Mitek Systems, Inc. (MITK) Q2 2012 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Second Quarter 2012 Mitek Systems Earnings Conference Call. My name is Stacy, and I'll be your conference moderator for today. [Operator Instructions] As a reminder, this conference call is being recorded for replay purposes. I would now like to turn the presentation over to Ms. Julie Cunningham, Vice President of Investor Relations. Please proceed.

Thank you. Good afternoon, and thanks, everybody, for joining us for the Mitek Systems Second Quarter Fiscal 2012 Conference Call. Joining me on the call today is James DeBello, President and CEO; and Russ Clark, Chief Financial Officer. The agenda for today's call includes commentary from Jim, followed by a discussion of the financial results from Russ. This afternoon, Mitek issued a news release announcing its second quarter fiscal 2012 financial results, which is available on our website at www.miteksystems.com. This call is being broadcast live over the Internet to all interested parties and the audio of this call will be available on the Investor Relations page of our website and archived there for 30 days. As a reminder, this conference call may contain forward-looking statements that are not historical facts but rather are based on the company's current expectations and beliefs. Mitek's results may differ materially. Please refer to our SEC filings for detailed information. In addition, non-GAAP financial measures will be used during this call. Reconciliations to the most directly comparable GAAP financial measures are included in the earnings release on our website. And now I'd like to turn the call over to Jim Debello.

Well, thanks, Julie. I appreciate everyone joining us on the call today. I'm going to review our second quarter results and discuss our 3 key focus areas in the industry trends that support our future growth. After that, Russ will go over the Q2 financials and we'll answer your questions. Beginning with our second quarter results, we posted revenues of $1.2 million and a non-GAAP net loss of $2.2 million. While we clearly missed the mark this quarter, and this is very disappointing to us, we remain focused on our many near- and longer-term opportunities and believe that our mobile imaging solutions provide the unique advantages to our customers that allow them to engage their next generation of consumers, whose lifestyles are built around their mobile devices. I continue to believe that we're in the right market with the right strategy and at the right time. As evidenced by the exponential growth in camera-enabled smartphones and tablets, we're at a very early stage in large, emerging markets, where consumers are beginning to use the camera as an input device. And despite the results in the last 90 days, I think it's significant and a great achievement that a company of our size has assembled the blue-chip customer roster that we have. These relationships take time and tremendous resources, but they're worth it because they provide the foundation for the future growth and use of our next mobile imaging solutions. Our revenue has fluctuated quarter-to-quarter in the past, reflecting the lumpy nature of our business. There's no mystery, dealing with big customers on their timetables with new consumer habits driven by a mobile lifestyle is formidable. There were a number of moving parts during the second quarter, but the bottom line is that some significant licenses were delayed. Map of the…

Thanks, Jim, and good afternoon, everyone. As I review the numbers, all figures quoted are on a GAAP basis unless specifically noted as non-GAAP. We provide a full reconciliation from GAAP to non-GAAP, along with the earnings release on our website. For the second quarter of fiscal 2012, revenue totaled $1.2 million compared to total revenue of $2.9 million for the year-ago period. Of that total, approximately $612,000 was software and $580,000 was maintenance and professional services. As Jim discussed, the decrease in total revenues was due to fewer licenses signed during the second quarter. Cost of revenue in Q2 was $310,000 and about evenly split between the software and maintenance and PS categories. This compares to $256,000 in the year-ago period. Gross margin for Q2 was 74% compared to 91% in the year ago period. The decrease in gross margin in Q2 was primarily due to the lower volumes of software sales. Total operating expenses were $3.8 million compared to $2.3 million in the year ago period. Now let me break down the expenses by category. Selling and marketing expenses were $721,000 in Q2 compared to $565,000 in the year ago period. R&D expenses were $1.7 million in Q2, compared to $643,000 in the year ago period. The year-over-year increase in R&D expenses reflects our continued investment in developing innovative new products and making in roads into new market segments. G&A expenses were $1.3 million in Q2 compared to $834,000 in the year ago period. Our headcount at the end of Q2 was 49 compared to 24 a year ago. Our hiring has been primarily focused in the R&D area. GAAP net loss was $2.8 million or $0.11 per share in the second quarter. This compares to a net income of $570,000 or $0.02 per share in the year ago period. Non-GAAP net loss was $2.2 million or $0.09 per share compared to a net income of $865,000 or $0.04 per share in the year ago period. Non-GAAP net income excludes stock-based compensation expense and noncash interest and amortization expense related to convertible debt. Stock-based compensation expense in Q2 was $651,000 compared to $296,000 in the year ago period. Our share count for Q2 was $25 million basic and fully diluted shares. Turning now to the balance sheet. As of March 31, 2012, we had cash, cash equivalents and investments of $17.4 million compared to $16.3 million at September 30, 2011. Accounts receivable was $1.5 million as of the end of Q2, versus $3 million at September 30, 2011. That concludes our prepared remarks. Operator, please open the line for questions.

[Operator Instructions] Your first question comes from the line of Bhavan Suri with William Blair.

So I guess just to start off, can you give us just a little color on what exactly transpired because looking at the numbers, it looks like there was almost no imaging revenue in the quarter at all. But we added banks, we expanded -- we had Vantiv out there. There are a number of various pieces that fell into place in the quarter outside of sort of Citi rolling out, ING over the last 60 days, things like that. And it feels like if I look at sort of the legacy business and I look at -- and I take out maintenance, I've got very little sort of imaging revenue. So just a little more detail in what's going on and what exactly has transpired.

Sure, Bhavan. Let me answer that question. Our business has been -- it's going to continue to be lumpy by nature. This is an emerging market. These are new customers who are beginning to launch these products to their consumers who have then had to download and begin consuming. And so as a result, it takes time. We can't predict exactly when deals will be signed. Our forecasts are based on detailed bottom-up approach. But that's the best we can do as timing moves from one quarter to the next or 1 week to the next. The lightest, the -- one of the deals that we were working on last quarter has come close to conclusion already in this quarter, but that is truly unpredictable. One thing that is constant, though, is that we believe that the market for our products is expanding and that is going to take time.

So just to back it for a second. You obviously added banks, and the bulk of those I assume came through the partners. You've discussed previously the partners will typically buy a block of licenses and then distribute those across banks and then -- they add banks, they buy a little more, et cetera. I guess, I'm trying to figure out did that occur all in the quarter, because that's an agreement that's ongoing sort of, that's not a new contract or anything.

Yes. One of those partners increased their usage of deposits transactions by 38% in the last 90 days. That's a very telling statistic, as more and more users are beginning to consume Mobile Deposit from their banks. These services are offered to banks in 1 of 2 ways, either through an ASP or separately when we license the technology that's installed behind the firewall. That takes longer, as you know, because of the integration progress. And typically those are larger banks who do it that way. The smaller banks who sign up for the ASP are able to get to market more readily, in a private-labeled version of Mobile Deposit and typically integrated with their mobile banking solution. But because of that, those 2 motions to market, there is a timing effect. And that's what we're responding to right now, is that we can provide excellent technology and we have license to these partners who have deployed themselves and then they have to sell to banks who then have to integrate and deploy it to their consumers. It's a multistep product -- process which takes time, and that's what we're experiencing now, lots of customer wins, lots of new launches and consumption just beginning to ramp up, which would cause more and more reorders.

Yes, and I mean -- I guess I don't want to harp on this too much, but I guess we see lots of ramps and wins and new orders, and you've heard this from investors before, sort of the frustration we're not seeing in the revenue line. The decline is I guess is a little surprising given the other metrics. I mean, it's very surprising given the other metrics.

We're disappointed with it like you are, no question. And we continue to work very hard. What encourages me is that this market is expanding. You know the numbers with smartphone sales, devices like tablets that are penetrating the market. This is all the foundation for us. We look at these new customers, both large and small, as foundation for our future products because once we deploy Mobile Deposit, we think it opens up opportunities to shorten the sales cycle and sell our subsequent products to those very same customers.

Right, right. Just changing the question a little bit. Have you seen any pricing pressure from any of the customers as they come back and talk to you about what's going on with the potential lawsuit or any of that sort of stuff? Have you seen customers sort of saying we are paying X and questioning sort of that pricing per check ASP, so to speak?

It's a good question, Bhavan, because I've been in the technology industry a long time and there is always pricing pressure. But we're currently not seeing anything out of the ordinary. And we are making every effort to sustain our pricing. One way to do that, obviously, is to increase the value in the products that we're offering. But nonetheless, that's a constant. In the technology industry, always downward pricing pressure and we think we're doing a good job in maintaining our value and our price points in the marketplace.

And then, Jim, as you think about that and you think about sort of the market opportunities and the speed at which you're seeing the growth and if I ask you to step back and say, look at this versus 40 days ago, do you change your mind on the rate of adoption here at all? Do you change your mind sort of the rate at which the consumers are adopting the technology for the customers that have deployed mobile check deposit?

Bhavan, it's completely unpredictable. What we have seen is that the customers who put wood behind the ball with national advertising or even local advertising are the customers who are getting faster adoption. Consumers are downloading more quickly and using the product more frequently. It really depends on the institutions, marketing appetite and budgets and how creative they can be to engage their consumers. That's one element we can't support. We're a small company. We are an expert in the domain of mobile imaging. We do provide an excellent consumer experience, but it really is up to the banks, the insurance companies and to the brokerages to market to their customers.

Your next question comes from the line of Tom McCrohan with Janney.

I guess a couple of questions. One, you've telegraphed repeatedly to me and investors that there was a risk of a lumpy quarter, based on the current revenue model and the lumpiness of the revenues. But I'm just curious, I've always thought about it as kind of a single-quarter event throughout the year and we've never really asked you that. So is this -- can we look at this quarter as the one bad lumpy quarter for 2012 or is the visibility that difficult to provide any assurances that revenues will otherwise not return to levels that we've seen in the last few quarters?

Tom, it's Russ. As you mentioned, we are subject to lumpiness in the model. We have had some signings with larger customers as well as smaller ones through ASP models, as Jim mentioned. So I wish I could tell you that the lumpiness is behind us, but we will still be subject to lumpiness going forward. That's just the nature of the model that we're going to market with in dealing with large customers and their time schedules.

Tom, let me [indiscernible] on that. I don't believe this is a trend. We remain confident with what we're doing and we get a lot of positive feedback from our customers, the banks and our channel partners who are seeing demand for the product. It is going to take time and we've been consistent and you're right and I thank you for mentioning that.

Okay. And I'm just trying to -- and I think other people are trying to distinguish between -- given the lumpiness this quarter, the timing of impact that we all are appreciating that there's a lag between the adoption and when you actually see the channel come back to kind of re-up on capacity. That is something, I think, people could get comfortable with. But the other part that I think is concerning in light of the USAA disagreement is that the lumpiness is due to delayed decision-making process by new customers. And we know based on the steps you talked to -- if you don't see the ads that those use an analogy. Those are already pregnant on Mitek is still moving forward with adoption in supporting the product, putting wood behind the ball, as you speak. But given the lumpiness this quarter, can you give any assurances that the current situation with USAA is not delaying new contracts with new perspective big institutions, a new -- truly new customers. Any assurance there I think will be helpful.

Tom, let me address that. The customers we have spoken to have been extremely supportive of Mitek in light of this lawsuit, which we don't think has merit, but nonetheless they've not indicated that they would delay launches due to this lawsuit. So that's the information we have.

Did you sign any new customers since this disagreement was made public?

Tom, I don't really think we can address it on a call yet until we announced our results from this quarter.

Okay. And I guess the only other thing I have was, is there any -- are there any restrictions in the last few months that had prohibited anyone from management from buying stock and then to sell off?

We have windows that are opened and closed. We have been in a closed window environment and therefore we have not purchased any stock.

Your next question comes from the line of Mike Grondahl with Piper Jaffray.

A couple here and they're all kind of short. But you mentioned that there were a significant number of licenses delayed in the quarter? Can you tell us how many, specifically? And, two, you mentioned that there was one agreement that was delayed that you're close to signing and one large reorder that you're close to signing. Can you give us a sense for the revenue dollars, even a range or something so we can get a feel for what revenue is associated with each of those that are close to being signed? And then lastly, was there any reorder revenue in the March quarter?

All good questions. Let me address them as I best can. You have to understand, and I think you do, as a small company, we are dependent on a few large orders from very large channel partners, who then resell to customers. These are banks, brokerages or insurance companies or other types of institutions. As a result, there's a level of unpredictability. I think we've covered that fairly closely. So there were a few large deals that didn't get done during the quarter that we were working very hard on up until the very end. I can't identify or quantify those for you, and that's something we do commonly as we maintain the confidentiality of that information in those relationships. And we do hope to get those signed this quarter. I did mention the one, and that was a deal that was worked on to the very last hour of the quarter that we thought we might have a shot at closing, it didn't. The continuation of discussions occurred over the past several weeks, and we reached at least an agreement in principle subject to final contract signing on that deal that was initiated last quarter. That I think that reflects the nature of our business. The fact that we are a vendor of a very unique and transformative technology, but we're working with some very big partners who have processes, systems, their own forecasts and timing. We can't control that. I'd love to be able to think that we can but reality is we try to work as collaboratively as possible to reach a conclusion within the 90-day period. That didn't happen on that deal and a few other of material impact that we're still continuing to work on during this quarter. So I hope that answers your question. That really is the nature of the beast as we continue to pursue our growth business.

Okay. Well, let me just ask, so you can't give us a sense of the revenue associated with that deal or the reorder? If you can, that would be helpful. And then lastly, I will just ask again, was there any reorders in the March quarter?

Let me tell you also as a matter of fact for everyone on the call, this is why we don't provide guidance. We are small by nature in a growth market that's emerging and it really is reflecting a change of consumer habits, how they use their mobile connective devices. I hope I addressed that in my prepared remarks, but that really is the fact. And so that's why we don't provide guidance, because it is new and emerging, very large but unpredictable.

Your next question comes from the line of David Scharf with JMP Securities.

A couple of things. Jim, I appreciate the forecasting challenges. But I'm just curious, can you tell us when you're getting intra-quarter updates from channel partners and specifically a bank processor who is obviously implementing across a broad spectrum of end clients, I believe they're contractually obligated to give you monthly data. Do they provide just an aggregate number of transactions, for example? Or are you actually getting more granular data at the bank level, i.e. does that processor tell you, we've just used FX number of transactions so far this month or are they actually telling you across how many banks and what the concentration is?

David, we don't get monthly information. We get quarterly information. And that information we use to kind of quarterly with pronouncements about the number of newly signed agreements that were conducted by our partners with their bank customers. One of the ways Mitek envisioned to grow as a small 50-person company was to leverage the relationships and the breadth of coverage that these large integrators have with banks. As you know, there are over 10,000 financial institutions in the U.S. We're currently signed through our partners with 8 out of the top 8 and 25 of the top 40. That number continues to grow and we have 315 that we just announced today, customers who have signed agreements. This information comes to us from our channel partners at the end of the quarter and it is as process driven as possible with the understanding that it trickles in, okay? Because they have many operations. And for them to collect their data and then convey it, takes some time. And that's the process that we go through for the 4 to 6 weeks that we use after the quarter to prepare our quarterly results. So that's how we get that. In addition to that, we try to secure information about transaction usage. And in many cases, our partners are getting better with regard to how they collect that data and how it's shared with us. So we are seeing a view collectively on usage of transactions, and it is increasing, universally, if you put everyone in a bucket and look at the month-to-month growth. And I think I did mention earlier with regard to that one large processor in the last 90 days, they experienced a 38% growth in transactions processed through their ASP. So all that's encouraging. And that's how we calculate usage and that's how we calculate number of banks signed.

Got you. And I guess this is more an Investor Relations-focused question. But there seem to be a lot of efforts to understand how much of the revenue in a particular quarter came from reorders. And it seems to be answering that question is distinct from all the issues regarding forecasting and visibility. Is there a reason we can't get more granularity into the mix between first time licenses and reorders of inventory blocks?

Yes, David, it's Russ. I mean, to date, again, if you look at where we're at in the process and the life cycle of Mobile Deposit, we've announced the metrics here in terms of new signings and go lives. The go lives lag by a couple hundred here, the new signings. So again, as we say, we're in the early innings here. The bulk of our revenue generated to date has been from new orders. We have had a few reorders along the way. But again, early stages, initial transactions for new banks, new ASP offerings at that level and again bulk of the revenue from initial orders.

Okay. Got you. And then lastly, last question because clearly you're trying to get your footing on engaging adoption rates and a lot of revenue seems to be front-end loaded, obviously what we're learning. I'm curious, the size of the licenses that you're in negotiations now with partners, has there been a -- has the change in the, call it, the size of the inventory block? Are you finding that new partners are looking for initial purchases of smaller blocks per se? Or is it just very, very customer-dependent?

Our pricing is based on volume. And therefore the larger the blocks, a better price can be obtained. And so many of our partners are considering larger blocks. However, we have to consider that there are large banks, regional banks and small banks. And so the variety of sizes of institution really dictates what size of block they want to consume or sign up for initially. So we're not seeing any trends necessarily, other than some of our larger financial institution integrators who are having success marketing the product, either separately within their item processing group or as a combined element of their mobile banking offering, are seeing greater opportunity and therefore are considering larger blocks. But there really isn't a trend right now, David. I think this is one of the challenges that we face in communicating to you and others, is that we don't have enough data points to effectively give you trending at this point. It's getting better. We're having more customers go live, as we've indicated. But we still need to have more experience and greater consumption. That is growing and that will grow over time. And as we get more mature in the product, we'll be able to convey better metrics. So I appreciate your patience on that but we really are trying to do our best to communicate to you and the market the conditions of the market as we see them.

Your next question comes from the line of Mayank Tandon with Needham & Company.

Jim, just to get sense of pricing trends. Could you give us a sense of what the pricing is going to look like on this reorder that you mentioned this quarter? And also the deal that got pushed out and will likely be signed this quarter, maybe a sense of where that pricing is going to come out?

Mayank, as a matter of practice, we really don't get into the details of any one deal, particularly as it relates to a bank or to our system integrators. Clearly for competitive reasons, it wouldn't be wise for us to do that. But I have always stated that historically, what we've tried to do is target a range based on all of the deals that come in and then we average them out. And historically, that range has been in and around $0.10 a transaction. Some are higher and some are lower. That will probably change as more and more volume occurs. But then again, we're going to be adding more value to the platform, addressing different markets. And so therefore we're going to continue to sustain that range but there can be no assurances.

Okay, fair enough. And then most of my questions have been answered. But I just wanted to get a little color on competition, given that some of the events from late March, early April, some of your competitors have been making some noise, I just wanted to get some color from you in terms of what does the environment look like, especially since some of those events took place.

Sure. We always expect to see competition entering our market. I've been very open about that. A great market will attract competition and it's a sign of a healthy growing market. We have heard about other competitors, but I truly have not seen them competitively and neither have our partners and we have quarried them or the customers, the major banks, that we have interacted with. So therefore, we expect competition. We haven't seen the competition. We continue to pursue our business by aggressively pursuing new opportunities with new banks and other institutions and to leverage our technology. So that combined -- that's a market share leadership role that is very critical competitively, they have a time-to-market advantage. We're on Version 3.3, by the way, of our Mobile Deposit platform. It's a very robust platform. If you've ever deposited a check through Chase or other banks, or even Schwab, you'll be using Mitek and it's a very pleasant experience. That is a difficult thing to do from a technology perspective and we've done it superbly. I'm very proud of that. So really, our competitive advantage is time-to-market, engaging with key customers, broadly having a channel of distribution that we're collaborating with and lastly, to have strong IP. We do have strong IP. We filed for our patents back in 2008. They began to be issued in 2010 and they are very broadly claimed because we invented the technology and we're first to market with the technology. So for all of those reasons, we think we have very strong barriers to entry and a competitive time-to-market advantage that should sustain us and our growth in the future.

Okay. And one final question. You mentioned the Progressive relationship. So it -- does that mean now that it's going to be nationwide and not confined to the 15 states I think it was as of last quarter? And then do you start to generate revenue off that relationship sometime this year?

Yes, we do think there are future opportunities to engage with Progressive on revenue opportunities. We know that their nation -- that their campaign is nationwide and presume they are launching in other states. But I don't have that detail for you. The product you'll see if you go to YouTube, you can actually download and watch their Progressive commercial with their character Flo in a very comical and engaging advertisement, promoting mobile quotation. She actually gives her drivers license to the fellow there at the store. He snaps a picture of the license, snaps a picture of the vehicle identification number and processes a quotation. But the fun part is that, of course, everyone's embarrassed about their driver's license photo and so is Flo. So it -- in a lighthearted nature, it conveys the message very effectively in 30 seconds.

Okay. And so just to be clear, it's still, in your case, not a revenue driver but ultimately you think that this could lead to some expanded opportunities with Progressive where you can actually start to monetize it. Is that the way to look at it?

Mayank, that's a fair way to look at that. Again, we're a mobile imaging company and our imaging platform enables us to look at documents and extract data, basically using the phone's camera as input device. Okay. So that in mind, corporations and many Fortune 500 companies, not just Progressive, who happens to be very advanced, very forward-thinking in technology. But many Fortune 500 companies are using the mobile the device in new ways to engage their customers. And the camera, as an input device, in place of keystroking in each key like we traditionally have done on a keyboard, using the camera to enter the data is very effective. So we see our domain competencies in certain documents is very critical of that. Clearly we have the competency in checks, in bills and now we've added drivers' licenses and other documents in the future. So because of that capability, there are a variety of use cases that these corporations are looking at that go well and beyond our current use case. In this case, mobile quotation is the first. We think there could be other opportunities with Progressive. And we see the same in other corporations in which we are engaging, multiple uses.

Your final question comes from the line of Bhavan Suri with William Blair.

So just a few follow-ups here. First with Mayank's question on Progressive, I guess my sense was that outside of the check deposits in some of these newer applications, there was a kind of per user fee plus per transaction fee set up. Now, A, is that correct and B, if that's the case, then why wouldn't Progressive be adding to revenue, even if it's immaterial today to help smoothen out some of the lumpiness longer term?

Bhavan, this is Jim. I think you're getting ahead of the story in terms of what we're doing to collaborate with customers who are forward-thinking like Progressive. Progressive has a lot of interesting ideas and they have talent internally with regard to building applications that engage their consumers. And we're part of the collaboration process, offering our mobile imaging to enable that. So the first phase of our arrangement was really to provide a way for them to deploy the technology in this emerging use case. So those models are different, in terms of our business models, from the traditional transaction model. And those will always emerge and be different as we approach different use cases. So I want you to think a little more -- help us think a little more creatively with regard to how we approach the business because when we enter new markets like the insurance vertical, there are different use cases that address, not only the consumer, but potentially the agent, the claims agent, and other areas that we have value. And there may be different business models that can be associated with those use cases that are different than our traditional mobile deposit model. So there will be flexibility going forward. Again, this is an emerging market. It is new for everybody. The customer, the channel and the provider, us. So as we work through it, we're taking our best cases, working and collaborating with the customer to come up with business models that are meaningful to them and meaningful to us.

So I mean, I guess, Jim, just to put that just very clearly, so with Progressive, who has license technology, they have license technology and not paying on any sort of transaction basis?

Bhavan, we really don't talk about the details. But how we like to look at these new types of arrangements, our platform fees plus some level of click fee. So that's the way we like to do it. And often that may require us to recognize revenue in arrears. That is a possibility particularly, and although we're not doing this with Progressive, if we begin to host some of these solutions.

Okay. And then turning to the reorders. Maybe help us understand just a little bit here, let's assume I'm a big systems integrator and I've bought X number of transactions from you at X rate. And I've consumed 85% to 90% of them and my Mitek server tells me you've consumed 85% to 90% and I go back to Mitek for a reorder. The contract that I have, does that simply mean I go and get the reorder done or do you renegotiate that contract each time for each reorder?

Bhavan, It's Russ. In that situation, we generally have pricing grids for our cap partners that will define prices upon reorder. Again, as Jim mentioned, we do have volume pricing scales so higher levels of transactions, we get a better price per.

Sure, sure. And so when a partner goes and resells the bank, you're really not involved in that discussion?

No. Again, we're -- our business relationships for Mobile Deposit have been with the channel partners and their relationship is maybe for a specific larger bank directly with the bank or an ASP offering directly with a series of smaller banks.

But this is one of the issues of an emerging market, is that often we are more knowledgeable about our product than our channel partner is. And as a result, we do assist them often with direct bank discussions in the presales and often in the post sales arena. In the area of smaller financial institutions that are hosted through an ASP, we are less likely to touch that bank.

Yes, yes. I guess that brings me to sort of why the negotiations get pushed out or the reorder discussions get pushed out if it's a grid and it's pretty straightforward, why that ends up being a negotiation or a pushed out. They've used 90% of transactions, they realize they've got 10% left, they come back and they just reorder. To me that seems like a fairly straightforward transaction as opposed to something that's pushed out because, for example, say I'm supporting X number of banks and I run out of transactions, those banks that are my clients won't -- their consumers won't be able to deposit any more checks. So to me, that whole sort of negotiation fees and the pushout seems it doesn't -- just doesn't seem to sort of fit, given that I've already got predefined matrix.

Bhavan, I should append my comments earlier with one more term of our licensing agreements. So we have transaction volume limits in the agreements, number one, but we also have term limits on the licenses as well. So with a certain block of transactions and the term limit, the scenario that you laid out a minute ago would be true under the pricing grid when we're still midstream under the term limit on the agreement. If, however, we're nearing the end of the initial term of the agreement there may be some negotiations.

And I'll add a little bit more to that, Bhavan, with regard to new markets that our current technology can address. Up to this point has been primarily focused on loading a demand deposit account, which we know as a checking account. It submerges the prepaid market where we think the ecosystem is different. It is more complicated but the economics may be better for both the partner and for Mitek potentially. And so that's part of the negotiation as well is to address these new opportunities and to define them, and that does take time.

Ladies and gentlemen, this does conclude the Q&A session. There will be a replay of this conference for the next 31 days at (888) 286-8010 with the access code of 29554555. We thank you for your participation in today's conference. This does conclude your presentation. You may now disconnect, and have a great day.