Mitek Systems, Inc.

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

Thank you, operator. Good afternoon and welcome to MyTek's second 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 second 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 the call today are made as of April 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'll 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 rules. With that said, I'll now turn the call over to MITAC's CEO, Max.

Thanks, Todd. Good afternoon, everyone. Thanks for joining us today. Jumping right in, as the COVID-19 pandemic continues to unfold, Our foremost commitment is to ensure the health and well-being of our employees, their families, and our worldwide community. As such, we have taken all necessary measures to maintain the continuity of our operations and to safely operate at full strength while complying with government's mandated stay-at-home directives. As a modern digital business, we were able to pivot to work from home within one day and all of our team members continue to be highly effective in this environment, delivering on all committed service levels. As such, my tech is steadfast in our commitment to empower trust and convenience in a digital world. Our identity experts are working 24 by 7 around the globe to ensure that more businesses are enabled to transact digitally and secure their platforms through easy, fast and secure identity verification. We've increased human capacity to ensure more agents are available in more locations to support the increasing volumes for high assurance identity verification. We are also partnering with financial institutions as well as the Federal Reserve here in the U.S. to expand usage of mobile check deposits amongst consumers. To sum it up, our cloud-first technology provides a secure environment for both existing and new customers and now more than ever, our enterprise class expertise, products and services are being leveraged. This was reflected in our second quarter results where we delivered record revenue of $23.2 million representing growth of 16% year over year. We also generated non-GAAP net income of $5.4 million or 13 cents per diluted share up 98% year over year and cash flow from operations was $3.2 million. During the quarter, we continued to see ongoing positive momentum in the identity verification market. We expanded with our existing customers, particularly in the gig economy segment, and our identity verification solution continues to gain traction with our transactional SaaS revenue growing 38% year over year. We also continue to experience growth from our highly profitable deposits product line, with adoption and utilization continuing to increase. While the current environment is certainly challenging and uncertain, the way we live and work is forever changed. The need for fast, secure remote services is magnified, and regardless of where our customers were in their digital transformation journey, the time is now to accelerate. Providing secure digital identity verification isn't just a question of convenience during COVID-19, It's become a necessity for organizations making this urgent shift to digital. Identity verification is the essential digital use case enabling businesses to onboard more good customers faster in this vital environment. As such, several of our customers escalated their transaction volumes during the quarter. Specifically, in the gig economy sector, we saw significant spikes from our home delivery customers. Almost overnight, They went from being a convenience to serving as a lifeline for millions of people following stay-at-home orders to slow the spread of COVID-19. Now more in demand than ever, myTek is helping these customers bring new shoppers safely on board to meet the increase in demand. One of our customers in Europe, who is a leading provider of digital identities, also experienced exponential growth in traffic volumes Thank you for joining us. in our identity business from some of our existing customers who are experiencing significantly more traffic as a result of the current environment. But at this point, it is impossible to predict what impact COVID-19 will have on our current customers and our pipeline of potential new customers. These are serious times and there are large swaths of the economy that are being affected and our customers are not excluded. Near term, it may be A bumpy road as we weather the economy, but internally we are continuing to focus on execution. We are not pulling back on our investments to grow our business, as we believe identity verification is more important now than ever to companies looking to digitize their businesses. However, we are proceeding cautiously to preserve our business, our bottom line, and our resources. Turning to our deposit solutions, if there ever was a time when mobile check deposit was essential, it is now. As the economic impact payment checks begin to circulate, consumers will use mobile check deposits, many for the very first time. This use case may even be a catalyst for digital or mobile banking adoption. Banks are investing significant resources to enable their customers through mobile and digital channels, and as they do this, mobile check deposit continues to increase. We remain a clear leader in this regard, with over 7,000 financial organizations We are proud of our mobile deposit offering and its ability to assist people in this time of need. As I noted last quarter, USAA filed two lawsuits in Texas against Wells Fargo for patent infringement related to remote deposit systems, and the juries in those cases returned verdicts in favor of USAA. The court is still considering post-trial motions in those cases that could overturn the verdicts or result in new trials. In the event Wells Fargo is unsuccessful in overturning the verdicts or obtaining new trials, the two cases will be subject to appeal to the U.S. Court of Appeals for the Federal Circuit. In addition, the U.S. Patent Office is currently reviewing the validity of several of the patents at issue in the Wells Fargo cases. Final resolution of those issues may be over a year away. Also, as I noted last quarter, MyTech filed an action in California seeking declaratory relief that Mypex products do not infringe the patents had issued in the Wells Fargo, in the first Wells Fargo lawsuit. In January, USAA filed a motion to dismiss or transfer our action to the Eastern District of Texas and we opposed that motion. Recently, the California court ruled that this action should be heard in Eastern District of Texas. As such, we intend to vigorously prosecute our case in this new venue as MyTek invented all of its core technology and we believe our products do not infringe on any USAA patents. Today, we also filed a petition with the US Patent Office challenging the validity of the only patent at issue in the first Wells Fargo lawsuit that is not already subject to challenge filed by Wells Fargo. We expect a preliminary decision on whether this challenge will be instituted in about six months. In closing, we are pleased with our results, which include record revenue and significantly improved profitability. I'm proud to lead the Mytek workforce, who have rallied without question to deliver the technology, products, and services that our customers need and value during these extraordinary times. This is a seminal moment that Mytek has been created to enable. We have the teams, the vision, the technology, and a market need of a solution that Mytek is uniquely positioned to deliver. Together, this amounts to a significant opportunity for our 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 up to questions. Jeff, please go ahead.