In person and those that are listening over the webcast. Just to kick things off, my name is Jake Roberge. I'm the equity research analyst at William Blair that covers Mitek Systems. For a full list of our research disclosures, please visit our website at williamblair.com. Okay, now that we have that out of the way, really excited to have Ed West, Chief Executive Officer of Mitek, and Dave Lyle, Chief Financial Officer at Mitek, here with us today. Before we go into the fireside chat, Ed's going to kick it off with a few slides just to give people an overview of what Mitek does, the business, the market opportunity they're going into. But thanks for joining us today. It's great to be here. Hand it over to you, Ed. Very good. All right. Thank you. Thank you, Jake. Hello, good afternoon, everyone. As Jake said, you know, five, ten minutes, go through a few different slides, a little bit of an overview of the company, and spend most of the time just going through Q&A from there. The company, think of us as a fraud solutions provider for secure digital transactions and interactions that we do day in, day out with high assurance businesses. Again, as we evolve as a company, that's where we're really focused on these fraud solutions around and securing the digital interactions. I thought I'd just take a minute on who we are, a little bit of a background, kind of Mitek at a glance. Over 7,000 customers around the world. Most of that is through partnerships. We also have a lot of direct, and most of it is financial institutions and companies started back in the mid-1980s in San Diego, headquartered there in San Diego, a little over 600 employees now around the world, about $177 million in revenue for the last 12 months, attractive EBITDA and attractive cash flow positions and net debt position of about $5 million as we've had some solutions to take care of the convertible debt that was out there from before. A little over half of our revenue is recurring, and we're going to talk more about some of these things in a minute. Now, but why us? Why Mitek? Again, a lot of history, a lot of heritage solutions, a lot of stability in there. What's evolving more is on the solution side around fraud. Fraud is accelerating across the world, in particular on the digital side, and in particular because of generative AI. As we've evolved our solutions from deposits more into check fraud and now into identity verification, authentication to help mitigate fraud that's occurring in digital interactions that you have with pretty much, like I said earlier, with your financial institution or other high assurance business. We believe the way the market is moving based on our capabilities in terms of the technical capabilities, the solutions that we have, and the credibility with thousands of financial institutions of the world around the world, we're very well positioned to capitalize on this emerging fraud. Not great for society from a standpoint, from a fraud standpoint, but we believe we're well positioned to help provide trust in those interactions that you have. One last thing here a minute ago, we go back to our near-term priorities. Where Dave and I are focused, Dave is our Chief Financial Officer. I've been CEO now for about eight months. And so we kind of outlined at the beginning of this year what we're focused on. Right now, as we call it, fix the foundation, integrating the solutions that the company has had, some prior acquisitions that took place, integrating the platforms, driving down unit costs, and getting the organization, first and foremost, focused on getting back to a durable double-digit organic growth. We're 100% focused on organic growth for the near term. Separately, expanding margins, both gross margin and EBITDA margin. Third, increasing the percentage of SaaS revenue. We aspire to get a little over 50% going into next year of SaaS revenue, resulting in more durable, more consistent, and predictable revenue streams. Finally, continuing to improve free cash flow conversion of the company. I'll show you some more in a minute, some quite attractive positions there. Now, it's just getting the company back to that durable organic growth, which we're confident that we will move in that direction and are moving in that direction. A little bit of background and knowledge on the company. Think of it in two different sides, two principal lines of business. On the left-hand side, around deposits, which is the majority of our revenue, and it's our heritage solution. Heritage solution, we all have it on us right now. If you have a bank application on your phone, Mitek is in your phone. Pretty much over 98% of the market utilizes our software and technology. That's where a lot of the almost 7,000 FIs, particularly in the United States, utilize our technology and the software. That is to do a secure transaction, taking an image of your check and deposit in your checking account. That is a software sale for us. A lot of history, a lot of heritage on that, and strong cash flow for that part of the business. That has evolved into a fraud solution. Because of our expertise and credibility of financial institutions, we have developed and built a consortium of financial institutions to send their checks in on a daily basis. We are at the heart of that as an engine of assessing those based on, again, that image, computer image, and machine learning and AI capabilities, assessing that and scoring them for fraud real time. We are processing millions of checks per day that are coming into that and giving real-time scoring back to the financial institutions who participate in that consortium. That is growing and evolving. We now have several top 10 banks in that. We just signed up another top 50, another top 10, have another top 10 bank who is testing it as we speak. We expect the ACV on that to double. We had guidance on earlier in the year. We think there's a lot of legs to that going forward, in particular because we have that expertise in checks. We have the credibility of financial institutions over time. We'd like that to evolve out into more broadly along payments and payments fraud. Separately, on the right-hand side of the check, we've taken that same capability with MySnap, which is at the bottom of the chart, which is that computer vision capability and evolved into verification. If you go in and open an account online and you have to verify a government-issued document like a driver's license or passport, compare it to a selfie on a digital basis, that's our technology there in doing that document verification. That obviously grew considerably after COVID and where Mitek had evolved and developed the technology with Mobile Verify. That has since evolved and has gone through several acquisitions. We now have an orchestration platform that's called MyVIP, which allows not just the document verification to come in, but we can do other signals as well, like deepfake or biometric detection, injection attack protection, and other signals and maybe other behavioral signals that come in, again, verify you are who you say you are. This is where I point out whereas fraud is moving and with generative AI, the synthetic fraud is growing and our solutions are well designed for that. The final comment on that one, which you'll see on the right, is around authentication. Whereas opposed to just authenticating on your account, like with your phone and getting a six-digit or four-digit code to then go authenticate, where with the fraud is going, you want to verify and authenticate back to a verified file. Again, that's where we come in, utilize with a biometric of yourself and then being authenticated back to a verified file that you are who you say you are. Also first that you're human based on where the fraud is going. Fraud has evolved from and verification has evolved from just giving, saying, "I have a document that proves who you are," or knowing something I know, like a password based on biometrics and behavioral data. We comment the latter with the biometrics and the behavioral data as fraud has evolved. Our customers, obviously, global institutions, very well known. We are a high assurance solution in terms of true, tested, credible with some of the largest institutions around the world with a lot of credibility, governance capabilities, understand the regulations, understand compliance. That is a real differentiator when you are looking at these types of companies who are utilizing our solutions. Real quickly, people asked, what is the market? If you look at the fraud solutions or the solutions around in the markets where we participate, we are small. In terms of our revenue, the TAM on that is obviously significant. Lots of opportunity in particular in the biometrics area and verification. A couple of charts on our report card. We always encourage investors to look at us on a rolling 12-month basis because going back to that software side, the deposit side that I mentioned, that's mostly a software sale for the majority of the deposits revenue and very volatile quarter to quarter. We do aspire to probably change that hopefully over time. If you look at us on a rolling 12-month basis, you'll see how that started to step back up here in the last couple of quarters. Obviously went through a lot of growth earlier after COVID and then putting on a couple of acquisitions on top of that. Company ran into issues with financial statements, ran into issues with material weaknesses. Once Dave got in the team, in the organization, getting the financial issues behind us, filings are all current from going on because of the growth and the acquisitions. That period is behind us and we're still mitigating through and working out. We have about five of the material weaknesses remain, but we should have those all resolved here in the near term. Growth is beginning to pick back up. I think the other thing to point out here is the bottom side where you see the SaaS revenue, which this past quarter we got up to 40%. That's where we would like to get that over 50%, again, for more of a recurring revenue stream there. Around EBITDA and free cash flow generation, you can see our conversion rate over 80%. We will continue to drive that. It's our goal of getting the margins for EBITDA up over 30% margins, but EBITDA trailing 12 months, around $56 million and $47 million in free cash flow for the last 12 months. Highly cash generative, getting the business back to organic growth and lots of focus and execution. What I'd like to just kind of open up for you and just Dave and I are happy to go through any questions that you have. Yeah, very helpful. Thanks, Ed. Appreciate you going through that. I guess just to kick things off, question for both of you since you both joined the company in the last year and a half. What attracted you to Mitek and what are some of the things that may have gone better since you joined, may have gone worse? What attracted you to the story and what do you see moving forward in the business? Probably a long list in terms of what's gotten worse since joining. I joined over about eight months ago. My background, last company was in financial services. It was called Cartronics. We were acquired a few years ago, CEO of a couple of other businesses prior to that, and was CFO of Delta Airlines prior to that. I very much enjoy working with and building organizations, principally gone through some sort of issues and getting back to organic growth, which is exactly what we did at the last place. What attracted me here was, again, a little bit familiar because of our presence, Mitek's presence in financial services, the credibility and the capability that it had with FIs. Separately, very well positioned from the technology and the technical capabilities and seeing where the puck is going with fraud, the growth in synthetic fraud, generative AI. We see things that get your hair to curl about what's coming forward, in particular around video and some of the implications from generative AI and what that means in exposure to high-assurance businesses. I think the business is really well positioned and with those technical capabilities. Obviously, ran into some issues, but those are things that we can address, fix, focus, and it's just focus, focus, focus on that, on the execution and getting it back to the profitable growth and organic growth. The last thing I would say in terms of what's kind of taken longer or frustrating is at the end of the day, we love them, but we deal with very large financial institutions. are a lot of people to say no. There are a lot of people to run tests. There are a lot of people for regulations and compliance. Sales are long sales cycles. For every negative, there is a positive, which just typically means you have, if you do well, you have very long-term expanding relationships, which is what we see here. I have been in technology since 1995, so about 30 years. I have been a CFO for over 20 years, a public company CFO since 2007 when I took a company public. I have seen a couple of my companies about Mitek size and a couple that have gone through transformations and transitions, kind of like what Mitek is doing right now. I joined in January 2024, which you would ask, why would you come in in January 2024? There was a lot of delayed filings. There was a financial restatement. I think it was the perfect time because we just had to resolve the financial restatement and the late SEC filings, which we've done. Underneath the businesses, I think a pretty incredible business. You got this large cash balance on the balance sheet. They're generating cash flow quarterly. It's a 30% adjusted EBITDA margin company, kind of a great place to transform a company. Not only that, the products that Mitek had and had acquired just needed to come together. It just so happens COVID happens, everybody moves digital and remote. Fraud increases. We happen to have a full fraud portfolio, some of which had nascent stage products. We just needed to get them from nascent stage to growth stage. That's why I came in the company. I'm still excited about the opportunity. I think there's a huge opportunity here. That's helpful. Now that the business is starting to stabilize, you're kind of through all the filing changes, all those issues. How should we think about the underlying business fundamentals? What is a durable growth rate? What is a durable margin profile? How should investors think about this business moving forward? I'll start on it. In In terms of you kind of have to step back and think about the size of the business. We talked about on the deposit side, checks are declining. The view is that's just going to go away. Checks are declining. Yet if you look at our underlying transactions that are utilizing our technology, there's roughly 1.2 billion transactions a year utilizing our software to remotely deposit checks. That's been pretty stable for three years. What's happened is our penetration and the usage of our vehicle for it has continued to increase and stay around. I think that tail will last longer than many people think and then generates a lot of free cash flow. The durability comes in leveraging that also to move into these other fraud solutions. Initially like on checks, then into payments more broadly from think about if you're doing checks, then you could do check hiding. If you do check hiding, you should be doing wires and ACH and being a fraud signal for those other payment solutions within a financial institution. Combine that with on the identity side and verification. These are SaaS agreements. What we have found is once we establish a relationship, they tend to start off fairly slow. Once you get in, you get the credibility and the usage of it. Remember, many of these banks, they've only been doing for verification just a name, address, and maybe an email, not going through a full verification. That is continuing to expand. Once you land in there, they'll take you from maybe it's just doing digital account openings to the next period doing mortgages to car loans to branches, which is what we've seen and experienced and seen volumes go up by the millions as that establishes. We aspire to getting to in terms of even more durable is an authentication as opposed to just doing account openings over time. We want to be that persisting verification through an authentication back to a verified file. You are becoming more and more core to the day-to-day interaction between the institution and their customer. By the way, that's beyond banks because we now have prospects and moving forward on multiple solutions utilizing our authentication capabilities in non-bank situations that I find quite interesting because of what's happening in society. Yeah, it's helpful to understand kind of the core of, okay, yeah, people understand checks might be declined, but you're still increasing your penetration. Thinking about kind of the next two legs of that mobile deposit still before we get into the ID verification side. If you have 98% market share, obviously you have some big customers, how do you think about pricing as a lever for growth in that core business? Yeah, the company has a long history, still do today, of price increases. They're low single digit, low to mid single digit, usually over inflation, a little bit over inflation, and good consistent track record of that. These are multi-year agreements and as they come up for renew. Yeah. And then to the more interesting part of the growth algorithm and check deposit, how are you thinking? What positions you so well for this Check Fraud Defender opportunity? How big is the check fraud? How much check fraud is actually happening every year in the U.S. that you can go out and really walk alongside banks to really mitigate? Yeah, it's multiple billions in terms of check fraud in the U.S. that's occurring. It's been growing, growing, started really ramping up after COVID. It's continued to amplify, obviously, our solution with our consortium based on resolving that. A lot of people ask, well, how big can that be around checks? I would just encourage you to think bigger, think payments. Because once you're in there, you're established with checks and the credibility. Most of our agreements, they're ROI based, not that we're doing a gain share model, but we're able to, they'll usually test it and test us to see if it works and find the fraud and like, oh gosh, that is, and you have a multiple ROI on that investment on year one of coming into a relationship with us. As we're established and they're sitting and we're core day-to-day with them sending transactions through, well, why can't we do that same on ACH or other payment types that are occurring and assessing for fraud, which we think is a natural, that's where I would tell you becomes a lot larger. Longer term, it's ultimately about the data and the information. We're now beginning to see an interest with our customers coming back to us and saying, wait a minute, we actually should allow you to keep that data longer because you're able to utilize that and use this in particular also with verification information to seek out fraud in other parts where we may have exposure. Yeah. I think the product, there's both the core opportunity in check fraud, but the expansion opportunity in all those other use cases. I mean, you already have several top 10 banks, several more top 25 banks on the platform. This product was launched in the last two or three years. How are those conversations with those large banks changing now that you have those customer testimonials, now that you have the early ROI calculators out there? Have you started to see any change there? Definitely, I would tell you. One of the things I love doing, it's the best way I learned about the business and I learned over my 100 years of career is getting out and listening to the customer. That's how you drive strategy. What are the customers saying? What are the prospects saying? What's working, what's not? Where's the business going? I was with one of the top banks of the nation just recently that you well know. One of the things that's changed, and this is happening just real time over the last several months about that data point. Wait a minute, we should start allowing you to hold that data longer because of fraud assessment and fraud identifications are seeing the value of it. We're also having other ones saying, wait a minute, this consortium actually makes a lot of sense. Can we start sharing other parts of information with consortium with us in the middle of being that trusted party in the middle of it? That is really what is evolving and changing, the value of the data and the analytics around that, as well as the willingness to share in the effort to fight fraud. I will say one third quick one in there is generative AI. The advent of basically fraud has been democratized. It has gone down to a really low level. You have some kid in the basement somewhere around the world who can come in and attack vector on some of the largest institutions on the planet that only the CIA and state actors could do five years ago. Now, because of AI, it's been cost to go through the floor to be used as a tool to account takeovers, to impersonate someone else and takeover systems that weren't designed to stop that. Okay, that's helpful. Then thinking about the partner ecosystem, obviously a lot of your check solutions are sold through the partnership channel. You've talked about two or three partners that are already online with the platform reselling it for you to the longer tail. Where are we in terms of the partner evolution for that product, both today, what those partners are seeing, as well as some of the larger behemoth partners that could be out there over time? On the check deposit side, Mobile Deposit, we're obviously mature and we have terrific relationships with, as you well know, the processors, Fiserv, FIS, Jack Henry, and many others. The majority of our revenue comes that way. These other solutions we offer, like check fraud and the identity, the verification, the authentication, deep fake detection, all apply to the same institutions who are their customers. We're in conversations about, hey, we should be looking at this as a partner relationship as well. Today, we principally handle that direct. We do have some partner relationships on the rest of those fraud solutions, but where we see a longer term, a mix of both direct and through partner more so on the rest of the business. We're early, absolutely early on that. Yeah. Switching over to the ID verification portion of the business, could you talk about the evolution of that segment of the franchise and where we're at in terms of selling kind of the more point solution ID verification products to getting customers to see the broader vision of orchestration, the broader platform play, and just how that's changed over the last year or so? Yeah, when I was talking earlier about fraud, fraud exploding at this point, financial institutions especially have high consequences for not catching fraud. That is where we specialize. That is where we earned our right to win. If you look historically at our revenues, most of the identity business revenue was generated through the identity verification portion, which is basically one journey, one transaction. Typically, it's onboarding on if you want an open account, take a selfie, take a picture of a passport or driver's license. Moving on to MyVIP, we've got this orchestration platform, which we plugged in the identity verification solution into MyVIP. Now these large financial institutions can deal with more fraud attacks by looking at different signals aside from just the document verification technology. Now we're moving from one journey with one transaction to one journey with multiple transactions. It could be onboarding, authentication, or reauthentication along the way. Each one of those, we're generating revenue per transaction. Okay. Which is why over the last couple of quarters, as we continue to emphasize that, that's also will help continue to drive our gross profit per journey. Margins are continuing to improve. We're doing other things utilizing AI, not just externally for our products, but also internally in terms of automating certain actions internally that are used to go back to these products. Yeah. Dave, sticking with you on the margin side. Obviously, the Mobile Deposit business is incredibly profitable, but the ID verification business is still burning a bit of cash. How should we think about the margin trajectory from here for both kind of sides of the business? Yeah. For those of you who do not know, our deposits business has typically been in the high 90% gross margin, is generating cash for the company. The identity side, like you heard Ed say before, is not profitable. We indicated six to nine months ago that it was dilutive to the entire corporation by about high single digit percentage points, which at the end of the day, the math equates to mid-teens, millions of dollars of losses. With the Fix a Foundation effort that, again, Ed talked about, we're making progress there. Moving, for instance, more transactions from manual agent transactions, which are costly, to automated transactions, among many other things that we're doing to improve margins down to adjusted EBITDA. If you look at our adjusted EBITDA guidance, we're 26%-29% this year. And we're right in the middle of fixing the foundation. So we have lots of opportunity to improve, especially if you consider the dilutive nature of identity historically that's now starting to improve. With all of those things, we can get into the 30s with a little bit of growth. Yeah. 30% plus margins. It's a pretty good business. Durable business. Given those solid free cash flow margins, aside from investing in the business, and I think this will probably be our last question because we're coming up on time, how are you thinking about capital allocation moving forward? You have the buyback in place. You have a convert on the balance sheet. How are you thinking about capital allocation moving forward? Yeah, we have a balanced approach. We're investing in growth. We have a share repurchase program to return capital to shareholders. On the share repurchase program side, we have $50 million authorized. We purchased $27 million, so there's $23 million left. We're going to opportunistically take advantage of that along the way. That still has another year on the authorization. We have very little working capital needs relative to the size of the revenue. Our capital expenditures are de minimis for this company. Acquisitions, as Ed said, we're not focused on at this point as we fix the foundation. Organic growth is where our focus is. It is really about investing in growth and share of purchases. Thank you. Appreciate it, Ed. Thank you. Appreciate it, Dave. Appreciate it, everyone, for coming today. 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