MITEK SYSTEMS INC [MITK] Filings

10-Q 1 mitk-20230630.htm 10-Q mitk-20230630

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, 2023


☐			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)


Delaware						87-0418827
(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)

(619) 269-6800

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001 per share	MITK	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 filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller 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 45,589,575 shares of the registrant’s common stock outstanding as of September 30, 2023.

MITEK SYSTEMS, INC.

FORM 10-Q

For The Quarterly Period Ended June 30, 2023

INDEX


	PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	1
	Condensed Consolidated Balance Sheets at June 30, 2023 (Unaudited) and September 30, 2022	1
	Condensed Consolidated Statements of Operations and Other Comprehensive Income (Loss) (Unaudited) for the Three and Nine Months Ended June 30, 2023 and 2022	2
	Condensed Consolidated Statements of Stockholders' Equity (Unaudited) for the Three and Nine Months Ended June 30, 2023 and 2022	3
	Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended June 30, 2023 and 2022	5
	Notes to Condensed Consolidated Financial Statements (Unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	40
Item 4.	Controls and Procedures	41
	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	43
Item 1A.	Risk Factors	43
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43
Item 3.	Defaults Upon Senior Securities	43
Item 4.	Mine Safety Disclosures	43
Item 5.	Other Information	43
Item 6.	Exhibits	44
	Signatures	45

PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

MITEK SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(amounts in thousands except share data)


	June 30, 2023 (Unaudited)		September 30, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	87,490	$	32,059
Short-term investments	40,651		58,268
Accounts receivable, net	37,616		27,874
Contract assets, current portion	7,420		6,273
Prepaid expenses	2,227		2,000
Other current assets	2,828		2,622
Total current assets	178,232		129,096
Long-term investments	2,815		10,633
Property and equipment, net	3,010		3,493
Right-of-use assets	4,335		5,155
Intangible assets, net	70,414		75,756
Goodwill	131,535		120,186
Deferred income tax assets	18,553		10,245

Contract assets, non-current portion	7,050		4,218
Other non-current assets	1,533		1,628
Total assets	$	417,477	$	360,410
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	7,733	$	4,974
Accrued payroll and related taxes	9,548		10,393
Accrued liabilities	1,231		1,155
Accrued interest payable(1)	673		202
Income tax payables(1)	10,059		194
Deferred revenue, current portion	12,786		13,394
Lease liabilities, current portion	2,123		2,110
Acquisition-related contingent consideration	8,013		5,920
Restructuring accrual	—		901
Other current liabilities(1)	1,521		1,254
Total current liabilities	53,687		40,497
Convertible senior notes	133,579		127,970

Deferred revenue, non-current portion	2,056		1,775
Lease liabilities, non-current portion	2,968		4,106
Deferred income tax liabilities, non current portion	15,970		14,132
Other non-current liabilities	1,573		1,613
Total liabilities	209,833		190,093

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 120,000,000 shares authorized, 45,507,401 and 44,680,429 issued and outstanding, as of June 30, 2023 and September 30, 2022, respectively	45		44
Additional paid-in capital	225,633		216,493
Accumulated other comprehensive loss	(9,504)		(28,219)
Accumulated deficit	(8,530)		(18,001)

Total stockholders’ equity	207,644		170,317
Total liabilities and stockholders’ equity	$	417,477	$	360,410

(1) September 30, 2022 condensed consolidated balance sheet reflects reclassifications to conform to the current year presentation.

See accompanying notes to condensed consolidated financial statements.

MITEK SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND

OTHER COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(amounts in thousands except per share data)


	Three Months Ended June 30,				Nine Months Ended June 30,
	2023		2022 As Restated		2023		2022 As Restated
Revenue
Software and hardware	$	21,447	$	19,515	$	73,083	$	53,110
Services and other	21,623		19,680		61,813		52,068
Total revenue	43,070		39,195		134,896		105,178
Operating costs and expenses
Cost of revenue—software and hardware (exclusive of depreciation & amortization)	428		508		816		1,196
Cost of revenue—services and other (exclusive of depreciation & amortization)	5,284		5,276		15,863		13,594
Selling and marketing	10,296		11,216		29,434		28,859
Research and development	7,461		8,411		22,504		21,914
General and administrative	11,588		6,591		30,126		18,628
Amortization and acquisition-related costs	6,207		4,493		15,302		10,777
Restructuring costs	14		1,807		2,000		1,807
Total operating costs and expenses	41,278		38,302		116,045		96,775
Operating income	1,792		893		18,851		8,403
Interest expense	2,362		2,077		6,662		6,125
Other income (expense), net	925		89		1,719		(2)
Income (loss) before income taxes	355		(1,095)		13,908		2,276
Income tax benefit (provision)	(783)		880		(4,437)		1,068
Net income (loss)	$	(428)	$	(215)	$	9,471	$	3,344
Net income (loss) per share—basic	$	(0.01)	$	(0.00)	$	0.21	$	0.07
Net income (loss) per share—diluted	$	(0.01)	$	(0.00)	$	0.20	$	0.07
Shares used in calculating net income (loss) per share—basic	46,002		44,669		45,625		44,721
Shares used in calculating net income (loss) per share—diluted	46,473		45,224		46,210		45,793
Other comprehensive income (loss)
Net income (loss)	$	(428)	$	(215)	$	9,471	$	3,344
Foreign currency translation adjustment	2,219		(13,595)		17,944		(16,724)
Unrealized gain (loss) on investments	123		909		771		(189)
Other comprehensive income (loss)	$	1,914	$	(12,901)	$	28,186	$	(13,569)

See accompanying notes to condensed consolidated financial statements.

MITEK SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited)

(amounts in thousands)


	Three Months Ended June 30, 2023
	Common Stock			Additional Paid-In Capital		Accumulated Deficit	Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity
	Shares	Amount
Balance, March 31, 2023	45,410	$	45	$	222,933		$	(8,102)	$	(11,846)	$	203,030
Exercise of stock options	13	—		56			—		—		56
Settlement of restricted stock units	84	—		—			—		—		—


Stock-based compensation expense	—	—		2,644			—		—		2,644



Components of other comprehensive income:
Net loss	—	—		—			(428)		—		(428)
Currency translation adjustment	—	—		—			—		2,219		2,219
Change in unrealized gain (loss) on investments	—	—		—			—		123		123
Total other comprehensive income											1,914
Balance, June 30, 2023	45,507	$	45	$	225,633		$	(8,530)	$	(9,504)	$	207,644


	Three Months Ended June 30, 2022
	Common Stock			Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity
	Shares	Amount
Balance, March 31, 2022	44,344	$	44	$	207,491	$	(17,473)	$	(5,170)	$	184,892
Exercise of stock options	10	—		33		—		—		33
Settlement of restricted stock units	42	—		—		—		—		—


Stock-based compensation expense	—	—		3,688		—		—		3,688


Components of other comprehensive loss:
Net loss	—	—		—		(215)		—		(215)
Currency translation adjustment	—	—		—		—		(13,595)		(13,595)
Change in unrealized gain (loss) on investments	—	—		—		—		909		909
Total other comprehensive income										(12,901)
Balance, June 30, 2022	44,396	$	44	$	211,212	$	(17,688)	$	(17,856)	$	175,712

See accompanying notes to condensed consolidated financial statements.

MITEK SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY CONTINUED

(Unaudited)

(amounts in thousands)


	Nine Months Ended June 30, 2023
	Common Stock			Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity
	Shares	Amount
Balance, September 30, 2022	44,680	$	44	$	216,493	$	(18,001)	$	(28,219)	$	170,317
Exercise of stock options	99	—		732		—		—		732
Settlement of restricted stock units	656	1		(1)		—		—		—
Issuance of common stock under employee stock purchase plan	72	—		619		—		—		619

Stock-based compensation expense	—	—		7,790		—		—		7,790



Components of other comprehensive income:
Net income	—	—		—		9,471		—		9,471
Currency translation adjustment	—	—		—		—		17,944		17,944
Change in unrealized gain (loss) on investments	—	—		—		—		771		771
Total other comprehensive income										28,186
Balance, June 30, 2023	45,507	$	45	$	225,633	$	(8,530)	$	(9,504)	$	207,644


	Nine Months Ended June 30, 2022
	Common Stock			Additional Paid-In Capital		Treasury Stock			Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity
	Shares	Amount				Shares	Amount
Balance, September 30, 2021	44,169	$	44	$	199,935	(8)	$	(140)	$	(6,066)	$	(943)	$	192,830
Exercise of stock options	35	—		239		—	—		—		—		239
Settlement of restricted stock units	1,015	1		(1)		—	—		—		—		—
Issuance of common stock under employee stock purchase plan	71	—		923		—	—		—		—		923

Stock-based compensation expense	—	—		10,117		—	—		—		—		10,117

Repurchases and retirements of common stock	(894)	(1)		(1)		8	140		(14,966)		—		(14,828)
Components of other comprehensive loss:
Net income	—	—		—		—	—		3,344		—		3,344
Currency translation adjustment	—	—		—		—	—		—		(16,724)		(16,724)
Change in unrealized gain (loss) on investments	—	—		—		—	—		—		(189)		(189)
Total other comprehensive loss													(13,569)
Balance, June 30, 2022	44,396	$	44	$	211,212	—	$	—	$	(17,688)	$	(17,856)	$	175,712

See accompanying notes to condensed consolidated financial statements.

MITEK SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(amounts in thousands)


	Nine Months Ended June 30,
	2023		2022 As Restated
Operating activities:
Net income	$	9,471	$	3,344
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation expense	7,790		10,117

Amortization of intangible assets	13,270		9,176
Depreciation and amortization	1,187		1,064
Amortization of investment premiums & other	(64)		1,348
Accretion and amortization on debt securities	5,609		5,239
Net changes in estimated fair value of acquisition-related contingent consideration	2,093		(1,278)
Deferred taxes	(8,246)		(1,705)
Changes in assets and liabilities, net of acquisitions:
Accounts receivable	(9,014)		(12,233)
Contract assets	(3,758)		(1,737)
Other assets	(73)		(848)
Accounts payable	2,633		1,147
Accrued payroll and related taxes	(1,099)		(2,643)
Income taxes payable(1)	9,865		85
Deferred revenue	(752)		1,917
Restructuring accrual	(971)		1,900
Other liabilities(1)	172		1,120
Net cash provided by operating activities	28,113		16,013
Investing activities:
Purchases of investments	(23,723)		(47,818)
Sales and maturities of investments	50,000		173,198
Acquisitions, net of cash acquired	—		(126,607)
Purchases of property and equipment, net	(656)		(929)
Net cash provided by (used in) investing activities	25,621		(2,156)
Financing activities:




Proceeds from the issuance of equity plan common stock	1,351		1,162
Repurchases and retirements of common stock	—		(14,828)
Payment of acquisition-related contingent consideration	—		(6,770)
Acquisition-related shares issued	—		(1,041)

Principal payments on other borrowings	(36)		(36)
Net cash provided by (used in) financing activities	1,315		(21,513)
Foreign currency effect on cash and cash equivalents	382		(1,113)
Net increase (decrease) in cash and cash equivalents	55,431		(8,769)
Cash and cash equivalents at beginning of period	32,059		30,312
Cash and cash equivalents at end of period	$	87,490	$	21,543
Supplemental disclosures of cash flow information:
Issuance of common stock for acquisition-related contingent consideration	$	—	$	2722
Cash paid for interest	$	829	$	597
Cash paid for income taxes	$	3,074	$	819
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 gain (loss) on available for sale investments	$	771	$	(189)

(1) March 31, 2022 condensed consolidated statement of cash flows reflects reclassifications to conform to the current year presentation.

See accompanying notes to condensed consolidated financial statements... ..

MITEK SYSTEMS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

Mitek Systems, Inc. (“Mitek,” the “Company,” “we,” “us,” and “our”) is a leading innovator of mobile image capture and digital identity verification solutions. We are a software development company with expertise in artificial intelligence and machine learning. We currently serve more than 7,900 financial services organizations and leading marketplace and financial technology (“fintech”) brands around the globe. Customers count on Mitek to deliver trusted and convenient online experiences, detect and reduce fraud, and document Know Your Customer (“KYC”) and Anti-Money Laundering (“AML”) regulatory compliance. The Company’s 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. The Company’s 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.

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 partner sales strategy includes channel partners who are financial services technology providers and identity verification providers. These partners integrate our products into their solutions to meet the needs of their customers, typically provisioning Mitek services through their respective platforms.

Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Company as of June 30, 2023 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, 2022, filed with the U.S. Securities and Exchange Commission (“SEC”) on July 31, 2023.

In connection with the preparation of the Company’s financial statements for the fiscal year ended September 30, 2022, the Company noted that certain revenue contracts and other items were improperly accounted for during three and six months ended March 31, 2022 and the three and nine months ended June 30, 2022. Specifically, the Company (a) did not appropriately (i) recognize revenue on its multiyear term licenses; (ii) recognize revenue related to guaranteed minimums and overages for software as a service (“SaaS”) product sales; (iii) cut off revenue related to term license sales; (iv) capitalize certain commissions paid to the HooYu Ltd (“HooYu”) sales team subsequent to the acquisition of HooYu in March 2022; (v) recognize a lease liability and right-of-use asset related to the office lease assumed in the HooYu acquisition; and (vi) recognize certain liabilities upon the acquisition of HooYu that were not valid liabilities; and (b) misclassified certain employee costs related to cloud operations as research and development expense instead of cost of revenue. Refer to Note 13. Restatement of Previously Reported Unaudited Interim Consolidated Financial Statements for further details.

Results for the nine months ended June 30, 2023 are not necessarily indicative of results for any other interim period or for a full fiscal year.

Principles of Consolidation

The condensed 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.

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 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.

Reclassifications

A reclassification has been made to the prior periods’ condensed consolidated financial statements in order to conform to the current period presentation. Accrued interest payable and income tax payables were included in the other current liabilities line in the condensed consolidated balance sheet as of September 30, 2022, however, they have been presented separately in the condensed consolidated balance sheet as of June 30, 2023 so that the total of the other current liabilities line is less than five percent of total current liabilities.

Net Income (Loss) Per Share

For the three and nine months ended June 30, 2023 and 2022, the following potentially dilutive common shares were excluded from the calculation of net income (loss) per share, as they would have been antidilutive (amounts in thousands):


	Three Months Ended June 30,		Nine Months Ended June 30,
	2023	2022	2023	2022
Stock options	443	540	453	484
RSUs	1,256	853	1,138	861
ESPP common stock equivalents	295	148	89	36
Performance options	783	678	772	550
Performance RSUs	728	492	228	279
Convertible senior notes	7,448	7,448	7,448	7,448
Warrants	7,448	7,448	7,448	7,448
Total potentially dilutive common shares outstanding	18,401	17,607	17,576	17,106

The calculation of basic and diluted net income (loss) per share is as follows (amounts in thousands, except per share data):


	Three Months Ended June 30,				Nine Months Ended June 30,
	2023		2022 As Restated		2023		2022 As Restated
Net income (loss)	$	(428)	$	(215)	$	9,471	$	3,344
Weighted-average shares outstanding—basic	46,002		44,669		45,625		44,721
Common stock equivalents	471		555		585		1,072
Weighted-average shares outstanding—diluted	46,473		45,224		46,210		45,793
Net income (loss) per share:
Basic	$	(0.01)	$	(0.00)	$	0.21	$	0.07
Diluted	$	(0.01)	$	(0.00)	$	0.20	$	0.07

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, 2023, $1.3 million was outstanding under these agreements and $0.1 million and $1.2 million is recorded in other current liabilities and other non-current liabilities, respectively, in the condensed consolidated balance sheets. As of September 30, 2022, $1.3 million was outstanding under these agreements and approximately $0.1 million and $1.2 million is recorded in other current liabilities and other non-current liabilities, respectively, in the condensed consolidated balance sheets.

Recently Adopted Accounting Pronouncements

The Company did not adopt any new accounting pronouncements in the quarter ended June 30, 2023.

Change in Significant Accounting Policy

The Company’s significant accounting policies are disclosed in the Company’s audited condensed consolidated financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2022, filed with the SEC on July 31, 2023. There have been no changes to these accounting policies through June 30, 2023.

Recently Issued Accounting Pronouncements

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference

Rate Reform on Financial Reporting (ASU 2020-04) and also issued subsequent amendments to the initial guidance (collectively, Topic 848). Topic 848 provides optional guidance for contract modifications and certain hedging relationships associated with the transition from reference rates that are expected to be discontinued. The Company will adopt Topic 848 when the relevant contracts are modified upon transition to alternative reference rates. The Company does not expect the adoption of Topic 848 will have a material impact on the condensed consolidated financial statements.

No other new accounting pronouncement issued or effective during the three months ended June 30, 2023 had, or are expected to have, a material impact on the Company’s condensed 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. Software is typically sold as a time-based license with a term of one to three years. 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.

Services and Other

Services and other revenue is generated from the sale of software as a service (“SaaS”) products and services, maintenance associated with the sale of on premise software licenses and consulting and professional services. The Company’s SaaS offerings give customers the option to be charged upon their incurred usage in arrears (“Pay as You Go”), or commit to a minimum spend over their contracted period, with the ability to purchase unlimited additional transactions above the minimum during the contract term. Revenue related to Pay as You Go contracts are recognized based on the customer’s actual usage, in the period of usage. For contracts which include a minimum commitment, the Company is standing ready to provide as many transactions as desired by the customer throughout the contract term, and revenue is 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 historical usage, expected volume, and other factors to project out for the remainder of the contract term. 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. 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. The Company estimates variable consideration in its contracts primarily using the expected value method as the Company believes this method represents the most appropriate estimate for this consideration, based on historical usage trends, the individual contract considerations, and its best judgment at the time.

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.

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,
	2023		2022 As Restated		2023		2022 As Restated
Major product category
Deposits software and hardware	$	18,300	$	16,955	$	64,979	$	46,574
Deposits services and other	6,504		5,010		18,866		15,670
Deposits revenue	24,804		21,965		83,845		62,244
Identity verification software and hardware	3,147		2,560		8,104		6,536
Identity verification services and other	15,119		14,670		42,947		36,398
Identity verification revenue	18,266		17,230		51,051		42,934
Total revenue	$	43,070	$	39,195	$	134,896	$	105,178

Contract Balances

The following table provides information about contract assets and contract liabilities from contracts with customers (amounts in thousands):


	June 30, 2023		September 30, 2022
Contract assets, current	$	7,420	$	6,273
Contract assets, non-current	7,050		4,218
Contract liabilities (deferred revenue), current	12,786		13,394
Contract liabilities (deferred revenue), non-current	2,056		1,775

Contract assets, reported within a separate line in current assets and the other non-current assets line in the condensed consolidated balance sheets, primarily result from when the right to consideration is conditional upon factors other than the passage of time. Contract liabilities primarily relate to advance consideration received from customers (deferred revenue), for which transfer of control occurs, and therefore revenue is recognized as services are provided. Contract balances are reported in a net contract asset or liability position on a contract-by-contract basis at the end of each reporting period. The Company recognized $1.8 million and $1.2 million of revenue during the three months ended June 30, 2023 and 2022, respectively, and $11.7 million and $11.1 million during the nine months ended June 30, 2023 and 2022, respectively, which was included in the contract liability balance at the beginning of each such period. Unbilled receivables are included within contract assets on the condensed consolidated balance sheets and were $6.1 million and $1.9 million as of June 30, 2023 and September 30, 2022, respectively.

Contract Costs

Contract costs included in other current and non-current assets on the condensed consolidated balance sheets totaled $2.3 million and $2.4 million as of June 30, 2023 and September 30, 2022, respectively. Contract costs are amortized based on the transfer of goods or services to which the asset relates. The amortization period also considers expected customer lives and whether the asset relates to goods or services transferred under a specific anticipated contract. These costs are included in selling and marketing expenses in the condensed consolidated statement of operations and other comprehensive income (loss) and totaled $0.4 million and $0.3 million during the three months ended June 30, 2023 and 2022, respectively, and $1.1 million and $1.0 million during the nine months ended June 30, 2023 and 2022, respectively. There were no impairment losses recognized during both the nine months ended June 30, 2023 and 2022 related to capitalized contract costs.

3. BUSINESS COMBINATIONS

Acquisition of HooYu Ltd

On March 23, 2022, the Company completed the acquisition (the “HooYu Acquisition”) of HooYu Ltd (“HooYu”) pursuant to the Purchase Agreement (the “Purchase Agreement”) dated March 23, 2022, by and among the Company and certain persons identified in the Purchase Agreement (the “Sellers”). Pursuant to the Purchase Agreement, the Company, among other things, acquired 100% of the outstanding share capital of HooYu, a leading global customer onboarding platform designed to increase the integrity of KYC and maximize the success of customer onboarding. As consideration for the HooYu Acquisition, the Company paid aggregate consideration in the amount of $129.1 million (the “Closing Consideration”), as such amount may be adjusted for transaction expenses and indebtedness. Pursuant to the Purchase Agreement, $1.6 million was withheld as a reduction to the Closing Consideration and was retained by the Company for the final working capital adjustments and indemnification of certain tax matters under the Purchase Agreement.

The Company incurred $3.2 million of expense in connection with the acquisition primarily related to legal fees, outside service costs, foreign currency and realized losses on investments, and travel expense, which are included in amortization and acquisition-related costs in the condensed consolidated statements of operations and other comprehensive income (loss).

On March 23, 2022, using cash on hand, the Company transferred an aggregate of $127.5 million to the Sellers and its third-party legal and investment advisors, net of cash acquired of $0.5 million. In July 2022 the Company paid an additional $0.4 million to the Sellers in settling final working capital.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed from the HooYu Acquisition as of June 30, 2023 (amounts in thousands):


	HooYu
Accounts receivable	$	1,234
Property, plant, and equipment	504
Other current assets	630
Intangible assets	73,100
Goodwill	74,206

Current liabilities	(2,264)
Deferred revenue	(2,612)
Deferred income tax liabilities	(16,896)
Net assets acquired	$	127,902

The goodwill recognized is due to expected market participant synergies and other factors and is not expected to be deductible for income tax purposes. The Company estimated the fair value of identifiable acquisition-related intangible assets with definite lives primarily based on discounted cash flow projections that were estimated to arise from these assets. The Company exercised significant judgment with regard to assumptions used in the determination of fair value such as with respect to discount rates and the determination of the estimated useful lives of the intangible assets. The following table summarizes the estimated fair values and estimated useful lives of intangible assets with definite lives acquired from the HooYu Acquisition as of June 30, 2023 (amounts in thousands, except for years):


	Amortization Period	Amount assigned

Completed technologies	7 years	$	61,400
Customer relationships	5 years	5,000
Trade name	5 years	6,100
Covenants not to compete	3 years	600
Total intangible assets acquired		$	73,100

The following unaudited pro forma financial information should not be taken as representative of the Company’s future consolidated results of operations and includes adjustments for the amortization expense related to the identified intangible assets. The following table summarizes the Company’s unaudited pro forma financial information and is presented as if the HooYu Acquisition occurred on October 1, 2021 (amounts shown in thousands):


	Three months ended June 30, 2022 As Restated		Nine months ended June 30, 2022 As Restated

Pro forma revenue	$	39,195	$	110,915
Pro forma net income (loss)	$	(215)	$	(6,311)

The following table summarizes the results of HooYu that are included in the Company’s consolidated results (amounts shown in thousands):


	Three Months Ended June 30,				Nine Months Ended June 30,
	2023		2022 As Restated		2023		2022 As Restated
Revenue	$	4,100	$	2,653	$	10,124	$	2,958
Net income (loss)	$	(3,028)	$	(3,764)	$	(10,798)	$	(4,015)

4. RESTRUCTURING

In order to streamline the organization and focus resources going forward, the Company undertook a strategic restructuring in June and November 2022, which included a reduction in workforce. Restructuring costs consist of employee severance obligations and other related costs. The following table summarizes changes in the restructuring accrual during the nine months ended June 30, 2023 (amounts in thousands):


Balance at September 30, 2022	$	901
Additional costs incurred	1,986
Payments	(2,942)
Foreign currency effect on the restructuring accrual	55
Balance at June 30, 2023	$	—

5. INVESTMENTS

The following tables summarize investments by type of security as of June 30, 2023 and September 30, 2022 (amounts in thousands):


June 30, 2023:	Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Market Value
Available-for-sale securities:
U.S. Treasury, short-term	$	22,135	$	—	$	(96)	$	22,039


Commercial paper, short-term	6,200		—		(45)		6,155
Corporate debt securities, short-term	12,534		—		(77)		12,457
U.S. Treasury, long-term	1,375		—		(79)		1,296



Corporate debt securities, long-term	1,594		—		(75)		1,519
Total	$	43,838	$	—	$	(372)	$	43,466


September 30, 2022:	Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Market Value
Available-for-sale securities:
U.S. Treasury, short-term	$	6,016	$	—	$	(134)	$	5,882
Foreign government and agency securities, short-term	2,865		—		(38)		$	2,827
Commercial paper, short-term	18,245		—		(223)		18,022
Corporate debt securities, short-term	32,065		—		(528)		31,537
U.S. Treasury, long-term	3,431		—		(210)		3,221

Corporate debt securities, long-term	7,692		—		(280)		7,412
Total	$	70,314	$	—	$	(1,413)	$	68,901

All of the Company’s investments are designated as available-for-sale debt securities. As of June 30, 2023 and September 30, 2022, the Company’s short-term investments have maturity dates of less than one year from the balance sheet date and the Company’s long-term investments have maturity dates of greater than one year from the balance sheet date. The contractual maturities of the available-for-sale securities held at June 30, 2023 are as follows: $40.7 million within one year and $2.8 million beyond one year to five years. As of September 30, 2022, the contractual maturities of the available-for-sale securities were $58.3 million within one year and $10.6 million beyond one year to five years.

The following tables represent the fair value hierarchy of the Company’s investments and acquisition-related contingent consideration as of June 30, 2023 and September 30, 2022, respectively (amounts in thousands):


June 30, 2023:	Balance		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Short-term investments:
U.S. Treasury	$	22,039	$	22,039	$	—	$	—
Commercial paper	6,155		—		6,155		—

Corporate debt securities	12,457		—		12,457		—
Total short-term investments at fair value	40,651		22,039		18,612		—
Long-term investments:
U.S. Treasury	1,296		1,296		—		—


Corporate debt securities	1,519		—		1,519		—
Total long-term investments at fair value	2,815		1,296		1,519		—



Total assets at fair value	$	43,466	$	23,335	$	20,131	$	—
Liabilities:

Acquisition-related contingent consideration	$	8,013	$	—	$	8,013	$	—



Total liabilities at fair value	$	8,013	$	—	$	8,013	$	—


September 30, 2022:	Balance		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Short-term investments:
U.S. Treasury	$	5,882	$	5,882	$	—	$	—
Commercial paper	18,022		—		18,022		—
Foreign government and agency securities	2,827		—		2,827		—
Corporate debt securities	31,537		—		31,537		—
Total short-term investments at fair value	58,268		5,882		52,386		—
Long-term investments:
U.S. Treasury	3,221		3,221		—		—

Corporate debt securities	7,412		—		7,412		—
Total long-term investments at fair value	10,633		3,221		7,412		—



Total assets at fair value	$	68,901	$	9,103	$	59,798	$	—
Liabilities:

Acquisition-related contingent consideration	$	5,920	$	—	$	—	$	5,920



Total liabilities at fair value	$	5,920	$	—	$	—	$	5,920

•Level 1: Includes investments in U.S. Government and agency securities, which are valued based on recently executed transactions in the same or similar securities.

•Level 2: Convertible Senior Notes and corporate debt securities. Corporate debt securities are valued using quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. On February 5, 2021, the Company issued the 2026 Notes as further described in Note 9. Concurrently with the issuance of the 2026 Notes, the Company entered into the Notes Hedge and Warrant Transactions which in combination are intended to reduce the potential dilution from the conversion of the 2026 Notes (see Note 9).

The fair value of the Notes Hedge and the embedded conversion derivative were estimated using a Black-Scholes model. Based on the fair value hierarchy, the Company classified the Notes Hedge and the embedded conversion derivative as Level

2 as significant inputs are observable, either directly or indirectly. The significant inputs and assumptions used in the models to calculate the fair value of the derivatives include the Common Stock price, exercise price of the derivatives, risk-free interest rate, volatility, annual coupon rate and remaining contractual term.

As of June 30, 2023, total acquisition-related contingent consideration of $8.0 million is recorded in acquisition-related contingent consideration, in the condensed consolidated balance sheets. The Company recorded the acquisition date fair value based on the likelihood of contingent earnout payments related to the Company’s acquisition of ID R&D Inc., as part of the consideration transferred. The earnout payments consist of cash payments and issuances of Common Stock and are subsequently remeasured to fair value each reporting date. The Company used a Monte Carlo Simulation to estimate fair value of total contingent consideration. Additionally, for contingent consideration to be settled in a variable number of shares of Common Stock, the Company used the most recent Mitek share price as reported by the Nasdaq Capital Market to determine the fair value of the shares expected to be issued. The Company previously classified the contingent consideration as Level 3, due to the lack of relevant observable inputs and market activity. The second earnout period ended on May 28, 2023 and the valued recorded as of June 30, 2023 is based on the calculated final payout and the Company reclassified the contingent consideration as Level 2 during the third quarter of fiscal 2023. The following table includes a roll-forward of the contingent consideration liability during the nine months ended June 30, 2023 (amounts in thousands):


Balance at September 30, 2022	$	5,920

Expenses recorded due to changes in fair value	2,093



Balance at June 30, 2023	$	8,013

The following tables summarize the quantitative information including the unobservable inputs related to our acquisition-related contingent consideration as follows (amounts in thousands):


Fair Value at September 30, 2022		Valuation Technique	Unobservable Input	Input Used
$	5,920	Monte Carlo simulation	Weighted-average cost of capital	14.80	%
			Revenue weight-average cost of capital	4.40	%
			Revenue volatility	0.20

6. GOODWILL AND INTANGIBLE ASSETS

Goodwill

The Company had a goodwill balance of $131.5 million at June 30, 2023, representing the excess of costs over fair value of assets of businesses acquired. The following table summarizes changes in the balance of goodwill during the nine months ended June 30, 2023 (amounts shown in thousands):


Balance at September 30, 2022	$	120,186
Foreign currency effect on goodwill	11,349
Balance at June 30, 2023	$	131,535

Intangible Assets

Intangible assets include the value assigned to purchased completed technology, customer relationships, trade names and covenants not to compete. The estimated useful lives for all of these intangible assets range from three to seven years and they are amortized on a straight-line basis. Intangible assets as of June 30, 2023 and September 30, 2022, respectively, are summarized as follows (amounts in thousands, except for years):


June 30, 2023:	Weighted Average Amortization Period (in years)	Cost		Accumulated Amortization		Net
Completed technologies	6.9	$	95,761	$	34,585	$	61,176
Customer relationships	4.7	25,168		20,832		4,336
Trade names	5.0	7,088		2,518		4,570
Covenants not to compete	3.0	600		268		332
Total intangible assets		$	128,617	$	58,203	$	70,414


September 30, 2022:	Weighted Average Amortization Period (in years)	Cost		Accumulated Amortization		Net
Completed technologies	6.9	$	95,761	$	32,265	$	63,496
Customer relationships	4.7	25,168		18,241		6,927
Trade names	5.0	7,088		2,174		4,914
Covenants not to compete	3.0	600		181		419
Total intangible assets		$	128,617	$	52,861	$	75,756

Amortization expense related to acquired intangible assets was $4.3 million and $4.7 million for the three months ended June 30, 2023 and 2022, respectively, and $13.3 million and $9.2 million during the nine months ended June 30, 2023 and, 2022, respectively, and is recorded within amortization and acquisition-related costs on the condensed consolidated statements of operations and other comprehensive income (loss).

The estimated future amortization expense related to intangible assets for each of the five succeeding fiscal years is expected to be as follows (amounts in thousands):


	Estimated Future Amortization Expense
2023 - remaining	3,835
2024	15,050
2025	13,787
2026	12,560
2027	11,410
Thereafter	13,772
Total	$	70,414

7. STOCKHOLDERS’ EQUITY

Stock-Based Compensation Expense

The following table summarizes stock-based compensation expense related to restricted stock units (“RSUs”), stock options, and Employee Stock Purchase Plan (“ESPP”) shares, which was allocated as follows (amounts in thousands):


	Three Months Ended June 30,				Nine Months Ended June 30,
	2023		2022		2023		2022
Cost of revenue	$	124	$	82	$	316	$	249
Selling and marketing	885		1,273		2,423		3,351
Research and development	644		1,071		2,097		2,875
General and administrative	991		1,262		2,954		3,642
Stock-based compensation expense included in expenses	$	2,644	$	3,688	$	7,790	$	10,117

No options were granted in either of the nine months ended June 30, 2023 or 2022. As of June 30, 2023, the Company had $22.7 million of unrecognized compensation expense related to outstanding stock options and RSUs expected to be recognized over a weighted-average period of approximately 2.4 years.

2020 Incentive Plan

In January 2020, the Company’s Board of Directors (the “Board”) adopted the Mitek Systems, Inc. 2020 Incentive Plan (the “2020 Plan”) upon the recommendation of the Compensation Committee of the Board. On March 4, 2020, the Company’s stockholders approved the 2020 Plan. The total number of shares of Common Stock reserved for issuance under the 2020 Plan is 4,500,000 shares plus such number of shares, not to exceed 107,903, as remained available for issuance under the 2002 Stock Option Plan, 2006 Stock Option Plan, 2010 Stock Option Plan, and 2012 Incentive Plan (collectively, the “Prior Plans”) as of January 17, 2020, plus any shares underlying awards under the Prior Plans that are terminated, forfeited, cancelled, expire unexercised or are settled in cash after January 17, 2020. As of June 30, 2023, (i)