Mitek Systems Inc

NASDAQ:MITK

Earnings Call Analysis

Mitek Focuses on Organic Growth and Cost Management in Fiscal 2025

Mitek’s fiscal 2024 was flat with $172.1 million in revenue, but with new CEO Ed West, the outlook brightens. The company is targeting $170-$180 million in revenue for fiscal 2025, focusing on Check Fraud Defender and SaaS products to drive organic growth. The adjusted EBITDA margin is expected between 24%-28%. A notable highlight includes a 60% increase in Check Fraud Defender’s annualized contract value, projected to double this year. Mitek aims for double-digit revenue growth and improved profitability by streamlining its identity product portfolio and enhancing customer experience while investing in innovation.

Navigating Through Change: Mitek's Leadership and Focus

Ed West, newly appointed CEO, opened the call by emphasizing a shift towards sustainable organic growth supported by an experienced leadership team. He highlighted Mitek's commitment to operational discipline, which he considers essential for long-term value creation. The company is reorienting its strategies, with a focus on profitability, particularly within the identity solutions segment, a sector under pressure as it responds to the rise of AI-driven fraud.

Fiscal 2024 Performance: A Comparison of Results

Mitek reported a relatively flat fiscal 2024 with revenues around $172.1 million, unchanged from the previous year. However, excluding a large mobile deposit reorder that inflated previous results, the company would have experienced an approximate 6% revenue growth. This inconsistency can be attributed to timing shifts rather than a decline in market demand, showing resilience in transaction volumes despite broader trends in check usage.

Revenue Breakdown: Deposits and Identity Products

In fiscal 2024, revenues from deposit products decreased slightly by less than 1% to $103.6 million, primarily due to timing factors affecting renewal sales of Mobile Deposit and CheckReader products. Meanwhile, revenues from identity products grew marginally to $68.5 million. The growth in identity products was hindered by the discontinuation of legacy products and pricing pressures, particularly affecting Mobile Verify and biometrics. Overcoming these challenges will require a meticulous approach to forecasting and product management.

Looking Ahead: Fiscal 2025 Guidance

For fiscal 2025, Mitek has projected revenues between $170 million to $180 million. This implies a modest revenue increase of 2% to 4% compared to fiscal 2024. Driving this growth will be the expansion of SaaS product offerings, particularly around the Check Fraud Defender (CFD) and MiVIP platforms. Adjusted EBITDA margin is expected to fall between 24% and 28%, reflecting an investment in driving continued demand for CFD, albeit with short-term margin compression.

Investment in Innovation: Future Opportunities

Mitek is keen to capitalize on its evolving market landscape, including a notable increase in demand for identity verification solutions. The management is particularly optimistic regarding MiVIP, which is forecasted to drive significant growth by increasing transaction volumes and integrating new capabilities. What still remains unexplored is the untapped potential within its Check Fraud Defender product, with plans to double its annualized contract value (ACV) in the upcoming fiscal year.

Managing Operational Efficiency: Cost Structure and Expenses

Non-GAAP operating expenses rose to $103.6 million in fiscal 2024. Looking forward, operating expenses are forecasted to be around $26 million per quarter early in fiscal 2025, leading to a potential mid-single-digit million increase compared to fiscal 2024. The focus will be on enhancing unit economics while simultaneously managing costs within the R&D sphere, aligning investments towards growth-driven initiatives and ensuring a leaner operating model.

The Road to Growth: Long-term Strategic Outlook

Mitek aims to establish a path to double-digit growth by leveraging its established relationships with over 7,900 institutions globally and by investing in new product innovations such as Digital Fraud Defender. The company anticipates gradual accelerative growth in 2026, building from its foundational work in 2025. Additionally, West's leadership is refining Mitek's technological offerings to meet evolving market needs, including addressing rising AI-driven fraud threats, which opens doors for new customer acquisitions.

Conclusion: A Future of Opportunities Amid Challenges

The call concluded with a firm commitment from Mitek's management to transparency and continual engagement with investors. The company is adapting to a transforming financial technology landscape while preparing to embrace future growth opportunities through customer relationships and innovative products. Mitek is poised to tackle challenges head-on with a disciplined strategy aimed at restoring growth and delivering shareholder value over the long term.

Earnings Call Transcript 2024-Q4

[Operator]

Good day, and welcome to Mitek's Fiscal 2024 Fourth Quarter and Year-End Earnings Conference Call. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Todd Kehrli of MKR Investor Relations. Please go ahead, sir.

[Todd Kehrli]

Thank you, operator. Good afternoon, and welcome to Mitek's Fiscal 2024 Fourth Quarter and Full Year Earnings Conference Call. With me on today's call are Mitek's CEO, Ed West; and CFO, Dave Lyle.

Before I turn the call over to Ed, I'd like to cover a few quick items. Today, Mitek issued a press release announcing its fiscal -- its financial results for its fiscal 2024 fourth quarter and full year ended September 30, 2024. That release is available on the company's website at miteksystems.com. This call is being broadcast live over the Internet for all interested parties, and the webcast will be archived on the Investor Relations page of the company's website.

I want to remind everyone that on today's call, management will discuss certain factors likely to influence the business going forward. Any factors discussed today that are not historical facts particularly comments regarding our long-term prospects and market opportunities, should be considered forward-looking statements. These forward-looking statements may include comments about the company's plans and expectations of future performance.

Forward-looking statements are subject to a number of risks and uncertainties, which could cause actual results to differ materially. We encourage all of our listeners to review our SEC filings, including our most recent 10-K and 10-Q for a complete description of these risks. Our statements on this call are made as of today, December 16, 2024, and the company undertakes no obligation to revise or update publicly any of the forward-looking statements contained herein, whether as a result of new information, future events, changes in expectations or otherwise.

Additionally, throughout this call, we'll be discussing certain non-GAAP financial measures. Today's earnings release and the related current report on Form 8-K describe the differences between the GAAP and non-GAAP reporting and present 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, Ed West.

[Edward West, executive]

Thanks, Todd, and good afternoon. It's an honor to address you for the first time as CEO of Mitek. I would like to share my thoughts coming into the business, my learnings over the last 60-plus days as well as the opportunities and actions that we are taking. Dave will cover the Q4 and fiscal '24 results and provide some insight regarding the outlook for the year. We will then open up the call for Q&A.

There are four key takeaways I would like for you to hear from today's call: First, the company now has an experienced leadership in place, supported by a team with deep domain expertise who are executing against a clear plan to get back to durable growth; second, we are nearing the focal point for profitability on the identity side of our business; third, Mitek is becoming a comprehensive solution for fighting fraud and mitigating identity-related cybersecurity risks including deepfake and GenAI fraud, a significant and growing problem for all businesses everywhere; and fourth, organic growth is our near-term focus and operational discipline for long-term value creation is our North Star.

So on to the first point. I recently joined Mitek in October, inspired by his legacy as a trusted partner to thousands of financial institutions or FIs. While the company has faced challenges, we are actively addressing them and strengthening our foundation in fiscal '25 to drive profitable organic growth. With a clear plan in place, we are well positioned to create significant value for customers, shareholders and employees. My confidence in Mitek's potential is rooted in my experience as CEO at Cardtronics, where we delivered shareholder value by fostering innovation, driving organic growth while enhancing margins and building a scalable network serving over 1,000 FIs, fintechs and the nation's largest retailers.

These experiences, along with my alignment with shareholder interest, drive my commitment to executing our growth and operating strategy here at Mitek and unlocking the transformative opportunities ahead. Since Mitek's founding almost 40 years ago, we have been at the forefront of innovation, delivering mission-critical software solutions to some of the world's largest financial institutions. From enabling mobile banking to ensuring secure digital transactions, we've consistently solve the pressing challenges in our customer space.

Today, we find ourselves uniquely positioned to tackle new and rapidly evolving threats, particularly the rise of AI-driven fraud. My comments today regarding the market are informed by meeting and speaking with numerous strategic customers and prospects over the last several weeks in Europe, United Kingdom and the U.S., mostly very large FIs.

At the core of our success are mission-critical solutions, serving over 7,900 companies globally, including FIs, telecoms, fintech companies and marketplaces, Mitek is a trusted leader in computer vision and identity-related application of AI and fraud prevention. We revolutionized check processing with our mobile check deposit solution and we've continued to push boundaries with innovations in identity verification, authentication and fraud management. This includes proprietary best-in-class multimodal biometrics, frictionless liveness, injection, and recently released deepfake detections. At our core, our heritage solutions and mobile deposits has been fairly steady over the last 3 years, with total transactions exceeding $1.2 billion each year.

Over the past 5 years, Mitek has undergone a decent amount of growth. In fiscal '19, the company had $85 million in revenues, primarily driven by check-related products. Fast forward to today, we've almost doubled in size to $170 million in revenues and expanded adjusted EBITDA margins to 27%, now with over 40% of the business focused on fighting fraud and verification.

While this growth is impressive, it hasn't come without its challenges. The COVID-19 pandemic accelerated digital transformation, driving significant demand for our solutions and pushing the company to prioritize speed over scalability outpacing its operational infrastructure. This challenge was amplified by executive turnover and major acquisitions, which place considerable strain on our accounting, finance and legal teams. This created issues that you are all too familiar with. With the dust settling, fiscal '25 marks a pivotal year for Mitek as we focus on strengthening our foundation, unifying products and technologies and optimizing our go-to-market strategy to prepare for the next phase of growth.

Now turning to the second key takeaway, which has understandably been a major focus for the investment community. We are nearing the focal point in identity. The company is committed to the goal of returning to double-digit revenue growth during fiscal 2016 and beyond. This will be achieved through streamlined technology, optimized go-to-market strategies and cost efficiencies that will scale revenue while leveraging prior investments. In fiscal '25, we have shifted our focus towards innovation and enhancing customer experience while slightly reducing overall identity spending levels to position the portfolio for profitability. Historically, identity has been cash consuming, and we have carefully considered feedback from our shareholders, our value partners, in addressing this moving forward.

To provide some context, this product portfolio was dilutive to our overall consolidated adjusted EBITDA margins by high single-digit percentage points in fiscal '24. And with the disciplined execution against the following 4-point plan, we believe achieving $80 million to $85 million in run rate identity product revenue is the fulcrum point at which this portfolio becomes margin accretive.

The plan is as follows: first, cultural integration. Over the past 5 years, our total head count has more than doubled to 630 in fiscal '24, bringing in exceptional talent, but also creating silos into collaboration and efficient execution. We're now focused on integrating past acquisitions, aligning teams and driving product enhancements and cross-selling. We believe this initiative will boost revenue through better upselling and product expansions while reducing costs by streamlining redundancies; second, technological integration. Our acquisitions have significantly bolstered our technology stack with advanced biometrics, liveness and platform capabilities, but managing separate systems to preserve their unique innovation created fragmentation.

For example, we have been operating multiple identity document verification systems, both homegrown and acquired that addressed similar customer needs but differed in functionality. We have been integrating these into a single streamlined platform, and we've already seen positive customer feedback highlighting enhanced performance and ease of use. This consolidation is driving opportunities for revenue growth through cross-selling and improved customer retention while reducing operational costs by eliminating redundancies.

The third action to getting to the fulcrum point in identity is cost efficiency. The key priority for us is reducing reliance on costly manual or agent review transactions, which limit scalability. Through the integration of acquired technologies and enhanced AI models, we significantly ramped up automation, reducing the direct cost per transaction for identity by over 25% in '24 with automated transactions now, the vast majority of our total transactions. As we continue to increase the proportion of automated transactions, we expect continued improvements in our unit economics. And finally, go-to-market optimization.

To accelerate growth, we're focused on three key initiatives: first, increasing the maturation of recently acquired customers; second, expanding within our existing customer base, such as new use cases, new products, new geographies and expanding to other business units; and third, acquiring new customers.

MiVIP platform has driven considerable growth with transaction volumes more than doubling in several Tier 1 accounts following the first year of adoption. It's user-friendly interface and flexible architecture allows customers to rapidly deploy new use cases and activate additional signals, driving further customer value and revenue per transaction for Mitek. In FY '24, revenue per transaction on MiVIP was a multiple of that on the Mobile Verify document verification engine, underscoring its stronger value proposition as well as exhibiting pricing resiliency when compared with the pricing pressures experienced by stand-alone document verification.

Simply stated, we want to leverage our proprietary differentiated capabilities and lessen the exposure to stand-alone commoditized offerings. As customers increasingly leverage the both suite and MiVIP products, we expect an uplift in revenue per transaction. With trust enabled to cost thousands of FIs in our growing partner ecosystem, the opportunity for new customer acquisition remains significant. By deepening customer relationships and driving new customer acquisition, we're positioning MiVIP as a market leader in identity verification, authentication and fraud management.

That said, we want to ensure investors that we will closely monitor the execution of this strategy in fiscal '25. And if any significant deviations from our targets arise, we are committed to taking decisive data-driven actions to maximize shareholder value. To support this, we will continue to provide transparency, offering our investors insights into our progress against these key milestones.

Now let's unpack the third key takeaway. Mitek is becoming a comprehensive solution for fighting fraud and mitigating identity-related cybersecurity risks, a growing problem for all businesses. Customers are increasingly sinking integrated platforms, not just point solutions, to combat rising AI-driven threats and defects. Our fraud platform stands out with proprietary capabilities with an established track record of leading and trusted third-party and U.S. government-led benchmarks. This independently verified technological leadership, combined with our exceptional talent and domain expertise, positions Mitek to lead in this evolving market.

The rapid proliferation of AI leads to a new growing period of GenAI-driven fraud. We are uniquely positioned to address this growing problem as a result of our proprietary technologies and proven track record and high assurance market segments. Mitek's platform protects customers through onboarding, transaction enablement, identity verification and integrated authentication all enhanced by advanced 4-factor biometrics and digital fraud detection capabilities, which include defenses against deepfakes, presentation and injection attacks. Our passive liveness detection and biometric solutions have earned strong recognition from NIST and more recently, the Department of Homeland Security, highlighting our commitment to excellence in the field, technical capabilities and innovation in a rapidly changing fraud environment.

Similarly, our Check Fraud Defender, or CFD product, though in its early stages, is already showing strong uptake. Annualized contract value, or ACV, grew by nearly 60% year-over-year, exceeding $10 million at fiscal '24's close, and we are currently seeing strong interest in CFD and are targeting to more than double CFD's ACV in fiscal '25. The consortium model behind CFD, where more participants enhance the data asset is proving effective. We have already seen checks from nearly all of the 8,700-plus FIs in the United States, and we have accumulated data sets on approximately 17% of all checking accounts in the country, all while having less than 1% of these FIs as paying members of our consortium. With our strong mobile deposit foundation and relationships with major FIs, we are poised to deepen these partnerships and drive continued growth through cross-selling CFD.

Now last but not the least, let's discuss the four key takeaway. Organic growth is our near-term focus and operational discipline for long-term value creation is our North Star. Our focus is on organic revenue growth increasing the share of more predictable SaaS revenue, expanding margins and generating free cash flow, all underscored by a disciplined capital allocation strategy to maximize shareholder value. Every initiative we've outlined today is designed to sharpen this focus, ensuring we strengthen the foundation in fiscal '25 and deliver accelerating and profitable growth in fiscal '26.

Here's how this approach will drive measurable improvements in 5 key areas of our financials: First, organic revenue growth by expanding transactions with existing customers, introducing new use cases like Check Fraud Defender and Digital Fraud Defender, cross-selling within the MiVIP platform and acquiring new customers, we aim for steady organic revenue growth. Second, a higher percentage of SaaS revenue. We aim to transition towards a higher proportion of SaaS revenue, which offers greater predictability and reduces volatility. In fiscal '24, approximately 37% of our revenue came from SaaS. But as this becomes a larger portion of our sales, we expect to dampen the impacts of volatile term license revenue which still dominates our revenue today. Looking out to fiscal 2016, we are pursuing a goal for SaaS revenue to approach half of our total revenue.

Third, margin expansion. By driving cost efficiencies, integrating operations and scaling revenue to achieve operating leverage, we anticipate a considerable improvement in adjusted EBITDA margins as we look out to fiscal '26. In fiscal '25, we expect to lower expenses associated with the identity product portfolio while we invest in accelerating demand for CFD. While this CFD investment temporarily reduces margins by mid-single-digit percentage points, we believe the strong ROI justifies it. Fourth, free cash flow generation. As we reduced nonrecurring and extraordinary costs tied to acquisitions, executive transitions and audit fees, we expect a stronger free cash flow conversion of adjusted EBITDA with a more significant impact starting in fiscal '26.

And finally, capital allocation. We remain committed to balancing growth investments with returning capital to shareholders and maintaining a strong flexible balance sheet. In conclusion, operational disciplines, not just about fiscal '25 is the foundation for creating durable long-term value for all of our stakeholders as we look forward to fiscal 2026 and beyond.

I'd now like to turn it over to Dave.

[David Lyle, executive]

Thanks, Ed. And I'd like to take a moment to say welcome to Mitek. It's been great getting to know you, and I'm excited about the strong start we've already had working together. I'll begin today by taking you through financial results, and then I'll provide a fiscal 2025 outlook and finish by addressing some housekeeping items.

Please note that I'll be referring to non-GAAP results going forward. First, our fiscal Q4 2024 results. Fiscal Q4 came in $1.1 million higher than the midpoint of the revenue guidance range at $43.2 million or 15% year-over-year revenue growth. Identity products revenue grew 13% year-over-year, while deposits products revenue grew 17%. Non-GAAP operating income for Q4 was $15 million, a 34.8% margin, which surpassed the midpoint of the guidance range by just under $4 million.

This was driven by a onetime reduction of $1.9 million related to bonus accruals adjustment based on our full year results, a onetime $600,000 reversal of allowance for doubtful accounts, the $1.1 million higher revenue just mentioned and the remainder from operating expense efficiencies. Looking a little closer to our non-GAAP operating expenses, we reduced expenses by $5 million sequentially from $27.1 million in fiscal Q3 to $22.1 million in Q4. This was primarily due to a $2.2 million sequential reduction to bonus and vacation accruals, a $1.4 million reduction in outside accounting-related support to $600,000 accounting reversal, as mentioned before and $500,000 reduction in marketing and travel expenses.

Now let's move on to the full year 2024 results. In summary, fiscal '24 was roughly flat year-over-year at $172.1 million, and our non-GAAP operating margins remained strong at 26%. If we adjust for the large customer 4-year mobile deposit reorder contract recorded in fiscal Q1 2023 that we discussed in prior calls, where $7 million in accelerated revenue recognition created a $2-plus million gap in fiscal 2024, fiscal year '24 would have seen about 6% revenue growth and a 27% non-GAAP operating margin. It's important to note that we believe the 3-year CAGR is more reflective of the underlying potential trajectory of the business over the long term. That revenue CAGR since fiscal 2021 was 13% as COVID-19 pulled forward the penetration of our mobile deposit product and boosted revenue growth in fiscal '22 and fiscal '23 while '24 remained flat.

Turning now to more specifics on our full year revenue results, starting with deposit products. Deposit products revenue declined slightly by less than 1% to $103.6 million. Strong growth in CFD was offset by declines in Mobile Deposit and CheckReader product revenues, primarily driven by renewal timing. We believe that these declines are primarily due to timing rather than market weakness as our transaction volumes have remained relatively stable despite the broader decline in check volumes. This resilience reflects the increasing adoption of Mobile Deposit solutions.

To provide context, we believe the U.S. check market now processes about 8 billion to 9 billion checks with an estimated 1/3 being retail check suitable for mobile capture. With over 1.2 billion annual transactions on our platform, this translates to about a 40% digital adoption rate. While we estimate the total check volumes have declined at a single-digit rate in recent years, the growing adoption of mobile banking has helped sustain transaction levels in a relatively narrow range.

Moving on to identity products revenue. Revenue increased by less than 1% year-over-year to $68.5 million for fiscal 2024, strong transaction-driven revenue growth on our MiVIP platform was offset by the sunsetting of our legacy ICAR hardware products, continued pricing pressure in our Mobile Verify products and small declines in our biometrics point solutions. The ICAR hardware sunsetting had a $1.2 million negative impact or a 2 percentage point headwind to identity.

Moving down the P&L, we maintained strong unit economics with an 86.2% non-GAAP gross margin for fiscal 2024. Non-GAAP operating expense rose to $103.6 million from $96.8 million in fiscal '23, with approximately 80% of that growth coming from R&D. The bridge between our $103.3 million non-GAAP operating expenses and $145.4 million GAAP operating expenses reflects $14.8 million in cash adjustments and $27.3 million in noncash accounting adjustments as detailed in our earnings release. This resulted in a 26.1% non-GAAP operating margin for the year. Non-GAAP net income per diluted share improved to $0.96 on 47.5 million diluted shares, a $0.01 increase year-over-year.

Now let's move on to our balance sheet and capital allocation framework. We generated $30.3 million in free cash flow during fiscal 2024, repurchased 2.2 million shares for $24.2 million under our share repurchase program and ended the year with $141.8 million in cash and investments, a $6.8 million increase year-over-year.

Our capital allocation priorities remain, first and foremost, funding high-return growth opportunities, including MiVIP, CFD, MiPass and biometrics which are poised for strong demand as we make headway with strengthening our foundations in fiscal 2025. Then we must balance returns of capital with balance sheet strength. Share repurchases continued in fiscal Q1 '25, but the pace has slowed to maintain flexibility ahead of the $155 million convertible bond maturity in February 2026.

Combining our continued cash flow generation with our strong balance sheet, we are well positioned to repay and/or refinance the bond by its maturity at our discretion. Our current repurchasing activity does not reflect any change in our views of the stock value and given the current price, we are focusing on the least dilutive financing strategies to protect shareholder interests.

Now turning to our fiscal 2025 guidance. We are guiding to a revenue range of $170 million to $180 million, with growth coming from our SaaS products. We are also introducing adjusted EBITDA margin guidance, replacing our emphasis on non-GAAP operating income as we feel it offers greater comparability and simplicity. Note that the bridge between these two is depreciation and amortization, which has historically run at approximately 1% of revenue.

With that said, we are guiding to an adjusted EBITDA margin range of 24% to 28% in fiscal 2025. More specifically on the deposit side, we expect total revenue for the year to be relatively steady with last year. We expect growth from our Check Fraud Defender products to be somewhat offset by declines in mobile deposit product revenue mostly due to deal timing, where a few of our larger customers bought a second tranche of inventory in the second half of 2024 and where we expect those customers to likely return to a more typical single buy in 2025. This revenue decline all reflects the nature of accounting for term license deals, especially with our larger bank customers where the timing and size of deals impact quarterly and yearly revenue recognition.

But the key takeaway is that revenue accounting doesn't affect billing terms or contract values. Looking more specifically at CFD during 2025, we plan to transition some on-premise CFD customers into the consortium. While this transition strengthens our consortium and has no impact on ACV, it can create a small GAAP revenue headwind as we shift from term license to SaaS ratable revenue.

Turning to identity products. We expect nearly all of our identity products revenue growth in fiscal 2025 to be driven by our SaaS identity solutions with products like MiVIP expected to see meaningful growth. While our biometrics point solutions, primarily in our identity software and maintenance lines are expected to grow, we learned from fiscal 2024 as forecasting challenges for these products and are taking a more cautious approach to forecasting those larger, more complex deals that can significantly impact in-year revenue recognition.

To provide more clarity on how we see top line revenue phasing through the year, we anticipate the first half to be similar to fiscal 2024 with a heavier concentration of revenue occurring in the second fiscal quarter. We anticipate that the second half of fiscal 2025 will follow similar seasonality to the second half of 2024.

Now for some color on non-GAAP operating expenses. We expect our operating expenses to revert to about the $26 million level in the first fiscal quarter of 2025 with sequential increases primarily coming from the annual bonus accrual reset as well as vacation accrual reset for the new year. We expect some incremental operating expenses sequentially from there beginning in fiscal Q2, mostly in R&D and sales as we invest in our new products.

Now let's move on to some housekeeping items. We refined our revenue disaggregation to show revenue type as well as new GAAP to non-GAAP reconciliation tables all in our earnings release. In addition, we have introduced free cash flow, which echoes Ed's emphasis on improving our free cash flow conversion.

Finally, we've uploaded an Excel-based supplemental financial package to our Investor Relations website containing some trended historical financials. All in all, we hope these updates coupled with more transparency in our remarks, reflect our positive commitment to consistent transparent disclosures, enabling shareholders to better assess our performance and our plans moving ahead.

Operator, that concludes our prepared remarks. Please open the line for questions.

[Operator]

[Operator Instructions] And our first question today will come from Jake Roberge with William Blair.

[Jacob Roberge, analyst]

Welcome aboard, Ed. That commentary and disclosures were really helpful. So thanks to both you and Dave. Ed, you made some comments about refining the strategy to better prioritize organic growth. Can you help us parse out the lower-hanging fruit that you're looking to address this year versus maybe some of the longer-term initiatives you're exploring? And then you talked about the 3-year CAGR of 13%, as you look at the business moving forward, do you still see that as kind of a medium-term opportunity here once you work through those initiatives around ID verification and Check Fraud?

[Edward West, executive]

So well, first of all, good to meet you. Thanks for the introduction. And as I spoke to in my comments, obviously, there's a lot of focus, an ardent focus on organic growth. And frankly, that's just getting very focused on our products, our solutions in terms of what the market is currently seeing. Integrating some of the solutions that we have, in particular, on the identity side with the emphasis of MiVIP improving the algorithms like have been done, which is showing the improvement in transaction and auto transaction, in addition to rolling out the new solutions, particularly like Digital Fraud Defender with VIP, all kind of teed that up for some excellent conversations with our current base.

One of the things I outlined is with recently on-boarded customers, we would see after about a year, a significant uptake in the use in volume as the solution has been tuned with them. So we see that evolving this year, more so with some of our key customers and key areas of growth. And then I would guess on the deposit side, I would say with Check Fraud Defender, with the growth there. I mentioned that last year in ACV, we saw about 60% and more than double into this year. So those areas -- and it's one of the reasons why I joined Mitek. Frankly, when you look at our history and the reputation that we have, the company has for a long time with over 7,000 financial institutions in the U.S. and frankly, around the world.

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

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

[Jacob Roberge, analyst]

Yes. The second part was really around -- can you talk about the 3-year CAGR of 13%. I guess as you look at the business moving forward, do you see that as the medium-term opportunity here? Because you were talking about double-digit ID verification growth, check fraud doubling next year. Just curious how you're looking at that medium-term growth opportunity.

[Edward West, executive]

I mean, I think that's fair. Our first goal is to get back to the double-digit growth and then taking it from there. But having a low teens, I do not have a concern with in terms of that. And frankly, all of our goals and effort is going to be how do we continue to drive that up from there. We got to first turn the ship and making sure we're getting back to durable growth on that front. This company gone through a lot.

I think as you all well know, over the last couple of years, there's been a lot of distractions, a lot of issues. And the good news is we've made tremendous progress on these efforts. Now having the organization highly focused on a clear plan, executing against those, that momentum, we believe, will build throughout this year and then we'll give you more color on it as that falls. But I do feel okay about that at this stage.

[Jacob Roberge, analyst]

Okay. Very helpful. And then just two-parter on Check Fraud Defender. Have you started to see conversations with new customers change in any way now that you've had kind of those initial customers up and running and likely have a clear ROI message? And then on the partner front with CFD, are there any other large partners that you may be able to activate on that solution this year?

[Edward West, executive]

Now let's turn it over to Dave from prior conversations and about how those have evolved. I would just tell you from the conversations that I've had and then also been aware of is the ROI is extremely compelling. The solution works, and I think as you see the level of the data sets that we've been able to build already just with the few FIs that are into the network right now, now already having 17% of the accounts for some data set associated with 17% of those accounts is very meaningful. So I think as more and more get familiar with it, it's a new concept. So it takes a little while to come along. But as they do, and they run the test and see the benefit that it brings forward, I think they'll move in more quickly. But Dave, I don't know if you can comment on prior.

[David Lyle, executive]

Yes. Just looking at where this is in its life cycle. As we said before, it was in its nascent stage this past year. It obviously continues to be what we're starting to get the traction that we thought we would, which we're pretty excited about. Don't forget, a little over a year ago, we had a handful of banks who were working on this. So we've come a pretty long way.

[Operator]

And your next question today will come from Mike Grondahl with Northland Systems.

[Mike Grondahl, analyst]

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

[Edward West, executive]

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

[Mike Grondahl, analyst]

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

[Edward West, executive]

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

[Mike Grondahl, analyst]

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

[Edward West, executive]

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

[David Lyle, executive]

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

[Edward West, executive]

In the cost side, in the incremental, I think I mentioned kind of low to mid-single-digit EBITDA margin impact from the incremental investment on CFD. And the good news is the way that the company invest in that is getting it out into the market, getting with our customers, but we are seeing such strong interest in it and request additional functionality, capability, reporting and interest levels, which is terrific. And we want to deliver and execute on that swiftly to continue its growth and making sure that product continues to scale with the interest. So that's the investment this year. It took -- the company has taken a prudent approach on that, as the product and solution has grown.

[Mike Grondahl, analyst]

Okay. And then just last one for Dave. I don't have the model in front of me, but overall, this fiscal '25, will OpEx be about what '24 was? Do you expect a little bit of savings or a little bit of elevated spending, just OpEx relative to fiscal '24?

[David Lyle, executive]

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

[Operator]

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

[George Sutton, analyst]

Ed, welcome. Nice to have you on board. So my first question is for Dave, if we go back a quarter, the challenge in that quarter was in identity, we are moving from point solution sales to more of a platform sale. We had certainly at the ID R&D group, more of the engineers selling the deals. It looks like we saw some improvement there. Can you just give us a sense of what happened in terms of some of those deals that we had seen pushing? How many of those happen in this last quarter versus what we're looking for in the next fiscal year?

[David Lyle, executive]

Yes. In Q4, you're right. We got kind of what we expected on that front. Obviously, with all the changes that we made to increase focus especially on those point biometric products, we saw some decent results relative to our expectations. Going into 2025, if you remember in the last call, we said that quite a few of the revenue dollars that got pushed out were related to large multinational companies that were just more difficult to close the sale with so it would take some more time. And that revenue that we had originally expected to get near the end of '24 is now probably pushed out into '25, starting more in the back half of '25 into '26, probably somewhere in the 12 to 18 months range. But the other point that we wanted to make was we don't believe that we necessarily lost revenue opportunities. We still think they're out there and that we can land them.

[George Sutton, analyst]

So Ed, on Check Fraud Defender, you gave an interesting statistic. We basically have data sets on 17% of the checks, but our current penetration is less than 1%, can you just give us the delta between those 2 numbers? What does that 17% in your mind represent in terms of opportunity?

[Edward West, executive]

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

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

[George Sutton, analyst]

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

[Edward West, executive]

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

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

[George Sutton, analyst]

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

[Operator]

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

[Allen Klee, analyst]

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

[David Lyle, executive]

Yes. Thanks, Allen. We actually decided to lengthen our range a little bit, as you can see from the range that we have of $170 million-$180 million. We did that because on the biometric side, we have some opportunity there, but we wanted to be pretty conservative in terms of our forecasting, given the forecasting issues that we had last year. We still have confidence that, that can create upside that would move us up into the higher end of the guidance. We also think we have opportunity on the MiVIP platform, which we're pretty excited about.

But don't forget, we have headwinds, right? We have our ICAR legacy headwind, which is mild, but it's enough to make a difference and Mobile Verify, the document verification pricing pressure that we've talked about historically will continue. So it's kind of outpacing on the identity side, outpacing those headwinds.

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

[Edward West, executive]

And I would just add there, you're on the right point about the opportunity for growth. And then as we talked about on the identity side, where the midpoint is the driver of that. And obviously, as I laid out that plan earlier, this hasn't -- this organization has an ardent focus on making sure we can continue to accelerate that organic growth with the products, the solutions, who we're selling to, the relationships there and building that out and making sure we have the products and solutions to execute on. So we aspire and we'll continue all of our objectives and goals are to continue to accelerate that growth.

Obviously, I'm new into it. We're going to take a prudent approach to it. And we -- and we'll keep you updated throughout the year, and but how we exit. But sitting here today, we're driving towards that double-digit growth going into '26.

[Allen Klee, analyst]

Okay. One last question, just following up on identity. Mobile Identity was -- did $68.5 million of revenue in fiscal '24. And I thought I heard you say that when you get to $85 million, it can switch over to profitability. But based on what you're talking about, it sounds like best case is that maybe we would see that in '26. But that were -- how am I thinking about that wrong?

[Edward West, executive]

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

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

[Operator]

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

[Surinder Thind, analyst]

Ed, I'd like to start a question with about the -- I'll call it, the integration or transformation program that you're going through. Can you walk us through that in a bit more detail in the sense of how big a lift that is at this point? And when you kind of expect to get to the end target, is that a multiyear journey? Is it a year-long journey where you get most of the benefits? Sometimes as you get into these projects, they can turn out to be a bit more complex than originally anticipated.

[Edward West, executive]

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

How are we getting -- automating more transactions running on the identity side, how we're integrating those multiple platforms that were going through from either heritage ones or acquired, getting -- the company used to have 4, getting those to 1, continuing to tune AI algorithms and making sure our machine learning algorithms are properly taking the latest data sets to improve the level of automation, getting our sales team geared towards the products that actually drive the needle in terms of both margin and scalability. So it's just gearing the organization.

I think we'll make a lot of headway on it this year, but it will evolve into next year, and there will probably be more things where we see more opportunities. But I guess the overarching point is it's about clarity and gearing for the organization to drive towards organic growth and scaling margins and having customers that are -- our goal is to have raving fans that they want to push and do more with Mitek.

[Surinder Thind, analyst]

Understood. I definitely hear you on obviously having an integrated tech stack or approach from a product perspective as well as will definitely help on the organic growth side. But what about the actual execution of that in the sense of these projects can also get expensive, right? Because sometimes you need a lot of bodies to throw at to get the problem solved within some reasonable time frame. How are you guys managing that part of the equation? Because when we look across the industry, we see others that have gone through some of these programs, they're not cheap per se. And so usually, you'll see things like expenses is adjusted out of the numbers. And will we see anything like that? Or is this somehow you're managing within your existing cost structure?

[Edward West, executive]

No, I'm not going to predict the future on what I may or may not say, but I would tell you, the guidance that we outlined and that Dave walk through incorporates these actions, these investments. Frankly, some of the efficiencies and redundancies that we've already incurred in the company and have taken action on those already. And we also outlined the incremental investments on product enhancements and scale that we are investing in on the CFD solution this year. That's all -- that's in the numbers. And so if something where to come along that has an extremely compelling ROI that we feel strong about that requires an incremental investment, we would discuss that. But based on everything that we talk through right now, that's -- those are in the numbers and we want to drive upside from those results.

[Surinder Thind, analyst]

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

[David Lyle, executive]

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

[Surinder Thind, analyst]

That is correct, yes.

[David Lyle, executive]

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

[Surinder Thind, analyst]

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

[Edward West, executive]

Yes. So this is about focus. I did mention that and said that the spending for the identity products will actually be flat to slightly down for this fiscal year. I think this is just a recognition. There's been a lot of investment on that over the last couple of years. And the results, we want to drive results and performance. So we've geared the team, the organization to the products to making sure they're scaling that the customer satisfaction is there, that the customer experience is there that we can cross-sell by integrating these platforms. So that's in there, and we're investing in the product.

We just announced DFD, Digital Fraud Defender, which frankly, we think is at the forefront of the market right now based on what's happening with GenAI. So the goal is to have -- be efficient, drive productivity and getting back to a double-digit organic growth and being prudent with how and where we're investing. So we're trying to balance all those interests and have the relationships. So I'm not concerned about the cuts or changes or the cost side impacting the customer experience or innovation, it's actually the opposite because we're focused, we're actually able to achieve it.

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

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

[Operator]

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