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, 2020 , filed with theU.S. Securities and Exchange Commission onDecember 7, 2020 , as amended by Amendment No. 1 to the Annual Report on Form 10-K/A (the "Form 10-K"), filed with theSEC onDecember 11, 2020 . 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 is who 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. 24 -------------------------------------------------------------------------------- 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 partners who are financial services technology providers and identity verification providers. These partners integrate our products into their solutions to meet the needs of their customers. First Quarter Fiscal 2021 Highlights •Revenue for the three months endedDecember 31, 2020 was$26.0 million , an increase of 18% compared to revenue of$22.1 million in the three months endedDecember 31, 2019 . •Net income was$2.2 million , or$0.05 per diluted share, during the three months endedDecember 31, 2020 , compared to net income of$0.6 million , or$0.01 per share, during the three months endedDecember 31, 2019 . •Cash provided by operating activities was$8.7 million for the three months endedDecember 31, 2020 , compared to$5.2 million for the three months endedDecember 31, 2019 . •We added new patents to our portfolio during the first quarter of fiscal 2021 bringing our total number of issued patents to 69 as ofDecember 31, 2020 . In addition, we have 17 domestic and international patent applications pending as ofDecember 31, 2020 . 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 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 25 -------------------------------------------------------------------------------- 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 EndedDecember 31, 2020 and 2019 The following table summarizes certain aspects of our results of operations for the three months endedDecember 31, 2020 and 2019 (amounts in thousands, except percentages): Three Months Ended December 31, Percentage of Total Revenue Increase (Decrease) 2020 2019 2020 2019 $ % Revenue Software and hardware$ 12,303 $ 11,515 47 % 52 %$ 788 7 % Services and other 13,673 10,552 53 % 48 % 3,121 30 % Total revenue$ 25,976 $ 22,067 100 % 100 %$ 3,909 18 % Cost of revenue 4,138 2,933 16 % 13 % 1,205 41 % Selling and marketing 7,385 6,648 28 % 30 % 737 11 % Research and development 6,165 5,292 24 % 24 % 873 16 % General and administrative 5,058 5,288 19 % 24 % (230) (4) % Acquisition-related costs and expenses 1,693 1,608 7 % 7 % 85 5 % Other income, net 96 303 - % 1 % (207) (68) % Income tax benefit (provision) 534 (41) 2 % - % 575 (1402) % Net income$ 2,167 $ 560 8 % 3 %$ 1,607 287 % * Not meaningful. Revenue Total revenue increased$3.9 million , or 18%, to$26.0 million in the three months endedDecember 31, 2020 compared to$22.1 million in the three months endedDecember 31, 2019 . Software and hardware revenue increased$0.8 million , or 7%, to$12.3 million in the three months endedDecember 31, 2020 compared to$11.5 million in the three months endedDecember 31, 2019 . This increase is primarily due to an increase in sales of our Mobile Deposit® and CheckReader™ software and identity verification hardware 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$3.1 million , or 30%, to$13.7 million in the three months endedDecember 31, 2020 compared to$10.6 million in the three months endedDecember 31, 2019 . This increase is primarily due to 26 -------------------------------------------------------------------------------- continued growth in Mobile Verify® transactional SaaS revenue of$2.2 million , or 42%, in the three months endedDecember 31, 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$1.2 million , or 41%, to$4.1 million in the three months endedDecember 31, 2020 compared to$2.9 million in the three months endedDecember 31, 2019 . As a percentage of revenue, cost of revenue increased to 16% in the three months endedDecember 31, 2020 from 13% in the three months endedDecember 31, 2019 . The increase in cost of revenue is primarily due to an increase in cost of revenues associated with higher hardware revenues as well as higher variable personnel and hosting costs associated with a higher volume of Mobile Verify® transactions processed during the three months endedDecember 31, 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 and marketing 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$0.7 million , or 11%, to$7.4 million in the three months endedDecember 31, 2020 compared to$6.6 million in the three months endedDecember 31, 2019 . As a percentage of revenue, selling and marketing expenses decreased to 28% in the three months endedDecember 31, 2020 from 30% in the three months endedDecember 31, 2019 . The increase in selling and marketing expense is primarily due to higher personnel-related costs in the three months endedDecember 31, 2020 compared to the same period in 2019. The overall increase in selling and marketing expense was partially offset by a decrease in travel and related expenses as a result of the COVID-19 pandemic during the three months endedDecember 31, 2020 as 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$0.9 million , or 16%, to$6.2 million in the three months endedDecember 31, 2020 compared to$5.3 million in the three months endedDecember 31, 2019 . As a percentage of revenue, research and development expenses were consistent at 24% in each of the three months endedDecember 31, 2020 and 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 endedDecember 31, 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 decreased$0.2 million , or 4%, to$5.1 million in the three months endedDecember 31, 2020 compared to$5.3 million in the three months endedDecember 31, 2019 . As a percentage of revenue, general and administrative expenses decreased to 19% in the three months endedDecember 31, 2020 from 24% in the three months endedDecember 31, 2019 . The decrease in general and administrative expenses is primarily due to lower intellectual property litigation related costs, third party consulting expenses and travel and related expenses during the three months endedDecember 31, 2020 compared to the same period in 2019. The overall decrease in general and administrative expenses was partially offset by increased headcount costs. 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 increased$0.1 million , or 5%, to$1.7 million in the three months endedDecember 31, 2020 compared to$1.6 million in the three months endedDecember 31, 2019 . As a percentage of revenue, acquisition-related costs and expenses were consistent at 7% in each of the three months endedDecember 31, 2020 and 2019. The increase in acquisition-related costs and expenses is due to the impact of foreign exchange rates on the amortization of certain intangible assets during the three months endedDecember 31, 2020 compared to the same period in 2019. 27 -------------------------------------------------------------------------------- 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 decreased$0.2 million , to$0.1 million in the three months endedDecember 31, 2020 compared to$0.3 million in the three months endedDecember 31, 2019 . This decrease is primarily due to an overall foreign currency exchange transactional losses recorded during the three months endedDecember 31, 2020 as compared to an overall foreign currency exchange transactional gains recorded during the same period in 2019. Income Tax Benefit (Provision) For the three months endedDecember 31, 2020 , we recorded an income tax benefit of$0.5 million , which yielded an effective tax rate of negative 33%. For the three months endedDecember 31, 2019 , we recorded an income tax provision of$41,000 , or an effective tax rate of 7%. The difference between theU.S. federal statutory tax rate and our effective tax rate for the three months endedDecember 31, 2020 and 2019 was primarily due to excess tax benefits resulting from the vesting of restricted stock and the exercise of stock options as well as 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 OnDecember 31, 2020 , we had$72.6 million in cash and cash equivalents and investments compared to$62.0 million onSeptember 30, 2020 , an increase of$10.6 million , or 17%. The increase in cash and cash equivalents and investments is primarily due to net cash provided by operating activities of$8.7 million and net proceeds from the issuance of our common stock, par value$0.001 ("Common Stock") under our equity plan of$1.9 million . Cash Flows from Operating Activities Net cash provided by operating activities during the three months endedDecember 31, 2020 was$8.7 million and resulted primarily from net income of$2.2 million , net non-cash charges of$4.2 million , and favorable changes in operating assets and liabilities of$2.3 million . The primary non-cash adjustments to operating activities were stock-based compensation expense, amortization of intangible assets, depreciation and amortization and amortization of investment premiums totaling$2.7 million ,$1.7 million ,$0.4 million , and$0.1 million , respectively, and were partially offset by a deferred tax benefit of$0.7 million . Net cash provided by operating activities during the three months endedDecember 31, 2019 was$5.2 million and resulted primarily from net income of$0.6 million adjusted for non-cash charges of$4.3 million as well as favorable changes in operating assets and liabilities of$0.3 million . The primary non-cash adjustments to operating activities were stock-based compensation expense, amortization of intangible assets, and depreciation and amortization totaling$2.3 million ,$1.6 million , and$0.4 million , respectively. Cash Flows from Investing Activities Net cash used in investing activities was$4.4 million during the three months endedDecember 31, 2020 , which consisted primarily of net purchases of investments of$4.0 million and capital expenditures of$0.4 million . Net cash used in investing activities was$7.2 million during the three months endedDecember 31, 2019 , which consisted primarily of net purchases of investments of$7.0 million and capital expenditures of$0.2 million . Cash Flows from Financing Activities Net cash provided by financing activities was$1.9 million during the three months endedDecember 31, 2020 , which consisted of net proceeds from the issuance of equity plan Common Stock of$1.9 million , partially offset by principal payments on other borrowings of$18,000 . Net cash used in financing activities was$5,000 during the three months endedDecember 31, 2019 , which consisted of principal payments on other borrowings of$78,000 , partially offset by net proceeds from the issuance of equity plan Common Stock of$73,000 . Rights Agreement OnOctober 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 onNovember 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 28 -------------------------------------------------------------------------------- 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 onOctober 22, 2021 , (ii) the time at which the Rights are redeemed, and (iii) the time at which the Rights are exchanged. Share Repurchase Program OnDecember 13, 2019 , the Board 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 expired onDecember 16, 2020 . Total purchases made under the share repurchase program were$1.0 million or approximately 137,000 shares at an average price of$7.33 . The purchases under the share repurchase program were made through open market trades. CARES Act OnMarch 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. Other Liquidity Matters OnDecember 31, 2020 , we had investments of$45.8 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. AtDecember 31, 2020 , we had$40.2 million of our available-for-sale securities classified as current and$5.6 million of our available-for-sale securities classified as long-term. AtSeptember 30, 2020 , we had$40.0 million of our available-for-sale securities classified as current and$2.0 million of our available-for-sale securities classified as long-term. We had working capital of$64.3 million atDecember 31, 2020 compared to$59.8 million atSeptember 30, 2020 . Based on our current operating plan, we believe the current cash and cash equivalents 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 ofDecember 31, 2020 . 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, 2020 . 29 --------------------------------------------------------------------------------
There have been no material changes to our critical accounting policies and
estimates from those disclosed in our Annual Report on Form 10-K for the year
ended
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