Good day, and welcome to the Mitek Systems Fourth Quarter and Fiscal 2020 Financial Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Todd Kehrli, MKR Group. Please go ahead, sir.

Thank you, operator, and good afternoon and welcome to Mitek's fourth quarter and full year fiscal 2020 earnings conference call. With me on today's call are Mitek's CEO, Max Carnecchia; and CFO, Jeff Davison. Before I turn the call over to Max and Jeff, I'd like to cover a few quick items. This afternoon, Mitek issued a press release announcing its fourth quarter and full year fiscal 2020 financial results. 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 or future performance. 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, November 5, 2020, and the company undertakes no obligation to revise or publicly update any 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 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 said, I'll now turn the call over to Mitek's CEO, Max.

Thanks, Todd. Good afternoon, everyone, and thank you for joining us today. I hope all of you and your families are staying healthy and safe. We had an incredible fourth quarter, topping off another record year for Mitek. Most significantly, we surpassed $100 million in total revenue. This makes fiscal year 2020, our third consecutive year with record revenues in each and every quarter. In fiscal 2020, we also generated record profitability. This solid financial performance continues to be driven by both our deposits and identities lines of business. For fiscal 2020, we generated record revenue of $101.3 million, representing growth of 20% year-over-year. We also generated record non-GAAP net income of $28.6 million or $0.67 per diluted share, up 66% year-over-year and cash flow from operations of $24.1 million. Reflecting on fiscal 2020 performance, I would like to take a moment to acknowledge the tireless efforts of our global teams who remain committed to our customer success and to delivering on service levels, despite the impact of this global pandemic. In times of adversity values matter and I couldn't be prouder of how my technicians’ contributions have ensured business resilience and customer success. With COVID-19 hitting right in the middle of our fiscal year, we were challenged along with everyone else to adapt quickly to this altered environment. We were able to make the transition seamlessly and we continue to operate at full strength while working from home safely. Considering business performance, the COVID pandemic continues to expand the adoption of new technologies and accelerate digital transformation. Notably for Mitek is the rising usage of digital banking and with it mobile check deposit. Furthermore, digital identity verification technology has emerged as an intrinsic enabler for people to access essential online services when they need the most. Digital identity verification…

Thanks Max, and thank you everyone for joining us this afternoon. Let's start with the Q4 revenue and operating results. For the fourth quarter of fiscal 2020 Mitek generated record revenue of $30.6 million, a 22% increase year-over-year. Software and hardware revenue was $18 million an increase of 25% year-over-year. Services and other revenue, which includes transactional SaaS revenue maintenance and consulting services was $12.7 million for the quarter an increase of 19% over Q4 last year. This increase is due to growth in transactional fast revenue, which increased 28% year-over-year to $8.1 million for the quarter for the quarter. Our Q4 2020 deposits revenue increased 25% to $21.5 million and identity verification revenue increased 17% to $9.1 million. We delivered strong software and hardware gross margins of 94% for the quarter. Gross margin on services and other revenue was 80% for the quarter equal to Q4 last year. Total gross margin for the quarter was 88% up from 87% in Q4 last year. Total GAAP operating expenses, including cost of revenue were $24.6 million compared to $20.5 million in Q4 last year. The increase is due to our investments and operations to grow our business and increase litigation expenses, partially offset by lower acquisition related costs and expenses. In our yearend financial statements, we have reclassified our product management expenses from sales and marketing expense to research and development expenses. This reclassification has made for all periods presented to conform to the current year presentation for comparison purposes. Sales and marketing expenses for the quarter were $7.3 million compared to $5.9 million a year ago. R&D expenses were $6.1 million, compared to $5.1 million last year. And our G&A expenses were $5.9 million compared to $4.1 million a year ago. GAAP net income for the quarter was $5 million…

Thank you. [Operator Instructions] And our first question comes from Bhavan Suri with William Blair. Please go ahead.

Thank you guys. Thank you and congrats. Really nice end to the year there. I guess I wanted to touch a little bit first on the identity verification side. I'm not just – you're seeing this business start to get enough traction and COVID has been a pretty big driver of that, right. So starting from mobile check deposit, but for mobile identity verification, the need to go in and show something for all sorts of things, loans, mortgages, things like that. I'd love to understand sort of as you think about providing some color, we'd love to get some color on how much of that growth do you think has been driven by COVID? And then more importantly the durability and the sustainability of the growth in that business, because it is a nascent market, so it feels like that could accelerate at least sustain. So I'd love to hear how you're thinking about that for the next three to five years in terms of all the drivers behind it.

Yes, it's a great question and thanks for the kind words Bhavan. Yes, I think the starting point there certainly is that entity, not only is a relatively early stage category, I think it's a category that will continue to morph, right, as we've made this analogy to cybersecurity as bad actors kind of find their way through different attack vectors, those get closed and then they go find other attack vectors. I think we'll continue to see that with identity fraud and identity verification. We certainly got the help, it was a mixed bag in the sense that we got the help of COVID that really pushed some really heavy transaction volumes in what would have been our Q3. We also had customers that were hurt by COVID and their volumes went way down, but the puts and the takes, I think at least in Q3 resulted in a net positive for us in that period. And I wouldn't say we're back to kind of what we were at before, there is still tremendous amount of uncertainty, whether it's political uncertainty, economic uncertainty, biological uncertainty. But I do – it's hard to have great visibility over the course of the next, let's call it six to nine months, but the longer term, where you started with your question about what's going to happen in the next two, three, four years. I'm bullish about that, I'm really optimistic about what that's going to mean for Mitek and I think we're positioned really well both with our current offering, but then as I look into our strategy and our roadmap and the things we'll be doing, not just with documents, but we've talked today about NFC and Liveness and face biometric and still feel really good about where we're going to take this. And just because it's market driven, it's customer driven and we've got these great customers that are providing all the insights as to what's working, what's not working and then the ongoing changes of attack vector from the bad actors.

Yes. It’s really helpful. I think just to continue down that vein and I'll jump back in Q after this question, and maybe get to the mobile check deposit stuff later. But it's going to be a big market, it's a big market table, but we all realize that this coupled with sort of this idea of identity management, this futuristic thing that you and I are talking about is going to be a pretty big market. And it feels like there is you guys and there is another scale player out there, that's very focused on KYC and other things and then some smaller players too. How do you view a competitive nature in this market? Are you guys fixed in certain areas and other guys fixed in financial services and KYC type stuff? Are you seeing that develop or do you think it's just kind of right now so early that it's hard to do that? And how is the competitive environment?

Yes, I think it's – any category period end, any market period ends that's big and fast growing and is yet to be solved is a magnet for competition. While it's early days, I don't think we're in the first 10th or – we're about a quarter of the way through here, even some of the stuff you heard from Gartner, the Gartner report that we quoted here. And my experience having spent the better part of two decades in Silicon Valley and watched a lot of categories kind of go through their life cycle. 56 companies get formed and venture or private equity, and then there is a shakeout, right, there is a fight for relevance and a fight for domination and three or four come out the other side as real dominant players and that's our intention. And I think that's well underway. I think last year, if you look over the last 18 months, there is been some consolidation and I think you'll continue to see that, the folks who can invest and can't really deliver effective solutions are going to fall by the wayside and folks like Mitek that are improving go from strength to strength.

Great. That was very helpful. Thanks guys. Congrats again.

You got it. Thanks Bhavan.

Thank you. [Operator Instructions] And next we will go to Mike Grondahl with Northland Securities. Please go ahead.

Hey, thanks guys and congratulations on $100 million, that's pretty impressive. Mobile deposit, could you talk a little bit about what you're seeing there? Bank branches, some are still closed, people don't like to drive up tellers as much. It really seems like the last six months has been ideal for mobile deposit. And are you seeing that across your network? It looks like there was an acceleration in the back half of the year for mobile check revenues. Be nice to get some insight and kind of I know you don't disclose reorders, but kind of if that's starting to pull through or not?

Yes. I'll make a couple of comments and then see if Jeff wants to add. I mean, we definitely believe, we're hearing from our customers and our partners that behavior of consumers – banking consumers has changed. They're afraid to touch ATMs. And as you point out that there were instances of many branches being closed. And so the adoption of being able to not just deposit checks using your mobile device, but using your mobile device as the branch, I'm sure if you went into any of the earnings calls of the big four banks, you'd hear that mobile adoption is increasing at a faster pace. And I think we're enjoying the benefit of that. Now I think that's also then got to be balanced with the economic slowdown that's been experienced in the course of the last six or seven months, not just in the United States, but worldwide comes with less checks being written. We'll set aside the federal checks that were issued, but on an ongoing basis, the retail checks, just less of them just because there's less economic activity. So, Jeff, I don't know if you want to add anything to that.

Sure. Hi, Mike, mobile deposit activity has been pretty positive during COVID. And as I shared last quarter on the call, we saw – we look at the usage of the checks that the banks report and the processes report. And we saw an increase in that last quarter from what previously was kind of trending downwards to the lower teens, actually pick up and be more of a 20% growth last quarter. We saw a repeat of that this quarter, it's still strong usage. And so despite the pressure on the total check volume declining, we're seeing really nice growth in mobile deposit usage. So consumer adoption is definitely increased during this COVID time. And when you try to translate it to our revenue, you think about our revenue and how it works, and we sell the large blocks upfront and they wind them down. We may have seen a little bit of that in the quarter. It's kind of hard for me to drill into it and actually assign this increase here is definitely due to COVID because the processors they buy in this large box. But the usage figures are really good, which bodes well for mobile deposit revenue in the future for us as the reorders come back in.

Got it. And have you been able to get a little bit of price there too?

Mike, that we've been campaigning on the idea that we've got pricing power and that we haven't gotten fair value from our partners or our customers, the better part of 18 months. I don't think that COVID, we're not opportunistic and we're not pirates and we're not trying to use COVID as an excuse to that. This is just the ongoing – the ongoing efforts to get fair value for a really important and really valuable service, whether it's at the branch, whether it's in the ATM or whether it's on a mobile device. We just have by far the best, not just the best tech, the best experience and the best results for the financial institutions. And whether from the acquisitions or some behaviors within this business over years gone by, we're just writing some wrongs that were in contracts and it was probably a long time coming for us to make the right adjustments in those contracts.

Got it. Good. Good to hear on both fronts there. Thanks guys.

You got it, Mike. Thanks.

Thank you. [Operator Instructions] And gentlemen, it appears that we have no additional questions at this time.

Okay. Thank you, operator, and thank you, everyone for joining us today. We look forward to updating you again next quarter. Our call has concluded. Have a wonderful day.

Thank you, ladies and gentlemen, this concludes today's presentation. You may now disconnect.