Mitek Reports Healthy Third Quarter Results

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Mitek reported healthy third-quarter results that came in ahead of expectations, with revenue of $4.7 million and breakeven non-GAAP earnings per share. This is the first quarter that management has adjusted for IP litigation expense when reconciling from GAAP to non-GAAP net income. As a result, if management maintained consistent reporting with prior periods, non-GAAP loss per share of $0.02 would have materialized, which still beat the Street and our own estimates. We will begin adjusting our model accordingly for IP litigation expense in future periods. The Street was looking for revenue of $4.7 million and non-GAAP loss per share of $0.04.

The solid results were driven by continued penetration within the mobile check deposit platform, with the number of live banks increasing by 384 during the quarter. We were pleased that some of the software revenue outperformance this quarter was driven by a record number of reorders during the quarter (13 mobile deposit reorders during the quarter versus 9 last period). We believe that Mitek’s usage growth was roughly in the midteens sequentially, based on reports of increased usage at Bank of America as well as JP Morgan. In addition to the strong growth within the mobile check deposit platform, the company also continues to experience demand around its mobile photo bill pay and mobile photo payments platforms.

Given the near-term potential for lumpy revenue and the pending lawsuit, we understand investors’ continued reluctance to get involved until the lawsuit has been resolved and there is more-predictable revenue growth. That said, we would highlight that management appeared incrementally more confident of its position in regard to the USAA litigation, with the trial beginning in September. We believe that the large greenfield opportunity for mobile photo bill pay and account opening suggest that the company should be able to deliver solid top-line growth over the next 24 months and outperform current expectations.

Management is currently in contract negotiations with several top 25 banks for its mobile photo account opening offering, and noted U.S. Bank (USB $42.73) is currently in the pilot stage of implementation in its partnership with a U.S. baseball team. In addition, the company’s Developers Program saw its first sign of activity with its new agreement with realtycloud to give real-estate agents the ability to make mobile deposits for escrow checks. We view both of these as a positive first steps in gaining traction into adjacent markets.

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