Mitek Systems, Inc.

Good afternoon and welcome to the MiTEX Fiscal 2023 Third Quarter Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal Conference Specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your touch-tone phone. To withdraw your question, please press star then 2. Please note that this event is being recorded. I would now like to turn the conference over to Todd Curley of NPR, Investor Relations. Please go ahead.

Thank you, operator. Good afternoon and welcome to MITEC's fiscal 2023 third quarter earnings conference call. With me on today's call are MITEC's CEO, Max Carnecchia, and interim CFO, Fwad Ahmad. Before I turn the call over to Max and Fwad, I'd like to cover a few quick items. Today, MyTech issued a press release announcing its fiscal results for its third quarter and first nine months of fiscal 2023. 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, October 26, 2023, 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 release. With that said, I'll now turn the call over to MyTech CEO, Max Karnakia. Max?

Thanks, Todd, and good afternoon, everyone. Thank you for joining us today. We're very excited to be talking with you today, having filed our fiscal 2023 third quarter 10Q earlier today. With this filing, we are now current with our SEC filings. Before delving into the fiscal 2023 third quarter results, it's important to acknowledge the remarkable efforts and collaboration of our MiTech teams who have worked closely with BDO to upgrade our internal processes and bring our filings current. We extend our sincere appreciation to all members of MiTech Nation and our valued shareholders for their patience and support throughout this crucial process that was aimed at improving our business operations and instilling additional rigor. Now let me talk about fiscal 2023 third quarter results. It was another record revenue quarter for MyTech. We recorded third quarter revenue of $43.1 million, representing 10% growth year over year. We also delivered non-GAAP net income of $9.5 million and cash flow from operations of $16.6 million during the quarter. Our third quarter results put us on track to meet our full fiscal year revenue guidance of 18% growth year-over-year and 30 to 31% non-GAAP operating margins for the full fiscal year. We expect our deposits revenue to grow over 20% year-over-year for the full fiscal year, while our identity revenue is on track to grow at least 18% year-over-year. Also, over the trailing 12 months into June 30th, 2023, MyTech's net revenue retention, NRR rate, was over 120%, which underscores the value our solutions deliver in the growing markets we serve. So let's dive a bit deeper into our two lines of business, starting with deposits. The two major products in the deposits line of business are Mobile Deposit and Check Fraud Defender, both of which continue to yield strong revenue growth. Our deposits revenue increased 13% year over year in Q3, with mobile check deposit reaching an incredible 925 million transactions during the first nine months of fiscal 2023. Mobile deposit continues to gain traction as financial institutions encourage their users to adopt it as the preferred and safest way to deposit checks. It's convenient and easy to use. and consumers receive an immediate electronic confirmation after making a mobile check deposit. This month, Bankrate, a financial services company that provides consumers with information and tools to help them make informed financial decisions, did a feature on the seven tips for using mobile check deposit. We are delighted to see the interest in mobile deposit continue to grow. Additionally, our Check Fraud Defender product continues to show positive momentum as bank losses associated with check fraud skyrocket. Check Fraud Defender is a secure cloud-based consortium that strengthens a financial institution's existing fraud prevention by using proprietary image analysis to extract data from stolen checks, account screens, and identification documents sold in criminal channels to provide alerts of potentially compromised accounts. This relevant data is shared with participating banks, making it a powerful offering. One example of the rise of check fraud is a new check fraud defender customer who was experiencing three times the anticipated check fraud losses per year compared to the estimates by the American Bankers Association, with their check fraud growing 220% in 2022. As this customer looked for a solution to address the significantly growing problem, a key requirement was the need for it to also have a case management solution. Check Fraud Defender is integrated with MyTech's MyVIP to provide this functionality and deliver other feature-rich elements and was a significant contributing factor to winning this multi-year, multi-million dollar Check Fraud Defender opportunity. Now, turning our focus to the identity line of business. In the era of ongoing digital transformation, organizations are constantly striving to deliver seamless and secure online experiences for their customers. Identity verification has emerged as a crucial component of every customer interaction and digital journey. It plays a pivotal role in the success rate of customer onboarding, as well as detecting and preventing attempted impersonation fraud and enabling organizations to meet the rapidly changing regulatory environment. MyTech has strategically positioned itself to meet these growing demands and prides itself on the comprehensive state of its solution. which adds value to countless digital use cases, including new customer onboarding, re-verification, and authentication for returning customers, and high-risk payments and credential resets, just to name a few. MyTech's verified identity platform, MyVIP, is a fully integrated identity platform that leverages our intellectual property in biometrics, image capture, computer vision, and data intelligence, and presents it to the customer via a low-code implementation platform. In addition, we added MyPath to its capabilities. MyPath is the industry's first multimodal biometric solution for continuous identity authentication. MyPath combines voice and face recognition using sophisticated liveness detection technology to defend against digital and deep fake attacks in real time. With the onslaught of machine-driven fraud attacks, Voice and face biometrics used together with built-in liveness checks are becoming the strongest and most effortless means to authenticate someone's identity online. Combining the two biometrics is a significant security improvement beyond face recognition-only systems many use today. Authenticating digital identities with MyPass also reduces the risks associated with on-device stored biometrics. which can easily be compromised, shared between people, or overwritten with a simple passcode. Experts estimate that more than 80% of hacking breaches involve use of stolen passwords or credentials, fraud that can cost large companies millions of dollars a year. By moving to a more secure passwordless approach to digital account authentication, companies can both increase customer loyalty and reduce the risk of identity theft and account takeover attacks. In Gartner's most recent market guide for user authentication, it states that user authentication is a cornerstone of digital identity and identity-first security, citing that leaders should seek tool sets to minimize account takeover risks and optimize employee and customer user experience as a part of a cohesive cybersecurity strategy that reflects human-centric design. I'm happy to say that our identity technology, including ID Face, which is the world's first single image passive facial liveness detection capability, was highlighted in this Gartner report. ID Live Face is the only single image solution independently tested to be both ISO 3107-3 compliant and unbiased. It provides facial liveness detection to confirm that a biometric selfie includes the face, of a real live person and not that of a machine generated image. Today, ID Live Face is used to process millions of monthly transactions for customers worldwide. Another of our biometric products highlighted in the Gartner report was ID Voice Verified, which is used to perform biometric speaker verification to detect and prevent online fraud enabled by speech synthesis, voice clones, and recorded replay. ID Voice Verified fights biometric spoofing with advanced voice liveness detection, confirming the voice presented for identification purposes is that of a live present person. For large multinational banks to global marketplaces, our customers use our identity verification solutions to enable effortless and safe experiences for new and returning consumers. During the third quarter, we increased our identity revenue 6% year over year, despite the difficult macro environment. And in addition to our direct sales efforts that are focused on selling our solution to key market verticals, such as financial services, insurance, telco, healthcare, and marketplaces, we have made solid progress in building our indirect business through global partnerships with Experian, DocuSign, Clear, and most recently, Equifax. Our market-leading offerings are not only attracting new customers and partners, but are also garnering additional industry analyst recognition and product validation. A couple of months ago, MyTech was acknowledged by both Javelin and Liminal, leading analysts covering the identity category. We at MyTech are proud of the positive impact we are making in the fight against digital identity fraud, and we remain dedicated to advancing our technologies and delivering even greater value to our customers. Looking ahead for the deposits business, the timing of reorders can vary from quarter to quarter. And we saw a significant portion of our reorders occur in the first nine months of fiscal 2023. As a result, we expect deposit revenue to be down in the fourth quarter of fiscal 2023. Having said that, we ask our investors to look at the deposits business on a full year basis. And as I said earlier, for the full fiscal year 2023, we expect our deposits business to grow in excess of 20% year over year. Moving on to identity, as we have said in the past, we expect to see our identity business continue to grow even in a difficult macroeconomic environment. However, the growth rates will vary depending on the timing of identity transactions. In the first half of fiscal 2023, we had several customers initiate new customer campaigns, which drove significant volumes of identity transactions for MyTech. These volumes are going to vary depending on our customer's actions and may cause our identity revenue to fluctuate quarter to quarter. Having said that, we expect to see mid-teens organic revenue growth in identity in Q4. We encourage our investors to look at our identity revenue growth on a full year basis. As I stated before, we expect our identity business to grow at least 18% year over year for the full fiscal year 2023. And we remain well positioned to increase this growth rate and capitalize on our new business pipeline and the significant market opportunity ahead once conditions improve. We also continue to drive towards profitability for identity business, which we expect to occur by the end of fiscal 2024. During the quarter, we continue to generate solid cash flow and strengthen our balance sheet. And with our market leading product portfolio in place, we do not need to do additional acquisitions to further penetrate the significant market opportunities we address. Instead, we are focused on using our cash flow to drive shareholder value in other ways, and we routinely assess all capital allocation alternatives, including opportunistic share repurchase programs. At this time, we are in a blackout period as we prepare our year-end financials for our recently completed fiscal year and are thus limited in the actions we can take until we are outside of our blackout period. Moving on to guidance. We are reiterating our full year fiscal 2023 guidance, which calls for revenue growth of approximately 18% year over year at the midpoint of the range and for a non-GAAP operating margin in a range of 30 to 31% for the full fiscal year. This puts us very close to being a rule of 50s company even in this difficult macro environment. Before I turn the call over to Fuad, I also wanted to announce that Scott Carter will be stepping down from his executive role effective December 1st, 2023, but will remain as our chairman of the board. As you may recall, we brought Scott on as the executive chair back in January of 2023 to provide additional day-to-day support to the senior management team as we worked on refining our organic growth plan and to provide additional oversight and assistance as we focused on getting our FCC filings current. In connection with his resignation in the executive role, Scott wanted it to be noted that the role was no longer necessary based on the company's being current on all its required filings, as well as the substantial progress made around the refinement of the company's organic growth strategy. We want to thank Scott for his help over the last 10 months Thank you, Scott, for all the hard work. And with that, I'll turn the call over to Fouad to discuss the financial results in more detail. Following Fouad's remarks, we'll open the call up for questions. Fouad, please go ahead.