UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~March~~December 31, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File Number 001-35231

MITEK SYSTEMS, INC.

(Exact name of registrant as specified in its charter)


Delaware						87-0418827
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

600 B Street, Suite 100
San Diego, California						92101
(Address of principal executive offices)						(Zip Code)

(619) 269-6800

(Registrant’s telephone number, including area code)

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


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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒☐ No ☐☒

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

There were ~~44,346,935~~45,589,575 shares of the registrant’s common stock outstanding as of ~~April 30, 2022.~~August 31, 2023.

MITEK SYSTEMS, INC.

FORM 10-Q

For The Quarterly Period Ended ~~March~~December 31, 2022

INDEX


	PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	1
	Condensed Consolidated Balance Sheets at ~~March~~December 31, 2022 (Unaudited) and September 30, ~~2021~~2022	1
	Condensed Consolidated Statements of Operations and Other Comprehensive Income ~~(Loss)~~ (Unaudited) for the Three ~~and Six~~ Months Ended ~~March~~December 31, 2022 and 2021	2
	Condensed Consolidated Statements of Stockholders' Equity (Unaudited) for the Three ~~and Six~~ Months Ended ~~March~~December 31, 2022 and 2021	3
	Condensed Consolidated Statements of Cash Flows (Unaudited) for the ~~Six~~Three Months Ended ~~March~~December 31, 2022 and 2021	64
	Notes to Condensed Consolidated Financial Statements (Unaudited)	75
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3225
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4131
Item 4.	Controls and Procedures	4232
	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	4334
Item 1A.	Risk Factors	4334
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4334
Item 3.	Defaults Upon Senior Securities	4334
Item 4.	Mine Safety Disclosures	4434
Item 5.	Other Information	4434
Item 6.	Exhibits	4635
	Signatures	4836

PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

MITEK SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(amounts in thousands except share data)


		March 31, 2022 (Unaudited)		September 30, 2021			December 31, 2022 (Unaudited)		September 30, 2022
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	23,984	$	30,312	Cash and cash equivalents	$	57,115	$	32,059
Short-term investments	Short-term investments	37,910		149,057		Short-term investments	44,814		58,268
Accounts receivable, net	Accounts receivable, net	23,858		16,602		Accounts receivable, net	28,262		27,874
Contract assets		4,503		4,080
Contract assets, current portion						Contract assets, current portion	5,458		6,273
Prepaid expenses	Prepaid expenses	2,409		1,920		Prepaid expenses	2,269		2,000
Other current assets	Other current assets	1,849		2,085		Other current assets	2,773		2,622
Total current assets	Total current assets	94,513		204,056		Total current assets	140,691		129,096
Long-term investments	Long-term investments	31,493		48,051		Long-term investments	5,674		10,633
Property and equipment, net	Property and equipment, net	3,938		3,671		Property and equipment, net	3,367		3,493
Right-of-use assets	Right-of-use assets	6,098		7,056		Right-of-use assets	5,031		5,155
Intangible assets, net	Intangible assets, net	96,364		28,734		Intangible assets, net	76,601		75,756
Goodwill	Goodwill	136,889		63,096		Goodwill	128,184		120,186
Deferred income tax assets	Deferred income tax assets	10,572		10,511		Deferred income tax assets	13,759		10,245
Convertible senior notes hedge		—		48,208
Other non-current assets		5,292		6,310

Contract assets, non-current portion(1)						Contract assets, non-current portion(1)	10,741		4,218
Other non-current assets(1)						Other non-current assets(1)	1,565		1,628
Total assets	Total assets	$	385,159	$	419,693	Total assets	$	385,613	$	360,410
LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY					LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	5,359	$	2,507	Accounts payable	$	6,080	$	4,974
Accrued payroll and related taxes	Accrued payroll and related taxes	8,271		11,776		Accrued payroll and related taxes	6,379		10,393
Accrued liabilities						Accrued liabilities	1,234		1,155
Accrued interest payable(1)						Accrued interest payable(1)	495		202
Deferred revenue, current portion	Deferred revenue, current portion	9,700		10,381		Deferred revenue, current portion	12,744		13,394
Lease liabilities, current portion	Lease liabilities, current portion	1,944		1,943		Lease liabilities, current portion	2,098		2,110
Acquisition-related contingent consideration	Acquisition-related contingent consideration	10,790		11,050		Acquisition-related contingent consideration	6,250		5,920
Other current liabilities		3,469		1,552
Restructuring accrual						Restructuring accrual	295		901
Income tax payables(1)						Income tax payables(1)	5,343		194
Other current liabilities(1)						Other current liabilities(1)	1,437		1,254
Total current liabilities	Total current liabilities	39,533		39,209		Total current liabilities	42,355		40,497
Convertible senior notes	Convertible senior notes	124,370		120,918		Convertible senior notes	129,814		127,970
Embedded conversion derivative		—		48,208

Deferred revenue, non-current portion	Deferred revenue, non-current portion	1,053		955		Deferred revenue, non-current portion	1,236		1,775
Lease liabilities, non-current portion	Lease liabilities, non-current portion	5,485		6,588		Lease liabilities, non-current portion	3,893		4,106
Deferred income tax liabilities		22,100		4,117
Deferred income tax liabilities, non current portion						Deferred income tax liabilities, non current portion	15,344		14,132
Other non-current liabilities	Other non-current liabilities	6,250		6,868		Other non-current liabilities	1,765		1,613
Total liabilities	Total liabilities	198,791		226,863		Total liabilities	194,407		190,093

Stockholders’ equity:	Stockholders’ equity:					Stockholders’ equity:
Preferred stock, $0.001 par value, 1,000,000 shares authorized, none issued and outstanding	Preferred stock, $0.001 par value, 1,000,000 shares authorized, none issued and outstanding	—		—		Preferred stock, $0.001 par value, 1,000,000 shares authorized, none issued and outstanding	—		—
Common stock, $0.001 par value, 120,000,000 and 60,000,000 shares authorized, 44,344,361 and 44,168,745 issued and outstanding, as of March 31, 2022 and September 30, 2021, respectively		44		44
Common stock, $0.001 par value, 120,000,000 and 120,000,000 shares authorized, 45,248,743 and 44,680,429 issued and outstanding, as of December 31, 2022 and September 30, 2022, respectively						Common stock, $0.001 par value, 120,000,000 and 120,000,000 shares authorized, 45,248,743 and 44,680,429 issued and outstanding, as of December 31, 2022 and September 30, 2022, respectively	45		44
Additional paid-in capital	Additional paid-in capital	207,491		199,935		Additional paid-in capital	219,596		216,493
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(5,170)		(943)		Accumulated other comprehensive loss	(15,164)		(28,219)
Accumulated deficit	Accumulated deficit	(15,997)		(6,066)		Accumulated deficit	(13,271)		(18,001)
Treasury stock, at cost, no shares and 7,773 shares as of March 31, 2022 and September 30, 2021, respectively		—		(140)

Total stockholders’ equity	Total stockholders’ equity	186,368		192,830		Total stockholders’ equity	191,206		170,317
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	385,159	$	419,693	Total liabilities and stockholders’ equity	$	385,613	$	360,410

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

See accompanying notes to condensed consolidated financial statements.

MITEK SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME ~~(LOSS)~~

(Unaudited)

(amounts in thousands except per share data)

Three Months Ended March 31, Six Months Ended March 31,
2022 2021 2022 2021
Revenue
Software and hardware $ 19,280 $ 13,013 $ 34,725 $ 25,315
Services and other 15,434 15,760 32,461 29,433
Total revenue 34,714 28,773 67,186 54,748
Operating costs and expenses
Cost of revenue—software and hardware 310 670 688 1,915
Cost of revenue—services and other 3,000 3,122 5,978 6,015
Selling and marketing 9,206 8,530 17,644 15,915
Research and development 8,236 6,691 15,842 12,855
General and administrative 6,073 5,718 12,037 10,776
Acquisition-related costs and expenses 3,056 1,659 5,335 3,352
Total operating costs and expenses 29,881 26,390 57,524 50,828
Operating income 4,833 2,383 9,662 3,920
Interest expense 2,040 1,319 4,048 1,319
Other income (expense), net (231) 372 (96) 468
Income before income taxes 2,562 1,436 5,518 3,069
Income tax benefit (provision) (651) (417) (483) 117
Net income $ 1,911 $ 1,019 $ 5,035 $ 3,186
Net income per share—basic $ 0.04 $ 0.02 $ 0.11 $ 0.07
Net income per share—diluted $ 0.04 $ 0.02 $ 0.11 $ 0.07
Shares used in calculating net income per share—basic 44,775 43,138 44,795 42,835
Shares used in calculating net income per share—diluted 46,097 44,554 46,206 44,367
Other comprehensive income (loss)
Net income $ 1,911 $ 1,019 $ 5,035 $ 3,186
Foreign currency translation adjustment (1,862) (2,648) (3,129) 112
Unrealized loss on investments (828) (133) (1,098) (186)
Other comprehensive income (loss) $ (779) $ (1,762) $ 808 $ 3,112


	Three Months Ended December 31,
	2022		2021
Revenue
Software and hardware	$	26,376	$	15,445
Services and other	19,327		17,028
Total revenue	45,703		32,473
Operating costs and expenses
Cost of revenue—software and hardware (exclusive of depreciation & amortization)	169		378
Cost of revenue—services and other (exclusive of depreciation & amortization)	4,900		4,177
Selling and marketing	9,515		8,438
Research and development	7,670		6,407
General and administrative	8,479		5,965
Amortization and acquisition-related costs	4,821		2,279
Restructuring costs	1,776		—
Total operating costs and expenses	37,330		27,644
Operating income	8,373		4,829
Interest expense	2,137		2,008
Other income, net	340		135
Income before income taxes	6,576		2,956
Income tax benefit (provision)	(1,846)		168
Net income	$	4,730	$	3,124
Net income per share—basic	$	0.11	$	0.07
Net income per share—diluted	$	0.10	$	0.07
Shares used in calculating net income (loss) per share - basic	44,930		44,788
Shares used in calculating net income (loss) per share - diluted	45,634		46,155
Other comprehensive income
Net income	$	4,730	$	3,124
Foreign currency translation adjustment	12,703		(1,267)
Unrealized gain (loss) on investments	352		(270)
Other comprehensive income	$	17,785	$	1,587

See accompanying notes to condensed consolidated financial statements.

MITEK SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited)

(amounts in thousands)


		Three Months Ended March 31, 2022												Three Months Ended December 31, 2022
		Common Stock			Additional Paid-In Capital				Accumulated Deficit	Accumulated Other Comprehensive Income (Loss)					Total Stockholders’ Equity			Common Stock								Additional Paid-In Capital									Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)	Total Stockholders’ Equity
		Shares	Amount											Shares							Additional Paid-In Capital											Total Stockholders’ Equity
Balance, December 31, 2021		44,297	$	44			$	203,091				$	(13,226)					$	(2,480)				$	187,429
Balance, September 30, 2022																						Balance, September 30, 2022		44,680				$	44				$	216,493							$	(18,001)		$	(28,219)	$	170,317
Exercise of stock options	Exercise of stock options	16	—		179							—					—				179		Exercise of stock options		83					—						662					—			—		662
Settlement of restricted stock units	Settlement of restricted stock units	248	—		—					—					—				—		Settlement of restricted stock units	486				1					(1)							—		—			—
Issuance of common stock under employee stock purchase plan		71	—		923					—					—				923

Stock-based compensation expense	Stock-based compensation expense	—	—		3,298					—					—				3,298		Stock-based compensation expense	—				—					2,442							—		—			2,442

Repurchases and retirement of common stock		(288)	—		—					(4,682)					—				(4,682)
Components of other comprehensive loss:

Components of other comprehensive income:																					Components of other comprehensive income:
Net income	Net income	—	—		—					1,911					—				1,911		Net income	—				—					—							4,730		—			4,730
Currency translation adjustment	Currency translation adjustment	—	—		—					—					(1,862)				(1,862)		Currency translation adjustment	—				—					—							—		12,703			12,703
Change in unrealized gain (loss) on investments	Change in unrealized gain (loss) on investments	—	—		—					—					(828)				(828)		Change in unrealized gain (loss) on investments	—				—					—							—		352			352
Total other comprehensive loss																			(779)
Balance, March 31, 2022		44,344	$	44	$	207,491				$	(15,997)				$	(5,170)			$	186,368
Total other comprehensive income																					Total other comprehensive income																						17,785
Balance, December 31, 2022																					Balance, December 31, 2022	45,249				$	45				$	219,596						$	(13,271)	$	(15,164)		$	191,206


		Three Months Ended March 31, 2021																	Three Months Ended December 31, 2021
		Common Stock			Additional Paid-In Capital					Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity			Common Stock					Additional Paid-In Capital			Treasury Stock					Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity
		Shares	Amount						Shares											Amount			Shares				Amount
Balance, December 31, 2020		42,668	$	43			$	151,153				$	(11,827)		$	2,384			$	141,753
Balance, September 30, 2021																		Balance, September 30, 2021	44,169		$	44			$	199,935		(8)		$	(140)		$	(6,066)		$	(943)		$	192,830
Exercise of stock options	Exercise of stock options	18	—		69					—			—			69		Exercise of stock options	9		—			25			—		—			—			—			25
Settlement of restricted stock units	Settlement of restricted stock units	289	—		(1)					—			—			(1)		Settlement of restricted stock units	725		1			(1)			—		—			—			—			—
Issuance of common stock under employee stock purchase plan		77	—		793					—			—			793

Stock-based compensation expense	Stock-based compensation expense	—	—		2,968					—			—			2,968		Stock-based compensation expense	—		—			3,132			—		—			—			—			3,132
Sale of convertible senior notes warrants		—	—		23,909					—			—			23,909
Repurchases and retirements of common stock																		Repurchases and retirements of common stock	(606)		(1)			—			8		140			(10,284)			—			(10,145)

Components of other comprehensive income:	Components of other comprehensive income:																	Components of other comprehensive income:
Net income	Net income	—	—		—					1,019			—			1,019		Net income	—		—			—			—		—			3,124			—			3,124
Currency translation adjustment	Currency translation adjustment	—	—		—					—			(2,648)			(2,648)		Currency translation adjustment	—		—			—			—		—			—			(1,267)			(1,267)
Change in unrealized gain (loss) on investments	Change in unrealized gain (loss) on investments	—	—		—					—			(133)			(133)		Change in unrealized gain (loss) on investments	—		—			—			—		—			—			(270)			(270)
Total other comprehensive income	Total other comprehensive income															(1,762)		Total other comprehensive income																				1,587
Balance, March 31, 2021		43,052	$	43	$	178,891				$	(10,808)		$	(397)		$	167,729
Balance, December 31, 2021																		Balance, December 31, 2021	44,297		$	44		$	203,091		—		$	—		$	(13,226)		$	(2,480)		$	187,429

See accompanying notes to condensed consolidated financial statements..

MITEK SYSTEMS, INC.

~~CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY CONTINUED~~

~~(Unaudited)~~

~~(amounts in thousands)~~

Six Months Ended March 31, 2022
Common Stock Additional
Paid-In
Capital Treasury Stock Accumulated
Deficit Accumulated
Other
Comprehensive
Income (Loss) Total
Stockholders’
Equity
Shares Amount Shares Amount
Balance, September 30, 2021 44,169 $ 44 $ 199,935 (8) $ (140) $ (6,066) $ (943) $ 192,830
Exercise of stock options 25 — 206 — — — — 206
Settlement of restricted stock units 973 1 (1) — — — — —
Issuance of common stock under employee stock purchase plan 71 — 923 — — — — 923
Acquisition-related shares issued — — — — — — — —
Stock-based compensation expense — — 6,429 — — 6,429
Sale of convertible senior notes warrants — — — — — — — —
Repurchases and retirements of common stock (894) (1) (1) 8 140 (14,966) — (14,828)
Components of other comprehensive income:
Net income — — — — — 5,035 — 5,035
Currency translation adjustment — — — — — — (3,129) (3,129)
Change in unrealized gain (loss) on investments — — — — — — (1,098) (1,098)
Total other comprehensive income 808
Balance, March 31, 2022 44,344 $ 44 $ 207,491 — $ — $ (15,997) $ (5,170) $ 186,368

Six Months Ended March 31, 2021
Common Stock Additional
Paid-In
Capital Accumulated
Deficit Accumulated
Other
Comprehensive
Income (Loss) Total
Stockholders’
Equity
Shares Amount
Balance, September 30, 2020 41,780 $ 42 $ 146,518 $ (13,994) $ (323) $ 132,243
Exercise of stock options 260 — 1,958 — — 1,958
Settlement of restricted stock units 935 1 (1) — — —
Issuance of common stock under employee stock purchase plan 77 — 792 — — 792
Stock-based compensation expense — — 5,715 — — 5,715
Sale of convertible senior notes warrants — — 23,909 — — 23,909
Components of other comprehensive income:
Net income — — — 3,186 — 3,186
Currency translation adjustment — — — — 112 112
Change in unrealized gain (loss) on investments — — — — (186) (186)
Total other comprehensive income 3,112
Balance, March 31, 2021 43,052 $ 43 $ 178,891 $ (10,808) $ (397) $ 167,729

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

~~MITEK SYSTEMS, INC.~~

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(amounts in thousands)


		Six Months Ended March 31,					Three Months Ended December 31,
		2022		2021			2022		2021
Operating activities:	Operating activities:					Operating activities:
Net income	Net income	$	5,035	$	3,186	Net income	$	4,730	$	3,124
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation expense	Stock-based compensation expense	6,429		5,715		Stock-based compensation expense	2,442		3,132

Amortization of intangible assets	Amortization of intangible assets	4,525		3,352		Amortization of intangible assets	4,487		2,175
Depreciation and amortization	Depreciation and amortization	555		774		Depreciation and amortization	343		284
Amortization of investment premiums & other	Amortization of investment premiums & other	1,109		315		Amortization of investment premiums & other	13		480
Accretion and amortization on debt securities	Accretion and amortization on debt securities	3,453		1,147		Accretion and amortization on debt securities	1,844		1,715
Net changes in estimated fair value of acquisition-related contingent consideration	Net changes in estimated fair value of acquisition-related contingent consideration	(780)		—		Net changes in estimated fair value of acquisition-related contingent consideration	330		30
Deferred taxes	Deferred taxes	(92)		(464)		Deferred taxes	(3,459)		(348)
Changes in assets and liabilities:
Changes in assets and liabilities, net of acquisitions:						Changes in assets and liabilities, net of acquisitions:
Accounts receivable	Accounts receivable	(6,171)		1,444		Accounts receivable	58		(402)
Contract assets	Contract assets	345		2,177		Contract assets	(5,507)		(175)
Other assets	Other assets	498		(1,474)		Other assets	(154)		(864)
Accounts payable	Accounts payable	2,440		(1,047)		Accounts payable	980		80
Accrued payroll and related taxes	Accrued payroll and related taxes	(4,693)		(1,305)		Accrued payroll and related taxes	(4,174)		(4,518)
Deferred revenue	Deferred revenue	(3,126)		2,379		Deferred revenue	(1,521)		(2,496)

Restructuring accrual						Restructuring accrual	(651)		—
Other liabilities	Other liabilities	159		(138)		Other liabilities	5,503		34
Net cash provided by operating activities	Net cash provided by operating activities	9,686		16,061		Net cash provided by operating activities	5,264		2,251
Investing activities:	Investing activities:					Investing activities:
Purchases of investments	Purchases of investments	(47,818)		(147,524)		Purchases of investments	—		(35,309)
Sales and maturities of investments	Sales and maturities of investments	173,316		23,441		Sales and maturities of investments	18,750		37,658
Acquisitions, net of cash acquired		(126,607)		—
Purchases of property and equipment		(634)		(660)
Net cash used in investing activities		(1,743)		(124,743)

Purchases and disposals of property and equipment, net						Purchases and disposals of property and equipment, net	(154)		(295)
Net cash provided by investing activities						Net cash provided by investing activities	18,596		2,054
Financing activities:	Financing activities:					Financing activities:
Proceeds from the issuance of convertible senior notes		—		155,250
Payment for convertible senior notes issuance costs		—		(5,513)
Purchase of 2026 convertible senior notes hedge		—		(33,192)
Proceeds from issuance of convertible senior notes warrants		—		23,909

Proceeds from the issuance of equity plan common stock	Proceeds from the issuance of equity plan common stock	1,128		2,751		Proceeds from the issuance of equity plan common stock	662		25
Repurchases and retirements of common stock	Repurchases and retirements of common stock	(14,828)		—		Repurchases and retirements of common stock	—		(10,145)
Payment of acquisition-related contingent consideration		—		(782)

Proceeds from other borrowings		—		251

Principal payments on other borrowings	Principal payments on other borrowings	(36)		(39)		Principal payments on other borrowings	(36)		(17)
Net cash provided by (used in) financing activities	Net cash provided by (used in) financing activities	(13,736)		142,635		Net cash provided by (used in) financing activities	626		(10,137)
Foreign currency effect on cash and cash equivalents	Foreign currency effect on cash and cash equivalents	(535)		(4)		Foreign currency effect on cash and cash equivalents	570		(266)
Net increase (decrease) in cash and cash equivalents	Net increase (decrease) in cash and cash equivalents	(6,328)		33,949		Net increase (decrease) in cash and cash equivalents	25,056		(6,098)
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	30,312		19,986		Cash and cash equivalents at beginning of period	32,059		30,312
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	23,984	$	53,935	Cash and cash equivalents at end of period	$	57,115	$	24,214
Supplemental disclosures of cash flow information:	Supplemental disclosures of cash flow information:					Supplemental disclosures of cash flow information:
Cash paid for interest		$	582	$	172

Cash paid for income taxes	Cash paid for income taxes	$	597	$	373	Cash paid for income taxes	$	213	$	170
Supplemental disclosures of non-cash investing and financing activities:	Supplemental disclosures of non-cash investing and financing activities:					Supplemental disclosures of non-cash investing and financing activities:
Reclassification of convertible senior notes hedge and embedded conversion derivative to additional paid-in capital		$	42,821	$	—
Unrealized holding loss on available for sale investments		$	(1,098)	$	(186)

Unrealized holding gain (loss) on available-for-sale investments						Unrealized holding gain (loss) on available-for-sale investments	$	352	$	(270)

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

MITEK SYSTEMS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

Mitek Systems, Inc. (“~~Mitek” or~~Mitek,” the ~~“Company”~~“Company,” “we,” “us,” and “our”) is a leading innovator of mobile image capture and digital identity verification solutions. Mitek is a software development company with expertise in ~~computer vision,~~ artificial intelligence and machine learning. Mitek currently serves more than ~~7,500~~7,800 financial services organizations and leading marketplace and financial technology (“fintech”) brands around the globe. Customers count on Mitek to deliver trusted and convenient online experiences, detect and reduce fraud, and document Know Your Customer (“KYC”) and ~~anti-money laundering~~Anti-Money Laundering (“AML”) regulatory compliance. ~~Our~~The Company’s solutions are embedded in native mobile apps and web browsers to facilitate digital consumer experiences. Mitek’s identity verification and authentication technologies and services make it possible for banks, financial services organizations and the world’s leading marketplace and sharing platforms to verify an individual’s identity during digital transactions, allowing them to reduce risk and meet regulatory requirements. ~~Our~~The Company’s advanced mobile deposit system enables secure, fast and convenient deposit services. Thousands of organizations use Mitek solutions to optimize the security of mobile check deposits, new account openings and more.

To ensure a high level of security against evolving digital fraud threats, in May 2021, Mitek acquired ID R&D, Inc. (“ID R&D”), an award-winning provider of artificial intelligence-based voice and face biometrics and liveness detection. With a strong research and development team, ID R&D consistently delivers innovative, best-in-class biometric capabilities that raise the bar on usability and performance. In March 2022, Mitek acquired HooYu Ltd. (“HooYu”), a leading KYC technology provider in the United Kingdom. The acquisition helps to ensure businesses know the true identity of their customers by linking biometric verification with real-time bureau and sanction database checks.

Mitek markets and sells its products and services worldwide through internal, direct sales teams located in the U.S., Europe, and Latin America as well as through channel partners. Our partner sales strategy includes channel partners who are financial services technology providers and identity verification providers. These partners integrate our products into their solutions to meet the needs of their ~~customers.~~customers, typically provisioning Mitek services through their respective platforms.

Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Company as of ~~March~~December 31, 2022 have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X and, accordingly, they do not include all information and footnote disclosures required by accounting principles generally accepted in the U.S. (“GAAP”). The Company believes the footnotes and other disclosures made in the financial statements are adequate for a fair presentation of the results of the interim periods presented. The financial statements include all adjustments (solely of a normal recurring nature) which are, in the opinion of management, necessary to make the information presented not misleading. You should read these financial statements and the accompanying notes in conjunction with the condensed consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, ~~2021,~~2022, filed with the U.S. Securities and Exchange Commission (“SEC”) on ~~December 13, 2021.~~July 31, 2023.

Results for the ~~six~~three months ended ~~March~~December 31, 2022 are not necessarily indicative of results for any other interim period or for a full fiscal year.

Principles of Consolidation

The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

~~Foreign Currency~~

The Company has foreign subsidiaries that operate and sell products and services in various countries and jurisdictions around the world. As a result, the Company is exposed to foreign currency exchange risks. For those subsidiaries whose functional currency is not the U.S. dollar, assets and liabilities are translated into U.S. dollars equivalents at the exchange rate in effect on the balance sheet date and revenues and expenses are translated into U.S. dollars using the average exchange rate over the period. Resulting currency translation adjustments are recorded in accumulated other comprehensive loss in the consolidated balance sheets. The Company recorded a net loss resulting from foreign exchange translation of $1.9 million and $2.6 million for the three months ended March 31, 2022 and 2021, respectively. The Company recorded a net loss resulting from foreign exchange translation of $3.1 million and net gain of $0.1 million for the six months ended March 31, 2022 and 2021, respectively.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, deferred taxes, and related disclosure of contingent assets and liabilities. On an ongoing basis, management reviews its estimates based upon currently available information. Actual results could differ materially from those estimates. These estimates include, but are not limited to, assessing the collectability of accounts receivable, estimation of the value of stock-based compensation awards, fair value of assets and liabilities acquired, impairment of goodwill, useful lives of intangible assets, fair value of debt derivatives, standalone selling price related to revenue recognition, contingent consideration, and income taxes.

~~Revenue Recognition~~Reclassifications

~~The Company recognizes revenue in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606,~~ ~~Revenue from Contracts with Customers, and its related amendments (collectively known as “ASC 606”). ASC 606 outlines a single comprehensive model~~A reclassification has been made to ~~be used in accounting for revenue arising from contracts with customers. The core principle, involving a five-step process, of~~ the revenue model is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

The Company generates revenue primarily from the delivery of licenses and related services to customers (for both on-premise and transactional software as a service (“SaaS”) products), as well as the delivery of hardware and professional services. Revenue is measured based on consideration specified in a contract with a customer. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer which may be at a point in time or over time. See Note 2 of theprior periods’ condensed consolidated financial statements ~~for additional details.~~

~~Contract Assets and Liabilities~~

~~The Company recognizes revenue when control of the license is transferred~~in order to conform to the ~~customer. The Company records a contract asset when the revenue is recognized prior to the date payments become due. Contract assets that are expected to be paid within one year are recorded in~~ current assets on the consolidated balance sheets. All other contract assets are recorded in other non-current assets in the consolidated balance sheet. Contract liabilities consist of deferred revenue. When the performance obligation is expected to be fulfilled within one year, the deferred revenue is recorded in current liabilities in the consolidated balance sheet. When the performance obligation is expected to be fulfilled beyond one year, the deferred revenue is recorded in non-current liabilities in the consolidated balance sheet. The Company reports net contract asset or liability positions on a customer-by-customer basis at the end of each reporting period.

~~Contract Costs~~

The Company incurs incremental costs to obtain a contract, consisting primarily of sales commissions incurred only if a contract is obtained. When the commission rate for a customer renewal is not commensurate with the commission rate for a new contract, the commission is capitalized if expected to be recovered. Such costs are capitalized and amortized using a portfolio approach consistent with the pattern of transfer of the good or service to which the asset relates. Contract costs are recorded in other current and non-current assets in the consolidated balance sheets.

~~Net Income Per Share~~

~~The Company calculates net income per share in accordance with FASB ASC Topic 260,~~ ~~Earnings per Share~~. Basic net income per share is based on the weighted-average number of common shares outstanding during the period. Diluted net income per share also gives effect to all potentially dilutive securities outstanding during the period such as restricted stock units (“RSUs”), stock options, and shares issued under the Company’s Employee Stock Purchase Plan (“ESPP”), and convertible senior notes and warrants, if dilutive. In a period with a net loss position, potentially dilutive securities are notpresentation. Accrued interest payable was included in the ~~computation~~other current liabilities line in the condensed consolidated balance sheet as of ~~diluted net loss per share because to do~~September 30, 2022, however, it has been presented separately in the condensed consolidated balance sheet as of December 31, 2022 so ~~would be antidilutive, and~~that the ~~number~~total of ~~shares used to calculate basic and diluted net loss per share~~the other current liabilities line is ~~the same.~~less than five percent of total current liabilities.

~~For~~Revision

Cost of revenue—services and other and research and development for the three months ended December 31, 2021 have been revised, as previously disclosed in Note 13 in the Annual Report on Form 10-K for the year ended September 30, 2022, filed with the SEC on July 31, 2023. The immaterial revision is made for consistency with the restatements of the three and six months ended March 31, 2022 and the three and nine months ended June 30, 2022.

Net Income Per Share

For the three months ended December 31, 2022 and 2021, the following potentially dilutive common shares were excluded from the calculation of net income per share, as they would have been antidilutive (amounts in thousands):


		Three Months Ended March 31,		Six Months Ended March 31,			Three Months Ended December 31,
		2022	2021	2022	2021		2022	2021
Stock options	Stock options	467	556	452	634	Stock options	502	438
RSUs	RSUs	914	1,371	1,241	1,238	RSUs	860	1,156
ESPP common stock equivalents	ESPP common stock equivalents	34	28	15	15	ESPP common stock equivalents	130	88
Performance options	Performance options	532	267	509	200	Performance options	741	487
Performance RSUs	Performance RSUs	238	156	224	127	Performance RSUs	296	109
Convertible senior notes	Convertible senior notes	7,448	4,551	7,448	2,251	Convertible senior notes	7,448	7,448
Warrants	Warrants	7,448	4,551	7,448	2,251	Warrants	7,448	7,448
Total potentially dilutive common shares outstanding	Total potentially dilutive common shares outstanding	17,081	11,480	17,337	6,716	Total potentially dilutive common shares outstanding	17,425	17,174

The calculation of basic and diluted net income per share is as follows (amounts in thousands, except per share data):
Three Months Ended March 31, Six Months Ended March 31,
2022 2021 2022 2021
Net income $ 1,911 $ 1,019 $ 5,035 $ 3,186
Weighted-average shares outstanding—basic 44,775 43,138 44,795 42,835
Common stock equivalents 1,322 1,416 1,411 1,532
Weighted-average shares outstanding—diluted 46,097 44,554 46,206 44,367
Net income per share:
Basic $ 0.04 $ 0.02 $ 0.11 $ 0.07
Diluted $ 0.04 $ 0.02 $ 0.11 $ 0.07

~~Investments~~

Investments consist of corporate notes and bonds, commercial paper, U.S. Treasury securities, and asset-backed securities. The Company classifies investments as available-for-sale at the time of purchase and reevaluates such classification as of each balance sheet date. All investments are recorded at estimated fair value. Unrealized gains and losses for available-for-sale securities are included in accumulated other comprehensive loss, a component of stockholders’ equity. The Company evaluates its investments to assess whether those with unrealized loss positions are other-than-temporarily impaired. Impairments are considered to be other-than-temporary if they are related to deterioration in credit risk or if it is likely that the Company will sell the securities before the recovery of its cost basis. Realized gains and losses and declines in value judged to be other-than-temporary are determined based on the specific identification method and are reported in other income (expense), net in the consolidated statements of operations and other comprehensive income (loss). No other-than-temporary impairment charges were recognized in the three and six months ended March 31, 2022 and 2021.

All investments whose maturity or sale is expected within one year are classified as “current” on the consolidated balance sheets. All other securities are classified as “long-term” on the consolidated balance sheets.

~~Convertible Senior Notes Hedge and Embedded Conversion Derivative~~

In February 2021, the Company issued $155.3 million aggregate principal amount of 0.75% convertible notes due 2026 (the “2026 Notes”). Concurrently with the issuance of the 2026 Notes, the Company entered into privately-negotiated convertible senior note hedge (the “Notes Hedge”) and warrant transactions (the “Warrant Transactions”) which, in combination, are intended to reduce the potential dilution from the conversion of the 2026 Notes. Prior to the Company increasing the number of authorized shares of its common stock, par value $0.001 per share (“Common Stock”), the Company could not elect to issue shares of its Common Stock upon settlement of the 2026 Notes due to insufficient authorized share capital. As a result, the embedded conversion option (the “embedded conversion derivative”) was accounted for as a derivative liability and the Notes Hedge as a derivative asset with the resulting gain (or loss) reported in other income, net, in the consolidated statement of operations to the extent the valuation changed from the date of issuance of the 2026 Notes. The Company increased its authorized shares of Common Stock in the second quarter of fiscal 2022 and as such can issue shares of its Common Stock upon settlement of the 2026 Notes. As a result, the embedded conversion option (the “embedded conversion derivative”) and the Notes Hedge are now recorded in additional paid-in-capital in the consolidated balance sheet and are not remeasured as long as they continue to meet the conditions for equity classification. The Warrant Transactions were recorded in additional paid-in-capital in the consolidated balance sheet and are not remeasured as long as they continue to meet the conditions for equity classification. See Note 8. “Convertible Senior Notes” for additional information related to these transactions.

~~Accounts Receivable and Allowance for Doubtful Accounts~~

Trade accounts receivable are recorded at the net invoice value and are not interest bearing. The Company considers receivables past due based on the contractual payment terms. Allowances for doubtful accounts are established based on various factors, including credit profiles of the Company’s customers, contractual terms and conditions, historical payments, and current economic trends. The Company reviews its allowances by assessing individual accounts receivable over a specific aging and amount. Accounts receivable are written off on a case-by-case basis, net of any amounts that may be collected. The Company had $1,000 and $34,000 of write-offs to the allowance for doubtful accounts for the six months ended March 31, 2022 and 2021, respectively. The Company maintained an allowance for doubtful accounts of $0.5 million as of March 31, 2022 and $0.4 million as of September 30, 2021.

~~Capitalized Software Development Costs~~

Costs related to software acquired, developed, or modified solely to meet our internal requirements, with no substantive plans to market such software at the time of development, are capitalized. Costs incurred during the preliminary planning and evaluation stage of the project and during the post-implementation operational stage are expensed as incurred. Costs incurred during the application development stage of the project are capitalized. The Company defines the design, configuration, and coding process as the application development stage. The Company capitalized $0.2 million of costs related to computer software developed for internal use during each of the three months ended March 31, 2022 and 2021, respectively. The Company capitalized $0.4 million of costs related to computer software developed for internal use during each of the six months ended March 31, 2022 and 2021. The Company had $0.1 million and $0.2 million in amortization expense from internal use software during the six months ended March 31, 2022 and 2021, respectively.

~~Goodwill and Purchased Intangible Assets~~

The Company’s goodwill and intangible assets resulted from prior acquisitions. Goodwill and intangible assets with indefinite useful lives are not amortized, but are tested for impairment at least annually or as circumstances indicate that their value may no longer be recoverable. In accordance with ASC Topic 350, ~~Intangibles—Goodwill and Other~~ (“ASC 350”), the Company reviews its goodwill and indefinite-lived intangible assets for impairment at least annually in its fiscal fourth quarter and more frequently if events or changes in circumstances occur that indicate a potential reduction in the fair value of its reporting unit and/or its indefinite-lived intangible asset below their respective carrying values. Examples of such events or circumstances include: a significant adverse change in legal factors or in the business climate, a significant decline in the Company’s stock price, a significant decline in the Company’s projected revenue or cash flows, an adverse action or assessment by a regulator, unanticipated competition, a loss of key personnel, or the presence of other indicators that would indicate a reduction in the fair value of a reporting unit. No such events or circumstances have occurred since the last impairment assessment was performed.

The Company’s goodwill is considered to be impaired if management determines that the carrying value of the reporting unit to which the goodwill has been assigned exceeds management’s estimate of its fair value. Based on the guidance provided by ASC 350 and ASC Topic 280, ~~Segment Reporting~~, management has determined that the Company operates in 1 segment and consists of 1 reporting unit given the similarities in economic characteristics between its operations and the common nature of its products, services and customers. Because the Company has only 1 reporting unit, and because the Company is publicly traded, the Company determines the fair value of the reporting unit based on its market capitalization as it believes this represents the best evidence of fair value. In the fourth quarter of the fiscal year ended September 30, 2021, management completed its annual goodwill impairment test and concluded that the Company’s goodwill was not impaired. The Company’s conclusion that goodwill was not impaired was based on a comparison of its net assets to its market capitalization.

Because the Company determines the fair value of its reporting unit based on its market capitalization, the Company’s future reviews of goodwill for impairment may be impacted by changes in the price of the Common Stock. For example, a significant decline in the price of the Common Stock may cause the fair value of its goodwill to fall below its carrying value. Therefore, the Company cannot assure that when it completes its future reviews of goodwill for impairment a material impairment charge will not be recorded.

Intangible assets are amortized over their useful lives. Each period, the Company evaluates the estimated remaining useful life of its intangible assets and whether events or changes in circumstances warrant a revision to the remaining period of amortization. The carrying amounts of these assets are periodically reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable. Recoverability of these assets is measured by comparing the carrying amount of each asset to the future undiscounted cash flows the asset is expected to generate. The carrying amount of such assets is reduced to fair value if the undiscounted cash flows used in the test for recoverability are less than the carrying amount of such assets. No impairment charge related to the impairment of intangible assets was recorded during the six months ended March 31, 2022 and 2021.


	Three Months Ended December 31,
	2022		2021
Net income	$	4,730	$	3,124
Weighted-average shares outstanding—basic	44,930		44,788
Common stock equivalents	704		1,367
Weighted-average shares outstanding—diluted	45,634		46,155
Net income per share:
Basic	$	0.11	$	0.07
Diluted	$	0.10	$	0.07

Other Borrowings

The Company has certain loan agreements with Spanish government agencies which were assumed when the Company acquired ICAR Vision Systems, S.L. ("ICAR") in 2017. These agreements have repayment periods of five to twelve years and bear no interest. As of ~~March~~December 31, 2022, ~~$0.8~~$1.4 million was outstanding under these agreements and $0.1 million and ~~$0.7~~$1.3 million is recorded in other current liabilities and other non-current liabilities, respectively, in the condensed consolidated balance sheets. As of September 30, ~~2021, $0.8~~2022, $1.3 million was outstanding under these agreements and approximately $0.1 million and ~~$0.7~~$1.2 million is recorded in other current liabilities and other non-current liabilities, respectively, in the condensed consolidated balance sheets.

~~Guarantees~~

~~In the ordinary course of business, the Company is not subject to potential obligations under guarantees that fall within the scope of FASB ASC Topic 460,~~ ~~Guarantees~~ (“ASC 460”), except for standard indemnification and warranty provisions that are contained within many of the Company’s customer license and service agreements and certain supplier agreements, and give rise only to the disclosure requirements prescribed by ASC 460. Indemnification and warranty provisions contained within the Company’s customer license and service agreements and certain supplier agreements are generally consistent with those prevalent in the Company’s industry. The Company has not historically incurred significant obligations under customer indemnification or warranty provisions and does not expect to incur significant obligations in the future. Accordingly, the Company does not maintain accruals for potential customer indemnification or warranty-related obligations.

~~Income Taxes~~

~~The Company accounts for income taxes in accordance with FASB ASC Topic 740,~~ ~~Income Taxes~~ (“ASC 740”). Deferred tax assets and liabilities arise from temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements that will result in taxable or deductible amounts in future years.

Management evaluates the available evidence about future taxable income and other possible sources of realization of deferred tax assets. The valuation allowance reduces deferred tax assets to an amount that represents management’s best estimate of the amount of such deferred tax assets that more likely than not will be realized. See Note 7 of the consolidated financial statements for additional details.

The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the tax authorities, based on the technical merits of the position. The tax benefit is measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The Company recognizes interest and penalties related to income tax matters in income tax expense. See Note 7 of the consolidated financial statements for additional details.

~~Stock-Based Compensation~~

The Company issues RSUs, stock options, performance options, and performance RSUs as awards to its employees. Additionally, eligible employees may participate in the ESPP. Employee stock awards are measured at fair value on the date of grant and expense is recognized using the straight-line single-option method in accordance with FASB ASC Topic 718, ~~Compensation—Stock Compensation. Forfeitures are recorded as they occur.~~

~~The Company assigns fair value to RSUs based on the closing stock price of its Common Stock on the date of grant.~~

The Company estimates the fair value of stock options and ESPP shares using the Black-Scholes option pricing model. The Black-Scholes option pricing model requires subjective assumptions, including future stock price volatility and expected time to exercise, which greatly affect the calculated values. The expected term of options granted is derived from historical data on employee exercises and post-vesting employment termination behavior. The risk-free rate selected to value any particular grant is based on the

U.S. Treasury rate that corresponds to the expected life of the grant effective as of the date of the grant. The expected volatility is based on the historical volatility of the Company’s stock price. These factors could change in the future, affecting the determination of stock-based compensation expense in future periods.

The Company estimates the fair value of performance options, senior executive performance restricted stock units, and similar awards using the Monte-Carlo simulation. The Monte-Carlo simulation requires subjective assumptions, including the Company’s valuation date stock price, the annual risk-free interest rate, expected volatility, the probability of reaching the stock performance targets, and a 20-trading-day average stock price.

~~Comprehensive Income (Loss)~~

Comprehensive income (loss) consists of net income, unrealized gains and losses on available-for-sale securities, and foreign currency translation adjustments. Included on the consolidated balance sheets is accumulated other comprehensive loss of $5.2 million and $0.9 million at March 31, 2022 and September 30, 2021, respectively.

Recently Adopted Accounting Pronouncements

~~In October 2021, the FASB issued ASU 2021-08,~~ ~~Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers~~ (“ASU 2021-08”), which is intended to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to the recognition of an acquired contract liability and the payment terms and their effect on subsequent revenue recognized by the acquirer. ASU 2021-08 will improve comparability for both the recognition and measurement of acquired revenue contracts with customers at the date of and after a business combination and improve comparability after the business combination by providing consistent recognition and measurement guidance for revenue contracts with customers acquired in a business combination and revenue contracts with customers not acquired in a business combination. ASU 2021-08 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early adoption is permitted, including adoption in an interim period. The Company ~~early adopted the guidance~~did not adopt any new accounting pronouncements in the ~~second~~ quarter ~~of fiscal 2022 and it did not have a material impact on its consolidated financial statements.~~

In August 2020, the FASB issued Accounting Standards Update 2020-06—Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40)—Accounting For Convertible Instruments and Contracts in an Entity's Own Equity (“ASU 2020-06”). ASU 2020-06 simplifies accounting for convertible instruments by removing major separation models required under current GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features through equity. Without an initial allocation of proceeds to the conversion option, the debt will likely have a lower discount, thereby resulting in less noncash interest expense through accretion. ASU 2020-06 removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for such exception. ASU 2020-06 also simplifies the diluted net income per share calculation in certain areas. ASU 2020-06 is effective for annual and interim periods beginning afterended December 15, 2021, and early adoption is permitted for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. This update permits the use of either the modified retrospective or fully retrospective method of transition.

The Company adopted ASU 2020-06 in the first quarter of fiscal 2022, however, it had no impact to the financial statements. In the second quarter of fiscal 2022, the stockholders of the Company approved an increase to the number of authorized shares of Common Stock, to an amount ~~sufficient to settle the conversion of the~~ 2026 Notes. As a result of the increase to the number of authorized shares of Common Stock, the Company reclassified the fair value of the embedded conversion derivative of $28.5 million and the fair value of the Notes Hedge of $28.5 million to additional paid-in capital in the second quarter of fiscal31, 2022. ~~These equity components will not be remeasured provided the requirements to qualify for the scope exception in ASC 815-10-15-74(a) continue to be met.~~

~~In December 2019, the FASB issued ASU 2019-12,~~ ~~Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes~~ (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in ASC 740 and also clarifies and amends existing guidance to improve consistent application. The Company prospectively adopted this ASU 2019-12 in the first quarter of fiscal 2022 and it did not have a material impact on its consolidated financial statements.

Change in Significant Accounting Policy

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

Recently Issued Accounting Pronouncements

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

Rate Reform on Financial Reporting (ASU 2020-04) and also issued subsequent amendments to the initial guidance (collectively, Topic 848). Topic 848 provides optional guidance for contract modifications and certain hedging relationships associated with the transition from reference rates that are expected to be discontinued. The Company will adopt Topic 848 when the relevant contracts

are modified upon transition to alternative reference rates. The Company does not expect the adoption of Topic 848 will have a material impact on the condensed consolidated financial statements.

No other new accounting pronouncement issued or effective during the ~~six~~three months ended ~~March~~December 31, 2022 had, or is expected to have, a material impact on the Company’s condensed consolidated financial statements.

2. REVENUE RECOGNITION

Nature of Goods and Services

The following is a description of principal activities from which the Company generates its revenue. Contracts with customers are evaluated on a contract-by-contract basis as contracts may include multiple types of goods and services as described below.

Software and Hardware

Software and hardware revenue is generated from ~~on-premise~~on premise software license sales, as well as sales of hardware scanner boxes and ~~on-premise~~on premise appliance products. Software is typically sold as a time-based license with a term of one to three years. For software license agreements that are distinct, the Company recognizes software license revenue upon delivery and after evidence of a contract exists. Hardware revenue is recognized at a point in ~~the period that the hardware is shipped.~~time upon shipment and after evidence of a contract exists.

Services and Other

Services and other revenue is generated from the sale of ~~transactional SaaS~~software as a service (“SaaS”) products and services, maintenance associated with the sale of on premise software ~~and hardware,~~licenses and consulting and professional services. The Company recognizes professional services ~~and other~~ revenue over the period in which such services are performed. The Company’s ~~model typically includes an up-front fee and~~SaaS offerings give customers the option to be charged upon their incurred usage in arrears (“Pay as You Go”), or commit to a ~~periodic~~minimum spend over their contracted period, with the ability to purchase unlimited additional transactions above the minimum during the contract term. Revenue related to Pay as You Go contracts are recognized based on the customer’s actual usage, in the period of usage. For contracts which include a minimum commitment, ~~from~~the Company is standing ready to provide as many transactions as desired by the customer ~~that commences upon completion~~throughout the contract term, and revenue is recognized on a ratable basis over the contract period including an estimate of usage above the ~~implementation through~~minimum commitment. Usage above minimum commitment is estimated by looking at historical usage, expected volume, and other factors to project out for the remainder of the ~~customer life.~~contract term. The ~~up-front fee is~~estimated usage-based revenues are constrained to the ~~initial setup fee, or~~amount the ~~implementation fee. The periodic commitment includes, but is not limited~~Company expects to ~~a fixed periodic fee and/or a transactional fee based on system usage that exceeds committed minimums.~~be entitled to receive in exchange for providing access to its platform. If ~~the up-front fee is not~~professional services are deemed to be distinct, revenue is ~~deferred until the date the customer commences use of the Company’s~~recognized as services ~~at which point the up-front fee is recognized ratably over the life of the customer arrangement.~~are performed. The Company does not view the signing of the contract or the provision of initial setup services as discrete earnings events that are distinct.

Significant Judgments in Application of the Guidance

The Company uses the following methods, inputs, and assumptions in determining amounts of revenue to recognize:

Identification of Performance Obligations

For contracts that contain multiple performance obligations, which include combinations of software licenses, maintenance, and services, the Company accounts for individual goods or services as a separate performance obligation if they are distinct. The good or service is distinct if the good or service is separately identifiable from other items in the arrangement and if a customer can benefit from it on its own or with other resources that are readily available to the customer. If these criteria are not met, the promised goods or services are accounted for as a combined performance obligation.

Determination of Transaction Price

The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring products or services to the customer. The Company includes any fixed charges within its contracts as part of the total transaction price. To the extent that variable consideration is not constrained, the Company includes an estimate of the variable amount, as appropriate, within the total transaction price and updates its assumptions over the duration of the contract. As a practical expedient, the Company does not adjust the transaction price for the effects of a significant financing component if, at contract inception, the period between customer payment and the transfer of goods or services is expected to be one year or less.

Assessment of Estimates of Variable Consideration

Many of the Company’s contracts with customers contain some component of variable consideration; however, ~~the constraint~~variable consideration will ~~generally not result in a reduction~~only be included in the ~~estimated~~ transaction price ~~for most forms~~to the extent it is probable that a significant reversal of revenues recognized will not occur when the uncertainty associated with the variable ~~consideration.~~consideration is resolved. The Company may constrain the estimated transaction price in the event of a high degree of uncertainty as to the final consideration amount owed because of an extended length of time over which the fees may be adjusted or due to uncertainty surrounding collectability. The Company estimates variable consideration in its contracts primarily using the expected value method as the Company believes this method represents the most appropriate estimate for this consideration, based on historical usage trends, the individual contract considerations, and its best judgment at the time.

Allocation of Transaction Price

The transaction price, including any discounts, is allocated between separate goods and services in a contract that contains multiple performance obligations based on their relative standalone selling prices. The standalone selling prices are based on the prices at which the Company separately sells each good or service. For items that are not sold separately, the Company estimates the standalone selling prices using available information such as market conditions and internally approved pricing guidelines. In instances where there are observable selling prices for professional services and support and maintenance, the Company may apply the residual approach to estimate the standalone selling price of software licenses. In certain situations, primarily transactional SaaS revenue described above, the Company allocates variable consideration to a series of distinct goods or services within a contract. The

Company allocates variable payments to one or more, but not all, of the distinct goods or services or to a series of distinct goods or services in a contract when (i) the variable payment relates specifically to the Company’s efforts to transfer the distinct good or service and (ii) the variable payment is for an amount that depicts the amount of consideration to which the Company expects to be entitled in exchange for transferring the promised goods or services to its customer.

Disaggregation of Revenue

The following table presents the Company's revenue disaggregated by major product category (amounts in thousands):
Three Months Ended March 31, Six Months Ended March 31,
2022 2021 2022 2021
Major product category
Deposits software and hardware $ 16,066 $ 12,134 $ 29,695 $ 22,888
Deposits services and other 5,239 5,063 10,660 9,924
Deposits revenue 21,305 17,197 40,355 32,812
Identity verification software and hardware 3,214 879 5,030 2,427
Identity verification services and other 10,195 10,697 21,801 19,509
Identity verification revenue 13,409 11,576 26,831 21,936
Total revenue $ 34,714 $ 28,773 $ 67,186 $ 54,748

Software and hardware revenue is generated from on-premise software license sales, as well as sales of hardware scanner boxes and on-premise appliance products. Services and other revenue is generated from the sale of transactional SaaS products and services, maintenance associated with the sale of software and hardware, and consulting and professional services.


	Three Months Ended December 31,
	2022		2021
Major product category
Deposits software and hardware	$	24,453	$	13,630
Deposits services and other	5,828		5,422
Deposits revenue	30,281		19,052
Identity verification software and hardware	1,923		1,815
Identity verification services and other	13,499		11,606
Identity verification revenue	15,422		13,421
Total revenue	$	45,703	$	32,473

Contract Balances

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


		March 31, 2022		September 30, 2021			December 31, 2022		September 30, 2022
Contract assets, current	Contract assets, current	$	4,503	$	4,080	Contract assets, current	$	5,458	$	6,273
Contract assets, non-current	Contract assets, non-current	3,591		4,409		Contract assets, non-current	10,741		4,218
Contract liabilities (deferred revenue), current	Contract liabilities (deferred revenue), current	9,700		10,381		Contract liabilities (deferred revenue), current	12,744		13,394
Contract liabilities (deferred revenue), non-current	Contract liabilities (deferred revenue), non-current	1,053		955		Contract liabilities (deferred revenue), non-current	1,236		1,775

Contract assets, reported within a separate line in current assets and the other non-current assets line in the condensed consolidated balance sheets, primarily result from ~~revenue being recognized~~ when ~~a license~~the right to consideration is ~~delivered and payments are made over~~conditional upon factors other than the passage of time. Contract liabilities primarily relate to advance consideration received from customers (deferred revenue), for which transfer of control occurs, and therefore revenue is recognized as services are provided. Contract balances are reported in a net contract asset or liability position on a contract-by-contract basis at the end of each reporting period. The Company recognized ~~$9.9~~$6.6 million and ~~$7.9~~$7.2 million of revenue during the ~~six~~three months ended ~~March~~December 31, 2022 and 2021, respectively, which was included in the contract liability balance at the beginning of each such period. Unbilled receivables are included within contract assets on the condensed consolidated balance sheets and were $2.5 million and $1.9 million as of December 31, 2022 and September 30, 2022, respectively.

Contract Costs

Contract costs included in other current and non-current assets on the condensed consolidated balance sheets totaled ~~$2.4~~$2.5 million and ~~$2.3~~$2.4 million as of ~~March~~December 31, 2022 and September 30, ~~2021,~~2022, respectively. Contract costs are amortized based on the transfer of goods or services to which the asset relates. The amortization period also considers expected customer lives and whether the asset relates to goods or services transferred under a specific anticipated contract. These costs are included in selling and marketing expenses in the condensed consolidated statement of operations and other comprehensive income ~~(loss)~~ and totaled $0.4 million and $0.3 million during ~~each of~~ the three months ended ~~March 31, 2022 and 2021, and $0.7 million and $0.5 million during the six months ended March~~December 31, 2022 and 2021, respectively. There were no impairment losses recognized during both the ~~six~~three months ended ~~March~~December 31, 2022 and 2021 related to capitalized contract costs.

3. BUSINESS COMBINATIONS

~~Acquisition of ID R&D, Inc.~~

As consideration for the ID R&D Acquisition, the Company agreed to pay an aggregate purchase price of up to $49.0 million. On the Closing Date, the equityholders of ID R&D received from the Company: (i) $13.0 million in cash, subject to adjustments for transaction expenses, escrow amounts, indebtedness and working capital adjustments (the “Initial Cash Payment”); and (ii) 867,226 shares or $13.9 million of Common Stock. In addition to the foregoing, the equityholders of ID R&D may become entitled to receive additional consideration from the Company upon achievement of certain milestones as follows (collectively, the “Earnout Payments”): subject to ID R&D’s achievement of target revenue for the period commencing on the Closing Date and ending on the one year anniversary thereof and the period commencing on the one year anniversary of the Closing Date and ending on the one year anniversary thereof (each such period, an “Earnout Period”): (i) an aggregate maximum amount of approximately $12.3 million with respect to the first Earnout Period and (ii) approximately $9.8 million with respect to the second Earnout Period, with 15% of the first Earnout Period’s payment to be deposited (as additional funds) into an escrow fund described below. The Company will

make the Earnout Payments in the form of cash and shares of Common Stock as set forth in the Merger Agreement. The Company has granted the Representative an option to shift the Earnout Period(s) out by one year, pursuant to the terms of the Merger Agreement. Moreover, in the event actual revenue for an Earnout Period exceeds the target revenue for such period, the amount of such excess will be credited towards the achievement of the subsequent Earnout Period’s Earnout Payment.

The Company estimated the fair value of the consideration for the Earnout Periods to be $15.7 million on the Closing Date, which was determined using a discounted cash flow methodology based on financial forecasts determined by management that included assumptions about revenue growth and discount rates, and is included in level three of the fair value hierarchy. Each quarter the Company revises the estimated fair value of the consideration for the Earnout Periods and changes in the fair value are included in acquisition-related costs and expenses in the consolidated statements of operations and other comprehensive income (loss). See Note 4. “Investments,” of the notes to consolidated financial statements for more information relating to the consideration for the Earnout Periods.

The Company incurred $0.6 million of expense in connection with the acquisition primarily related to legal fees, outside service costs, and travel expense, which are included in acquisition-related costs and expenses in the consolidated statements of operations and other comprehensive income (loss).

On the Closing Date, the Company deposited a portion of the Initial Cash Payment and a number of shares of Common Stock having a collective value of approximately $4.0 million into an escrow fund to serve as collateral and partial security for working capital adjustments and certain indemnification rights of the Company. As indicated above, 15% of the Earnout Payment with respect to the first Earnout Period, if and when earned, will also be deposited into the escrow fund. The escrow fund will be maintained for up to 24 months following the completion of the ID R&D Acquisition or until such earlier time as the escrow fund is exhausted. The Company used cash on hand for the Initial Cash Payment.

Acquisition of HooYu Ltd

On March 23, 2022, the Company completed the acquisition (the “HooYu Acquisition”) of HooYu Ltd ~~(the “HooYu Acquisition”~~(“HooYu”) pursuant to the Purchase Agreement (the “Purchase Agreement”) dated March 23, 2022, by and among the Company and certain persons identified in the Purchase Agreement (the “Sellers”). Pursuant to the Purchase Agreement, the Company, among other things, acquired 100% of the outstanding share capital of HooYu, ~~Ltd (“HooYu”),~~ a leading global customer onboarding platform designed to increase the integrity of KYC and maximize the success of customer onboarding. As consideration for the HooYu Acquisition, the Company paid aggregate consideration in the amount of $129.1 million ~~in cash~~ (the “Closing Consideration”), as such amount may be adjusted for transaction expenses and indebtedness. Pursuant to the Purchase Agreement, ~~$0.9~~$1.6 million was withheld as a reduction to the Closing Consideration and ~~is being~~was retained by the Company for the final working capital adjustments and indemnification of certain tax matters under the Purchase Agreement.

The Company incurred ~~$1.9~~$3.2 million of expense in connection with the acquisition primarily related to legal fees, outside service costs, foreign currency and realized losses on investments, and travel expense, which are included in amortization and acquisition-related costs ~~and expenses~~ in the condensed consolidated statements of operations and other comprehensive ~~income (loss).~~income.

On March 23, 2022, using cash on hand, the Company transferred an aggregate of ~~$127.1~~$127.5 million to the Sellers and its third-party legal and investment ~~advisors. The~~advisors, net of cash acquired of $0.5 million. In July 2022 the Company ~~used cash on hand for the cash~~ paid ~~on March 23, 2022.~~

~~Acquisitions are accounted for using the acquisition method of accounting in accordance with ASC Topic 805,~~ ~~Business Combinations~~. Accordingly, the results of operations of ID R&D and HooYu have been included in the accompanying consolidated financial statements since the date of such acquisition. The purchase price has been allocatedan additional $0.4 million to the tangible and intangible assets acquired and liabilities assumed based upon the respective estimates of fair value as of the date of the ID R&D Acquisition and HooYu Acquisition and are based on assumptions that the Company’s management believes are reasonable. The Company isSellers in ~~the~~

~~process of completing its valuation of certain intangible assets and the valuation of the acquired deferred income taxes related to the HooYu Acquisition. The~~settling final ~~allocations of the purchase price to intangible assets and deferred income taxes may differ materially from the information presented in these unaudited consolidated financial statements.~~working capital.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed from the ~~ID R&D Acquisition and~~ HooYu Acquisition as of ~~their respective closing dates~~December 31, 2022 (amounts ~~shown~~ in thousands):
ID R&D HooYu Total
Current assets $ 320 $ 1,865 $ 2,185
Property, plant, and equipment 114 243 $ 357
Intangible assets 16,930 73,100 $ 90,030
Goodwill 27,748 75,691 $ 103,439
Current liabilities (425) (5,068) $ (5,493)
Other non-current liabilities (2,355) (18,275) $ (20,630)
Net assets acquired $ 42,332 $ 127,556 $ 169,888


	HooYu
Accounts receivable	$	1,234
Property, plant, and equipment	504
Other current assets	630
Intangible assets	73,100
Goodwill	74,206
Other non-current assets
Current liabilities	(2,264)
Deferred revenue	(2,612)
Deferred income tax liabilities	(16,896)
Net assets acquired	$	127,902

The goodwill recognized is due to expected synergies and other factors and is not expected to be deductible for income tax purposes. The Company estimated the fair value of identifiable acquisition-related intangible assets with definite lives primarily based on discounted cash flow projections that will arise from these assets. The Company exercised significant judgment with regard to assumptions used in the determination of fair value such as with respect to revenue growth rates, discount rates and the determination of the estimated useful lives of the intangible assets. The following table summarizes the estimated fair values and estimated useful lives of intangible assets with definite lives acquired from the ~~ID R&D Acquisition and the~~ HooYu Acquisition ~~as of their respective closing dates~~during the three months ended December 31, 2022 (amounts ~~shown~~ in thousands, except for years):

~~ID R&D~~


	Amortization Period	Amount assigned

Completed technologies	~~7.0 years~~	$	~~14,020~~
~~Customer relationships~~	~~3.0 years~~	~~2,540~~
~~Trade name~~	~~5.0 years~~	~~370~~
~~Total intangible assets acquired~~		$	~~16,930~~

~~HooYu~~


	~~Amortization Period~~	~~Amount assigned~~

~~Completed technologies~~	~~7.0~~7 years	$	61,400
Customer relationships	~~5.0~~5 years	5,000
Trade name	~~5.0~~5 years	6,100
Covenants not to compete	~~3.0~~3 years	$	600
Total intangible assets acquired		$	73,100

The following unaudited pro forma financial information should not be taken as representative of the Company’s future condensed consolidated results of operations and includes adjustments for the amortization expense related to the identified intangible assets. The following table summarizes the Company’s unaudited pro forma financial information and is presented as if the ~~ID R&D Acquisition and the~~ HooYu Acquisition occurred on October 1, ~~2020~~2021 (amounts ~~shown~~ in thousands):


		Three months ended March 31,				Six months ended March 31,				Three months ended December 31,
		2022		2021		2022		2021			2022		2021
Pro forma revenue	Pro forma revenue	$	37,635	$	31,640	$	72,090	$	59,458			Pro forma revenue	$	35,241	$	28,737
Pro forma net income (loss)		$	(1,416)	$	(511)	$	4,525	$	262
Pro forma net loss												Pro forma net loss	$	(367)	$	(1,871)

4. RESTRUCTURING

In order to streamline the organization and focus resources going forward, the Company undertook a strategic restructuring in June 2022, which included a reduction in workforce. The Company undertook an additional strategic restructuring in November 2022. Restructuring costs consist of employee severance obligations and other related costs and are expected to be paid within the next twelve months. The following table summarizes changes in the restructuring accrual during the three months ended December 31, 2022 (amounts in thousands):


Balance at September 30, 2022	$	901
Additional costs incurred	1,776
Payments	(2,427)
Foreign currency effect on the restructuring accrual	45
Balance at December 31, 2022	$	295

1610

4.5. INVESTMENTS

The following tables summarize investments by type of security as of ~~March~~December 31, 2022 and September 30, ~~2021~~2022 (amounts ~~shown~~ in thousands):


March 31, 2022:		Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Market Value
December 31, 2022:										December 31, 2022:	Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Market Value
Available-for-sale securities:	Available-for-sale securities:									Available-for-sale securities:
U.S. Treasury, short-term	U.S. Treasury, short-term	$	2,000	$	—	$	(20)	$	1,980	U.S. Treasury, short-term	$	4,010	$	—	$	(89)	$	3,921
Foreign government and agency securities, short-term	Foreign government and agency securities, short-term	2,888		—		(38)		2,850		Foreign government and agency securities, short-term	2,854		—		(12)		2,842

Commercial paper, short-term										Commercial paper, short-term	15,680		—		(251)		15,429
Corporate debt securities, short-term	Corporate debt securities, short-term	33,446		—		(366)		33,080		Corporate debt securities, short-term	22,849		—		(227)		22,622
U.S. Treasury, long-term	U.S. Treasury, long-term	7,481		—		(215)		7,266		U.S. Treasury, long-term	3,420		—		(196)		3,224

Corporate debt securities, long-term	Corporate debt securities, long-term	24,743		—		(516)		24,227		Corporate debt securities, long-term	2,586		—		(136)		2,450
Total	Total	$	70,558	$	—	$	(1,155)	$	69,403	Total	$	51,399	$	—	$	(911)	$	50,488


September 30, 2021:		Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Market Value
September 30, 2022:										September 30, 2022:	Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Market Value
Available-for-sale securities:	Available-for-sale securities:									Available-for-sale securities:
U.S. Treasury, short-term	U.S. Treasury, short-term	$	4,222	$	1	$	—	$	4,223	U.S. Treasury, short-term	$	6,016	$	—	$	(134)	$	5,882
Asset-backed securities, short-term		4,812		1		(2)		4,811
Foreign government and agency securities, short-term										Foreign government and agency securities, short-term	2,865		—		(38)		$	2,827
Commercial paper, short-term										Commercial paper, short-term	18,245		—		(223)		18,022
Corporate debt securities, short-term	Corporate debt securities, short-term	140,042		6		(25)		140,023		Corporate debt securities, short-term	32,065		—		(528)		31,537
U.S. Treasury, long-term	U.S. Treasury, long-term	6,996		1		(2)		6,995		U.S. Treasury, long-term	3,431		—		(210)		3,221
Foreign government and agency securities, long-term		2,909		—		(1)		2,908

Corporate debt securities, long-term	Corporate debt securities, long-term	38,184		3		(39)		38,148		Corporate debt securities, long-term	7,692		—		(280)		7,412
Total	Total	$	197,165	$	12	$	(69)	$	197,108	Total	$	70,314	$	—	$	(1,413)	$	68,901

The cost of securities sold is based on the specific identification method. Amortization of premiums, accretion of discounts, interest, dividend income and realized gains and losses are included in other income (expense), net in the consolidated statements of operations and other comprehensive income (loss).

~~The Company determines the appropriate designation of investments at the time of purchase and reevaluates such designation as of each balance sheet date.~~ All of the Company’s investments are designated as available-for-sale debt securities. As of ~~March~~December 31, 2022 and September 30, ~~2021,~~2022, the Company’s short-term investments have maturity dates of less than one year from the balance sheet date and the Company’s long-term investments have maturity dates of greater than one year from the balance sheet date.

Available-for-sale marketable securities are carried at fair value as determined by quoted market prices for identical or similar assets, with unrealized gains and losses, net of taxes, and are reported as a separate component of stockholders’ equity. Management reviews the fair value The contractual maturities of the portfolio at least monthly and evaluates individual securities with fair value below amortized cost at the balance sheet date. For debt securities, in order to determine whether impairment is other-than-temporary, management must conclude whether the Company intends to sell the impaired security and whether it is more likely than not that the Company will be required to sell the security before recovering its amortized cost basis. If management intends to sell an impaired debt security or it is more likely than not that the Company will be required to sell the security prior to recovering its amortized cost basis, an other-than-temporary impairment is deemed to have occurred. The amount of an other-than-temporary impairment on debt securities related to a credit loss, or securities that management intends to sell before recovery, is recognized in earnings. The amount of an other-than-temporary impairment on debt securities related to other factors is recorded consistent with changes in the fair value of all other available-for-sale securities held at December 31, 2022 are as ~~a component~~follows: $44.8 million within one year and $5.7 million beyond one year to five years. As of ~~stockholders’ equity in other comprehensive income. No other-than-temporary impairment charges were recognized in each~~September 30, 2022, the contractual maturities of the ~~three and six months ended March 31, 2022 and 2021. There were $0.3 million of realized losses from the sale of~~ available-for-sale securities ~~during each of the three~~were $58.3 million within one year and ~~six months ended March 31, 2022 and no realized gains or losses from the sale of available-for-sale securities during each of the three and six months ended March 31, 2021.~~

~~Fair Value Measurements and Disclosures~~

~~FASB ASC Topic 820,~~ ~~Fair Value Measurements~~ (“ASC 820”) defines fair value, establishes a framework for measuring fair value under GAAP and enhances disclosures about fair value measurements. Fair value is defined under ASC 820 as the exchange price that would be received for an asset or paid$10.6 million beyond one year to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. ASC 820 describes a fair value hierarchy based on the following three levels of inputs that may be used to measure fair value, of which the first two are considered observable and the last, unobservable:five years.

1711

•The following tables represent the fair value hierarchy of the Company’s investments and acquisition-related contingent consideration as of December 31, 2022 and September 30, 2022, respectively ~~Level 1—Quoted prices~~(amounts in ~~active markets for identical assets or liabilities;~~thousands):


December 31, 2022:	Balance		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Short-term investments:
U.S. Treasury	$	3,921	$	3,921	$	—	$	—
Commercial paper	15,429		—		15,429		—
Foreign government and agency securities	2,842		—		2,842		—
Corporate debt securities	22,622		—		22,622		—
Total short-term investments at fair value	44,814		3,921		40,893		—
Long-term investments:
U.S. Treasury	3,224		3,224		—		—


Corporate debt securities	2,450		—		2,450		—
Total long-term investments at fair value	5,674		3,224		2,450		—



Total assets at fair value	$	50,488	$	7,145	$	43,343	$	—
Liabilities:
Current liabilities:
Acquisition-related contingent consideration	$	6,250	$	—	$	—	$	6,250



Total liabilities at fair value	$	6,250	$	—	$	—	$	6,250


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

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



Total assets at fair value	$	68,901	$	9,103	$	59,798	$	—
Liabilities:
Current liabilities:
Acquisition-related contingent consideration	$	5,920	$	—	$	—	$	5,920



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

•Level ~~2—Inputs other than~~ 1: Includes investments in U.S. Government and agency securities, which are valued based on recently executed transactions in the same or similar securities.

•Level ~~1 inputs that~~2: Includes Convertible senior notes and corporate debt securities. Corporate debt securities are ~~observable, either directly or indirectly, such as~~valued using quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or ~~liabilities; and~~

•~~Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or~~ liabilities.

The following tables represent the fair value hierarchy of the Company’s investments, convertible senior notes hedge, acquisition-related contingent consideration, and embedded conversion derivative as of March 31, 2022 and September 30, 2021, respectively ~~(amounts shown in thousands)~~:
March 31, 2022: Balance Quoted Prices in Active Markets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3)
Assets:
Short-term investments:
U.S. Treasury $ 1,980 $ 1,980 $ — $ —
Foreign government and agency securities 2,850 — 2,850 —
Corporate debt securities 33,080 — 33,080 —
Total short-term investments at fair value 37,910 1,980 35,930 —
Long-term investments:
U.S. Treasury 7,266 7,266 — —
Corporate debt securities 24,227 — 24,227 —
Total long-term investments at fair value 31,493 7,266 24,227 —
Total assets at fair value $ 69,403 $ 9,246 $ 60,157 $ —
Liabilities:
Current liabilities:
Acquisition-related contingent consideration $ 10,790 $ — $ — $ 10,790
Non-current liabilities:
Acquisition-related contingent consideration 5,200 — — 5,200
Total liabilities at fair value $ 15,990 $ — $ — $ 15,990

September 30, 2021: Balance Quoted Prices in Active Markets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3)
Assets:
Short-term investments:
U.S. Treasury $ 4,223 $ 4,223 $ — $ —
Asset-backed securities, short-term 4,811 — 4,811 —
Corporate debt securities 140,023 — 140,023 —
Total short-term investments at fair value 149,057 4,223 144,834 —
Long-term investments:
U.S. Treasury 6,995 6,995 — —
Foreign government and agency securities 2,908 — 2,908 —
Corporate debt securities 38,148 — 38,148 —
Total long-term investments at fair value 48,051 6,995 41,056 —
Convertible senior notes hedge 48,208 $ — 48,208 $ —
Total assets at fair value $ 245,316 $ 11,218 $ 234,098 $ —
Liabilities:
Current liabilities:
Acquisition-related contingent consideration $ 11,050 $ — $ — $ 11,050
Non-current liabilities:
Acquisition-related contingent consideration 5,720 — — 5,720
Embedded conversion derivative 48,208 — 48,208 —
Total liabilities at fair value $ 64,978 $ — $ 48,208 $ 16,770

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

•~~Level 2: Convertible Senior Notes.~~ On February 5, 2021, the Company issued the 2026 Notes as defined and further described in Note ~~8. “Convertible Senior Notes.”~~9. Concurrently with the issuance of the 2026 Notes,

the Company entered into the Notes Hedge (as defined in Note 9) and Warrant Transactions (as defined in Note 9) which in combination are intended to reduce the potential dilution from the conversion of the 2026 Notes. Initially, conversion of the 2026 Notes could only be settled in cash; however, following the increase in the Company’s authorized shares of Common Stock in the second quarter of fiscal 2022, which satisfied certain share reservation conditions, conversion of the 2026 Notes may be settled in cash, shares of Common Stock or a combination of cash and shares of Common Stock, at the Company’s election. The embedded conversion derivative associated with the 2026 Notes previously meet the criteria for an embedded derivative liability which required bifurcation and separate accounting. The Notes Hedge was previously classified as a derivative asset on the Company’s consolidated balance sheet. Following the increase in the Company’s authorized shares of Common Stock in the second quarter of fiscal 2022, the Notes Hedge and embedded conversion derivative were reclassified to additional paid-in capital as the equity classification criteria is met. Changes in the fair value of these derivatives prior to being classified in equity were reflected in Other income (expense), net, in the Company’s consolidated statement of operations and other comprehensive income (loss).

The fair value of the Notes Hedge and the embedded conversion derivative were estimated using a Black-Scholes model. Based on the fair value hierarchy, the Company classified the Notes Hedge and the embedded conversion derivative as Level 2 as significant inputs are observable, either directly or indirectly. The significant inputs and assumptions used in the models to calculate the fair value of the derivatives include the Common Stock price, exercise price of the derivatives, risk-free interest rate, volatility, annual coupon rate and remaining contractual term.

•Level 3: As of ~~March~~December 31, 2022, total acquisition-related contingent consideration of ~~$10.8 million and $5.2~~$6.3 million is recorded in acquisition-related contingent consideration, ~~and other non-current liabilities, respectively,~~ in the condensed consolidated balance sheets. The Company recorded the acquisition-date fair value based on the likelihood of contingent Earnout Payments, as part of the consideration transferred. The Earnout Payments consist of cash payments and issuances of Common Stock and are subsequently remeasured to fair value each reporting date. The Company uses a Monte Carlo Simulation to estimate fair value of total contingent consideration. Additionally, for contingent consideration to be settled in a variable number of shares of Common Stock, the Company used the most recent Mitek share price as reported by the Nasdaq Capital Market to determine the fair value of the shares expected to be issued. The Company classified the contingent consideration as Level 3, due to the lack of relevant observable inputs and market activity. Changes in assumptions described above could have an impact on the payout of contingent consideration with a maximum payout being $22.1 million. The following table includes a ~~summary~~rollforward of the contingent consideration liability measured at fair value using significant unobservable inputs (Level 3) during the ~~six~~three months ended ~~March~~December 31, 2022 (amounts ~~shown~~ in thousands):


Balance at September 30, ~~2021~~2022	$	~~16,770~~5,920

Expenses recorded due to changes in fair value	~~(780)~~330



Balance at ~~March~~December 31, 2022	$	~~15,990~~6,250

The following tables summarize the quantitative information including the unobservable inputs related to our acquisition related accrued earnout as of December 31, 2022 and September 30, 2022, respectively (amounts in thousands):


	Fair Value at December 31, 2022		Valuation Technique	Unobservable Input	Input Used
Acquisition-related contingent consideration	$	6,250	Monte Carlo simulation	Weighted-average cost of capital	14.30	%
				Revenue weight-average cost of capital	4.40	%
				Revenue volatility	0.20

5.6. GOODWILL AND INTANGIBLE ASSETS

Goodwill

The Company had a goodwill balance of ~~$136.9~~$128.2 million at ~~March~~December 31, 2022, representing the excess of costs over fair value of assets of businesses acquired. ~~Goodwill acquired in a business combination and determined to have an indefinite useful life is not amortized, but instead is tested for impairment at least annually in accordance with ASC 350.~~ The following table summarizes changes in the balance of goodwill during the ~~six~~three months ended ~~March~~December 31, 2022 ((amounts ~~shown~~ in ~~thousands)~~thousands):


Balance at September 30, ~~2021~~2022	$	~~63,096~~
~~Acquisition of HooYu~~	~~75,691~~120,186
Foreign currency effect on goodwill	~~(1,898)~~7,998
Balance at ~~March~~December 31, 2022	$	~~136,889~~128,184

2013

Intangible Assets

Intangible assets include the value assigned to purchased completed technology, customer relationships, trade names and ~~trade names.~~covenants not to compete. The estimated useful lives for all of these intangible assets range from ~~two~~three to seven ~~years.~~years and they are amortized on a straight-line basis. Intangible assets as of ~~March~~December 31, 2022 and September 30, ~~2021,~~2022, respectively, are summarized as follows (amounts ~~shown~~ in thousands, except for years):


March 31, 2022:		Weighted Average Amortization Period	Cost		Accumulated Amortization		Net
December 31, 2022:									December 31, 2022:	Weighted Average Amortization Period (in years)	Cost		Accumulated Amortization		Net
Completed technologies	Completed technologies	6.9 years	$	95,761	$	16,542	$	79,219	Completed technologies	6.9	$	95,761	$	30,774	$	64,987
Customer relationships	Customer relationships	4.7 years	25,168		15,012		10,156		Customer relationships	4.7	25,168		18,963		6,205
Trade names	Trade names	5.0 years	7,088		691		6,397		Trade names	5.0	7,088		2,088		5,000
Covenants not to compete	Covenants not to compete	3.0 years	600		8		592		Covenants not to compete	3.0	600		191		409
Total intangible assets	Total intangible assets		$	128,617	$	32,253	$	96,364	Total intangible assets		$	128,617	$	52,016	$	76,601


September 30, 2021:		Weighted Average Amortization Period	Cost		Accumulated Amortization		Net
September 30, 2022:									September 30, 2022:	Weighted Average Amortization Period (in years)	Cost		Accumulated Amortization		Net
Completed technologies	Completed technologies	6.6 years	$	34,361	$	13,311	$	21,050	Completed technologies	6.9	$	95,761	$	32,265	$	63,496
Customer relationships	Customer relationships	4.6 years	20,168		12,905		7,263		Customer relationships	4.7	25,168		18,241		6,927
Trade names	Trade names	4.7 years	988		567		421		Trade names	5.0	7,088		2,174		4,914
Covenants not to compete									Covenants not to compete	3.0	600		181		419
Total intangible assets	Total intangible assets		$	55,517	$	26,783	$	28,734	Total intangible assets		$	128,617	$	52,861	$	75,756

Amortization expense related to acquired intangible assets was ~~$2.4~~$4.5 million and ~~$1.7~~$2.2 million for the three months ended ~~March 31, 2022 and 2021, respectively, and $4.5 million and $3.4 million during the six months ended March~~December 31, 2022 and 2021, respectively, and is recorded within amortization and acquisition-related costs ~~and expenses~~ on the condensed consolidated statements of operations and other comprehensive ~~income (loss).~~income.

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


		Estimated Future Amortization Expense			Estimated Future Amortization Expense
2022—remaining		$	9,869
2023		17,778
2023 - remaining				2023 - remaining	12,314
2024	2024	15,513		2024	14,588
2025	2025	14,230		2025	13,335
2026	2026	12,972		2026	12,124
2027				2027	11,020
Thereafter	Thereafter	26,002		Thereafter	13,220
Total	Total	$	96,364	Total	$	76,601

6.7. STOCKHOLDERS’ EQUITY

Stock-Based Compensation Expense

The following table summarizes stock-based compensation expense related to ~~RSUs,~~restricted stock units (“RSUs”), stock options, and ~~ESPP~~ shares issued under the Company’s employee stock purchase plan (the “ESPP”), which was allocated as follows (amounts ~~shown~~ in thousands):


		Three Months Ended March 31,				Six Months Ended March 31,					Three Months Ended December 31,
		2022		2021		2022		2021			2022		2021
Cost of revenue	Cost of revenue	$	70	$	82	$	167	$	169	Cost of revenue	$	126	$	97
Selling and marketing	Selling and marketing	1,134		892		2,078		1,680		Selling and marketing	491		944
Research and development	Research and development	868		777		1,804		1,517		Research and development	554		937
General and administrative	General and administrative	1,226		1,217		2,380		2,349		General and administrative	1,271		1,154
Stock-based compensation expense included in expenses	Stock-based compensation expense included in expenses	$	3,298	$	2,968	$	6,429	$	5,715	Stock-based compensation expense included in expenses	$	2,442	$	3,132

2114

No options were granted in either of the three months ended December 31, 2022 or 2021. As of ~~March~~December 31, 2022, the Company had ~~$34.0~~$32.3 million of unrecognized compensation expense related to outstanding stock options and RSUs expected to be recognized over a weighted-average period of approximately ~~2.6~~2.7 years.

2020 Incentive Plan

In January 2020, the Company’s ~~board~~Board of ~~directors~~Directors (the “Board”) adopted the Mitek Systems, Inc. 2020 Incentive Plan (the “2020 Plan”) upon the recommendation of the ~~compensation committee~~Compensation Committee of the Board. On March 4, 2020, the Company’s stockholders approved the 2020 Plan. The total number of shares of Common Stock reserved for issuance under the 2020 Plan is currently 4,500,000 shares plus such number of shares, not to exceed 107,903, as remained available for issuance under the 2002 Stock Option Plan, 2006 Stock Option Plan, 2010 Stock Option Plan, and 2012 Incentive Plan (collectively, the “Prior Plans”) as of January 17, 2020, plus any shares underlying awards under the Prior Plans that are terminated, forfeited, cancelled, expire unexercised or are settled in cash after January 17, 2020. As of ~~March~~December 31, 2022, (i) ~~1,314,077~~1,747,352 RSUs and ~~755,533~~ 980,824 performance-based restricted stock unit awards (“Performance ~~RSUs~~RSUs”) were outstanding under the 2020 Plan and (ii) ~~1,643,289~~1,107,762 shares of Common Stock were reserved for future grants under the 2020 ~~Plan, and (iii) stock options to purchase an aggregate of 481,303 shares of Common Stock and 505,957 RSUs were outstanding under the Prior Plans.~~Plan.

Employee Stock Purchase Plan

In January 2018, the Board adopted the ESPP. On March 7, 2018, the Company’s stockholders approved the ESPP. The total number of shares of Common Stock reserved for issuance thereunder is 1,000,000 shares. As of ~~March~~December 31, 2022, (i) ~~549,849~~608,229 shares have been issued to participants pursuant to the ESPP and (ii) ~~450,151~~391,771 shares of Common Stock were reserved for future purchases under the ESPP. The Company commenced the initial offering period on April 2, 2018. ~~Subsequent offering periods commence semi-annually in February and August each year.~~

The ESPP enables eligible employees to purchase shares of Common Stock at a discount from the market price through payroll deductions, subject to certain limitations. Eligible employees may elect to participate in the ESPP only during an open enrollment period. The offering period immediately follows the open enrollment window, at which time ESPP contributions are withheld from the participant's regular paycheck. The ESPP provides for a 15% discount on the market value of the stock at the lower of the grant date price (first day of the offering period) and the purchase date price (last day of the offering period). The Company recognized $0.1 million ~~and $0.2 million in stock-based compensation expense related to the ESPP in the three months ended March 31, 2022 and 2021, respectively. The Company recognized $0.3 million~~ in stock-based compensation expense related to the ESPP in each of the ~~six~~three months ended ~~March~~December 31, 2022 and 2021.

Director Restricted Stock Unit Plan

In January 2011, the Board adopted the Mitek Systems, Inc. Director Restricted Stock Unit Plan, as amended and restated (the “Director Plan”). On March 10, 2017, the Company’s stockholders approved an amendment to the Director Plan to increase the number of shares of Common Stock available for future ~~grants. The total number of~~grants by 500,000 from 1,000,000 shares of Common Stock ~~reserved for issuance thereunder is~~to 1,500,000 ~~shares.~~shares of Common Stock. The Director Plan expired on December 31, 2022. As of ~~March~~December 31, 2022, (i) 259,513 RSUs were outstanding under the Director Plan and (ii) ~~144,412~~no shares of Common Stock were reserved for future grants under the Director Plan.

Stock Options

The following table summarizes stock option activity under the Company’s equity plans during the ~~six~~three months ended ~~March~~December 31, 2022:
Number of
Shares
Weighted-Average
Exercise Price
Weighted-Average
Remaining
Contractual Term
(in Years)
Aggregate Intrinsic Value
(in thousands)
Outstanding at September 30, 2021 816,717 $ 7.42 5.8 $ 9,046
Granted — $ —
Exercised (25,625) $ 7.98
Canceled — $ —
Outstanding at March 31, 2022 791,092 $ 7.41 5.4 5,747
Vested and Expected to Vest at March 31, 2022 791,092 $ 7.41 5.4 5,747
Exercisable at March 31, 2022 662,498 $ 6.98 5.1 5,094


	Number of Shares	Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands)
Outstanding at September 30, 2022	781,092	$	7.46	3.7	$	1,512
Granted	—	$	—
Exercised	(82,552)	$	8.02
Canceled	(30,871)	$	9.49
Outstanding at December 31, 2022	667,669	$	7.29	4.9	1,628
Vested and Expected to Vest at December 31, 2022	667,669	$	7.29	4.9	1,628
Exercisable at December 31, 2022	642,488	$	7.20	4.8	1,625

The Company recognized $0.1 million and $0.2 million in stock-based compensation expense related to outstanding stock options during the three months ended ~~March 31, 2022 and 2021, respectively. The Company recognized $0.3 million and $0.4 million in stock-based compensation expense related to outstanding stock options during the six months ended March~~December 31, 2022 and 2021, respectively. As of ~~March~~December 31, 2022, the Company had ~~$0.5~~$0.1 million of unrecognized compensation expense related to outstanding stock options expected to be recognized over a weighted-average period of approximately ~~1.6~~0.8 years.

Aggregate intrinsic value represents the value of the Company’s closing stock price on the last trading day of the fiscal period in excess of the weighted-average exercise price, multiplied by the number of options outstanding and exercisable. The total intrinsic

value of options exercised during the ~~six~~three months ended ~~March~~December 31, 2022 and 2021 was $0.2 million and ~~$1.4~~$0.1 million, respectively. There were no options granted during each of the ~~six~~three months ended ~~March~~December 31, 2022 orand 2021.

Restricted Stock Units

The following table summarizes RSU activity under the Company’s equity plans during the ~~six~~three months ended ~~March~~December 31, 2022:


		Number of Shares	Weighted-Average Fair Market Value Per Share			Number of Shares	Weighted-Average Fair Market Value Per Share
Outstanding at September 30, 2021		2,411,267	$	9.99
Outstanding at September 30, 2022					Outstanding at September 30, 2022	2,441,677	$	12.29
Granted	Granted	911,383	16.65		Granted	727,440	10.25
Settled	Settled	(796,390)	9.15		Settled	(485,762)	11.06
Canceled	Canceled	(174,552)	10.57		Canceled	(259,204)	11.82
Outstanding at March 31, 2022		2,351,708	12.53
Outstanding at December 31, 2022					Outstanding at December 31, 2022	2,424,151	11.88

The cost of RSUs is determined using the fair value of Common Stock on the award date, and the compensation expense is recognized ratably over the vesting period. The Company recognized ~~$2.3~~$1.6 million and ~~$2.1~~$2.3 million in stock-based compensation expense related to outstanding RSUs in the three months ended ~~March 31, 2022 and 2021, respectively. The Company recognized $4.6 million and $4.0 million in stock-based compensation expense related to outstanding RSUs during the six months ended March~~December 31, 2022 and 2021, respectively. As of ~~March~~December 31, 2022, the Company had ~~$22.2~~$23.7 million of unrecognized compensation expense related to outstanding RSUs expected to be recognized over a weighted-average period of approximately ~~2.6~~2.9 years.

Performance Restricted Stock Units

The following table summarizes Performance RSU activity under the Company’s equity plans during the ~~six~~three months ended ~~March~~December 31, 2022:


		Number of Shares	Weighted-Average Fair Market Value Per Share			Number of Shares	Weighted-Average Fair Market Value Per Share
Outstanding at September 30, 2021		528,724	$	9.17
Outstanding at September 30, 2022					Outstanding at September 30, 2022	919,456	$	13.43
Granted	Granted	589,980	16.02		Granted	325,837	10.23
Settled	Settled	(176,864)	8.42		Settled	—	—
Canceled	Canceled	(18,952)	12.84		Canceled	(72,172)	13.63
Outstanding at March 31, 2022		922,888	13.62
Outstanding at December 31, 2022					Outstanding at December 31, 2022	1,173,121	12.53

The cost of Performance RSUs is determined using a Monte Carlo simulation to estimate the fair value on the award date, and the compensation expense is recognized ratably over the vesting period. The Company recognized $0.7 million and ~~$0.3~~$0.5 million in stock-based compensation expense related to outstanding Performance RSUs in the three months ended March 31, 2022 and 2021, respectively. The Company recognized $1.2 million and $0.6 million in stock-based compensation expense related to outstanding Performance RSUs during the six months ended MarchDecember 31, 2022 and 2021, respectively. As of ~~March~~December 31, 2022, the Company had ~~$8.8~~$8.5 million of unrecognized compensation expense related to outstanding RSUs expected to be recognized over a weighted-average period of approximately ~~2.6~~2.3 years.

Performance Options

On November 6, 2018, as an inducement grant pursuant to Nasdaq Listing Rule 5635(c)(4), the Company’s Chief Executive Officer was granted performance options (the “Performance Options”) to purchase up to 800,000 shares of Common Stock at an exercise price of $9.50 per share, the closing market price for a share of Common Stock on the date of the grant. During the fiscal year ended September 30, 2021, the performance conditions were achieved and in November 2021, the time vesting condition was met and the ~~performance options~~Performance Options vested in full. The Company did not recognize any stock-based compensation expense related to outstanding Performance Options in the three months ended ~~March~~December 31, 2022, and recognized ~~$0.2~~$0.1 million in three months ended ~~March~~December 31, 2021. ~~The Company recognized $0.1 million and $0.4 million in stock-based compensation expense related to outstanding Performance Options during the six months ended March 31, 2022 and 2021, respectively.~~

Share Repurchase Program

~~the share repurchase program were $1.0 million or approximately 137,000 shares at an average price of $7.33. The purchases under the share repurchase program were made through open market trades.~~

On June 15, 2021, the Board authorized and approved a share repurchase program for up to $15 million of the currently outstanding shares of our Common Stock. The Company made purchases of $10.1 million, or approximately 598,636 shares, during the three months ended December 31, 2021 at an average price of $16.95 per share. The share repurchase program ~~will expire~~expired on June 30, ~~2022.~~2022 and as such no purchases were made after such date. The timing, price and volume of repurchases ~~will be~~were based on market conditions, relevant securities laws and other factors. The repurchases ~~may be~~were made from time to time, through solicited or unsolicited transactions in the open market, in privately negotiated transactions or pursuant to a share repurchase trading plan. ~~The program may be discontinued or amended at any time.~~

The Company made purchases of $4.7 million, or approximately 287,568 shares, during the three months ended March 31, 2022 at an average price of $16.29 per share. The Company made purchases of $14.8 million, or approximately 886,204 shares, during the six months ended March 31, 2022 at an average price of $16.73 per share and subsequently retired the shares. The share repurchase plan was completed during the second quarter of fiscal 2022.

~~Rights Agreement~~

On October 23, 2018, the Company entered into the Section 382 Rights Agreement (the “Rights Agreement”) and issued a dividend of 1 preferred share purchase right (a “Right”) for each share of Common Stock payable on November 2, 2018 to the stockholders of record of such shares on that date. Each Right entitles the registered holder, under certain circumstances, to purchase from the Company one one-thousandth of a share of Series B Junior Preferred Stock, par value $0.001 per share (the “Preferred Shares”), of the Company, at a price of $35.00 per one one-thousandth of a Preferred Share represented by a Right, subject to adjustment. The description and terms of the Rights are set forth in the Rights Agreement.

The Rights are not exercisable until the Distribution Date (as defined in the Rights Agreement). Until a Right is exercised, the holder thereof, as such, will have no rights as a stockholder of the Company, including, without limitation, the right to vote or to receive dividends.

At any time prior to the time any person becomes an Acquiring Person (as defined in the Rights Agreement), the Board may redeem the Rights in whole, but not in part, at a price of $0.0001 per Right (the “Redemption Price”). The redemption of the Rights may be made effective at such time, on such basis and with such conditions as the Board in its sole discretion may establish. Immediately upon any redemption of the Rights, the right to exercise the Rights will terminate and the only right of the holders of Rights will be to receive the Redemption Price.

On February 28, 2019, the Company entered into an Amendment No. 1 to the Rights Agreement for the purpose of (i) modifying the definitions of “Beneficial Owner,” “Beneficially Own,” and “Beneficial Ownership” under the Rights Agreement to more closely align such definitions to the actual and constructive ownership rules under Section 382 of the Internal Revenue Code of 1986, as amended (“Section 382”) or such similar provisions of the Tax Cuts and Jobs Act of 2017 and the rules and regulations promulgated thereunder, and (ii) adding an exemption request process for persons to seek an exemption from becoming an “Acquiring Person” under the Rights Agreement in the event such person wishes to acquire 4.9% or more of the Common Stock then outstanding.

~~The Rights expired on October 22, 2021 and no Rights were redeemed or exchanged.~~

8. INCOME TAXES

The Company’s tax provision for interim periods is determined using an estimate of the annual effective tax rate, adjusted for discrete items arising in that quarter. In each quarter, management updates the estimate of the annual effective tax rate, and any changes in the annual effective tax rate are recorded in a cumulative adjustment in that quarter. The quarterly tax provision and quarterly estimate of the annual effective tax rate are subject to significant volatility due to several factors, including management’s ability to accurately predict the portion of income before income taxes in multiple jurisdictions, the tax effects of our stock-based compensation awards, and the effects of acquisitions and the integration of those acquisitions. The annual effective tax rate differs from the U.S. statutory rate primarily due to foreign and state taxes.

For the three ~~and six~~ months ended ~~March~~December 31, 2022, the Company recorded an income tax provision of ~~$0.7~~$1.8 million, ~~and $0.5 million, respectively,~~ which yielded an effective tax rate of ~~25% and 9%, respectively.~~28%. For the three ~~and six~~ months ended ~~March~~December 31, 2021, the Company recorded an income tax ~~provision of $0.4 million and a~~ benefit of ~~$0.1~~$0.2 million, ~~respectively,~~ which yielded an effective tax rate of ~~29% and~~ negative ~~4%, respectively.~~6%. The difference between the U.S. federal statutory tax rate and the Company’s effective tax rate for the ~~six~~three months ended ~~March~~December 31, 2022 was primarily due to ~~excess tax benefits resulting from~~a mix of worldwide income, the ~~vesting~~impact of ~~restricted stock and the exercise of stock options~~non-deductible executive compensation as well as the impact of ~~foreign and~~ state taxes, and ~~the impact of~~ federal and state research and development credits on ~~its~~the tax provision.

9. CONVERTIBLE SENIOR NOTES

The carrying values of the ~~Company’s~~0.75% convertible notes due 2026 ~~Notes~~ issued by the Company in an initial aggregate principal amount of $155.3 million(the “2026 Notes”)are as follows ~~(in thousands)~~(amounts in thousands):


2026 Notes:	2026 Notes:	March 31, 2022		September 30, 2021		2026 Notes:	December 31, 2022		September 30, 2022
Principal amount	Principal amount	$	155,250	$	155,250	Principal amount	$	155,250	$	155,250
Less: unamortized discount and issuance costs, net of amortization	Less: unamortized discount and issuance costs, net of amortization	(30,880)		(34,332)		Less: unamortized discount and issuance costs, net of amortization	(25,436)		(27,280)
Carrying amount	Carrying amount	$	124,370	$	120,918	Carrying amount	$	129,814	$	127,970
2026 Notes embedded conversion derivative		$	—	$	48,208

In February 2021, the Company issued $155.3 million aggregate principal amount of the 2026 Notes (including the Additional

Notes, as defined below). The 2026 Notes are senior unsecured obligations of the Company. The 2026 Notes were issued pursuant to an Indenture, dated February 5, 2021 (the “Indenture”), between the Company and UMB Bank, National Association, as trustee. The Indenture includes customary covenants and sets forth certain events of default after which the 2026 Notes may be declared immediately due and payable and sets forth certain types of bankruptcy or insolvency events of default involving the Company after which the 2026 Notes become automatically due and payable. The Company granted the initial purchasers of the 2026 Notes (collectively, the “Initial Purchasers”) a 13-day option to purchase up to an additional $20.25 million aggregate principal amount of the 2026 Notes (the “Additional Notes”), which was exercised in full. The 2026 Notes were purchased in a transaction that was completed on February 5, 2021. As of January 13, 2023 (“Date of Noncompliance”), the Company was not in compliance with certain of the covenants in the Indenture as a result of the Company not timely filing its Form 10-K for the fiscal year ending September 30, 2022 (“Form 10-K”) and this Form 10-Q for the quarter ending December 31, 2022 (“Q1 Form 10-Q”) with the SEC. As a result of not being in compliance, the 2026 Notes began to accrue additional special interest of 0.25% of the outstanding principal of the 2026 Notes for the 90 days after the Date of Noncompliance and 0.50% of the outstanding principal of the 2026 Notes for the 91st through 180th day after the Date of Noncompliance. The Company filed its Form 10-K with the SEC on July 31, 2023. As of September 6, 2023, the Company is not in compliance with certain of the covenants in the Indenture as a result of the Company not timely filing its Form 10-Qs for the quarters ending March 31, 2023 and June 30, 2023 with the SEC.

The 2026 Notes will mature on February 1, 2026, unless earlier redeemed, repurchased or converted. The 2026 Notes will bear interest from February 5, 2021 at a rate of 0.750% per year payable semiannually in arrears on February 1 and August 1 of each year, beginning on August 1, 2021. The 2026 Notes will be convertible at the option of the holders at any time prior to the close of business on the business day immediately preceding August 1, 2025, only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on June 30, 2021, if the last reported sale price per share of Common Stock exceeds 130% of the conversion price for each of at least 20 trading days during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter; (2) during 5five consecutive business days immediately after any 5five consecutive trading day period (such 5five consecutive trading day period, the “measurement period”) in which the trading price per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price per share of the Common Stock on such trading day and the conversion rate on such trading day; (3) upon the occurrence of certain corporate events or distributions on the Common Stock. On or after August 1, 2025, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their 2026 Notes, in multiples of $1,000 principal amount, at the option of the holder regardless of the foregoing circumstances. Upon conversion, the Company may satisfy its conversion obligation by paying and/or delivering, as the case may be, cash and, if applicable at the Company’s election, shares of the Common Stock, based on the applicable conversion rate(s); provided that the Company will be required to settle conversions solely in cash unless and until the Company (i) receives stockholder approval to increase the number of

authorized shares of the Common Stock and (ii) reserves such amount of shares of the Common Stock for future issuance as required pursuant to the Indenture that governs the 2026 Notes. The conversion rate for the 2026 Notes will initially be 47.9731 shares of the Common Stock per $1,000 principal amount of 2026 Notes, which is equivalent to an initial conversion price of approximately $20.85 per share of the Common Stock. The initial conversion price of the 2026 Notes represents a premium of approximately 37.5% to the $15.16 per share last reported sale price of the Common Stock on February 2, 2021. The conversion rate is subject to adjustment under certain circumstances in accordance with the terms of the Indenture.

The net proceeds from this offering were approximately $149.7 million, after deducting the Initial Purchasers’ discounts and commissions and the Company’s estimated offering expenses related to the offering. The Company used approximately $9.3 million of the net proceeds from the offering to pay the cost of the Notes Hedge, ~~(as defined below) (after~~after such cost is partially offset by the proceeds from the Warrant Transactions described ~~below).~~below. The Initial Purchasers exercised their option to purchase Additional Notes in full ~~in February 2021and~~and the Company used a portion of the net proceeds from the sale of such Additional Notes to enter into additional Notes Hedges, ~~(after~~after such cost is partially offset by the proceeds from the additional Warrant ~~Transactions)~~Transactions, with the Option Counterparties (as defined below). The Company intends to use the remainder of the net proceeds from the offering for general corporate purposes, which may include working capital, capital expenditures, and potential acquisitions and strategic transactions.

As of ~~March~~December 31, 2022, the number of authorized and unissued shares of Common Stock that are not reserved for other purposes is sufficient to settle the 2026 Notes into equity. Accordingly, the Company may settle conversions of notes through payment or delivery, as the case may be, of cash, shares of Common Stock or a combination of cash and shares of Common Stock, at the Company’s election.

In accounting for the issuance of the 2026 Notes, the conversion option of the 2026 Notes was deemed an embedded derivative requiring bifurcation from the 2026 Notes (“host contract”) and separate accounting as an embedded derivative liability, as a result of the Company not having the necessary number of authorized but unissued shares of its Common Stock available to settle the conversion option of the 2026 Notes in shares. The proceeds from the 2026 Notes ~~are~~were first allocated to the embedded derivative liability and the remaining proceeds ~~are~~were then allocated to the host contract. On February 5, 2021, the fair value of the embedded derivative liability representing the conversion option was $33.2 million and the remaining $116.5 million was allocated to the host

contract. The difference between the principal amount of the 2026 Notes and the fair value of the host contract (the “debt discount”) is amortized to interest expense using the effective interest method over the term of the 2026 Notes.

~~The Company adopted ASU 2020-06 in the first quarter of fiscal 2022, however, it had no impact to the financial statements.~~ In the second quarter of fiscal 2022, the stockholders of the Company approved an increase to the number of authorized shares of Common Stock, to an amount sufficient to settle the conversion of the 2026 Notes. As a result of the increase to the number of authorized shares of Common Stock, the Company reclassified the embedded conversion derivative to additional paid-in capital.

As of ~~March~~December 31, 2022, the embedded conversion derivative is included in additional paid-in capital in the condensed consolidated balance sheets and will not be remeasured provided the requirements to qualify for the scope exception in ~~ASC~~Accounting Standards Codification (“ASC”) 815-10-15-74(a) continue to be met.

~~The following table presents the fair value and the change in fair value for the embedded conversion derivative (in thousands):~~


~~Embedded conversion derivative~~
~~Fair value as of September 30, 2021~~	$	~~48,208~~
~~Remeasurement to fair value on March 3, 2022~~	~~(19,692)~~
~~Impact of increase of authorized shares of common stock on convertible senior notes hedge~~	~~(28,516)~~
~~Fair value as of March 31, 2022~~	$	—

~~The remeasurement of the embedded conversion derivative to fair value on March 3, 2022 was offset by the remeasurement of the Notes Hedge. See details of the remeasurement of the Notes Hedge below.~~

Debt issuance costs for ~~the issuance of~~ the 2026 Notes were approximately $5.5 million, consisting of initial ~~purchasers'~~purchasers’ discount and other issuance costs. In accounting for the transaction costs, the Company allocated the total amount incurred to the 2026 Notes. Transaction costs were recorded as debt issuance cost (presented as contra debt in the condensed consolidated balance sheet) and are being amortized using the effective interest method to interest expense over the term of the 2026 Notes.

The following table presents the total amount of interest cost recognized relating to the 2026 Notes ~~(in thousands)~~(amounts in thousands):


		Three Months Ended March 31,				Six Months Ended March 31,					Three Months Ended December 31,
		2022		2021		2022		2021			2022		2021
Contractual interest expense	Contractual interest expense	$	302	$	172	$	595	$	172	Contractual interest expense	$	293	$	293
Amortization of debt discount and issuance costs	Amortization of debt discount and issuance costs	1,738		1,147		3,453		1,147		Amortization of debt discount and issuance costs	1,844		1,715
Total interest expense recognized	Total interest expense recognized	$	2,040	$	1,319	$	4,048	$	1,319	Total interest expense recognized	$	2,137	$	2,008

The derived effective interest rate on the 2026 Notes host contract was determined to be 6.71%, which remains unchanged from

the date of issuance. The remaining unamortized debt discount was ~~$30.9~~$25.4 million as of ~~March~~December 31, 2022, and will be amortized over approximately ~~3.8~~3.1 years.

Convertible Senior Notes Hedge and Warrants

In connection with the pricing of the 2026 Notes, the Company entered into the Notes Hedge with Bank of America, N.A., Jefferies International Limited and Goldman Sachs & Co. LLC (the “Option Counterparties”). The Notes Hedge provided the Company with the option to acquire, on a net settlement basis, approximately 7.4 million shares of Common Stock at a strike price of $20.85, which is equal to the number of shares of Common Stock that notionally underlie and ~~corresponds~~correspond to the conversion price of the 2026 Notes. The Company also entered into Warrant Transactions with the Option Counterparties relating to the same number of shares of the Common Stock, subject to customary anti-dilution adjustments. The strike price of the Warrant Transactions is $26.53

per share, which represents a 75.0% premium to the last reported sale price of the Common Stock on ~~The NASDAQ~~the Nasdaq Capital Market on February 2, 2021, and is subject to certain adjustments under the terms of the Warrant Transactions.

The Company was initially required to settle the Notes Hedge in cash, as they did not qualify for the scope exception for contracts involving an issuer’s own equity in ASC 815 and were accounted for as a derivative asset. Upon initial purchase, the Notes Hedge was recorded in ~~our consolidated balance sheets in~~ convertible senior notes hedge at $33.2 ~~million. The Company adopted ASU 2020-06~~million in ~~the first quarter of fiscal 2022, however, it had no impact to the financial statements.~~our condensed consolidated balance sheets. In the second quarter of fiscal 2022, the stockholders of the Company approved an increase to the number of authorized shares of Common Stock, to an amount sufficient to settle the conversion of the 2026 Notes. As a result of the increase to the number of authorized shares of Common Stock, the Company reclassified the Notes Hedge to additional paid-in capital.

As of ~~March~~December 31, 2022, the Notes Hedge is included in additional paid-in capital in the consolidated balance sheet and will not be remeasured provided the requirements to qualify for the scope exception in ASC 815-10-15-74(a) continue to be met and the Company had not purchased any shares under the Notes Hedge.

As a result of the Warrant Transactions, the Company is required to recognize incremental dilution of earnings per share to the extent the average share price is over $26.53 for any fiscal quarter. During the three months ended ~~March~~December 31, 2022, there was 0no dilution of earnings per share. The Warrant Transactions expire over a period of 80 trading days commencing on May 1, 2026 and may be settled in net shares of Common Stock or net cash at the Company’s election. Upon initial sale, the Warrant Transactions were recorded as an increase in additional paid-in capital within stockholders’ equity of $23.9 million. As of ~~March~~December 31, 2022, the Warrant Transactions had not been exercised and remained outstanding.

9.10. COMMITMENTS AND CONTINGENCIES

~~Leases~~

The Company’s principal executive offices, as well as its research and development facility, are located in approximately 29,000 square feet of office space in San Diego, California and the term of the lease continues through June 30, 2024. The Company’s other offices are located in Paris, France; Amsterdam, The Netherlands; New York, New York; Barcelona, Spain; London, United Kingdom; and St. Petersburg, Russia. Other than the lease for office space in San Diego, California, the Company does not believe that the leases for the offices are material to the Company. The Company believes its existing properties are in good condition and are sufficient and suitable for the conduct of its business.

~~The Company’s leases have remaining terms of~~ ~~one~~ to eight years. Certain leases contain renewal options for varying periods, which are at the Company’s sole discretion. For leases where the Company is reasonably certain to exercise a renewal option, such option periods have been included in the determination of the Company’s right-of-use (“ROU”) assets and lease liabilities. As of March 31, 2022, the weighted-average remaining lease term for the Company’s operating leases was 5.2 years and the weighted-average discount rate was 3.2%.

Lease liabilities expected to be paid within one year are recorded in current liabilities in the consolidated balance sheets. All other lease liabilities are recorded in non-current liabilities in the consolidated balance sheets. As of March 31, 2022, the Company had operating ROU assets of $6.1 million. As of March 31, 2022, total operating lease liabilities of $7.4 million were comprised of current lease liabilities of $1.9 million and non-current lease liabilities of $5.5 million. As of September 30, 2021, the Company had operating ROU assets of $7.1 million. As of September 30, 2021, total operating lease liabilities of $8.5 million were comprised of current lease liabilities of $1.9 million and non-current lease liabilities of $6.6 million.

The Company recognized $0.5 million of operating lease costs in each of the three months ended March 31, 2022 and 2021. The Company recognized $1.1 million of operating lease costs in each of the six months ended March 31, 2022 and 2021. Operating lease costs are included within cost of revenue, selling and marketing, research and development, and general and administrative expenses, dependent upon the nature and use of the ROU asset, in the Company’s consolidated statement of operations and other comprehensive income (loss).

~~The Company paid $1.0 million in operating cash flows for operating leases in the six months ended March 31, 2022.~~

~~Maturities of operating lease liabilities as of March 31, 2022 were as follows~~ ~~(amounts shown in thousands)~~:
Operating leases
2022—remaining $ 1,085
2023 2,069
2024 1,738
2025 650
2026 643
2027 648
Thereafter 1,038
Total lease payments 7,871
Less: amount representing interest (442)
Present value of future lease payments $ 7,429

Legal Proceedings

Claim Against ICAR

On June 11, 2018, a claim was filed before ~~the Juzgado~~Court of First Instance 5 (Juzgado de Primera ~~Instancia number 5~~Instancia) of Barcelona, Spain, the first instance court in the Spanish civil procedure system, against ICAR. The claim, also directed totowards Mr. Xavier Codó Grasa, the former controlling shareholder of ICAR and its current General Manager at the time the claim was filed, was brought by the Spanish company Global Equity & Corporate Consulting, S.L. for ~~the~~an alleged breach by ICAR of a services agreement entered into in the context of the sale of all of the shares in ICAR to Mitek Holding B.V., a wholly owned subsidiary of the Company. ICAR responded to the claim on September 7, 2018. After several ~~delays~~postponements as a consequence of the COVID-19 pandemic, on March 3, 2022 the trial was held. On June 7, 2022, the Court of First Instance 5 of Barcelona issued a judgment which fully upheld the claim and declared that Mr. Xavier Codó Grasa and ICAR had to pay the amount and damages claimed by Global Equity & Corporate Consulting, S.L. equal to €0.8 million (or $0.8 million as of December 31, 2022), plus the interest accrued and the legal fees.

ICAR and Mr Xavier Codó Grasa submitted an appeal against this judgment on July 13, 2022. Global Equity & Corporate Consulting, S.L. filed an opposition to that appeal on September 2, 2022. The next procedural step will be the ~~issuance~~voting and issuing of athe ruling on the appeal.

Global Equity & Corporate Consulting, S.L. requested the provisional enforcement of the judgment, byasking ICAR and Mr. Xavier Codó Grasa to deposit the ~~Juzgado de Primera Instancia number 5 of Barcelona.~~

~~The amount claimed is €0.8 million (or $0.9 million),~~damages awarded plus 30% to cover the ~~interest accrued~~possible interests that may continue to accrue during the ~~court proceedings.~~appeal (€1.1 million in total) with the Court.

~~Pursuant and subject~~According to the terms of the sale and purchase agreement concerning the acquisition of the shares in ICAR, Mitek Holding B.V. is to be indemnified in respect of any damages suffered by ICAR and/or Mitek Holding B.V. in respect of this claim. As a consequence, the escrow (€0.9 million) was released pursuant to the provisional enforcement of the judgment, and Mr. Xavier Codó Grasa deposited the remaining €0.2 million. Global Equity & Corporate Consulting, S.L. also requested that ICAR and Mr. Xavier Codó Grasa bear the costs of the provisional enforcement. This amounted to €16,475 for the accrued interests and €10,995 as legal costs. ICAR and Mr. Xavier Codó Grasa have complied with this request, having such amounts charged to the damages deposited with the Court.

Third Party Claims Against ~~Our~~the Company’s Customers

The Company receives indemnification demands from end-user customers who received third party patentee offers to license patents and allegations of patent infringement. Some of the offers and allegations have resulted in ongoing litigation. The Company is not a party to any such litigation. License offers to and infringement allegations against the Company’s end-customers were made by Lighthouse Consulting Group, LLC; Lupercal, LLC; Pebble Tide, LLC; Dominion Harbor Group, LLC; and IP Edge, LLC, which appear to be non-practicing entities (“NPEs”)—often called “patent trolls”—and not the Company’s competitors. These NPEs may seek to extract settlements from our end-customers, resulting in new or renewed indemnification demands to the Company. At this time, the Company does not believe it is obligated to indemnify any customers or end-customers resulting from license offers or patent infringement allegations by the companies listed above. However, the Company could incur substantial costs if it is determined that it

is required to indemnify any customers or end-customers in connection with these offers or allegations. Given the potential for impact to other customers and the industry, the Company is actively monitoring the offers, allegations and any resulting litigation.

On July 7, 2018, United Services Automobile Association (“USAA”) filed a lawsuit against Wells Fargo Bank, N.A. (“Wells Fargo”) in the Eastern District of Texas alleging that Wells Fargo’s remote deposit capture systems (which in part utilize technology provided by the Company to Wells Fargo through a partner) infringe 4four USAA owned patents related to mobile deposits (the “First Wells Lawsuit”). On August 17, 2018, USAA filed a second lawsuit (the “Second Wells Lawsuit” and together with the First Wells Lawsuit, the “Wells Lawsuits”) against Wells Fargo in the Eastern District of Texas asserting that an additional 5five patents owned by USAA were infringed by Wells Fargo’s remote deposit capture system. In neither lawsuit was the Company named in the Complaint as an infringer nor at any time did USAA allege specifically that the Company’s products by themselves infringed any of the asserted patents. Subsequently, on November 6, 2019, a jury in the First Wells Lawsuit found that Wells Fargo willfully infringed at least 1one of the Subject Patents (as defined below) and awarded USAA $200 million in damages. In the Second Wells Lawsuit, USAA dropped 2two of the patents from the litigation, and the judge in the case found that 1one of the remaining 3three patents was invalid. On January 10, 2020, a jury in the Second Wells Lawsuit found that Wells Fargo willfully infringed at least 1one of the patents at issue in that case and awarded USAA $102 million in damages. No Mitek product was accused of infringing either of the 2two patents in question in the Second Wells Lawsuit as the litigation involved broad banking processes and not ~~Mitek’s~~the Company’s specific mobile deposit features. USAA and Wells Fargo subsequently reached a settlement, and on April 1, 2021 the Court granted the parties’ joint motion and stipulation of dismissal of the Wells Lawsuits with prejudice.

Wells Fargo filed petitions for Inter Partes Review (“IPR”) with the Patent Trial and Appeal Board (“PTAB”) challenging the validity of the 4four patents in the First Wells Lawsuit. ~~NaN~~Three of those 4four petitions were instituted, while 1one (relating to U.S. Patent No. 9,818,090 (“the ‘090 ~~Patent)~~Patent”)) was denied institution. On November 24, 2020, and January 26, 2021, the PTAB issued final written decisions determining that Wells Fargo had not demonstrated by a preponderance of the evidence that any claims of the U.S. Patent Nos. 8,977,571 (“the ~~’571~~‘571 Patent”), 8,699,779 (“the ~~’779~~‘779 Patent”), or ~~‘9,336,517~~9,336,517 (“the ~~’517~~‘517 Patent”) were unpatentable.

On September 30, 2020, USAA filed suit against PNC Bank (the “First PNC Lawsuit”) in the Eastern District of Texas alleging infringement of U.S. Patent Nos. 10,482,432 (“the ‘432 Patent”) and 10,621,559. These 2two patents are continuations of an asserted patent in the Second Wells Lawsuit and relate to similar subject matter. On October 19, 2020, PNC Bank’s integration partner, NCR Corporation, sent an indemnification demand to the Company requesting indemnification from all claims related to the First PNC Lawsuit. The complaint against PNC Bank does not claim that any Company product infringes any of the asserted patents. At this time, the Company does not believe it is obligated to indemnify NCR Corporation or end-users of NCR Corporation resulting from the patent infringement allegations by USAA. On December 4, 2020, USAA filed an amended complaint against PNC Bank also asserting 2two patents at issue in the First Wells Lawsuit—the ’779 Patent and the ’571 Patent.Also on December 4, 2020, PNC Bank filed a complaint for declaratory judgement of non-infringement of the ’779 Patent and the ’571 Patent in the Western District of Pennsylvania (“PNC DJ Action”). On January 19, 2021, USAA filed a motion to dismiss the PNC DJ Action in view of the pending lawsuit between the parties in the Eastern District of Texas. On February 2, 2021, NCR Corporation sent a second indemnification demand to the Company requesting indemnification of the claims described in the amended complaint. On March 31, 2021, USAA filed another suit

against PNC Bank in the Eastern District of Texas alleging infringement of 2two patents from the Second Wells Lawsuit, U.S. Patent Nos. 10,013,605 (“the ‘605 Patent”) and 10,013,681 (“the ‘681 Patent”) (the “Second PNC Lawsuit”). ~~On June 1, 2021, the Western District of Pennsylvania court stayed the PNC DJ Action in view of the earlier-filed action between USAA and PNC in the Eastern District of Texas.~~ On July 7, 2021, USAA filed a third lawsuit against PNC Bank (the “Third PNC Lawsuit” and together with the First PNC Lawsuit and the Second PNC Lawsuit, the “PNC Lawsuits”) asserting infringement of U.S. Patents 10,769,598; 10,402,638; and 9,224,136. A jury trial ~~has been set for the PNC Lawsuits~~was held in May 2022 on the consolidated First PNC Lawsuit and Second PNC Lawsuit. The jury found that PNC willfully infringed at least one patent claim and awarded USAA $218 million in damages. The Court denied PNC Bank’s equitable defenses and entered a Final Judgment in the consolidated First PNC Lawsuit and Second PNC Lawsuit on August 19, 2022. A jury trial was held in September 2022 on the Third PNC Lawsuit. The jury found that PNC infringed at least one patent claim and awarded USAA $4.3 million in damages. The Court entered a Final Judgment in the Third PNC Lawsuit on February 16, 2023.

While neither the Wells Lawsuits nor the PNC Lawsuits name the Company as a defendant, given (among other factors) the Company’s prior history of litigation with USAA and the continued use of the Company’s products by its customers, on November 1, 2019, the Company filed a complaint in the U.S. District Court for the Northern District of California seeking declaratory judgment that its products do not infringe the ’779 Patent, the ’571 Patent, the ’517 Patent, and ~~U.S. Patent No. 9,818,090 (“~~the ’090 ~~Patent”)~~Patent (collectively, the “Subject Patents”). On January 15, 2020, USAA filed motions requesting the dismissal of the declaratory judgement of the Subject Patents and transfer of the case to the Eastern District of Texas, both of which the Company opposed. On April 21, 2020, the Court in the Northern District of California transferred the Company’s declaratory judgement action to the Eastern District of Texas and did not rule on USAA’s motion to dismiss. On April 28, 2021, the Court in the Eastern District of Texas granted USAA’s motion to dismiss the Company’s declaratory judgment action on jurisdictional grounds. The Court’s ruling did not address the merits of the Company’s claim of non-infringement. The Company appealed the ruling on the motion to dismiss and the decision to transfer the declaratory judgment action from California to Texas to the U.S. Court of Appeals for the Federal Circuit. The Federal Circuit heard oral argument on the Company’s appeal on April 4, ~~2022.~~2022 and on May 20 2022, issued an opinion vacating and remanding the district court’s order granting USAA’s motion to dismiss. On August 1, 2022, the parties submitted additional briefing to the district court in light of Federal Circuit’s opinion. The court held another hearing on USAA’s motion to dismiss the Company’s declaratory judgment action on jurisdictional grounds, and once again granted USAA’s motion to dismiss on February 23, 2023. The Company timely filed a notice of appeal to the U.S. Court of Appeals for the Federal Circuit. The Company continues to believe that its products do not infringe the Subject Patents and will vigorously defend the right of its end-users to use its technology.

In April, May, and June 2020, the Company filed petitions for IPR with the PTAB of the U.S. Patent & Trademark Office challenging the validity of the Subject

Patents. On November 6 and 17, 2020, the PTAB decided to exercise its discretion and deny institution of the 4four petitions due to the alleged relationship between the Company and Wells Fargo, who previously filed petitions for IPR on the Subject Patents. The PTAB did not address the merits of the Company’s petitions or the prior art cited in those petitions. The Company continues to believe that the prior art cited in the petitions renders all the claims of the Subject Patents invalid. On each of December 6, 2020, December 17, 2020, and February 23, 2021, the Company filed requests for rehearing and Precedential Opinion Panel (“POP”) review of the 4four denied IPR petitions. The Patent Office denied the requests for rehearing and for POP review.

In September 2020, the Company filed an additional 2two petitions for IPR with the U.S. Patent & Trademark Office challenging the validity of ~~U.S. Patent Nos. 10,013,681 (“~~the ‘681 ~~Patent”)~~Patent and ~~10,013,605 (“~~the ~~‘605 Patent”)—2~~'605 Patent—two of the patents at issue in the Second Wells Lawsuit. In March 2021, the PTAB decided not to institute the 2two petitions.

On July 7, July 14, and July 21 2021, PNC Bank filed 6six additional petitions for IPR with the U.S. Patent & Trademark Office challenging the validity of the ’779 Patent, the ’571 Patent, the ‘559 Patent, and ~~U.S Patent No. 10,482,432 (“~~the ‘432 ~~Patent”).~~Patent. On August 27, 2021, PNC filed 2two additional petitions for IPR challenging the validity of the ‘681 Patent and the ‘605 Patent. In October and November of 2021, PNC Bank filed 4four more petitions for IPR challenging the validity of the ‘638 Patent, the ‘136 Patent, and the ‘598 Patent. The Patent Office denied institution with respect to the petitions challenging the ‘432 Patent, the ‘605 Patent, the ‘681 Patent, and the ‘638 Patent, but instituted inter partes review on the petitions relating to the ‘779 Patent, the ‘571 Patent, the ‘559 Patent, and the ~~‘559~~‘598 Patent—finding a reasonable likelihood that at least 1one challenged patent claim was invalid. ~~Decisions from~~The U.S. Patent & Trademark Office issued a final written decision in each of the IPRs challenging the ‘779 Patent, ~~Office whether to institute~~ the ~~remaining petitions~~‘571 Patent, and the ‘559 Patent and found all challenged claims of each patent unpatentable. USAA filed requests for ~~IPRs~~rehearing a requests for POP review. The requests for POP review were denied in March 2023; the requests for rehearing are ~~expected in May 2022.~~still pending.

On August 16, 2021, USAA filed suit against BBVA USA (“BBVA”) in the Eastern District of Texas alleging infringement of the same patents at issue in the PNC Lawsuits. While ~~Mitek’s~~the Company’s IPR petitions were mentioned in the complaint, ~~Mitek~~the Company was not named as a defendant or mentioned in connection with any alleged infringement. BBVA then sent ~~Mitek~~the Company an indemnification demand on September 7, 2021. For the same reasons discussed above in connection with PNC Bank and the PNC Lawsuits, the Company does not believe it is obligated to indemnify BBVA.On June 6, 2022, the Court granted the parties’ request to administratively close the case and stay all deadlines in view of the pending appeal in the PNC Lawsuits.

On July 29, 2022, USAA filed another patent infringement lawsuit against Truist Bank (“Truist”) in the Eastern District of Texas. The lawsuit alleges infringement of the ’090 Patent, the ’432 Patent, and the U.S. Patent No. 11,182,753 (“the ’753 Patent”). The Company was not named as a defendant or mentioned in connection with any alleged infringement. On October 5, 2022, Truist’s integration partner, NCR Corporation, sent an indemnification demand to the Company requesting indemnification from all claims related to the lawsuit. For the same reasons discussed above in connection with the PNC Lawsuits, the Company does not believe it is obligated to indemnify NCR Corporation or end-users of NCR Corporation resulting from the patent infringement allegations by USAA. On October 7, 2022, Truist filed a motion to transfer venue to the Western District of North Carolina. The motion was denied on April 8, 2023. On December 30, 2022, Truist filed a motion for leave to file counterclaims against USAA alleging patent infringement of U.S. Patent Nos. 7,336,813; 7,519,214; 8,136,721; and 9,760,797, which was granted on April 8, 2023.On March 13, 2023, USAA moved for leave to file a First Amended Complaint, adding an additional allegation of patent infringement of U.S. Patent No. 11,544,944 (“the ’944 Patent”). On April 4, 2023, Truist sent another indemnification demand to the Company requesting indemnification related to the lawsuit.On May 3, 2023, USAA moved for leave to file a Second Amended Complaint, adding an additional allegation of patent infringement of U.S. Patent No. 11,625,770 (“the ’770 Patent”). On May 30, 2023, Truist sent another indemnification demand to the Company requesting indemnification related to the Second Amended Complaint.

In October and November of 2022, Truist filed a petition for IPR with the U.S. Patent & Trademark Office challenging the validity of the ’090 Patent, the ’432 Patent, and the ’753 Patent. The Patent Office instituted the petitions directed to the ’090 and ’753 Patents, but denied institution of the petition directed to the ’432 patent. Final written decisions are expected in mid-2024.

The Company incurred legal fees of ~~$0.7~~$0.3 million in the ~~six~~three months ended ~~March~~December 31, 2022 related to third party claims against our customers. Such fees are included in general and administrative expenses in the condensed consolidated statement of operations and other comprehensive income (loss).

Claim Against UrbanFT, Inc.

On July 31, 2019, the Company filed a lawsuit against one of its customers, UrbanFT, Inc. (“UrbanFT”) in the United States District Court for the Southern District of California (case No. 19-CV-1432-CAB-DEB). UrbanFT ~~was~~is delinquent in payment and attempted to justify its non-payment by asserting that the Company is or may be infringing on purported UrbanFT patents. The Company filed such lawsuit to collect the delinquent payments and to obtain a declaratory judgment of non-infringement of 5five purported UrbanFT patents. UrbanFT filed an answer and later asserted infringement of 2two of the 5five patents-at-issue in the Company’s lawsuit against UrbanFT. The Company thereafter filed counterclaims seeking a declaration that the 2two patents now asserted by UrbanFT ~~were~~are invalid in addition to being not ~~being~~ infringed. During the course of the litigation, the Company learned that a judgment had been entered against UrbanFT’s affiliates and its predecessor owner in which an Oregon court ordered that the patents in issue

revert to a prior owner, Mr. Stevens, because UrbanFT’s affiliates did not pay the purchase price owed to the prior owner. On

September 8, 2020, the Company filed a motion for summary judgment on its breach of contract claim. On September 15, 2020, the ~~District Court~~district court issued an order to show cause regarding jurisdiction over patent issues in light of the Oregon judgment. On December 17, 2020, the ~~District Court~~district court dismissed Mitek’s claims for declaratory judgment of non-infringement and UrbanFT’s counterclaims for patent infringement and related affirmative defenses based on infringement of the patents for lack of subject matter jurisdiction because UrbanFT does not own the patents. The ~~District Court~~district court then dismissed the remaining state law claims without prejudice to refiling in state court.

On December 18, 2020, the Company filed a new suit against UrbanFT in the Superior Court of the State of California, County of San Diego (case no. 37-2020-00046670-CU-BC-CTL) asserting claims for breach of contract, open book account, and monetary damages. UrbanFT filed an answer and did not assert any cross-claims. The Company filed a motion for summary judgment which was heard on April 15, 2022. The Court granted the Company’s motion and on June 2, 2022, entered a judgment in favor of the Company for $1.7 million in compensatory damages, plus costs, including attorney’s fees. The Court awarded the Company ~~compensatory damages of $1.7 million. The Company intends to also seek recovery of its~~$2,600 in costs plus $0.6 million in attorneys’ fees ~~and costs.~~for a total judgment of $2.3 million. The time for UrbanFT to appeal the $1.7 million in compensatory damage judgment has ~~not yet lapsed~~expired but the time for UrbanFT to appeal the attorneys’ fee and ~~as such, no amounts have~~cost award has not. No appeal has been ~~recorded~~filed.

On August 2, 2023, the Company filed a separate lawsuit against Richard Steggall, UFT (North America), LLC fka Urban FT LLC, Urban FT Group, Inc; Urban FT Client Solutions, LLC; UFT Professional Services, LLC; and X-35 Financial Technologies, in the ~~financial statements as~~San Diego Superior Court, (case No. 37-2023-00033005-CU-FR-CTL) (“Fraud Conveyance Action”). The Fraud Conveyance Action alleges that the Mr. Steggall orchestrated a scheme to strip UFT (North America), LLC of ~~March 31, 2022.~~any assets and effectively transfer the Urban FT business to other entities he owns and controls, all to avoid the Company’s collection efforts. The Fraud Conveyance Action also alleges that Mr. Steggall funnels Urban FT’s revenues through a web of other entities he owns and controls, all to ensure that creditors, including the Company, cannot collect their debts.

Claim Against Maplebear, Inc (dba Instacart):

On December 13, 2021, Mitek filed a lawsuit against ~~Mapleabear~~Maplebear Inc., d/b/a Instacart (“~~Maplebear”~~Instacart”), in California Superior Court – San Diego County (Case No, 37-2021-00052089-CU-BC-CTL). Mitek is alleging breach of contract, breach of the implied covenant, and requesting over $2.0 million in damages.

On August 3, 2018 ~~Maplebear~~Instacart entered into a Master Services Agreement (the “Master Services Agreement”) with Mitek agreeing to purchase a subscription to Mitek’s Mobile Verify Advanced service. On June 19, 2020, the parties entered into a second Order Form in connection with the Master Services Agreement. The Order Form has a term of June 18, 2020 to December 31, 2023 and calls for an annual commitment of $1.2 million.On September 23, 2021, ~~Maplebear~~Instacart sent a letter to Mitek purporting to outline breaches under the Master Services Agreement.Mitek responded on November 11, 2021, refuting ~~Maplebear’s~~Instacart’s claims and offering to engage in further discussions. ~~Maplebear~~Instacart thereafter sent a Notice of Termination of the Master Services Agreement dated November 24, 2021.

The Parties participated in mediation on March 15, 2022. The mediation did not result in the resolution of the case and, following mediation, the Parties stipulated that ~~Maplebear’s~~Instacart’s response to Mitek’s complaint would be due on April 27, 2022. In lieu of filing a response to the complaint, ~~Maplebear~~Instacart elected to file a Motion to Transfer Venue to the County of San Francisco, which the Court denied, thereby keeping the case in the County of San Diego.

On November 28, 2022, Instacart filed a cross-complaint against Mitek alleging: (1) Fraudulent Inducement; (2) Intentional Misrepresentation; (3) False Advertising; (4) Fraudulent Business Practices; (5) Unlawful Business Practices; (6) Unfair Business Practices; (7) Breach of Contract; and (8) Breach of the Implied Covenant of Good Faith and Fair Dealing. On January 27, 2023, Mitek filed a demurrer to the Cross-Complaint (the functional equivalent of a motion to dismiss). The demurrer is pending before the Court.

Both Parties have filed motions to compel further responses to written discovery requests. The motions will ~~oppose.~~ be heard on December 1, 2023. Additionally, the Parties are engaged in discussions to try to resolve the case.

Biometric Information Privacy Act Claims

On December 16, 2021, the Company was sued in a putative class action in the Circuit Court of Cook County, Illinois alleging that the Company had violated the Illinois Biometric Information Privacy Act (“BIPA”) with respect to identity verification services that the Company provided to its customer HyreCar, Inc. (“HyreCar”) for HyreCar’s customers in Illinois (the “BIPA Lawsuit”). Plaintiff claimed that the Company had not obtained the required consent to collect and use Plaintiff’s biometric information, and that Plaintiff and a class of similarly situated individuals therefore are entitled to statutory damages under BIPA.

The Company removed the BIPA Lawsuit to the U.S. District Court ~~has scheduled a Case Management Conference for May 20, 2022 and has not yet set a trial date. The hearing~~ for the Northern District of Illinois, and on March 4, 2022 the Company filed a Motion to ~~Transfer~~Compel Arbitration based on HyreCar’s terms and conditions requiring HyreCar customers to arbitrate on an individual (non-class) basis (the “Arbitration Motion”). On May 4, 2022 the trial court denied the Arbitration Motion. On December 21, 2022, the trial court’s ruling was upheld on appeal, and the case subsequently was remanded back to the trial court.

On March 10, 2023, Plaintiff filed an Amended Complaint adding a second named plaintiff, who is ~~presently scheduled~~also a HyreCar end-user, but otherwise not materially changing the allegations.On March 27, 2023, the Company filed a Motion to Dismiss or, in the Alternative, to Strike Class Allegations.

On May 11, 2023, and after the Company’s Motion to Dismiss or, in the Alternative, to Strike Class Allegations had been fully briefed, Plaintiffs filed a Motion for ~~October 14, 2022.~~Leave to File a Second Amended Complaint seeking to add two new named plaintiffs, who are end-users of Mitek customers Instacart and Roadie, and to remove one named plaintiff. The Company opposed the Motion for Leave.The Motion for Leave is fully briefed and pending before the trial court.

Other Legal Matters

In addition to the foregoing, the Company is subject to various claims and legal proceedings arising in the ordinary course of its business. The Company accrues for such liabilities when it is both (i) probable that a loss has occurred and (ii) the amount of the loss can be reasonably estimated in accordance with ASC 450, Contingencies. While any legal proceeding has an element of uncertainty, the Company believes that the disposition of ~~any legal proceedings that the Company and management are currently aware of,~~such matters, in the aggregate, will not have a material effect on the Company’s financial condition or results of operations.

~~10.~~11. LEASES

Leases

The Company leases office and research and development facility leases under non-cancelable operating leases for various

terms through 2030. Certain lease agreements include renewal options, rent abatement periods, and rental increases throughout the

term. As of December 31, 2022, the weighted-average remaining lease term for the Company’s operating leases was 4.59 years and the weighted-average discount rate was 3.3%.

As of December 31, 2022, the Company had operating ROU assets of $5.0 million. As of December 31, 2022, total operating lease liabilities of $6.0 million were comprised of current lease liabilities of $2.1 million and non-current lease liabilities of $3.9 million. As of September 30, 2022, the Company had operating ROU assets of $5.2 million. As of September 30, 2022, total operating lease liabilities of $6.2 million were comprised of current lease liabilities of $2.1 million and non-current lease liabilities of $4.1 million.

The Company recognized $0.5 million and $0.6 million of operating lease costs for the three months ended December 31, 2022 and 2021, respectively. Operating lease costs are included within cost of revenue, selling and marketing, research and development, and general and administrative expenses, dependent upon the nature and use of the ROU asset, in the Company’s condensed consolidated statement of operations and other comprehensive income.

The Company paid $0.6 million in operating cash flows for operating leases in the three months ended December 31, 2022.

Maturities of operating lease liabilities as of December 31, 2022 were as follows (amounts shown in thousands):


	Operating leases
2023 - remaining	1,678
2024	1,718
2025	629
2026	620
2027	625
2028	419
Thereafter	583
Total lease payments	6,272
Less: amount representing interest	(281)
Present value of future lease payments	$	5,991

12. REVENUE CONCENTRATION

For the three months ended ~~March~~December 31, 2022, the Company derived revenue of ~~$11.8~~$19.4 million from two customers, with such customers accounting for ~~19%~~29.0% and ~~15%~~13.4% of the Company’s total revenue, respectively. For the three months ended ~~March~~December 31, 2021, the Company derived revenue of ~~$6.7 million from one customer, with such customer accounting for 23% of the Company’s total revenue. For the six months ended March 31, 2022, the Company derived revenue of $18.2~~$8.0 million from two customers, with such customers accounting for ~~17%~~15% and 10% of the Company’s total revenue, respectively. ~~For the six months ended March 31, 2021, the Company derived revenue of $10.6 million from one customer, with such customer accounting for 19% of the Company’s total revenue.~~ The corresponding accounts receivable balances of customers from which revenues were in excess of 10% of total revenue were ~~$11.6~~$12.5 million and ~~$3.8~~$2.8 million at ~~March~~December 31, 2022 and 2021, respectively.

The Company’s revenue is derived primarily from sales by the Company to channel partners, including systems integrators and resellers, and end-users of licenses to sell products covered by the Company’s patented technologies. These contractual arrangements do not obligate the Company’s channel partners to order, purchase or distribute any fixed or minimum quantities of the Company’s products. In most cases, the channel partners purchase the license from the Company after they receive an order from an end-user. The channel partners receive orders from various individual end-users; therefore, the sale of a license to a channel partner may represent sales to multiple end-users. End-users can purchase the Company’s products through more than one channel partner.

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~~Revenues can fluctuate based on the timing of license renewals by channel partners. When a channel partner purchases or renews a license, the Company receives a license fee in consideration~~International sales accounted for ~~the grant of a license to sell the Company’s products~~approximately 21% and there are no future payment obligations related to such agreement; therefore, the license fee the Company receives with respect to a particular license renewal in one period does not have a correlation with revenue in future periods. During the last several quarters, sales of licenses to one or more channel partners have comprised a significant part of the Company’s revenue. This is attributable to the timing of renewals or purchases of licenses and does not represent a dependence on any single channel partner. The Company believes that it is not dependent upon any single channel partner, even those from which revenues were in excess of 10%32% of the Company’s total revenue in a specific reporting period, and that the loss or termination of the Company’s relationship with any such channel partner would not have a material adverse effect on the Company’s future operations because either the Company or another channel partner could sell the Company’s products to the end-user that had purchased from the channel partner the Company lost.

~~International sales accounted for approximately 26% of the Company’s total revenue in each of~~ the three months ended ~~March~~December 31, 2022 and 2021, respectively. From a geographic perspective, approximately ~~66%~~69% and ~~24%~~69% of the Company’s total long-term assets as of ~~March~~December 31, 2022 and September 30, ~~2021,~~2022, respectively, are associated with the Company’s international subsidiaries. From a geographic perspective, approximately ~~12%~~17% and 6%19% of the Company’s total long-term assets excluding goodwill and other intangible assets as of ~~March~~December 31, 2022 and September 30, ~~2021,~~2022, respectively, are associated with the Company’s international subsidiaries.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

This Quarterly Report on Form 10-Q (this “Form 10-Q”), contains “forward-looking statements” that involve risks and uncertainties, as well as assumptions that, if they never materialize or they prove incorrect, could cause our results to differ materially and adversely from those expressed or implied by such forward-looking statements. The forward-looking statements are contained principally in this Item 2—“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Part II, Item 1A—“Risk Factors,” but appear throughout this Form 10-Q. Forward-looking statements may include, but are not limited to, statements relating to our outlook or expectations for earnings, revenues, expenses, asset quality, volatility of our common stock, financial condition or other future financial or business performance, strategies, expectations, or business prospects, the duration and impact of the novel COVID-19 pandemic on our business, our customers, and markets generally, or the impact of legal, regulatory, or supervisory matters on our business, results of operations, or financial condition.

Forward-looking statements can be identified by the use of words such as “estimate,” “plan,” “project,” “forecast,” “intend,” “expect,” “anticipate,” “believe,” “seek,” “target”, “will,” “would,” “could,” “can,” “may”, or similar expressions. Forward-looking statements reflect our judgment based on currently available information and involve a number of risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in Part II, Item 1A—“Risk Factors” in this Form 10-Q and in our other filings with the U.S. Securities and Exchange Commission (the “SEC”), including our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2021,~~2022, filed with the ~~U.S. Securities and Exchange Commission~~SEC on July 31, 2023 (“~~SEC”) on December 13, 2021 (“2021~~2022 Annual Report”). Additionally, there may be other factors that could preclude us from realizing the predictions made in the forward-looking statements. We operate in a continually changing business environment and new factors emerge from time to time. We cannot predict such factors or assess the impact, if any, of such factors on our financial position or results of operations. All forward-looking statements included in this Form 10-Q speak only as of the date of this Form 10-Q and you are cautioned not to place undue reliance on any such forward-looking statements. Except as required by law, we undertake no obligation to publicly update or release any revisions to these forward-looking statements to reflect any events or circumstances after the date of this Form 10-Q or to reflect the occurrence of unanticipated events.

In this Form 10-Q, unless the context indicates otherwise, the terms “Mitek,” “the Company,” “we,” “us,” and “our” refer to Mitek Systems, Inc., a Delaware corporation and its subsidiaries.

Overview

Mitek Systems, Inc. (“Mitek,” the “Company,” “we,” “us,” and “our”) is a leading innovator of mobile image capture and digital identity verification solutions. We are a software development company with expertise in ~~computer vision,~~ artificial intelligence and machine learning. We currently serve more than ~~7,500~~7,800 financial services organizations and leading marketplace and financial technology (“fintech”) brands around the globe. Customers count on Mitek to deliver trusted and convenient online experiences, detect and reduce fraud, and document Know Your Customer (“KYC”) and ~~anti-money laundering~~Anti-Money Laundering (“AML”) regulatory compliance. Our solutions are embedded in native mobile apps and web browsers to facilitate digital consumer experiences. Mitek’s identity verification and authentication technologies and services make it possible for banks, financial services organizations and the world’s leading marketplace and sharing platforms to verify an individual’s identity during digital transactions, allowing them to reduce risk and meet regulatory requirements. Our advanced mobile deposit system enables secure, fast and convenient deposit services. Thousands of organizations use Mitek solutions to optimize the security of mobile check deposits, new account openings and more.

~~To ensure a high level of security against evolving digital fraud threats, in~~In May of 2021, Mitek acquired ID R&D, Inc. (“ID R&D” and such acquisition, the “ID R&D Acquisition”), an award-winning provider of ~~artificial intelligence-based~~AI-based voice and face biometrics and liveness detection. ~~With one of the strongest research and development teams in the industry,~~ ID R&D ~~consistently~~ delivers innovative, ~~best-in-class~~ biometric capabilities that raise the bar on usability and performance. The ID R&D Acquisition helps simplify and secure the entire transaction lifecycle for both businesses and consumers. It provides businesses and financial institutions with access to one authentication solution to deploy throughout the entire transaction cycle, and can provide consumers with a simple, intuitive approach to fighting fraud.

In March of 2022, Mitek acquired HooYu ~~Ltd~~Ltd. (“HooYu”), a leading KYC technology provider in the United Kingdom. ~~The acquisition~~Such technology helps to ensure businesses know the true identity of their customers by linking biometric verification with real-time ~~bureau~~data aggregation across many different sources, including credit bureaus, international sanctions lists, local law-enforcement, and ~~sanction database checks.~~others.

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~~Second~~First Quarter Fiscal ~~2022~~2023 Highlights

•Revenue for the three months ended ~~March~~December 31, 2022 was ~~$34.7~~$45.7 million, an increase of ~~21%~~41% compared to revenue of ~~$28.8~~$32.5 million in the three months ended ~~March~~December 31, 2021.

•Net income was ~~$1.9~~$4.7 million, or ~~$0.04~~$0.10 per diluted share, during the three months ended ~~March~~December 31, 2022, compared to net income of ~~$1.0~~$3.1 million, or ~~$0.02~~$0.07 per share, during the three months ended ~~March~~December 31, 2021.

•Cash provided by operating activities was ~~$9.7~~$5.3 million for the ~~six~~three months ended ~~March~~December 31, 2022, compared to ~~$16.1~~$2.3 million for the ~~six~~three months ended ~~March~~December 31, 2021.

•We added new patents to our portfolio during the ~~second~~first quarter of fiscal ~~2022~~2023 bringing our total number of issued patents to 7882 as of ~~March~~December 31, 2022. In addition, we have 1618 domestic and international patent applications pending as of ~~March~~December 31, 2022.

~~Acquisition of ID R&D, Inc.~~

On May 28, 2021 (the “Closing Date”), the Company completed the acquisition of ID R&D (the “ID R&D Acquisition”) pursuant to an Agreement and Plan of Merger (the “Merger Agreement”) dated May 28, 2021, by and among the Company, ID R&D and Alexey Khitrov. Upon completion of the ID R&D Acquisition, ID R&D became a direct wholly owned subsidiary of Mitek Systems, Inc. ID R&D is an award-winning provider of artificial intelligence-based voice and face biometrics and liveness detection. Under the terms of the Merger Agreement, the Company agreed to pay an aggregate purchase price of up to $49.0 million. On the Closing Date, the equityholders of ID R&D received from the Company: (i) $13.0 million in cash, subject to adjustments for transaction expenses, escrow amounts, indebtedness and working capital adjustments and (ii) 867,226 shares (or $13.9 million) of Common Stock. The terms of the Merger Agreement also provide for additional payments of up to approximately $22.1 million in a combination of cash and Common Stock upon the achievement of certain financial milestones during 2022 and 2023.

~~Acquisition of HooYu Ltd~~

On March 23, 2022, the Company completed the acquisition of HooYu Ltd (the “HooYu Acquisition”) pursuant to the Purchase Agreement (the “Purchase Agreement”) dated March 23, 2022, by and among the Company and certain persons identified in the Purchase Agreement (the “Sellers”). Pursuant to the Purchase Agreement, the Company, among other things, acquired 100% of the outstanding share capital of HooYu Ltd, a leading global customer onboarding platform designed to increase the integrity of know your customer (“KYC”) and maximize the success of customer onboarding. As consideration for the HooYu Acquisition, the Company paid aggregate consideration in the amount of £97.8 million in cash (the “Closing Consideration”), as such amount may be adjusted for transaction expenses and indebtedness. Pursuant to the Purchase Agreement, £0.7 million was withheld as a reduction to the Closing Consideration and is being retained by the Company for the final working capital adjustments and indemnification of certain tax matters under the Purchase Agreement.

Market Opportunities, Challenges & Risks

We believe that financial institutions, fintechs, and other companies see our patented solutions as a way to provide a superior digital customer experience to meet growing consumer ~~demand for~~demands of trust and convenience online and, at the same time, assist them in meeting regulatory requirements. The value of digital transformation to our customers is a possible increase in top line revenue and a reduction in the cost of sales and ~~services.~~service. As the use of new technology increases, so does associated fraud and cyber-attacks. The negative outcomes of fraud and cyber-attacks encompass financial losses, brand damage, and loss of loyal customers. We predict growth in ~~both~~ our deposits business as a result of the increased consumer adoption of digital financial services provided to them by their banks and identity verification products based on current trends in payments, online lending, more stringent regulations, growing usage of sharing apps and online marketplaces, and the ever-increasing demand for digital services.

Factors adversely affecting the pricing of, or demand for, our digital solutions, such as competition from other products or technologies, any decline in the demand for digital transactions, or negative publicity or obsolescence of the software environments in which our products operate, could result in lower revenues or gross margins. Further, because substantially all of our revenues are from a few types of technology, our product concentration may make us especially vulnerable to market demand and competition from other technologies, which could reduce our revenues.

The sales cycle for our software and services can be lengthy and the implementation cycles for our software and services by our channel partners and customers can also be lengthy, often as long as six months and sometimes longer for larger customers. If implementation of our products by our channel partners and customers is delayed or otherwise not completed, our business, financial condition, and results of operations may be adversely affected.

Revenues related to most of our ~~on-premise~~on premise licenses for mobile products are required to be recognized up front upon satisfaction of all applicable revenue recognition criteria. Revenue related to our software as a service (“SaaS”) products is recognized ratably over the life of the contract or as transactions are used depending on the contract criteria. The recognition of future revenues from these licenses is dependent upon a number of factors, including, but not limited to, the term of our license agreements, the timing

of implementation of our products by our channel partners and customers, and the timing of any re-orders of additional licenses and/or license renewals by our channel partners and customers.

During each of the last few years, sales of licenses to one or more channel partners have comprised a significant part of our revenue each year. This is attributable to the timing of renewals or purchases of licenses and does not represent a dependence on any single channel partner. If we were to lose a channel partner relationship, we do not believe such a loss would adversely affect our operations because either we or another channel partner could sell our products to the end-users that had purchased products from the channel partner we lost. However, in that case, we or another channel partner must establish a relationship with the end-users, which could take time to develop, if it develops at all.

We have a growing number of competitors in the mobile image capture and identity verification industry, many of which have greater financial, technical, marketing, and other resources. However, we believe our patented mobile image capture and identity verification technology, our growing portfolio of products and geographic coverage for the financial services industry, and our market expertise gives us a distinct competitive advantage. To remain competitive, we must continue to offer products that are attractive to the consumer as well as being secure, accurate, and convenient. To help us remain competitive, we intend to further strengthen performance of our portfolio of products through research and development as well as partnering with other technology providers.

~~The COVID-19 pandemic has created significant uncertainty in the U.S. and around the globe, resulting in both challenges and opportunities for our business.~~ ~~In response to this situation and~~ in an effort to protect the health and safety of our employees, our workforce has transitioned to working remotely and employee travel, including to our international subsidiaries, has been severely curtailed. Because of our IT infrastructure and the nature of our business, our employees have generally been able to work remotely and productively, but future productivity and the effects of COVID-19 on our operations is unknown at this time. We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state, local, or foreign authorities, or that we determine are in the best interests of our employees, customers, partners, and stockholders.

We anticipate in certain circumstances that the impact of the COVID-19 pandemic may accelerate the adoption of digital technologies and create future opportunities and uses for our products and we continue to seek new and innovative opportunities to serve our customers’ needs. However, given the continuing uncertainties related to the COVID-19 pandemic, we cannot predict how it will continue to affect our operational and financial performance, including our long term revenue growth and profitability, the impact on our customers’ and our sales cycles, our ability to generate new business leads, the impact on our customers’, employee and industry events, and the effects on our vendors. ~~As a result, the extent to which the COVID-19 pandemic will continue to impact our financial condition or results of operations is uncertain.~~

Results of Operations

Comparison of the Three Months Ended ~~March~~December 31, 2022 and 2021

The following table summarizes certain aspects of our results of operations for the three months ended ~~March~~December 31, 2022 and 2021 (amounts in thousands, except percentages):
Three Months Ended March 31,
Percentage of Total Revenue Increase (Decrease)
2022 2021 2022 2021 $ %
Revenue
Software and hardware $ 19,280 $ 13,013 56 % 45 % $ 6,267 48 %
Services and other 15,434 15,760 44 % 55 % (326) (2) %
Total revenue $ 34,714 $ 28,773 100 % 100 % $ 5,941 21 %
Cost of revenue 3,310 3,792 10 % 13 % (482) (13) %
Selling and marketing 9,206 8,530 27 % 30 % 676 8 %
Research and development 8,236 6,691 24 % 23 % 1,545 23 %
General and administrative 6,073 5,718 17 % 20 % 355 6 %
Acquisition-related costs and expenses 3,056 1,659 9 % 6 % 1,397 84 %
Interest expense 2,040 1,319 6 % 5 % 721 55 %
Other income (expense), net (231) 372 (1) % 1 % (603) (162) %
Income tax provision (651) (417) (2) % (1) % (234) (56) %
Net income $ 1,911 $ 1,019 6 % 4 % $ 892 88 %


	Three Months Ended December 31,
					Percentage of Total Revenue				Increase (Decrease)
	2022		2021		2022		2021		$		%
Revenue
Software and hardware	$	26,376	$	15,445	58	%	48	%	$	10,931	71	%
Services and other	19,327		17,028		42	%	52	%	2,299		14	%
Total revenue	$	45,703	$	32,473	100	%	100	%	$	13,230	41	%
Cost of revenue	5,069		4,555		11	%	14	%	514		11	%
Selling and marketing	9,515		8,438		21	%	26	%	1,077		13	%
Research and development	7,670		6,407		17	%	20	%	1,263		20	%
General and administrative	8,479		5,965		19	%	18	%	2,514		42	%
Amortization and acquisition-related costs	4,821		2,279		11	%	7	%	2,542		112	%
Restructuring costs	1,776		—		4	%	—	%	1,776		100	%
Interest expense	2,137		2,008		5	%	6	%	129		6	%
Other income, net	340		135		1	%	—	%	205		152	%
Income tax benefit (provision)	(1,846)		168		(4)	%	1	%	(2,014)		(1199)	%
Net income	$	4,730	$	3,124	10	%	10	%	$	1,606	51	%

Revenue

Total revenue increased ~~$5.9~~$13.2 million, or ~~21%~~41%, to ~~$34.7~~$45.7 million in the three months ended ~~March~~December 31, 2022 compared to ~~$28.8~~$32.5 million in the three months ended ~~March~~December 31, 2021. Software and hardware revenue increased ~~$6.3~~$10.9 million, or ~~48%~~71%, to ~~$19.3~~$26.4 million in the three months ended ~~March~~December 31, 2022 compared to ~~$13.0~~$15.4 million in the three months ended ~~March~~December 31, 2021. This increase is primarily due to an increase in sales of our Mobile Deposit® and IDLive® software products of ~~$7.6 million. This increase was~~$11.9 million partially offset by a decline in revenue from our CheckReader™ and identity verification software and~~identity verification~~ hardware products of ~~$1.3 million~~.$1.0 million. The increase in sales of our Mobile Deposit® software product is primarily the result of an existing customer having entered into a significant Mobile Deposit® multiyear contract and the license revenue associated with the full contract term was recognized in the three months ended December 31, 2022. Services and other revenue ~~decreased $0.4~~increased $2.3 million, or 2%14%, to ~~$15.4~~$19.3 million in the three months ended ~~March~~December 31, 2022 compared to ~~$15.8~~$17.0 million in the three months ended ~~March~~December 31, 2021. This ~~decrease~~increase is primarily due to increased SaaS revenue of $2.8 million as a ~~decline~~result of the HooYu Acquisition and increased hosted mobile deposit transactional revenue of $0.3 million, partially offset by a decrease in Mobile Verify® transactional SaaS revenue of ~~$0.7~~$0.6 million ~~or 7%,~~and a net decrease in revenue from our transactional identity verification and other services of $0.3 million in the three months ended ~~March~~December 31, 2022 compared to the same period in 2021. ~~This decrease was partially offset by an increase in SaaS revenue of $0.3 million as a result of the HooYu Acquisition.~~

Cost of Revenue

Cost of revenue includes personnel costs related to billable services and software support, direct costs associated with our hardware products, hosting costs, and the costs of royalties for third party products embedded in our products. Cost of revenue ~~decreased~~increased $0.5 million, or ~~13%~~11%, to ~~$3.3~~$5.1 million in the three months ended ~~March~~December 31, 2022 compared to ~~$3.8~~$4.6 million in the three months ended ~~March~~December 31, 2021. As a percentage of revenue, cost of revenue decreased to ~~10%~~11% in the three months ended ~~March~~December 31, 2022 from ~~13%~~14% in the three months ended ~~March~~December 31, 2021. The ~~decrease~~increase in cost of revenue is primarily due to ~~a decrease~~an increase in variable personnel, hosting and royalty costs ~~associated with~~as a result of the HooYu Acquisition of $1.3 million, partially offset by a $0.8 million decrease in costs of our identity verification hardware products and decreased variable personnel, hosting and royalty costs as a result of lower ~~volume of~~identity verification hardware products and Mobile Verify® ~~transactions processed~~transactional SaaS revenue during the three months ended ~~March~~December 31, 2022 compared to the same period in 2021.

Selling and Marketing Expenses

Selling and marketing expenses include payroll, employee benefits, stock-based compensation, and other headcount-related costs associated with sales and marketing personnel. Selling and marketing expenses also include non-billable costs of professional services personnel, advertising expenses, product promotion costs, trade shows, and other brand awareness programs. Selling and marketing expenses increased ~~$0.7~~$1.1 million, or 8%13%, to ~~$9.2~~$9.5 million in the three months ended ~~March~~December 31, 2022 compared to ~~$8.5~~$8.4 million in the three months ended ~~March~~December 31, 2021. As a percentage of revenue, selling and marketing expenses decreased to ~~27%~~21% in the three months ended ~~March~~December 31, 2022 from ~~30%~~26% in the three months ended ~~March~~December 31, 2021. The increase in selling and

marketing expense is primarily due to higher product promotion and other costs of $0.9 million and higher personnel-related costs resulting from our increased headcount of ~~$0.4 million, higher travel and related expenses of~~ $0.2 ~~million and higher product promotion costs of $0.1~~ million in the three months ended ~~March~~December 31, 2022 compared to the same period in 2021.

Research and Development Expenses

Research and development expenses include payroll, employee benefits, stock-based compensation, third party contractor expenses, and other headcount-related costs associated with software engineering and mobile capture science. Research and development expenses increased ~~$1.5~~$1.3 million, or ~~23%~~20%, to ~~$8.2~~$7.7 million in the three months ended ~~March~~December 31, 2022 compared to ~~$6.7~~$6.4 million in the three months ended ~~March~~December 31, 2021. As a percentage of revenue, research and development expenses ~~increased to 24%~~decreased t 17% in the three months ended ~~March~~December 31, 2022 from ~~23%~~20% in the three months ended ~~March~~December 31, 2021. The increase in research and development expenses is primarily due to higher ~~personnel-related costs from the ID R&D acquisition and our increased headcount of $0.9 million and higher~~ third-party contractor and other expenses of ~~$0.6~~$1.2 million in the three months ended ~~March~~December 31, 2022 compared to the same period in 2021.

General and Administrative Expenses

General and administrative expenses include payroll, employee benefits, stock-based compensation, and other headcount-related costs associated with finance, legal, administration, and information technology functions, as well as third party legal, accounting, and other administrative costs. General and administrative expenses increased ~~$0.4~~$2.5 million, or 6%42%, to ~~$6.1~~$8.5 million in the three months ended ~~March~~December 31, 2022 compared to ~~$5.7~~$6.0 million in the three months ended ~~March~~December 31, 2021. As a percentage of revenue, general and administrative expenses ~~decreased~~increased to ~~17%~~19% in the three months ended ~~March~~December 31, 2022 from ~~20%~~18% in the three months ended ~~March~~December 31, 2021. The increase in general and administrative expenses is primarily due to higher third-party and professional fees of ~~$0.3~~$1.1 million, temporary labor costs of $0.5 million, software and ~~higher~~IT costs of $0.4 million, personnel-related costs resulting from our increased headcount of ~~$0.1~~$0.3 million, and legal expenses of $0.2 million during the three months ended ~~March~~December 31, ~~2022.~~2022 compared to the same period in 2021.

Amortization and acquisition-related costs

~~Acquisition-Related Costs~~Amortization and ~~Expenses~~

~~Acquisition-related~~acquisition-related costs ~~and expenses~~ include amortization of intangible assets, ~~expenses~~adjustments recorded due to changes in the fair value of contingent consideration, and other costs associated with acquisitions. ~~Acquisition-related~~Amortization and acquisition-related costs ~~and expenses~~ increased ~~$1.4~~$2.5 million, or ~~84%~~112%, to ~~$3.1~~$4.8 million in the three months ended ~~March~~December 31, 2022 compared to ~~$1.7~~$2.3 million in the three months ended ~~March~~December 31, 2021. As a percentage of revenue, amortization and acquisition-related costs ~~and expenses~~ increased to 9%11% in the three months ended ~~March~~December 31, 2022 from 6%7% in the three months ended ~~March~~December 31, 2021. The increase in amortization and acquisition-related costs ~~and expenses~~ is primarily due to $2.6 million of expenses associated with the HooYu Acquisition during the three months ended ~~March~~December 31, 2022 compared to the same period in 2021.

Restructuring Costs

Restructuring costs consist of employee severance obligations and other related costs. Restructuring costs were $1.8 million in the three months ended December 31, 2022 and related to a restructuring that occurred in the first quarter of fiscal 2023. There were no restructuring costs in the three months ended December 31, 2021.

Interest Expense

Interest expense includes the amortization of debt discount and issuance costs and coupon interest accrued on our 0.75% convertible senior notes due 2026 (the “2026 Notes”). Interest expense was $2.1 million for the three months ended December 31, 2022 and consisted of $1.8 million of amortization of debt discount and issuance costs and $0.3 million of coupon interest incurred. Interest expense was $2.0 million for the three months ended ~~March~~December 31, ~~2022~~2021 and consisted of $1.7 million of amortization of debt discount and issuance costs and $0.3 million of coupon interest incurred. Interest expense was $1.3 million for the three months ended March 31, 2021 and consisted of $1.1 million of amortization of debt discount and issuance costs and $0.2 million of coupon interest incurred.

Other Income, ~~(Expense),~~ Net

Other income, ~~(expense),~~ net includes interest income net of amortization and net realized gains or losses on our marketable securities portfolio, and foreign currency transactional gains or losses. Other income, ~~(expense),~~ net ~~decreased $0.6~~increased $0.2 million, or ~~162%~~152%, to ~~$0.2 million net expense in the three months ended March 31, 2022 compared to $0.4~~$0.3 million net income in the three months ended ~~March~~December 31, 2022 compared to $0.1 million net income in the three months ended December 31, 2021. The ~~decrease~~increase was primarily due to higher interest income net of amortization of $0.7 million, partially offset by foreign currency exchange transactional losses ~~and higher realized losses on investment sales.~~of $0.5 million.

Income Tax Benefit (Provision)

For the three months ended ~~March~~December 31, 2022, we recorded an income tax provision of ~~$0.7~~$1.8 million which yielded an effective tax rate of ~~25%~~28%. For the three months ended ~~March~~December 31, 2021, we recorded an income tax ~~provision~~benefit of ~~$0.4~~$0.2 million, orwhich yielded an effective tax rate of ~~29%~~6%. The difference between the U.S. federal statutory tax rate and our effective tax rate for each of the

three months ended ~~March~~December 31, 2022 and 2021 was primarily due to ~~excess tax benefits resulting from~~a mix of worldwide income, the ~~vesting~~impact of ~~restricted stock and the exercise of stock options~~non-deductible executive compensation as well as the impact of ~~foreign and~~ state taxes, and ~~the impact of~~ federal and state research and development credits on ~~its~~the tax provision.

~~Comparison of the Six Months Ended March 31, 2022 and 2021~~

~~The following table summarizes certain aspects of our results of operations for the six months ended March 31, 2022 and 2021 (amountsin thousands, except percentages~~):
Six Months Ended March 31,
Percentage of Total Revenue Increase (Decrease)
2022 2021 2022 2021 $ %
Revenue
Software and hardware $ 34,725 $ 25,315 52 % 46 % $ 9,410 37 %
Services and other 32,461 29,433 48 % 54 % 3,028 10 %
Total revenue $ 67,186 $ 54,748 100 % 100 % $ 12,438 23 %
Cost of revenue 6,666 7,930 10 % 14 % (1,264) (16) %
Selling and marketing 17,644 15,915 26 % 29 % 1,729 11 %
Research and development 15,842 12,855 24 % 23 % 2,987 23 %
General and administrative 12,037 10,776 18 % 20 % 1,261 12 %
Acquisition-related costs and expenses 5,335 3,352 8 % 6 % 1,983 59 %
Interest expense 4,048 1,319 6 % 2 % 2,729 207 %
Other income (expense), net (96) 468 — % 1 % (564) (121) %
Income tax benefit (provision) (483) 117 (1) % — % (600) (513) %
Net income $ 5,035 $ 3,186 7 % 6 % $ 1,849 58 %

~~Revenue~~

Total revenue increased $12.4 million, or 23%, to $67.2 million in the six months ended March 31, 2022 compared to $54.7 million in the six months ended March 31, 2021. Software and hardware revenue increased $9.4 million, or 37%, to $34.7 million in the six months ended March 31, 2022 compared to $25.3 million in the six months ended March 31, 2021 primarily due to an increase in sales of our Mobile Deposit® and IDLive® software products of $10.5 million. This increase was partially offset by a decline in revenue from our CheckReader™ software and ~~identity verification hardware products of $1.1 million~~. Services and other revenue increased $3.0 million, or 10%, to $32.5 million in the six months ended March 31, 2022 compared to $29.4 million in the six months ended March 31, 2021 primarily due to strong growth in Mobile Verify® transactional SaaS revenue of $1.8 million in the six months ended March 31, 2022 compared to the same period in 2021, as well as an increase in maintenance revenue associated with Mobile Deposit® software sales and hosted mobile deposit transactional revenue of $0.9 million and an increase in SaaS revenue as a result of the HooYu Acquisition of $0.3 million.

~~Cost of Revenue~~

~~Selling and Marketing Expenses~~

Selling and marketing expenses include payroll, employee benefits, stock-based compensation, and other headcount-related costs associated with sales, marketing, and product management personnel. Selling and marketing expenses also include non-billable costs of professional services personnel, advertising expenses, product promotion costs, trade shows, and other brand awareness programs. Selling and marketing expenses increased $1.7 million, or 11%, to $17.6 million in the six months ended March 31, 2022 compared to $15.9 million in the six months ended March 31, 2021. As a percentage of revenue, selling and marketing expenses decreased to 26% in the six months ended March 31, 2022 from 29% in the six months ended March 31, 2021. The increase in selling and marketing expense is primarily due to higher personnel-related costs resulting from our increased headcount of $1.2 million, higher travel and related expenses of $0.3 million, and higher product promotion costs of $0.2 million in the six months ended March 31, 2022 compared to the same period in 2021.

~~Research and Development Expenses~~

Research and development expenses include payroll, employee benefits, stock-based compensation, third party contractor expenses, and other headcount-related costs associated with software engineering and mobile capture science. Research and development expenses increased $2.9 million, or 23%, to $15.8 million in the six months ended March 31, 2022 compared to $12.9 million in the six months ended March 31, 2021. As a percentage of revenue, research and development expenses increased to 24% in the six months ended March 31, 2022 from 23% in the six months ended March 31, 2021. The increase in research and development expenses is primarily due to higher personnel-related costs from the ID R&D acquisition and our increased headcount of $1.9 million and higher third-party contractor and other expenses of $1.0 million in the six months ended March 31, 2022 compared to the same period in 2021.

~~General and Administrative Expenses~~

General and administrative expenses include payroll, employee benefits, stock-based compensation, and other headcount-related costs associated with finance, legal, administration, and information technology functions, as well as third party legal, accounting, and other administrative costs. General and administrative expenses increased $1.2 million, or 12%, to $12.0 million in the six months ended March 31, 2022 compared to $10.8 million in the six months ended March 31, 2021. As a percentage of revenue, general and administrative expenses decreased to 18% in the six months ended March 31, 2022 from 20% in the six months ended March 31, 2021. The increase was primarily due to higher third-party and professional fees of $0.5 million and higher personnel-related costs resulting from our increased headcount of $0.4 million during the six months ended March 31, 2022 compared to the same period in 2021.

~~Acquisition-Related Costs and Expenses~~

Acquisition-related costs and expenses include amortization of intangible assets, expenses recorded due to changes in the fair value of contingent consideration, and other costs associated with acquisitions. Acquisition-related costs and expenses increased $2.0 million, or 59%, to $5.3 million in the six months ended March 31, 2022 compared to $3.4 million in the six months ended March 31, 2021. As a percentage of revenue, acquisition-related costs and expenses increased to 8% in the six months ended March 31, 2022 from 6% in the six months ended March 31, 2021. The increase in acquisition-related costs and expenses is primarily due to expenses associated with the HooYu Acquisition and net expenses associated with the acquisition of ID R&D during the six months ended March 31, 2022 compared to the same period in 2021.

~~Interest Expense~~

Interest expense includes the amortization of debt discount and issuance costs and coupon interest incurred associated with our 2026 Notes. Interest expense was $4.0 million for six months ended March 31, 2022 and consisted of $3.5 million of amortization of debt discount and issuance costs and $0.6 million of coupon interest incurred. Interest expense was $1.3 million for six months ended March 31, 2021 and consisted of $1.1 million of amortization of debt discount and issuance costs and $0.2 million of coupon interest incurred.

~~Other Income (Expense), Net~~

Other income (expense), net includes interest income net of amortization and net realized gains or losses on our marketable securities portfolio and foreign currency transactional gains or losses. Other income (expense), net decreased $0.6 million, or negative 121%, to $0.1 million net expense in the six months ended March 31, 2022 compared to $0.5 million net income in the six months ended March 31, 2021. The decrease was primarily due to higher foreign currency exchange transactional losses and higher realized losses on investment sales.

~~Income Tax Benefit (Provision)~~

For the six months ended March 31, 2022, we recorded an income tax provision of $0.5 million, which yielded an effective tax rate of 9%. For the six months ended March 31, 2021, we recorded an income tax benefit of $0.1 million, which yielded an effective tax rate of negative 4%. The difference between the U.S. federal statutory tax rate and our effective tax rate for the six months ended March 31, 2022 and 2021 was primarily due to excess tax benefits resulting from the exercise of stock options and vesting of restricted stock, the impact of foreign and state taxes, the impact of certain permanent items on its tax provision, and the impact of federal and state research and development credits on its tax provision.

Liquidity and Capital Resources

Cash generated from operations has historically been our primary source of liquidity to fund operations and investments to grow our business. Our additional sources of liquidity include available cash balances and proceeds from the issuance of the 2026 Notes (as defined below). On ~~March~~December 31, 2022, we had ~~$93.4~~$107.6 million in cash and cash equivalents and investments compared to ~~$227.4~~$101.0 million on September 30, ~~2021, a decrease~~2022, an increase of ~~$134.0~~$6.6 million, or ~~59%~~7%. ~~The decrease~~In summary, our cash flows from continuing operations were as follows (dollars in cash and cash equivalents and investments is primarily due to acquisitions, net of cash acquired of $126.6 million, $14.8 million in repurchases and retirements of our common stock, par value $0.001 (“Common Stock”thousands)~~, capital expenditures of $0.6 million, and unfavorable foreign currency losses of $0.5 million. These decreases were partially offset by net cash provided by operating activities of $9.7 million.~~:


	Three Months Ended December 31,
	2022		2021
Cash provided by operating activities	$	5,264	$	2,251
Cash provided by investing activities	18,596		2,054
Cash (used) provided by financing activities	626		(10,137)

Cash Flows from Operating Activities

Cash flows related to operating activities are dependent on net income, adjustments to net income and changes in working capital. Net cash provided by operating activities during the ~~six~~three months ended ~~March~~December 31, 2022 was ~~$9.7~~$5.3 million and resulted primarily from net income of ~~$5.0~~$4.7 million and net non-cash charges of ~~$15.2~~$6.0 million, partially offset by unfavorable changes in operating assets and liabilities of ~~$10.5~~$5.5 million. The primary non-cash adjustments to operating activities were stock-based compensation expense, amortization of intangible assets, accretion and amortization on debt securities, amortization of investment premiums & other, and depreciation and amortization totaling $6.4 million, $4.5 million, $3.5 million, $1.1 million, and $0.6 million, respectively, which were partially offset by net changes in the estimated fair value of acquisition-related contingent consideration and a deferred tax benefit of $0.8 million and $0.1 million, respectively.

Net cash provided by operating activities during the ~~six~~three months ended ~~March~~December 31, 2021 was ~~$16.1~~$2.3 million and resulted primarily from net income of ~~$3.2~~$3.1 million and net non-cash charges of ~~$10.8~~$7.5 million, ~~and favorable~~partially offset by unfavorable changes in operating assets and liabilities of ~~$2.0~~$8.3 million. The ~~primary non-cash adjustments to~~increase in cash provided by operating activities ~~were stock-based compensation~~of $3.0 million during the three months ended December 31, 2022 compared to three months ended December 31, 2021 was primarily due to an increase in amortization expense ~~amortization of intangible assets, accretion and amortization on debt securities~~ and other depreciation and amortization, and amortization of investment premiums and other totaling $5.7 million, $3.4 million, $1.1 million, $0.8 million, and $0.3 million, respectively, which were partially offset by a deferred tax benefit of $0.5 million.assets.

Cash Flows from Investing Activities

Net cash ~~used in~~provided by investing activities was ~~$1.7~~$18.6 million during the ~~six~~three months ended ~~March~~December 31, 2022, which consisted primarily of ~~acquisitions, net of cash acquired of $126.6 million and capital expenditures of $0.6 million, partially offset by~~ net sales and maturities of investments of ~~$125.5~~$18.8 million, partially offset by capital expenditures of $0.2 million.

Net cash ~~used in~~provided by investing activities was ~~$124.7~~$2.1 million during the ~~six~~three months ended ~~March~~December 31, 2021, which consisted primarily of net ~~purchases~~sales and maturities of investments of ~~$124.1~~$2.3 million, ~~and~~partially offset by capital expenditures of ~~$0.7~~$0.3 million. The increase in cash provided by investing activities of $16.5 million during the three months ended December 31, 2022 compared to three months ended December 31, 2021 was primarily due to net sales of investments of $16.4 million in three months ended December 31, 2022.

Cash Flows from Financing Activities

Net cash ~~used in~~provided by financing activities was ~~$13.7~~$0.6 million during the ~~six~~three months ended ~~March~~December 31, 2022, primarily due to ~~$14.8~~$0.7 million ~~in repurchases and retirements~~ of ~~our Common Stock, partially offset by~~ net proceeds from the issuance of equity plan Common Stock, partially offset by net payments on other borrowings of ~~$1.1 million.~~

$36,000. Net cash used in financing activities was $10.1 million during the three months ended December 31, 2021, primarily due to $10.1 million in repurchases and retirements of our Common Stock. The increase in cash provided by financing activities ~~was $142.6~~of $10.8 million during the ~~six~~three months ended ~~March~~December 31, 2022 compared to three months ended December 31, 2021 ~~which consisted of net proceeds from~~was primarily due to the ~~issuance~~expiration of the 2026 Notes of $149.7 million, proceeds from the issuance of equity plan Common Stock of $2.8 million, and proceeds from other borrowings of $0.3 million partially offset by net cash used for the call spreads on the sales and purchases of warrants and convertible senior notes hedge issuedshare repurchase program in ~~connection with the 2026 Notes of $9.3 million, and payment of acquisition-related contingent consideration of $0.8 million.~~June 2022.

0.75% Convertible Senior Notes due 2026

In February 2021, the Company issued $155.3 million aggregate principal amount of the 2026 Notes. The 2026 Notes are senior unsecured obligations of the Company. The 2026 Notes were issued pursuant to an Indenture, dated February 5, 2021 (the “Indenture”), between the Company and UMB Bank, National Association, as trustee. The Indenture includes customary covenants and sets forth certain events of default after which the 2026 Notes may be declared immediately due and payable and sets forth certain types of bankruptcy or insolvency events of default involving the Company after which the 2026 Notes become automatically due and payable. As of January 13, 2023 (“Date of Noncompliance”), the Company was not in compliance with certain of the covenants in the Indenture as a result of the Company not timely filing its Form 10-K for the fiscal year ending September 30, 2022 (“Form 10-K”) and this Form 10-Q for the quarter ending December 31, 2022 (“Q1 Form 10-Q”) with the SEC. As a result of not being in compliance, the 2026 Notes began to accrue additional special interest of 0.25% of the outstanding principal of the 2026 Notes for the 90 days after the Date of Noncompliance and 0.50% of the outstanding principal of the 2026 Notes for the 91st through 180th day after the Date of Noncompliance. The Company filed its Form 10-K with the SEC on July 31, 2023. As of August 25, 2023, the Company is not in

compliance with certain of the covenants in the Indenture as a result of the Company not timely filing its Form 10-Qs for the quarters ending March 31, 2023 and June 30, 2023 with the SEC.

The net proceeds from this offering were approximately $149.7 million, after deducting the Initial Purchasers’ discounts and commissions and the Company’s estimated offering expenses related to the offering. The 2026 Notes will mature on February 1, 2026, unless earlier redeemed, repurchased or converted. The 2026 Notes ~~will~~ bear interest from February 5, 2021 at a rate of 0.750% per year payable semiannually in arrears on February 1 and August 1 of each year, beginning on August 1, 2021. The 2026 Notes will be convertible at the option of the holders at any time prior to the close of business on the business day immediately preceding August 1, 2025, only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on June 30, 2021, if the last reported sale price per share of the Company’s Common Stock exceeds 130% of the conversion price for each of at least 20 trading days during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter; (2) during five consecutive business days immediately after any five consecutive trading day period (such five consecutive trading day period, the “measurement period”) in which the trading price per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price per share of the Common Stock on such trading day and the conversion rate on such trading day; and (3) upon the occurrence of certain corporate events or distributions on the Common Stock. On or after August 1, 2025, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of the 2026 Notes, in multiples of $1,000 principal amount, at the option of the holder regardless of the foregoing circumstances. Upon conversion, the Company may satisfy its conversion obligation by paying and/or delivering, as the case may be, cash and, if applicable at the Company’s election, shares of Common Stock, based on the applicable conversion rate(s); provided that the Company will be required to settle conversions solely in cash unless and until the Company (i) receives stockholder approval to increase the number of authorized shares of the Common Stock and (ii) reserves such amount of shares of the Common Stock for future issuance as required pursuant to the indenture that will govern the 2026 Notes. The conversion rate for the 2026 Notes will initially be 47.9731 shares of the Common Stock per $1,000 principal amount of 2026 Notes, which is equivalent to an initial conversion price of approximately $20.85 per share of the Common Stock. The initial conversion price of the 2026 Notes represents a premium of approximately 37.5% to the $15.16 per share last reported sale price of the Common Stock on February 2, 2021. The conversion rate is subject to adjustment under certain circumstances in accordance with the terms of the Indenture. The impact of the convertible feature will be dilutive to our earnings per share when our average stock price for the period is greater than the conversion price.

In connection with the issuance of the 2026 Notes, we entered into transactions for convertible notes hedge (the “Notes Hedge”) and warrants (the “Warrant Transactions”). The Notes Hedge was entered into with Bank of America, N.A., Jefferies International Limited and Goldman Sachs & Co. LLC, and provided the Company with the option to acquire, on a net settlement basis, approximately 7.4 million shares of Common Stock at a strike price of $20.85, which is equal to the number of shares of Common Stock that notionally underlie and corresponds to the conversion price of the 2026 Notes. The cost of the Notes Hedge was $33.2 million. The Notes Hedge will expire on February 1, 2026, equal to the maturity date of the 2026 Notes. The Notes Hedge is expected to reduce the potential equity dilution upon conversion of the 2026 Notes if the daily volume-weighted average price per share of our Common Stock exceeds the strike price of the Notes Hedge.

In addition, the Warrant Transactions provided us with the ability to acquire up to 7.4 million shares of our Common Stock. The Warrant Transactions will expire ratably during the 80 trading days commencing on and including May 1, 2026 and may be settled in net shares of Common Stock or net cash at the Company’s election. We received $23.9 million in cash proceeds from the Warrant Transactions. As a result of the Warrant Transactions, the Company is required to recognize incremental dilution of earnings per share to the extent the average share price is over $26.53 for any fiscal quarter.

As of ~~May~~September 6, ~~2022,~~2023, the 2026 Notes were not convertible, therefore, we had not purchased any shares under the Notes Hedge and the Warrant Transactions had not been exercised and remain outstanding. See Note 8.9. “Convertible Senior Notes,” of the notes to condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q for more information relating to the Notes Hedge and Warrant Transactions.

~~Rights Agreement~~

On October 23, 2018, we entered into the Section 382 Rights Agreement (the “Rights Agreement”) and issued a dividend of one preferred share purchase right (a “Right”) for each share of Common Stock payable on November 2, 2018 to the stockholders of record of such shares on that date. Each Right entitles the registered holder, under certain circumstances, to purchase from us one one-thousandth of a share of Series B Junior Preferred Stock, par value $0.001 per share (the “Preferred Shares”), of the Company, at a price of $35.00 per one one-thousandth of a Preferred Share represented by a Right, subject to adjustment. The description and terms of the Rights are set forth in the Rights Agreement.

At any time prior to the time any Person becomes an Acquiring Person (as defined in the Rights Agreement), the Board may redeem the Rights in whole, but not in part, at a price of $0.0001 per Right (the “Redemption Price”). The redemption of the Rights may be made effective at such time, on such basis and with such conditions as the Board in its sole discretion may establish. Immediately upon any redemption of the Rights, the right to exercise the Rights will terminate and the only right of the holders of Rights will be to receive the Redemption Price.

On February 28, 2019, the Company entered into Amendment No. 1 to the Rights Agreement for the purpose of (i) modifying the definitions of “Beneficial Owner,” “Beneficially Own,” and “Beneficial Ownership” under the Rights Agreement to more closely align such definitions to the actual and constructive ownership rules under Section 382 of the Internal Revenue Code of 1986, as amended or such similar provisions of the Tax Cuts and Jobs Act of 2017 and the rules and regulations promulgated thereunder, and (ii) adding an exemption request process for persons to seek an exemption from becoming an “Acquiring Person” under the Rights Agreement in the event such person wishes to acquire 4.9% or more of the Common Stock then outstanding.

~~The Rights expired on October 22, 2021 and no Rights were redeemed or exchanged.~~

Share Repurchase Program

On June 15, 2021, the Board authorized and approved a share repurchase program for up to $15 million of the currently outstanding shares of our Common Stock. The Company made purchases of $10.1 million, or approximately 598,636 shares, during the three months ended December 31, 2021 at an average price of $16.95 per share. The share repurchase program ~~will expire~~expired on June 30, 2022 and as such no purchases were made during the three months ended December 31, 2022. The timing, price and volume of repurchases ~~will be~~were based on market conditions, relevant securities laws and other factors. The repurchases ~~may be~~were made from time to time, through solicited or unsolicited transactions in the open market, in privately negotiated transactions or pursuant to a share repurchase trading plan. ~~The program may be discontinued or amended at any time.~~

The Company made purchases of $14.8 million, or approximately 886,204 shares, during the six months ended March 31, 2022 at an average price of 16.73 per share. Total purchases made under the share repurchase program were $15.0 million as of March 31, 2022.

On December 13, 2019, the Board authorized and approved a share repurchase program for up to $10 million of the currently outstanding shares of our Common Stock. The share repurchase program expired on December 16, 2020. Total purchases made under the share repurchase program were $1.0 million or approximately 137,000 shares at an average price of $7.33. The purchases under the share repurchase program were made through open market trades.

Other Liquidity Matters

On ~~March~~December 31, 2022, we had investments of ~~$69.4~~$50.5 million, designated as available-for-sale debt securities, which consisted of commercial paper, corporate issuances, and asset-backed securities, carried at fair value as determined by quoted market prices for

identical or similar assets, with unrealized gains and losses, net of tax, and reported as a separate component of stockholders’ equity. All securities ~~whose~~for which maturity or sale is expected within one year are classified as “current” on the condensed consolidated balance sheets. All other securities are classified as “long-term” on the condensed consolidated balance sheets. At ~~March~~December 31, 2022, we had ~~$37.9~~$44.8 million of our available-for-sale securities classified as current and ~~$31.5~~$5.7 million of our available-for-sale securities classified as long-term. At

September 30, ~~2021,~~2022, we had ~~$149.1~~$58.3 million of our available-for-sale securities classified as current and ~~$48.1~~$10.6 million of our available-for-sale securities classified as long-term.

We had working capital of ~~$55.0~~$98.3 million at ~~March~~December 31, 2022 compared to ~~$164.8~~$88.6 million at September 30, ~~2021.~~

~~The Company does~~2022. We do not have any other material cash requirements other than those related to leases as described in Note 9.10. “Commitments and ~~Contingencies.”~~Contingencies” of the notes to the condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q. Based on our current operating plan, we believe the current cash and cash equivalents and cash expected to be generated from operations will be adequate to satisfy our working capital needs for at least the next ~~eighteen~~twelve months from the date the financial statements are filed.

Changes in Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based on our condensed consolidated financial statements and accompanying notes, which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of the condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the related disclosure of contingent assets and liabilities. We review our estimates on an on-going basis, including those related to revenue recognition, stock-based compensation, income taxes and the valuation of goodwill, intangibles and other long-lived assets. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. The critical accounting policies and estimates used in the preparation of our consolidated financial statements are described in Item 7—“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our ~~2021~~2022 Annual Report.

There have been no material changes to our critical accounting policies and estimates from those disclosed in our ~~2021~~2022 Annual Report.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

For a complete discussion of the Company’s quantitative and qualitative disclosures about market risks, see the section titled Quantitative and Qualitative Disclosures About Market Risks in our ~~2021~~2022 Annual Report. Except as described below, there has been no material change in this information as of ~~March~~December 31, 2022.

Interest Rates

The primary objective of our investment activities is to preserve principal while at the same time maximizing after-tax yields without significantly increasing risk. To achieve this objective, we maintain our investment portfolio of cash equivalents and marketable securities in a variety of securities, including corporate debt securities, commercial paper, certificates of deposit, and asset-backed securities. We have not used derivative financial instruments in our investment portfolio, and none of our investments are held for trading or speculative purposes. Short-term and long-term debt securities are generally classified as available-for-sale and consequently are recorded on the condensed consolidated balance sheets at fair value with unrealized gains or losses reported as a separate component of accumulated other comprehensive income, net of estimated tax. As of ~~March~~December 31, 2022, our marketable securities had remaining maturities between approximately one and 2822 months and a fair market value of ~~$69.4~~$50.5 million, representing ~~18%~~13% of our total assets.

The fair value of our cash equivalents and debt securities is subject to change as a result of changes in market interest rates and investment risk related to the issuers’ credit worthiness. We do not utilize financial contracts to manage our investment portfolio’s exposure to changes in market interest rates. A hypothetical 100 basis point increase or decrease in market interest rates would not have a material impact on the fair value of our cash equivalents and debt securities due to the relatively short maturities of these investments. While changes in market interest rates may affect the fair value of our investment portfolio, any gains or losses will not be recognized in our results of operations until the investment is sold or if the reduction in fair value was determined to be an other-than-temporary impairment.

Foreign Currency Risk

As a result of past acquisitions, we have operations in ~~the United Kingdom,~~ France, the Netherlands, ~~Russia,~~ and Spain that are exposed to fluctuations in the

foreign currency exchange rate between the U.S. dollar, the Euro, the Ruble, and the British pound sterling. The functional currency of

our French, Dutch, and Spanish operations is the Euro. Our results of operations and cash flows are subject to fluctuations due to

changes in foreign currency exchange rates, particularly changes in the Euro. Translation adjustments resulting from translating the

functional currency financial statements into U.S. dollar equivalents are reported separately in the condensed consolidated statements of operations and other comprehensive ~~income (loss).~~income.

Inflation

We do not believe that inflation had a material effect on our business, financial condition or results of operations during the three months ended December 31, 2022 or 2021. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition and results of operations.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We maintain disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required financial disclosures.

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures as of the end of the period covered by this Form 10-Q pursuant to Exchange Act Rules 13a-15(b) and 15d-15(b). In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control – Integrated Framework (2013). We recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on this evaluation during the second quarter of fiscal 2022, the Company’s review control over the completeness and accuracy of inputs and assumptions used to calculate the deferred tax assets and liabilities did not operate effectively. Our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective as ~~March~~December 31, 2022 due to the material ~~weakness~~weaknesses discussed ~~above.~~below.

Notwithstanding the identified material weaknesses, management believes the condensed consolidated financial statements included in this Form 10-Q present fairly, in all material respects, the Company’s financial position, results of operations and cash flows as of and for the periods presented, in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”).

Remediation of Previously Reported Material ~~Weakness~~Weaknesses in Internal Control Over Financial Reporting

As previously reported in our ~~2021~~2022 Annual Report, wethe Company identified a material ~~weakness in the operating effectiveness of our internal control over financial reporting as of September 30, 2021 due to certain control deficiencies~~weaknesses related to the ~~Company’s~~following:

•Management did not design and maintain effective controls related to the precision of the Company’s review ~~regarding~~over the initial valuation and subsequent remeasurement of the contingent consideration liability recognized as part of the consideration transferred in the ID R&D Acquisition. As

•Management did not have sufficient internal technical resources, or adequate oversight of the Company’s third-party tax advisor, to appropriately identify, evaluate, and review certain inputs and assumptions that affect the US, foreign, and consolidated tax accounts.

•Management did not maintain effective controls related to the financial statement close process to ensure the completeness and accuracy of certain amounts and disclosures, specifically related to balance sheet account reconciliations and the Company’s review and preparation of the consolidation and financial statements.

•Management did not design or maintain effective controls over the review of the accounting for business combinations, including accounting for transaction costs and deferred taxes. This material weakness ~~was due~~resulted in a restatement to ~~a failure~~the second quarter of fiscal 2022 as further discussed in Note 15 to the consolidated financial statements as of and for the period ended September 30, 2022.

•Management did not design and maintain effective controls to ensure proper revenue recognition, specifically related to the accounting review of customer contracts.

•Management did not perform sufficient risk assessment procedures in order to design and implement effective controls, including consideration of improper segregation of duties, for substantially all of the Company's financial statement areas.

•Management did not design or maintain effective information technology general controls over logical access and program change management for certain key information systems used in the financial reporting process.

•Management did not design or maintain controls to verify the completeness and accuracy of information used by control owners in the operation of controls across substantially all of the Company’s financial statement areas.

•Management did not maintain sufficient evidence of the operation of certain management review controls and activity level controls across substantially all of the Company's financial statement areas.

•Management did not perform timely and ongoing evaluations to ascertain whether components of internal control ~~we enhanced~~are present and functioning.

In order to address and resolve the ~~documentation~~identified deficiencies that aggregated to material weaknesses, management with oversight from the Company’s Audit Committee is in the process of developing a detailed plan for remediation, which will include:

•Evaluating skill set gaps and hiring additional accounting, financial reporting, and compliance personnel (including internal and external resources), as needed, with relevant public company accounting and financial reporting experience to develop and implement additional policies, procedures, and controls;

•Providing ongoing training for key personnel responsible for internal control over financial reporting;

•Enhancing or designing and implementing a comprehensive and continuous risk assessment process that identifies and assesses risks of material misstatement across the entity and helps ensure that related internal controls are properly designed and in place to respond to those risks in the Company’s financial statements and financial reporting;

•Enhancing or designing and implementing controls over the completeness and accuracy of information used in financial reporting; and

•Enhancing or designing and implementing process-level controls and effective general information technology controls relevant to all of the Company’s financial reporting processes.

The Company is committed to remediating the material weaknesses and is making progress in that effort. The actions the Company is taking are subject to ongoing senior management review, as well as oversight from the Company’s Audit Committee. When fully implemented and operational, the Company believes the measures described above will remediate the underlying causes of the control deficiencies that gave rise to ~~include evidence of our review~~the material weaknesses and strengthen the Company’s internal control over financial reporting. These remediation efforts are in process as of the valuation provided by our third-party specialist. The evidence of our review included verifying that management provided inputs to the valuation agreed with source documentation, corroborating the accuracy of other inputs to the valuation, performing a recalculation of the valuation, and ensuring consistency with accounting principles generally accepted in the U.S. We have concluded that the previously reported material weakness has been remediated as offiscal quarter ending December 31, ~~2021. However, we~~2022. The Company will not be able to ~~demonstrate that our controls are~~fully remediate these material weaknesses until these steps have been completed and have been operating effectively ~~until we and our independent registered public accounting firm conduct~~for a ~~year-end assessment~~sufficient period of ~~our~~time. The Company may also identify additional measures that may be required to remediate the material weaknesses in the Company’s internal control over financial reporting, ~~for the fiscal year ended September 30, 2022, pursuant to Section 404 of the Sarbanes-Oxley Act of 2002.~~necessitating further action.

Changes in Internal Control over Financial Reporting

~~In addition to~~Aside from the ~~matter~~matters as set forth above, as described throughout this Form 10-Q, on March 23, 2022, the Company acquired HooYu. While our financial statements for the three and six months ended March 31, 2022 include the results of HooYu from March 23, 2022 through March 31, 2022, as permitted by the rules and regulations of the SEC, our management’s assessment of our internal control over financial reporting did not include an evaluation of HooYu’s internal control over financial reporting. Further, our management’s conclusion regarding the effectiveness of our internal control over financial reporting as of March 31, 2022 does not extend to HooYu’s internal control over financial reporting. Aside from the aforementioned, there has been no change in our internal control over financial reporting during the quarter ended ~~March~~December 31, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.We have not experienced any material impact to our internal controls over financial reporting despite the fact that most of our employees are working remotely due to the COVID-19 pandemic. We are continually monitoring and assessing the COVID-19 situation on our internal controls to minimize the impact on their design and operating effectiveness.

4233

PART II

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The information in Note 910 of the notes to the condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q is incorporated herein by reference.

ITEM 1A. RISK FACTORS

While we attempt to identify, manage, and mitigate risks and uncertainties associated with our business to the extent practical under the circumstances, some level of risk and uncertainty will always be present. Item 1A—“Risk Factors” in our ~~2021~~2022 Annual Report describes some of the risks and uncertainties associated with our business, which we strongly encourage you to review. These risks and uncertainties have the potential to materially affect our business, financial condition, results of operations, cash flows, projected results, and future prospects. There have been no material changes in our risk factors from those disclosed in our ~~2021~~2022 Annual ~~Report, except as noted below.~~

~~Russian military action against Ukraine could have a material adverse effect on our operations, results of operations, financial condition, liquidity and business outlook.~~

In February 2022, Russian forces launched significant military actions against Ukraine, and sustained conflict and disruption in the region is likely. We have employees in Russia and our sales in the region are not currently significant. The specific impact on our financial condition, results of operations and cash flows is not determinable as of the date hereof, but enhanced sanctions activity by the U.S. and other countries against officials, individuals, regions and industries in Russia, and subsequent responses from our customers and others may disrupt our relationship with our vendors, disrupt our delivery of services, cause us to shift all or portions of our work occurring in the region to other countries, and may restrict our ability to engage in certain projects in the region. Any such actions could have a material adverse effect on our operations, results of operations, financial condition, liquidity and business outlook.Report.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

~~On March 7, 2022, we granted restricted stock units to one new employee for (i) 42,950 shares~~There were no unregistered sales of the Company’s ~~common stock, which shall vest over~~equity securities during the quarter ended December 31, 2022, that were not previously disclosed in a ~~four year period with 25% of the shares subject thereto vesting~~Current Report on each anniversary of the grant date, (ii) 35,791 shares of the Company’s common stock, which shall vest up to 33.33% of the shares subject thereto on each anniversary of the grant date, subject to the achievement of the annual performance criteria which is based on the percentage increase in value of the Company’s common stock as compared to the percentage increase in value of the Russell 2000 Index over the applicable annual performance period, and (iii) 11,930 shares of the Company’s common stock, which shall vest up to 33.33% of the shares subject thereto on each anniversary of the grant date if the annual performance criteria (which is based on the percentage increase in value of the Company’s common stock as compared to the percentage increase in value of the Russell 2000 Index) for the applicable performance period has been exceeded. The restricted stock units were an inducement grant made in accordance with Nasdaq Listing Rule 5635(c)(4) and Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”). The vesting of each grant is subject to the employee’s continued service with the Company through the applicable vesting date. The inducement grants are subject to the terms and conditions of award agreements covering the grants and the Company’s 2020 Incentive Plan. We intend to file a registration statement on a Form ~~S-8 to register the common stock underlying these restricted stock units prior to the time at which such restricted stock units begin vesting.~~

On March 23, 2022 in connection with our acquisition of HooYu, we granted to six employees of HooYu restricted stock units for an aggregate of (i) 129,204 shares of the Company’s common stock, which shall vest over a four year period with 25% of the shares subject thereto vesting on each anniversary of the grant date, and (ii) 119,634 shares of the Company’s common stock, which may vest up to 25% of the shares subject thereto on the first anniversary of the grant date, and up 25% of the shares subject thereto at the end of each of the Company’s next three fiscal years subject to the achievement of the annual performance criteria which is based on the actual revenue achieved by HooYu as compared to the corresponding period for the prior year. The restricted stock units were an inducement grant made in accordance with Nasdaq Listing Rule 5635(c)(4) and Regulation S and Section 4(a)(2) of the Securities Act. The vesting of each grant is subject to the employee’s continued service with the Company (or subsidiary thereof) through the applicable vesting date. The inducement grants are subject to the terms and conditions of award agreements covering the grants and the Company’s 2020 Incentive Plan. We intend to file a registration statement on a Form S-8 to register the common stock underlying these restricted stock units prior to the time at which such restricted stock units begin vesting.8-K.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

None.

ITEM 5. OTHER INFORMATION

~~During~~Our 2023 annual meeting of stockholders (the “2023 Annual Meeting”) is being held on September 20, 2023, which is later during the preparation of this Quarterly Report on Form 10-Q for the quarter ended March 31, 2022 we made adjustments to our financial results in the second quarter of fiscal 2022 that consist of a $5.9 million decrease to deferred income tax assets and a $5.9 million decrease to additional paid-in capital. The adjustments were related to the incorrect recognition of a deferred tax asset upon the reclassification of the Notes Hedge to additional paid-in capital.

As a result of the items described above, certain of the GAAP financial results for the three and six months ended March 31, 2022 reported on the Current Report on Form 8-K filed on April 28, 2022, differ from the financial results disclosed in this Quarterly Report on Form 10-Q. In addition, certain of the reported GAAP financial results for the three and six months ended March 31, 2022 differcalendar year than prior years as a result of the ~~items described above as follows (in thousands, except per share data~~additional time required to prepare and ~~percentages):~~file our Annual Report on Form 10-K for the year ended September 30, 2022. We plan to return to our regular annual meeting schedule in 2024, including with respect to deadlines for stockholder proposals and director nominations, and our 2024 annual meeting of stockholders (the “2024 Annual Meeting”) will be held on Wednesday, March 6, 2024 at 9:00 a.m.

Stockholders may submit proposals regarding matters appropriate for stockholder action for consideration at our next annual meeting of stockholders consistent with Rule 14a-8 promulgated under the Exchange Act. As our 2024 Annual Meeting will convene more than 30 days from the anniversary of our 2023 Annual Meeting, to be considered for inclusion in the proxy materials for our 2024 Annual Meeting, a stockholder proposal, including a proposal for the nomination of directors, must be submitted in writing to our Corporate Secretary at Mitek Systems, Inc., 600 B Street, Suite 100, San Diego, California 92101, Attn: Corporate Secretary, by October 9, 2023. A stockholder proposal will need to comply with the SEC regulations under Rule 14a-8 of Exchange Act, regarding the inclusion of stockholder proposals in company-sponsored proxy materials. Although the Board will consider stockholder proposals, we reserve the right to omit from our proxy statement, or to vote against, stockholder proposals that we are not required to include under the Exchange Act, including Rule 14a-8.

Stockholders are advised to review our second amended and restated bylaws (the “Bylaws”), which contain additional requirements with respect to advance notice of stockholder proposals and director nominations.

Pursuant to the terms of our Bylaws, stockholders wishing to submit proposals or director nominations, including those that are not to be included in our 2024 proxy statement and proxy, must provide timely notice in writing to our Secretary. Pursuant to the terms of our Bylaws, s our 2024 Annual Meeting will be convened more than 30 days before the anniversary of the date of our 2023 Annual Meeting, to be timely, a stockholder proposal must be submitted in writing to our Corporate Secretary at Mitek Systems, Inc., 600 B Street, Suite 100, San Diego, California 92101, Attn: Corporate Secretary, not earlier than November 7, 2023 and not later than the close of business December 7, 2023.

In addition to satisfying the requirements under our Bylaws, to comply with the universal proxy rules, stockholders who intend to solicit proxies in support of director nominees other than those nominated by us must provide timely notice in the manner prescribed by, and that sets forth the information required by, Rule 14a-19 under the Exchange Act.

March 31, 2022 (Unaudited)
As Furnished As Adjusted
ASSETS
Current assets:
Cash and cash equivalents $ 23,984 $ 23,984
Short-term investments 37,910 37,910
Accounts receivable, net 23,858 23,858
Contract assets 4,503 4,503
Prepaid expenses 2,409 2,409
Other current assets 1,849 1,849
Total current assets 94,513 94,513
Long-term investments 31,493 31,493
Property and equipment, net 3,938 3,938
Right-of-use assets 6,098 6,098
Intangible assets, net 96,364 96,364
Goodwill 136,889 136,889
Deferred income tax assets 16,479 10,572
Convertible senior notes hedge — —
Other non-current assets 5,292 5,292
Total assets $ 391,066 $ 385,159
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 5,359 $ 5,359
Accrued payroll and related taxes 8,271 8,271
Deferred revenue, current portion 9,700 9,700
Lease liabilities, current portion 1,944 1,944
Acquisition-related contingent consideration 10,790 10,790
Other current liabilities 3,469 3,469
Total current liabilities 39,533 39,533
Convertible senior notes 124,370 124,370
Embedded conversion derivative — —
Deferred revenue, non-current portion 1,053 1,053
Lease liabilities, non-current portion 5,485 5,485
Deferred income tax liabilities 22,100 22,100
Other non-current liabilities 6,250 6,250
Total liabilities 198,791 198,791
Stockholders’ equity:
Preferred stock, $0.001 par value, 1,000,000 shares authorized, none issued and outstanding — —
Common stock, $0.001 par value, 120,000,000 and 60,000,000 shares authorized, 44,344,361 and 44,168,745 issued and outstanding, as of March 31, 2022 and September 30, 2021, respectively 44 44
Additional paid-in capital 213,398 207,491
Accumulated other comprehensive loss (5,170) (5,170)
Accumulated deficit (15,997) (15,997)
Treasury stock, at cost, no shares and 7,773 shares as of March 31, 2022 and September 30, 2021, respectively — —
Total stockholders’ equity 192,275 186,368
Total liabilities and stockholders’ equity $ 391,066 $ 385,159

4534

ITEM 6. EXHIBITS

Exhibit No.

Description

Incorporated by

Reference from

Document

Exhibit No.

Description

Incorporated by

Reference from

Document

2.1**+

Agreement and Plan of Merger, dated as of May 28, 2021, by and among Mitek Systems, Inc., Ibis Merger Sub, Inc., ID R&D, Inc. and Alexey Khitrov, solely in his capacity as representative of the equityholders of ID R&D, Inc.

(1)

2.1**

Purchase Agreement, dated March 23, 2022, by and among the persons whose names and addresses are set out in Schedule I and Mitek Systems, Inc.

(1)

3.1

Restated Certificate of Incorporation of Mitek Systems, Inc., as amended.

(2)

3.1

Restated Certificate of Incorporation of Mitek Systems, Inc., as amended.

(2)

3.2

Certificate of Amendment of Restated Certificate of Incorporation of Mitek Systems, Inc.

(3)

3.2

Certificate of Amendment of Restated Certificate of Incorporation of Mitek Systems, Inc.

(3)

3.3

Second Amended and Restated Bylaws of Mitek Systems, Inc.

(4)

3.3

Second Amended and Restated Bylaws of Mitek Systems, Inc.

(4)

3.4

Certificate of Designation of Series B Junior Participating Preferred Stock.

(5)

3.4

Certificate of Designation of Series B Junior Participating Preferred Stock.

(5)

4.1

Indenture, dated as of February 5, 2021, between Mitek Systems, Inc. and UMB Bank, National Association.

(6)

10.1

Mitek Systems, Inc. Annual Incentive Program Fiscal 2022

(7)

10.2#

Restricted Stock Unit Award Agreement, dated as of March 7, 2022, between Scott Marcus and Mitek Systems, Inc.

10.3#

Performance Restricted Stock Unit Award Agreement, dated as of March 7, 2022, between Scott Marcus and Mitek Systems, Inc.

31.1

Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.

31.1

Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.

31.2

Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.

31.2

Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.

32.1

Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.1

Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS

Inline XBRL Instance Document. The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.

101.INS

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Inline XBRL Taxonomy Extension Schema Linkbase Document.

101.SCH

Inline XBRL Taxonomy Extension Schema Linkbase Document.

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document.

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104

Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).

104

Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).


*						Filed herewith.
**						Non-material schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company hereby undertakes to furnish supplemental copies of any of the omitted schedules and exhibits upon request by the SEC.
+						Non-material schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company hereby undertakes to furnish supplemental copies of any of the omitted schedules and exhibits upon request by the SEC.
#						~~Management contract, compensatory plan arrangement.~~
(1)						~~Incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on June 1, 2021.~~
~~(2)~~						Incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 23, 2022.
~~(3)~~(2)						Incorporated by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2014, filed with the SEC on December 7,5, 2014.
~~(4)~~(3)						Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 8, 2022.
~~(5)~~(4)						Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on November 10, 2014.
~~(6)~~(5)						Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 23, 2018.
~~(7)~~						~~Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the SEC on February 5, 2021.~~
~~(8)~~						~~Incorporated by reference to Exhibit 10.1 the Company’s Current Report on Form 8-K filed with the SEC on January 12, 2022.~~

4735

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


~~May~~September 6, ~~2022~~2023	MITEK SYSTEMS, INC.

	By:	/s/ Scipio Maximus Carnecchia
		Scipio Maximus Carnecchia
		Chief Executive Officer (Principal Executive Officer)

	By:	/s/ ~~Frank Teruel~~Fuad Ahmad
		~~Frank Teruel~~Fuad Ahmad
		Interim Chief Financial Officer (Interim Principal Financial and Accounting Officer)

4836


	Six Months Ended March 31, 2022
	Common Stock			Additional Paid-In Capital		Treasury Stock			Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity
	Shares	Amount				Shares	Amount
Balance, September 30, 2021	44,169	$	44	$	199,935	(8)	$	(140)	$	(6,066)	$	(943)	$	192,830
Exercise of stock options	25	—		206		—	—		—		—		206
Settlement of restricted stock units	973	1		(1)		—	—		—		—		—
Issuance of common stock under employee stock purchase plan	71	—		923		—	—		—		—		923
Acquisition-related shares issued	—	—		—		—	—		—		—		—
Stock-based compensation expense	—	—		6,429					—		—		6,429

Sale of convertible senior notes warrants	—	—		—		—	—		—		—		—
Repurchases and retirements of common stock	(894)	(1)		(1)		8	140		(14,966)		—		(14,828)
Components of other comprehensive income:
Net income	—	—		—		—	—		5,035		—		5,035
Currency translation adjustment	—	—		—		—	—		—		(3,129)		(3,129)
Change in unrealized gain (loss) on investments	—	—		—		—	—		—		(1,098)		(1,098)
Total other comprehensive income													808
Balance, March 31, 2022	44,344	$	44	$	207,491	—	$	—	$	(15,997)	$	(5,170)	$	186,368


	Six Months Ended March 31, 2021
	Common Stock			Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity
	Shares	Amount
Balance, September 30, 2020	41,780	$	42	$	146,518	$	(13,994)	$	(323)	$	132,243
Exercise of stock options	260	—		1,958		—		—		1,958
Settlement of restricted stock units	935	1		(1)		—		—		—
Issuance of common stock under employee stock purchase plan	77	—		792		—		—		792

Stock-based compensation expense	—	—		5,715		—		—		5,715
Sale of convertible senior notes warrants	—	—		23,909		—		—		23,909


Components of other comprehensive income:
Net income	—	—		—		3,186		—		3,186
Currency translation adjustment	—	—		—		—		112		112
Change in unrealized gain (loss) on investments	—	—		—		—		(186)		(186)
Total other comprehensive income										3,112
Balance, March 31, 2021	43,052	$	43	$	178,891	$	(10,808)	$	(397)	$	167,729


	ID R&D		HooYu		Total
Current assets	$	320	$	1,865	$	2,185
Property, plant, and equipment	114		243		$	357
Intangible assets	16,930		73,100		$	90,030
Goodwill	27,748		75,691		$	103,439

Current liabilities	(425)		(5,068)		$	(5,493)

Other non-current liabilities	(2,355)		(18,275)		$	(20,630)
Net assets acquired	$	42,332	$	127,556	$	169,888


	Operating leases
2022—remaining	$	1,085
2023	2,069
2024	1,738
2025	650
2026	643
2027	648
Thereafter	1,038
Total lease payments	7,871
Less: amount representing interest	(442)
Present value of future lease payments	$	7,429


	March 31, 2022 (Unaudited)
	As Furnished		As Adjusted
ASSETS
Current assets:
Cash and cash equivalents	$	23,984	$	23,984
Short-term investments	37,910		37,910
Accounts receivable, net	23,858		23,858
Contract assets	4,503		4,503
Prepaid expenses	2,409		2,409
Other current assets	1,849		1,849
Total current assets	94,513		94,513
Long-term investments	31,493		31,493
Property and equipment, net	3,938		3,938
Right-of-use assets	6,098		6,098
Intangible assets, net	96,364		96,364
Goodwill	136,889		136,889
Deferred income tax assets	16,479		10,572
Convertible senior notes hedge	—		—
Other non-current assets	5,292		5,292
Total assets	$	391,066	$	385,159
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	5,359	$	5,359
Accrued payroll and related taxes	8,271		8,271
Deferred revenue, current portion	9,700		9,700
Lease liabilities, current portion	1,944		1,944
Acquisition-related contingent consideration	10,790		10,790
Other current liabilities	3,469		3,469
Total current liabilities	39,533		39,533
Convertible senior notes	124,370		124,370
Embedded conversion derivative	—		—
Deferred revenue, non-current portion	1,053		1,053
Lease liabilities, non-current portion	5,485		5,485
Deferred income tax liabilities	22,100		22,100
Other non-current liabilities	6,250		6,250
Total liabilities	198,791		198,791
Stockholders’ equity:
Preferred stock, $0.001 par value, 1,000,000 shares authorized, none issued and outstanding	—		—
Common stock, $0.001 par value, 120,000,000 and 60,000,000 shares authorized, 44,344,361 and 44,168,745 issued and outstanding, as of March 31, 2022 and September 30, 2021, respectively	44		44
Additional paid-in capital	213,398		207,491
Accumulated other comprehensive loss	(5,170)		(5,170)
Accumulated deficit	(15,997)		(15,997)
Treasury stock, at cost, no shares and 7,773 shares as of March 31, 2022 and September 30, 2021, respectively	—		—
Total stockholders’ equity	192,275		186,368
Total liabilities and stockholders’ equity	$	391,066	$	385,159