Summary
Mitek Systems reported record second quarter revenue for fiscal 2021 Q2 ended March 31, 2021. Total revenue was up 24.1% to $28.77 million. Operating income was up 124.0% to $2.38 million. Net income was up 12.2% to $1.02 million. Diluted EPS was flat at $0.02. Operating margin was 8.3%, up 3.7 percentage points from the prior-year quarter. The company said demand increased for both mobile deposit and identity verification solutions as commerce shifted to digital channels. Revenue growth outpaced total operating cost growth, which helped lift operating income and margin. Net income grew more slowly than operating income.
For the first six months of fiscal 2021, total revenue was up 21.0% to $54.75 million. Operating income was up 187.8% to $3.92 million. Net income was up 117.0% to $3.19 million. Diluted EPS was up 133.3% to $0.07. Operating margin was 7.2%, up 4.2 percentage points from the prior-year period. Operating cash flow was $16.06 million for the six months, up 91.9%. Capital expenditures were $0.66 million for the six months, up 56.4%. The year-to-date figures show the same pattern as the quarter, with revenue growth and margin expansion. The six-month operating margin was lower than the quarterly margin, but still well above the prior-year period.
In the quarter, operating cash flow was $7.33 million, up 130.6%. Capital expenditures were $0.26 million, up 19.8%. Deferred revenue, current portion, was $11.35 million, up 29.6%. Non-GAAP net income increased 34% to $7.3 million, or $0.16 per diluted share. The company completed a convertible debt offering that added approximately $150 million in cash to the balance sheet. Mitek also added new patents, bringing total issued patents to 71 as of March 31, 2021, with 17 domestic and international patent applications pending. The company said it remains the clear market leader in remote check deposit solutions, with thousands of financial organizations using its solutions and approximately five billion transactions processed.
Management pointed to growth in both deposits and identity verification products. The company said demand for identity verification has never been more relevant as more aspects of modern life use digital channels. Mitek said its technology helps businesses transact digitally and secure their platforms through identity verification. The company also said it is committed to providing convenience while preventing fraud in the digital world. Mitek said its Mobile Deposit solution is used by millions of consumers in the United States and Canada. The company said its Mobile Verify solution verifies a user's identity online. These products are embedded in native mobile apps and browsers. These comments suggest that management sees digital transformation and fraud prevention as long-term drivers.
Risks include competition from larger companies, lengthy sales and implementation cycles that can run as long as six months, and product concentration. The COVID-19 pandemic continues to create uncertainty. Fraud and cyber-attacks are rising as digital use increases. Mitek predicts growth in both deposits and identity verification products based on current trends in payments, online lending, more stringent regulations, and demand for digital services. The company said its current cash and cash equivalents and cash expected from operations should satisfy working capital needs for the next twelve months. The release included forward-looking statements about long-term prospects and market opportunities. The company also noted that it has a growing number of competitors in the mobile image capture and identity verification industry, many of which have greater financial, technical, marketing, and other resources.
The convertible debt offering was a major financing event. Mitek issued $155.3 million aggregate principal amount of 0.75% convertible senior notes due 2026. The net proceeds were approximately $149.7 million. The notes mature on February 1, 2026, unless earlier redeemed, repurchased or converted. The initial conversion price is approximately $20.85 per share. In connection with the offering, the company entered into convertible notes hedge and warrant transactions. The notes hedge cost $33.2 million and the warrant transactions generated $23.9 million in cash proceeds. These transactions are intended to reduce potential equity dilution.
Forecast
No forward guidance in this quarter's filings.
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2021 | Q1 FY2021 | QoQ | Q2 FY2020 | YoY |
|---|---|---|---|---|---|
| Revenue | $28.8M | $26.0M | +10.8% | $23.2M | +24.1% |
| Research & development | $6.7M | $6.2M | +8.5% | $4.8M | +38.8% |
| Sales & marketing | $8.5M | $7.4M | +15.5% | $7.4M | +14.5% |
| General & administrative | $5.7M | $5.1M | +13.0% | $5.2M | +9.8% |
| Total operating expenses | $26.4M | $24.4M | +8.0% | $22.1M | +19.3% |
| Operating income (loss) | $2.4M | $1.5M | +55.0% | $1.1M | +124.0% |
| Operating margin | 8.3% | 5.9% | +2.4 pp | 4.6% | +3.7 pp |
| Net income (loss) | $1.0M | $2.2M | -53.0% | $908.0K | +12.2% |
| Net margin | 3.5% | 8.3% | -4.8 pp | 3.9% | -0.4 pp |
| Diluted EPS | $0.02 | $0.05 | -$0.03 | $0.02 | ±$0.00 |
Risks
In February 2021 the company issued $155.3 million aggregate principal amount of 0.75% convertible senior notes due 2026. Interest expense was $1.3 million for the three months ended March 31, 2021, consisting of $1.1 million of debt discount and issuance cost amortization and $0.2 million of coupon interest, compared with no interest expense in the prior-year quarter, which may limit cash flow available for operations.
The company must settle conversions of the 2026 Notes solely in cash unless and until it receives stockholder approval to increase authorized shares and reserves shares under the Indenture. If holders convert or a fundamental change occurs, the company may lack available cash or financing to repurchase the notes or pay cash amounts due, which could cause a default.
The conversion option in the 2026 Notes and the related Notes Hedge are accounted for as derivatives until stockholder approval is obtained, and changes in their fair value may cause volatility in the consolidated statements of operations and comprehensive income. The debt discount accretion is expected to result in an effective interest rate significantly above the 0.75% stated coupon, reducing reported income.
Conversion of the 2026 Notes or exercise of warrants from the Warrant Transactions may dilute existing stockholders. The Warrant Transactions can cause incremental dilution to the extent the average share price exceeds $26.53 for any fiscal quarter, and the existence of the 2026 Notes may encourage short selling.
The Notes Hedge transactions expose the company to unsecured credit risk with financial institution Option Counterparties. If an Option Counterparty defaults or enters insolvency proceedings, the company may suffer adverse tax consequences and more dilution than currently anticipated.
The sales cycle for the company's software and services can be lengthy, and implementation cycles by channel partners and customers can also be lengthy, often as long as six months and sometimes longer for larger customers. Delays or incomplete implementations may adversely affect business, financial condition, and results of operations.
Substantially all revenues are from a few types of technology, and product concentration may make the company especially vulnerable to market demand and competition from other technologies. The company faces a growing number of competitors in mobile image capture and identity verification, many with greater financial, technical, and marketing resources.
The COVID-19 pandemic has created global business disruptions and disruptions in operations, with workforce transitioned to remote work and employee travel severely curtailed. The extent of the impact on business, operations, and financial results remains uncertain and difficult to predict, though stay-at-home orders may accelerate adoption of digital technologies.
Sales of licenses to one or more channel partners have comprised a significant part of revenue in each of the last few years. If a channel partner relationship were lost, the company or another partner would need to establish relationships with end-users, which could take time to develop, if it develops at all.
Certain provisions in the 2026 Notes and the Indenture could make a third-party acquisition of the company more difficult or expensive. A takeover constituting a fundamental change or make-whole fundamental change could require repurchasing notes for cash or temporarily increasing the conversion rate, potentially discouraging transactions that stockholders may view favorably.
SaaS KPIs
All quarters →Mobile Verify transactional SaaS revenue
Summary, forecast, risks and KPIs are extracted from MITEK SYSTEMS INC's SEC filings for Q2 FY2021 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 1, 2026.