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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 March 31, 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 44,346,935 shares of the registrant’s common stock outstanding as of April 30, 2022.



MITEK SYSTEMS, INC.
FORM 10-Q
For The Quarterly Period Ended March 31, 2022
INDEX
 




PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
MITEK SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(amounts in thousands except share data)
 March 31, 2022 (Unaudited)September 30, 2021
ASSETS  
Current assets:  
Cash and cash equivalents$23,984 $30,312 
Short-term investments37,910 149,057 
Accounts receivable, net23,858 16,602 
Contract assets4,503 4,080 
Prepaid expenses2,409 1,920 
Other current assets1,849 2,085 
Total current assets94,513 204,056 
Long-term investments31,493 48,051 
Property and equipment, net3,938 3,671 
Right-of-use assets6,098 7,056 
Intangible assets, net96,364 28,734 
Goodwill136,889 63,096 
Deferred income tax assets10,572 10,511 
Convertible senior notes hedge 48,208 
Other non-current assets5,292 6,310 
Total assets$385,159 $419,693 
LIABILITIES AND STOCKHOLDERS’ EQUITY  
Current liabilities:  
Accounts payable$5,359 $2,507 
Accrued payroll and related taxes8,271 11,776 
Deferred revenue, current portion9,700 10,381 
Lease liabilities, current portion1,944 1,943 
Acquisition-related contingent consideration10,790 11,050 
Other current liabilities3,469 1,552 
Total current liabilities39,533 39,209 
Convertible senior notes124,370 120,918 
Embedded conversion derivative 48,208 
Deferred revenue, non-current portion1,053 955 
Lease liabilities, non-current portion5,485 6,588 
Deferred income tax liabilities22,100 4,117 
Other non-current liabilities6,250 6,868 
Total liabilities198,791 226,863 
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, 44,344,361 and 44,168,745 issued and outstanding, as of March 31, 2022 and September 30, 2021, respectively
44 44 
Additional paid-in capital207,491 199,935 
Accumulated other comprehensive loss(5,170)(943)
Accumulated deficit(15,997)(6,066)
Treasury stock, at cost, no shares and 7,773 shares as of March 31, 2022 and September 30, 2021, respectively
 (140)
Total stockholders’ equity186,368 192,830 
Total liabilities and stockholders’ equity$385,159 $419,693 
 
See accompanying notes to consolidated financial statements.
1



MITEK SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME (LOSS)  
(Unaudited)
(amounts in thousands except per share data)
 
 Three Months Ended March 31,Six Months Ended March 31,
 2022202120222021
Revenue  
Software and hardware$19,280 $13,013 $34,725 $25,315 
Services and other15,434 15,760 32,461 29,433 
Total revenue34,714 28,773 67,186 54,748 
Operating costs and expenses  
Cost of revenue—software and hardware310 670 688 1,915 
Cost of revenue—services and other3,000 3,122 5,978 6,015 
Selling and marketing9,206 8,530 17,644 15,915 
Research and development8,236 6,691 15,842 12,855 
General and administrative6,073 5,718 12,037 10,776 
Acquisition-related costs and expenses3,056 1,659 5,335 3,352 
Total operating costs and expenses29,881 26,390 57,524 50,828 
Operating income4,833 2,383 9,662 3,920 
Interest expense2,040 1,319 4,048 1,319 
Other income (expense), net(231)372 (96)468 
Income before income taxes2,562 1,436 5,518 3,069 
Income tax benefit (provision)(651)(417)(483)117 
Net income$1,911 $1,019 $5,035 $3,186 
Net income per share—basic$0.04 $0.02 $0.11 $0.07 
Net income per share—diluted$0.04 $0.02 $0.11 $0.07 
Shares used in calculating net income per share—basic
44,775 43,138 44,795 42,835 
Shares used in calculating net income per share—diluted
46,097 44,554 46,206 44,367 
Other comprehensive income (loss)  
Net income$1,911 $1,019 $5,035 $3,186 
Foreign currency translation adjustment(1,862)(2,648)(3,129)112 
Unrealized loss on investments(828)(133)(1,098)(186)
Other comprehensive income (loss)$(779)$(1,762)$808 $3,112 
 

See accompanying notes to consolidated financial statements.
2


MITEK SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
(amounts in thousands)
Three Months Ended March 31, 2022
Common StockAdditional Paid-In CapitalAccumulated DeficitAccumulated Other Comprehensive Income (Loss)Total Stockholders’ Equity
SharesAmount
Balance, December 31, 202144,297 $44 $203,091 $(13,226)$(2,480)$187,429 
Exercise of stock options16 — 179 — — 179 
Settlement of restricted stock units248 — — — — — 
Issuance of common stock under employee stock purchase plan71 — 923 — — 923 
Stock-based compensation expense— — 3,298 — — 3,298 
Repurchases and retirement of common stock(288)— — (4,682)— (4,682)
Components of other comprehensive loss:
Net income— — — 1,911 — 1,911 
Currency translation adjustment— — — — (1,862)(1,862)
Change in unrealized gain (loss) on investments— — — — (828)(828)
Total other comprehensive loss(779)
Balance, March 31, 202244,344 $44 $207,491 $(15,997)$(5,170)$186,368 

Three Months Ended March 31, 2021
Common StockAdditional
Paid-In
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income (Loss)
Total
Stockholders’
Equity
SharesAmount
Balance, December 31, 202042,668 $43 $151,153 $(11,827)$2,384 $141,753 
Exercise of stock options18 — 69 — — 69 
Settlement of restricted stock units289 — (1)— — (1)
Issuance of common stock under employee stock purchase plan77 — 793 — — 793 
Stock-based compensation expense— — 2,968 — — 2,968 
Sale of convertible senior notes warrants— — 23,909 — — 23,909 
Components of other comprehensive income:
Net income— — — 1,019 — 1,019 
Currency translation adjustment— — — — (2,648)(2,648)
Change in unrealized gain (loss) on investments— — — — (133)(133)
Total other comprehensive income(1,762)
Balance, March 31, 202143,052 $43 $178,891 $(10,808)$(397)$167,729 

See accompanying notes to consolidated financial statements..
3


MITEK SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY CONTINUED
(Unaudited)
(amounts in thousands)
Six Months Ended March 31, 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 options25 — 206 — — — — 206 
Settlement of restricted stock units973 1 (1)— — — — — 
Issuance of common stock under employee stock purchase plan71 — 923 — — — — 923 
Acquisition-related shares issued— — — — — — — — 
Stock-based compensation expense— — 6,429 — — 6,429 
Sale of convertible senior notes warrants— — — — — — — — 
Repurchases and retirements of common stock(894)(1)(1)8140(14,966)— (14,828)
Components of other comprehensive income:
Net income— — — — — 5,035 — 5,035 
Currency translation adjustment— — — — — — (3,129)(3,129)
Change in unrealized gain (loss) on investments— — — — — — (1,098)(1,098)
Total other comprehensive income808 
Balance, March 31, 202244,344 $44 $207,491  $ $(15,997)$(5,170)$186,368 
Six Months Ended March 31, 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 options260 — 1,958 — — 1,958 
Settlement of restricted stock units935 1 (1)— — — 
Issuance of common stock under employee stock purchase plan77 — 792 — — 792 
Stock-based compensation expense— — 5,715 — — 5,715 
Sale of convertible senior notes warrants— — 23,909 — — 23,909 
Components of other comprehensive income:
Net income— — — 3,186 — 3,186 
Currency translation adjustment— — — — 112 112 
Change in unrealized gain (loss) on investments— — — — (186)(186)
Total other comprehensive income3,112 
Balance, March 31, 202143,052 $43 $178,891 $(10,808)$(397)$167,729 
4



See accompanying notes to consolidated financial statements..
5


MITEK SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(amounts in thousands)
 
Six Months Ended March 31,
 20222021
Operating activities:  
Net income$5,035 $3,186 
Adjustments to reconcile net income to net cash provided by operating activities:  
Stock-based compensation expense6,429 5,715 
Amortization of intangible assets4,525 3,352 
Depreciation and amortization555 774 
Amortization of investment premiums & other1,109 315 
Accretion and amortization on debt securities3,453 1,147 
Net changes in estimated fair value of acquisition-related contingent consideration(780) 
Deferred taxes(92)(464)
Changes in assets and liabilities:  
Accounts receivable(6,171)1,444 
Contract assets345 2,177 
Other assets498 (1,474)
Accounts payable2,440 (1,047)
Accrued payroll and related taxes(4,693)(1,305)
Deferred revenue(3,126)2,379 
Other liabilities159 (138)
Net cash provided by operating activities9,686 16,061 
Investing activities:  
Purchases of investments(47,818)(147,524)
Sales and maturities of investments173,316 23,441 
Acquisitions, net of cash acquired(126,607) 
Purchases of property and equipment(634)(660)
Net cash used in investing activities(1,743)(124,743)
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 stock1,128 2,751 
Repurchases and retirements of common stock(14,828) 
Payment of acquisition-related contingent consideration (782)
Proceeds from other borrowings 251 
Principal payments on other borrowings(36)(39)
Net cash provided by (used in) financing activities(13,736)142,635 
Foreign currency effect on cash and cash equivalents(535)(4)
Net increase (decrease) in cash and cash equivalents(6,328)33,949 
Cash and cash equivalents at beginning of period30,312 19,986 
Cash and cash equivalents at end of period$23,984 $53,935 
Supplemental disclosures of cash flow information:  
Cash paid for interest$582 $172 
Cash paid for income taxes$597 $373 
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$(1,098)$(186)
 
See accompanying notes to consolidated financial statements... ..
6


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. Mitek is a software development company with expertise in computer vision, artificial intelligence, and machine learning. Mitek currently serves more than 7,500 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. 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 March 31, 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 six months ended March 31, 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 $1.9 million and $2.6 million for the three months ended March 31, 2022 and 2021, respectively. The Company recorded a net loss resulting from foreign exchange translation of $3.1 million and net gain of $0.1 million for the six months ended March 31, 2022 and 2021, respectively.
7


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.
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 transactional 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. See Note 2 of the consolidated financial statements for additional details.
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.
8


For the three and six months ended March 31, 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 March 31,Six Months Ended March 31,
 2022202120222021
Stock options467 556 452 634 
RSUs914 1,371 1,241 1,238 
ESPP common stock equivalents34 28 15 15 
Performance options532 267 509 200 
Performance RSUs238 156 224 127 
Convertible senior notes7,448 4,551 7,448 2,251 
Warrants7,448 4,551 7,448 2,251 
Total potentially dilutive common shares outstanding17,081 11,480 17,337 6,716 
The calculation of basic and diluted net income per share is as follows (amounts in thousands, except per share data):
 Three Months Ended March 31,Six Months Ended March 31,
 2022202120222021
Net income$1,911 $1,019 $5,035 $3,186 
Weighted-average shares outstanding—basic44,775 43,138 44,795 42,835 
Common stock equivalents1,322 1,416 1,411 1,532 
Weighted-average shares outstanding—diluted46,097 44,554 46,206 44,367 
Net income per share:
Basic$0.04 $0.02 $0.11 $0.07 
Diluted$0.04 $0.02 $0.11 $0.07 
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 other comprehensive income (loss). No other-than-temporary impairment charges were recognized in the three and six months ended March 31, 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
9


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 they continue to meet the conditions for equity classification. See Note 8. “Convertible Senior Notes” for additional information related to these transactions.
Accounts Receivable and Allowance for Doubtful Accounts
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. Allowances for doubtful accounts are established based on various factors, including credit profiles of the Company’s customers, contractual terms and conditions, historical payments, and current economic trends. The Company reviews its allowances by assessing individual accounts receivable over a specific aging and amount. Accounts receivable are written off on a case-by-case basis, net of any amounts that may be collected. The Company had $1,000 and $34,000 of write-offs to the allowance for doubtful accounts for the six months ended March 31, 2022 and 2021, respectively. The Company maintained an allowance for doubtful accounts of $0.5 million as of March 31, 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 March 31, 2022 and 2021, respectively. The Company capitalized $0.4 million of costs related to computer software developed for internal use during each of the six months ended March 31, 2022 and 2021. The Company had $0.1 million and $0.2 million in amortization expense from internal use software during the six months ended March 31, 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 its market capitalization 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.
10


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. No impairment charge related to the impairment of intangible assets was recorded during the six months ended March 31, 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 March 31, 2022, $0.8 million was outstanding under these agreements and $0.1 million and $0.7 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 7 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 7 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
11


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)
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 $5.2 million and $0.9 million at March 31, 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 the second quarter of fiscal 2022, the stockholders of the Company approved an increase to the number of authorized shares of Common Stock, to an amount sufficient to settle the conversion of the 2026 Notes. As a result of the increase to the number of authorized shares of Common Stock, the Company reclassified the fair value of the embedded conversion derivative of $28.5 million and the fair value of the Notes Hedge of $28.5 million to additional paid-in capital in the second quarter of fiscal 2022. These equity components will not be remeasured provided the requirements to qualify for the scope exception in ASC 815-10-15-74(a) continue to be met.
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 six months ended March 31, 2022 had, or is expected to have, a material impact on the Company’s consolidated financial statements.
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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 in the period that the hardware is shipped.
Services and Other
Services and other revenue is generated from the sale of transactional SaaS products and services, maintenance associated with the sale of software and hardware, and consulting and professional services. The Company recognizes services and other revenue over the period in which such services are performed. The Company’s model typically includes an up-front fee and a periodic commitment from the customer that commences upon completion of the implementation through the remainder of the customer life. The up-front fee is the initial setup fee, or the implementation fee. The periodic commitment includes, but is not limited to, a fixed periodic fee and/or a transactional fee based on system usage that exceeds committed minimums. 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 the up-front fee 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, the constraint will generally not result in a reduction in the estimated transaction price for most forms of variable consideration. 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 instances where there are observable selling prices for professional services and support and maintenance, the Company may apply the residual approach to estimate the standalone selling price of software licenses. 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
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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 March 31,Six Months Ended March 31,
2022202120222021
Major product category
Deposits software and hardware$16,066 $12,134 $29,695 $22,888 
Deposits services and other5,239 5,063 10,660 9,924 
Deposits revenue21,305 17,197 40,355 32,812 
Identity verification software and hardware3,214 879 5,030 2,427 
Identity verification services and other10,195 10,697 21,801 19,509 
Identity verification revenue13,409 11,576 26,831 21,936 
Total revenue$34,714 $28,773 $67,186 $54,748 
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. Services and other revenue is generated from the sale of transactional SaaS products and services, maintenance associated with the sale of software and hardware, and consulting and professional services.
Contract Balances
The following table provides information about contract assets and contract liabilities from contracts with customers (amounts in thousands):
March 31, 2022September 30, 2021
Contract assets, current$4,503 $4,080 
Contract assets, non-current3,591 4,409 
Contract liabilities (deferred revenue), current9,700 10,381 
Contract liabilities (deferred revenue), non-current1,053 955 
Contract assets, reported within current assets and other non-current assets in the consolidated balance sheets, primarily result from revenue being recognized when a license is delivered and payments are made over 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 $9.9 million and $7.9 million of revenue during the six months ended March 31, 2022 and 2021, respectively, which was included in the contract liability balance at the beginning of each such period.
Contract Costs
Contract costs included in other current and non-current assets on the consolidated balance sheets totaled $