Summary
Mitek Systems reported revenue of $46.1 million for FY2023 Q2, up 37.6% from the prior-year quarter. Operating income was $8.69 million, up 224.1%. Net income was $5.17 million, up 1088.3%, and diluted EPS was $0.11, up 1000.0%. The operating margin was 18.8%, up 10.8 percentage points. Management credited higher sales of its Mobile Deposit, CheckReader and IDLive products, along with growth in services revenue, for the gain. This was a quarter where the top line and the bottom line both moved sharply higher.
Growth held up across the first half of the fiscal year. Year-to-date revenue was $91.8 million, up 39.2%. Year-to-date net income was $9.90 million, up 178.1%, and year-to-date diluted EPS was $0.22, up 175.0%. The year-to-date operating margin was 18.6%, up 7.2 percentage points. Software and hardware revenue rose 39% in the quarter, while services and other revenue rose 36%. Management tied the services increase to higher SaaS revenue from the HooYu acquisition, higher transactional SaaS revenue and higher hosted mobile deposit transactional revenue.
Cash flow was mixed. Operating cash flow was $6.30 million for the quarter, down 15.3%, even as year-to-date operating cash flow was $11.56 million, up 19.4%. Capital expenditures were $0.22 million in the quarter, down 35.7%, and $0.37 million year to date, down 41.3%. Deferred revenue was $11.97 million, up 15.5%. The quarterly decline in operating cash flow stands out against a strong income statement, and it is worth tracking as the fiscal year progresses.
Mitek sells digital identity verification and mobile image capture software to more than 7,800 financial services organizations and fintech brands. The company added patents in the quarter, bringing its total issued patents to 85 as of March 31, 2023, with 19 domestic and international applications pending at that date. Those figures matter because the portfolio leans on patented technology for mobile deposit and identity verification. The sales cycle can run as long as six months, and implementation by channel partners and customers can take just as long. Timing also distorts reported revenue, since on-premise licenses are recognized up front while SaaS contracts are recognized ratably. A single large license deal can lift one quarter, and channel partners drive a meaningful share of sales.
The filing carries several disclosures that temper the growth story. Mitek restated previously issued interim financial statements for the periods ended March 31, 2022 and June 30, 2022 to correct historical errors. The company was not in compliance with certain covenants under its 0.75% convertible senior notes due 2026 as of March 31, 2023 because it had not filed its Form 10-Q for the quarter ending March 31, 2023. That noncompliance triggered special interest of 0.25% of outstanding principal for the first 90 days and 0.50% for days 91 through 180. As of September 29, 2023, the company was still not in compliance with certain covenants because it had not timely filed its Form 10-Q for the quarter ending June 30, 2023. Competition from larger rivals, product concentration in a few technology types, and reliance on channel partners all pose additional risks.
The quarter delivered strong revenue and profit growth with wider margins, and the first half confirms that trend. Even so, the restatement, the note covenant issues and the uneven quarterly cash flow keep the story from being clean. Investors will want to see deferred revenue convert into recognized revenue, and they should watch whether cost discipline holds after a stretch of heavy spending on professional fees and administrative items.
Forecast
No forward guidance in this quarter's filings.
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2023 | Q1 FY2023 | QoQ | Q2 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $46.1M | $45.7M | +0.9% | $34.7M | +32.9% |
| Research & development | $7.4M | $7.7M | -3.9% | $8.2M | -10.5% |
| Sales & marketing | $9.6M | $9.5M | +1.1% | $9.2M | +4.5% |
| General & administrative | $10.1M | $8.5M | +18.6% | $6.1M | +65.6% |
| Total operating expenses | $37.4M | $37.3M | +0.3% | $29.9M | +25.3% |
| Operating income (loss) | $8.7M | $8.4M | +3.7% | $4.8M | +79.7% |
| Operating margin | 18.8% | 18.3% | +0.5 pp | 13.9% | +4.9 pp |
| Net income (loss) | $5.2M | $4.7M | +9.3% | $1.9M | +170.5% |
| Net margin | 11.2% | 10.3% | +0.9 pp | 5.5% | +5.7 pp |
| Diluted EPS | $0.11 | $0.10 | +$0.01 | $0.04 | +$0.07 |
Risks
The company restated previously issued interim financial statements for March 31, 2022 and June 30, 2022 to correct historical errors, and it did not timely file its Form 10-K and certain Form 10-Qs. This reporting delay created covenant noncompliance and additional costs.
As of March 31, 2023 and September 29, 2023, the company was not in compliance with certain covenants in the Indenture for its 0.75% Convertible Senior Notes due 2026 because of delayed SEC filings. The noncompliance caused additional special interest of 0.25% and then 0.50% of outstanding principal and could lead to events of default.
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 and results.
The company faces a growing number of competitors in mobile image capture and identity verification, many of which have greater financial, technical, marketing, and other resources. It must continue offering secure, accurate, and convenient products to remain competitive.
Substantially all revenues come from a few types of technology, and this product concentration may make the company especially vulnerable to market demand and competition from other technologies, which could reduce revenues.
Sales of licenses to one or more channel partners have comprised a significant part of revenue in each of the last few years. Losing a channel partner relationship could require the company or another partner to establish end-user relationships, which may take time or may not develop.
General and administrative expenses increased 66% to $10.1 million in the three months ended March 31, 2023, driven by higher third-party and professional fees, audit and accounting fees, legal costs, and executive transition costs. Restructuring costs were $2.0 million in the six months ended March 31, 2023.
SaaS KPIs
All quarters →Financial services organizations served
Summary, forecast, risks and KPIs are extracted from MITEK SYSTEMS INC's SEC filings for Q2 FY2023 (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 2, 2026.