Mitek Systems, Inc.

No, this event is being recorded. I would now like to turn the call to Todd Curley of Pondo Wilkinson. Please go ahead.

Thank you, Operator. Good afternoon, and welcome to MITAC's Fiscal 2025 Second Quarter Earnings Conference Call. With me on today's call are MITAC's CEO, Ed West, and CFO, Dave Lyle. Before I turn the call over to Ed, I'd like to cover a few quick items. Today, MyTech issued a press release announcing its financial results for its fiscal 2025 second quarter ended March 31st, 2025. 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 businesses 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 for 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 our listeners to review our SEC filings including our most recent 10Ks and 10Qs, for a complete description of these risks. Our statements on this call are made as of today, May 8, 2025, and the company undertakes no obligation to revise or update publicly 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 8K describe the differences between our GAAP and non-GAAP reporting and present our conciliation between the two for the periods reported in the release. With that said, I'll now turn the call over to MyTech's CEO, Ed West.

Thank you, Todd, and good afternoon, everyone. I would like to begin with a brief overview of MyTech, who we are, the problems we solve, and why our role is more critical than ever in today's digital world. MyTech is a global leader in identity verification and fraud prevention, trusted by over 7,000 organizations worldwide, including top banks, fintechs, telecoms, and marketplaces. We earned that trust by pioneering mobile check deposit, a technology that now enables about 1.2 billion mobile deposit transactions each year. That same technology was built to securely capture and process sensitive data using any camera-enabled device. is what paved the way for our leadership in digital identity. Today, our capabilities have expanded to include payment fraud detection, powered by an industry-leading consortium of financial institutions, as well as identity verification and authentication, advanced biometrics, and detection of deep fakes and synthetic fraud. In high-assurance industries where precision, integrity, and regulatory compliance are essential, we help our customers stay ahead of evolving threats before they cause harm. The rise of generative AI is fundamentally reshaping the threat landscape, giving fraudsters access to powerful, low-cost tools that can mimic identities, forge documents, and bypass traditional defenses. It's never been easier or cheaper for bad actors to launch attacks. Fraud has essentially been democratized. That's why MITAC's mission to provide secure real-time identity and fraud prevention is more relevant and more necessary than ever. As I noted earlier this year, our priorities this year have been to drive organic growth, increase the percentage of SAS revenue, expand margins, and increase free cash flow conversions. With that context, here are four key takeaways from the second quarter, each aligned with the transformation framework we outlined on prior calls. First, we made tangible progress strengthening the foundation for scalable, profitable, organic growth by improving sales execution, our technology platform, and operational efficiency. Second, our identity portfolio continues to build momentum, reaching over $71 million in the last 12 months' revenue, driven by strong transaction growth. Third, check fraud defender continues to expand rapidly. We now have data sets on 23% of U.S. checking accounts up meaningfully from the last quarter. And fourth, we are enforcing financial discipline, lowering spend intensity while delivering meaningful EBITDA leverage and improving free cash flow, all under an umbrella of strict oversight of capital allocations. Now, let me discuss each of these, starting with our efforts to strengthen the foundation of our company. In the second quarter, we made meaningful progress in identity sales execution, notably without adding headcount. We have restructured compensation plans to focus on driving high-quality recurring revenue, aligning frontline incentives with our strategic goals. This shift is already paying off, with growth driven by new customer wins. expansion with existing accounts, and increased adoption of newer identity and fraud-related products, all supported by tighter ideal customer profile alignment and a more focused go-to-market approach. On the R&D front, we are leveraging our AI and machine learning resources to help manage the business better. We launched a fully modernized document onboarding system, reducing document onboarding cycle times. When a government agency introduces a new document, such as a redesigned driver's license, our systems initially flags it as unclassified because it's unfamiliar. This triggers manual reviews, increasing operational burden, and slowing the user experience. With the recent system upgrades, we've improved new document cycle times, reducing reliance on manual intervention and enabling faster, more scalable support for global document libraries. This rollout began in the U.S. and will soon expand to Europe and the U.K., improving automation rates and strengthening our product scalability and high assurance markets. These efforts also complement our broader initiative to automate more transactions, enhance scalability, and streamline the customer experience. In addition, we strengthened our leadership team with the appointment of Garrett Dafty as COO. A proven operator in identity and fraud prevention, Garrett will focus on scaling automation, product development, and data analytics, all core to our path toward durable, profitable growth. Now, turning to identity, we saw meaningful progress in the two key drivers of profitability, stronger transaction mix and a greater automation, resulting in the need for fewer manual review agents. We're tracking towards our $80 to $85 million fulcrum point for identity, with the last 12 months' revenue at $71.4 million exiting the second quarter. As a reminder, improvements in unit economics, especially gross profit per transaction, could lower that break-even threshold over time. My VIP continued to outpace the rest of the portfolio, further shifting the transaction mix. Over half of identity journeys now include multiple verification steps, such as face match, liveness, SMS, and deep fake detection, versus the single-step journeys typical of mobile verify. This richer signal set is driving higher revenue per journey and stronger unit-level profitability. On the automation front, improved AI models to manual reviews, driving down per-transaction costs and lifting the our services gross margin by 230 basis points over last year, advancing us further along our path to scalable, sustainable profitability and identity. Another key milestone this quarter is an increasing traction with MyPass, our biometric authentication solution, which replaces credentials with biometric login tied to a verified identity, critical for high assurance sectors. Finally, we began expanding our relationships with existing customers by adding real-time deepfake detections and other synthetic attacks through our digital fraud defender solution. These advanced, signal-rich solutions position MyTech to lead in an increasingly AI-driven fraud landscape. To summarize, identity growth is being driven by two key trends, both directly aligned with our strategies. First, identity journeys are becoming more layered, with customers adding additional verification and authentication steps to strengthen security. This shift reflects the increasing complexity of digital identity and demonstrates that we are successfully executing on our strategy. And second, we believe usage of our platform will continue to expand beyond initial onboarding to include re-authentication throughout the customer lifecycle. such as during wire transfers or high-risk activities, where high-assurance businesses rely on MITEC's advanced capabilities like lightness detection and biometrics and authenticate against a verified identity. Now, turning to the third key takeaway, our check fraud defender solution made good progress in Q2 across both direct and partner channels. ACV grew to nearly 13 million, and we now have data set coverage on approximately 23% of all U.S. checking accounts, up from 18% when we last updated the market. This coverage is a leading indicator of value for the consortium members, as well as future growth. It allows us to engage with banks whose checks we already see through consortium operations. On the direct side, we closed two major relationships, including a top 10 and a top 50 U.S. bank. We also advanced our relationship with another top 10 bank currently using our on-premise solution. This institution is now running a full-volume pilot across mobile, branch, ATM, and in-clearing channels, highlighting growing interest in our real-time cloud-based consortium model. On the partner side, which helps us serve the broader long-tail regional banks, Abrego added multiple new clients during this quarter, and another new partner signed 30 new FIs. Our pipeline is solid, and we're in advanced conversations with additional potential partners. While sales cycles and banking remain long and complex, the payoff is high. Our solutions become mission critical once deployed, generating strong lifetime value and long-term recurring revenues. And that brings us to our fourth and final takeaway, continued progress towards a more durable, growing, and cash-generative business model. SAS revenue grew 15% year-over-year in Q2 and now accounts for 40% of total last 12 months' revenue, up from 39% last quarter, evidence of our steady transition to a more recurring revenue model. We're also driving sharper financial disciplines. Non-GAAP cash adjustments were down to a low single-digit percentage point of revenue from 9% a year ago, highlighting stronger execution and cost control. Over the last 12 months, we've generated $47 million in free cash flow on $56 million of adjusted EBITDA and 86% conversion rate. This cash strength gives us flexibility to prudently invest in innovation, strengthen our balance sheet, and return capital to shareholders. Dave will speak more about our capital allocation strategy a little later. Now, before I wrap up, I want to zoom out and speak briefly about the broader opportunity in digital identity and fraud prevention. As we strengthen our position in this market, it's important to reflect on how the landscape is evolving and why MyTech is well-positioned to lead. There are three primary ways to verify or authenticate someone's identity. Something you know, such as a password or a PIN. something you have, such as a phone or an ID, or something that you are, such as biometrics and behavioral signals. Yet most of the world, including high-assurance industries, still rely on the first two. While these methods remain important, they are no longer sufficient on their own. In today's AI-driven threat environment, stand-alone authentication must give way to a layered, signal-rich approach. The gap between the sensitivity of digital transactions and the strength of protections is significant and widening. My tech view is that the identity must be verified directly by something you are and continuously, not just at login. That means layering biometrics, behavioral data, and proprietary identity signals to truly know who a user is. But even biometrics alone aren't enough. According to EDF Research Institute, The vast majority of systems today cannot detect defects. Our technology is built specifically to mitigate that gap. Fraud today is global, scalable, and alarmingly accessible. What was once limited to skilled criminals is now powered by off-the-shelf toolkits and cheap, alternative AI, making advanced attacks available to anyone, anywhere, and at a low cost. Across my recent conversations with customers and prospects in North America, the United Kingdom, and Europe, the message has been consistent, that the threat is real, growing, and reshaping enterprise priorities. At MyTech, we're building a unified platform that combines fraud prevention, identity verification, and biometric authentication to help organizations stay secure in an AI-driven world. This platform approach is driving broadening demand, deeper customer engagement, and turning our innovation into durable, profitable growth. And with that, I'd like to turn it over today for financial highlights and our outlook.