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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2022
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     .
Commission File Number 001-35231
MITEK SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware87-0418827
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
600 B Street, Suite 100
San Diego, California
92101
(Address of principal executive offices)(Zip Code)
(619269-6800
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.001 per shareMITK
The NASDAQ Capital Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No   ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  ☒
There were 44,680,429 shares of the registrant’s common stock outstanding as of September 30, 2022.



MITEK SYSTEMS, INC.
FORM 10-Q
For The Quarterly Period Ended June 30, 2022
INDEX
 




PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
MITEK SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(amounts in thousands except share data)
 June 30, 2022 (Unaudited)September 30, 2021
ASSETS  
Current assets:  
Cash and cash equivalents$21,543 $30,312 
Short-term investments49,531 149,057 
Accounts receivable, net29,618 16,602 
Contract assets5,125 4,080 
Prepaid expenses3,078 1,920 
Other current assets3,194 2,085 
Total current assets112,089 204,056 
Long-term investments19,534 48,051 
Property and equipment, net3,802 3,671 
Right-of-use assets5,484 7,056 
Intangible assets, net85,743 28,734 
Goodwill127,992 63,096 
Deferred income tax assets12,993 10,511 
Convertible senior notes hedge 48,208 
Other non-current assets6,959 6,310 
Total assets$374,596 $419,693 
LIABILITIES AND STOCKHOLDERS’ EQUITY  
Current liabilities:  
Accounts payable$3,981 $2,507 
Accrued payroll and related taxes10,276 11,776 
Accrued liabilities(1)
4,432 480 
Deferred revenue, current portion13,220 10,381 
Lease liabilities, current portion1,902 1,943 
Acquisition-related contingent consideration4,980 11,050 
Restructuring accrual1,807  
Income taxes payable(1)
1,332  
Other current liabilities(1)
1,858 1,072 
Total current liabilities43,788 39,209 
Convertible senior notes126,157 120,918 
Embedded conversion derivative 48,208 
Deferred revenue, non-current portion1,409 955 
Lease liabilities, non-current portion4,776 6,588 
Deferred income tax liabilities, non current portion19,227 4,117 
Other non-current liabilities1,923 6,868 
Total liabilities197,280 226,863 
Commitments and contingencies (Note 10)
Stockholders’ equity:  
Preferred stock, $0.001 par value, 1,000,000 shares authorized, none issued and outstanding
  
Common stock, $0.001 par value, 120,000,000 and 60,000,000 shares authorized, 44,396,263 and 44,168,745 issued and outstanding, as of June 30, 2022 and September 30, 2021, respectively
44 44 
Additional paid-in capital211,212 199,935 
Accumulated other comprehensive loss(17,856)(943)
Accumulated deficit(16,084)(6,066)
Treasury stock, at cost, no shares and 7,773 shares as of June 30, 2022 and September 30, 2021, respectively
 (140)
Total stockholders’ equity177,316 192,830 
Total liabilities and stockholders’ equity$374,596 $419,693 
 (1) September 30, 2021 consolidated balance sheet reflects reclassifications to conform to the current year presentation.

See accompanying notes to consolidated financial statements.
1



MITEK SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)  
(Unaudited)
(amounts in thousands except per share data)
 
 Three Months Ended June 30,Nine Months Ended June 30,
 2022202120222021
Revenue  
Software and hardware$19,820 $16,973 $54,545 $42,288 
Services and other19,513 14,805 51,975 44,238 
Total revenue39,333 31,778 106,520 86,526 
Operating costs and expenses  
Cost of revenue—software and hardware508 293 1,196 2,208 
Cost of revenue—services and other4,073 3,117 10,051 9,132 
Selling and marketing11,216 8,133 28,859 24,048 
Research and development9,614 6,946 25,457 19,801 
General and administrative6,589 5,633 18,626 16,409 
Amortization and acquisition-related costs3,283 2,224 9,947 5,576 
Restructuring costs1,807  1,807  
Total operating costs and expenses37,090 26,346 95,943 77,174 
Operating income2,243 5,432 10,577 9,352 
Interest expense2,077 2,223 6,125 3,543 
Other income (expense), net89 80 (8)549 
Income before income taxes255 3,289 4,444 6,358 
Income tax benefit (provision)556 (304)504 (187)
Net income$811 $2,985 $4,948 $6,171 
Net income per share—basic$0.02 $0.07 $0.11 $0.14 
Net income per share—diluted$0.02 $0.07 $0.11 $0.14 
Shares used in calculating net income per share—basic
44,669 43,773 44,721 43,145 
Shares used in calculating net income per share—diluted
45,224 45,194 45,793 44,646 
Comprehensive income (loss)  
Net income$811 $2,985 $4,948 $6,171 
Foreign currency translation adjustment(13,595)747 (16,724)859 
Unrealized gain (loss) on investments909 11 (189)(175)
Comprehensive income (loss)$(11,875)$3,743 $(11,965)$6,855 
 

See accompanying notes to consolidated financial statements.
2


MITEK SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
(amounts in thousands)
Three Months Ended June 30, 2022
Common StockAdditional Paid-In CapitalAccumulated DeficitAccumulated Other Comprehensive Income (Loss)Total Stockholders’ Equity
SharesAmount
Balance, March 31, 202244,344 $44 $207,491 $(16,895)$(5,170)$185,470 
Exercise of stock options10 — 33 — — 33 
Settlement of restricted stock units42 — — — —  
Stock-based compensation expense— — 3,688 — — 3,688 
Net income— — — 811 — 811 
Components of other comprehensive loss:
Currency translation adjustment— — — — (13,595)(13,595)
Change in unrealized gain (loss) on investments— — — — 909 909 
Balance, June 30, 202244,396 $44 $211,212 $(16,084)$(17,856)$177,316 

Three Months Ended June 30, 2021
Common StockAdditional
Paid-In
Capital
Accumulated
Deficit
Accumulated Other Comprehensive Income (Loss)Total
Stockholders’
Equity
SharesAmount
Balance, March 31, 202143,052 $43 $178,891 $(10,808)$(397)$167,729 
Exercise of stock options27 — 241 — — 241 
Settlement of restricted stock units73 — — — —  
Acquisition-related shares issued867 1 13,943 — — 13,944 
Stock-based compensation expense— — 2,867 — — 2,867 
Net income— — — 2,985 — 2,985 
Components of other comprehensive income:
Currency translation adjustment— — — — 747 747 
Change in unrealized gain (loss) on investments— — — — 11 11 
Balance, June 30, 202144,019 $44 $195,942 $(7,823)$361 $188,524 

See accompanying notes to consolidated financial statements.
3


MITEK SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY CONTINUED
(Unaudited)
(amounts in thousands)
Nine Months Ended June 30, 2022
Common StockAdditional
Paid-In
Capital
Treasury StockAccumulated
Deficit
Accumulated Other Comprehensive Income (Loss)Total
Stockholders’
Equity
SharesAmountSharesAmount
Balance, September 30, 202144,169 $44 $199,935 (8)$(140)$(6,066)$(943)$192,830 
Exercise of stock options35 — 239 — — — — 239 
Settlement of restricted stock units1,015 1 (1)— — — —  
Issuance of common stock under employee stock purchase plan71 — 923 — — — — 923 
Stock-based compensation expense— — 10,117 — — 10,117 
Repurchases and retirements of common stock(894)(1)(1)8140(14,966)— (14,828)
Net income— — — — — 4,948 — 4,948 
Components of other comprehensive loss:
Currency translation adjustment— — — — — — (16,724)(16,724)
Change in unrealized gain (loss) on investments— — — — — — (189)(189)
Balance, June 30, 202244,396 $44 $211,212  $ $(16,084)$(17,856)$177,316 
Nine Months Ended June 30, 2021
Common StockAdditional
Paid-In
Capital
Accumulated
Deficit
Accumulated Other Comprehensive Income (Loss)Total
Stockholders’
Equity
SharesAmount
Balance, September 30, 202041,780 $42 $146,518 $(13,994)$(323)$132,243 
Exercise of stock options287 — 2,198 — — 2,198 
Settlement of restricted stock units1,008 1 (1)— —  
Issuance of common stock under employee stock purchase plan77 — 794 — — 794 
Acquisition-related shares issued867 1 13,942 — — 13,943 
Stock-based compensation expense— — 8,582 — — 8,582 
Sale of convertible senior notes warrants— — 23,909 — — 23,909 
Net income— — — 6,171— 6,171
Components of other comprehensive income:
Currency translation adjustment— — — — 859 859 
Change in unrealized gain (loss) on investments— — — — (175)(175)
Balance, June 30, 202144,019 $44 $195,942 $(7,823)$361 $188,524 

See accompanying notes to consolidated financial statements.
4


MITEK SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(amounts in thousands)
Nine Months Ended June 30,
 20222021
Operating activities:  
Net income$4,948 $6,171 
Adjustments to reconcile net income to net cash provided by operating activities:  
Stock-based compensation expense10,117 8,582 
Amortization of intangible assets9,176 5,241 
Depreciation and amortization1,064 1,120 
Amortization of investment premiums & other1,348 774 
Accretion and amortization on debt securities5,239 3,080 
Net changes in estimated fair value of acquisition-related contingent consideration(2,198) 
Deferred taxes(1,141)(263)
Changes in assets and liabilities, net of acquisitions:  
Accounts receivable(12,298)(2,681)
Contract assets(1,737)2,326 
Other assets(1,090)(1,468)
Accounts payable1,147 (1,397)
Accrued payroll and related taxes(2,643)428 
Deferred revenue1,077 2,928 
Restructuring accrual1,900  
Other liabilities1,104 175 
Net cash provided by operating activities16,013 25,016 
Investing activities:  
Purchases of investments(47,818)(186,444)
Sales and maturities of investments173,198 52,536 
Acquisitions, net of cash acquired(126,607)(12,549)
Purchases of property and equipment(929)(966)
Net cash used in investing activities(2,156)(147,423)
Financing activities:  
Proceeds from the issuance of convertible senior notes 155,250 
Payment for convertible senior notes issuance costs (5,513)
Purchase of 2026 convertible senior notes hedge (33,192)
Proceeds from issuance of convertible senior notes warrants 23,909 
Proceeds from the issuance of equity plan common stock1,162 2,992 
Repurchases and retirements of common stock(14,828) 
Payment of acquisition-related contingent consideration(6,770)(783)
Loans made to non-executive employees(1,041) 
Proceeds from other borrowings 251 
Principal payments on other borrowings(36)(68)
Net cash provided by (used in) financing activities(21,513)142,846 
Foreign currency effect on cash and cash equivalents(1,113)124 
Net increase (decrease) in cash and cash equivalents(8,769)20,563 
Cash and cash equivalents at beginning of period30,312 19,986 
Cash and cash equivalents at end of period$21,543 $40,549 
Supplemental disclosures of cash flow information:  
Issuance of common stock for acquisition-related contingent consideration$2,722 $ 
Cash paid for interest$597 $ 
Cash paid for income taxes$819 $556 
Supplemental disclosures of non-cash investing and financing activities:  
Reclassification of convertible senior notes hedge and embedded conversion derivative to additional paid-in capital$42,821 $ 
Unrealized holding loss on available for sale investments$(189)$(175)
                     See accompanying notes to consolidated financial statements.
5


MITEK SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Mitek Systems, Inc. (“Mitek” or the “Company”) is a leading innovator of mobile image capture and digital identity verification solutions. Our solutions are embedded in native mobile apps and web browsers to facilitate digital consumer experiences. Mitek’s identity verification and authentication technologies and services make it possible for banks, financial services organizations and the world’s leading marketplace and sharing platforms to verify an individual’s identity during digital transactions, allowing them to reduce risk and meet regulatory requirements. Our advanced mobile deposit system enables secure, fast and convenient deposit services. Thousands of organizations use Mitek solutions to optimize the security of mobile check deposits, new account openings and more.
To ensure a high level of security against evolving digital fraud threats, in May 2021, Mitek acquired ID R&D, Inc. (“ID R&D”), an award-winning provider of artificial intelligence-based voice and face biometrics and liveness detection. With a strong research and development team, ID R&D consistently delivers innovative, best-in-class biometric capabilities that raise the bar on usability and performance. In March 2022, Mitek acquired HooYu Ltd. (“HooYu”), a leading KYC technology provider in the United Kingdom. The acquisition helps to ensure businesses know the true identity of their customers by linking biometric verification with real-time bureau and sanction database checks.
Mitek markets and sells its products and services worldwide through internal, direct sales teams located in the U.S., Europe, and Latin America as well as through channel partners. Our channel partners are financial services technology providers and identity verification providers. These partners integrate our products into their solutions to meet the needs of their customers.
Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited consolidated financial statements of the Company as of June 30, 2022 have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X and, accordingly, they do not include all information and footnote disclosures required by accounting principles generally accepted in the U.S. (“GAAP”). The Company believes the footnotes and other disclosures made in the financial statements are adequate for a fair presentation of the results of the interim periods presented. The financial statements include all adjustments (solely of a normal recurring nature) which are, in the opinion of management, necessary to make the information presented not misleading. You should read these financial statements and the accompanying notes in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2021, filed with the U.S. Securities and Exchange Commission (“SEC”) on December 13, 2021.
Results for the nine months ended June 30, 2022 are not necessarily indicative of results for any other interim period or for a full fiscal year.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
Foreign Currency
The Company has foreign subsidiaries that operate and sell products and services in various countries and jurisdictions around the world. As a result, the Company is exposed to foreign currency exchange risks. For those subsidiaries whose functional currency is not the U.S. dollar, assets and liabilities are translated into U.S. dollars equivalents at the exchange rate in effect on the balance sheet date and revenues and expenses are translated into U.S. dollars using the average exchange rate over the period. Resulting currency translation adjustments are recorded in accumulated other comprehensive loss in the consolidated balance sheets. The Company recorded a net loss resulting from foreign exchange translation of $13.6 million and a net gain of $0.7 million for the three months ended June 30, 2022 and 2021, respectively. The Company recorded a net loss resulting from foreign exchange translation of $16.7 million and net gain of $0.9 million for the nine months ended June 30, 2022 and 2021, respectively.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, deferred taxes, and related disclosure of contingent assets and
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liabilities. On an ongoing basis, management reviews its estimates based upon currently available information. Actual results could differ materially from those estimates. These estimates include, but are not limited to, assessing the collectability of accounts receivable, estimation of the value of stock-based compensation awards, fair value of assets and liabilities acquired, impairment of goodwill, useful lives of intangible assets, fair value of debt derivatives, standalone selling price related to revenue recognition, contingent consideration, and income taxes.
Revenue Recognition
The Company recognizes revenue in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers, and its related amendments (collectively known as “ASC 606”). ASC 606 outlines a single comprehensive model to be used in accounting for revenue arising from contracts with customers. The core principle, involving a five-step process, of the revenue model is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
The Company generates revenue primarily from the delivery of licenses and related services to customers (for both on-premise and software as a service (“SaaS”) products), as well as the delivery of hardware and professional services. Revenue is measured based on consideration specified in a contract with a customer. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer which may be at a point in time or over time.
Contract Assets and Liabilities
The Company recognizes revenue when control of the license is transferred to the customer. The Company records a contract asset when the revenue is recognized prior to the date payments become due. Contract assets that are expected to be paid within one year are recorded in current assets on the consolidated balance sheets. All other contract assets are recorded in other non-current assets in the consolidated balance sheet. Contract liabilities consist of deferred revenue. When the performance obligation is expected to be fulfilled within one year, the deferred revenue is recorded in current liabilities in the consolidated balance sheet. When the performance obligation is expected to be fulfilled beyond one year, the deferred revenue is recorded in non-current liabilities in the consolidated balance sheet. The Company reports net contract asset or liability positions on a customer-by-customer basis at the end of each reporting period.
Contract Costs
The Company incurs incremental costs to obtain a contract, consisting primarily of sales commissions incurred only if a contract is obtained. When the commission rate for a customer renewal is not commensurate with the commission rate for a new contract, the commission is capitalized if expected to be recovered. Such costs are capitalized and amortized using a portfolio approach consistent with the pattern of transfer of the good or service to which the asset relates. Contract costs are recorded in other current and non-current assets in the consolidated balance sheets.
Net Income Per Share
The Company calculates net income per share in accordance with FASB ASC Topic 260, Earnings per Share. Basic net income per share is based on the weighted-average number of common shares outstanding during the period. Diluted net income per share also gives effect to all potentially dilutive securities outstanding during the period, such as restricted stock units (“RSUs”), stock options, and shares issued under the Company’s Employee Stock Purchase Plan (“ESPP”), and convertible senior notes and warrants, if dilutive. In a period with a net loss position, potentially dilutive securities are not included in the computation of diluted net loss per share because to do so would be antidilutive, and the number of shares used to calculate basic and diluted net loss per share is the same.
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For the three and nine months ended June 30, 2022 and 2021, the following potentially dilutive common shares were excluded from the calculation of net income per share, as they would have been antidilutive (amounts in thousands):
 Three Months Ended June 30,Nine Months Ended June 30,
 2022202120222021
Stock options540 524 484 593 
RSUs853 1,248 861 1,177 
ESPP common stock equivalents148 73 36 27 
Performance options678 263 550 224 
Performance RSUs492 98 279 109 
Convertible senior notes7,448 7,448 7,448 3,983 
Warrants7,448 7,448 7,448 3,983 
Total potentially dilutive common shares outstanding17,607 17,102 17,106 10,096 
The calculation of basic and diluted net income per share is as follows (amounts in thousands, except per share data):
 Three Months Ended June 30,Nine Months Ended June 30,
 2022202120222021
Net income$811 $2,985 $4,948 $6,171 
Weighted-average shares outstanding—basic44,669 43,773 44,721 43,145 
Common stock equivalents555 1,421 1,072 1,501 
Weighted-average shares outstanding—diluted45,224 45,194 45,793 44,646 
Net income per share:
Basic$0.02 $0.07 $0.11 $0.14 
Diluted$0.02 $0.07 $0.11 $0.14 
Investments
Investments consist of corporate notes and bonds, commercial paper, U.S. Treasury securities, and asset-backed securities. The Company classifies investments as available-for-sale at the time of purchase and reevaluates such classification as of each balance sheet date. All investments are recorded at estimated fair value. Unrealized gains and losses for available-for-sale securities are included in accumulated other comprehensive loss, a component of stockholders’ equity. The Company evaluates its investments to assess whether those with unrealized loss positions are other-than-temporarily impaired. Impairments are considered to be other-than-temporary if they are related to deterioration in credit risk or if it is likely that the Company will sell the securities before the recovery of its cost basis. Realized gains and losses and declines in value judged to be other-than-temporary are determined based on the specific identification method and are reported in other income (expense), net in the consolidated statements of operations and comprehensive income (loss). No other-than-temporary impairment charges were recognized in the three and nine months ended June 30, 2022 and 2021.
All investments whose maturity or sale is expected within one year are classified as “current” on the consolidated balance sheets. All other securities are classified as “long-term” on the consolidated balance sheets.
Convertible Senior Notes Hedge and Embedded Conversion Derivative
In February 2021, the Company issued $155.3 million aggregate principal amount of 0.75% convertible notes due 2026 (the “2026 Notes”). Concurrently with the issuance of the 2026 Notes, the Company entered into privately-negotiated convertible senior note hedge (the “Notes Hedge”) and warrant transactions (the “Warrant Transactions”) which, in combination, are intended to reduce the potential dilution from the conversion of the 2026 Notes. Prior to the Company increasing the number of authorized shares of its common stock, par value $0.001 per share (“Common Stock”), the Company could not elect to issue shares of its Common Stock upon settlement of the 2026 Notes due to insufficient authorized share capital. As a result, the embedded conversion option (the “embedded conversion derivative”) was accounted for as a derivative liability and the Notes Hedge as a derivative asset with the resulting gain (or loss) reported in other income, net, in the consolidated statement of operations to the extent the valuation changed from the date of issuance of the 2026 Notes. The Company increased its authorized shares of Common Stock in the second quarter of fiscal 2022 and as such can issue shares of its Common Stock upon settlement of the 2026 Notes. As a result, the embedded conversion option (the “embedded conversion derivative”) and the Notes Hedge are now recorded in additional paid-in-capital in the consolidated balance sheet and are not remeasured as long as they continue to meet the conditions for equity classification. The Warrant Transactions were recorded in additional paid-in-capital in the consolidated balance sheet and are not remeasured as long as
8


they continue to meet the conditions for equity classification. See Note 9. “Convertible Senior Notes” of the consolidated financial statements for additional information related to these transactions.
Accounts Receivable and Allowance for Credit Losses
Trade accounts receivable are recorded at the net invoice value and are not interest bearing. The Company considers receivables past due based on the contractual payment terms. The Company calculates expected credit losses for its trade accounts receivable and contract assets. Expected credit losses include losses expected based on known credit issues with certain customers as well as a general expected credit loss allowance based on relevant information, including historical loss rates, current conditions, and reasonable economic forecasts that affect collectability. The Company updates its allowance for credit losses on a quarterly basis with changes in the allowance recognized in income from operations. The Company had $29,000 of recoveries and no write-offs to the allowance for doubtful accounts for the three months ended June 30, 2022 and 2021, respectively. The Company had $21,000 and $35,000 of write-offs to the allowance for doubtful accounts for the nine months ended June 30, 2022 and 2021, respectively. The Company maintained an allowance for doubtful accounts of $0.5 million as of June 30, 2022 and $0.4 million as of September 30, 2021.
Capitalized Software Development Costs
Costs related to software acquired, developed, or modified solely to meet our internal requirements, with no substantive plans to market such software at the time of development, are capitalized. Costs incurred during the preliminary planning and evaluation stage of the project and during the post-implementation operational stage are expensed as incurred. Costs incurred during the application development stage of the project are capitalized. The Company defines the design, configuration, and coding process as the application development stage. The Company capitalized $0.2 million of costs related to computer software developed for internal use during each of the three months ended June 30, 2022 and 2021. The Company capitalized $0.6 million of costs related to computer software developed for internal use during each of the nine months ended June 30, 2022 and 2021. The Company had $0.1 million in amortization expense from internal use software during each of the three months ended June 30, 2022 and 2021. The Company had $0.2 million and $0.3 million in amortization expense from internal use software during the nine months ended June 30, 2022 and 2021, respectively.
Goodwill and Purchased Intangible Assets
The Company’s goodwill and intangible assets resulted from prior acquisitions. Goodwill and intangible assets with indefinite useful lives are not amortized, but are tested for impairment at least annually or as circumstances indicate that their value may no longer be recoverable. In accordance with ASC Topic 350, Intangibles—Goodwill and Other (“ASC 350”), the Company reviews its goodwill and indefinite-lived intangible assets for impairment at least annually in its fiscal fourth quarter and more frequently if events or changes in circumstances occur that indicate a potential reduction in the fair value of its reporting unit and/or its indefinite-lived intangible asset below their respective carrying values. Examples of such events or circumstances include: a significant adverse change in legal factors or in the business climate, a significant decline in the Company’s stock price, a significant decline in the Company’s projected revenue or cash flows, an adverse action or assessment by a regulator, unanticipated competition, a loss of key personnel, or the presence of other indicators that would indicate a reduction in the fair value of a reporting unit. No such events or circumstances have occurred since the last impairment assessment was performed.
The Company’s goodwill is considered to be impaired if management determines that the carrying value of the reporting unit to which the goodwill has been assigned exceeds management’s estimate of its fair value. Based on the guidance provided by ASC 350 and ASC Topic 280, Segment Reporting, management has determined that the Company operates in one segment and consists of one reporting unit given the similarities in economic characteristics between its operations and the common nature of its products, services and customers. Because the Company has only one reporting unit, and because the Company is publicly traded, the Company determines the fair value of the reporting unit based on the market price of its common stock as it believes this represents the best evidence of fair value. In the fourth quarter of the fiscal year ended September 30, 2021, management completed its annual goodwill impairment test and concluded that the Company’s goodwill was not impaired. The Company’s conclusion that goodwill was not impaired was based on a comparison of its net assets to its market capitalization. There was no impairment of goodwill during the three and nine months ended June 30, 2022 and 2021.
Because the Company determines the fair value of its reporting unit based on its market capitalization, the Company’s future reviews of goodwill for impairment may be impacted by changes in the price of the Common Stock. For example, a significant decline in the price of the Common Stock may cause the fair value of its goodwill to fall below its carrying value. Therefore, the Company cannot assure that when it completes its future reviews of goodwill for impairment a material impairment charge will not be recorded.
Intangible assets are amortized over their useful lives. Each period, the Company evaluates the estimated remaining useful life of its intangible assets and whether events or changes in circumstances warrant a revision to the remaining period of amortization. The carrying amounts of these assets are periodically reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable. Recoverability of these assets is measured by comparing the carrying amount of each asset to the future undiscounted cash flows the asset is expected to generate. The carrying amount of such assets is reduced to fair value if the undiscounted cash flows used in the test for recoverability are less than the carrying amount of such assets.
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No impairment charge related to the impairment of intangible assets was recorded during the nine months ended June 30, 2022 and 2021.
Other Borrowings
The Company has certain loan agreements with Spanish government agencies which were assumed when the Company acquired ICAR Vision Systems, S.L. ("ICAR") in 2017. These agreements have repayment periods of five to twelve years and bear no interest. As of June 30, 2022, $1.4 million was outstanding under these agreements and $0.1 million and $1.3 million is recorded in other current liabilities and other non-current liabilities, respectively, in the consolidated balance sheets. As of September 30, 2021, $0.8 million was outstanding under these agreements and approximately $0.1 million and $0.7 million is recorded in other current liabilities and other non-current liabilities, respectively, in the consolidated balance sheets.
Guarantees
In the ordinary course of business, the Company is not subject to potential obligations under guarantees that fall within the scope of FASB ASC Topic 460, Guarantees (“ASC 460”), except for standard indemnification and warranty provisions that are contained within many of the Company’s customer license and service agreements and certain supplier agreements, and give rise only to the disclosure requirements prescribed by ASC 460. Indemnification and warranty provisions contained within the Company’s customer license and service agreements and certain supplier agreements are generally consistent with those prevalent in the Company’s industry. The Company has not historically incurred significant obligations under customer indemnification or warranty provisions and does not expect to incur significant obligations in the future. Accordingly, the Company does not maintain accruals for potential customer indemnification or warranty-related obligations.
Income Taxes
The Company accounts for income taxes in accordance with FASB ASC Topic 740, Income Taxes (“ASC 740”). Deferred tax assets and liabilities arise from temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements that will result in taxable or deductible amounts in future years.
Management evaluates the available evidence about future taxable income and other possible sources of realization of deferred tax assets. The valuation allowance reduces deferred tax assets to an amount that represents management’s best estimate of the amount of such deferred tax assets that more likely than not will be realized. See Note 8. “Income Taxes” of the consolidated financial statements for additional details.
The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the tax authorities, based on the technical merits of the position. The tax benefit is measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The Company recognizes interest and penalties related to income tax matters in income tax expense. See Note 8. “Income Taxes” of the consolidated financial statements for additional details.
Stock-Based Compensation
The Company issues RSUs, stock options, performance options, and performance RSUs as awards to its employees. Additionally, eligible employees may participate in the ESPP. Employee stock awards are measured at fair value on the date of grant and expense is recognized using the straight-line single-option method in accordance with FASB ASC Topic 718, Compensation—Stock Compensation. Forfeitures are recorded as they occur.
The Company assigns fair value to RSUs based on the closing stock price of its Common Stock on the date of grant.
The Company estimates the fair value of stock options and ESPP shares using the Black-Scholes option pricing model. The Black-Scholes option pricing model requires subjective assumptions, including future stock price volatility and expected time to exercise, which greatly affect the calculated values. The expected term of options granted is derived from historical data on employee exercises and post-vesting employment termination behavior. The risk-free rate selected to value any particular grant is based on the U.S. Treasury rate that corresponds to the expected life of the grant effective as of the date of the grant. The expected volatility is based on the historical volatility of the Company’s stock price. These factors could change in the future, affecting the determination of stock-based compensation expense in future periods.
The Company estimates the fair value of performance options, senior executive performance restricted stock units, and similar awards using the Monte-Carlo simulation. The Monte-Carlo simulation requires subjective assumptions, including the Company’s valuation date stock price, the annual risk-free interest rate, expected volatility, the probability of reaching the stock performance targets, and a 20-trading-day average stock price.
Comprehensive Income (Loss)
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Comprehensive income (loss) consists of net income, unrealized gains and losses on available-for-sale securities, and foreign currency translation adjustments. Included on the consolidated balance sheets is accumulated other comprehensive loss of $17.9 million and $0.9 million at June 30, 2022 and September 30, 2021, respectively. The components of accumulated other comprehensive loss consist of $16.3 million of cumulative translation adjustment and $1.6 million of unrealized gains and losses on available for sale securities and $0.7 million of cumulative translation adjustment and $0.2 million other unrealized gains and losses on available for sale securities at June 30, 2022 and September 30, 2021, respectively.
Recently Adopted Accounting Pronouncements
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”), which is intended to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to the recognition of an acquired contract liability and the payment terms and their effect on subsequent revenue recognized by the acquirer. ASU 2021-08 will improve comparability for both the recognition and measurement of acquired revenue contracts with customers at the date of and after a business combination and improve comparability after the business combination by providing consistent recognition and measurement guidance for revenue contracts with customers acquired in a business combination and revenue contracts with customers not acquired in a business combination. ASU 2021-08 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early adoption is permitted, including adoption in an interim period. The Company early adopted the guidance in the second quarter of fiscal 2022 and it did not have a material impact on its consolidated financial statements.
In August 2020, the FASB issued Accounting Standards Update 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40)—Accounting For Convertible Instruments and Contracts in an Entity's Own Equity (“ASU 2020-06”). ASU 2020-06 simplifies accounting for convertible instruments by removing major separation models required under current GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features through equity. Without an initial allocation of proceeds to the conversion option, the debt will likely have a lower discount, thereby resulting in less noncash interest expense through accretion. ASU 2020-06 removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for such exception. ASU 2020-06 also simplifies the diluted net income per share calculation in certain areas. ASU 2020-06 is effective for annual and interim periods beginning after December 15, 2021, and early adoption is permitted for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. This update permits the use of either the modified retrospective or fully retrospective method of transition. The Company adopted ASU 2020-06 in the first quarter of fiscal 2022, however, it had no impact to the financial statements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in ASC 740 and also clarifies and amends existing guidance to improve consistent application. The Company prospectively adopted this ASU 2019-12 in the first quarter of fiscal 2022 and it did not have a material impact on its consolidated financial statements.
Change in Significant Accounting Policy
The Company has consistently applied the accounting policies to all periods presented in its consolidated financial statements.
Recently Issued Accounting Pronouncements
No new accounting pronouncement issued or effective during the nine months ended June 30, 2022 had, or is expected to have, a material impact on the Company’s consolidated financial statements.

2. REVENUE RECOGNITION
Nature of Goods and Services
The following is a description of principal activities from which the Company generates its revenue. Contracts with customers are evaluated on a contract-by-contract basis as contracts may include multiple types of goods and services as described below.
Software and Hardware
Software and hardware revenue is generated from on-premise software license sales, as well as sales of hardware scanner boxes and on-premise appliance products. For software license agreements that are distinct, the Company recognizes software license revenue upon delivery and after evidence of a contract exists. Hardware revenue is recognized at a point in time upon shipment and after evidence of a contract exists.
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Services and Other
Services and other revenue is generated from the sale of SaaS products and services, maintenance associated with the sale of on-premise software licenses and consulting and professional services. The Company recognizes services revenue over the period in which such services are performed. The Company’s SaaS offerings gives customers the option to be charged upon their incurred usage in arrears (“Pay as You Go”), or they may commit to a minimum spend over their contracted period. Revenue related to Pay as You Go contracts are recognized based on the customers’ actual usage. Revenue related to commitment contracts are recognized on a ratable basis over the contract period including an estimate of usage above the minimum commitment. Usage above minimum commitment is estimated by looking at usage in previous months and other factors and projecting out for the rest of the contract. The estimated usage-based revenues are constrained to the amount the Company expects to be entitled to receive in exchange for providing access to its platform. If professional services are deemed to be distinct, revenue is recognized as services are performed. If the up-front fee is not distinct, revenue is deferred until the date the customer commences use of the Company’s services, at which point it is recognized ratably over the life of the customer arrangement. The Company does not view the signing of the contract or the provision of initial setup services as discrete earnings events that are distinct.
Significant Judgments in Application of the Guidance
The Company uses the following methods, inputs, and assumptions in determining amounts of revenue to recognize:
Identification of Performance Obligations
For contracts that contain multiple performance obligations, which include combinations of software licenses, maintenance, and services, the Company accounts for individual goods or services as a separate performance obligation if they are distinct. The good or service is distinct if the good or service is separately identifiable from other items in the arrangement and if a customer can benefit from it on its own or with other resources that are readily available to the customer. If these criteria are not met, the promised goods or services are accounted for as a combined performance obligation.
Determination of Transaction Price
The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring products or services to the customer. The Company includes any fixed charges within its contracts as part of the total transaction price. To the extent that variable consideration is not constrained, the Company includes an estimate of the variable amount, as appropriate, within the total transaction price and updates its assumptions over the duration of the contract. As a practical expedient, the Company does not adjust the transaction price for the effects of a significant financing component if, at contract inception, the period between customer payment and the transfer of goods or services is expected to be one year or less.
Assessment of Estimates of Variable Consideration
Many of the Company’s contracts with customers contain some component of variable consideration; however, variable consideration will only be included in the transaction price to the extent it is probable that a significant reversal of revenues recognized will not occur when the uncertainty associated with the variable consideration is resolved. The Company may constrain the estimated transaction price in the event of a high degree of uncertainty as to the final consideration amount owed because of an extended length of time over which the fees may be adjusted or due to uncertainty surrounding collectability.
Allocation of Transaction Price
The transaction price, including any discounts, is allocated between separate goods and services in a contract that contains multiple performance obligations based on their relative standalone selling prices. The standalone selling prices are based on the prices at which the Company separately sells each good or service. For items that are not sold separately, the Company estimates the standalone selling prices using available information such as market conditions and internally approved pricing guidelines. In certain situations, primarily transactional SaaS revenue described above, the Company allocates variable consideration to a series of distinct goods or services within a contract. The Company allocates variable payments to one or more, but not all, of the distinct goods or services or to a series of distinct goods or services in a contract when (i) the variable payment relates specifically to the Company’s efforts to transfer the distinct good or service and (ii) the variable payment is for an amount that depicts the amount of consideration to which the Company expects to be entitled in exchange for transferring the promised goods or services to its customer.
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Disaggregation of Revenue
The following table presents the Company's revenue disaggregated by major product category (amounts in thousands):
Three Months Ended June 30,Nine Months Ended June 30,
2022202120222021
Major product category
Deposits software and hardware$16,910 $15,817 $46,605 $38,705 
Deposits services and other5,010 4,963 15,670 14,887 
Deposits revenue21,920 20,780 62,275 53,592 
Identity verification software and hardware2,910 1,156 7,940 3,583 
Identity verification services and other14,503 9,842 36,305 29,351 
Identity verification revenue17,413 10,998 44,245 32,934 
Total revenue$39,333 $31,778 $106,520