no obligation to publicly update or release any revisions to these forward-looking statements to reflect any events or circumstances after the date of this Form 10-Q or to reflect the occurrence of unanticipated events. In this Form 10-Q, unless the context indicates otherwise, the terms "Mitek," "the Company," "we," "us," and "our" refer toMitek Systems, Inc. , aDelaware corporation and its subsidiaries. Overview Mitek is a leading innovator of mobile image capture and digital identity verification solutions. We are a software development company with expertise in computer vision, artificial intelligence, and machine learning. We are currently serving more than 7,500 financial services organizations and leading marketplace and financial technology ("fintech") brands across the globe. Our solutions are embedded in native mobile apps and browsers to facilitate better online user experiences, fraud detection and reduction, and compliant transactions. Mitek's Mobile Deposit® solution is used today by millions of consumers inthe United States ("U.S.") andCanada for mobile check deposit. Mobile Deposit® enables individuals and businesses to remotely deposit checks using their camera-equipped smartphone or tablet. Our Mobile Deposit® solution is embedded within the financial institutions' digital banking apps used by consumers and has now processed over four billion check deposits. Mitek began selling Mobile Deposit® in early 2008 and received its first patent for this product inAugust 2010 . Mitek's Mobile Verify® verifies a user's identity online enabling organizations to build safer digital communities. Scanning an identity document helps enable an enterprise to verify the identity of the person with whom they are conducting business, to comply with growing governmental Anti-Money Laundering and Know Your Customer regulatory requirements, and to improve the overall customer experience for digital onboarding. To be sure the person submitting the identity document iswho they say they are, Mitek's Mobile Verify Face Comparison provides an additional layer of online verification and compares the face on the submitted identity document with the live selfie photo of the user. The combination of identity document capture and data extraction process enables the organization to prefill the end user's application, with far fewer key strokes, thus reducing keying errors, and improving both operational efficiency and the customer experience. Today, the financial services verticals (banks, credit unions, lenders, payments processors, card issuers, fintech companies, etc.) represent the greatest percentage of use of our solutions, but there is accelerated adoption by marketplaces, sharing economy, and hospitality sectors. Mitek uses artificial intelligence and machine learning to constantly improve the product performance of Mobile Verify® such as speed and accuracy of approvals of identification documents. The core of our user experience is driven by Mitek MiSnap™, the leading image capture technology, which is incorporated across our product lines. It provides a simple, intuitive, and superior user-experience, making digital transactions faster, more accurate, and easier for the consumer. Mobile Fill® automates application prefill of any form with user data by simply snapping a picture of the driver's license or other similar user identity document. 26 -------------------------------------------------------------------------------- CheckReader™ enables financial institutions to automatically extract data from a check image received across any deposit channel-branch, ATM, remote deposit capture, and mobile. Through the automatic recognition of all fields on checks, whether handwritten or machine print, CheckReader™ speeds the time to deposit for financial institutions and enables them to comply with check clearing regulations. We market and sell our products and services worldwide through internal, direct sales teams located in theU.S. ,Europe , andLatin America as well as through channel partners. Our partner sales strategy includes channel partnerswho are financial services technology providers and identity verification providers. These partners integrate our products into their solutions to meet the needs of their customers. Third Quarter Fiscal 2020 Highlights •Revenue for the three months endedJune 30, 2020 was$25.4 million , an increase of 16% compared to revenue of$21.9 million in the three months endedJune 30, 2019 . •Net income was$1.3 million , or$0.03 per diluted share, during the three months endedJune 30, 2020 , compared to net loss of$0.1 million , or$0.00 per share, during the three months endedJune 30, 2019 . •Cash provided by operating activities was$17.4 million for the nine months endedJune 30, 2020 , compared to$7.9 million for the nine months endedJune 30, 2019 . •We added new patents to our portfolio during fiscal 2020 bringing our total number of issued patents to 64 as ofJune 30, 2020 . In addition, we have 19 domestic and international patent applications pending as ofJune 30, 2020 . Restructuring Subsequent to the acquisition of A2iA Group II, S.A.S. ("A2iA"), we evaluated A2iA's operations and determined that the market for certain products was small and lacking growth opportunity, were not core to our strategy, and were not profitable for the Company. In order to streamline the organization and focus resources going forward, we undertook a strategic restructuring of A2iA'sParis operations inJune 2019 , which included, among other things, ceasing the sale of certain A2iA products and offerings and a reduction in workforce. Market Opportunities, Challenges & Risks We believe that financial institutions, fintechs, and other companies see our patented solutions as a way to provide a superior digital customer experience to meet growing consumer demand for trust and convenience online and, at the same time, assist them in meeting regulatory requirements. The value of digital transformation to our customers is a possible increase in top line revenue and a reduction in the cost of sales and services. As the use of new technology increases, so does associated fraud and cyber-attacks. The negative outcomes of fraud encompass financial losses, brand damage, and loss of loyal customers. We predict growth in both our deposits and identity verification products based on current trends in payments, online lending, more stringent regulations, growing usage of sharing apps and online marketplaces, and the ever-increasing demand for digital services. Factors adversely affecting the pricing of, or demand for, our digital solutions, such as competition from other products or technologies, any decline in the demand for digital transactions, or negative publicity or obsolescence of the software environments in which our products operate, could result in lower revenues or gross margins. Further, because substantially all of our revenues are from a few types of technology, our product concentration may make us especially vulnerable to market demand and competition from other technologies, which could reduce our revenues. The sales cycle for our software and services can be lengthy and the implementation cycles for our software and services by our channel partners and customers can also be lengthy, often as long as six months and sometimes longer for larger customers. If implementation of our products by our channel partners and customers is delayed or otherwise not completed, our business, financial condition, and results of operations may be adversely affected. Revenues related to most of our on-premise licenses for mobile products are required to be recognized up front upon satisfaction of all applicable revenue recognition criteria. Revenue related to our software as a service ("SaaS") products is recognized ratably over the life of the contract or as transactions are used depending on the contract criteria. The recognition of future revenues from these licenses is dependent upon a number of factors, including, but not limited to, the term of our license agreements, the timing of implementation of our products by our channel partners and customers, and the timing of any re-orders of additional licenses and/or license renewals by our channel partners and customers. During each of the last few years, sales of licenses to one or more channel partners have comprised a significant part of our revenue each year. This is attributable to the timing of renewals or purchases of licenses and does not represent a dependence on any single channel partner. If we were to lose a channel partner relationship, we do not believe such a loss would adversely affect our operations because either we or another channel partner could sell our products to the end-users that had purchased products from the 27 -------------------------------------------------------------------------------- channel partner we lost. However, in that case, we or another channel partner must establish a relationship with the end-users, which could take time to develop, if it develops at all. We have a growing number of competitors in the mobile image capture and identity verification industry, many of which have greater financial, technical, marketing, and other resources. However, we believe our patented mobile image capture and identity verification technology, our growing portfolio of products and geographic coverage for the financial services industry, and our market expertise gives us a distinct competitive advantage. To remain competitive, we must continue to offer products that are attractive to the consumer as well as being secure, accurate, and convenient. To help us remain competitive, we intend to further strengthen performance of our portfolio of products through research and development as well as partnering with other technology providers. In the second quarter of fiscal 2020, concerns related to the spread of COVID-19 began to create global business disruptions as well as disruptions in our operations and to create potential negative impacts on our revenues and other financial results. COVID-19 was declared a pandemic by theWorld Health Organization onMarch 11, 2020 . In an effort to contain COVID-19 or slow its spread, governments around the world have enacted various measures, including orders to close all businesses not deemed "essential," isolate residents to their homes or places of residence, and practice social distancing when engaging in essential activities. We anticipate that these actions and the global health crisis caused by COVID-19 will negatively impact business activity across the globe. The extent to which COVID-19 will impact our business, operations, and financial results is uncertain and difficult to predict and depends on numerous evolving factors including the duration and severity of the outbreak. See Item 1A: "Risk Factors" for additional details. In an effort to protect the health and safety of our employees, our workforce has transitioned to working remotely and employee travel, including to our international subsidiaries, has been severely curtailed. It is not clear what the potential effects of any such alterations or modifications may have on our business, including the effects on our customers or vendors, or on our financial results. We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state, local, or foreign authorities, or that we determine are in the best interests of our employees, customers, partners, and stockholders. We anticipate in certain circumstances that the current stay-at-home orders and impact of the COVID-19 pandemic may accelerate the adoption of digital technologies and create future opportunities and uses for our products. However, we cannot predict what the overall impact of the COVID-19 pandemic will be on our business or financial condition as business and consumer activity decelerates across the globe. We continue to seek new and innovative opportunities to serve our customers' needs. Results of Operations Comparison of the Three Months EndedJune 30, 2020 and 2019 The following table summarizes certain aspects of our results of operations for the three months endedJune 30, 2020 and 2019 (amounts in thousands, except percentages):
Three Months Ended
Percentage of Total Revenue Increase (Decrease)
2020 2019 2020 2019 $ %
Revenue
Software and hardware $ 13,212 $ 11,888 52 % 54 % $ 1,324 11 %
Services and other 12,201 10,018 48 % 46 % 2,183 22 %
Total revenue $ 25,413 $ 21,906 100 % 100 % $ 3,507 16 %
Cost of revenue 3,496 3,168 14 % 14 % 328 10 %
Selling and marketing 7,791 6,935 31 % 32 % 856 12 %
Research and development 5,111 4,663 20 % 21 % 448 10 %
General and administrative 5,884 5,074 23 % 23 % 810 16 %
Acquisition-related costs and
expenses 1,697 1,761 7 % 8 % (64) (4) %
Restructuring costs - 3,214 - % 15 % (3,214) (100) %
Other income, net 145 98 1 % - % 47 48 %
Income tax benefit (provision) (231) 2,712 (1) % 12 % (2,943) (109) %
Net income (loss) $ 1,348 $ (99) 5 % - % $ 1,447 *
* Not meaningful.
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Revenue
Total revenue increased$3.5 million , or 16%, to$25.4 million in the three months endedJune 30, 2020 compared to$21.9 million in the three months endedJune 30, 2019 . Software and hardware revenue increased$1.3 million , or 11%, to$13.2 million in the three months endedJune 30, 2020 compared to$11.9 million in the three months endedJune 30, 2019 . This increase is primarily due to an increase in sales of our Mobile Deposit® and CheckReader™ software products. This increase was partially offset by declining software revenue from our legacy on-premise identity products which are being phased out. Services and other revenue increased$2.2 million , or 22%, to$12.2 million in the three months endedJune 30, 2020 compared to$10.0 million in the three months endedJune 30, 2019 . This increase is primarily due to continued growth in Mobile Verify® transactional SaaS revenue of$2.2 million , or 42%, in the three months endedJune 30, 2020 compared to the same period in 2019. Cost of Revenue Cost of revenue includes personnel costs related to billable services and software support, direct costs associated with our hardware products, hosting costs, and the costs of royalties for third party products embedded in our products. Cost of revenue increased$0.3 million , or 10%, to$3.5 million in the three months endedJune 30, 2020 compared to$3.2 million in the three months endedJune 30, 2019 . As a percentage of revenue, cost of revenue was consistent at 14% in each of the three months endedJune 30, 2020 and 2019. The increase in cost of revenue is primarily due to an increase in variable personnel, royalty, and hosting costs associated with a higher volume of Mobile Verify® transactions processed during the three months endedJune 30, 2020 compared to the three months endedJune 30, 2019 . Selling and Marketing Expenses Selling and marketing expenses include payroll, employee benefits, stock-based compensation, and other headcount-related costs associated with sales, marketing, and product management personnel. Selling and marketing expenses also include non-billable costs of professional services personnel, advertising expenses, product promotion costs, trade shows, and other brand awareness programs. Selling and marketing expenses increased$0.9 million , or 12%, to$7.8 million in the three months endedJune 30, 2020 compared to$6.9 million in the three months endedJune 30, 2019 . As a percentage of revenue, selling and marketing expenses decreased to 31% in the three months endedJune 30, 2020 from 32% in the three months endedJune 30, 2019 . The increase in selling and marketing expense is primarily due to higher personnel-related costs in the three months endedJune 30, 2020 compared to the same period in 2019. Research and Development Expenses Research and development expenses include payroll, employee benefits, stock-based compensation, third party contractor expenses, and other headcount-related costs associated with software engineering and mobile capture science. Research and development expenses increased$0.4 million , or 10%, to$5.1 million in the three months endedJune 30, 2020 compared to$4.7 million in the three months endedJune 30, 2019 . As a percentage of revenue, research and development expenses decreased to 20% in the three months endedJune 30, 2020 from 21% in the three months endedJune 30, 2019 . The increase in research and development expenses is primarily due to higher personnel-related costs resulting from our increased headcount in the three months endedJune 30, 2020 compared to 2019. General and Administrative Expenses General and administrative expenses include payroll, employee benefits, stock-based compensation, and other headcount-related costs associated with finance, legal, administration, and information technology functions, as well as third party legal, accounting, and other administrative costs. General and administrative expenses increased$0.8 million , or 16%, to$5.9 million in the three months endedJune 30, 2020 compared to$5.1 million in the three months endedJune 30, 2019 . As a percentage of revenue, general and administrative expenses remained consistent at 23% in each of the three months endedJune 30, 2020 and 2019. The increase in general and administrative expenses is primarily due to higher intellectual property litigation related costs of$0.7 million and higher personnel-related costs of$0.1 million during the three months endedJune 30, 2020 compared to the same period in 2019. Acquisition-Related Costs and Expenses Acquisition-related costs and expenses include amortization of intangible assets, expenses recorded due to changes in the fair value of contingent consideration, stock-based compensation, and other costs associated with acquisitions. Acquisition-related costs and expenses decreased$0.1 million , or 4%, to$1.7 million in the three months endedJune 30, 2020 compared to$1.8 million in the three months endedJune 30, 2019 . As a percentage of revenue, acquisition-related costs and expenses decreased to 7% in the three months endedJune 30, 2020 from 8% in the three months endedJune 30, 2019 . The decrease in acquisition-related costs and expenses is due to a decrease in the amortization of intangible assets as a result of certain intangible assets which had become fully amortized prior to the three months endedJune 30, 2020 . 29 -------------------------------------------------------------------------------- Restructuring Costs Restructuring costs consist of employee severance obligations and other related costs. Restructuring costs were$3.2 million in the three months endedJune 30, 2019 and related to the restructuring plan implemented inJune 2019 . Other Income, Net Other income, net includes interest income net of amortization and net realized gains or losses on our marketable securities portfolio and foreign currency transactional gains or losses. Other income, net increased$47,000 , to$145,000 in the three months endedJune 30, 2020 compared to$98,000 in the three months endedJune 30, 2019 . This increase is primarily due to an increase in interest income as a result of higher cash and investment balances during the three months endedJune 30, 2020 compared to the same period in 2019. Income Tax Benefit (Provision) For the three months endedJune 30, 2020 , we recorded an income tax provision of$0.2 million , which yielded an effective tax rate of 15%. For the three months endedJune 30, 2019 , we recorded an income tax benefit of$2.7 million , or an effective tax rate of 96%. The difference between theU.S. federal statutory tax rate and our effective tax rate for the three months endedJune 30, 2020 and 2019 was primarily due to excess tax benefits resulting from the exercise of stock options and vesting of restricted stock, the impact of foreign and state taxes, and the impact of federal and state research and development credits on its tax provision. Comparison of the Nine Months EndedJune 30, 2020 and 2019 The following table summarizes certain aspects of our results of operations for the nine months endedJune 30, 2020 and 2019 (amounts in thousands, except percentages):
Nine Months Ended
Percentage of Total Revenue Increase (Decrease)
2020 2019 2020 2019 $ %
Revenue
Software and hardware $ 36,180 $ 32,468 51 % 55 % $ 3,712 11 %
Services and other 34,492 27,104 49 % 45 % 7,388 27 %
Total revenue $ 70,672 $ 59,572 100 % 100 % $ 11,100 19 %
Cost of revenue 9,615 9,037 14 % 15 % 578 6 %
Selling and marketing 22,569 20,895 32 % 35 % 1,674 8 %
Research and development 14,540 14,441 21 % 24 % 99 1 %
General and administrative 16,382 15,743 23 % 26 % 639 4 %
Acquisition-related costs and
expenses 4,884 5,361 7 % 9 % (477) (9) %
Restructuring costs (114) 3,214 - % 5 % (3,328) (104) %
Other income, net 480 252 1 % - % 228 90 %
Income tax benefit (provision) $ (460) $ 4,861 (1) % 8 % $ (5,321) (109) %
Net income (loss) $ 2,816 $ (4,006) 4 % (7) % $ 6,822 170 %
Revenue
Total revenue increased $11.1 million or 19%, to $70.7 million in the nine
months ended June 30, 2020 compared to $59.6 million in the nine months ended
June 30, 2019 . Software and hardware revenue increased $3.7 million , or 11%, to
$36.2 million in the nine months ended June 30, 2020 compared to $32.5 million
in the nine months ended June 30, 2019 primarily due to an increase in sales of
our Mobile Deposit®, ID_CLOUD™, and CheckReader™ software products. This
increase was partially offset by declining software revenue from our legacy
on-premise identity products which are being phased out. Services and other
revenue increased $7.4 million , or 27%, to $34.5 million in the nine months
ended June 30, 2020 compared to $27.1 million in the nine months ended June 30,
2019 primarily due to strong growth in Mobile Verify® transactional SaaS revenue
of $6.0 million in the nine months ended June 30, 2020 compared to the same
period in 2019, as well as an increase in maintenance revenue associated with
CheckReader™ and Mobile Deposit® software sales.
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Cost of Revenue
Cost of revenue includes personnel costs related to billable services and
software support, direct costs associated with our hardware products, hosting
costs, and the costs of royalties for third party products embedded in our
products. Cost of revenue increased $0.6 million , or 6%, to $9.6 million in the
nine months ended June 30, 2020 compared to $9.0 million in the nine months
ended June 30, 2019 . As a percentage of revenue, cost of revenue decreased to
14% in the nine months ended June 30, 2020 from 15% in the nine months ended
June 30, 2019 . The increase in cost of revenue is primarily due to an increase
in variable personnel, royalty, and hosting costs associated with a higher
volume of Mobile Verify® transactions processed during the nine months ended
June 30, 2020 compared to the same period in 2019.
Selling and Marketing Expenses
Selling and marketing expenses include payroll, employee benefits, stock-based
compensation, and other headcount-related costs associated with sales,
marketing, and product management personnel. Selling and marketing expenses also
include non-billable costs of professional services personnel, advertising
expenses, product promotion costs, trade shows, and other brand awareness
programs. Selling and marketing expenses increased $1.7 million , or 8%, to $22.6
million in the nine months ended June 30, 2020 compared to $20.9 million in the
nine months ended June 30, 2019 . As a percentage of revenue, selling and
marketing expenses decreased to 32% in the nine months ended June 30, 2020 from
35% in the nine months ended June 30, 2019 . The increase in selling and
marketing expense is primarily due to higher personnel-related costs of $1.2
million and higher product promotion costs of $0.4 million in the nine months
ended June 30, 2020 compared to the same period in 2019.
Research and Development Expenses
Research and development expenses include payroll, employee benefits,
stock-based compensation, third party contractor expenses, and other
headcount-related costs associated with software engineering and mobile capture
science. Research and development expenses increased $0.1 million , or 1%, to
$14.5 million in the nine months ended June 30, 2020 compared to $14.4 million
in the nine months ended June 30, 2019 . As a percentage of revenue, research and
development expenses decreased to 21% in the nine months ended June 30, 2020
from 24% in the nine months ended June 30, 2019 . The increase in research and
development expenses is primarily due to higher personnel-related costs in the
nine months ended June 30, 2020 compared to the same period in 2019.
General and Administrative Expenses
General and administrative expenses include payroll, employee benefits,
stock-based compensation, and other headcount-related costs associated with
finance, legal, administration, and information technology functions, as well as
third party legal, accounting, and other administrative costs. General and
administrative expenses increased $0.6 million , or 4%, to $16.4 million in the
nine months ended June 30, 2020 compared to $15.7 million in the nine months
ended June 30, 2019 . As a percentage of revenue, general and administrative
expenses decreased to 23% in the nine months ended June 30, 2020 from 26% in the
nine months ended June 30, 2019 . The increase in general and administrative
expenses is primarily due to an increase in intellectual property litigation
costs of $1.7 million during the nine months ended June 30, 2020 compared to the
same period in 2019. This increase is partially offset by a decrease in third
party costs associated with our strategic process of $1.2 million .
Acquisition-Related Costs and Expenses
Acquisition-related costs and expenses include amortization of intangible
assets, expenses recorded due to changes in the fair value of contingent
consideration, stock-based compensation, and other costs associated with
acquisitions. Acquisition-related costs and expenses decreased $0.5 million , or
9%, to $4.9 million in the nine months ended June 30, 2020 compared to $5.4
million in the nine months ended June 30, 2019 . As a percentage of revenue,
acquisition-related costs and expenses decreased to 7% in the nine months ended
June 30, 2020 from 9% in the nine months ended June 30, 2019 . The decrease in
acquisition-related costs and expenses is primarily due to a decrease in the
amortization of intangible assets as a result of certain intangible assets which
had become fully amortized during the nine months ended June 30, 2020 .
Restructuring Costs
Restructuring costs consist of employee severance obligations and other related
costs. Restructuring costs were negative $0.1 million in the nine months ended
June 30, 2020 and are due to a reversal of costs accrued for the restructuring
plan implemented in June 2019 . Restructuring costs were $3.2 million in the nine
months ended June 30, 2019 and related to the restructuring plan implemented in
June 2019 .
Other Income, Net
Other income, net includes interest income net of amortization and net realized
gains or losses on our marketable securities portfolio, foreign currency
transactional gains or losses, and interest expense. Other income, net increased
$0.2 million , to $0.5 million
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of net income in the nine months ended June 30, 2020 compared to $0.3 million of
net income in the nine months ended June 30, 2019 , primarily due to an increase
in interest income as a result of higher cash and investment balances.
Income Tax Benefit (Provision)
For the nine months ended June 30, 2020 , we recorded an income tax provision of
$0.5 million , which yielded an effective tax rate of 14%. For the nine months
ended June 30, 2019 , we recorded an income tax benefit of $4.9 million , or an
effective tax rate of 55%. The difference between the U.S. federal statutory tax
rate and our effective tax rate for the nine months ended June 30, 2020 and 2019
was primarily due to excess tax benefits resulting from the exercise of stock
options and vesting of restricted stock, the impact of foreign and state taxes,
and the impact of federal and state research and development credits on its tax
provision.
Liquidity and Capital Resources
On June 30, 2020 , we had $52.2 million in cash and cash equivalents and
investments compared to $34.8 million on September 30, 2019 , an increase of
$17.4 million , or 50%. The increase in cash and cash equivalents and investments
is primarily due to net cash provided by operating activities of $17.4 million ,
net proceeds from the issuance of our common stock, par value $0.001 ("Common
Stock") under our equity plan of $1.6 million , favorable foreign currency gains
of $0.3 million , and proceeds from other borrowings of $0.2 million , partially
offset by repurchases and retirements of Common Stock of $1.0 million , payment
of acquisition-related contingent consideration of $0.5 million , capital
expenditures of $0.5 million and principal payments on other borrowings of $0.1
million .
Cash Flows from Operating Activities
Net cash provided by operating activities during the nine months ended June 30,
2020 was $17.4 million and resulted primarily from net income of $2.8 million ,
net non-cash charges of $13.9 million , and favorable changes in operating assets
and liabilities of $0.7 million . The primary non-cash adjustments to operating
activities were stock-based compensation expense, amortization of intangible
assets, depreciation and amortization, and deferred taxes totaling $7.1 million ,
$4.8 million , $1.1 million , and $0.7 million , respectively.
Net cash provided by operating activities during the nine months ended June 30,
2019 was $7.9 million and resulted primarily from net loss of $4.0 million
adjusted for non-cash charges of $8.3 million as well as favorable changes in
operating assets and liabilities of $3.6 million . The primary non-cash
adjustments to operating activities were stock-based compensation expense,
amortization of intangible assets, and depreciation and amortization totaling
$7.3 million , $5.3 million , and $1.0 million , respectively, and were partially
offset by a deferred tax benefit of $5.2 million .
Cash Flows from Investing Activities
Net cash used in investing activities was $15.5 million during the nine months
ended June 30, 2020 , which consisted primarily of net purchases of investments
of $15.0 million and capital expenditures of $0.5 million .
Net cash used in investing activities was $4.3 million during the nine months
ended June 30, 2019 , which consisted primarily of net purchases of investments
of $3.3 million and capital expenditures of $1.0 million .
Cash Flows from Financing Activities
Net cash provided by financing activities was $0.3 million during the nine
months ended June 30, 2020 , which consisted of net proceeds from the issuance of
equity plan Common Stock of $1.6 million and proceeds from other borrowing of
$0.2 million , partially offset by repurchases and retirements of Common Stock of
$1.0 million , payment of acquisition-related contingent consideration of $0.5
million , and principal payments on other borrowings of $0.1 million .
Net cash provided by financing activities was $3.6 million during the nine
months ended June 30, 2019 , which consisted of net proceeds from the issuance of
equity plan Common Stock of $4.9 million , partially offset by payment of
acquisition-related contingent consideration of $1.0 million and principal
payments on other borrowings of $0.3 million .
Revolving Credit Facility
On May 3, 2018 , the Company and ID Checker, Inc. (together, the "Co-Borrowers")
entered into a Loan and Security Agreement (the "Loan Agreement") with Silicon
Valley Bank ("SVB"). Pursuant to the Loan Agreement, we arranged for a $10.0
million secured revolving credit facility (the "Revolver") with a floating per
annum interest rate equal to the greater of the Wall Street Journal prime rate,
plus 0.25%, or 4.5%. The Co-Borrowers must maintain, at all times when any
amounts are outstanding under the Revolver, either (i) minimum unrestricted cash
at SVB and unused availability on the Revolver of at least $15.0 million and
(ii) Adjusted Quick Ratio of 1.75:1.00. In May 2019 , the Company and SVB entered
into an amendment of the Loan Agreement to extend the maturity of the Revolver
to September 30, 2020 . There were no borrowings outstanding under the Revolver
as of June 30, 2020 .
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Rights Agreement
On October 23, 2018 , we entered into the Section 382 Rights Agreement (the
"Rights Agreement") and issued a dividend of one preferred share purchase right
(a "Right") for each share of Common Stock payable on November 2, 2018 to the
stockholders of record of such shares on that date. Each Right entitles the
registered holder, under certain circumstances, to purchase from us one
one-thousandth of a share of Series B Junior Preferred Stock, par value $0.001
per share (the "Preferred Shares"), of the Company, at a price of $35.00 per one
one-thousandth of a Preferred Share represented by a Right, subject to
adjustment. The description and terms of the Rights are set forth in the Rights
Agreement.
The Rights are not exercisable until the Distribution Date (as defined in the
Rights Agreement). Until a Right is exercised, the holder thereof, as such, will
have no rights as a stockholder of the Company, including, without limitation,
the right to vote or to receive dividends.
At any time prior to the time any Person becomes an Acquiring Person (as defined
in the Rights Agreement), the Board may redeem the Rights in whole, but not in
part, at a price of $0.0001 per Right (the "Redemption Price"). The redemption
of the Rights may be made effective at such time, on such basis and with such
conditions as the Board in its sole discretion may establish. Immediately upon
any redemption of the Rights, the right to exercise the Rights will terminate
and the only right of the holders of Rights will be to receive the Redemption
Price.
The Rights will expire on the earlier of (i) the close of business on October
22, 2021 , (ii) the time at which the Rights are redeemed, and (iii) the time at
which the Rights are exchanged.
Share Repurchase Program
On December 13, 2019 , our Board of Directors authorized and approved a share
repurchase program for up to $10 million of the currently outstanding shares of
our Common Stock. The share repurchase program will expire December 16, 2020 .
The purchases under the share repurchase program may be made from time to time
in the open market, through block trades, 10b5-1 trading plans, privately
negotiated transactions or otherwise, in each case, in accordance with
applicable laws, rules, and regulations. The timing and actual number of the
shares repurchased will depend on a variety of factors including price, market
conditions and corporate and regulatory requirements. We intend to fund the
share repurchases from cash on hand. The share repurchase program does not
commit us to repurchase shares of our Common Stock and it may be amended,
suspended, or discontinued at any time.
We made purchases of $1.0 million , or approximately 137,000 shares, during the
nine months ended June 30, 2019 at an average price of $7.33 per share. Total
purchases made under the share repurchase program were $1.0 million as of June
30, 2020 .
CARES Act
On March 27, 2020 , President Trump signed into law the "Coronavirus Aid, Relief
and Economic Security (CARES) Act." The CARES Act, among other things, includes
provisions relating to refundable payroll tax credits, deferment of employer
side social security payments, net operating loss carryback periods, alternative
minimum tax credit refunds, modifications to the net interest deduction
limitations and technical corrections to tax depreciation methods for qualified
improvement property. We continue to examine the impacts the CARES Act may have
on our business, including our net operating losses.
Other Liquidity Matters
On June 30, 2020 , we had investments of $33.2 million , designated as
available-for-sale debt securities, which consisted of commercial paper,
corporate issuances, and asset-backed securities, carried at fair value as
determined by quoted market prices for identical or similar assets, with
unrealized gains and losses, net of tax, and reported as a separate component of
stockholders' equity. All securities whose maturity or sale is expected within
one year are classified as "current" on the consolidated balance sheets. All
other securities are classified as "long-term" on the consolidated balance
sheets. At June 30, 2020 , we had $30.3 million of our available-for-sale
securities classified as current and $2.9 million of our available-for-sale
securities classified as long-term. At September 30, 2019 , we had $16.5 million
of our available-for-sale securities classified as current and $1.6 million of
our available-for-sale securities classified as long-term.
We had working capital of $44.8 million at June 30, 2020 compared to $34.1
million at September 30, 2019 .
Based on our current operating plan, we believe the current cash balance and
cash expected to be generated from operations will be adequate to satisfy our
working capital needs for the next twelve months from the date the financial
statements are filed.
Off Balance Sheet Arrangements
The Company had no off balance sheet arrangements as of June 30, 2020 .
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Changes in Critical Accounting Policies Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in theU.S. The preparation of the consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the related disclosure of contingent assets and liabilities. We review our estimates on an on-going basis, including those related to revenue recognition, stock-based compensation, income taxes and the valuation of goodwill, intangibles and other long-lived assets. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. The critical accounting policies and estimates used in the preparation of our consolidated financial statements are described in Item 7-"Management's Discussion and Analysis of Financial Condition and Results of Operations," in the Form 10-K for the year endedSeptember 30, 2019 . Significant changes to our critical accounting policies and estimates as a result of adopting ASU 2016-02, Leases (Topic 842), and its related amendments (collectively "ASC 842") are as follows: Leases We adopted ASC 842 effectiveOctober 1, 2019 using the optional transition method. Additional information about our lease policies and the related impact of the adoption is included in Note 1 and Note 8 to the consolidated financial statements. There have been no other material changes to our critical accounting policies and estimates from those disclosed in our Annual Report on Form 10-K for the year endedSeptember 30, 2019 .
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