Mitek Systems - Earnings Call - Q4 2024

Executive Summary

• Q4 FY2024 delivered solid year-over-year growth and profitability: revenue $43.2M (+15% YoY), GAAP operating margin 18%, GAAP diluted EPS $0.18; non-GAAP operating income $15.0M (35% margin) and adjusted EBITDA $15.4M (36% margin).
• Management introduced FY2025 guidance: revenue $170–$180M and adjusted EBITDA margin 24–28%; near-term focus is organic growth, SaaS mix expansion, and cost discipline while investing in Check Fraud Defender (CFD).
• Identity portfolio showed progress with MiVIP and fraud capabilities; company targets $80–$85M run-rate in Identity for margin accretion; automation reduced identity direct cost per transaction >25% in FY2024.
• Deposits stable longer-term with check volumes offset by rising mobile adoption; CFD ACV >$10M (+~60% YoY), aiming to more than double ACV in FY2025, though some GAAP revenue could shift from term license to ratable SaaS.
• Wall Street consensus from S&P Global was unavailable at time of request; beats/misses vs estimates cannot be assessed. Values retrieved from S&P Global were unavailable due to access limits.

What Went Well and What Went Wrong

What Went Well

• Q4 revenue and profitability up strongly: revenue $43.2M (+15% YoY), GAAP operating income $7.7M (18% margin), adjusted EBITDA $15.4M (36% margin), non-GAAP net income $15.5M ($0.33 diluted).
• Cost actions and operating discipline: Q4 non-GAAP OpEx fell $5M sequentially (Q3: $27.1M → Q4: $22.1M) aided by bonus/vacation accrual reduction ($2.2M), outside accounting reduction ($1.4M), $0.6M allowance reversal, and lower marketing/travel ($0.5M).
• Strengthening fraud platform and MiVIP: CFD ACV grew ~60% to >$10M and MiVIP transactions more than doubled at several Tier 1 accounts; new Digital Fraud Defender launched to combat deepfakes, injection and template attacks.
  • “Mitek is becoming a comprehensive solution for fighting fraud and mitigating identity-related cybersecurity risks including deepfake and GenAI fraud” — CEO Ed West.

What Went Wrong

• Identity pricing pressure and legacy sunset: Mobile Verify document verification faced pricing pressure; sunsetting of ICAR hardware (-$1.2M FY impact) was a headwind; identity revenue grew <1% YoY in FY2024.
• Revenue timing volatility in Deposits: Some larger customers bought a second tranche in 2H FY2024, expected to normalize to single buys in FY2025; GAAP revenue recognition timing can create headwinds despite stable contract economics.
• FY2025 margin dilution from CFD investment: Management expects mid-single-digit EBITDA margin impact from incremental CFD investments near term (viewed as attractive ROI).

Transcript

Operator (participant)

Good day, and welcome to Mitek's fiscal 2024 fourth quarter and year-end earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one, and a touch-tone phone. To withdraw your question, please press star and then two. Please note this event is being recorded. I would now like to turn the conference over to Todd Kehrli of MKR Investor Relations. Please go ahead, sir.

Todd Kehrli (Head of Investor Relations)

Thank you, Operator. Good afternoon, and welcome to Mitek's fiscal 2024 fourth quarter and full year earnings conference call. With me on today's call are Mitek's CEO, Ed West, and CFO, Dave Lyle. Before I turn the call over to Ed, I'd like to cover a few quick items. Today, Mitek issued a press release announcing its financial results for its fiscal 2024 fourth quarter and full year ended September 30, 2024. 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 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 of 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, December 16, 2024, 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. 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 the GAAP and non-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, Ed West.

Ed West (CEO)

Thanks, Todd, and good afternoon. It's an honor to address you for the first time as CEO of Mitek. I would like to share my thoughts coming into the business, my learnings over the last 60+ days, as well as the opportunities and actions that we're taking. Dave will cover the Q4 and fiscal 2024 results and provide some insight regarding the outlook for the year. We will then open up the call for Q&A. There are four key takeaways I would like for you to hear from today's call. First, the company now has an experienced leadership in place supported by a team with deep domain expertise who are executing against a clear plan to get back to durable growth. Second, we're nearing the fulcrum point for profitability on the identity side of our business.

Third, Mitek is becoming a comprehensive solution for fighting fraud and mitigating identity-related cybersecurity risks, including deepfake and Gen AI fraud, a significant and growing problem for all businesses everywhere. Fourth, organic growth is our near-term focus, and operational discipline for long-term value creation is our north star. On to the first point. I recently joined Mitek in October, inspired by its legacy as a trusted partner to thousands of financial institutions, or FIs. While the company has faced challenges, we are actively addressing them and strengthening our foundation in Fiscal 2025 to drive profitable organic growth. With a clear plan in place, we are well-positioned to create significant value for customers, shareholders, and employees.

My confidence in Mitek's potential is rooted in my experience as CEO at Cardtronics, where we delivered shareholder value by fostering innovation, driving organic growth while enhancing margins and building a scalable network serving over 1,000 FIs, fintechs, and the nation's largest retailers. These experiences, along with my alignment with shareholder interests, drive my commitment to executing our growth and operating strategy here at Mitek and unlocking the transformative opportunities ahead. Since Mitek's founding almost 40 years ago, we have been at the forefront of innovation, delivering mission-critical software solutions to some of the world's largest financial institutions. From enabling mobile banking to ensuring secure digital transactions, we've consistently solved the pressing challenges that our customers face. Today, we find ourselves uniquely positioned to tackle new and rapidly evolving threats, particularly the rise of AI-driven fraud.

My comments today regarding the market are informed by meeting and speaking with numerous strategic customers and prospects over the last several weeks in Europe, the United Kingdom, and the U.S., mostly very large FIs. At the core of our success are our mission-critical solutions. Serving over 7,900 companies globally, including FIs, telecoms, fintech companies, and marketplaces, Mitek is a trusted leader in computer vision and identity-related application of AI and fraud prevention. We revolutionized check processing with our mobile check deposit solution, and we've continued to push boundaries with innovations in identity verification, authentication, and fraud management. This includes proprietary best-in-class multimodal biometrics, frictionless liveness, injection, and recently released deepfake detections. At our core, our heritage solutions of mobile deposits has been fairly steady over the last three years, with total transactions exceeding 1.2 billion each year.

Over the past five years, Mitek has undergone a decent amount of growth. In fiscal 2019, the company had $85 million in revenues, primarily driven by check-related products. Fast forward to today, we've almost doubled in size to $170 million in revenues and expanded Adjusted EBITDA margins to 27%, now with over 40% of the business focused on fighting fraud and verification. While this growth is impressive, it hasn't come without its challenges. The COVID-19 pandemic accelerated digital transformation, driving significant demand for our solutions and pushing the company to prioritize speed over scalability, outpacing its operational infrastructure. This challenge was amplified by executive turnover and major acquisitions, which placed considerable strain on our accounting, finance, and legal teams. This created issues that you are all too familiar with.

With the dust settling, fiscal 2025 marks a pivotal year for Mitek as we focus on strengthening our foundation, unifying products and technologies, and optimizing our go-to-market strategy to prepare for the next phase of growth. Now, turning to the second key takeaway, which has understandably been a major focus for the investment community, we are nearing the fulcrum point in identity. The company is committed to the goal of returning to double-digit revenue growth during fiscal 2026 and beyond. This will be achieved through streamlined technology, optimized go-to-market strategies, and cost efficiencies that will scale revenue while leveraging prior investments. In fiscal 2025, we have shifted our focus towards innovation and enhancing customer experience while slightly reducing overall identity spending levels to position the portfolio for profitability. Historically, identity has been cash-consuming, and we have carefully considered feedback from our shareholders, our value partners, in addressing this moving forward.

To provide some context, this product portfolio was diluted to our overall consolidated Adjusted EBITDA margins by high single-digit percentage points in fiscal 2024. With the disciplined execution against the following four-point plan, we believe achieving $80 million-$85 million in run-rate identity product revenue is the fulcrum point at which this portfolio becomes margin accretive. The plan is as follows. First, cultural integration. Over the past five years, our total headcount has more than doubled to 630 in fiscal 2024, bringing in exceptional talent but also creating silos that have hindered collaboration and efficient execution. We're now focused on integrating past acquisitions, aligning teams, and driving product enhancements and cross-selling. We believe this initiative will boost revenue through better upselling and product expansions while reducing costs by streamlining redundancies. Second, technological integration.

Our acquisitions have significantly bolstered our technology stack with advanced biometrics, liveness, and platform capabilities, but managing separate systems to preserve their unique innovation created fragmentation. For example, we have been operating multiple identity document verification systems, both homegrown and acquired, that addressed similar customer needs but differed in functionality. We have been integrating these into a single streamlined platform, and we've already seen positive customer feedback highlighting enhanced performance and ease of use. This consolidation is driving opportunities for revenue growth through cross-selling and improved customer retention while reducing operational costs by eliminating redundancies. The third action to getting to the fulcrum point in identity is cost efficiency. A key priority for us is reducing reliance on costly manual or agent-reviewed transactions, which limits scalability.

Through the integration of acquired technologies and enhanced AI models, we've significantly ramped up automation, reducing the direct cost for transaction for identity by over 25% in 2024. With automated transactions now the vast majority of our total transactions. As we continue to increase the proportion of automated transactions, we expect continued improvements in our unit economics. And finally, go-to-market optimization. To accelerate growth, we're focused on three key initiatives. First, increasing the maturation of recently acquired customers. Second, expanding within our existing customer base, such as new use cases, new products, new geographies, and expanding to other business units. And third, acquiring new customers. MiVIP platform has driven considerable growth, with transaction volumes more than doubling in several tier-one accounts following the first year of adoption.

Its user-friendly interface and flexible architecture allows customers to rapidly deploy new use cases and activate additional signals, driving further customer value and revenue per transaction for Mitek. In FY 2024, revenue per transaction on MiVIP was a multiple of that on the Mobile Verify document verification engine, underscoring its stronger value proposition, as well as exhibiting pricing resiliency when compared with the pricing pressures experienced by standalone document verification. Simply stated, we want to leverage our proprietary differentiated capabilities and lessen the exposure to standalone commoditized offerings. As customers increasingly leverage the full suite of MiVIP products, we expect an uplift in revenue per transaction. With trust enabled across thousands of FIs in our growing partner ecosystem, the opportunity for new customer acquisition remains significant.

By deepening customer relationships and driving new customer acquisition, we're positioning MiVIP as a market leader in identity verification, authentication, and fraud management. That said, we want to assure investors that we will closely monitor the execution of this strategy in fiscal 2025. And if any significant deviations from our targets arise, we are committed to taking decisive, data-driven actions to maximize shareholder value. To support this, we will continue to provide transparency, offering our investors insights into our progress against these key milestones. Now let's unpack the third key takeaway. Mitek is becoming a comprehensive solution for fighting fraud and mitigating identity-related cybersecurity risks, a growing problem for all businesses. Customers are increasingly seeking integrated platforms, not just point solutions, to combat rising AI-driven threats and deepfakes.

Our fraud platform stands out with proprietary capabilities, with an established track record of leading in trusted third-party and U.S. government-led benchmarks. This independently verified technological leadership, combined with our exceptional talent and domain expertise, positions Mitek to lead in this evolving market. The rapid proliferation of AI leads to a new and growing period of Gen AI-driven fraud. We are uniquely positioned to address this growing problem as a result of our proprietary technologies, improving track record, and high-assurance market segments. Mitek's platform protects customers through onboarding, transaction enablement, identity verification, and integrated authentication, all enhanced by advanced four-factor biometrics and digital fraud detection capabilities, which include defenses against deepfakes, presentation, and injection attacks.

Our passive liveness detection and biometric solutions have earned strong recognition from NIST and, more recently, the Department of Homeland Security, highlighting our commitment to excellence in the field, technical capabilities, and innovation in a rapidly changing fraud environment. Similarly, our Check Fraud Defender, or CFD product, though in its early stages, is already showing strong uptake. Annualized contract value, or ACV, grew by nearly 60% year-over-year, exceeding $10 million at fiscal 2024's close. We are currently seeing strong interest in CFD and are targeting to more than double CFD's ACV in fiscal 2025. The consortium model behind CFD, where more participants enhance the data asset, is proving effective.

We have already seen checks from nearly all of the 8,700+ FIs in the United States, and we have accumulated data sets on approximately 17% of all checking accounts in the country, all while having less than 1% of these FIs as paying members of our consortium. With our strong mobile deposit foundation and relationships with major FIs, we are poised to deepen these partnerships and drive continued growth through cross-selling CFD. Now, last but not least, let's discuss the fourth key takeaway. Organic growth is our near-term focus, and operational discipline for long-term value creation is our North Star. Our focus is on organic revenue growth, increasing the share of more predictable SaaS revenue, expanding margins, and generating free cash flow, all underscored by a disciplined capital allocation strategy to maximize shareholder value.

Every initiative we've outlined today is designed to sharpen this focus, ensuring we strengthen the foundation in fiscal 2025 and deliver accelerating and profitable growth in fiscal 2026. Here's how this approach will drive measurable improvements in five key areas of our financials. First, organic revenue growth by expanding transactions with existing customers, introducing new use cases like Check Fraud Defender and Digital Fraud Defender, cross-selling within the MiVIP platform, and acquiring new customers. We aim for steady organic revenue growth. Second, a higher percentage of SaaS revenue. We aim to transition towards a higher proportion of SaaS revenue, which offers greater predictability and reduces volatility. In fiscal 2024, approximately 37% of our revenue came from SaaS. But as this becomes a larger portion of our sales, we expect to dampen the impacts of volatile term license revenue, which still dominates our revenue today.

Looking out to fiscal 2026, we're pursuing a goal for SaaS revenue to approach half of our total revenue. Third, margin expansion. By driving cost efficiencies, integrating operations, and scaling revenue to achieve operating leverage, we anticipate a considerable improvement in Adjusted EBITDA margins as we look out to fiscal 2026. In fiscal 2025, we expect to lower expenses associated with the identity product portfolio while we invest in accelerating demand for CFD. While this CFD investment temporarily reduces margins by mid-single-digit percentage points, we believe the strong ROI justifies it. Fourth, free cash flow generation. As we reduce non-recurring and extraordinary costs tied to acquisitions, executive transitions, and audit fees, we expect a stronger free cash flow conversion of Adjusted EBITDA, with a more significant impact starting in fiscal 2026, and finally, capital allocation.

We remain committed to balancing growth investments with returning capital to shareholders and maintaining a strong, flexible balance sheet. In conclusion, operational discipline is not just about fiscal 2025. It's the foundation for creating durable long-term value for all of our stakeholders as we look forward to Fiscal 2026 and beyond. I'll now turn it over to Dave.

Dave Lyle (CFO)

Thanks, Ed. And I'd like to take a moment to say welcome to Mitek. It's been great getting to know you, and I'm excited about the strong start we've already had working together. I'll begin today by taking you through financial results, and then I'll provide a fiscal 2025 outlook and finish by addressing some housekeeping items. Please note that I'll be referring to non-GAAP results going forward. First, our fiscal Q4 2024 results.

Fiscal Q4 came in $1.1 million higher than the midpoint of the revenue guidance range at $43.2 million, or 15% year-over-year revenue growth. Identity products revenue grew 13% year-over-year, while deposit products revenue grew 17%. Non-GAAP operating income for Q4 was $15 million, a 34.8% margin, which surpassed the midpoint of the guidance range by just under $4 million. This was driven by a one-time reduction of $1.9 million related to bonus accruals adjustment based on our full year results, a one-time $600,000 reversal of an allowance for doubtful accounts, the $1.1 million higher revenue just mentioned, and the remainder from operating expense efficiencies. Looking a little closer at our non-GAAP operating expenses, we reduced expenses by $5 million sequentially from $27.1 million in fiscal Q3 to $22.1 million in Q4.

This was primarily due to a $2.2 million sequential reduction to bonus and vacation accruals, a $1.4 million reduction in outside accounting-related support, the $600,000 accounting reversal as mentioned before, and $500,000 reduction in marketing and travel expenses. Now let's move on to the full year 2024 results. In summary, fiscal 2024 was roughly flat year-over-year at $172.1 million, and our non-GAAP operating margins remained strong at 26%. If we adjust for the large customer four-year mobile deposit reorder contract recorded in fiscal Q1 2023 that we've discussed in prior calls, where $7 million in accelerated revenue recognition created a $2+ million gap in fiscal 2024, fiscal year 2024 would have seen about 6% revenue growth and a 27% non-GAAP operating margin. It's important to note that we believe the three-year CAGR is more reflective of the underlying potential trajectory of the business over the long term.

That revenue CAGR since fiscal 2021 was 13% as COVID-19 pulled forward the penetration of our mobile deposit product and boosted revenue growth in fiscal 2022 and fiscal 2023, while 2024 remained flat. Turning now to more specifics on our full year revenue results, starting with deposit products. Deposit products revenue declined slightly by less than 1% to $103.6 million. Strong growth in CFD was offset by declines in mobile deposit and check reader product revenue, primarily driven by renewal timing. We believe that these declines are primarily due to timing rather than market weakness, as our transaction volumes have remained relatively stable despite the broader decline in check volumes. This resilience reflects the increasing adoption of mobile deposit solutions. To provide context, we believe the U.S. check market now processes about 8-9 billion checks, with an estimated one-third being retail checks suitable for mobile capture.

With over 1.2 billion annual transactions on our platform, this translates to about a 40% digital adoption rate. While we estimate that total check volumes have declined at a single-digit rate in recent years, the growing adoption of mobile banking has helped sustain transaction levels in a relatively narrow range. Moving on to identity products revenue, revenue increased by less than 1% year-over-year to $68.5 million for fiscal 2024. Strong transaction-driven revenue growth on our MiVIP platform was offset by the sunsetting of our legacy ICAR hardware products, continued pricing pressure in our Mobile Verify products, and small declines in our biometrics point solutions. The ICAR hardware sunsetting had a $1.2 million negative impact or a 2 percentage point headwind to identity. Moving down the P&L, we maintained strong unit economics with an 86.2% non-GAAP gross margin for fiscal 2024.

Non-GAAP operating expense rose to $103.6 million from $96.8 million in fiscal 2023, with approximately 80% of that growth coming from R&D. The bridge between our $103.3 million non-GAAP operating expenses and $145.4 million GAAP operating expenses reflects $14.8 million in cash adjustments and $27.3 million in non-cash accounting adjustments, as detailed in our earnings release. This resulted in a 26.1% non-GAAP operating margin for the year. Non-GAAP net income for diluted share improved to $0.96 on 47.5 million diluted shares, a 1% increase year-over-year. Now let's move on to our balance sheet and capital allocation framework. We generated $30.3 million in free cash flow during fiscal 2024, repurchased $2.2 million shares for $24.2 million under our share repurchase program, and ended the year with $141.8 million in cash and investments, a $6.8 million increase year-over-year.

Our capital allocation priorities remain first and foremost, funding high-return growth opportunities, including MiVIP, CFD, MiPass, and biometrics, which are poised for strong demand as we make headway with strengthening our foundations in fiscal 2025. Then we must balance returns of capital with balance sheet strength. Share repurchases continued in fiscal Q1 2025, but the pace has slowed to maintain flexibility ahead of the $155 million convertible bond maturity in February 2026. Combining our continued cash flow generation with our strong balance sheet, we are well positioned to repay and/or refinance the bond by its maturity at our discretion. Our current repurchasing activity does not reflect any change in our views of the stock value, and given the current price, we are focusing on the least dilutive financing strategies to protect shareholder interests.

Now turning to our fiscal 2025 guidance, we are guiding to a revenue range of $170 million-$180 million, with growth coming from our SaaS products. We are also introducing adjusted EBITDA margin guidance, replacing our emphasis on non-GAAP operating income, as we feel it offers greater comparability and simplicity. Note that the bridge between these two is depreciation and amortization, which is historically run at approximately 1% of revenue. With that said, we are guiding to an adjusted EBITDA margin range of 24%-28% in fiscal 2025. More specifically on the deposit side, we expect total revenue for the year to be relatively steady with last year.

We expect growth from our Check Fraud Defender products to be somewhat offset by declines in Mobile Deposit product revenue, mostly due to deal timing, where a few of our larger customers bought a second tranche of inventory in the second half of 2024, and where we expect those customers to likely return to a more typical single buy in 2025. This revenue decline also reflects the nature of accounting for term license deals, especially with our larger bank customers, where the timing and size of deals impact quarterly and yearly revenue recognition. But the key takeaway is that revenue accounting doesn't affect billing terms or contract values. Looking more specifically at CFD during 2025, we plan to transition some on-premise CFD customers into the consortium.

While this transition strengthens our consortium and has no impact on ACV, it can create a small GAAP revenue headwind as we shift from term license to SaaS ratable revenue. Turning to identity products, we expect nearly all of our identity products revenue growth in fiscal 2025 to be driven by our SaaS identity solutions, with products like MiVIP expected to see meaningful growth. While our biometrics point solutions, primarily in our identity software and maintenance lines, are expected to grow, we've learned from fiscal 2024's forecasting challenges for these products and are taking a more cautious approach to forecasting those larger, more complex deals that can significantly impact in-year revenue recognition. To provide more clarity on how we see top-line revenue phasing through the year, we anticipate the first half to be similar to fiscal 2024, with a heavier concentration of revenue occurring in the second fiscal quarter.

We anticipate that the second half of fiscal 2025 will follow similar seasonality to the second half of 2024. Now for some color on non-GAAP operating expenses. We expect our operating expenses to revert to about the $26 million level in the first fiscal quarter of 2025, with sequential increases primarily coming from the annual bonus accrual reset as well as vacation accrual reset for the new year. We expect some incremental operating expenses sequentially from there beginning in fiscal Q2, mostly in R&D and sales as we invest in our new products. Now let's move on to some housekeeping items. We've refined our revenue disaggregation to show revenue type, as well as new GAAP to non-GAAP reconciliation tables, all in our earnings release. In addition, we have introduced free cash flow, which echoes Ed's emphasis on improving our free cash flow conversion.

Finally, we've uploaded an Excel-based supplemental financial package to our investor relations website containing some trended historical financials. All in all, we hope these updates, coupled with more transparency in our remarks, reflect our positive commitment to consistent, transparent disclosures, enabling shareholders to better assess our performance and our plans moving ahead. Operator, that concludes the prepared remarks. Please open the line for questions.

Operator (participant)

We will now begin the question and answer session. To ask a question, you may press star, then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star and then two. And our first question today will come from Jake Roberge with William Blair. Please go ahead.

Jake Roberge (Partner and Analyst)

Yeah, thanks for taking the questions and welcome aboard, Ed. The added commentary and disclosures were really helpful, so thanks to both you and Dave. Ed, you made some comments about refining the strategy to better prioritize organic growth. Can you help us parse out the low-hanging fruit that you're looking to address this year versus maybe some of the longer-term initiatives you're exploring? And then you talked about the three-year CAGR of 13%. As you look at the business moving forward, do you still see that as kind of the medium-term opportunity here once you work through those initiatives around ID verification and check fraud?

Ed West (CEO)

Well, first of all, good to meet you. Thanks for the introduction. And as I spoke to in my comments, obviously there's a lot of focus, an ardent focus on organic growth.

and frankly, that's just getting very focused in our products, our solutions in terms of what the market is currently seeing. Integrating some of the solutions that we have, in particular on the identity side, with the emphasis on MiVIP, improving the algorithms like they've been done, which is showing the improvement in transaction and auto transaction, in addition to rolling out the new solutions, particularly like Digital Fraud Defender with MiVIP, all kind of teed that up for some excellent conversations with our current base. One of the things I outlined is with recently onboarded customers, we would see after about a year a significant uptake in the use and volume as the solution has been tuned with them. so we see that evolving this year more so with some of our key customers and key areas of growth.

And then I would guess on the deposit side, I would say with Check Fraud Defender, with the growth there, I mentioned that last year in the ACV, we saw about 60% and more than double into this year. So those areas, and it's one of the reasons why I joined Mitek. Frankly, when you look at our history and the reputation that we have, the company has for a long time with over 7,000 financial institutions in the U.S. and frankly around the world, leveraging that, cross-selling opportunities, leveraging those relationships and coming in there with innovation and new thoughts.

And frankly, my conversations I have had over the last few weeks, whether in Europe, the United Kingdom, and the U.S., they see, and frankly, some of these are customers in the U.S. who are on the deposit side, but in particular in Europe on the identity side, where they see the issues that are rising and the concern around AI and looking at the solutions where we're recognized as being a leader on, there's a significant level of interest in having those partnerships. So I think those areas with the company's history, the new product innovation, which is why the last point I would make, it's really important that we continue to invest in the innovation and having these market-leading technologies and capabilities.

That's why these large high-assurance companies like financial institutions will want to partner with someone like Mitek because of being a partner into these areas with evolving threats. I think that's the second part of your question.

Jake Roberge (Partner and Analyst)

Yeah, the second part was really around you talked about the three-year CAGR of 13%. As you look at the business moving forward, do you see that as the medium-term opportunity here? Because you were talking about double-digit ID verification growth, check fraud doubling next year. Just curious how you're looking at that medium-term growth opportunity.

Ed West (CEO)

I mean, I think that's fair. Our first goal is to get back to the double-digit growth and then taking it from there. But having a low teens, I do not have a concern with in terms of that.

And frankly, all of our goals and efforts can be how do we continue to drive that up from there. But we got to first turn the ship and making sure we're getting back to durable growth on that front. This company has gone through a lot. I think as you all well know, over the last couple of years, there's been a lot of distractions, a lot of issues. And the good news is we've made tremendous progress on these and efforts. Now, having the organization highly focused on a clear plan executing against that momentum, we believe we'll build throughout this year. And then we'll give you more color on it as that falls. But I do feel okay about that at this stage.

Jake Roberge (Partner and Analyst)

Okay, very helpful. And then just a two-parter on Check Fraud Defender.

Have you started to see conversations with new customers change in any way now that you've had kind of those initial customers up and running and likely have a clearer ROI message? And then on the partner front with CFD, are there any other large partners that you may be able to activate on that solution this year?

Ed West (CEO)

Now, I have to turn over to Dave from prior conversations and about how those have evolved. I would just tell you from the conversations that I've had and then also been aware of is the ROI is extremely compelling. The solution works.

And I think as you see the level of the data sets that we've been able to build already just with the few FIs that are into the network right now, now already having 17% of the accounts with some data set associated with 17% of those accounts is very meaningful. So I think as more and more get familiar with it, it's a new concept. So it takes a little while to come along. But as they do and they run the tests and see the benefit that it brings forward, I think they'll move in more quickly. But Dave, I don't know if you can comment on prior.

Dave Lyle (CFO)

Yeah, just looking at where this is and its life cycle, as we said before, it was in its nascent stage this past year.

It obviously continues to be what we're starting to get the traction that we thought we would, which we're pretty excited about. Don't forget, a little over a year ago, we had a handful of banks who were working on this. So we've come a pretty long way.

Jake Roberge (Partner and Analyst)

Yes, yes, you have. Well, great opportunity, Ed, and thanks for taking the questions.

Ed West (CEO)

All right, thank you, Jake.

Operator (participant)

And your next question today will come from Mike Grondahl with Northland Securities. Please go ahead.

Mike Grondahl (Head of Equity Research and Senior Research Analyst)

Hey, guys, thanks a lot. And welcome, Ed. My first question is really for you. When you reviewed Mitek and now that you've been there a while, have you found a competitor on the mobile check deposit side?

Ed West (CEO)

Well, yeah. Going back, looking at the company historically, I see the reputation, the presence we have with the number of banks in the United States and financial institutions, credit unions more broadly, over 7,000, we are the lion's share of the solution. I think the market sees tremendous value in our product, our suite, having it highly integrated into their own app and using that. There's just a tremendous amount of value associated with it. So there are others out there, but we will continue to make sure we're delivering a very compelling, competitive value proposition and excellently integrated application for our customers and their customers.

Mike Grondahl (Head of Equity Research and Senior Research Analyst)

And my question more specifically is, you have such a dominant position out there, 7,000 out of 8,700 banks. What's your view on the pricing power that Mitek has in mobile check deposit and potential future price increases?

Ed West (CEO)

Well, I mean, obviously, this call is not the place to go into what pricing would be on a long-term basis. I would just say there's tremendous value in the solution. There's tremendous value in the product and offering, and we will continue to make sure pricing is competitive and that the value is there. But there will continue to be opportunities and making sure that the pricing is aligned to the value to the market.

Mike Grondahl (Head of Equity Research and Senior Research Analyst)

Fair enough. Hopefully, it's something you guys take a hard look at. In Check Fraud Defender, kind of two questions there. When do you think you'll be able to disclose quarterly revenue? And you talked about investing in Check Fraud Defender this next year. Roughly, what is the dollar amount of that investment?

Ed West (CEO)

So I mentioned on my comments here, we ended the year with roughly a $10 million ACV in Check Fraud Defender. And it grew 60% throughout the year, and we expect it to more than double this year. So we're seeing strong interest and momentum on the solution. But regarding the reporting, Dave, I don't know if you want to comment further on that.

Dave Lyle (CFO)

Yeah, we're trying to start heading towards more reporting on ACV because we think that represents better the economic value given all of the accounting guidelines for revenue recognition. So you'll see more ACV, not just with CFD, but expanding across other kind of parts of our product portfolio.

Ed West (CEO)

In the cost side and the incremental, I think I mentioned kind of a low to mid single-digit EBITDA margin impact from the incremental investment on CFD.

The good news is the way that the company invested in that is getting it out into the market, getting it with our customers. We are seeing such strong interest in it and request of additional functionality, capability, reporting, and interest levels, which is terrific. We want to deliver and execute on that swiftly to continue its growth and making sure that product continues to scale with the interest. That's the investment this year. The company has taken a prudent approach on that as the product and solution has grown.

Mike Grondahl (Head of Equity Research and Senior Research Analyst)

Okay. And then just last one for Dave. I don't have the model in front of me, Dave, but overall, this fiscal 2025, will OpEx be about what 2024 was? Do you expect a little bit of savings or a little bit of elevated spending, just OpEx relative to fiscal 2024?

Dave Lyle (CFO)

Yeah, if you do the math on the, call it the midpoint of guidance at $170 million in revenue and our adjusted EBITDA ranges, you end up kind of in an OpEx range of an additional mid single-digit millions of dollars over 24. And what we said earlier is the identity product portfolios, we'll see some improvement in efficiencies on the operating on the spending side. So most of the investment that you'll see is really related to incremental investment through Check Fraud Defender.

Mike Grondahl (Head of Equity Research and Senior Research Analyst)

Got it. Okay. Hey, thank you.

Ed West (CEO)

Thank you.

Operator (participant)

And your next question today will come from George Sutton with Craig-Hallum. Please go ahead.

George Sutton (Partner- Co-Director of Research)

Thank you. Ed, welcome. Nice to have you on board. So my first question is for Dave.

If we go back a quarter, the challenge in that quarter was in identity. We were moving from point solution sales to more of a platform sale. We had, certainly at the ID R&D group, more of the engineers selling the deals. It looks like we saw some improvement there. Can you just give us a sense of what happened in terms of some of those deals that we had seen pushing? How many of those happened in this last quarter versus what we're looking for in the next fiscal year?

Dave Lyle (CFO)

Yeah, Q4, you're right. We got kind of what we expected on that front. Obviously, with all the changes that we made to increase focus, especially on those point biometric products, we saw some decent results relative to our expectations.

Going into 2025, if you remember in the last call, we said that quite a few of the revenue dollars that got pushed out were related to large multinational companies that were just more difficult to close a sale with, so it would take some more time, and that revenue that we had originally expected to get near the end of 2024 is now probably pushed out into 2025, starting more in the back half of 2025 into 2026, probably somewhere in the 12-18 months range, but the other point that we wanted to make was we don't believe that we necessarily lost revenue opportunities. We still think they're out there and that we can land them.

George Sutton (Partner- Co-Director of Research)

Gotcha. So Ed, on Check Fraud Defender, you gave an interesting statistic. We basically have data sets on 17% of the checks, but our current penetration is less than 1%.

Can you just give us the delta between those two numbers? What does that 17% in your mind represent in terms of opportunity?

Ed West (CEO)

Well, what it really is, the opportunity is the data sets that are being built on information and the number, 17% of the number of the accounts, we believe, in the country. So the more and more information, again, it's the network effect of building that out and having the consortium. The network effect makes it just that much more valuable. So the more data we get, the more rich the asset becomes. And also having more and more institutions coming in and contributing to that, everyone benefits by that. So it's early on.

And in fact, I think the point that I was trying to make there is, hey, we have less than 1% of the FIs in the country in here now, yet we already have data sets being built on 17% of the accounts in the country. So if you think about it, those are accounts that are not necessarily the ones who are in the consortium. It's also accounts that are in institutions outside the consortium, but there were checks that were deposited into it. So we just build up greater data sets, more value. Everybody wins. And that's why the network is very valuable.

George Sutton (Partner- Co-Director of Research)

Gotcha. And one other thing for you, Cardtronics was a wonderful turnaround and the outcome was great. I'm curious, as you look at this opportunity coming in, how similar or how different do you view this to be versus that opportunity?

Ed West (CEO)

It's a great question.

It's one of the reasons I'm sitting here right now. I saw a lot of similarity, obviously, from the international footprint, the presence, the capability. Cardtronics had very strong positions with financial institutions and a strong presence, in particular in the U.S. And where we saw the value there is what attracted me to here is because of those relationships, but also to build up the network effect, which we did there, which is what drove all the value, as you may be familiar with, and the growth. And that's what got the company moving to double-digit organic growth, is building out that network.

I see similarity here, obviously a different solution, but this company is very well positioned because of the relationships and the history and the operating capability, but also the technical expertise and people who are at the forefront of an evolving market that these high-assurance companies need a partner and want a partner for. And I just felt like Mitek was very well positioned for that. And then getting inside, just I couldn't be more enthusiastic with the team across the organization of our technical capabilities and the relationships it's informed by meeting face-to-face with customers in multiple countries around the world, so.

George Sutton (Partner- Co-Director of Research)

Gotcha. Finally, my compliments to Dave. When we look at operating expenses down $5 million quarter-over-quarter and service gross margins at an all-time high, 76%, I know that was hard work, and that's why we're seeing the great results today. So congratulations.

Ed West (CEO)

Thanks, George.

George Sutton (Partner- Co-Director of Research)

Thank you.

Operator (participant)

And your next question today will come from Allen Klee with Maxim Group LLC. Please go ahead.

Allen Klee (Managing Director, Equity Research Analyst)

Yes. Hi. I wanted to touch on your guidance. At the midpoint of your revenue guidance, it's implying around a 2% increase year-over-year. And you've mentioned that deposits are going to be relatively flat with Check Defender up and the rest of the stuff down. I'm assuming a couple of things. That's going to mean that there's a negative margin impact there. And it seems like, I'm a little confused on how we have confidence that deposits is going to grow in the future. But then second, the guidance kind of implies that you're not going to really see much growth in identity. And I'm not sure why that is. If you could give the reasons behind that. Thank you.

Dave Lyle (CFO)

Yeah. Thanks, Allen.

We actually decided to lengthen our range a little bit, as you can see, from the range that we have of 170-180. We did that because on the biometric side, we have some opportunity there, but we wanted to be pretty conservative in terms of our forecasting, given the forecasting issues that we had last year. We still have confidence that that can create upside that would move us up into the higher end of the guidance. We also think we have opportunity on the MiVIP platform, which we're pretty excited about. But don't forget, we have headwinds, right? We have our ICAR legacy headwind, which is mild, but it's enough to make a difference. And Mobile Verify, the document verification pricing pressure that we've talked about historically will continue. So it's kind of outpacing on the identity side, outpacing those headwinds.

On the deposit side, remember that with a lower mobile deposits gap revenue, and assuming kind of a flattish year over year, that means the Check Fraud Defender is growing to offset it. We think, actually, once we get to this 2025 year, that when we get into 2026, we'll start to see both deposits and identity starting to grow together and accelerate, especially if we're able to do what Ed talked about in terms of our focus operating discipline in 2025.

Ed West (CEO)

And I would just add there, you're on the right point about the opportunity for growth. And then, as we talked about on the identity side, where the midpoint is the driver of that.

And obviously, as I laid out that plan earlier, this organization has an ardent focus on making sure we can continue to accelerate that organic growth with the products, the solutions, who we're selling to, the relationships there, and building that out and making sure we have the product and then solutions to execute on. So we aspire and will continue all of our objectives and goals are to continue to accelerate that growth. Obviously, I'm new into it, and we're going to take a prudent approach to it. And we'll keep you updated throughout the year. But how we exit, the scene here today, we're driving towards that double-digit growth going into 2026.

Allen Klee (Managing Director, Equity Research Analyst)

Okay. One last question, just following up on identity. Mobile identity did $68.5 million of revenue in fiscal 2024.

I thought I heard you say that when you get to $85 million, it can switch over to profitability. But based on what you're talking about, it sounds like best case is that maybe we would see that in 2026. But that would or how am I thinking about that wrong?

Ed West (CEO)

The comments on that fulcrum point, we believe is 80-85. Let's just take the midpoint. Yes, pulling out from where we were this past year, that says there's a delta of about $14 million that we need to execute and deliver on in terms of growth of getting to that level of contribution turning positive so that those products are accretive to the margin. We're focused on it. That's what we're executing against. We would move into 2026 to achieve that. We're going to keep you posted on it.

If we see any to the positive or negative changes on that trajectory, we will keep you posted. But yeah, we see that going into the 26 period. Now, I'll say that level of contribution also is a fully burdened contribution. So that includes all the company's overheads and general G&A. So that's a very, I would say, a fully burdened approach at that objective.

Allen Klee (Managing Director, Equity Research Analyst)

Okay. Thank you very much.

Operator (participant)

And your final question today will come from Surinder Thind with Jefferies. Please go ahead.

Surinder Thind (SVP, Equity Research Analyst)

Thank you. Ed, I'd like to start a question with about the, I'll call it the integration or transformation program that you're going through. Can you walk us through that in a bit more detail in the sense of how big a lift that is at this point? And when you kind of expect to get to the end target, is that a multi-year journey?

Is it a year-long journey where you get most of the benefits? Sometimes as you get into these projects, they can turn out to be a bit more complex than originally anticipated.

Ed West (CEO)

Absolutely. They can. But I would tell you, it always sounds better to move swiftly, get the whole organization. Again, just as I commented on one of our previous questions, this company's gone through a lot over the last couple of years. The people have gone through a lot. Having clarity to focus on a plan, what we're executing against, having this organization geared to the results that drive value, and what are the biggest value levers for the enterprise, it's how we want the team aligned to. So now having clarity to that, these programs, and I mentioned some of them over here, how are we automating more transactions running on the identity side?

How are we integrating those multiple platforms that we're going through from either heritage ones or acquired? The company used to have four, getting those to one. Continuing to tune AI algorithms and making sure our machine learning algorithms are properly taking the latest data sets to improve the level of automation. Getting our sales team geared towards the products that actually drive the needle in terms of both margin and scalability. So it's just gearing the organization. I think we'll make a lot of headway on it this year, but it'll evolve into next year. And there will probably be more things where we see more opportunities.

But I guess the overarching point is it's about clarity and gearing for the organization to drive towards organic growth and scaling margins and having customers that are our goal is having raving fans and that they want to push and do more with Mitek.

Surinder Thind (SVP, Equity Research Analyst)

Understood. Definitely hear you on obviously having an integrated tech stack or approach from a product perspective as well as will definitely help on the organic growth side. But what about the actual execution of that in the sense of these projects can also get expensive, right? Because sometimes you need a lot of bodies to throw at to get the problem solved within some reasonable timeframe. How are you guys managing that part of the equation? Because when we look across the industry, we see others that have gone through some of these programs that they're not cheap per se.

And so usually you'll see things like expenses just adjusted out of the numbers. And will we see anything like that, or is this somehow you're managing within your existing cost structure?

Ed West (CEO)

Now, I'm not going to predict the future on what we may or may not say, but I will tell you the guidance that we outlined and that Dave walked through incorporates these actions, these investments. Frankly, some of the efficiencies and redundancies that we've already incurred in the company and have taken action on those already. And we also outlined the incremental investments on product enhancements and scale that we are investing in on the CFD solution this year. That's in the numbers. And so it's something where if something were to come along that has an extremely compelling ROI that we feel strongly about that requires an incremental investment. We would discuss that.

But based on everything that we talked through right now, those are in the numbers, and we want to drive upside from those results.

Surinder Thind (SVP, Equity Research Analyst)

Okay. That's actually really good to hear. And then maybe a question for you, Dave, here. When we think about the guidance on kind of the expense levels at fiscal 1Q and then kind of the modest buildup after that, is that kind of the normalized level of expenses here, or do we expect to see incremental cost savings coming in? Obviously, I assume all of this is incorporated within the numbers, but just kind of the puts and takes on that component of the expense line.

Dave Lyle (CFO)

Are you talking about more about what's going to happen after 2025?

Surinder Thind (SVP, Equity Research Analyst)

That is correct. Yes.

Dave Lyle (CFO)

Yeah. We think if we can execute on what Ed's plan, what he laid out, I think we can see margin expansion beyond that. We just don't want to get ahead of ourselves and start guiding past 25, but certainly we think if we can get operating efficiencies, we should be able to see margin expansion.

Surinder Thind (SVP, Equity Research Analyst)

Got it. And then I guess the final question here, just if I heard this correctly, there was some commentary around the reductions, some modest level of reduction in spend in the identity business. Can you provide additional color on that, especially when that's a business that you're investing to build?

Ed West (CEO)

Yes. So this is about focus. I did mention that and said that the spending for the identity products will actually be flat to slightly down for this fiscal year. I think this is just a recognition.

There's been a lot of investment on that over the last couple of years. In the results, we want to drive results and performance. We've geared the team, the organization to the products to make sure they're scaling, that the customer satisfaction is there, that the customer experience is there, that we can cross-sell by integrating these platforms. That's in there. We're investing in the product. We just announced DFD with Digital Fraud Defender, which frankly, we think is at the forefront of the market right now based on what's happening with Gen AI. The goal is to have the efficient, drive productivity, and getting back to a double-digit organic growth and being prudent with how and where we're investing. We're trying to balance all those interests and have the relationships.

I'm not concerned about the cuts or changes or the cost side impacting the customer experience or innovation. It's actually the opposite because we're focused. We're actually able to achieve it.

Surinder Thind (SVP, Equity Research Analyst)

Got it. Okay. I appreciate the time, guys. Thank you.

Todd Kehrli (Head of Investor Relations)

All right. Thank you very much. Operator, I'm just going to kind of close out here for a minute. We've covered a lot of information today. I want to thank you for your time. We're highly enthusiastic about the changes we're making and the prospects for growth for the company. This focused operating discipline combined with the effective sales execution should position us for attractive organic growth as we exit this year. As mentioned, we'll keep you updated on our quarterly progress towards the milestones that were outlined, as well as any actions that are taken as necessary to enhance shareholder value.

Last to say, additionally, Dave and I will be attending the Needham Growth Conference on January 14th. I just look forward to hopefully we'll be able to meet some of you all in person there next month. Until then, thank you very much. We thank you for your support of Mitek. Great day.

Operator (participant)

Conference has now concluded. Thank you for attending today's presentation. You may now disconnect.