Mitek Systems Q1 2025 Earnings Call Transcript

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Provided by Quartr
February 10, 2025

Key Takeaways

  • First-quarter non-GAAP gross margin reached 84% and adjusted EBITDA margin improved to 21%, up 32% YoY, reflecting strong cost efficiencies and margin expansion.
  • Identity revenue hit $70.7 M LTM, with MyVIP transaction volume up 60% and automated transactions driving a 300 bp reduction in cost per transaction, accelerating progress toward the $80–85 M milestone.
  • Check Fraud Defender ACV neared $12 M and the data consortium now covers 18% of U.S. checking accounts, with penetration under 1% of FIs pointing to substantial upside and a recent top-10 FI win.
  • Deposit products revenue fell 9% YoY to $19.3 M due to timing of mobile deposit renewals, though annual run-rate remained stable at 1.2 B transactions.
  • Mitek reorganized its R&D and go-to-market teams by centralizing engineering and ML resources and breaking down silos, aiming to accelerate innovation and deliver P&L benefits in fiscal ’26.
AI Generated. May Contain Errors.
Earnings Conference Call
Mitek Systems Q1 2025
00:00 / 00:00

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Operator

welcome to the Mitek Fiscal twenty twenty five First Quarter Earnings Conference Call. All participants will be in listen only mode. Please note, this event is being recorded. I would now like to turn the conference over to Todd Curley of Pondo Wilkinson. Please go ahead.

Todd Kehrli
Partner at PondelWilkinson Inc.

Thank you, operator. Good afternoon, and welcome to Mitek's fiscal twenty twenty five first quarter earnings conference call. With me on today's call are Mitek'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, Mitek issued a press release announcing its financial results for its fiscal 'twenty five first quarter ended 12/31/2024.

Todd Kehrli
Partner at PondelWilkinson Inc.

That release is available on the company's website at miteksystems.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 that are 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 forward looking statements. These forward looking statements may include comments about the company's plans and expectations of future performance.

Todd Kehrli
Partner at PondelWilkinson Inc.

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, 02/10/2025, 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 eight K describe the differences between our GAAP and non GAAP reporting and present the reconciliation between the two for the periods reported in the release.

Todd Kehrli
Partner at PondelWilkinson Inc.

With that said, I'll now turn the call over to Mitek's CEO, Ed West.

Edward West
Edward West
CEO at Mitek Systems

Thank you, Todd, and good afternoon, everyone. For those who are new to Mitek, let me start with a quick overview of who we are, the problems we solve and why our mission critical solutions are becoming increasingly more important in today's market environment. Litech Systems is a global leader in computer vision, digital identity verification, biometric authentication and fraud prevention. Trusted by over 7,900 organizations worldwide, including financial institutions, telecoms, fintechs and growing threats like AI driven fraud, deepfakes and cyber attacks using advanced AI, proprietary biometrics and automation technologies, all delivered as software solutions.

Edward West
Edward West
CEO at Mitek Systems

Our mobile check deposit solution enabled by industry leading computer vision technology has revolutionized consumer banking processing approximately 1,200,000,000 transactions annually. It has become a foundational element of North American financial services. This deep expertise in serving high assurance industries has positioned us to expand our total addressable market with innovative solutions like MyVIP, an end to end identity verification, orchestration and authentication platform, along with advanced fraud prevention tools such as Check Fraud Defender and Digital Fraud Defender. These offerings are designed to tackle sophisticated fraud threats using industry leading technology. We generate revenue through term license agreements for our heritage check related products and standalone biometrics, as well as SaaS agreements for our identity and fraud platform solutions.

Edward West
Edward West
CEO at Mitek Systems

Our focus in fiscal 'twenty five is on enhancing our solutions, operational excellence and strengthening our foundation to position us for a durable, profitable revenue growth in fiscal 'twenty six and beyond. As digital check deposits remain essential and the demand for fraud solutions intensifies in the face of sophisticated AI driven threats, we are uniquely positioned to lead innovation and help secure the future of online transactions. Now last quarter, we introduced a four pronged framework to guide our transformation. Today, I'll provide some updates on our progress across the four pillars, which are one, strengthening the foundation to provide a platform for durable profitable growth in fiscal 'twenty six two, scaling our identity platform business to drive it towards the focal point in profitability expanding our third, expanding our leadership in fraud solutions and fourth, maintaining operational excellence as the cornerstone of organic revenue growth, free cash flow generation and driving shareholder value. Now let's walk through the progress we've made on each of these pillars since the end of last fiscal year.

Edward West
Edward West
CEO at Mitek Systems

In Q1 and early Q2, we made meaningful progress on the first pillar of our strategy, which is strengthening our foundation for durable profitable growth in fiscal 'twenty six and beyond. I'd like to highlight a few key achievements. First, we're fostering greater collaboration across our go to market teams by breaking down silos and enhancing cross functional execution for new and expanded business. I know it sounds pretty fundamental, but this effort is already bearing fruit by closing new business in Q1. We also have additional meaningful contract negotiations as well as new product developments currently underway as a result of these efforts.

Edward West
Edward West
CEO at Mitek Systems

These are early validation points that leverage Mitek's extensive relationships and credibility with financial institutions with the growing request for identity and fraud use cases. Second, we have realigned our R and D resources and team structures to better support our growth objectives. We're advancing a one mind tech ethos by introducing a product driven framework, centralizing engineering and AI machine learning resources and fostering deeper cross team collaboration. These initiatives get the machine learning engineers closer to the customer and are already driving greater effectiveness and accelerating innovation, particularly within our identity portfolio, which I will quantify later. Our operational and cultural integration efforts serve as the catalyst for our technological integration, as I highlighted on our prior call.

Edward West
Edward West
CEO at Mitek Systems

The key initiative is consolidating our identity verification or IDV engines into a single unified platform on MyVIP. By integrating our IDV and fraud prevention capabilities, we are simplifying the customer experience while enhancing our competitive position. In short, the walls within our business have remained after multiple acquisitions are rapidly coming down and we expect to see measurable benefits from this in our P and L in fiscal 'twenty six. Now turning to our second pillar, our progress towards the 80,000,000 to $85,000,000 fulcrum point in identity. At the end of the first quarter, our last twelve months identity revenue was $70,700,000 up from $68,500,000 at the end of fiscal 'twenty four, demonstrating progress towards this critical milestone.

Edward West
Edward West
CEO at Mitek Systems

Now it's important to note that the SaaS transaction volumes and timing of software license sales can create upward and downward movement on a quarter to quarter basis. It's also important to recognize that the tipping point is dynamic. Any improvements in our unit economics and contribution margins along the way effectively lower the revenue threshold required to reach this key target. The two key drivers that we're closely monitoring in Identity that are driving us towards our fulcrum point are as follows: one, an increased mix of MyVIP identity transactions, which carry more attractive unit economics compared to our heritage standalone document verification solutions due to the platform's greater intrinsic value and two, a higher mix of automated identity transactions, which carry a lower cost per transaction and reflect improvements in our algorithm efficacy. Together, these factors drive a higher contribution profit per transaction and coupled with ongoing transaction growth contribute to a growing bottom line.

Edward West
Edward West
CEO at Mitek Systems

On the first of these two drivers, the 26% year over year growth observed in identity SaaS revenue was driven by accelerating transaction volume across the board, and most notably in MyVIP with over 60% transaction volume growth in the quarter, primarily driven through expansion with existing customers. Currently, a minority of our identity transactions are running through our MyVIP platform, but as we improve our go to market execution with MyVIP and begin migrating customers from our stand alone point solutions to our platform, we expect an increased mix of these higher value transactions. On the second driver, we had a double digit percentage reduction in direct cost per transaction year over year as our enhanced algorithms improved our MyVIP agent productivity versus last year and automated transactions continue to increase both sequentially and year over year. This shift towards higher margin automation drove the 300 basis points year over year improvement in gross margin recently acquired customers, expansion into new use cases with our existing customers and acquiring new customers across geographies and industries. Looking at our customer cohorts, identity related customers acquired just one year ago in Q1 of 'twenty four are now spending almost 40% more with us, driven by higher transaction volumes and expanded use cases.

Edward West
Edward West
CEO at Mitek Systems

Our Q1 twenty twenty three cohort, which are customers who have been with us for two years, have increased spending by more than three times compared to their initial spending levels. And looking at our top 10 identity customers today, their spending is now 80% higher than it was two years ago, underscoring the expanding scope of our relationships. Notably, among this top 10 are a number of leading financial institutions who initially partnered with Mitek for identity verification in online account openings, but have since significantly increased their investment. Today, they rely on Mitek as an end to end enterprise verification solution partner with our solutions empowering a wide range of critical identity and fraud prevention workloads. These solutions enable our customers to provide best in class customer experience and safely expand the products they can offer in their digital channels.

Edward West
Edward West
CEO at Mitek Systems

Examples of these expansions include digital mortgages, commercial onboarding, telephony authentication, mobile password resets, fraud and dispute claims, commercial KYC, document verification and retail fraud prevention. Overall, this deepening adoption highlights the increasing strategic value we provide to some of the world's largest high assurance businesses. At the same time, our ability to win and scale new business across industries and geographies reflects this early success of our go to market enhancements. Now let's dive into our third pillar, which is expanding the reach and impact of our fraud solutions with a spotlight on Check Fraud Defender or CFD. By harnessing the power of our growing consortium data network, this strategy drives compelling results for both our customers and Mitek.

Edward West
Edward West
CEO at Mitek Systems

CFP's annual contract value or ACV experienced considerable growth in fiscal 'twenty four as highlighted on our prior call, with this momentum continuing in Q1 with ACV now approaching $12,000,000 at the end of Q1 of twenty twenty five. As mentioned, we have now seen checks from nearly all FIs in the country and we now have accumulated data sets on approximately 18% of all checking accounts in the country, up from 17% last quarter reflecting our expanding footprint. While we successfully onboarded more paying customers in Q1, penetration remains below 1% of U. S. Financial institutions signaling the substantial untapped growth opportunity.

Edward West
Edward West
CEO at Mitek Systems

Our confidence in this opportunity remains strong, reinforced by customer feedback indicating a clear preference for addressing check fraud through our consortium or shared data model. Mitek's competitive advantage lies in our credibility and expertise in check imaging and computer vision combined with the machine learning and fraud scoring. This is supported by our multi decade track record of execution with these banking clients. Now looking ahead, our goal remains to double CFD's ACV in fiscal 'twenty five from our fiscal 'twenty four exit, driven by an exciting pipeline of opportunities. While we expect variability in the quarterly pacing towards this goal, the momentum remains clear.

Edward West
Edward West
CEO at Mitek Systems

Just last week, we signed another top 10 FI and CFD with a plan go live early next quarter. Each incremental institution strengthens the network, increasing the value of the data and insights for all participants. As the fraud landscape continues to evolve, MiTech is uniquely positioned to deliver industry leading solutions and tackle our customers' most pressing challenges from payment fraud to identity and digital fraud, helping them stay ahead of emerging threats. And finally, our fourth pillar, which is operational excellence, remains the cornerstone of our strategy. This is supported by durable organic growth, SaaS expansion, cost efficiency and strong free cash flow conversion to maximize shareholder value.

Edward West
Edward West
CEO at Mitek Systems

While overall revenue growth was clouded by the timing of mobile deposit reorders, total SaaS revenue grew 29% year over year during the first quarter with deposit SaaS revenue up 64% and identity SaaS revenue up 26%, driven by CFD and MyVIP respectively. Total SaaS revenue for the last twelve months reached $67,800,000 a 13% year on year increase, now representing over 39% of our last twelve months revenue, a notable sequential improvement. As mentioned last quarter, looking out to fiscal 'twenty six, we're pursuing a goal for SaaS revenue to approach half of our total revenue. On the profitability front, adjusted EBITDA increased 32% year on year in the first quarter, driven by our commitment to cost discipline and operational efficiency. Last twelve month free cash flow conversion improved during the quarter to 83%, which has benefited by positive changes in net working capital and reductions in our non GAAP adjustments, reflecting disciplined management of these non recurring costs.

Edward West
Edward West
CEO at Mitek Systems

So in summary, it's still early in the year, but we are encouraged by the company's progress in Q1 positioning Mitek for durable profitable growth in fiscal twenty twenty six and beyond. With that, let me turn the call over now to Dave for a few comments on the financials.

David Lyle
David Lyle
Chief Financial Officer at Mitek Systems

Thanks, Ed. I'll start by walking you through our results for the quarter, highlighting the drivers behind our performance. From there, I'll share some additional insights into how we're approaching the balance of the year. First, our fiscal Q1 twenty twenty five results. Our total revenue for fiscal Q1 was slightly ahead of last year's at $37,300,000 consistent with the revenue phasing remarks on our last earnings call.

David Lyle
David Lyle
Chief Financial Officer at Mitek Systems

As expected, deposit products revenue was impacted by mobile deposit deal timing declining 9% year over year. Our identity products revenue increased by 13% year over year underscored by accelerating transaction volumes and a sequential acceleration in revenue growth from the fourth quarter. Our non GAAP gross profit for the quarter was $31,500,000 representing an 84% non GAAP gross margin and an adjusted EBITDA came in at $7,800,000 representing a 21% margin. Both exceeded our expectations due to the benefits of cost efficiencies within our identity product portfolio and our company wide focus on cost controls. More on this in a moment.

David Lyle
David Lyle
Chief Financial Officer at Mitek Systems

Turning now to the specifics of our revenue performance, let's start with deposit products. Deposit revenue declined 9% year over year to $19,300,000 in Q1, primarily due to a 21% decline in our deposit software license revenue. This decline reflects the anticipated timing AirPockets and mobile deposit renewals as highlighted in our prior call. Given the nature of the term license revenue lumpiness, we would encourage investors to look at longer term trends to assess the health of this revenue stream and therefore would highlight that LTM deposit revenue for fiscal Q1 twenty twenty five was $101,800,000 I'd like to provide additional insight into the nature of renewal timing in mobile deposit solutions. Customers and channel partners typically purchase one or more years worth of transaction inventory in advance to ensure uninterrupted support and avoid disruptions.

David Lyle
David Lyle
Chief Financial Officer at Mitek Systems

While purchase timing and usage generally move in tandem, they can occasionally diverge. Importantly, our revenue recognition occurs at the time of purchase rather than when the transactions are actually used. This dynamic creates variability in our revenue phasing. Renewal timing is influenced by two key factors, the number of years of transaction inventory purchased upfront and the rate at which transactions are consumed. While we have good visibility into consumption patterns and can reliably anticipate when customers will need to replenish their inventory, the intermittent nature of their purchasing behavior contributes to the uneven revenue phasing.

David Lyle
David Lyle
Chief Financial Officer at Mitek Systems

That said, our transactional volumes are more stable indicator of the product's health continue to maintain an annual run rate of approximately 1,200,000,000 transactions. Deposit revenue highlights this quarter included deposit maintenance revenue, which posted steady 3% year over year growth and deposit SaaS revenue led by CFD, which grew over 60% year over year, accelerating from a 40% growth rate in the fourth quarter of last fiscal year. Now turning to identity. Revenue from identity products grew 13% year over year to $18,000,000 driven primarily by a 26% year over year increase in identity SaaS revenue. This growth resulted from accelerating transaction growth in both MyVIP and Mobile Verify, which due to less impactful pricing pressures for Mobile Verify this quarter allowed the transaction growth to shine through to revenue.

David Lyle
David Lyle
Chief Financial Officer at Mitek Systems

All in all, we were pleased to see Mobile Verify revenue growth year over year for two quarters in a row and to see MyVIP continue its growth trajectory. Now to tie this altogether, our total revenue increased nearly 1% year over year as 21% year over year growth in our services revenue streams were offset by a 25% decline in software and hardware sales. SaaS revenue grew 29% year over year, driving the increase in services revenue, helping to counterbalance the decline in total software and hardware revenue, which reflected fluctuations in our biometrics point solution software sales and the timing of mobile deposit software renewals. Moving down the P and L, we maintained strong unit economics, achieving an 84% non GAAP gross margin in the quarter. This was driven by over 99% gross margins on our software license revenue and more notably a 77% gross margin on our services and other revenue, an improvement of nearly 300 basis points year over year and our highest quarterly services gross margin in three years.

David Lyle
David Lyle
Chief Financial Officer at Mitek Systems

As Ed highlighted, these results reflect the early financial benefits of our efforts to increase automation, improve cost efficiencies and drive cultural integration, particularly within our identity portfolio. Non GAAP operating expense for the quarter totaled $24,000,000 a 1,900,000 sequential increase from $22,100,000 in fiscal Q4. The sequential increase was primarily due to the annual management bonus accrual reset, which occurred in our first fiscal quarter and a return to normalized operational spending levels after enforcing some near term cost controls on certain discretionary spending during the fourth quarter. We ended up approximately $2,000,000 below the expected $26,000,000 operating expense level, which we communicated in December, primarily due to delaying hiring and other discretionary spending while we finalize our go forward plan with Ed as our new CEO. The $10,000,000 the $10,400,000 bridge between our non GAAP operating expense of $24,000,000 and GAAP operating expenses of $34,400,000 consists of $2,400,000 in cash adjustments and $8,000,000 in non cash accounting adjustments as detailed in our earnings release.

David Lyle
David Lyle
Chief Financial Officer at Mitek Systems

Focusing on our non GAAP cash adjustments, this amount has decreased from $5,100,000 or 14% of revenue in the first quarter of twenty twenty four to $2,400,000 or 6% of revenue in this quarter. This 700 basis point free cash flow conversion improvement reflects disciplined management of non recurring costs such as executive transitions, legal and one time audit fees, all of which have declined both sequentially and year over year. Elevated restructuring costs this quarter are attributable to the cultural and operational integration initiatives that occurred, particularly during December as discussed earlier by Ed. Tying this altogether, adjusted EBITDA for Q1 twenty twenty five reached $7,800,000 up 32% year over year representing a 21% adjusted EBITDA margin. After factoring in other income, interest expenses and taxes, this equates to $6,600,000 in non GAAP net income or $0.15 per diluted share based on 45,200,000.0 diluted shares outstanding.

David Lyle
David Lyle
Chief Financial Officer at Mitek Systems

Moving on to our balance sheet and capital allocation frame. Over the last twelve months, we generated $40,200,000 in free cash flow and spent $27,200,000 of this repurchasing 2,600,000.0 shares at a weighted average cost of $10.44 per share. At the end of Q1 'twenty five, our cash and investments balance was $137,900,000 and we have $22,800,000 remaining under our current share repurchase authorization. As outlined on our December earnings call, we moderated our share repurchase activity in Q1 twenty twenty five to maintain balance sheet flexibility, while we actively assess and implement the optimal capital structure for our business. The key near term priority in our capital structure strategy remains addressing our $155,000,000 convertible senior notes, which mature on 02/01/2026.

David Lyle
David Lyle
Chief Financial Officer at Mitek Systems

These notes feature an attractive 75 basis points annual cash coupon, a conversion price of $20.85 and an effective dilution threshold price of over $26 per share due to note hedges and warrants. We remain confident in our ability to retire these notes when economically advantageous, supported by our existing cash balance and cash flow generation, as well as any external financing options that will be available to us. Now turning to the fiscal twenty twenty five guidance. We are reiterating our revenue guidance range of $170,000,000 to $180,000,000 and we are flowing through the cost benefits realized in the first quarter into our adjusted EBITDA margin range by raising the lower end of the range by 100 basis points resulting in a new guidance range of 25% to 28%. From a revenue phasing perspective, we continue to expect quarterly revenue seasonality in fiscal twenty twenty five to follow a similar pattern to that of fiscal twenty twenty four.

David Lyle
David Lyle
Chief Financial Officer at Mitek Systems

Now to help with operating expense modeling for Q2, we expect non GAAP operating expense to increase sequentially to approximately 26,000,000 plus or minus $1,000,000 with depreciation expense around 70 basis points of revenue. Looking ahead, we anticipate non GAAP operating expense will continue to modestly increase sequentially throughout the remainder of the year as we invest in R and D and sales to support our new products. And finally, our XL based supplemental financial package containing trended historical financials has been updated for Q1 twenty twenty five and is now available on our Investors Relations website. Operator, that concludes our prepared remarks. Please open the line for questions.

Operator

We will now begin the question and answer session. Our first question is from Jake Roberta with William Blair. Please go ahead.

Jake Roberge
Equity Research Analyst at William Blair & Company, L.L.C

Yes. Thanks for taking the questions and congrats on the solid results. Ed, great to hear about some of the early wins on the go to market integration, the bigger push to MyVIP. Can you just talk about some of the near term opportunities from here? And then if you take a step back, now that you've been with Mitek a bit longer, do you still feel confident this is a business that can return to that double digit growth K year following these transitions?

Edward West
Edward West
CEO at Mitek Systems

So good afternoon, Jake. Let me start with the second part is yes. I think with what we've been going through the business and some of the actions already experienced this past quarter, what we have ahead of us here for this year that we're executing against is all very encouraging. In particular, which I particularly enjoy is meeting with customers and prospects and spending time with our go to market team out in the market. And just hearing the level of dialogue and conversations that we have, in particular around fraud and helping solve some of their growing issues that they have, leveraging our capabilities and financial services and on the identity side around the metrics around, as I mentioned earlier, around AI and digital kind of threat vectors that are continuing to increase significantly.

Edward West
Edward West
CEO at Mitek Systems

And as they recognize our capabilities with the platform with not just on the identity side, but authentication, orchestration, bringing in deepfake and injection attack capabilities, and then in particular, from Financial Services is now combining in check fraud into the dialogue is very encouraging. Obviously, as we talked about kind of modeling and kind of clouding the growth this year really gets back to some of the timing on the license sales on in particular and mobile deposits. But as Dave talked about on that, you just have to look at that on an LTM basis and hopefully that just kind of stabilizes itself out. So going forward, it's really around those key areas and the SaaS and that attractive growth level. And we'll progress more this year.

Edward West
Edward West
CEO at Mitek Systems

As I mentioned on the last call, we'll report back closer to the end of the year some of the things that we have underway, product, new products, other activities and report back about how we're feeling about 'twenty six and beyond. But so far, quite encouraged by the progress today.

Jake Roberge
Equity Research Analyst at William Blair & Company, L.L.C

That's helpful. Thanks. And then on the check fraud defender front, great to hear the momentum there and signing that top 10 FI last week. Can you talk about how the partner channel for that solution is trending now? I know you all have a few partners already live on the platform, so it would be great to hear how those relationships are building.

Jake Roberge
Equity Research Analyst at William Blair & Company, L.L.C

And then is there any update on the potential for some of your larger mobile deposit partners to shift over and start selling that solution as well?

Edward West
Edward West
CEO at Mitek Systems

Yes. On both fronts there. The partnerships that we have today are growing. You got to remember, CFP is an early stage, earlier product and solution with the FIs. We rolled out with several partners.

Edward West
Edward West
CEO at Mitek Systems

Those are growing. The opportunity list is growing with those as they get their sea legs and having the conversation and the dialogue in addition to the conversations we're having with some of the larger channel partners as well. And that's those conversations progress. I think as banks continue and all F5s continue to experience growing fraud and seeing the value of this solution, they will also continue to push on their partners being some of the indirect channels through the channel partners there of ours and pushing up for this solution and obviously our direct conversations continue on and now. It's pretty compelling when we can sit there and have a conversation even though this solution has only been around for a short period of time, we've already now seen 18% or data sets built on 18% of all accounts in the country, even though we have fewer than 1% of the FIs in the network.

Edward West
Edward West
CEO at Mitek Systems

So just the value of that continues to grow. We can sit down with them and talk about, hey, what we're already seeing in your portfolio. And it's a very compelling ROI because of the level of fraud that we're able to assess and see and we have those conversations. So it's compelling as a quick return for them on a growing threat.

Jake Roberge
Equity Research Analyst at William Blair & Company, L.L.C

Okay, great. And then if I could just sneak one more in. The past few quarters, you've talked about the larger ID R and D deals and then the two banking campaigns for ID verification that were pushed out of it. Can you just give us an update on how those deals are trending through the pipeline and just how they've been accounted for in the guide?

Edward West
Edward West
CEO at Mitek Systems

I'll turn it to Dave on the prior quarter, previous campaigns.

David Lyle
David Lyle
Chief Financial Officer at Mitek Systems

Yes, it's a good question. We talked about that back in the Q4 timeframe initially at a reset there as you know. During that time and even last quarter, we kind of reiterated we think these are deals that eventually will close. This is going to be a long sales cycle and that we should start seeing some benefit for that in the second half of 'twenty five and into 'twenty six.

Edward West
Edward West
CEO at Mitek Systems

And let me if I might take as a step back on IDR and D, whereas you were talking about earlier and where it's seen, the capabilities that Mitek has with that platform, that team, frankly now, attested by U. S. Department of Homeland Security with our passive liveness capabilities, That is second to none worldwide in terms of those capabilities around passive liveness, which is increasingly more important on this digital fraud that we're sitting on and frankly what's just growing significantly on a day to day basis. And that captures a lot of the conversations that we've been having with a lot of these high assurance businesses. So we're very enthusiastic about that and continue to evolve different products and solutions that we sell directly into the market or also how those are integrated into broader platform solutions here. So glad you asked. Thanks.

Jake Roberge
Equity Research Analyst at William Blair & Company, L.L.C

Yes, very helpful. Thanks for taking the questions. Thank you. Thanks, Dave.

Operator

The next question is from Mike Grondahl with Northland Securities. Please go ahead.

Mike Grondahl
Senior Research Analyst at Northland Capital Markets

Hey guys, thanks. The top 10 bank you signed up for Check Fraud Defender, can you talk a little bit about how long the sales cycle was there? And what kind of revenue can this customer generate over the next couple of years?

Edward West
Edward West
CEO at Mitek Systems

Well, the good afternoon, Mike. The sales cycle is long. This is a comprehensive, I think you noticed the company has talked about that in previous calls and quarters. It's a long cycle because you have a lot of people involved with it. Validation, many of them have some other solutions, some internal, some external solutions and just kind of going through the validation and seeing it.

Edward West
Edward West
CEO at Mitek Systems

But then once you get into the data and see, it's very compelling. And the value to it and frankly, the more the network grows, the more valuable it is for all parties involved, all the parties in the network as well as Mitek. So this is the Was it over

Mike Grondahl
Senior Research Analyst at Northland Capital Markets

a year, Ed?

Edward West
Edward West
CEO at Mitek Systems

I think we'll continue to grow. What's that?

Mike Grondahl
Senior Research Analyst at Northland Capital Markets

Was it over a year, the sales cycle?

Edward West
Edward West
CEO at Mitek Systems

That particular one, I would say yes. But that particular one, other ones are shorter. We've had other ones that have come in, in a very, very short period of time. But obviously, that's a very large FI going through a lot of different validations, a lot of tests, a lot of validations throughout the business.

Mike Grondahl
Senior Research Analyst at Northland Capital Markets

And what would the revenue potential be a range, if you will, like in year three or four for this bank?

Edward West
Edward West
CEO at Mitek Systems

Yes. We can't get into specifics on a particular institution. I would just say it's compelling for both them and it's very attractive for all of us.

Mike Grondahl
Senior Research Analyst at Northland Capital Markets

Got it.

Edward West
Edward West
CEO at Mitek Systems

Great to have them as a partner in the network.

Mike Grondahl
Senior Research Analyst at Northland Capital Markets

It's nice to see a top 10 bank, that's for sure. Mobile check reorders, did they come in a little bit more than you expected? Or how did that shake out in the December?

Edward West
Edward West
CEO at Mitek Systems

Dave, do you want to talk about that?

David Lyle
David Lyle
Chief Financial Officer at Mitek Systems

Yes, that wasn't much different than we expected. I'd say it was just a relatively solid quarter relative to what we thought.

Mike Grondahl
Senior Research Analyst at Northland Capital Markets

Got it. Okay. Hey, thanks guys.

Edward West
Edward West
CEO at Mitek Systems

Thank you, Alan.

Operator

The next question is from Alan Klee with Maxim Group. Please go ahead.

Allen Klee
MD & Senior Research Analyst at Maxim Group

Yes. Hi. You talked about outside of myBOP that the Mobile Verify product had less pricing pressure this quarter. So that and that was different than the quarter before. Could can you comment on the change maybe in the competitive environment and how you're also thinking about selling more pushing on my VIP? Thank you.

Edward West
Edward West
CEO at Mitek Systems

Yes. Good afternoon, Alan. I would start with the latter where that is our focus is growing MyVIP. Obviously, having that full orchestration platform, bringing in more signals, more capabilities for our partners and greater intrinsic value for everybody involved. That is our focus.

Edward West
Edward West
CEO at Mitek Systems

And we've integrated in VIP and the algorithms in the process. Having that integrated in and bringing these others doesn't make any sense to have historically four versus let's have the best algorithms going into from an IDV standpoint into VIP. So that's coming along and I would just say that will increasingly over time as we have more of the business shifting as a percentage into VIP, I think some of those pricing pressures will be less so. Obviously, it's always competitive and always going to have different situations, but we like this direction.

Allen Klee
MD & Senior Research Analyst at Maxim Group

Thank you. And I just wanted to I was just I know you don't give any '26 guidance, but if you did hit double digits, low double digits and if I assume that the deposit transaction related business is flat and then some growth assumptions in CheckDefender and the Identity. It seems like the Identity segment would be at least in your target of probably higher than of $80,000,000 to $85,000,000 which would mean that it would no longer be at least it wouldn't be a drag on your margins compared to what you said last year. It was like a high single digit impact on EBITDA margins. Is that that could go away? Is there anything I'd say that I'm missing something?

David Lyle
David Lyle
Chief Financial Officer at Mitek Systems

Yes, Dave, I don't think you're missing anything. Again, it's going to depend on all the work we're doing now. We're actually seeing great results on the things Ed was talking about on how we're optimizing some of the way we operate. If that continues and we're able to achieve what we want, then I think that can be a the answer can be yes.

Edward West
Edward West
CEO at Mitek Systems

As we said last quarter, we'll come back later in the year in terms of progress on that, but it's our objective here is to pass that fulgum point sooner rather than later and just do it there but in a durable way. And we'll keep you updated.

Allen Klee
MD & Senior Research Analyst at Maxim Group

Great. Thanks. Thank you very much.

Edward West
Edward West
CEO at Mitek Systems

Thank you. Thanks, Scott.

Operator

The next question is from Surinder Thind with Jefferies. Please go ahead.

Surinder Thind
Surinder Thind
Equity Research Analyst at Jefferies Financial Group

Thank you. Ed, I'd like to start with some of the restructuring that's been going on internally. Can you maybe expand upon when we think about the sales force, we think about the engineering departments, where we are in that process, and what does it mean for like headcount and just the ability to sell? Is there some sort of resetting that or some air pocket that we should be aware of as you kind of work through some of these changes?

Edward West
Edward West
CEO at Mitek Systems

So good afternoon. We worked through those near term changes this past quarter back in Q1. And Dave mentioned we had some restructuring charges in December. As we executed on that, we just kind of went thoroughly throughout the business, working with the teams, how do we get these different platforms integrated together, how do we get our R and D resources closer to the customer, tighten tightly with product and go to market side and aligning people around the organization. Yes, we did have some reductions.

Edward West
Edward West
CEO at Mitek Systems

That was done then. Now we're focused on rolling up the sleeves and executing and driving the business and continuing to try to simplify. We're different still a lot of work to be done. This is really kind of assessing the situation and beginning to execute, but now we got to deliver and get the make sure the product enhancements, other things that we talked about throughout this year.

Surinder Thind
Surinder Thind
Equity Research Analyst at Jefferies Financial Group

I guess, as a clarification, I guess what I was trying to ask was, so you're effectively at target at this point. So there's you just kind of went from where you were to target. We shouldn't expect any more changes. I mean, we have stability at this point. And from here, we kind of build out with respect to kind of as people can start to get comfortable in the roles and start asking whether it's building pipelines, all of that kind of stuff?

Surinder Thind
Surinder Thind
Equity Research Analyst at Jefferies Financial Group

I guess that's kind of where I was trying to get to with this.

Edward West
Edward West
CEO at Mitek Systems

Yes. We are at a level where it's execute. We know what we have to do. There's nothing you never say never in these things. Things can change.

Edward West
Edward West
CEO at Mitek Systems

But based on what we know right now, we have the team that we're executing on, we're going to continue to have enhancements and changes, but that's just going to be small ups and downs, but it's about focus and execute from here.

Surinder Thind
Surinder Thind
Equity Research Analyst at Jefferies Financial Group

Got it. And then in terms of just as you go through the simplification of your product lineup, as you go through some integration efforts, what does that do to the actual sales process? I mean, is there a chance that clients kind of pause a little bit rather than implementing what you have versus maybe willing to wait? And I think that was what I was trying to get at is in terms of if there's any potential for air pockets.

Edward West
Edward West
CEO at Mitek Systems

No. I think what we have right now is a go to market team who's actually spent there's been a lot of change in our sales team and who are now getting more and more familiar with the solutions, the dialogue in the market, what's been evolving in the market around fraud, our broadening things that we've rolled out like DFP on the identity side, that and then how the better since we're now focused on my VIP, that is the solution. Then with the additional signals on that, I think now just having focus and execution is very much a positive for everybody involved. The customer, the dialogue we've had there as well on both prospects and expansions, I think that was one of the reasons why I went through is the breadth of the expansions in our some of our core customers, existing ones is pretty is very impressive, and especially as they see these increased threat factors coming in.

Surinder Thind
Surinder Thind
Equity Research Analyst at Jefferies Financial Group

Got it. And then the final one for me. Just on Check FraudDefender, following up on an earlier question, when we think about the revenue opportunity to give in clients, is there a way that you can maybe compare it to the opportunity from a mobile deposits perspective? So I assume it's higher or how should we think about that or any magnitude? Can you get to twice what it might be for mobile or is it an equal? Any characterization you can do there?

Edward West
Edward West
CEO at Mitek Systems

I mean, I'm going to get into what exactly that would be in terms of size. I would say, we feel like that is a key platform for growth opportunity because it's about fraud and financial institutions have an increasing amount of fraud. We bring in a particular credibility and capability because of our history with check fraud, but that's the beginning of fraud that they're exposed with and it allows us to bring in and look at potentially over time other signals. So we feel like it offers a lot more for Mitek for the future and to be as part of the future of the business where over time you just see the starts with checks or it evolves into other forms going forward in addition to all the verification, authentication, orchestration capabilities and other digital fraud.

Surinder Thind
Surinder Thind
Equity Research Analyst at Jefferies Financial Group

Thank you. Thank

Operator

you. The next question is from George Sutton with Craig Hallum. Please go ahead.

Logan Lillehaug
Associate Analyst at Craig-Hallum

Hey, good afternoon guys. This is Logan on for George. I want to follow-up. You guys gave some helpful commentary on kind of the My VIP cohorts and how those have trended over time. And as we think about that $80,000,000 to $85,000,000 range where the ID segment becomes margin accretive, I mean, how much of that growth could come through kind of just organic growth with cross sell and expanding transactions with those existing customers versus kind of the need for new customers? How would you frame that, I guess?

Edward West
Edward West
CEO at Mitek Systems

I mean, we like all new business, whether it's continued expanding growth with existing, as you can see from some of the numbers that threw out there, how that has expanded. I think it will be a combination of all the above. We'll know in hindsight what exactly it was, but all we care about is getting there and driving and the organization and continue to grow our relationships with our customers and having to see them wanting to use more and more value and bring in new customers to the platform. So there's really no magic target. We'd rather continue to expand and do new.

David Lyle
David Lyle
Chief Financial Officer at Mitek Systems

Yes. I think just to add on to that, a little color on to that, I think the opportunity for expand, expansion revenue is actually pretty large and we're pretty excited about it. In fact, a lot of the revenue growth we're expecting even this year in 2025 is through the expansion opportunities.

Logan Lillehaug
Associate Analyst at Craig-Hallum

Got it. That's helpful. That is all for me. I appreciate it guys.

Operator

This concludes our question and answer session. I would like to turn the conference back over to Ed West for any closing remarks.

Edward West
Edward West
CEO at Mitek Systems

I just want to say thank you. We appreciate the support and interest as we mentioned in the last quarter. And this time, we'll continue to report back on the progress as we position the company for the durable profitable growth going forward in 'twenty six and beyond. So have a great day. Thank you.

Operator

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

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