Mitek Systems, Inc.

Good day and welcome to the MyTek Systems fourth quarter and 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 fourth quarter and full year 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, Mytek issued a press release announcing its fourth quarter and full year fiscal 2020 financial results. That release is available on the company's website at myteksystems.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, November 5, 2020, and the company undertakes no obligation to revise or publicly update any forward-looking statements contained herein. whether as a result of new information, future events, changes in expectations, or otherwise. Additionally, throughout this call, we'll be discussing certain non-GAAP financial measures. Today's earnings release and the related current report on Form 8-K describe the differences between our non-GAAP and GAAP reporting and present the reconciliation between the two for the periods reported in the release. With that said, I now turn the call over to MyTech CEO, Max.

Thanks, Todd. Good afternoon, everyone, and thank you for joining us today. I hope all of you and your families are staying healthy and safe. We had an incredible fourth quarter, topping off another record year for Mytek. Most significantly, we surpassed $100 million in total revenue. This makes fiscal year 2020 our third consecutive year with record revenues in each and every quarter. In fiscal 2020, we also generated record profitability. This solid financial performance continues to be driven by both our deposits and identity lines of business. For fiscal 2020, we generated record revenue of $101.3 million, representing growth of 20% year over year. We also generated record non-GAAP net income of $28.6 million, or 67 cents per diluted share, up 66% year over year, and cash flow from operations of $24.1 million. Reflecting on fiscal 2020 performance, I would like to take a moment to acknowledge the tireless efforts of our global teams who remain committed to our customer success and to delivering on service levels despite the impact of this global pandemic. In times of adversity, values matter, and I couldn't be prouder of how Mytek Nation's contributions have ensured business resilience and customer success. With COVID-19 hitting right in the middle of our fiscal year, We were challenged, along with everyone else, to adapt quickly to this altered environment. We were able to make the transition seamlessly, and we continue to operate at full strength while working from home safely. Considering business performance, the COVID pandemic continues to expand the adoption of new technologies and accelerate digital transformation. Notably for Mytek is the rising usage of digital banking and, with it, mobile check deposits. Digital identity verification technology has emerged as an intrinsic enabler for people to access essential online services when they need them most. Digital identity verification provides a valuable source for overcoming many of the barriers associated with this digital and remote access. When implemented as part of the onboarding process, digital identity proofing provides a speed and accuracy that more manual methods cannot. For banks, COVID-19 has been a catalyst for digitization as widespread lockdowns meant in-person bank branches are no longer an option for their customers. Therefore, as anticipated, our deposits businesses' transaction levels continue to increase this quarter. In September, we released Mobile Deposit 4.8, which delivers more analysis and more insight with the same superior performance of earlier releases. We are proud of our mobile deposit offering and its ability to assist people in their time of need. Now, turning to the identity business. As stated earlier, digital identity verification is an essential use case in this new economy. By implementing our solution, enterprises can quickly and accurately verify legitimate customers online, which helps them secure their platform, mitigate fraud, and stay compliant. Therefore, it is not surprising that adoption of identity verification as a service increased in the quarter and several of our existing customers yielded increases in their transaction volumes. Large banks and gig enterprises favor our linked and layered approach to identity verification, which is uniquely customizable to protect against attack vectors depending on the customer's assurance requirements. Throughout fiscal 2020, we continued to sharpen our identity capabilities to ensure relevance with those vertical industries and markets requiring these higher assurance levels. The results of this increased focus can be seen in our SAS transactional revenue, which increased 36% year over year for our full year fiscal 2020. Along with this increased revenue has come new industry analyst recognition. In 2020, Gartner recognized MyTech across four different reports. for our advanced mobile capture workflow in the 2020 hype cycle for imaging and print services, for document-centric identity proofing in their 2020 hype cycle for cloud security, for document-centric identity proofing in their 2020 hype cycle for identity and access management technologies, and most recently, MyTek was recognized among document-centric identity proofing representative vendors for its MyTek Mobile Verify solution in Gartner's magic market Guide for ID Proofing and Affirmation. In this report, Gartner forecasts that by 2022, 80% of organizations will be using document-centric identity proofing as part of their onboarding workflows, an increase from approximately 30% today. During fiscal 2020, we continued our fast pace of product innovation, We enhanced our biometric offering with advanced liveness detection, which provides a fully automated spoof proof precise selfie match in less than one second. Customers prefer our face compare capabilities due to its impartiality to biometric bias with facial recognition, a now essential feature in this global economy. We also enhanced our proprietary barcode analysis to our automated document proofing capabilities. This feature leverages machine learning and big data resulting in faster, more accurate verification and a smooth additive layer of defense to fraud. Most recently, we further advanced the speed and accuracy of our identity verification workflow with the introduction of a single point near field communication solution for authenticating NFC chip enabled ID documents or e-documents via a mobile device. Our proprietary NFC-enabled solution is centered around simplicity for users and speed and accuracy for the enterprises who use it. NFC increases the speed and accuracy of verification by authenticating users through biographical and biometric information stored in the NFC chip available in e-documents such as an e-passport. Our intuitive capture technique swiftly locates the NFC chip and securely extracts the data for rapid authentication. All consumers have to do is scan their NFC-enabled ID document and take a selfie to check liveness and face comparison. Mytek technology takes care of the rest. This technology dramatically reduces abandonment rates and improves conversion rates for customers while supporting regulatory compliance requirements. The solution is a critical next step in reducing the risk of synthetic identity fraud, which is the fastest-growing type of financial fraud today, according to McKinsey & Company. As we continue to innovate, we remain committed to exploring all alternatives to achieve product superiority, whether through partnership, acquisition, or increased R&D innovation. Looking ahead to fiscal 2021, we are recommitting to our focus on execution and our dedication to enabling trust and convenience in this digital economy. I believe we have incredible opportunities in front of us. and we will navigate the pandemic in the most effective way possible to deliver against our customers' priorities and long-term growth. I'm also pleased to announce that we have added a new member to our board of directors, Kim Stevenson. Kim is a technology innovator who has transformed processes at some of the industry's leading companies, including Lenovo, Intel and IBM. She is currently a Senior Vice President and General Manager at NetApp, a publicly traded cloud data services provider. Kim's experience in cloud software is a tremendous addition in the helping guide MyTech. We're excited to welcome her to our board of directors. Before I conclude, I want to touch on the USAA situation. As most of you know, the two USAA verdicts against Wells Fargo for patent infringement related to remote deposit systems are subject to post trial motion that could overturn the rulings or result in new trials. Either way, the two cases will be subject to appeal in the U.S. Court of Appeals for the Federal Circuit. Also, the U.S. Patent Office is currently reviewing the validity of several of the patents at issue in the Wells Fargo cases. The final resolution of these issues may still be over a year away. Additionally, MITEC continues to vigorously prosecute its case for declaratory relief that our products do not infringe the patents at issue in the Wells Fargo lawsuit. That case remains pending in the Eastern District of Texas. We also filed six petitions with the US Patent Office challenging the validity of the four patents at issue in the first Wells Fargo lawsuit and the two at issue in the second Wells Fargo lawsuit. We expect preliminary decisions on whether those challenges will be instituted in the coming months. Lastly, USAA continued It's unprecedented attack on its fellow financial institutions by filing a patent infringement lawsuit against PNC Bank, alleging infringement on two patent related to remote banking and mobile deposit. The patents relate to the overall process flow of remote deposit and mobile deposit and do not focus on specific techniques utilized during the process. PNC, through a third party, and many others. To my tech's knowledge, USAA is the only user of its technology and USAA does not make, market, sell, license or offer any software technology to the banking industry which it is now attacking. all while USAA continues to utilize Mytek's proprietary check processing software in its own operations and continues to rely on digital payments platforms and a vast network of ATMs created and maintained by the very banks USAA now seeks to profit from through their litigation efforts. Mytek, on the other hand, directly and through our partners, provides our proprietary and award-winning mobile deposit and check processing solutions More than 7,000 U.S. financial institutions. Now more than ever, as we deal with the uncertainty of the COVID-19 pandemic, people rely on MyTech's technology for the safety and convenience it provides. While USAA attempts to profit from an ecosystem that it neither participates in nor contributes to, MyTech has continued to innovate on behalf of our customers and consumers. During the past year, MyTech filed six new patent applications. three of these claim innovations related to the ID document authentication and three claim innovation in the capture and processing of mobile images. We were awarded 10 new patents during the last year. MyTek currently has 20 active patent applications and holds 67 issued patents, 36 of the patents are preliminary related to mobile check deposits, 17 are preliminary primarily related to our ID verification and 14 related to specific techniques Thank you for joining us today. We are pleased with our results, including record financial performance for both the full year and the fourth quarter. Crossing the $100 million revenue threshold is a significant accomplishment and an important milestone. I'm proud of the Mytek workforce, who have rallied without question to deliver the technology, products, and services that our customers need and value during these unusual times. I'll now turn the call over to Jeff to discuss the financial results in more detail, and following Jeff's remarks, we'll open the call up to questions.