Mitek Systems Inc.

08/07/2025 | Press release | Distributed by Public on 08/07/2025 14:43

Quarterly Report for Quarter Ending June 30, 2025 (Form 10-Q)

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, 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, 2024, filed with the SEC on December 16, 2024 ("2024 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 pioneer in mobile image capture and a global provider of solutions in the fraud prevention, digital identity verification, and cybersecurity markets. Our products address the increasing sophistication of fraud in areas such as new account openings, digital account access, and payments. Utilizing artificial intelligence, computer vision, and proprietary biometrics, our enterprise-grade verification tools protect organizations from escalating check fraud, ongoing account opening fraud, and new cyber threats such as deepfakes and voice clones.
Mitek's Mobile Check Deposit product is trusted by consumers for its convenience and accuracy verifying checks for deposit, facilitating approximately 1.2 billion transactions annually. This solution powers secure, fast, and convenient deposit services for many organizations, enhancing consumer experience.
We serve over 7,900 financial services organizations, financial technology ("fintech") brands, telecommunications companies, and marketplace brands globally. Our verification and fraud detection technology is embedded directly within mobile and web applications, providing seamless verification at every touchpoint in the customer lifecycle. By equipping banks, marketplaces, and fintech platforms with these tools, we help reduce the costs associated with fraud, impersonation, Know Your Customer ("KYC") and anti-money laundering ("AML") compliance. Additionally, our solutions improve the customer experience, help to ensure regulatory compliance, and lower operational costs.
Third Quarter Fiscal 2025 Highlights
•Revenue for the three months ended June 30, 2025 was $45.7 million, an increase of 2% compared to revenue of $45.0 million in the three months ended June 30, 2024.
•Net income was $2.4 million, or $0.05 per diluted share, during the three months ended June 30, 2025, compared to net income of $0.2 million, or $0.00 per diluted share, during the three months ended June 30, 2024.
•Cash provided by operating activities was $35.9 million for the nine months ended June 30, 2025, compared to cash provided by operating activities of $10.6 million for the nine months ended June 30, 2024.
•We added new patents to our portfolio during the three months ended June 30, 2025, bringing our total number of issued patents to 107 as of June 30, 2025. In addition, we had 21 patent applications outstanding as of June 30, 2025.
Market Opportunities, Challenges & Risks
We believe that financial institutions, fintech platforms, and other companies see our patented solutions as a way to provide a superior digital customer experience to meet growing consumer 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 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, which we predict will lead to growth in demand for identity verification and sophisticated fraud detection, prevention and management products.
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, the imposition of tariffs and other trade disputes, 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 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 portion 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 believe 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.
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 coverage for the financial services industry, and our market expertise gives us a distinct competitive advantage. To remain competitive, we will continue to offer products that are attractive to the consumer as well as being compliant, accurate, and convenient. To help us remain competitive, we intend to further our investment in research and development as well as partnering with other technology providers.
Results of Operations
Comparison of the Three Months Ended June 30, 2025 and 2024
The following table summarizes certain aspects of our results of operations for the three months ended June 30, 2025 and 2024 (amounts in thousands, except percentages):
Three Months Ended June 30,
Percentage of Total Revenue Increase (Decrease)
2025 2024 2025 2024 $ %
Revenue
Software and hardware $ 19,507 $ 22,662 43 % 50 % $ (3,155) (14) %
Services and other
26,222 22,314 57 % 50 % 3,908 18 %
Total revenue $ 45,729 $ 44,976 100 % 100 % $ 753 2 %
Cost of revenue 7,022 6,482 15 % 14 % 540 8 %
Selling and marketing 11,127 10,354 24 % 23 % 773 7 %
Research and development 8,960 9,982 20 % 22 % (1,022) (10) %
General and administrative 11,251 12,604 25 % 28 % (1,353) (11) %
Amortization and acquisition-related costs 3,560 3,750 8 % 8 % (190) (5) %
Restructuring costs - 1,070 - % 2 % (1,070) (100) %
Interest expense 2,469 2,329 5 % 5 % 140 6 %
Other income, net 1,805 1,436 4 % 3 % 369 26 %
Income tax benefit (provision) (749) 375 2 % 1 % (1,124) nm
Net income $ 2,396 $ 216 5 % - % $ 2,180 nm
nm - not meaningful
Revenue
Total revenue increased $0.8 million, or 2%, to $45.7 million in the three months ended June 30, 2025 compared to $45.0 million in the three months ended June 30, 2024. Software and hardware revenue decreased $3.2 million, or 14%, to $19.5 million in the three months ended June 30, 2025 compared to $22.7 million in the three months ended June 30, 2024. This decrease is primarily due to lower multi-year term license renewals of our Mobile Deposit® software products, partially offset by an increase in sales of our standalone biometrics products in the three months ended June 30, 2025 compared to the same period in 2024. Services and other revenue increased $3.9 million, or 18%, to $26.2 million in the three months ended June 30, 2025 compared to $22.3 million in the three months ended June 30, 2024. This increase is primarily due to higher revenue from our HooYu, MiVIP, Mobile Verify®, Mobile Deposit®, and Check Fraud Defender products in the three months ended June 30, 2025 compared to the same period in 2024.
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 increased $0.5 million, or 8%, to $7.0 million in the three months ended June 30, 2025 compared to $6.5 million in the three months ended June 30, 2024. The increase in cost of revenue is primarily due to an increase in transactional SaaS revenue during the three months ended June 30, 2025 compared to the same period in 2024.
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 $0.8 million, or 7%, to $11.1 million in the three months ended June 30, 2025 compared to $10.4 million in the three months ended June 30, 2024. The increase in selling and marketing expense is primarily due to higher personnel-related costs, partially offset by lower other costs in the three months ended June 30, 2025 compared to the same period in 2024.
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 decreased $1.0 million, or 10%, to $9.0 million in the three months ended June 30, 2025 compared to $10.0 million in the three months ended June 30, 2024. The decrease in research and development expenses is primarily due to lower personnel-related and other costs in the three months ended June 30, 2025 compared to the same period in 2024.
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 decreased $1.4 million, or 11%, to $11.3 million in the three months ended June 30, 2025 compared to $12.6 million in the three months ended June 30, 2024. The decrease in general and administrative expenses is primarily due to lower executive transition costs, lower audit, accounting and tax fees and lower third-party and professional fees, partially offset by higher personnel-related costs as we replaced full-time consultants with full-time employees during the three months ended June 30, 2025 compared to the same period in 2024.
Amortization and acquisition-related costs
Amortization and acquisition-related costs include amortization of intangible assets, adjustments recorded due to changes in the fair value of contingent consideration, and other costs associated with acquisitions. Amortization and acquisition-related costs decreased $0.2 million, or 5%, to $3.6 million in the three months ended June 30, 2025 compared to $3.8 million in the three months ended June 30, 2024. The decrease in amortization and acquisition-related costs is primarily due to a decrease in amortization expense of intangible assets from previous acquisitions that were fully amortized prior to the three months ended June 30, 2025 compared to the same period in 2024.
Restructuring Costs
Restructuring costs consist of employee severance obligations and other related costs. There were no restructuring costs in the three months ended June 30, 2025. Restructuring costs were $1.1 million in the three months ended June 30, 2024 and related to expenses incurred to a restructuring that occurred in the third quarter of fiscal 2024.
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") and Amended Credit Agreement (as defined below). Interest expense was $2.5 million for the three months ended June 30, 2025 and consisted of $2.2 million of amortization of debt discount and issuance costs and $0.3 million of interest incurred. Interest expense was $2.3 million for the three months ended June 30, 2024 and consisted of $2.0 million of amortization of debt discount and issuance costs and $0.3 million of interest incurred. The increase was due to issuance costs incurred related to our Amended Credit Agreement.
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 increased $0.4 million, or 26%, to $1.8 million of income in the three months ended June 30, 2025 compared to $1.4 million of income in the three months ended June 30, 2024. The increase was primarily due to higher foreign currency exchange transactional gains, partially offset by a loss on extinguishment related to our Amended Credit Agreement, in the three months ended June 30, 2025 as compared to the same period in 2024.
Income Tax Benefit (Provision)
For the three months ended June 30, 2025, we recorded an income tax provision of $0.7 million which yielded an effective tax rate of 24%. For the three months ended June 30, 2024, we recorded an income tax benefit of $0.4 million which yielded an effective tax rate of 236%. The difference between the U.S. federal statutory tax rate and our effective tax rate for the three months ended June 30, 2025 and 2024 was primarily due to a mix of worldwide income, the impact of non-deductible executive compensation, as well as the impact of stock-based compensation, and federal, state and foreign research and development credits on the tax provision.
Comparison of the Nine Months Ended June 30, 2025 and 2024
The following table summarizes certain aspects of our results of operations for the nine months ended June 30, 2025 and 2024 (amounts in thousands, except percentages):
Nine Months Ended June 30,
Percentage of Total Revenue Increase (Decrease)
2025 2024 2025 2024 $ %
Revenue
Software and hardware $ 58,192 $ 63,531 43 % 49 % $ (5,339) (8) %
Services and other
76,720 65,330 57 % 51 % 11,390 17 %
Total revenue $ 134,912 $ 128,861 100 % 100 % $ 6,051 5 %
Cost of revenue 19,497 18,231 14 % 14 % 1,266 7 %
Selling and marketing 31,362 31,231 23 % 24 % 131 - %
Research and development 27,049 28,569 20 % 22 % (1,520) (5) %
General and administrative 33,250 43,085 25 % 33 % (9,835) (23) %
Amortization and acquisition-related costs 10,817 11,581 8 % 9 % (764) (7) %
Restructuring costs 837 1,648 1 % 1 % (811) (49) %
Interest expense 7,274 6,895 5 % 5 % 379 5 %
Other income, net 3,478 4,268 3 % 3 % (790) (19) %
Income tax benefit (provision) (1,368) 2,816 1 % 2 % (4,184) (149) %
Net income (loss) $ 6,936 $ (5,295) 5 % 4 % $ 12,231 nm
nm - not meaningful
Revenue
Total revenue increased $6.1 million, or 5%, to $134.9 million in the nine months ended June 30, 2025 compared to $128.9 million in the nine months ended June 30, 2024. Software and hardware revenue decreased $5.3 million, or 8%, to $58.2 million in the nine months ended June 30, 2025 compared to $63.5 million in the nine months ended June 30, 2024. This decrease is primarily due to lower multi-year term license renewals of our Mobile Deposit® software products and a decrease in sales of our legacy identity verification software and hardware products in the nine months ended June 30, 2025 compared to the same period in 2024. Services and other revenue increased $11.4 million, or 17%, to $76.7 million in the nine months ended June 30, 2025 compared to $65.3 million in the nine months ended June 30, 2024 primarily due to strong growth in revenue from our Mobile Verify®, HooYu, MiVIP, Mobile Deposit®, and Check Fraud Defender products, partially offset by a decrease in sales of our legacy identity verification products, compared to the same period in 2024.
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 increased $1.3 million, or 7%, to $19.5 million in the nine months ended June 30, 2025 compared to $18.2 million in the nine months ended June 30, 2024. The increase in cost of revenue is primarily due to an increase in transactional SaaS revenue during the nine months ended June 30, 2025 compared to the same period in 2024.
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 $0.1 million, or 0%, to $31.4 million in the nine months ended June 30, 2025 compared to $31.2 million in the nine months ended June 30, 2024. The increase in selling and marketing expense is primarily due to higher personnel-related costs, partially offset by lower other costs in the nine months ended June 30, 2025 compared to the same period in 2024.
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 decreased $1.5 million, or 5%, to $27.0 million in the nine months ended June 30, 2025 compared to $28.6 million in the nine months ended June 30, 2024. The decrease in research and development expenses is primarily due to lower personnel-related and other costs, partially offset by higher third-party contractor expenses, in the nine months ended June 30, 2025 compared to the same period in 2024.
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 decreased $9.8 million, or 23%, to $33.3 million in the nine months ended June 30, 2025 compared to $43.1 million in the nine months ended June 30, 2024. The decrease was primarily due to lower audit, accounting and tax fees, lower third-party and professional fees, lower executive transition costs, lower legal and other costs, partially offset by higher personnel-related costs as we continue to replace full-time consultants with full-time employee during the nine months ended June 30, 2025 compared to the same period in 2024.
Amortization and acquisition-related costs
Amortization and acquisition-related costs include amortization of intangible assets, adjustments recorded due to changes in the fair value of contingent consideration, and other costs associated with acquisitions. Amortization and acquisition-related costs decreased $0.8 million, or 7%, to $10.8 million in the nine months ended June 30, 2025 compared to $11.6 million in the nine months ended June 30, 2024. The decrease in amortization and acquisition-related costs is primarily due to a decrease in amortization expense of intangible assets from previous acquisitions that had been fully amortized during the nine months ended June 30, 2025 compared to the same period in 2024.
Restructuring Costs
Restructuring costs consist of employee severance obligations and other related costs. Restructuring costs were $0.8 million in the nine months ended June 30, 2025 related to a restructuring that occurred in the first quarter of fiscal 2025. Restructuring costs were $1.6 million in the nine months ended June 30, 2024 and related to expenses incurred to relocate employees.
Interest Expense
Interest expense includes the amortization of debt discount and issuance costs and coupon interest accrued on the 2026 Notes and Amended Credit Agreement (as defined below). Interest expense was $7.3 million for nine months ended June 30, 2025 and consisted of $6.4 million of amortization of debt discount and issuance costs and $0.9 million of interest incurred. Interest expense was $6.9 million for nine months ended June 30, 2024 and consisted of $6.0 million of amortization of debt discount and issuance costs and $0.9 million of interest incurred. As we amortize the debt discount and issuance costs using the effective interest method, amortization expense increases over the term of the agreement.
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 $0.8 million, or 19%, to $3.5 million income in the nine months ended June 30, 2025 compared to $4.3 million income in the nine months ended June 30, 2024. The decrease was primarily due to a decrease in interest income net of amortization and a loss on extinguishment related to our Amended Credit Agreement in the nine months ended June 30, 2025 as compared to the same period in 2024.
Income Tax Benefit (Provision)
For the nine months ended June 30, 2025, we recorded an income tax provision of $1.4 million which yielded an effective tax rate of 16%. For the nine months ended June 30, 2024, we recorded an income tax benefit of $2.8 million which yielded an effective tax rate of 35%. The difference between the U.S. federal statutory tax rate and our effective tax rate for the nine months ended June 30, 2025 was primarily due to a mix of worldwide income, the impact of non-deductible executive compensation, release of valuation allowances relating to one of the Company's operations in a foreign jurisdiction, as well as the impact of stock-based compensation, and federal, state and foreign research and development credits on the tax provision. The difference between the U.S. federal statutory tax rate and our effective tax rate for the nine months ended June 30, 2024 was primarily due to a mix of worldwide income, the impact of non-deductible executive compensation as well as the impact of stock-based compensation, and federal, state and foreign research and development credits on its tax provision.
Liquidity and Capital Resources
Cash generated from operations and proceeds from the issuance of the 2026 Notes (as defined below) have historically been our primary sources of liquidity to fund operations and investments to grow our business. Our additional sources of liquidity include available cash balances and the Amended Credit Agreement (as defined below). On June 30, 2025, we had $175.4 million in cash and cash equivalents and investments compared to $141.8 million on September 30, 2024, an increase of $33.6 million, or 24%. In summary, our cash flows from continuing operations were as follows (amounts in thousands):
Nine Months Ended June 30,
2025 2024
Cash provided by operating activities $ 35,879 $ 10,586
Cash provided by (used in) investing activities (188) 27,832
Cash used in financing activities (3,095) (12,871)
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 nine months ended June 30, 2025 was $35.9 million and resulted primarily from net non-cash charges of $25.1 million, net income of $6.9 million, and by unfavorable changes in operating assets and liabilities of $3.8 million. Net cash provided by operating activities during the nine months ended June 30, 2024 was $10.6 million and resulted primarily from a net loss of $5.3 million and by unfavorable changes in operating assets and liabilities of $12.4 million, partially offset by non-cash charges of $28.3 million. The increase in cash inflows from operating activities of $25.3 million during the nine months ended June 30, 2025 compared to nine months ended June 30, 2024 was primarily due to net income, a related increase in income taxes payable and the timing of income tax payments in the nine months ended June 30, 2025.
Cash Flows from Investing Activities
Net cash used in investing activities was $0.2 million during the nine months ended June 30, 2025, which consisted primarily of net maturities of investments of $0.7 million, partially offset by capital expenditures of $0.5 million. Net cash provided by investing activities was $27.8 million during the nine months ended June 30, 2024, which consisted primarily of net sales and maturities of investments of $29.0 million partially offset by capital expenditures of $1.2 million. The decrease in cash inflows from investing activities of $28.0 million during the nine months ended June 30, 2025 compared to nine months ended June 30, 2024 was primarily due to a decrease in net maturities of investments.
Cash Flows from Financing Activities
Net cash used in financing activities was $3.1 million during the nine months ended June 30, 2025, primarily due to repurchases and retirements of Common Stock of $3.3 million, payment of debt issuance costs of $0.2 million, and principal payments on other borrowings of $0.1 million, partially offset by $0.5 million of net proceeds from the issuance of Common Stock under our equity plans. Net cash used in financing activities was $12.9 million during the nine months ended June 30, 2024, primarily due to repurchases and retirements of Common Stock of $10.0 million, the payment of $4.6 million of acquisition-related contingent consideration, and payment of debt issuance costs of $0.3 million, partially offset by $1.0 million of net proceeds from the issuance of equity plan Common Stock and $1.2 million of proceeds from other borrowings. The decrease in cash outflows from financing activities during the nine months ended June 30, 2025 was primarily due to higher repurchases and retirements of Common Stock and the payment of acquisition-related consideration, partially offset by proceeds from other borrowings in the nine months ended June 30, 2024.
0.75% Convertible Senior Notes due 2026
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 June 30, 2025, the Company was in compliance with the covenants in 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 2026 Notes will mature on February 1, 2026,
unless earlier redeemed, repurchased or converted. The 2026 Notes 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 August 7, 2025, 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. "Debt" 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.
Revolving Credit Line
On February 13, 2024, the Company, together with its subsidiaries A2iA Corp. and ID R&D, Inc., entered into a Loan and Security Agreement (the "Credit Agreement") with Silicon Valley Bank, a division of First-Citizens Bank & Trust Company (the "Bank") that provided for a revolving line of credit whereby the Company could borrow up to $35.0 million (the "Revolving Line") with an additional $15.0 million to be advanced under the Revolving Line at the sole discretion of the Bank. The Revolving Line was secured on a first priority basis by the Company's assets.
Amended Credit Agreement - Revolving Credit Line and Term Loan
On May 7, 2025, the Company, together with its subsidiaries, A2iA Corp. and ID R&D, Inc., entered into the First Amendment to Loan and Security Agreement (the "Amendment"), amending the Credit Agreement, and as amended by the Amendment (the "Amended Credit Agreement"), by and among the Company and the Bank.
The Amended Credit Agreement provides for, among other things, (i) the establishment of a delayed draw term loan (the "Term Loan") in an aggregate principal amount of up to $75.0 million that may be drawn prior to February 28, 2026 for the sole purpose of paying amounts outstanding under the 2026 Notes due February 1, 2026 and customary fees and expenses in connection therewith, (ii)
a revolving line of credit (the "Revolving Line") whereby the Company may borrow up to $25.0 million. The Term Loan and Revolving Line are secured on a first priority basis by the Company's assets.
In connection with the Amended Credit Agreement, the Company incurred issuance costs of $0.2 million which were recorded to Other income (expense), net. The Term Loan and the Revolving Line both mature on May 1, 2030. Commencing on April 1, 2026, the Borrower must make amortization payments on any advances under the Term Loan at the percentages set forth in the Amendment.
Borrowings under the Amended Credit Agreement generally bear interest at a variable rate equal to (a) term SOFR plus a specified margin or (b) WSJ prime plus a specified margin, in each case which will be adjusted based on the Company's net leverage ratio at the time of borrowing. Borrower must also pay the Bank (i) a commitment fee of $125,000 and (ii) an "Unused Revolving Line Facility Fee" of 0.25% per annum of the average unused portion of the Revolving Line.
The Amended Credit Agreement contains representations, warranties, and negative and affirmative covenants customary for transactions of this type. These include covenants limiting the ability of Borrower, and any of their subsidiaries, subject to certain exceptions and baskets, to, among other things, (i) incur indebtedness, (ii) incur liens on their assets, (iii) enter into any merger or consolidation with, or acquire all or substantially all of the equity or property of, another person, (iv) dispose of any of their business or property, (v) make or permit any payment on subordinated debt, or (vi) pay any dividend, make any other distribution, or redeem any equity.
The Amended Credit Agreement contains customary events of default and also provides that an event of default includes any default resulting in a right by third parties to accelerate maturity of indebtedness in excess of $500,000. If any event of default occurs and is not cured within applicable grace periods set forth in the Amended Credit Agreement or waived, all loans and other obligations could become due and immediately payable and the facility could be terminated. In addition, Borrower may be required to deposit cash with the Bank in an amount equal to 1.05 of any undrawn letters of credit denominated in U.S. Dollars or 1.15
The Amended Credit Agreement requires the Company to maintain a net leverage ratio of no more than 2.50 to 1.00 and if the Company consummates a permitted acquisition during the trailing twelve-month period, the net leverage ratio may not exceed 2.75 to 1.00. As of June 30, 2025, the Company's net leverage ratio was 1.20 to 1.00 and as such the Company was in compliance with the net leverage ratio covenant of the Amended Credit Agreement. There are no outstanding borrowings under the Amended Credit Agreement as of June 30, 2025.
Other Borrowings
The Company has certain loan agreements with Spanish government agencies. These agreements have repayment periods of five to twelve years and bear no interest. As of June 30, 2025, $2.7 million was outstanding under these agreements and $0.3 million and $2.4 million is recorded in other current liabilities and other non-current liabilities, respectively, in the condensed consolidated balance sheets. As of September 30, 2024, $2.7 million was outstanding under these agreements and approximately $0.3 million and $2.4 million is recorded in other current liabilities and other non-current liabilities, respectively, in the condensed consolidated balance sheets.
Share Repurchase Program
On May 13, 2024, the Board authorized and approved a share repurchase program for up to $50.0 million of the currently outstanding shares of our Common Stock. The share repurchase program was effective as of May 16, 2024 and will expire on May 16, 2026. The timing, price and actual number of shares of Common Stock repurchased will depend on a variety of factors including price, market conditions and corporate and regulatory requirements. The repurchases may be made from time (i) through open market purchases, block trades, privately negotiated transactions, one or more trading plans adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended (the "Exchange Act") or any combination of the foregoing, in each case in accordance with applicable laws, rules and regulations or (ii) in such other manner as will comply with the provisions of the Exchange Act. The share repurchase program does not require the Company to repurchase shares of its Common Stock and it may be discontinued, suspended or amended at any time.
The Company made no purchases during the three months ended June 30, 2025. The Company made purchases of $3.3 million, or 369,978 shares, during the nine months ended June 30, 2025 at an average price of $8.99 per share and subsequently retired the shares. The Company made purchases of $10.0 million, or 819,623 shares, during each of the three and nine months ended June 30, 2024 at an average price of $12.25 per share and subsequently retired the shares.
During the period beginning July 1, 2025 through August 6, 2025, the Company made purchases of $1.5 million, or 163,794 shares at an average price of $9.06 per share.
Other Liquidity Matters
At June 30, 2025, we had investments of $48.3 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 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 June 30, 2025, we had $39.9 million of our available-for-sale securities classified as current and $8.3 million of our available-for-sale securities classified as long-term. At September 30, 2024, we had $36.9 million of our available-for-sale securities classified as current and $11.4 million of our available-for-sale securities classified as long-term.
We had working capital of $27.1 million at June 30, 2025 compared to $142.9 million at September 30, 2024. The decrease in working capital is the result of reclassifying the 2026 Notes of $150.0 million to current liabilities at June 30, 2025 as the 2026 Notes mature on Feb 1, 2026. Our material cash requirements include repayment of the 2026 Notes as well as those related to leases as described in Note 10. "Leases" 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, cash received from proceeds under the Amended Credit Agreement, and cash expected to be generated from operations will be adequate to satisfy our working capital needs for at least the next twelve months from the date the financial statements are filed for the foreseeable future.
Changes in Critical Accounting Estimates
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 condensed consolidated financial statements are described in Item 7-"Management's Discussion and Analysis of Financial Condition and Results of Operations," in our 2024 Annual Report.
There have been no material changes to our critical accounting estimates from those disclosed in our 2024 Annual Report.
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