Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
MITK > SEC Filings for MITK > Form 10-K on 12-Dec-2013All Recent SEC Filings

Show all filings for MITEK SYSTEMS INC | Request a Trial to NEW EDGAR Online Pro

Form 10-K for MITEK SYSTEMS INC


12-Dec-2013

Annual Report


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

You should read this discussion together with the financial statements, related notes and other financial information included in this Form 10-K. The following discussion may contain predictions, estimates and other forward-looking statements that involve a number of risks and uncertainties, including those discussed under Item 1A-"Risk Factors" and elsewhere in this Form 10-K. These risks could cause our actual results to differ materially from any future performance suggested below. Please see "Important Note About Forward-Looking Statements" at the beginning of this Form 10-K.

Overview

Mitek Systems, Inc. is a mobile solutions provider engaged in the development, sale and service of its proprietary software solutions related to mobile imaging.

We apply our patented technology in image capture, correction and intelligent data extraction in the mobile financial and business applications markets. Our technology allows users to remotely deposit checks, pay bills, transfer credit card balances, open accounts and get insurance quotes by taking pictures of various documents with their camera-equipped smartphones and tablets instead of using the device keyboard. Our products use advanced algorithms to correct image distortion, extract relevant data, route images to their desired location and process transactions through users' financial institutions. As of November 21, 2013, we have been granted 18 patents and have an additional 21 patent applications pending.

Our Mobile Deposit® product is software that allows users to remotely deposit a check using their camera-equipped smartphone or tablet. As of September 30, 2013, 1,420 financial institutions have signed agreements to deploy Mobile Deposit®, and 805 of these financial institutions have deployed Mobile Deposit® to their customers, including all of the top ten U.S. retail banks and more than two-thirds of the top 50 U.S. retail banks and payment processing companies, as ranked by SNL Financial for the second quarter of calendar 2013. Other mobile imaging software solutions we offer include Mobile Photo Bill Pay®, a mobile bill payment product that allows users to pay their bills using their camera-equipped smartphone or tablet, Mobile Balance Transfer™, a product that allows credit card issuers to provide an offer to users and transfer an existing credit card balance by capturing an image of the user's current credit card statement, Mobile Photo Account Opening™, a product that enables users to open a checking, savings or credit card account by capturing an image of the front and back of their driver's license with their camera-equipped smartphone or tablet, and Mobile Photo Quoting™, a product that enables users to receive insurance quotes by using their camera-equipped smartphone or tablet to take a picture of their driver's license and insurance card. Our mobile imaging software solutions can be accessed by smartphones and tablets using iOS and Android operating systems.

We market and sell our mobile imaging software solutions through channel partners or directly to enterprise customers that typically purchase licenses based on the number of transactions or subscribers that use our mobile software. Our mobile imaging software solutions are often embedded in other mobile banking or enterprise applications developed by banks, insurance companies or their partners, and marketed under their own proprietary brands.

Market Opportunities, Challenges and Risks

The increase in the acceptance of mobile banking by financial institutions and their customers has helped drive our recent growth in revenue. In the past year, we experienced a significant increase in the number of financial institutions that have integrated and launched our mobile applications, particularly our Mobile Deposit® product, as part of their offering of mobile banking choices for their customers. We believe that financial institutions see our patented solutions as a way to provide an enhanced customer experience in mobile banking.


Table of Contents

To sustain our growth in 2014 and beyond, we believe we must continue to offer imaging technology for mobile applications that address a growing market for mobile banking and mobile imaging solutions sold into other vertical markets. Factors adversely affecting the pricing of or demand for our mobile applications, such as competition from other products or technologies, any decline in the demand for mobile applications, or negative publicity or obsolescence of the software environments in which our products operate, could result in lower revenues or gross margins. Further, because most of our revenues are from a single type of technology, our product concentration may make us especially vulnerable to market demand and competition from other technologies, which could reduce our revenues.

The implementation cycles for our software and services by our channel partners and customers can be lengthy, often a minimum of three to six months and sometimes longer for larger customers, and require significant investments. For example, as of September 30, 2013, we executed agreements indirectly through channel partners or directly with customers covering 1,420 Mobile Deposit® customers, 805 of whom have completed implementation and launched Mobile Deposit® to their customers. If implementation of our products by our channel partners and customers is delayed or otherwise not completed, our business, financial condition and results of operations may be adversely affected.

We derive revenue predominately from the sale of licenses to use the products covered by our patented technologies, such as our Mobile Deposit® product, and to a lesser extent by providing maintenance and professional services for the products we offer. The revenue we derive from the sale of such licenses is primarily derived from the sale to our channel partners of licenses to sell the applications we offer. Revenues related to most of our licenses for mobile products are required to be recognized up front upon satisfaction of all applicable revenue recognition criteria. The recognition of future revenues from these licenses is dependent upon a number of factors, including, but not limited to, the term of our license agreements, the timing of implementation of our products by our channel partners and customers and the timing of any re-orders of additional licenses and/or license renewals by our channel partners and customers.

During each of the last few years, sales of licenses to one or more channel partners have comprised a significant part of our revenue each year. This is attributable to the timing of renewals or purchases a license and does not represent a dependence on any channel partner. If we were to lose a channel partner relationship, we do not believe such a loss would adversely affect our operations because either we or another channel partner could sell our products to the end-user that purchased products from the channel partner we lost. However, in that case, we or another channel partner must establish a relationship with the end-users, which could take time to develop, if it develops at all.

We have numerous competitors in the mobile payments industry, many of which have greater financial, technical, marketing and other resources than we do. However, we believe our patented imaging and analytics technology, our growing portfolio of products for the financial services industry and our position as a pure play mobile payments company provides us with a competitive advantage. To remain competitive, we must be able to continue to offer products that are attractive to the ultimate end-user and that are secure, accurate and convenient. We intend to continue to further strengthen our portfolio of products through research and development to help us remain competitive. We may have difficulty adapting to changing market conditions and developing enhancements to our software applications on a timely basis in order to maintain our competitive advantage. Our continued growth will ultimately depend upon our ability to develop additional applications and attract strategic alliances to sell such technologies.


Table of Contents

Results of Operations

Comparison of the Year Ended September 30, 2013 and 2012

The following table summarizes certain aspects of our results of operations for
the year ended September 30, 2013 compared to the year ended September 30, 2012
(in thousands, except percentages):



                                             2013            2012            Change $          Change %
Revenue
Software                                   $ 10,716         $ 6,387         $    4,329                68 %
Maintenance and professional services         4,087           2,706              1,381                51 %

Total revenue                              $ 14,803         $ 9,093         $    5,710                63 %

Cost of revenue                            $  1,604         $ 1,264         $      340                27 %
% of revenue                                     11 %            14 %

Selling and marketing                      $  5,852         $ 3,450         $    2,402                70 %
% of revenue                                     40 %            38 %

Research and development                   $  6,793         $ 6,664         $      129                 2 %
% of revenue                                     46 %            73 %

General and administrative                 $  7,853         $ 5,596         $    2,257                40 %
% of revenue                                     53 %            62 %

Other income (expense), net                $     25         $    37         $      (12 )             (32 %)
% of revenue                                      0 %             0 %

Revenue

Total revenue increased $5,710,502, or 63%, to $14,803,185 in 2013 compared to $9,092,683 in 2012. The increase was primarily due to an increase in sales of software licenses of $4,330,144, or 68%, to $10,716,505 in 2013 compared to $6,386,361 in 2012. The increase in software license revenue primarily relates to increases in sales of our Mobile Deposit® product due to an increase in the number of large software licenses purchased by partners and customers and the timing of license renewals in 2013 compared to 2012. Maintenance and professional services revenue increased $1,380,358, or 51%, to $4,086,680 in 2013 compared to $2,706,322 in 2012 primarily due to the sale of additional software license arrangements, which typically include recurring maintenance contracts.

Cost of Revenue

Cost of revenue includes the costs of royalties for third party products embedded in our products, the cost of reproduction of compact discs and other media devices and shipping costs, and personnel costs related to software support and billable professional services engagements. Cost of revenue increased $339,679, or 27%, to $1,603,599 in 2013 compared to $1,263,920 in 2012. The increase in cost of revenue is primarily due to the increase in revenue and increased professional services activity on billable engagements. As a percentage of revenue, cost of revenue decreased to 11% in 2013 compared to 14% in 2012 primarily due to a larger mix of higher margin mobile products.

Selling and Marketing Expenses

Selling and marketing expenses include payroll, employee benefits and other headcount-related costs associated with sales and marketing personnel, non-billable time for professional services personnel and advertising, promotions, trade shows, seminars and other programs. Selling and marketing expenses increased


Table of Contents

$2,402,394, or 70%, to $5,852,448 in 2013 compared to $3,450,054 in 2012. As a percentage of revenue, selling and marketing expenses increased to 40% in 2013 compared to 38% in 2012. The increase is primarily due to increased personnel-related costs, including stock-based and other incentive compensation expense and recruiting costs, totaling $2,026,832 related to an increase in headcount associated with the growth of our business, as well as increased travel expenses of $199,085 and depreciation of $69,349.

Research and Development Expenses

Research and development expenses include payroll, employee benefits, consultant expenses and other headcount-related costs associated with software engineering, mobile imaging science, and product management and support. These costs are incurred to develop new software products and to maintain and enhance existing products. We retain what we believe to be sufficient staff to sustain our existing product lines and develop new, feature-rich products. We also employ research personnel, whose efforts are instrumental in ensuring product development from current technologies to anticipated future generations of products within our markets.

Research and development expenses increased $129,382, or 2%, to $6,793,412 in 2013 compared to $6,664,030 in 2012. The increase is primarily due to higher personnel-related costs, including stock-based and other incentive compensation expense and recruiting costs, totaling $378,201 related to an increase in headcount associated with the growth of our business, partially offset by a decrease in outside contract services of $278,350. As a percentage of revenue, research and development expenses decreased to 46% in 2013, compared to 73% in 2012, primarily due to the increase in revenue.

General and Administrative Expenses

General and administrative expenses include payroll, employee benefits, and other headcount-related costs associated with finance, administration and information technology, as well as legal, accounting, and other administrative fees. General and administrative expenses increased $2,257,421, or 40%, to $7,853,264 in 2013 compared to $5,595,843 in 2012. The increase is primarily due to an increase in legal fees of $1,711,461 related to intellectual property litigation and patent prosecution activity, as well as increased personnel-related costs of $562,702, including stock-based and other incentive compensation expenses related to an increase in headcount associated with the growth of our business. As a percentage of revenue, general and administrative expenses decreased to 53% in 2013 compared to 62% in 2012, primarily due to the increase in revenue.

Other Income (Expense), Net

Interest and other expense, net was $6,862 in 2013 compared to $7,224 in 2012, a decrease of $362, or 5%, primarily related to capital lease interest. Interest income was $31,770 in 2013 compared to $44,384 in 2012, a decrease of $12,614, or 28%, due to lower cash balances prior to the Offering and a decrease in investment returns during 2013.


Table of Contents

Results of Operations

Comparison of the Year Ended September 30, 2012 and 2011

The following table summarizes certain aspects of our results of operations for
the year ended September 30, 2012 compared to the year ended September 30, 2011
(in thousands, except percentages):



                                            2012             2011            Change $           Change %
Revenue
Software                                   $ 6,387         $  8,123          $  (1,736 )              (21 %)
Maintenance and professional services        2,706            2,143                563                 26 %

Total revenue                              $ 9,093         $ 10,266          $  (1,173 )              (11 %)

Cost of revenue                            $ 1,264         $  1,172          $      92                  8 %
% of revenue                                    14 %             11 %

Selling and marketing                      $ 3,450         $  2,411          $   1,039                 43 %
% of revenue                                    38 %             23 %

Research and development                   $ 6,664         $  2,996          $   3,668                122 %
% of revenue                                    73 %             29 %

General and administrative                 $ 5,596         $  3,431          $   2,165                 63 %
% of revenue                                    62 %             33 %

Other income (expense), net                $    37         $   (379 )        $     416               (110 %)
% of revenue                                     0 %             (4 %)

Revenue

Total revenue decreased $1,173,292, or 11%, to $9,092,683 in 2012 compared to $10,265,975 in 2011. The decrease was primarily due to a decrease in sales of software licenses of $1,736,383, or 21%, to $6,386,361 in 2012 compared to $8,122,744 in 2011. The decrease in software license revenue primarily relates to decreases in sales of our Mobile Deposit® products due to fewer large software licenses by partners and customers in 2012, compared to 2011. Maintenance and professional services revenue increased $563,091, or 26%, to $2,706,322 in 2012 compared to $2,143,231 in 2011 primarily due to an increase in recurring maintenance contracts, as well as additional software product sales during 2012.

Cost of Revenue

Cost of revenue increased $92,186, or 8%, to $1,263,920 in 2012 compared to $1,171,734 in 2011. As a percentage of revenue, cost of revenue increased to 14% in 2012 compared to 11% in 2011 primarily due to a smaller mix of higher margin mobile products. The increase is primarily due to an increase in personnel costs related to software support due to additional headcount and increased professional services activity on billable engagements.

Selling and Marketing Expenses

Selling and marketing expenses increased $1,039,343, or 43%, to $3,450,054 in 2012 compared to $2,410,711 in 2011. As a percentage of revenue, selling and marketing expenses increased to 38% in 2012 compared to 23% in 2011. The increase is primarily due to increased personnel-related costs, including stock-based and other incentive compensation expense, totaling $482,024 related to an increase in headcount associated with the growth of our business, as well as increased marketing program expenses totaling $411,109.


Table of Contents

Research and Development Expenses

Research and development expenses increased $3,667,921, or 122%, to $6,664,030 in 2012 compared to $2,996,109 in 2011. As a percentage of revenue, research and development expenses increased to 73% in 2012 compared to 29% in 2011.The increase is primarily due to higher personnel-related costs, including stock-based and other incentive compensation expense, totaling $2,671,638 related to an increase in headcount associated with the growth of our business, as well as an increase in outside contract services of $961,020.

General and Administrative Expenses

General and administrative expenses increased $2,164,820, or 63%, to $5,595,843 in 2012 compared to $3,431,023 in 2011. As a percentage of revenue, general and administrative expenses increased to 62% in 2012 compared to 33% in 2011. The increase is primarily due to increased personnel-related costs, including stock-based and other incentive compensation expenses, totaling $1,254,414 related to an increase in headcount associated with the growth of our business, and an increase in legal fees of $747,133 related to intellectual property litigation and patent prosecution activity.

Other Income (Expense), Net

Interest and other expense, net was $7,224 in 2012 compared to $389,494 in 2011, a decrease of $382,270, or 98%. During 2011, we incurred expenses associated with the accretion of the discount on our convertible debentures and accrued interest on the principal amount of those convertible debentures, including the remaining unamortized discount of $319,836 related to the beneficial conversion feature at the time of the conversion of the debentures. These expenses did not recur in 2012. Interest income was $44,384 in 2012 compared to $10,531 in 2011, an increase of $33,853 due to higher cash balances and related investment returns during 2012.

Liquidity and Capital Resources

On September 30, 2013, we had $29,025,328 in cash and cash equivalents and investments compared to $14,607,317 on September 30, 2012, an increase of $14,418,011, or 99%. The increase in cash and cash equivalents and investments was primarily due to an increase in cash provided by investing and financing activities. During June 2013, we sold 2,857,142 shares of our common stock at a price of $5.25 per share in the Offering and received $13,877,447 in net proceeds, after deducting underwriting discounts and commissions and other offering expenses of $1,122,549. Under the terms of the underwriting agreement for the Offering, we granted the underwriter a 30-day option to purchase an additional 428,571 shares of our common stock to cover overallotments. The underwriter exercised its overallotment option during June 2013 and the closing of the sale of shares of our common stock pursuant to such option occurred during July 2013, resulting in $2,127,350 in additional net proceeds to us.

Credit Facility

In January 2011, we entered into a loan and security agreement with our primary operating bank (the "Loan Agreement"). The Loan Agreement permitted us to borrow, repay and re-borrow up to $400,000 from time to time until January 31, 2013, subject to the terms and conditions of the Loan Agreement. The Loan Agreement expired on January 31, 2013, at which time there were no borrowings outstanding.

Net Cash Used in Operating Activities

Net cash used in operating activities during fiscal 2013 was $615,061 and resulted primarily from hiring additional personnel and other investments in the business. The net loss was partially offset by increased cash provided by working capital of $2,110,612, and increases in the non-current portion of deferred revenue of $511,125 and other long-term liabilities of $731,457. The primary non-cash adjustments to operating activities


Table of Contents

were stock-based compensation expense, depreciation and amortization, and accretion and amortization on debt securities totaling $2,791,862, $323,383, and $182,162, respectively.

During fiscal 2012, net cash used in operating activities was $1,778,764, which resulted primarily from hiring additional personnel and other investments in the business. The primary non-cash adjustments to operating activities were stock-based compensation expense, accretion and amortization on debt securities, and depreciation and amortization totaling $2,599,858, $261,398 and $231,981, respectively. These changes in cash used in operating activities were partially offset by a decrease in accounts receivable of $1,862,555 associated with decreased sales and the timing of customer billings and receipt of payments and an increase in deferred revenue of $758,855.

Net Cash Provided by Investing Activities

Net cash provided by investing activities was $570,888 during fiscal 2013, which consisted of $6,090,734 related to the sale and maturity of investments, partially offset by investments of $4,058,975, and $1,460,871 related to the purchase and sale of property and equipment.

During fiscal 2012, net cash provided by investing activities was $2,107,767, which consisted of $14,635,005 related to the sale and maturity of investments, partially offset by investments of $12,187,523, and $339,715 related to the purchase of property and equipment.

Net Cash Provided by Financing Activities

Net cash provided by financing activities was $16,636,539 during fiscal 2013, which included net proceeds of $16,004,797 from the Offering and net proceeds of $648,656 from the exercise of stock options, partially offset by principal payments on capital lease obligations of $16,914.

During fiscal 2012, net cash provided by financing activities was $717,371, which included net proceeds of $732,287 from the exercise of stock options partially offset by principal payments on capital lease obligations of $14,916.

Other Liquidity Matters

On September 30, 2013, we had investments of $5,730,872, designated as available-for-sale marketable securities, which consisted of commercial paper and corporate issuances, carried at fair value as determined by quoted market prices for identical or similar assets, with unrealized gains and losses, net of tax, and reported as a separate component of stockholders' equity. All securities whose maturity or sale is expected within one year are classified as "current" on the balance sheet. All other securities are classified as "long-term" on the balance sheet. At September 30, 2013, all of our available-for-sale securities were classified as current. At September 30, 2012, we had $5,819,537 of our available-for-sale securities classified as current and $2,085,690 classified as long-term.

We had working capital of $25,363,197 at September 30, 2013, compared to $11,001,447 at September 30, 2012.

Based on our current operating plan, we believe the current cash balance and cash expected to be generated from operations will be adequate to satisfy our working capital needs for the next 12 months.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements as defined in Item 304(a)(4)(ii) of Regulation S-K.


Table of Contents

Contractual Obligations

The following table summarizes our contractual obligations as of September 30,
2013 (in thousands):



Contractual
obligations by period               Less than                                         More than
as of September 30, 2013              1 year         1-3 years        3-5 years        5 years           Total
Operating lease obligations         $  481,535      $ 1,006,842      $ 1,485,118      $       -       $ 2,973,495
Capital lease obligations               28,715           54,958               -               -            83,673
Purchase obligations                   245,000          675,000               -               -           920,000

Total                               $  755,250      $ 1,736,800      $ 1,485,118      $       -       $ 3,977,168

Critical Accounting Policies

Our financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the U.S. ("GAAP"). Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, stockholders' equity, revenue, expenses and related disclosure of contingent assets and liabilities. Management regularly evaluates its estimates and assumptions. These estimates and assumptions are based on historical experience and on various other factors that are believed to be reasonable under the circumstances, and form the basis for making management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain. Actual results could vary from those estimates under different assumptions or conditions. Our critical accounting policies include revenue recognition, allowance for accounts receivable, investments, fair value of equity instruments, accounting for income taxes and capitalized software development costs.

Revenue Recognition

. . .

  Add MITK to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for MITK - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial      Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.