MITK - Mitek Systems

[Castanza]

Surprisingly no acquisition.

 

“Over the past several months, our Board of Directors has led a process to engage with several interested parties to evaluate the relative benefits of various strategic alternatives, with a view to maximizing value for our shareholders. Following a thorough review of the results, the Board of Directors determined that there were no offers that it deemed in the best interest of Mitek shareholders, and today, we are announcing that we have concluded this process. We continue to focus on maximizing the significant opportunities we see for Mitek in the marketplace and remain thoroughly committed to delivering shareholder value through operating and growing the business.” - Max

[writser]

You beat me to it. Shares are now down ~14% after hours. Had a very small position left but managed to close it out at a decent price after-hours. All in all this didn't turn out as expected so far but I think there were a few times when the market was either very pessimistic or optimistic which I thought were decent trading opportunities. So financially this turned out pretty ok actually.

 

Results actually look fine at first glance but I don't want to get suckered into this on a fundamental basis so I sold, I'll gladly leave analyzing the underlying company to investors smarter than me. I'll keep an eye on this, I hope Elliott will issue a snarky press release soon :) .

 

And I'll leave the conference call to those who don't like Messi.

[Foreign Tuffett]

Mitek Systems Board,

 

Better thou hadst not been born than not t' have pleased me better.

 

Your Bitter Enemy,

Foreign Tuffett

 

 

[Castanza]

You beat me to it. Shares are now down ~14% after hours. Had a very small position left but managed to close it out at a decent price after-hours. All in all this didn't turn out as expected so far but I think there were a few times when the market was either very pessimistic or optimistic which I thought were decent trading opportunities. So financially this turned out pretty ok actually.

 

Results actually look fine at first glance but I don't want to get suckered into this on a fundamental basis so I sold, I'll gladly leave analyzing the underlying company to investors smarter than me. I'll keep an eye on this, I hope Elliott will issue a snarky press release soon :) .

 

And I'll leave the conference call to those who don't like Messi.

 

I'm a bit mixed on the results. At one end it would have been nice to see that buyout and take my gains and put my cash to work somewhere else, but on the other end I really like their new CEO. He seems very knowledgeable and seems to be pushing the company in the correct direction. I'm not really concerned with the share drop as it seems to simply have weeded out the people simply playing the m/a and I do feel pretty confident buying at this level (Although I think we could see mid 9's). The financials look pretty good and their customer base is expanding simply on their presence/respect in the market place. I believe they picked up Credit Karma this past quarter (don't quote me on that)

 

Their main competition (Jumio) seemed to have a good quarter as well. But it's hard to say because they're private and I can't see their financials. I think this space is very hot right now and Mitek certainly has a good (growing) client base. Now that I'm typing this I'm actually happy they didn't sell (could eat crow on that later). I am a bit overweight in my positions so that is slightly annoying (expected that merger for sure), but what can you do.

 

Castanza 

[Antisthenes]

Surprising as I would have expected the board to transact even if just slightly above Elliot's $11.50 offer

 

Have exited as current valuation is a bit too rich for my blood -- still think it's a great company, but at 5.3x 2019 revenue, a lot has to go right

[Castanza]

(no current position)

 

Haven't visited this in a bit. Shares have fallen quite far. Currently trading at 3.4x 2019 rev

 

Conference Call - http://investors.miteksystems.com/events/event-details/q3-2019-mitek-systems-earnings-conference-call

 

Fiscal Fourth Quarter 2019 Financial Highlights

 

Total revenue increased 19% year over year to $25.0 million in a record quarter.

GAAP net income was $3.3 million, or $0.08 per diluted share.

Non-GAAP net income was $8.7 million, or $0.21 per diluted share.

 

Fiscal 2019 Full Year Financial Highlights

 

Total revenue increased by $21.0 million or 33% year over year to a record $84.6 million.

GAAP net loss was $(0.7) million, or $(0.02) per diluted share.

Non-GAAP net income increased 57% year over year to $17.3 million, or $0.42 per diluted share.

Full year cash flow from operations was $14.3 million.

Total cash and investments were $34.8 million at the end of fiscal 2019.

 

The acquisition of A2IA seems to be working out pretty well. However they mentioned downsizing staff who were ported over from A2IA so they did incur a restructuring cost. They are also discontinuing a few products of A2IA which they predict will have a negative impact on revenue but a positive impact on profitability. Mobile deposit is profitable and the time frame for mobile ID verification to become profitable is sub 2 years (not great news). Customer acquisition seems to be steady. No further mention of acquisition during the conference call.

 

To me this is only interesting if they are open to acquisition. Max seems quite staunch that he wants to "build and grow the company." I imagine this is somewhat reflected in the share price.

[Guest Schwab711]

 

As a heads up, I think much of the decline is based on this potential liability.

[Castanza]

 

As a heads up, I think much of the decline is based on this potential liability.

 

Thanks, good find. Looking at their report again their litigation costs are way up yoy. Not sure if this is reflective of what you mentioned though.

[Guest Schwab711]

I don't know either. I missed this lawsuit when I did DD earlier in the year so I'm not sure I know the company as well as I should to comment.

[GregS]

Not sure why that tweet contended that Mitek "buried" the info on their lawsuit.  They discussed it on the call in the CEO's prepared remarks.

 

I can't handicap the outcome of the litigation, but Mitek pursuing a declaratory judgment action is an offensive action by Mitek.  They decided not to sit around anymore while USAA threatens and pursues lawsuits and are seeking a court declaration that their software doesn't infringe.  They probably should have done it sooner but they probably thought Wells would win.

 

Also notable is that the Eastern District of Texas, where USAA sued Wells Fargo, is considered the friendliest in the nation to patent trolls.

 

 

[Castanza]

Thoughts on this with potential government checks on the horizon?

 

They have a monopoly in mobile check deposit. They could be seeing a lot more customers in the near future.

[patientcapital]

The lawsuit with Wells is troublesome for MITK because they could be liable to Wells to cover the damages.

 

This obviously would bankrupt the company / make he equity worth $0.

 

They gave a very evasive answer when asked about the possibility of this happening.

 

While there's a lot to like about the growth story for MITK, you have to assume there's is a real chance it's a zero.

 

 

[GregS]

Thoughts on this with potential government checks on the horizon?

 

They have a monopoly in mobile check deposit. They could be seeing a lot more customers in the near future.

 

Regardless of government checks, I think the coronavirus will be good for their business. Mobile check deposit is a cash cow that will continue during the crisis. A lot of people will try it for the first time as they won't want to use the ATM.  They will become recurring customers.

 

That said, I can't imagine the sales pipeline for their ID technology looks very good right now. But at least they will be able to fund operations with the check business.