Good day, and welcome to the Mitek Systems third quarter fiscal 2019 financial results conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Todd Kehrli, MKR Group. Please go ahead, sir.
Thank you, operator. Good afternoon, welcome to Mitek's third quarter fiscal 2019 earnings conference call. With me on today's call are Mitek's CEO, Max Carnecchia, and CFO, Jeff Davison. Before I turn the call over to Max and Jeff, I'd like to cover a few quick items. This afternoon, Mitek issued a press release announcing its third quarter fiscal 2019 financial results. That release is available on the company's website at miteksystems.com. This call is being broadcast live over the internet for all interested parties, the webcast will be archived on the investor relations page of the company's website. I'd like to remind everyone on today's call, management will discuss certain factors that are likely to influence the business going forward. Any factors discussed today that are not historical facts, particularly comments regarding our long-term prospects and market opportunities, should be considered forward-looking statements.
These forward-looking statements may include comments about the company's plans and expectations of future performance. Forward-looking statements are subject to a number of risks and uncertainties, which could cause actual results to differ materially. We encourage all of our listeners to review our SEC filings, including our most recent 10-K and 10-Q, for a complete description of these risk factors. Our statements on this call are made as of today, July 25th, 2019, and the company undertakes no obligation to revise or update publicly any of the forward-looking statements contained herein, whether as a result of new information, future events, changes in expectations, or otherwise. Additionally, throughout this call, we'll be discussing certain non-GAAP financial measures. Today's earnings release and the related current report on Form 8-K describe the differences between our non-GAAP and GAAP reporting and present a reconciliation between the two for the periods reported in the release.
With that said, I'll now turn the call over to Mitek's CEO, Max.
Thanks, Todd, and good afternoon, everyone. Thank you for joining us today. I'm thrilled to report another quarter of record revenue for Mitek. We generated revenue of $21,900,000 in Q3, which represents growth of 36% year-over-year and reflects solid revenue growth in both our product families. We also achieved our 22nd consecutive quarter of non-GAAP profitability. Once again, the third quarter saw strong performance from our deposits products and solid growth from our core identity products. We remain excited by the opportunity with the identity verification market, which is very large, early stage, and rapidly opening up to new use cases that service the digital world, and we continue to expect growth from our highly profitable deposits product lines as we move forward. I've been with Mitek for nine months now.
As I shared before, I view Mitek as a good small business with an opportunity to grow to a significantly bigger and better business. As the new CEO, I spent the first few months getting to know the company, but I also had the unfortunate distraction of addressing a strategic process that was forced upon the company. One positive consequence of that exercise was that it caused us to look at this organization through a different lens. We ended that strategic process in April, and with that behind us, I have since been able to dedicate my full attention to the operation of the business. We've spent the last few months identifying and implementing adjustments to the people, products, and plans needed to organize the business for success going forward.
This includes focusing our resources and efforts on the strategic elements that are going to help us propel the business forward and develop shareholder value for the future. First, the identity business. Digital identity verification is an early-stage, fast-growing, mission-critical category. Since it is early stage, customers are still learning how to best address the problem and are only just beginning to develop their strategies. Mitek is very well-positioned with our Mobile Verify products to lead this market. However, we've accumulated seven different systems, mostly through acquisition, that need to be rationalized where appropriate. Each of those systems were purpose-built to address unique problems, and as such, each has a different approach to the technology. We are now in the process of deliberately rationalizing these platforms and putting a much sharper edge on how we can accelerate this platform consolidation, which will eliminate many of the outdated legacy technologies.
This clarity will increase velocity and improve our ability to capitalize on the sizable identity business opportunity. However, in the short term, there will be some revenue dyssynergies related to the older platforms that we are sunsetting. Similarly, within the mobile deposits business, a little over a year ago, we acquired A2iA in France with the intent of expanding our deposits business. At the time of the acquisition, we knew that we were acquiring a business that had about 85% of its revenue from the checks business and the balance coming from part of the business that leveraged OCR and computer vision technology to deliver bespoke project-based engagements. In the early part of this year, we identified this non-checks business to be off-strategy, unprofitable, and largely unrelated to where we are taking Mitek.
Being sensitive to the changes that follow these decisions, we have been working for several months with an outside consultant in France to help us begin restructuring the business for the best possible outcomes. Those actions were triggered in June and will allow us to form the right size organization and team to support our check processing business going forward. This means significantly reducing the staff in Paris and associated revenue dyssynergies from those non-check products, which we will no longer pursue. We took a restructuring charge in the third quarter related to our separation with the departing employees, and Jeff will cover more of this in his comments. These adjustments are necessary to create clarity and focus and to sharpen our execution so that we can actualize the big opportunities in the two core markets we are focused on, deposits and identity.
These changes will allow us to redirect our resources and attention to our strategic business, which will help us continue to grow and scale the company. Let me provide an update on the business and our two product offerings. Starting with Mobile Deposit, we remain the clear market leader with over 6,400 financial institutions using our product. While check deposits via mobile devices continue to rise, the mobile channel captures less than 20% of all retail checks deposits, demonstrating the upside potential for this business. Retail banks are investing significant resources to drive customers to this digital channel, and as they do this, mobile check deposits continue to increase. The need for this unique technology continues to expand, and we're using our knowledge and success with financial institutions to generate new channels in other verticals.
For example, we're working with some of the largest charities, including St. Jude Children's Research Hospital, to enable their fundraisers to collect checks on the spot using their mobile phones, and we're enabling new digital banks to leverage Mobile Deposit to speed deposits into new transactional accounts. We are proud of how Mobile Deposit has changed financial services, and we're excited about the significant opportunities ahead as we work to expand adoption into new verticals. Moving to identity. Identity verification is an essential step to establishing trust in a digital world where customer relationships are being created without ever physically meeting. While the market for identity verification is still in its early days, it is large, fast-growing, and represents a significant opportunity for Mitek.
During the third quarter, our identity verification solutions continued to gain traction, with our transactional SaaS revenue growing 71% year-over-year and our SaaS transactions growing 76% year-over-year. In addition to these transactional metrics, we measure our success by both new customer acquisition and existing customer expansion. Mobile Verify, our industry-leading product, continues to be adopted by partners and customers of all sizes around the world. During the quarter, we added many new identity verification customers. Some examples of the types of Mobile Verify customers we signed in the quarter are another top 10 bank in the USA, the largest credit card provider in the Netherlands, a leading online home selling service, a new generation stock exchange for direct trading in securities, a large Latin American Apple reseller, and the list goes on.
Our continuing customer acquisition underscores the increasing need for identity verification and its vital use case, which is to enable businesses to onboard more good customers faster, a value proposition that Mitek centers around. One of our new customers is Brightstar, a multinational company providing supply chain, buyback, trade-in, and financial solutions to the largest consumer electronics resellers worldwide. Brightstar has partnered with us to deliver a retail micro-lending solution targeted at the underbanked in Latin America. Mitek's solution will be integrated into this Apple reseller's solution on their in-store iPads. They will use the solution to verify customers' identity at the point of purchase when consumers request credit with their Apple equipment purchase. ABN AMRO is a great example of how our customers are expanding their usage of Mobile Verify across the enterprise to securely onboard customers while meeting stringent Know Your Customer, KYC regulations.
EU KYC financial sanctions are set to soar in the coming months and years. According to a study we released this quarter with partner Consult Hyperion, a typical European bank serving 10 million customers could save up to €10 million annually and avoid growing fines by implementing solutions to improve the KYC processes. We are proud to partner with European banks, such as ABN AMRO, to help them in this regard. The increase in new customers, as well as the increased usage of our existing customers, is further evidence of the success of Mobile Verify and its ability to facilitate secure and compliant onboarding of new customers in the digital world. In closing, we are very pleased with our Q3 results. We achieved record quarterly revenue driven by meaningful top-line growth in both our product families and delivered strong bottom-line results.
As we move through the remainder of the year, we continue to sharpen our strategy and make operational improvements to further fine-tune our execution. Now I'll turn the call over to Jeff to discuss the financial results in more detail. Following Jeff's remarks, we'll open the call up for questions. Jeff, please go ahead.
Thanks, Max. Thank you everyone for joining us this afternoon. Let's start with the Q3 revenue and operating results. For the third quarter of fiscal 2019, Mitek generated record revenue of $21.9 million, a 36% increase year-over-year. Software and hardware revenue of $11.9 million was up 14% year-over-year. The increase in software and hardware revenue was due primarily to the addition of A2iA and the growth of Mobile Deposit revenue. We delivered strong software and hardware gross margins of 93% for the quarter. Services and other revenue, which includes transactional SaaS revenue, maintenance, and consulting services, was $10 million for the quarter, an increase of 77% over revenue of $5.7 million in Q3 last year. This increase is primarily due to strong growth in transactional SaaS revenue, which increased 71% year-over-year to $5.3 million, and the addition of maintenance revenue from A2iA.
Gross margin on services and other revenue was 77% for the quarter, up from 71% in Q3 last year. Combined gross margin for the quarter was 86%, compared to 83% last year. Total GAAP operating expenses, including cost of revenue, were $24.8 million, compared to $19 million in Q3 last year. The year-over-year increase in GAAP operating expense reflects the addition of operating costs associated with our acquisition of A2iA, costs associated with the restructuring of A2iA, which I'll discuss in more detail later in the call, as well as our continued investments to grow our identity business. Sales and marketing expenses for the quarter were $6.9 million, compared to $5.7 million a year ago. R&D expenses were $4.7 million, compared to $4.2 million last year, and our G&A expenses were $5.1 million, compared to $3.2 million a year ago.
GAAP net loss for the quarter was $100,000, or $0.00 per diluted share. Our diluted share count was 41.2 million shares, compared to 36.2 million shares a year ago. As a reminder, our earnings release includes a reconciliation between GAAP and non-GAAP net income. We believe non-GAAP net income provides a useful measure of the company's operating results by excluding acquisition-related costs and expenses, stock comp expense, IP litigation costs related to the strategic process, and costs associated with the restructuring of A2iA. Non-GAAP net income was $4.8 million, or $0.12 per diluted share. In Q3, our non-GAAP adjustments include $2.3 million of stock comp expense, $1.8 million of acquisition-related costs and expenses, $500,000 of litigation and strategic process costs, and $3.2 million in charges related to the restructuring of A2iA.
At the end of June, we recorded a one-time charge related to a restructuring of our business at A2iA, the company we acquired in May of 2018. At the time of the acquisition, we shared with you that we had identified approximately $2 million in potential cost synergies that we could realize within the first two years post-acquisition. Those items were related to executive management changes and the reduction of royalty costs for technology used in our Mobile Deposit products. We are well on our way to realizing these savings. In addition, we shared that we would be looking to identify additional cost savings. One year in, I can say we're very pleased with many aspects of the combination. The core business of A2iA, check processing, has performed well in our first year together.
However, we have evaluated the non-checks product performance, which includes DocumentReader, FieldReader, and TextReader products, and have decided to discontinue the sale of these product lines. The market for these products is small with little growth opportunity, and the deployments tend to be costly, non-repetitive engagements that are not core to our Mitek strategy, nor do they contribute to Mitek's profitability. This decision was made with much consideration of our company, customers, and employees, and how we can best focus our resources going forward. As a result, we are reducing approximately 25 positions in our Paris operations. The restructuring charge includes the costs related to this decision, including severance pay and benefits, related taxes, and other charges incurred in working through the restructuring. The activities related to the restructuring will occur over the next few months.
We anticipate the elimination of these product lines will have a negative impact on our revenue for comparison purposes. Historically, these products contributed approximately 15% of A2iA's revenue. The reduction of 25 employees, on the other hand, represents about $2.5 million of annual expense. We expect to invest these funds in our business and to help improve our profitability. Turning to the balance sheet. We generated $1.3 million in cash flow from operations during the quarter, bringing our total cash and investments to $28 million at the end of the third quarter. Our accounts receivable balance of $14.6 million represents a DSO of 55 days. Now moving to guidance for the remainder of fiscal 2019.
Based on the revenue dyssynergies mentioned earlier, we are updating our previously provided full year total revenue guidance for our fiscal year ending September 30th, 2019, to be between $84 million and $85 million, which would represent growth of approximately 32%-34% year-over-year. We continue to expect our non-GAAP operating margins in fiscal 2019 to be between 18%-20%. For Q4 of fiscal 2019, we expect total revenue to be between $24.5 million and $25.5 million, representing growth of approximately 17%-21% year-over-year. We expect total expenses, including cost of revenue for Q4 and excluding our non-GAAP adjustments, to be between $17 million and $17.5 million. For the quarter, we expect acquisition-related costs and expenses to be between $1.8 million and $2 million, and stock comp expense to be approximately $2.5 million. Operator, that concludes our prepared remarks. Please open the line for questions.
Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are joining us today using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. A voice prompt on the phone line will indicate when your line is open. Again, that is star one if you have a question or comment. We'll pause for a moment. At this time, we do have a couple of callers in the queue. Again, that is the star key followed by the digit one, if you have a question or comment. We'll hear first from Bhavan Suri from William Blair. Please go ahead, sir.
Hey guys, can you hear me okay?
Loud and clear.
Yes, we can.
Great. I'm calling from overseas, so sometimes there's a little lag. I appreciate the patience there. I want to touch first, I think, on your comments around the platform consolidation, sort of rationalizing the 7 different platforms. Could you guys just give a little color on which side of the business that was? Obviously, you acquired stuff at the Mobile Deposit. We talked about A2iA. Which pieces do you think strategically you're keeping, and then a little color into what doesn't make sense, especially on the ID verification side? Because on the Mobile Deposit side, the reduction of some of the businesses, the one-time customer engagement makes sense. I'd love to understand with a little more color on what's being rationalized and where the focus is headed.
Sure, Bhavan. This is Max. Let me take that on. In the course of the last three or four years, Mitek has done two significant acquisitions on the identity side of the business. About four years ago, it acquired a company called IDchecker out of Amsterdam, and then more recently, about two years ago, acquired a company called ICAR out of Barcelona. As well as having some of its own identity legacy on-prem systems, things for doing Mobile Fill, some of the early efforts in identity when identity was super formative. I think the company has in the past talked about those acquisitions and some of those systems as legacy systems.
Me as the new guy coming in and having 3 decades worth of experience operating businesses and understanding what it takes to not just do a deal and do an acquisition, but actually properly integrate it, the people, the processes, and then the products. Just putting a much sharper edge and maybe an accelerated effort to try to get all the wood behind the Mobile Verify arrow. The Mobile Verify is the go forward, has been flagship identity product. Some of these other things have been kind of bumping along, and now we're just getting very clear-eyed about how we get as many of those customers as appropriate over to Mobile Verify.
For the systems that should be shut down, sunset, end of life, doing that with a very cogent plan, that's just going to help us really not just get focused, but eliminate a lot of distractions in the business.
Got it. I want to touch on unbanked. You raised it a little bit just now, but that had been a focus for the company, again, predating your time and even predating Jeff's time. I guess if you go back, unbanked in the U.S. and ties to either payday guys or cards for just the payment cards was a focus. Do you think that continues to be a focus for you guys? Is that one of the things that maybe doesn't make as much sense? I was just intrigued given you sort of mentioned a little bit about that outside the U.S. It seemed like a big opportunity in the U.S. as a market opportunity in the Mobile Deposit space. I was just wondering what your thoughts were there, and then I had a quick follow-up.
Yeah. I'll try to keep this short, but the concept of unbanked or even underbanked in the United States, unbanked outside of the United States in developing economies really comes back to how do you determine who's on the other side of that mobile device or who's on the other side of that computer when you don't have a face-to-face physical relationship? When you do that in the United States, there are a lot of factors, there's a lot of signals to determine the identity and, in many instances, the credit worthiness of the individual on the other side of that device. They have a credit file. There are very large Experian, Equifax, TransUnion. There's all kinds of new disruptors coming up to provide information around that.
When you get into economies where maybe they aren't as developed, that underbanked, you don't have the benefit of credit files to be able to determine not just credit worthiness, but be able to determine identity, to validate and verify identity. We definitely think it's an opportunity for us because in those environments, the number one predictor, the most high assurance factor for determining somebody's identity is going to be their government-issued identity card, passport, residence permit, driver's license.
Got you. Let's touch on the Mobile Verify business for a second. Growth obviously really solid there, so that was awesome. I guess as I look at it, I have two questions in this one. What's driving the growth? Some color on whether it's the new logos, and you mentioned a fair number, or is it the use cases with the existing customers. How would you break out that growth rate between expansions if we thought about net dollar retention rates or something like that, net dollar expansion rates, however you want to view it, or net new logos. What's really driving that growth today? Then I'd love to understand in that business, the cross-sell. You've talked about some of the banks. Now there's another top 10 bank doing Mobile Verify that's obviously done check deposit. Where is that cross-sell? Thank you.
Sure. Again, let me try to take that on. I don't think we're going to provide numbers here, but both of those vectors, expanding within our existing businesses, existing customers, as well as bringing on new Mobile Verify identity customers. That's how this business is growing, and that's how it'll continue to grow. Bringing more focus and better execution and repeatability to that's what we're doing every day, getting better at those things. Just to put a little color, when we sell a new customer and sign a contract, if that happens on, let's call it day one, we've reported in the past that this idea of time to live, how quickly can we get that implemented, integrated, get our SDK on their mobile app, how quickly can we get our API integrated and in their application stack? We've taken that time to live in half.
If you looked at those statistics, how long it took us to get a new customer from contract to live, last year it was over 200 days. In the most recent quarter that we're talking about here, it was sub 100 days. I think it was 96 to be precise. That number will bounce around a little bit. Different industries, banks take longer because there's a lot more compliance and regulatory requirements. The marketplace and e-commerce companies can go a lot more quickly. They have the tendency to be a little bit more agile and adaptable.
Kind of bringing that all the way back, it really is a combination of both knocking down those new guys, getting them live, and then once they're live, our customer success teams, which are just outstanding, showering them with love in a very customer intimate model that takes them from the initial implementation on through to higher and higher adoption, whether that's more geographies, whether that's, we'll come back to the point of your question around the banks and the cross-sell. Really making sure that they're hitting their business issues, that they're achieving the success metrics and the success goals that they have. I think we do a real good job of that, and it's a competitive distinction for us. The last part of that is the banking example.
What we're finding with larger banks is that we may start with a single use case where it's a credit card application and we're validating the individual on the other side of that mobile device. The banks are telling us, these large financial institutions, both domestically as well as in Europe, that they want to put a layer in their stack that they can rely on for identity verification. Sometimes we do that with a partner like Experian. Sometimes we do that directly with the financial institution themselves. In these larger institutions, we're hearing that there are literally dozens of use cases, dozens of business units. It truly is a cross-sell opportunity for us to go find those other use cases and basically light those up. You would think of that as expansion, kind of horizontal expansion within your install base.
I'll pause and hopefully have thoroughly answered the question there.
No, that was super helpful. Thank you guys. Nice job again, especially on the Mobile Verify side. It was just great numbers and thanks for taking my questions.
Thanks, Bhavan.
We'll hear next from Darren Aftahi from Roth Capital Partners.
Hey, guys. Good afternoon. Thanks for taking my questions. Just a couple if I may. First, starting with the restructuring. Jeff, I think you quantified the cost side. First question on that, on an annualized basis, when does the cost benefit kick in? If my memory serves me correct, if you're saying 15% of sort of non-core products or 15% of revenue kind of related to non-core products, is that kind of a similar revenue run rate to that annualized kind of cost savings, maybe a titch lower? When does that kick in, and did that impact the software and hardware line at all in the June quarter?
Okay. Let me tear that question apart. The 15%, that's on the annualized business which was around $14 million or so, give or take, when we bought them. The two and a half, yes, that's an annualized savings that we should see. That isn't going to kick in immediately because the restructuring accrual itself includes all the costs that you're allowed to put into that, but there are some notice period costs that are actually going to flow through Q4. You're not going to see all of that impact Q4. There shouldn't be a lot of hangover of costs in 2020, so we should be pretty clear by then of that, and those funds should be available for us to invest elsewhere in the business.
As we really tune our plans for 2020, we'll look at how much of that we're going to take to bottom line if we are. What was the other piece?
The other part was basically on the checks versus non-checks effect on revenue.
There's probably some minor impact of that. There is an impact of that in Q4, so it's starting. Both the dyssynergies that Max mentioned in his comments, the platform rationalization, and the A2iA are both impacting Q4 a bit.
We announced that, Darren, kind of a hard stop to the team on the non-checks portion of the A2iA selling in the quarter in Q3. There's some behavioral changes there that have to take place, but a lot of those people won't necessarily be with the business. You're going to see that happen pretty quickly.
Okay. Can I follow up on that? It looks like the software line growth-wise decelerated quite a bit. I understand the Mobile Deposit business can be lumpy, but anything you would call out there?
Software line. You've got a decline in some of the ID on-premise stuff is going to be impacting that, as you've seen a little bit of that this year. You've got the timing of the deposits, you've got a quarter where we had some A2iA revenue a year ago in that line. Next quarter will be a fuller comp quarter, I guess, if you look at it that way. There's a little bit in this year's. Otherwise, nothing else really going on there.
Got it. Just one last one. On the SaaS transactional growth, you obviously called out financial institutions as kind of a bellwether. If you exclude those, Max, I appreciate your comment, you said some of the e-com companies are signing and lighting this up a lot faster than banks. Any particular sort of use case where you're seeing kind of repeat wins? I know you call out marketplace, gig economy, going even more granular, I'm just kind of curious if you could dive a little bit deeper in anything that you're seeing in terms of where adoption and ramp, actually signing the contracts and ramping the use of it are kind of accelerating within kind of non-financial institutions. Thanks.
Just to maybe Kentucky windage, if you took 100% of the SaaS business today, SaaS transaction business on the identity side, you're going to see probably two-thirds of that falls broadly into, and varies from quarter to quarter, month to month, but about two-thirds of that falls into what you would consider financial services. You'd find about a quarter of it is the marketplace e-commerce, and I'll come back and use the use case. The balance is some stuff that falls around the edges. We do find ourselves doing some transportation, every once in a while an insurance company. Those just don't happen to be the, from our go-to-market perspective, they're not the point of focus in what we're trying to do from demand generation and kind of account campaigning.
Back to your question on the marketplace e-commerce side, the overwhelming use case is new customer opening, right? Whether that's you want to sign up to be a guest at Airbnb, you want to sign up and actually sell something on Poshmark in that marketplace. If you want to go look at a home through Opendoor, those are the examples. There are other examples. You can be on the other side of the marketplace. Airbnb, you could be the host, or Poshmark, you could be the seller. The majority of those examples are typically new customers on the buy side.
Great. Thank you.
We'll move next to Mike Grondahl from Northland Securities.
Yeah. Thanks, guys. In the mobile check prepared comments, you talked a little bit about you were targeting some new digital banks. Could you talk a little bit if you've signed up or won any there and kind of the usage and how that's going?
Yeah. Just to be clear, Mike, are you asking on the deposit side, or are you asking on the identity side?
First on the deposit side. I think that was kind of that along with, I don't know, you mentioned something else, some new channels you were looking at.
The two examples we used or the two broad industries that we just referred to were kind of the fintech, internet-only world of banks, and then the second was the charities and being able to use Mobile Deposit to capture the donations and the charitable giving kind of at the point of giving with the Mobile Deposit. You just basically take a picture of the check and be done. On your question on the financial services, kind of the new internet-based banks, what are some easy examples? Axos, that used to be the bank of the internet. Robinhood, which is a Silicon Valley unicorn.
Sure.
Varo Money. All are examples. There are many more, where these guys are doing very interesting things without having any branches, without having any retail locations. They still have to take deposits from those customers, right? They're onboarding a new customer, so there's a mobile identity opportunity for us, and Varo is a great example where they're doing both. They also have to be able to take a check as the initial depositor when new funds are coming into the account.
Got it. Are you seeing that accelerate that channel, the internet-only bank, Robinhoods, Varos?
Yeah. Fintech is red hot right now. If you follow financial services, there's just a ton of money, whether it's Silicon Valley money, whether it's venture private equity, the more traditional banks themselves investing in those disruptors. Yeah. We see plenty of that. On the charity, I think that's more, it's not necessarily that it's a growing industry so much as it's an unpenetrated market for us, and we've now put some focus on it. Whether it's the Komen Breast Cancer Foundation or whether it's the example we used with St. Jude Hospital, it's a great opportunity to stop leakage, right? If you've ever kind of run for the cause or biked for a cause, you collect the checks and sometimes they don't all make it to the destination. This is a way to prevent that leakage.
Sure. Is the pricing the same as your bank customers? Is it kind of a per transaction, per drip model?
It's the same basic model. The volumes have a tendency to be lower and the per unit charge has a tendency to be significantly higher.
Got it. You can price for that a little bit. Cool. Just shifting gears a little bit over. In that mobile check area, you sell into a lot of resellers. Can you remind us how your contracts with those resellers are structured, the average lengths and maybe the potential down the road to increase pricing?
Yeah. First, there's probably less than 10 really meaningful resellers that service financial institutions. Everything from the biggest guys that we all bank with and know the names of, on through to very small regional, local credit unions. Those are the Fiserv, NCR, FIS, Jack Henry. There's no magic here. I think we disclose them.
Sure
in our SEC filings. I'll let Jeff talk about the model and such, but this is again, a transactional based model and it isn't necessarily the terms of the contracts or the length and duration of the contracts have more to do with how fast they can burn down those transactions.
This is Jeff. The contracts can vary between those processors because some of the processors operate differently. For example, some of them buy for their system and then spread it amongst their customers. They may have one purchase from us and then they spread it. Others come to us and they'll buy specifically for individual customers. When they do that, say for example, they come and buy for individual customers, that may be under a master three-year contract, has pricing or has pricing per customer. No, they all vary. They're one to three-year contracts. There's pricing that can vary. The thing is, every time that our team is having the conversation, there's going to be opportunity to talk about price. That doesn't guarantee that they can actually impact price in that because it may be a longer-term contract.
Yeah. I guess coming back, Mike, to the genesis of your question, we believe there's pricing power there for a number of reasons. First, we own the intellectual property and the patents. We do an outstanding job. Our end customers, not just the banks and financial institutions, our partners, and then us as consumers all acknowledge that, hey, cashing a check using a mobile device is fun, it's easy, and it just works. Trying to replace that in a world where you're being disrupted, right, name a big bank, they're under attack. We just talked about the fintechs.
This is a solved problem and our ability to kind of tease back through the agreements that Jeff was just referring to and take a more principled approach to pricing so that we are getting the value and some equity around how these banks and the service providers are paying for this. We think there's some leverage in there.
Can I ask just a follow-up? In the last six months or calendar 2019, do you have a couple examples where you've raised price or is that all in the future?
There are definitely examples. I'm being a little careful, Mike. Being a public company, the great benefit is that we are very transparent. There's an awful lot of information that our customers and our partners can get on us that gives them comfort that we're a trustworthy organization that's going to be there. This is one of those topics where the more you talk about it publicly, it can kind of whipsaw and kind of do a reversal on you. I just want to be a little judicious.
Sure
in what I share with you.
That's fair. Maybe the last mobile check question. A while ago you talked about maybe an opportunity kind of check fraud, all the data you get from your customers and whatnot. Any progress there? Data analytics.
Yeah. I think if you broadly think about it as kind of a second act product that we can bring back to these 6,400 customers where we've got this very unique, not just the channel, but the relationship and the great reputation and trust of these organizations. We are hard at work at that. I'm not prepared to announce anything today, but yeah, that's definitely something that we're continuing on.
Okay, great. Hey, thanks guys.
You got it, Mike.
As a final reminder, that is the star key followed by the digit 1 if you have a question or comment. We'll hear next from Ilya Grozovsky from National Securities.
Thanks, It's Ilya. Two questions. Number one, when you are winning these deals on the ID side, who, if anybody, are you seeing out there in a competitive perspective or what alternative solutions perhaps is the better question in terms of verifying IDs are you seeing and winning business from, or alternatively not winning business. Then also, just as a sort of a follow-up to that, if you look at your trajectory of revenues on the ID side and on the Mobile Deposit side, at what point do you think the majority of your revenues comes from the ID piece relative to the check piece? How far in the future is that? Thanks.
Sure. Ilya, this is Max. I'll take on the first question, and then I'm going to hand it over to Jeff for the second part of your question. Yeah, I think it's a thoughtful question, too. If our customers, if we use a bank as an example, or financial services organization, they refer to this concept of a trust funnel, right? Somebody comes to them through their mobile device. They don't know who they are, and now they're trying to establish some level of identity verification. The concept of the trust funnel is you start with the most passive, least friction way of determining, can I trust this? Do I have a level of assurance as to, is this a bad actor? Is this a fraudster? Is this a fake trying to do something bad to my organization?
There are a number of signals that you can use for that, right? The telemetry that comes off the device, the time of day, the geolocation of where they are, just kind of some of the behaviors on the phone itself. We fall in that trust funnel much further down. The signal that we use, these government-issued identity documents paired with the biometric of a liveness selfie comparison to the picture on the identity card, that's a relatively high friction, high assurance way of determining identity. When you talk about alternative solutions, there are a number of things that you can use. You can use phone numbers and one-time usage, two-factor authentication, things that are maybe a little easier, maybe less assured but their friction levels and the speed in which you can get them are there.
Ultimately, for the bottom part of the funnel, we've got the absolute best answer. You're tying that biometric of who you are to something you have. The government-issued identity document is the gold standard on something that you're going to have. The competition amongst folks who do similar things to us hasn't changed radically since the last time we talked about it. I'm not going to use any names just because I don't want to give them the credit of the air cover. It's still an early days market. Depending on what geography you're in, the competition may be slightly different. Who we compete with in England, in the U.K. is different than who we necessarily compete with here in the U.S. versus who we compete with in someplace like the Netherlands. I think it's still a very active market.
There's still a lot of, not just competition, but I think there's new entrants coming into the market which just goes to tell you that it's yet to be a solved problem. Maybe that's a little bit on competition and the trust funnel. With that, I'll let Jeff talk about the ID revenue trajectory and how that compares to when it eclipses the deposits business.
Sure. We've been tracking-- Actually, last year, we'd actually been tracking a 40/60, but when we acquired A2iA, that kind of fell back more to the 30 to 70, 35/65 ID to deposit revenue. What I'd say is you're probably looking out 18months to two years where that actually becomes equal in size. We do expect that we'll probably get the identity business profitable before then, but I think for identity to pass over in revenue, it's going to be 18 months to two years would be my thoughts there.
Okay, thanks.
At this time, there are no-.
Thanks, Julie.
There are no additional callers in the queue. I'd like to turn the conference back over to your host for any additional closing comments.
Thank you, operator. Thank you everyone for joining us today. We look forward to updating you again next quarter. This concludes today's call. Have a wonderful day.
That does conclude today's teleconference. We thank you all for your participation.