Mitek Systems, Inc.

Good day and welcome to myTAC's fiscal 2023 fourth quarter and full year earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a 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 one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Todd Curley of MKR Investor Relations. Please go ahead.

Thank you, operator. Good afternoon and welcome to MITEC's fiscal 2023 fourth quarter and year-end earnings conference call. With me on today's call are MyTech CEO, Max Karnecchia, and CFO, Dave Lyle. Before I turn the call over to Max and Dave, I'd like to cover a few quick items. Today, MyTech issued a press release announcing its financial results for its fiscal 2023 fourth quarter and full year. 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 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 for 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, March 19, 2024. 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's CEO, Max Garnacchia.

Thanks, Todd. Good afternoon, everyone. Thank you for joining us today. I want to extend a warm welcome to our investors, employees, customers, and partners joining us today. Thank you for your continued support and trust in MyTech. I'm excited to provide insights into our fiscal 23 performance, spell out our strategic direction going forward, and then hand the call over to Dave Lyle, our new CFO, to provide more financial details. At MyTech, our mission is clear. We help regulated businesses say yes to more customers, more deposits, and more transactions with increased intelligence and customer safety. We achieve this by providing unique signals that seamlessly bring identity, transaction, intelligence together. Over the past decade, we've diligently developed solutions in pursuit of this mission. Today, leveraging our most current applications of AI and machine learning, we are proud to enable over 7,900 organizations with new levels of security and control while protecting the digital consumer from the most sophisticated fraud threats. I'm very proud of our 200 machine learning and AI engineers, data scientists, developers, and cloud op team members who are dedicated to ensuring that our award-winning product offerings remain at the forefront of the industry and their vital role in developing solutions to combat evolving fraud and enhance digital security. Thank you all MyTechNation for your ongoing commitment to our mission and the incredible work you do. Before we discuss our financial results for fiscal 2023, I'd like to introduce Dave Lyle, our newly appointed CFO. Later in the call, Dave will provide further insights into our financial performance and outlook for fiscal 2024. Dave joined us in early January and has already made a substantial impact. With his broad experience across multiple business functions, Dave brings invaluable expertise to our team. We're thrilled to welcome him aboard. I'd also like to express my gratitude to Fouad Ahmad, who served as my tech's interim CFO for a little over a year. Thank you, Fouad, for your dedication and contributions during this critical period. Turning to MyTech's record performance in fiscal 2023, I'm pleased to announce that we achieved solid growth across both deposits and identity, leading to total revenue growth of 19% year over year. Additionally, we achieved non-GAAP net income of $44.4 million and generated $31.6 million in cash flow from operations, further strengthening our balance sheet. First, looking at our identity products, Revenue grew 17% year-over-year in fiscal 2023, attributed to strategic efforts in customer acquisition and expansion within our existing customer base. Our net revenue retention rate for fiscal 2023 was approximately 117%, which underscores the value of our solutions delivered. Notable customer expansion included Lloyd's, Chase, and NatWest. We want over 100 new identity customers in fiscal 2023, including major names like Nationwide, Verizon, Virgin Mobile O2, and Telefonica. Nationwide Building Society was a very strategic win and a competitive takeaway. This British cooperative financial institution is in the process of rebranding under the slogan, A Good Way to Bank. And its primary goal is to differentiate itself based on user experience and security. MyTech's mission and approach are very well matched to this rebranding, and we are confident it is one of the reasons we secured the business. Nationwide is implementing our solution in multiple use cases and has taken a phased approach, starting with a remediation project and expanding to device binding and onboarding. The device binding and step-up authentication involves all app users as a replacement for card readers. Using our multimodal biometric solution, MyPaths, They have already enrolled 120,000 biometric faces, and all 5 million app users will be invited by April of this year. Verizon, another significant win, was also a competitive takeaway. Verizon will leverage our identity verification and face comparison tools to support its fraud operations and customer experience teams. Initially, with their B2B business, and soon moving to support the in-store consumer. Access to digitally enabled services continues to explode, and this accelerating shift to digital creates an immense challenge for organizations as they strive to balance customer experience with financial risk. As digital grows, so do the opportunities for fraud. And as long as criminals can cleverly exploit weaknesses in an institution's ability to distinguish a legitimate customer from an imposter, this threat will continue to grow. As such, we see customer interest, engagement, and inquiries dramatically increasing. According to industry analysts, the identity market is growing between 14% and 16% annually, and we have the opportunity to take market share given our unique proprietary industry-leading biometrics offerings and orchestration platform. Our channel partner investment has also yielded returns during the year with experience. our longstanding partner in North America, the UK, and Europe, growing their MyTech business by 17% year over year across all regions. And we believe we are only just scratching the surface with them. Our most recent win with Experian is in the government healthcare in UK. And Experian is also one of the biggest partners in the telco space, particularly in Europe. Partnerships like Experian are pivotal in our efforts to support new verticals, including government, telco, healthcare, each which presents a significant growth opportunity. As such, we continue to add new channel partners, most recently with the industry leaders like Equifax and Nice Actimize. By leveraging these alliances, we aim to establish a strong foothold in new geographies, driving expansion and enhancing our global presence. Now, let's shift our focus to the non-financial milestones achieved during the fiscal year across each line of business and outline our FY24 priorities. We see a large and growing opportunity in the intersection of fraud and identity, especially in regulated environments like financial services, mobile operators, iGaming, and healthcare. The role AI is playing in changing and accelerating regulation further benefits my tech and our solutions. As a result, our growth products, including our MyVIP platform and the AI-driven biometric solution, MyPass, have seen growing adoption. Today, integrated identity platforms are emerging technologies and essential tools that reshape how we secure and authenticate identities in the digital world. These platforms combine various verification methods, streamlining the process and enhancing security for our customers. The market discerns this by categorizing the orchestrators and the orchestrated. MyVIP is a leading orchestration solution in the market today through its highly differentiated offering. Beyond traditional sedatic ID checks and physical document verification, our orchestration platform incorporates proprietary biometric analysis and liveness inspection in combination with highly personalized external data signals to ensure the legitimacy of identities, thereby preventing synthetic and computer-generated frauds. In the ongoing battle against online fraud, deepfakes, and injection attacks, our biometric components, which are part of MyDIP, play a pivotal role in enhancing security and safeguarding digital transactions. Our IDR&D biometrics revenue has grown substantially since we acquired IDR&D in May of 2021 as use case continue to expand and the need for continuous authentication becomes mainstream. Voice biometrics expedite and secure customer authentication, especially when combined with face biometrics. Face biometrics also strengthen fraud prevention during a customer's digital onboarding by verifying a user's face against the government-issued ID, thus thwarting attempts to bypass screening processes using manipulated images. License detection technology confirms an individual's physical presence during authentication, effectively preventing the use of stolen photos eat fake videos, masks, and other spoofs by spam bots and bad actors to create or access online accounts, thereby significantly enhancing security. Leveraging all these proprietary technologies, in fiscal 2023, we introduced our exclusive four-point multimodal biometric solution, the only one of its kind, utilizing the combination of face biometric, face liveness, voice biometric, and voice liveness technologies. This innovation innovative solution, MyPass, seamlessly captures and verifies these biometrics simultaneously, providing near-instant authentication for digital users. Initially praised by expediting and securing customer authentication, voice biometrics are being challenged by the emergence of generative AI voice clips, known as vision or voice deep fakes, which malicious actors exploit to infiltrate financial accounts. Our IDR&D labs were quick to respond, and early this year, we introduced IDLive voice clone detection to protect against bad actors impersonating their victims to commit fraud and crime. With just three seconds of a person speaking, the product can deliver a score indicating the likelihood that it was created using cloning technology. It can detect clone attacks that use replay or advanced software and hardware-based hacking methods. In a world of gen AI, large language models, and transformers, where deep fake impersonations are proliferating so rapidly, voice clone detection plays an essential role in preserving trust between people and technology, and we are proud to be at the forefront of this innovation. According to Gartner, the number of deep fake attacks worldwide in 2023 was 10 times the number detected in 2022, with our leading industry biometric solutions preventing heat fakes, we expect biometrics and liveness to be a significant revenue growth engine for MyTech for years to come. We're also very excited about how our identity product portfolio reinforces our deposits business. Our end-to-end orchestration platform, MyVIP, is now serving both deposits and identity, and we're seeing our pipeline of potential new business increase as we provide a comprehensive suite of machine learning and AI-based tools that can help organizations fight fraud. Now let's discuss our deposits business and where we see it going in fiscal 24 and beyond. In fiscal 23, we saw our deposits revenue increase substantially, growing 20% year over year. We recorded over 1.2 billion mobile check deposits in fiscal 2023. Notably, 8 billion checks were deposited in North America throughout the year. Analysts forecast the sustained demand check deposit services over the next decade, with an estimated 5 billion checks per year still being deposited 10 years from now. We plan to capitalize on the increasing adoption of mobile check deposit among consumers and small businesses, as well as to continue to implement price increases as the leading provider of this solution. Now, let's talk about the momentum we are seeing with Check Fraud Defender, or CFD, the product offering. one of our most exciting prospects for growth over the coming years. Banks are getting crushed by check fraud, which according to the recent NASDAQ report has eclipsed credit card fraud in the United States. CFD is making significant strides in combating check fraud with the potential to save banks billions of dollars in losses. We believe CFD has the potential to contribute $200 million in annual revenue within the next five to seven years. Let me walk you through how we got there. As a recent Boston Fed article noted, one industry analyst estimates over $24 billion in check fraud losses in 2023. We believe CFD could help banks conservatively avoid around 40 percent of those losses based on our unique ability to visually detect fraud through machine learning. That would imply that CFD could potentially save approximately $10 billion in check fraud losses just this year. We believe a reasonably healthy bank-friendly ROI to combat this size of check fraud would be in the range of 10 to 1, meaning we would believe banks would be willing to invest $1 million to prevent $10 million in check fraud losses. That would allow for a $1 billion annual serviceable addressable market, or SAM, or a check fraud defender product. With less than a handful of potential competitors today, we believe a 20 percent market share should be achievable, especially given our leadership position and strong reputation in check processing. That would equate to $200 million in annual revenue opportunity for MyTech within the next five to seven years. And remember, check fraud is growing rapidly, so these estimates do not consider the growth over the coming years. Also important to note, is the potential bank savings don't include additional operational efficiencies these banks will realize by using CFD and our new MindControl product, our latest achievement in empowering banks to control check fraud by integrating CFD with MyVIP. The productivity gains using MyControl are significant. In the review of a potentially fraudulent check, agents can reduce what would have taken them as long as 10 minutes to just 90 seconds using my control. Also, CFD drives down false positives so that banks will spend more time looking at bad checks rather than good checks. We launched CFD two years ago to help banks solve this growing problem. In fiscal 2023, one of our customers reported saving over $16 million in less than six months using CFD to prevent... fraudulent check losses, and reduce the expense of dealing with this exploding problem. Today, CFD boasts a select group of clients, including two of the top 10 banks in North America. Our dedicated sales team and partners are diligently pursuing the top 100 financial institutions, aiming to onboard dozens more as CFD clients by the end of fiscal 2024. Despite the deliberate pace inherent in the regulated banking sector, our progress remains promising, driven by the substantial cost savings our CFD solution can deliver. Encouragingly, our pipeline of potential customers continues to expand, indicating a growing market interest in our offering. Contributing to the pipeline are our channel partners. The channel has been the trusted blueprint for selling mobile deposit and we are thrilled with the momentum we are starting to see in the channel of CFD. Within a few months of onboarding our new partner, Abrego, we have already closed a couple of CFD deals. CFD is just the beginning of a very large opportunity for MyTech. MyControl is the latest of many products being built on MyVIP's low-code, no-code platform for fast and simple implementation that we believe can drive revenue growth for us over the next several years. we are already planning follow-on products to address other growing market opportunities in the retail bank payments, wire, and peer-to-peer space, which we believe is a substantially larger opportunity than even CFD. I want to reiterate the important growing intersection of fraud and identity. CFD is leading the way into adjacent opportunities for MyTech to help with new AI-driven anti-fraud and identity capabilities. By leveraging our unique access to rare and privileged customer data, and transaction intelligence, we can deliver additional differentiated value to our customers and drive increased shareholder value. In summary, MyTech is well positioned for the continued growth in both revenue and profitability. We are capitalizing on a large growing end markets at the nexus of big secular trends in AI, identity, and fraud. MyTech is delivering cutting-edge machine learning and artificial intelligence tools, empowering organizations to combat fraud and enhance trust and convenience across every digital interaction through our leading orchestration platform. Notably, the introduction of new products positions MyTech for our next phase of additional growth. I'll now turn the call over to Dave to discuss the financial results in more detail. Following Dave's remarks, we'll open the call for questions. Dave, please go ahead.