Mitek Systems, Inc.

Good day and welcome to the MyTek Systems first quarter fiscal 2020 financial results conference call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Todd Kehrli, MKR Group. Please go ahead, sir.

Thank you, operator. Good afternoon and welcome to MyTek's first quarter fiscal 2020 earnings conference call. With me on today's call are MyTek's CEO, Max Carnecchia, and CFO, Jeff Davison. Before I turn the call over to Max and Jeff, I'd like to cover a few quick items. This afternoon, MyTech issued a press release announcing its first quarter fiscal 2020 financial results. That release is available on the company's website at mytechsystems.com. This call is being broadcast live over the internet for all interested parties, and the webcast will be archived on the investor relations page of the company's website. I want to remind everyone that on today's call management will discuss certain factors that are likely to influence the business going forward. Any factors discussed today that are not historical facts, particularly comments regarding our long-term prospects and market opportunities, should be considered forward-looking statements. These forward-looking statements may include comments about the company's plans and expectations of future performance. Forward-looking statements are subject to a number of risks and uncertainties which could cause actual results to differ materially. We encourage all of our listeners to review our SEC filings, including our most recent 10-K and 10-Q, for a complete description of these risks. Our statements on this call are made as of today, January 30, 2020, and the company undertakes no obligation to revise or update publicly any of the forward-looking statements contained herein. whether as a result of new information, future events, changes in expectations, or otherwise. Additionally, throughout this call, we will be discussing certain non-GAAP financial measures. Today's earnings release and the related current report on Form 8K 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 MyTech CEO, Max.

Thanks, Todd, and good afternoon, everyone. Thank you for joining us today. Jumping right in, we delivered another record quarter with first quarter revenue of $22.1 million, representing growth of 25% year over year. We also generated non-GAAP net income of $5 million, or 12 cents per diluted share, up 377% year over year, and cash flow from operations of $5.2 million. We are energized by the ongoing momentum in the identity verification market as we continue to expand partnerships with our existing customers as well as grow adoption with new customers, particularly in the financial services, gig economy, and marketplace segments. We also continue to experience growth from our highly profitable deposits product line as its adoption and utilization continues to increase. Before I tell you about some of the key initiatives this quarter, We said we would keep you up to date on the patent litigation surrounding USAA, but there is a lot of detail that is somewhat complex, so please pay close attention. Let me start with the first case. USAA first sued Wells Fargo for patent infringement based on four patents that all relate to an image auto-capture feature on a mobile device. Before the trial, Wells Fargo requested that the US Patent Office perform an additional review of all four patents. Subsequently, USAA dropped two of the four patents from their lawsuit. At trial, a jury in the Eastern District of Texas found that Wells Fargo infringed at least one of the two remaining patents but did not specify which. Wells Fargo will likely appeal the decision. That process could take 18 months or more. Following the jury verdict in November, the U.S. Patent Office agreed to review three of the four patents. It is important to understand that the standard the U.S. Patent Office uses in determining to review patents is that they must believe that there is a reasonable likelihood that at least one of the claims in that patent is invalid. So the Patent Office believes at least one of the claims in each of the three patents they will review is invalid. The Patent Office must complete their review within 12 months. The Patent Office rejected Wells Fargo's request to review the fourth patent. The rejection does not, however, prohibit Mytek or any other party, other than Wells Fargo, from requesting a review of this patent with additional information. If the Patent Office invalidates the two patents at issue before the end of the appeals process, then Wells Fargo would not have infringed as the patents would be invalid. Alternatively, if one or some of the claims are invalidated, the federal appeals court could decide to remand the case for retrial since the jury did not specify which claim or claims of the two patents was infringed. Of course, none of this matters if the appeals court overturns the entire judgment on appeal. Separately, MITEC filed an action against USAA on the same four patents in California seeking a declaratory judgment from the court that Mytek's products do not infringe those patents. Mytek invented all of its core technology and our products do not infringe on any USAA patents. We view the DJ action as an important step to provide certainty to our customers concerning the use of our technology and we intend to vigorously defend their use of our product. The DJ process could take 18 months or more to complete. USAA filed a second lawsuit against Wells Fargo, which originally involved five USAA patents related to remote deposit solutions. In that litigation, USAA dropped two of the patents, and the judge in the case found that one of the remaining three patents was invalid. USAA won a jury verdict in January on the remaining two patents. It is our understanding that no Mytek product was accused of infringing either of the two patents in question as litigation involved broad banking processes and not my tech specific mobile deposit features. We believe that Wells Fargo will likely appeal the January verdict as well. Now, on to the main focus of our call, which is our outstanding first quarter performance. In the first quarter, our identity verification solutions continue to gain traction with our transactional SaaS revenue and transactions both growing 39% year over year. Mobile Verify, our industry-leading product, continues to be adopted by partners and customers of all sizes around the world. Our customers globally represent hundreds of the world's best-known brands and banks. Our continued customer acquisition, as well as our expansion with our existing customers, underscores the significant need for identity verification and its essential use case, which is to enable businesses to onboard more good customers faster, a value proposition that Mytek centers around. One of our newest customers is HSBC USA. HSBC has corporate partnerships with large multinational firms and therefore needs to enable banking for foreign nationals living in the U.S. working for these companies. Their current new account onboarding process is highly manual, often requiring a video chat with an HSBC customer service representative or an in-branch visit. Applicants are also required to e-sign an account agreement to complete the process. HSBC will be streamlining and automating this process by leveraging MyTek's mobile verify with face compare Applicants can now capture their supported identity documents at the time of e-signature along with a selfie image for identity verification. Customers are no longer required to go to a physical branch. We are thrilled to work with our partners to enable more use cases just like this. Also in the quarter, we secured a far-reaching partnership with one of the largest banks in the EU to supply high-confidence, identity verification in multiple use cases for new account opening and account re-verification. The rollout will begin in 2020 with long-term goal of providing this capability to over a dozen countries in Europe. Identity verification is an essential step to establishing trust in a digital world where customers' relationships are being created without ever physically meeting. MyTech is the only enterprise class provider in the identity category and our standards of service remain unchallenged. Our relentless quest for customer success is validated through expanded partnerships and use cases and delivered through high-touch customer engagements. We continue to innovate in fiscal 2020 with ongoing investments to deliver the world's leading, most accurate, and most stable identity verification solution. Mobile Verify delivers against all measurements of performance, acceptance, availability, speed, and assurance. and our professional services are best in class. As such, our proven track record of success continues to grow as we look to further expand our reach into this early but fast-growing market. Switching to our deposit solutions, we remain the clear market leader with over 6,500 financial institutions using the deposit products. Retail banks are investing significant resources to drive customers to this digital channel, and as they do, mobile check deposits continues to increase. Recently, we partnered with Cornerstone Advisors to release the 2020 Mobile Deposit Benchmark Report, which ranks the top 20 U.S. banks on their mobile deposit use experience. The report validates that depositing a check is one of the most important mobile banking features available. More than half of mobile banking customers use their mobile banking app for check deposit in the past year, and mobile is the most prevalent deposit method for millennials and Gen Xers. Two-thirds of respondents between the ages of 18 and 24 said that mobile deposit is their preferred method of depositing checks. We are proud of how mobile deposit has changed financial services and become woven into the fabric of mobile banking. and we're excited about the significant opportunities ahead as we work to expand adoption into new verticals and add capabilities for existing customers. In closing, we're pleased with our results which include record revenue and significantly improved profitability. The myTECH workforce should take pride in how we deliver differentiated value to our customers. We have the teams, the vision, the technology and a market need of a solution that myTECH is uniquely positioned to deliver. Together, this amounts to a significant opportunity for all of Mytek's employees and shareholders. Now, I'll turn the call over to Jeff to discuss the financial results in more detail. Following Jeff's remarks, we'll open the call for questions. Over to you, Jeff.