Good day and welcome to the Mitek Third Quarter Fiscal Year 2016 Financial Results Conference Call. As a reminder, today's call is being recorded. At this time, I would like to turn the conference over to Mr. Todd Kehrli of MKR Group. Please go ahead, sir.

Thank you operator and good morning everyone. And welcome to Mitek’s fiscal 2016 third quarter earnings conference call. With me on today’s call are Mitek’s Chairman, President and CEO, Jim DeBello and CFO, Russ Clark. Before I turn the call over to Jim and Russ, I would like to cover a few quick items. This morning, Mitek issued a press release announcing its fiscal 2016 third quarter financial results. That release is available on the company’s website at www.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 would like 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 plans and expectations of future performance. Forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially. We encourage all of our listeners to review our SEC filings, including our most recent 10-K for a more complete description of these risks. Our statements on this call are made as of today, July 28, 2016 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 for any reason. Additionally, throughout this call, we will be discussing certain non-GAAP financial measures. Today’s earnings release and the related current report on Form 8-K describe the differences between our non-GAAP and GAAP reporting and present the reconciliation between the two for the periods reported in the release. With that, I will now turn the call over to Mitek’s CEO, Jim DeBello.

Hello everyone and thanks for joining us this morning. I am happy to report that total revenue for the third quarter was up 41% year-over-year. Our record revenue and solid profits were driven by growth from both our mobile ID Solutions and our industry leading, mobile check deposit products. New consumer enrollment is the Holy Grail for all enterprises, our mobile ID Solutions help banks and enterprises successfully and meet a regulatory requirement which is a real problem in the mobile channel. With our mobile market momentum, competitive advantages and solid balance sheet, we continued to make significant progress increasing our bookings and backlog and are well positioned for continued growth throughout the remainder of this fiscal year and beyond. Enterprises need our products to effectively address the shift to mobile commerce and we believe we have first mover advantage. With over 70 million users and more than 5,200 enterprises using our mobile capture solution for mobile check deposit, we are leveraging the success to expand the scope of business globally and address the multibillion dollar identity capture and verification market that's being driven increasing demand from consumers for an easy to use mobile self service channel. Mitek has specific technical and market advantages that make us a preferred partner. First, our state-of-the-art computer vision science produces highly accurate results, which we believe are the best in the industry. Secondly, our MiSnap auto capture provides a superb user experience that’s been honed by tens of millions of users. Thirdly, we have developed an unsurpassed mobile browser capture capability. Fourth, we have the unique ability to decode and enhance security feature embedded in the majority of driver’s licenses printed in the U.S. And lastly, our focus as a pure play in mobile capture and industry leadership gives our banking and other…

Thanks Jim. I would like to start by thanking everyone for joining us this morning. Q3 was another strong quarter for Mitek, and I’m pleased to provide some additional details on our results. Let’s start with revenue. As Jim mentioned in Q3 Mitek generated total revenue of $9.1 million, a 41% increase year-over-year. W also achieved non-GAAP net income in Q3 of $2.4 million or $0.07 per diluted share, representing our ninth consecutive quarter of non-GAAP net income. Q3 software revenue of $5.8 million, included 12 mobile deposit reorders and is up 23% compared to revenue of $4.7 million in the year ago quarter. This growth was fuelled by both Mobile Deposit and our ID products. We maintain strong software gross margins at 97% for the quarter. Q3 services revenue of $3.3 million increased 90% over last year's Q3 revenue of $1.8 million due primarily to transactional SaaS revenues for our mobile verify product, as well as growth in maintenance revenue. Our ID products contributed over $1.4 million of SaaS revenue to Q3 and Q3 service gross margins were consistent at 81%. It's important to remember that while we have been very successful in signing new ID customers this fiscal year we continue to see a six to nine month implementation cycle for these larger enterprises. In terms of product contribution to total revenue, as we stated last quarter we continue to expect our mobile deposit and other non-ID image capture products to contribute a revenue percentage with the seven handle on it for this fiscal year. Now let's turn to operating expenses. Total Q3 operating expenses were $8.4 million compared to $6.1 million in the year ago quarter. Q3 selling and marketing expenses were $2.9 million compared to $1.6 million in the year ago quarter and R&D expenses were…

Thank you [Operator Instructions] And we will take our first question from Bhavan Suri with William Blair.

Hi guys this is Sarah Shizas in for Bhavan.

Hey Sarah.

Hi, nice job on the quarter both the top and bottom line. Can you provide some percentage of what total revenue was this quarter? Just looking to get some sense of what your mobile deposit growth rate for this quarter.

Yes, Sarah thanks for question. We did reiterate our guidance for the full-year, in terms of putting a seven handle on the percentage of mobile deposit and other non-IT products. We have been providing specific quarterly guidance. The breakdown can fluctuate from quarter-to-quarter, depending on the mix in the software line of mobile deposit versus ID. I guess, what I will tell you for Q3 as it was a very strong mobile deposit quarter.

Okay. And then any cross-sell activity, particularly from your financial services customers. How many are using both ID and mobile deposit products?

Good question. On our Fortune 500 that we have announce, we have announce two Fortune 500 financial institutions, which are also top five for our ID products and both of those financial institutions are also mobile deposit users and MiSnap users as well.

And Sarah that’s why we consider the beachhead to be so critical to us with financial services. It is tremendous cross-sell opportunities and we are seeing that evidence today.

Okay. So it’s safe to say enjoy of your ID growth is coming from your existing install based?

We actually have announced several Fortune 500 companies, A, I think today year-to-date many of which or the financial services arena, but we are also seeing adjacent market growth incoming call to us that are references from our big financial services partners to our coming from other large industries, who have a similar need. So we are seeing growth laterally, but our primary focus is in financial services.

Yes and Sarah, I would add to that. I wouldn’t characterize, it has most of the growth in ID coming from cross-sell. There are certainly cross-sell opportunity with our base of 5,200 banks on mobile deposit. But as we mentioned before, we have Fortune 500 customers anywhere from private label card issuers to pharmacies, insurances companies, tobacco companies and agricultural companies. So as Jim mentioned, it is a broad slot, horizontally applicable product in this case.

Okay. Thanks that’s helpful. Last one, looking at your mobile sell and mobile verify. Any color on the breakout of each and which one is growing faster?

So we look at to position with mobile sell and which we are primarily calling on digital marketing organizations. And again the use case there in the value proposition is ranking the real faster reducing friction and getting our customers, more new customers faster and generating revenue faster. So it’s a good entrée, it’s about customer acquisition. But as we get into this digital marketing organizations, they all have risk management requirements and the risk departments as well. And it’s very easy to sell over to the risk story, which is mobile verify and go that step further and verify the ID as well. So I would say initially, we recalling more directly on digital marketers and we continue to do that. But we are seeing an increasing percentage of our business go towards mobile verify and ultimately, over the longer term, we believe that mobile verify is a larger market opportunity for us.

Great Good luck on the quarter guys. Thank you.

Thanks.

Thank you.

We’ll take our next question from Darren Aftahi with Roth.

Hey. Good morning also my congratulations as well. Thanks for taking my questions. Give me an update how many sort of full time sales focus you have, focused on mobile ID and derivative that question. Any benefit to accelerating the spend there, is it harder to find the appropriate sales folks? And then I have a couple of follow-ups.

So, if we look at the sales and marketing organization in total, out of the 100 FTEs that we have, that's probably around 40ish people over, we have mentioned prior around the dozen code repairing reps, we continue to add to that, out of that mix as well. So we continue to invest and be focused in that area. In terms of going forward I gave some OpEx guidance excluding some of the non-GAAP add backs for Q4 of 7.25 million to 7.75 million and again that roughly continued investments in sales and marketing as well as R&D.

Great. Two more if I may. So, I know you guys announced the partnership with Avoka for mobile ID. Are there plans in the pipelines to try and get more indirect channel partners for your mobile ID and verification business?

Darren this is Jim and the answer is yes. We believe the channel plays significant role in our growth globally and also into adjacent markets where we don't have the main expertise. So, our focus is on financial services on a direct basis to stimulate market awareness, demand to control the sales cycle and to drive higher ASPs. However to capture the breadth of opportunity we believe strong channel partners like Avoka who are terrific are going to be very-very valuable to us. So we are in the process to expanding our channel distribution for these products as well. Broken down into enterprise customers, that we will manage on a direct basis and all other customers that fit variety of new opportunities to channel partners.

Great and last one from me. Is there a way we can get any sense for in the quarter the number of mobile ID transactions that you guys have consummated, are we in the 100s of 1000s, are we now over a 1 million, several million?

Thanks for the question Darren. We have been getting that question a little more frequently recently. I don't have a number to give you today but we'll take a look at that and go from there.

Darren, it's in the higher end of that spectrum, that's what we can say directionally.

Great. Thanks Jim.

And we'll take our next question from Mike Grondahl with Northland Securities.

Yes guys and congratulations on the 41% revenue growth. My first question is I think you have announced eight Fortune 500 kind of mobile ID customers. How many of those eight are live today and how many do you think we'll be live at year-end - December 31?

Hey Mike, thanks for the question. You are correct. We have now announced eight Fortune 500s. As I look down the list, at least one of those is live in the pharmacy space. And I mentioned on in my earlier comments that these are large enterprises. Our software is not complex in terms of implementation or integration. However, these are large organizations and they have a lot of coordination to do in IT change window. So it still takes them many times, six to nine-months possibly longer to get implemented and we continue to work with the other seven of the eight in implementations and hope to have more news to announce soon.

Got it. Well do you expect a handful more by year-end or it's going to sit into that six to nine month window kind of from when you signed them?

Would you repeat that question Mike?

Sure. So it sounds like one of the eight is live and then will you be able to publicly tell us as others come on or how will we hear that?

Yes, Mike. We will give updates as others make it across the bar and get live as well.

So Mike let me just reflect on that number. We set out at the beginning of the year to say that we will sign at minimum of 10 Fortune 500s. As evidence of the momentum of this market and if we recall not long ago people were questioning our ability to diversify our product line and to be successful in growing a new market as quickly as we have been in mobile deposit and we have proven that we are. But with the acquisition of IDchecker we also inherited the customer's very large payment processers and who are live today. So I don't want you to leave the call thinking there is only one out of eight that are live. There are many customers that are actively using our technology today. Of the net new Fortune 500 companies as Russ mentioned one of which is live today the others will rollout through the remainder of this calendar and we will be announcing that as we go through the quarterly calls.

Perfect and I appreciate the clarification. But, yes it's the eight that we can kind of track that we know are new to guys and what not. So that's kind of the reason for the question. And then, kind of following up on that, is it too early for you guys to have more insight into the pricing for those mobile ID transactions.

Mike I wouldn't say it's too early we get new data points everyday and as we have discussed in the past, the price points that we are seeing on the ID side are significantly higher than what we have seen historically for mobile deposits. And that's because we are either in the customer acquisition flow and helping add new customers and revenue and or addressing a risk check the box. So we are still seeing ASPs that are higher for IDs and deposits.

Good, okay. And then is there any more of an update on the commercial side of the small business check deposit initiative, I know you have signed one of the top five banks. Is there a pipeline there or how is that one progressing than any others in the pipeline.

Yes thanks Mike. It is progressing well we continue to engage with our channel partners and not only financial institutions directly, but also alternate providers, accounts receivable outsourcers as an example on our multi check capture functionality. So we are out in the markets, nothing to announce at this point, but we are actively selling.

Got it. And then one more IDchecker question. When will we see kind of the mobile ID inflect in revenue and how much is kind of in your pipeline right now?

So I guess inflection, we have continued to see the mix throughout 2016 of our revenue increase on the ID side and we expect that to continue in the 2017 over the next several years. So in terms of inflection there is just more and more data points out there from a secular market perspective everyday on identity fraud, identity theft. So the requirements and the need for companies who are dealing with increasing mobile commerce channels to verify ID, it is only increasing and we believe that will help the business and if you go back to some of the TAM figure that Jim throughout mostly estimates out there, so those TAM continuing to grow. So just environmentally, we expect that all to provide tailwinds for the business. As I mentioned, we are actively investing in sales and marketing. As Jim mentioned, we have been growing primarily direct and what we are spending more time on channel relationships as well, because it’s important to have a mix there. So we see all those factors continuing to grow the business. In terms of inflection points, I think again the environmental factors just help that long.

And as a follow-up to that Russ. I guess, this goes back to my - you have announced eight Fortune 500 and only one is live. It seems like, we are getting closer and closer to that inflection. As those go live and then as transaction start. Am I thinking about that building over the next couple of quarters, but dependent on these getting live?

Certainly when, if we just take, start with the Fortune 500. Certainly, as those accounts go live and starts to process transactions, we expect them to generate more revenue and contribute to the revenue mix. I want to amplify comment Jim made earlier, if you think about the mix of our revenue and the guidance I gave there for ID, because the Fortune 500 in bulk are not live yet. That implies and that says that the bulk of our revenues are coming from non-Fortune 500 customers. So we still have some large enterprises live on our ID technology, whether it’s in the cloud or on-premise that are sort of sub-Fortune 500, but still large enterprises. So yes, the Fortune 5s will add incremental revenue and they get live, but there is a larger story there of other customers as well.

Great. That’s helpful. The granularity is always requires to more question. So I appreciate you guys kind of laying that out for us and we will keep marching forward. Thank you.

No problem Mike. Thanks for the questions.

[Operator Instructions] We’ll take our next question from Mark Schappel with Benchmark.

Hi, good evening. Nice job on the quarter or excuse me. Jim started with you, with respect to the mobile best deposit offering. Could you just give us some details around the solution for instance whether it’s out of data yet and whether it’s actively being sold by the channel?

Mark still in developments, we will be announcing some further enriched features as we launch in the fall at RDC Summit and welcome you to join us there in Orlando in September. The product itself works this way, it allows you to take photograph of multiple checks in the one batch, one session and takes the front and the back, we also could append an in-voice or other types of trailing documents. It uses our auto capture capability. It’s terrific a product, it shows extraordinarily well. The market that we are addressing or traditionally smaller businesses, who have lower check volumes, but there are millions of them, 28 million small businesses in the U.S. alone. And we believe the bulk of their payments transactions are still check related. Of the reported 20 billion checks in 2013 by the Federal Reserve, nearly half of them were business related checks. So it is a major market. Today these small businesses are either using a carrier or personally going to the bank branch to deposit or at the ATM or they are using desktop scanners. Small batch scanners for their small check loans, which are sensitive and complicated n and out of layer. We believe that the personal use of Mobile Deposit for retail, influences the accounts payable or receivables manager if they want to use their phone at their desk. It's easier and less costly and it's quicker. So we really like the prospects of this product, but it is still a process of getting to market.

Great, thank you and then building off of an earlier question, with respect to the Fortune 500 reference customers, which you have eight today, when would you expect to see revenue start becoming material for these customers? I mean this is just likely to be a back half of 2017 event?

Yes, Mark, just in the sequence as we mentioned sort of at least six to nine-months implementation cycle and then they all start to process transactions. So you sort of stage them out from there, some organizations will ramp faster than another, so there will be a range in there. But again, if you use six to nine-months to sort of the minimum launching point and start them from announcement date that could give you one metric.

Great. Thank you.

And we'll take our next question from Spencer Bogart with Needham & Company.

Okay guys, I’m wondering if you can give us a sense of kind of the demand around omni-channel product and kind of how many people are starting the enrollment process kind of from their PC versus mobile and kind of whether customers are asking for their capability?

We know from our presentation at Finovate, there was great interest on the product, because the habit is traditional online or desktop sessions that still dominates, but we have seen a shift. So our perspective is from the mobile shift. Whereas two years ago less than 5% of enrollments was done through the mobile channel. Some customers are reporting greater than 30% today, which implies the remainder of either 70% of less going through the desktop channel. So it's still a major part of the online enrollment process using a process. By combining the smartphone we get an accurate image, it's a higher quality image and as a result a better quality verification.

Great and then I'm thinking a little bit about the demonstrated efficacy of kind of fill and verify for the enterprises that you mentioned and I'm wondering if you have kind of any color whether qualitative or quantitative that you can share about kind of how those products have improved their mobile channel?

Yes, since I don’t necessarily have metrics, but what I can tell you leveraging also our Mobile Deposit experience and moving into ID. We clearly saw increases in customer satisfaction in successful images and successful transactions for our customers who have used our MiSnap front-end so as we went from V1 to V2, call it on Mobile Deposit and put MiSnap on the front-end of that. The auto capture experience, the user prompts and a fast accurate capture has gotten a lot of positive reviews from customers that have large financial institutions. So we are taking that experience with MiSnap and user experience and accuracy and completed transactions into our ID products. So, that's really the main thing that we are doing in terms of on the front-end of the user experience helping ensure a good transaction and user experience.

Great. Thanks guys.

And that will conclude today's question-and-answer session. At this time, I would like to turn the call back over to management for any additional or closing remarks.

Thank you operator and thank you everyone for joining us today. Management will be attending the Canaccord Genuity Growth Conference in Boston on Thursday, August 11. So if you plan on attending, please stop by and see our presentation or sign up for one-on-one meeting with management. This concludes our call. Thank you.

And that does conclude today's conference. Thank you for your participation and you may now disconnect.