Mitek Systems, Inc. (NASDAQ:MITK)
Q2 2016 Earnings Conference Call
April 28, 2016 11:00 AM ET
Todd Kehrli – MKR Group
Jim DeBello – President and Chief Executive Officer
Russ Clark – Chief Financial Officer
Bhavan Suri – William Blair
Mark Schappel – Benchmark
Mike Grondahl – Northland Securities
Darren Aftahi – Roth Capital
Ladies and gentlemen, thank you for standing by, and good day and welcome to the Mitek Second Quarter Fiscal Year 2016 Financial Results Conference. At this time, it’s my pleasure to turn the conference over to Mr. Todd Kehrli, MKR Group. Please go ahead sir.
Thank you, operator. Good morning, and welcome to Mitek’s fiscal 2016 second quarter earnings conference call. With me on today’s call are Mitek’s President and CEO, Jim DeBello and CFO, Russ Clark. Before I turn the call over to Jim and Russ, I’d like to cover a few quick items. This morning, Mitek issued a press release announcing its fiscal 2016 second quarter financial results. That release is available on the company’s website at www.miteksystems.com. This call is being broadcast live over the Internet for all interested parties and the webcast will be archived on the Investor Relations page of the company’s website.
I would like to remind everyone that on today’s call, management will discuss certain factors that are likely to influence the business going forward. Any factors discussed today that are not historical facts, particularly comments regarding our long-term prospects and market opportunities, should be considered forward-looking statements. These forward-looking statements may include comments about our plans and expectations of future performance.
Forward-looking statements are subject to a number of risks and uncertainties, which could cause actual results to differ materially. We encourage all of our listeners to review our SEC filings, including our most recent 10-K for a more complete description of these risks. Our statements on this call are made as of today, April 28, 2016 and the company undertakes no obligation to revise or update publicly any of the forward-looking statements contained herein, whether as a result of new information, future events, changes in expectations or otherwise for any reason.
Additionally, throughout this call, we will be discussing certain non-GAAP financial measures. Today’s earnings release and related current report on Form 8-K describe the differences between our non-GAAP and GAAP reporting and present the reconciliation between the two for the periods reported in the release.
With that said, I’ll now turn the call over to Mitek’s CEO, Jim DeBello. Jim?
Well thanks Todd, and good morning everyone. I'm happy to report our financial results for the second quarter, which included record revenue and strong profits. Our record revenue was driven by growth from our ID capture and verification platform, and our industry dominating, mobile check deposit solutions. With this market momentum, we believe we’re poised for continued growth throughout the remainder of the year. With over an estimated 80 million users in over 5,000 enterprises using our mobile capture solution for mobile check deposit, we’re leveraging this success to expand the scope of our business globally and address the multi-billion dollar identity capture and verification market.
During the quarter, we continued to make significant progress by adding several new customers across many different verticals, and significantly increasing our bookings and backlog for this new part of our business. Our new ID products will enable us to drive higher ASPs, while also increasing our mix of recurring revenue. We believe we have first mover advantage. Enterprises need our products to effectively address the shift to m-commerce that’s now being driven by millennials and other consumers in attractive market segments.
As you may recall, at the start of this fiscal year, we set a goal of signing 10 Fortune 500 companies in fiscal 2016 to use our new ID capture and verification platform. Well, we’re well on the way to achieving that goal and these are great reference accounts. At the halfway point at fiscal 2016, we’ve signed seven Fortune 500 companies and we look forward to building on the success in the second half of the fiscal year. Among the Fortune 500 companies we signed during the quarter, we added our first top-tier bank, as well as other industry leaders in tobacco and food processing. These businesses will use our products to optimize revenue from the mobile channel, while meeting regulatory requirements and eliminating friction from the user experience. By doing this, we’re helping our customers acquire more consumers, which is a real problem in the mobile channel where the enrollment process is cumbersome and ID verification is inadequate.
Our mobile fill product enables consumers to automatically capture information through their mobile phone camera to complete a new mobile enrollment process. Several banks, as well as a leading lending platform and healthcare company are already using or are in the process of implementing mobile fill and early results are terrific, demonstrating an increase in the number of enrollment forms being successfully completed. New consumer enrollment is the Holy Grail for all enterprises, and for us to be able to deliver this type of improvement for our enterprise customers in the mobile channel is significant.
The second major pain point that businesses face as they seek to meet growing customer demand in m-commerce is the inability to accurately verify the identity of mobile customers. This is particularly important in highly regulated markets that fall under the Know Your Customer and Anti-Money Laundering requirements, otherwise known as KYC and AML.
Mobile verify, our second ID product that we announced at the end of last year addresses this channel. Mobile verify enables banks and other businesses to improve their processes by verifying the authenticity of a driver’s license or passport during a mobile enrollment process. This is a digital equivalent of physically showing a driver’s license in a branch. Mobile verify instantly verifies the authenticity of an underlying identity document using our computer vision algorithms. The authenticity of that ID could be verified entirely through a mobile device eliminating the need for a new consumer to a peer in person to prove their identity. Data suggest that when a new customer prospect is asked to leave the mobile channel and physically go to a branch to complete a transaction abandonment can be as high as 90%. Today, one of the largest payment processing companies in the world is using our product for ID verification and we’re expanding with them every day. This customers using mobile verify to mitigate the risk of fraud, which data shows is rapidly growing in the mobile channel.
This quarter several financial services companies including a top prepaid card issuer will begin implementing mobile verify to combat both account creation and account takeover fraud, as well as meet their customer identification requirements. With our innovative new ID products, we believe we have a substantial opportunity ahead. This is a global issue. Regulators in the US and EU demand the use of personally identifiable information to verify identities, although much of it has been compromised by data breaches, making the use of a physical ID document even more important in a mobile and digital world. This is a large and growing market and we believe we have the right solutions to address the pain points these companies are encountering as they try to offer an easy to use mobile self-service environment, while meeting regulatory requirements.
Now let me quickly expand on our mobile deposit business, where we continue to dominate this growing market. While consumers love the convenience in ease of use, financial institutions recognize that substantially lower transaction cost associated with processing checks through the mobile channel. As such, Mitek’s mobile deposit has been broadly adopted by the top banks in the world including the top retail banks in the US and Canada, and it continues to grow among both consumers and the financial institutions that serve them. We now have over 5,000 financial institutions in the world licensing our technology. They continue to spend significant marketing dollars to drive their customers to use mobile check deposit and we here at Mitek continue to benefit from this push to the lower cost mobile channels. Both the retail and commercial side of the market remain significant growth opportunities for Mitek. Our focus and more importantly, our banking customers focus is to drive a significantly higher percentage of check deposits through this lower cost mobile channel.
It’s estimated that less than 5% of the total number of checks deposited annually are done so through the mobile channel. So we have a lot of room to grow. On the retail side of the mobile deposit, we believe the increase deposit limits set by financial institutions will be a growth driver that will generate an increased number of transactions. Today, we’re seeing increasing numbers of financial institutions proactively address this issue by creating advanced KYC engines, so they can raise deposit limits and eliminate hold times for customers when appropriate. As a result of these efforts, many financial institutions have seen their mobile deposit adoption and usage increase dramatically and become a key driver of both customer acquisition, retention and satisfaction.
On the commercial side, with our new mobile multi check capture product businesses will be able to make best deposits with a mobile device and take advantage of the advanced risk management and business intelligent features including endorsement detection that we offer. This quarter, we saw a top US bank using our technology announced a business mobile check deposit product aimed squarely at addressing the untapped commercial market. And through our channel partners, we continue to sign additional new commercial customers. We believe the commercial market represents a substantial opportunity for growth as more banks and businesses begin to focus on implement mobile check deposit in the years to come.
In conclusion, we had a great second quarter and first half of the fiscal year. We continue to expand into multi-billion dollar ID capture and verification market with our new products enabling us to drive higher ASPs, while also increasing our mix of recurring revenue through the cloud. We continue to see growth in mobile deposits, driven by increasing adoption by both the consumer and commercial markets.
We’re energized by these significant opportunities, and with our strong financial results growing balance sheet and market momentum, we believe we’re poised for continued growth throughout the remainder of the year.
And now with that, I will turn the call over to Russ to discuss the financial results in more detail.
Thanks Jim. I would like to start by thanking everyone for joining us this morning. Q2 was another strong quarter for Mitek, and I'm pleased to provide some additional details on our results. Let’s start with revenue and operating results. In Q2, Mitek generated total revenue of $8.5 million, a 50% percent increase year-over-year. As Jim mentioned, we also achieved non-GAAP net income in Q2 of $2.4 million or $0.07 per diluted share, representing our eight consecutive quarter of non-GAAP net income.
Q2 software revenue of $5.6 million, included 17 mobile deposit reorders and is up 39% compared to revenue of $4 million in the year ago quarter. This growth was fueled by both mobile check deposit and mobile fill and verify. We maintained strong software gross margins at 98% for the quarter. Q2 services revenue of $3 million, increased 77% over last year's Q2 revenue of $1.7 million, due primarily to the addition of transactional SaaS revenues for our mobile verify product, as well as growth in the maintenance space. Q2 services gross margins were consistent at 80%.
In terms of product contribution to total revenue, we expect our mobile deposit and other non-ID image capture products to contribute a revenue percentage with the seven handle on it for this fiscal year. Total Q2 operating expenses were $7.9 million compared to $5.2 million in the year ago quarter.
Q2 selling and marketing expenses were $2.6 million compared to $1.4 million in the year ago quarter and R&D expenses were $1.8 million in Q2 compared to $1.4 million a year ago. Our Q2 G&A expenses were $2.3 million, compared to $1.7 million in the year ago period. The year-over-year increase in OpEx – increases in OpEx reflect the operating expenses associated with IDchecker, which we acquired at the end of Q3 of last year, as well as our continued investments in sales and marketing to grow our ID business.
As a reminder, our earnings release include a reconciliation between GAAP and non-GAAP net income, we believe non-GAAP net income provide the useful measure of the company's operating results by excluding the following items; acquisition related cost and expenses, stock compensation expense and litigation costs related to protecting our intellectual property.
In Q2, we incurred $543,000 in acquisition related costs and expenses compared to $80,000 in Q2 of last year. Stock compensation expense during Q2 was $1.2 million compared to $871,000 in the year ago quarter. IP litigation expenses totaled $115,000 in Q2 versus $199,000 in Q2 of last year. On the topic of litigation expense, while we don't typically comment on pending litigation, I would like to provide you with a brief history and current status on our pending patent case.
In the US, patents rolled an unfortunate cost to doing business by suing operating companies for patent infringement. We believe that these types of suits are nothing more than an attempt to extort financial settlements, instead of seeking to build businesses around the patents that might actually add value to the economy.
With that said, Mitek was sued in May of 2014 by a party alleging that Mitek products infringe on four patents. In January 2015, Mitek filed IPRs or inter partes review with the US Patent Office documenting our positions as to why the patents are invalid and never should've been issued due to prior art that existed at the time of issuance. This IPR process was put in place by the patent office in large part to help mitigate the disruption to innovative companies caused by frivolous suits filed by patent trolls.
The patent office instituted Mitek’s IPRs on all four of the patents. This means that our case for the invalidity of the patents was being strong enough to be heard in the full IPR process. Given that all four IPRs were instituted, the courts deferred all litigation around the original infringement suit pending the outcome of the IPR process. Our IPR position was so strong on one of the four patents that the other side decided to not contest that patents invalidity.
Last week on April 19, the court heard oral arguments from both sides with respect to the IPR process. We expect that a decision on the IPRs will be issued by the last week in July. Following the oral arguments, we believe more strongly than ever in the strength of our cases to invalidate the remaining three patents. Should any of these patent claim survive the IPR process for whatever reason, we also continue to believe very strongly that Mitek does not infringe on these patents.
Moving on, GAAP net income in Q2 was $582,000 or $0.02 per share compared to GAAP net income of $508,000 or $0.02 per share in the year ago quarter. Non-GAAP net income in Q2 was $2.4 million or $0.07 per diluted share compared to non-GAAP net income of $1.7 million or $0.05 per diluted share for Q2 of last year. Our diluted share count for Q2 was 33.1 million shares. As of March 31, 2016, our headcount was around 87 FTEs.
Turning to the balance sheet; during the quarter, we generated $4.2 million of operating cash flows, raising our total cash investments to nearly $32 million at the end of Q2. These cash flow results are due in large part to extremely good collections during Q2. Our Q2 accounts receivable balance of $2.5 million, represented a record low DSO of 27 days. Going forward, we would expect our DSO to return to more normal historical levels closer to 50 days.
Now, moving to guidance for fiscal 2016. Given the strong performance in Q2, we are raising our annual revenue guidance to between $32 million and $34 million for our fiscal year ending September 30, 2016. Our guidance is based on continued growth in mobile deposit, as well as contribution from our mobile fill and mobile verify ID products. We are also reiterating our expectation of non-GAAP profit margin of at least 20% for the full fiscal 2016 year.
We expect Q3 OpEx, excluding acquisition related cost and expenses, stock compensation and litigation costs to be between $6.5 million and $7 million. As we previously stated, this guidance reflects our increased investments in sales and marketing to drive adoption of our ID products, as well as our continuing efforts to add more top talent to our world class software engineering and scientific teams. We expect Q3 acquisition related cost and expenses to be between $500,000 and $600,000, Q3 stock compensation expense to be between $900,000 and $1 million and Q3 IP litigation cost to be between $100,000 and $200,000.
That concludes our prepared remarks, operator please open the line for questions.
[Operator Instructions]. And we will take our first question to Bhavan Suri at William Blair.
Hey guys can you hear me okay.
Yes Bhavan, hello.
Great. Hey Jim, hey Russ congrats, and a nice job there. It’s great to see the continued execution quarter after quarter, it’s fantastic. To dive in quickly, and apologize for the background noise, you know always on the road, so I apologize for that. But you’ve had a very nice sequential increase both in software and services revenue, and you provided some color, but I’d love to sort of get, as you talk to consumers, what’s driving that? Obviously, there is re-orders for the mobile check deposits, but sort of as they look at the landscape broadly and you think about security and think about the automating of form filling in many fashions by taking a picture of an ID et cetera, what’s driving all of that, is it really the quarter fill or is the security playing, and how should we think about sort of the underlying drivers for that?
Sure, Bhavan. I think as Jim said, a lot of the requirements out there for KYC and AML are driving a lot of interest. Out of the gate over the last several quarters, we’ve had a lot of interest in our mobile fill product from digital marketing executives at our enterprise customers in smaller enterprises as well, in terms of reducing friction from consumers doing transactions on smartphones. But what’s very interesting and notable as we’ve been out in the market is that the interest of our verify product actually providing assurance, the validity of the license is picking up a lot of steam. So we were having more fill discussions a few quarters ago and lot of those discussions are turning very quickly towards verify.
Just to add a little color, this is Jim. As you know, we live in the mobile world and the habit of selfies and taking a photograph have gone beyond personal photographs to photographing transactions and now identities. So the mobile world is one driver, the second driver is the advent of EMV migration. And think about the experience in Canada, when they added chips to the credit cards to prevent fraud, the fraudsters are simply moving to different channels. So in Canada, they saw application fraud losses increase nearly 500% in the wake of its EMV migration and that sourced from [indiscernible] an industry research firm. So we really believe that there are sort of parallel drivers, not just the mobile generation and the selfie generation, but these fundamental shifts in where fraud and verification requirements are changing. And therefore, reverting to the physical document in a digital world is a sweet spot for us and that's what replaced right now.
Got it, got it. And then, the visibility also has improved dramatically, it feels like over the last say year, year and a half and it obviously, it’s reflected in how all the stocks done, but more importantly I think when you look at the fundamentals, is the visibility because you’re getting more comfort with sort of the reorder rates, and sort of what percentage is cloud, because obviously maintenance is a nice piece, what percentage will be cloud, that's sort of giving a more comfort around visibility? It’ll be helpful just to get some color on that too?
Yes, sure Bhavan, as I mentioned in my comments the composition of revenue in terms of mobile deposit and some of our non-ID products we expect to be in the 70% range for the full year, and because of that you’ve seen the business over the last several years the mix of revenue for mobile deposits, specifically has definitely changed three, four years ago, it was lot of first-orders and new orders. Today, the vast majority of our mobile deposit revenue is reorders. So we get transactional reporting every quarter, and we know how much has been sold to our channel partners and what the usage rates are.
So the high mix of reorders is giving us a lot of visibility on the mobile deposit side. And then – and that’s going through the software line. In terms of services revenue, we do continue to see sequential growth in our SaaS business, and I think if you sort of look at the trend in financials historically as well, we’re doing typically over $1 million of SaaS revenue on a quarterly basis, so that’s been a nice addition to the mix also.
And Bhavan, let me just add to that as well. We really look at ourselves internally here as cloud first. We’re migrating our revenue mix towards SaaS revenues, recurring revenues in that vein as an objective. Now, you know in our beachhead market where we have 5,000 enterprise customers banking particularly, they prefer often on premise, particularly among larger enterprises. But we do see a shift even in that market and in adjacent enterprise markets towards the cloud because of efficiencies and operating cost reductions by using software delivered to the cloud. So we think that’s in our favor and can allow us to leverage our core beachhead market and financial services companies and adjacent markets by offering cloud services and cloud – our cloud platform. So we really like the trend that were now reflecting in our numbers as we change our mix moving forward.
That’s great. That’s great. And the color is really helpful Russ. You know, one of the things we saw with the mobile deposit for sort of the time you signed, to the time its rolled out, to the time it gained adoption, you know as you look at the mobile fill and verify products, you’ve mentioned several new customers, just some sense of what are the implementation times for these product and how do they look vis-a-vis even relative to the mobile deposit, so we get some sense of sort of when we could see that traction pick up from numbers perspective lagging obviously the customer signing?
Yes, sure Bhavan. I’ll start out maybe on a relative basis, even the sales cycle and implementation cycles or our ID products at this stage of the game are typically shorter than what we saw for mobile deposit, and that's for a lot of reasons that we've been talking about in terms of our customers trying to find new ways to reduce friction and verify ID, so they can add more new customers and generate more revenue, so it’s a top line focus in a lot of respects there. We’re helping our customers get more customers more quickly. So that’s helping sales cycles, but in generally, our enterprise sales team is talking to Top 20 institutions in our beachhead markets, and those are long sales cycles. I mean, those can be six months or longer on the sales cycle side. And then once we win the deal, implementations, again they can be six months or longer, but we’ve seen some of that as well. So I think, compared to deposit they’re quicker, but again these are in a lot of respect large companies with a lot of departments involved in implementations and buying decisions.
Yes, Russ is right, that has not changed among enterprise. They still have a regular cycles typically annual releases on software, not quarterly because of the complexity and the size of the customer basis. So the implementation cycle still remain at nine to 12 months in that range. However, compared to mobile deposit, it’s much quicker in terms of where the market mobile maturity is, if you recall when we launched mobile deposit, the idea of the smart phone was new and the idea of using a camera for a selfie was new. And now this is becoming ingrained in the consumer habit. So we do benefit from that. And we also have a large installed base, so as a result opening the door to these enterprises is much easier. So that part of it, initiating the dialogue, engaging in a true ROI discussion has gone much faster for identity. We actually closed one large deal in a short order, less than six months, it's a little bit unusual. But because they had such an urgency and they saw such a drop off in their mobile channel of new customer enrollments compared to their online channel to the desktop because the cumbersome nature of doing it through a mobile device, so we have some good solid momentum in the marketplace, partly due to our success of mobile deposit, partly due just the dynamics and the maturity of the mobile market in general.
Got it, got it. That’s it for me guys. Thank you and congrats again. Nice job.
Our next question is from Mark Schappel at Benchmark.
Hi Jim – Jim and Ross, congratulations on the quarter, nice job. Jim, starting with you. With the above plan successor having with your ID capture and verification products, are there any plans that you have to maybe accelerate the ramp of your sales force in this area?
Actually we are adding folks to the sales force Mark. We have open positions, we’re looking for high quality, high integrity individuals. These are enterprise sales professionals, who have a track record of selling to big companies and it’s different, than selling to a channel, so different skill set. And so we are actively pursuing an increase in that sales force.
Okay, great. And Jim, I realize it's still early days here, but do you have any update on your recent partnership with Harland Clarke in the check printing area?
Well, that continues to go great. Let me for the benefit of the audience reveal what that is again, basically Harland Clarke saw the advent and the penetration of mobile check deposit, so as the largest printer objects in the industry and worldwide, they've incorporated technology that allows our technology at Mitek, the mobile deposit products to read the front and back of the check and because of what Harland Clarke has done, we can now match the front to the back and it mitigates risk with regard to potential fraud losses. By the way fraud losses are quite de minimis in the mobile channel compared to a physical channel, which is interesting, you would think potentially it could be greater.
But this also prevents the ability for individuals in a friendly environment at home when you leave the check on the table after mobile deposit from your spouse depositing the same check what’s called casual fraud. So matching the front and the back is important. Harland Clarke initiated the program in January, every check that they print out of their factories now has photo safe written on the front with a special icon that only we are unable to read and then enable our algorithms to read and match the back of the check. So this is a great innovation and that is becoming more penetrated in the market as customers – consumers out there reorder their checkbooks. So we think that yet another feather in our cap and in our Harland Clarke’s hat to differentiate our respective products to further the penetration and usage in a safe environment for mobile deposit.
Great, thanks. And then finally Jim, I know it's still early yet, but any success stories you can give us with respect to your relatively new mobile best deposit solution?
Yes, in fact we actually had launched that in the October remote deposit capture industry event. It was in a beta format, it’s now being completed, it’s being evaluated by major distributors that we currently work with our OEM partners. They are very excited about it. What that product allows you do is have a multi-check capture, so you can take an image in one session of multiple checks, we will then in the product tabulate the sum, just like you would do in a deposit slip and submit a batch, a batch is made up of several checks. So this facilitates small businesses who receive multiple checks during a week, but who don't want to either rent or buy a desktop scanner, well frankly don’t have a need because they use mobile check deposit in their personal lives. And there are 28 million small businesses in America, so we think this a great new opportunity. It will take time to penetrate the market, the concept has been requested, we're delivering another innovation for mobile deposit.
Great, thank you. That’s all for me. Again, nice job on the quarter.
Moving next to Mike Grondahl at Northland Securities. Please go ahead.
Hey guys, thanks for taking my questions here, and congratulations on a very nice quarter. I just want to make sure I understand the outperformance in March, what would you apply that to, mobile check, some of the mobile fill signings, how would you, maybe that extra million dollars, how would you extrapolate that?
Mike, as I said in my comments, it’s a combination of both mobile deposit and the ID products. EMV ID products sequentially had a strong quarter as well, but in terms of just thinking about results, I mean the software line from Q1 to Q2, both contributed, but ID was strong.
Got you. That’s helpful. And then is it possible to talk a little bit about maybe visibility/pipeline, and I’ll break the question down kind of consumer mobile check, commercial mobile check, and then sort of mobile fill verify, kind of how does that visibility/pipeline look in each area?
Sure, Mike. For mobile deposit, as I mentioned on questions earlier, we have a lot of visibility there in terms of reorders. So excellent visibility there and continued reporting and progress. On the ID side, we continue to see pipelines grow, visibility there is good also, and I think in combination with both of those, we were comfortable enough to raise our guidance of $32 million to $34 million for the year. So on the ID side, it’s a little bit earlier stage, we’re earlier in the game, we’re looking for those initial agreements, again mobile deposit is more on the reorder side, so different stages of development with the product lines, but visibility good for deposit, pipelines continue to grow for ID.
Got you. And then, maybe lastly, the biggest question I get when it comes to mobile fill and mobile verify is really the revenue model. Are you guys further along there to, I know you’ve said that the per transaction is significantly higher than mobile check, can you give any more detail or color there?
Mike, I think we’re still on the same page that we have seen price points for ID that are significantly higher than what we’ve seen in the past for deposit. And again, the reason there as I mentioned is now we are helping our customers acquire customers of their own just a higher value proposition for customer acquisition and revenue generation there.
Got it. But you’re not – is there – I’m assuming there is a wide range, some customers might be higher, some might be lower, is that fair or is it more uniform?
As with any product there is some variability, Mike what I can tell you in terms of relativity is generally price point for verify would be higher than the price point for a fill. For fill, you’re extracting the information and reducing friction and helping get that customer through the process, and verify does all that, plus it helps verify the authenticity of the ID.
Thank you and congratulations again.
Thank you, Mike.
[Operator Instructions] And we’ll go next to Darren Aftahi at Roth Capital.
Hey guys, thanks for taking my questions, also my congratulations as well. Just to see if I may, so in the mobile ID space, Jim, can you maybe talk about some non-financial wins you maybe already had, and how peers to those companies, the discussions have sort of changed since you announced those wins that people are obviously aware of those customers are, and I’ve got a couple of follow-ups?
Sure, Darren, thanks. And we have added three additional Fortune 500s to our mix, we’re now at seven total for the year out of our goal of 10 that we set at the outset of the fiscal year. So we’re a little ahead of our schedule, we’re pleased about that. And what’s been interesting to us is that the diversification of the user, our customer base for Mitek, we have a very strong position in banks, in America with our mobile deposit product. We have a very strong brand among the technology leaders and the executives of those banks. So it's easier for us to cross sell into those banks and we have made significant strides in educating them about ID and filling some of the gaps, many of them have reached out to us with the knowledge of what we are doing in identity verification. In addition to that, and to your question, we've also seen adjacent market growth has been surprising and gratifying. We had talked about a healthcare company earlier in the past quarter, this quarter we talked about a large company in the area of tobacco for age restricted commerce, again age verification and validation through a mobile channel is very, very important.
So that could belie additional work in that area for gaming, for other types of sales that are age restricted. And also even in agribusiness, we mentioned a large growing food processing company, very large, that has a need also for identity. So we see the split go into mobile fill for fast and accurate on boarding, and also for verify. So it’s very interesting to also see that complexion of what the sales are, fill and verify, so almost even. But we know the fill customers we believe will migrate into the verify area, so again another upsell opportunity for us.
So a, it's a diversification leading with banks as our primary focus into some adjacent markets that have been a pleasant surprise to us, and in b, seeing a pretty even split between fill and verify for their various business reasons giving us yet another upsell opportunity to move the fill customers into verify.
Great. And then maybe second one, I know you announced your first sale with the pond international customer in mobile deposit, any update on international markets both on the mobile deposit side and mobile fill, mobile ID?
Sure. I actually would, I would categorize it as further ahead on mobile fill and ID than deposit. Deposit is a small international market, so let’s characterize with some comparisons. Arguably in the range of 20 billion checks, this is a 2013 Federal Reserve Bank number in the US, 20 billion checks in the US, a different organization called Echo, which is related to ACH and payments, reflect a 22 billion number of checks in the US, but it’s all on the same range, compare that to Great Britain, which is about 1 billion, compare that to Brazil, which is about 1.2 billion and pockets throughout the world, but much smaller than that. So really the market for checks is North America and US and Canada. We do have some momentum and a signed deal with a large bank in the UK, they just past a legislation in the UK allowing an equivalent digitization of paper for check transactions, and so that's going, but it’s going at a slow pace. I don't expect to see great life from the international market, but it’s nice to plant the flag there for mobile deposit.
What we think is really important and impressive is the growth we see in verification for identity in the EU, including the UK. We recently had Money 2020 an industry event for financial technology and banks in Copenhagen, we were swamped with inquiries, it was a big show. Probably one of the largest financial technology shows in Europe that they’ve had. We have now activity in countries like Spain, countries including the UK, obviously the Netherlands, Scotland, and even in Africa. So we’re seeing a growth in markets around the globe for exactly what we’re describing as the need to verify who that person is through what they have, in this case the identity card, the passport or the driver's license.
Further, in Europe, and unlike the US there is a movement for electronic ID, EID. UK has a program that allows you to sign up for an EID, which allows you to pay your taxes, get access to utility bills and information to the government with a personalized badge, which has your identity credentials. Now, this is interesting to us, we’re part of that process. When you enroll in the EID through one of our partners, you have to submit your ID, you actually physically take a photograph of it. We do all the data extraction and verification of the authenticity of that document, so that is a growing trend in Europe, we also are active in the Netherlands with the same kind of program. So to very active market in the EU, so the answer to your question, we do see our global footprint growing, we see it really growing quickly in the identity space primarily for verification, and we see mobile deposit getting a toehold, but it’s a small market anyhow, and it’s going to be a slow go on that one, but very fast in ID.
Thanks for that color. Maybe I guess last one for Russ. So looks like your underspend on non-GAAP operating expenses in Q2 relative to I think what you guided before, where there any planned hires in 2Q that maybe have slipped into 3Q, I’m just trying to reconcile your guidance of 20% margins and kind of your performance in 2Q? Thanks.
Yes, sure Darren. The OpEx in Q2 was under, really in a couple of categories we did add about a dozen heads, again primarily sales and marketing and engineering, but they were later in the quarter, so the dollars didn’t flow-through quite the same rate as we had expected. And I think in the marketing area, we do fair amount of program spend on a quarterly basis and we’re a little under there as well. So we got most of the heads we are looking for, but they were a little bit later in the quarter than planned.
I would add Darren that the part of the opportunity that we see in the EU also requires us to and sales personnel, we talked about that earlier in the call. It’s part of our hiring plan to add to our sales force because of the opportunity ahead of us.
Great. Thanks guys.
And we have no additional questions at this time, I’d like to turn the program back over to our speakers for any additional or concluding remarks. Gentlemen?
Thank you operator, and thank you everyone for joining us today. This concludes our call, and we look forward to updating you on our progress again next quarter.
And ladies and gentlemen, once again, that does conclude today’s conference. And again, I’d like to thank everyone for joining us today.
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