One of the discussion topics on Micro Cap Club, has been about the possibility of Mitek Systems (MITK) acquiring Top Image Systems (TISA). Both Mitek Systems and Top Image Systems have similar stories via a history of working with large banks and leveraging those relationships to market and launch mobile banking applications.
Mitek Systems was incorporated in 1986 and went public in the early 1990's. The company historically provided financial institutions with advanced imaging and analytics software to authenticate and extract data from checks and other documents. The company was an unknown until 2009 when smart phone camera technology made it possible for Mitek to develop mobile apps for the banking industry. Since then Mitek has rolled out a mobile banking suite which includes Mobile Deposit®, Mobile Photo Bill Pay™, Mobile ACH™ and Mobile Balance Transfer™. Mobile Deposit has quickly gained market penetration with 250 financial institutions, including eight of the top 10 banks, which have signed agreements to deploy Mobile Deposit.
The company markets and sells Mobile Deposit® primarily through sales partnerships with leading system integrators for the financial services industry including Fiserv, Inc., Fidelity National Information Services, Inc., NCR Corporation, Jack Henry & Associates, Inc., Wausau Financial Systems, Inc., BankServ, RDM Corporation, J&B Software Inc., Bluepoint Solutions, Inc., and others. Mitek apparently makes around $0.10 every time a check is deposited. Mobile Deposit is the largest revenue contributor to date but there seems to be hundreds of uses outside this one area. For example, in early February 2012, Mitek entered the insurance vertical by announcing a deal with Progressive to launch Mitek's Mobile Photo Quoting, Mobile Photo Payment, Mobile Photo Claims, and Mobile Photo Document Capture.
Mitek System's stock has gone on an incredible run from $0.50 - $13.00 over the last two years. Four analysts cover Mitek with an average price target of $15.33. With the stock near an all time high, it would make sense for the company to use its stock as currency to acquire strategic assets while also gaining an international footprint. Mitek Systems ($300 million market cap) should take a look at Top Image Systems ($34 million market cap).
Top Image Systems (TISA), founded in 1991, is a leading enterprise content management solutions provider for automating banking, invoice, mail room, and other processes. The company has over 800 installations in over 40 countries. The company has a strong European and Asian presence and works with some of the largest financial institutions including Citibank (C), Standard Chartered Bank (SCBFF.PK), HML, and Deutsche Bank (DB). Top Image is launching mobile banking apps into its end markets via MobiCHECK (Deposit), MobiPAY (billpay), and MobiCLOUD.
Top Image Systems is planning to leverage its relationships to launch its mobile banking app initiative in 2012. Not only does Top Image plan to launch its mobile banking apps internationally, but it plans to open a sales office in the U.S. to promote the mobile banking platform and compete with Mitek head to head. While Mitek holds a dominant position with Mobile Deposit here in the United States, it only has one Mobile Bill Pay customer (two others pilot testing), so this market is up for grabs. Piper Jaffray believes Mobile Bill Pay is not only a larger market ($350 million) but it is also a "catalyst" app for other applications.
Top Image Systems not only works with major banks but also some of the largest players in Energy, Transportation and Logistics (FedEx (FDX), DHL, etc), as well as many government agencies. This established customer base outside of the banking sector could prove useful for more mobile applications.
Top Image System's reported impressive FY2011 results from its core business (pre mobile app roll out), while giving strong guidance for FY 2012. In 2011 revenues increased 32% to $28.7 million with EPS up 76% to $0.30. The company has $2.1 million in cash and no debt. TISA is currently trading at 10x TTM EPS.
There have been 66 recent M&A transactions in the space, including: IBM (IBM) acquiring FileNet and Datacap, Open Text (OTXT) acquired Vignette, Kofax (KFAXF.PK) acquired 170 systems, and HP (HPQ) acquired Autonomy. The average multiples paid were: 3.6x trailing revenue, 20x trailing EBITDA, and 33.6x trailing net income.
When I first heard the Top Image Systems story a few months back, I thought it was a bad euro knock off version of Mitek. The more I followed the company the more impressed I became of its core business and how this core business was undervalued at its current valuation. A friend of mine posed the question about Mitek potentially acquiring Top Image for this core asset and its international presence.
Top Image hasn't deployed any mobile solutions to date, but if the company is successful in even getting one major client, I'm sure the marketplace would quickly revalue TISA shares much higher. With Mitek shares currently being valued at 100x the average analyst EPS estimates for FY 2012 and with a $100 million shelf registration sitting out there, an acquisition isn't too far fetched.
Top Image Systems Presentation
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Without passing any judgment on market opportunity, MITK (optimistic) future growth expectations seem to be generously baked into the current price.
TISA stock seems under-priced given to-date results and imminent 2012 performance and modest growth expectations. I would not anticipate seller acceptance for a price below $5/share.
Disclosure: Long TISA.
Both companies will be speaking at the Roth Growth Stock Conference Wednesday, March 14.
Hot off presses this morning:
"9:43AM Top Image Systems files for patent for its Intelligent Mobile Document Delivery Apps (TISA) 3.18 +0.06 : TIS has developed a mobile Remote Deposit Capture technology which offers the same document detection and verification capabilities already included in TIS' eFLOW Platform, yet extends them to the smartphone device, thus increasing the flexibility and mobility of the applications that can leverage the technology."
If there is any $$$$ in this market, existing optic software companies will develop quick and jump in, as I mentioned last week. Mitek very overvalued with current earnings and speculation of market share.
Regards,
Jeat
Both MITK and TISA are presenting at Roth Growth Conference Wed, Mar 14, so looking forward to seeing them.
The Mobile Solutions provided by TIS are:
MobiCHECK - remote deposit system for checks via smartphone/tablet
MobiPAY – ability to pay bills via smartphone/tablet
MobiCLOUD – capture documents with smartphone/tablet and store them on the cloud
MobiPlatform – capture and process any document from smartphone/tablet
A COMPLETE RIPOFF OF MITK-- like the CHinese copying all of AMericas tech-- its almost insulting
You keep talking "contracts" for Mitek. In a earlier post, in a different article, you said,"3-5 years" (contracts). Would you please provide where you got that info. and the link for it? I can't find it. I wouldn't think any bank or institution would want to enter into a marriage for that duration.Am I wrong?
TISA currently at a 16 P/E, Mitek not projected to do that on it's best estimate this year. What if Microsoft, or other big boys decided to jump in? You think David could beat Goliath if that occurred?
And....All this news about Mitek and their clients is old news. All you have to do search the web and read the same hype in the past few years.. I just don't understand all of this. Sure is a lot of speculation here and lack of earnings that does not equate this high pps of 12 range. In addition, this "monopoly theory" for Mitek has many holes. Much more impressed with value buy, or so it seems, with TISA.
Rev growth is forecast at 100% in F2012, and 100% again in F2013. Eps in F2012 and F2013 is forecast to be 12 cents and 40 cents respectively. So calendar 2013 should be at least 50 cents...which translates to 24X C2013 eps for 100% growth. Don't forget, this business has huge gross margins, so a little sales growth goes a long way. And these estimates are likely conservative.
By comparison, TNGO (different SaaS business, but comparable competitive position) trades at 32X C2013 numbers, and rev growth is only forecast to be 17%. FTNT trades at 44X C2013 estimates and is projected to grow revs 18%, and it has a lot of competition. Against that backdrop, I think MITK is worth 35-40X C2013 estimates or $18-20. Hope that helps.
I think what you call flip-flopping, I call stating the obvious. The stock has had a nice run, and it could pull back in a correction. Development-stage companies always look expensive on current numbers. So we adjust for that by modeling future expectations, which can be a VERY subjective process. But my analysis suggests it will be much higher over the next year or two. If you think otherwise, you should short it!
Footnote:
Interesting that DeBello mentions impending competition in the Q&A and never claims they have a "2 year lead on their competition", as you have stated before. Furthermore, I would think it would be obvious that I have already initiated a short position in this company and I am just pointing out some facts here that contradict your claims. With all of that..Good luck and let's see who's right!
Jeat
The 12-24 month lead on the competition is expressed as an opinion not a fact, since such a fact would be literally impossible to verify either way.
Buyers and sellers make a market, bro. But I have done my homework on MITK, and I would keep a pretty tight stop on that short. Check out OCZ.
plenty of other issues that are better value buys without buying a "currently overvalued", with a lot of speculation equity like mitek.
/ducks and covers
/flames!!!!