Mitek Systems Inc Q3 FY2025 Earnings Call

Good afternoon, ladies and gentlemen, and welcome to the Mitek Reports Fiscal 2025 Third Quarter Financial Results. This call is being recorded on Thursday, August 7, 2025. I would now like to turn the conference over to Ryan Flanagan, ICR. Please go ahead.

Thank you, operator. Good afternoon, and welcome to Mitek's Fiscal 2025 Third Quarter Earnings Conference Call. With me on today's call are: Mitek's CEO, Ed West; and CFO, Dave Lyle. Before I turn the call over to Ed, I'd like to cover a few quick items. Today, Mitek issued a press release announcing its financial results for the fiscal 2025 third quarter ended June 30, 2025. That release is available on the company's website at miteksystems.com. This call is being broadcast live over the Internet for all interested parties and the webcast will be archived on the Investor Relations page of the company's website. I want to remind everyone that on today's call, management will discuss certain factors likely to influence the business going forward. Any factors discussed today that are not historical facts, particularly comments regarding our long-term prospects and market opportunities, should be considered forward-looking statements. These forward-looking statements may include comments about the company's plans and expectations for 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 our listeners to review our SEC filings, including our most recent 10-Ks and 10-Qs for a complete description of these risks. Our statements on this call are made as of today, August 7, 2025, and the company undertakes no obligation to revise or update publicly any forward-looking statements contained herein, whether as a result of new information, future events, changes in expectations, or otherwise. Additionally, throughout this call, we'll be discussing certain non-GAAP financial measures. Today's earnings release and the related current report on Form 8-K describe the differences between our GAAP and non-GAAP reporting and present the reconciliation between the two for periods reported in the release. With that said, I'll now turn the call over to Mitek's CEO, Ed West. Ed?

Great. Thanks, Ryan. Good afternoon, and thank you for joining us today, and welcome to our Q3 update call. This has been a solid quarter in terms of business performance. But even more importantly, it marks a quarter of disciplined execution against the objectives that we outlined at the beginning of the year. Let me start with three key takeaways from the quarter: First, based on the growth and operational efficiencies that we've implemented, we are rapidly approaching the fulcrum point for durable profitability in our Identity product portfolio. Second, our Fraud and Identity solutions continue to grow and scale, posting a 23% year-over-year SaaS revenue growth and representing over 41% of total revenue for the last 12 months. And third, we're running the business with sharper operational discipline. Free cash flow for the last 12 months was $56 million, representing a 99% conversion rate. Now for those of you newer to the Mitek story, we provide the core Identity and Fraud infrastructure that high assurance businesses rely on to operate securely in today's dynamic threat environment. Our technology verifies identities and documents, authenticates users and detects fraud from onboarding to login to transactions. We serve over 7,000 organizations globally, including top banks, fintechs, and telecom providers. Mitek's platform has become important for companies that need to balance security with a seamless user experience, especially today when fraud is increasingly driven by generative AI and synthetic identity attacks. Generative AI has essentially allowed fraud to be democratized. Our solutions span the customer journey from onboarding to authentication to transaction monitoring. This includes our identity verification and orchestration platform, MiVIP, which helps customers onboard users securely and at scale, biometric authentication tools like MiPass and our mobile deposit technology, which has revolutionized consumer banking and supports approximately 1.2 billion transactions annually. Each solution is underpinned by advanced AI, proprietary biometrics, and automation technologies and is delivered via software solutions. Underlying this platform is a powerful and growing data asset, our fraud prevention consortium, now encompassing approximately one-fourth of all U.S. checking accounts or around 100 million accounts. That footprint continues to expand as we onboard new financial institutions and as existing members contribute more data, whether through newly opened accounts or checks received from customers at other banks. In either case, the data flows through our systems to detect fraud. Now let's move to the progress against the four strategic pillars that we outlined in prior quarters. As a reminder, those four pillars are: first, strengthening our foundation; second, scaling Identity; third, expanding Fraud solutions; and fourth, driving operational excellence. On the first pillar, which is strengthening our foundation, this quarter, we continued transforming how we operate with tangible changes now visible across every function of the business. Teams across R&D, Marketing, Product, Engineering, and G&A are being aligned on platform execution with simpler systems and clear accountability, enabling reinvestment without increasing our cost base as we position Mitek to drive durable, profitable growth in fiscal '26 and beyond. Over the last 12 months, we improved our unit economics by automating more of our transactions and modernizing our technology stack, which has improved our cost of goods sold. Overall, our non-GAAP operating expense intensity has improved from 64% down to 55% of last 12 months revenue, driven primarily by reductions in vendor spend. These actions have not only lowered our structural cost base, but they've also sharpened our execution with a heightened focus on profitability. On the technology front, we made further progress automating key workflows and laying the groundwork for a unified, scalable platform. We've also expanded our use of the AI-assisted development tools across engineering, helping us activate customers more efficiently. Behind the scenes we've continued building out our data science capabilities, which is an important evolution in our shift towards intelligence-driven fraud prevention. Now moving on to the second pillar, which is scaling Identity. We are nearing the fulcrum point where our Identity product portfolio is contributing positively on a fully burdened and durable basis. We are making excellent progress towards this important milestone. Trailing 12-month Identity revenue has reached $75 million, up 13% year-over-year. During this time, we have also improved the fulcrum point to less than $80 million on a fully burdened basis and as a result of the efficiency and scale gains. This is not just a financial milestone, it's a structural turning point. Identity, which was previously a margin drag, is now helping fund the broader business. It's important to note that on a contribution basis before allocating overhead, Identity is contributing positively today. That shift reflects the disciplined execution over the past year, driven by increased automation, improved gross profit per transaction, and transaction volumes reaching a scale that efficiently leverages a predominantly fixed cost base. MiVIP continues to lead the portfolio in transaction growth with more identity journeys incorporating advanced verification steps like liveness detection, face match, deep fake analysis, and behavioral signals. These multilayered workflows are materially improving unit economics. Just as important, we're seeing real convergence between Identity and Fraud. Customers are increasingly looking to deploy both together across onboarding, transaction verification, and step-up authentication. This convergence is accelerating our evolution into a unified full stack platform that secures the customer journey from first touch through transaction verification to ongoing engagement. As fraud continues to grow more sophisticated, we are seeing increased customer interest for MiPass, Mitek's authentication solution. We're fielding more authentication opportunities and embedding identity verification at critical points in the user journey to build trust, reduce friction, and strengthen security. Our solution encompasses a highly secure passwordless biometric authentication, all back to a verified identity. As an example, a leading U.K. financial institution significantly expanded its commitment to Mitek this quarter by deploying MiPass in multiple new use cases. What began as a single reauthentication use case has grown into a broad set of high-risk scenarios such as payment authorization and changes to personal information. Unlike traditional verification, which is typically used once at sign-up, MiPass enables transactional authentication that secures interactions across the bank's existing customer base. By replacing outdated tools, MiPass is helping the institution deliver faster, more secure digital experiences at scale, saving time for consumers while strengthening fraud defenses. Now naturally, the expanding role in Identity is closely linked to the growing demand for real-time fraud prevention, which is our third pillar. Check Fraud Defender continues to scale with annual contract value reaching approximately $13.1 million, up 56% year-over-year. Enterprise banking deployments at Check Fraud Defender tend to unfold through multistage rollouts with validation cycles and complex procurement processes. We continue to run test cycles all the while negotiating the contracts to enroll several large, well-known financial institutions. Accordingly, we have good visibility towards a potential step-up in ACV growth. We're also seeing strong momentum through our channel partner network. In Q3 alone, we closed nearly 40 new financial institutions who joined as partners through partners, expanding our reach into the long tail of community and regional institutions. As I mentioned earlier, Check Fraud Defender now has visibility into check activity from approximately one-fourth of all U.S. checking accounts, which includes mostly production and a small amount of pilot data. This trajectory highlights the growing engagement with our platform and its increasing relevance as a source of real-time industry-wide fraud intelligence. What we're building with Check Fraud Defender is just the starting point. We see this as a foundation towards a broader enterprise fraud platform. Now on to our fourth and final pillar, building a more durable, cash-generative, and fully integrated business model powered by disciplined operational excellence. While we continue to scale our Fraud and Identity solutions, we're equally focused on how we run the business, driving operational excellence that is first and foremost about the customer experience that delivers incremental value and insight while enabling us to do more with less. The latter is driven by leverage and focus. SaaS revenue now represents over 41% of trailing 12-month revenue, up from last quarter, a steady strategic mix shift that improves visibility, enhances scalability, and positions us for long-term margin expansion. At the same time, we're instilling stronger financial discipline. Through tighter cost controls and more focused execution, we accelerated EBITDA growth and achieved a 99% free cash flow conversion rate on an LTM basis, giving us the flexibility to reinvest where it matters most. This quarter, we launched a series of company-wide efficiency initiatives spearheaded with precision and urgency by our new COO, Garrett Gafke, including a comprehensive vendor audit, renegotiation of major contracts, and consolidation of legacy infrastructure. These efforts are already freeing up resources we're using to reinvest directly into the platform, advancing automation, improving performance, and ultimately enhancing the customer experience. We're also evaluating new opportunities to better align our go-to-market resources to support growth in our current geographies, strategic relationships, and channel partnerships. As we look ahead to year-end, we anticipate ongoing changes to ensure our operating model is in alignment with the most compelling opportunities in Fraud and Identity. In short, we're operating with greater focus, tighter integration, and a growing ability to convert operational discipline into product enhancements and innovation, margin expansion, and free cash flow per share. In closing, I would like to summarize our journey over the past three quarters and how the business is evolving. Mitek comes from a history of several strong assets, ranging from pioneering mobile deposit, which led to the credibility with thousands of financial institutions to leading technologies in the nascent but evolving digital identity space, all supported by terrific technical talent and capabilities, all of which are the very reasons that I joined. These assets were clouded by CEO and CFO turnover, material weaknesses, years of late filings as a public company, and unintegrated acquisitions. And we have made clear progress in putting that chapter behind us. We have executed against the initiatives that we outlined at the beginning of the year, streamlining and integrating the business and moving the Identity product portfolio towards durable profitability. We are approaching the fulcrum point on a durable basis for Identity and believe we are well situated to reposition Mitek as a Fraud and Identity business that works with its customers to detect and prevent fraud. As a result of growing and persistent AI-driven fraud, customers are asking for integrated platforms that unify identity, authentication, and fraud detection, purpose-built to protect what's real across every digital interaction, that is Mitek's purpose. With that, I'm going to turn it over to Dave for some financial highlights and a discussion of our improved outlook.

Thanks, Ed. I'll begin with a review of our Q3 financial results, including the key drivers behind our performance and then provide context on how we're approaching the final quarter of the year and discuss our updated full-year outlook. For the third quarter, total revenue was $45.7 million, up 2% year-over-year, driven primarily by our Identity products, which grew 24% year-over-year, fueled by 19% growth in Identity SaaS and continued strength in transactional volumes. Deposits revenue came in as expected and in line with the quarterly seasonality associated with mobile deposit renewal timing as we outlined in prior calls. Our non-GAAP gross margin for the quarter was 85%, about 100 basis points less than a year ago due to a slight mix shift away from our higher-margin deposits products. Non-GAAP operating expense came in at $26.3 million at the lower end of our previous guidance range. This represents a 3% year-over-year improvement, driven by a broader focus on cost discipline and operational excellence. Adjusted EBITDA was $13.1 million, representing a solid 28.6% margin and 170 basis points better than a year ago. Turning now to the specifics of our revenue performance, starting with deposits products. Revenue was $26.2 million. As we've noted before, term license revenue, which is roughly 70% of the deposits mix, can fluctuate meaningfully based on renewal timing, so we focus on trailing 12 months trends for a clearer view. Trailing 12-month license revenue totaled $69.1 million, just below our long-term average of $70 million, reflecting the continued resilience of the $1.2 billion Mobile Deposit annual transactions even as overall check volumes decline. Notably, maintenance revenue in the deposits portfolio grew 4% year-over-year, supported by healthy renewal cycles and a few early renewal pull-ins, helping to smooth quarterly license variability. Turning to our Fraud solutions within deposits. Check Fraud Defender continues to gain traction. Deposit SaaS revenue, where this product is primarily recognized, delivered growth of 55% year-over-year, albeit off of a small base. This was driven by organic usage growth and expansion across both direct and partner channels. In summary, our deposits product portfolio generated $103 million in revenue over the last 12 months, up modestly from $100 million a year ago, a reflection of the resilient but slower growth profile in deposit solutions, especially as the market for check-based workflows matures. Those pressures are increasingly being offset by growth in our Fraud Prevention solutions that solve a fundamentally different and more urgent problem, detecting and preventing fraud before losses occur. Now turning to Identity, which delivered another strong quarter with revenue up 24% year-over-year to $19.5 million, driven by a 19% increase in SaaS and solid performance across both our MiVIP platform and Mobile Verify Point solutions. SaaS growth was fueled by deeper adoption within existing accounts, especially in high assurance verticals, and increased usage of complex multisignal journeys. We also saw higher-than-expected overages from several large customers, further boosting revenue. MiVIP continues to account for a growing share of identity journeys, reflecting growing demand for end-to-end orchestration. Importantly, customers are not only running more identity checks, they're embedding more verification steps across the user life cycle from onboarding to reauthentication and fraud remediation. These deeper integrations make the platform stickier and drive more durable revenue. As Ed mentioned, Identity is progressing in the right direction with improving contribution and greater scale efficiency. Turning to SaaS revenue and building on what Ed outlined, we continue to see strong SaaS momentum with SaaS revenue becoming an increasingly larger share of our mix today, representing 41% of total trailing 12-month revenue. Moving down the P&L, we delivered a non-GAAP gross margin of 85% in Q3, supported by strong unit economics across the business. This includes nearly 100% gross margin on software license revenue, primarily driven by Mobile Deposit and a 74% gross margin on services and other revenue, including our Identity SaaS offerings, which improved by approximately 200 basis points year-over-year. This expansion reflects operating leverage within our fixed cost services infrastructure as Identity volumes scale, combined with ongoing improvements in automation and delivery efficiency. These gains reflect the efficiency of our platform and the automation improvements discussed earlier. These trends reinforce our confidence that as the business continues shifting towards SaaS, the underlying margin profile will continue to strengthen, giving us greater flexibility to either expand profitably or reinvest in growth as attractive opportunities arise. Non-GAAP operating expense for the quarter were $26.3 million, up modestly from $25.7 million in Q2, driven by higher sales commissions and fiscal year-end audit costs, partially offset by lower marketing and personnel-related expenses. We are particularly pleased with the continued improvement in G&A efficiency. On an LTM basis, non-GAAP G&A expenses improved by 18% year-over-year, reflecting our progress in streamlining external services and building a more scalable, cost-effective corporate function. Adjusted EBITDA for Q3 2025 reached $13 million, up 8% year-over-year and representing a 28.6% adjusted EBITDA margin. After factoring in other income, interest, and a modest increase in tax expense, this translated to $10.2 million in non-GAAP net income or $0.22 per diluted share on 46.8 million diluted shares outstanding. Turning to our balance sheet and capital allocation strategy. Over the last 12 months, we generated $55.8 million of free cash flow, a 99% conversion of adjusted EBITDA, reflecting strong earnings quality, higher interest income and improved working capital efficiency. As the impact of interest arbitrage goes away when our convertible notes are retired and working capital improvements are lapped, we expect free cash flow to be predominantly driven by recurring contributions from our core operations. We ended Q3 in a healthy net cash position with over $175 million in cash and investments and $155 million in face value of convertible notes due February 2026. With the notes carrying a low 75 basis points coupon and a convertible feature trading well out of the money, we're earning favorable carry and intend to retire them at the most economically advantageous point. To support our flexibility, we already secured a $100 million credit facility in May, which remains undrawn. Our strong financial position allows us to balance reinvestment in the business with shareholder returns. Since the authorization of our current $50 million buyback program was made in May of 2024, we've returned $29 million to shareholders, which includes $27.5 million executed through the end of Q3 '25 and $1.5 million since quarter end through the end of trading yesterday, August 6, leaving $21 million remaining on the authorization. We remain focused on disciplined capital allocation and building a more efficient, scalable business that delivers sustained free cash flow per share and long-term value. Against this backdrop, we are tightening our full-year fiscal 2025 revenue guidance to a range of $174 million to $177 million with a $175.5 million midpoint, modestly above our prior guidance. This implies fourth quarter revenue of between $39 million and $42 million. This range reflects seasonally low mobile deposit revenue due to renewal deal timing with the high end reflecting potential higher usage-based activity in Identity, which could drive incremental overages in Q4. On profitability, we are raising our full-year adjusted EBITDA margin guidance to a range of 28% to 29%, up from 26% to 29% previously. This increase reflects the flow-through of our continued improvements in operational efficiency, a leaner G&A structure, and stronger unit economics across both Identity and Deposits. For the fourth quarter, we expect non-GAAP operating expenses to be in the range of $25 million to $26 million, with depreciation at approximately 80 basis points of revenue. While we remain disciplined on cost, we will continue to invest in strategic priorities, particularly in unifying and enhancing our product portfolio. Overall, we're encouraged by continued SaaS momentum, improving unit economics and positive signals across key KPIs as we build on the operational discipline and strategic progress of the past year. Looking ahead at fiscal year '26, our strategy centers on scaling a unified platform that integrates Identity, Authentication, and Fraud. Product investments and go-to-market efforts are aligned around this foundation. And while the groundwork is well underway, we expect the benefits to build gradually over time, positioning fiscal year '26 as a year of continued execution and set up for scalable, durable growth. Lastly, an important housekeeping item. Our updated investor presentation and Excel-based supplemental financial package for Q3 are now available on our newly revamped and redesigned Investor Relations website. With that, I'll turn the call back over to the operator for questions.

And your first question comes from Mike Grondahl with Northland Securities.

This is Logan on for Mike. First, so now with SaaS revenue up 23% year-over-year and being 41% of trailing 12-month revenue, how are you guys thinking about return to double-digit growth in 2026? Is there any updates to call on your strategy?

No, we're not going to provide guidance for 2026 during this call. We will do that in our next earnings call. However, to give some preliminary insight on 2026, we expect it to be a year of continued execution, focusing on unifying our platform and strengthening our foundation. We also anticipate revenue growth to stem from our SaaS solutions, mainly the Fraud and Identity products. Furthermore, we believe that maintaining cost discipline will enable us to reinvest in key areas, particularly the long-term transformation of our platform.

Then, is there anything to call out? We saw that deposit software revenue was down 20% year-over-year. How are you guys viewing that going forward? Is that expected to stabilize in the coming quarters?

We have observed consistent transaction volume stability from quarter to quarter over the last twelve months, which we are pleased with. We have been able to counterbalance any potential revenue declines with increases in average selling prices over time, so we feel we have managed that effectively.

I believe it's important to evaluate the Mobile Deposit segment of the business on a trailing 12-month basis. As noted, the revenue for the past year aligns well with historical trends. We've observed about 1.2 billion transactions annually through the use of this solution, which has remained quite stable. The initial setup for selling the software contributed to some fluctuations, but strategically, one of our priorities is to expand the SaaS portion of the business, which is currently at 41%. We previously stated our objective to have the majority of our business driven by SaaS to improve visibility and stability.

Yes, I'll add one more point here, Logan. If you take a look at what we mentioned in our last earnings call regarding Q2, it was our largest revenue quarter in Mitek's history. This was mainly driven by the deposit side, and some of the increase we observed was due to timing on renewals, where we pulled in some revenue from what we anticipated to be the third quarter. This is where we believe things will head moving forward, and based on the last twelve months, we’re feeling optimistic about it.

That was helpful. Then switching over to Check Fraud Defender. How is the pipeline looking for new partners? And anything big to call out kind of in the near term?

Well, I would tell you in terms of the ongoing dialogue and conversations, they're excellent. We're having conversations with multiple partners. As you know, we have significant relationships with many of the large OEM and processors in the industry, and we continue the ongoing dialogue there. Our current partners have been doing terrific. As I mentioned, nearly 40 new institutions came into the consortium this past quarter, and there's more underway. At the same time, we have some fairly large institutions that are in a pilot phase right now and who are ongoing and testing and evaluating and we're having conversations and discussions with contracts there. So we're optimistic of seeing some of those convert over time. and have good visibility to it. So far, the performance there has been great. And the fact that we now have visibility to one-fourth of all checking accounts in the United States, having just built up over the last couple of years is very encouraging. So we feel like this is an ongoing long-term opportunity. And as I mentioned in my points, strategically is a foundation for an enterprise solution for fraud detection.

That's great. And then one last one from us. What are you guys most excited about for the rest of fiscal year '25 and heading into 2026? Yes.

We're focused on executing our outlined goals and objectives from earlier this year. Our approach has been about making steady progress, integrating our business, consolidating our platform, and starting to see growth. We're excited about the growth in SaaS, the stability of the Mobile Deposit business, and the overall potential of our deposit software solutions. Personally, I'm encouraged every time I interact with customers and prospects because we have a valuable asset with a strong history and credibility in financial institutions, along with the technical capabilities to address emerging challenges like fraud, particularly synthetic fraud driven by generative AI. We're well positioned in digital identity, which is evident as institutions recognize the need for enhanced security and ongoing authentication. Our closed-loop network allows us to biometrically verify identities without passwords. I believe we are well situated for future growth and will continue to evolve as we execute.

Your next question comes from Jake Roberge with William Blair.

Could you elaborate on the current demand for Check Fraud Defender? Are you still confident that this product will achieve your $20 million annual contract value target? With more customers now using this solution, do you believe that understanding the return on investment will help you close new deals more quickly?

Yes, I want to revisit our previous discussion regarding the opportunities we have in progress and those we’re discussing. We are currently conducting tests and engaging with potential partners, including several major financial institutions that are assessing our data. We are in contract negotiations with most of these institutions right now, which gives us optimism about reaching our goals, including our aim to double our Annual Contract Value. However, I cannot specify when that will happen or in which month it will occur. We remain hopeful about achieving this, and based on what we can see currently, the return on investment is tangible and recognized. It simply requires time for evaluation and the typical procurement process, as these transitions represent significant changes for the institutions, many of which are moving away from other internal systems. The results we have seen thus far are quite promising.

Okay. Very helpful. And then obviously, last year, you had the larger ID R&D deals that had pushed out a little bit. Can you give us an update on how those deals are trending? And then just how the integration of that ID R&D team has been into the broader Fraud and ID verification suite?

Yes. You are referring to the stand-alone biometrics revenue classified as software revenue in our disclosures. About a year ago, several significant deals from larger potential customers were delayed. Some of these situations have changed, while others are still progressing but taking longer than expected. We are not relying solely on these deals, but we remain committed to closing them.

To address the second part of your question, we are strategically integrating our business more closely with Mitek, particularly in sales and our go-to-market efforts. As I mentioned earlier, Identity and Fraud are increasingly interconnected. A significant part of our growth is driven by new solutions we have introduced, including capabilities for liveness detection, injection and attack detection, presentation and attack detection, and deep fake detection. These strong features from ID R&D are now part of our platforms, and the team is working to achieve tighter integration as we evolve our products. This effort has been a focus in our recent discussions.

Okay. That's helpful. And then if I could just sneak one more in. You all obviously brought in Garrett a couple of quarters ago. Can you just talk about some of the low-hanging fruit that he's been able to identify within the organization to help improve some of the operational efficiencies around the business?

Yes. As I mentioned, that was last quarter. And frankly, I would just say, as I pointed out in here, we kicked off various cost exercises and streamlining that and also just accelerating the pace of change in the organization, bringing focus to integrating these solutions. As we talked about at the beginning of the year, we're very serious about integrating this business as opposed to having multiple platforms for multiple acquisitions over the years. We need to be highly integrated and be able to capture the data insight and leverage that as a business. And he is an absolute champion of that. And I would just say accelerating that pace then ultimately getting it to where the data and capabilities with that becomes a stronger and stronger asset for the company and our customers.

Your next question comes from George Sutton with Craig-Hallum.

First, I just want to confirm that I have the numbers right. On the Identity side, I believe you mentioned that in the last 12 months you've had $75 million in Identity revenues and $80 million in fully burdened costs. Is that correct?

Yes. The $75 million, you're correct. That's on an LTM basis. When it comes to the fulcrum point, you've heard Ed and myself talk about having durable, profitable growth. We've already seen some profitability out of Identity. We're now focused on making sure that, that is durable. We think we're nearing that point pretty quickly here.

And what I mentioned, George, there is that from previous conversations where we talked about that kind of fulcrum point is roughly $80 million to $85 million because of all the actions that we've been taking over the last few quarters. We've actually been able to move that breakeven point below $80 million and seeing positive contributions now. And frankly, what we want to see is, to Dave's point on that last statement, the second point there that is durable that, frankly, we've seen it over a trailing 12-month basis, and we're pretty close to getting there. And once that's achieved, we'll kind of declare it and move on. But I would tell you, just purely based on the actions, the activity, current visibility, it's very close to happening as we speak.

And just so I'm clear, in Identity, the goal is still to migrate customers to the platform away from the point solutions. Is that effort continuing, accelerating?

Yes. That's all correct. We're seeing the benefit of the platform. As I mentioned in my comments on VIP, that's actually where we've seen the largest amount of growth and transactional growth where we're also having more and more journeys there, but also more transactions per journey. So additional insights coming in, additional signals, as I mentioned on there. So absolutely, that's ongoing. It will take time because obviously, there's migration. But in terms of new efforts going forward for new relationships come on, the focus is on the platform approach versus just selling a point solution.

So Ed, separate from this conversation, you've begun to talk about taking the Check Fraud Defender concept and migrating it to the broader payment market. Is this similar to what you're now starting to refer to as the Enterprise Fraud platform?

Well, that's one application. We've been seeing consistent growth with checks, which is a key component of our payments platform. We can expand beyond checks due to the credibility we have with checking accounts. There are fraudulent activities occurring daily across financial institutions beyond just checks. Our visibility with checks raises the question of whether there is interoperability with other payment types. For example, check kiting can provide insights into additional payment methods like wires and ACH. The more we can achieve in this area, the better insights we can offer financial institutions, leading to more fraud signals that aid in fraud detection and prevention. Additionally, we may provide verification services to some of these financial institutions, contributing further signals and insights. The discussions we are having now have shifted from product-specific conversations to a broader focus, particularly with the heads of fraud. They are interested in fraud prevention across the business spectrum, whether it involves checks or other payment methods, verification, or account takeover. They are looking to us to create a signal-rich environment to help mitigate fraud. We envision this as evolving into a more comprehensive enterprise solution, and we stand out in our ability to leverage various assets and maintain strong relationships with numerous financial institutions.

Got you. Last question for me. You mentioned that you're seeing positive signals across a number of your KPIs. I'm wondering if you could just be more specific what you're referring to there?

Well, as we see, especially on the Fraud and Identity side, as we start to see improvements in, for instance, gross profit per transaction, per journey as well as rapid growth in our transaction volumes, more journeys with more transactions, all of those kinds of KPIs are really important to us watching closely.

Your next question comes from Derek Greenberg with Maxim Group.

I was wondering, just looking at the balance sheet, with $175 million in cash and then generating $55 million, $56 million over the last 12 months. I was wondering if you could maybe talk a little bit about how you plan to allocate cash and cash flow going forward? I know part of that will be used towards paying off the debt in February, but thereafter, just wondering how you plan to use your resources.

Yes. We have a $100 million credit facility to help us repay debt if we choose to use it, which includes a $75 million delayed draw term loan for that purpose. We don't need to make that decision right now. We have a good opportunity with our 75 basis points loan. Our capital allocation has a balanced approach, focusing on investing in the business while also returning capital to shareholders. We still have $21 million remaining in our share repurchase program that we will use opportunistically. After we pay off the debt, we will assess how much of our own cash to use versus borrowed funds and then decide on our capital allocation strategy moving forward.

So I would just say there's also kind of a second part of that where maybe unsaid in your question is something we've been consistent and clear about for this past year, the last three quarters, we have a very strong focus on organic growth and deploying capital back into the business or returning it to shareholders in driving organic growth in the company, integrating the business and then having growth from our own product expansions. So that's where 100% of our focus is right now in generating the free cash flow.

Okay. Got it. And then my other question is just in prior quarters, you had outlined some of the margin improvement you received from automation on costs. I think last quarter was around 230 basis points in the services gross margin. I was wondering if you had any statistics like that for this quarter? And going forward, if you still see potential incremental improvements from automation? Or if you think you've largely tapped that avenue as a driver of margin expansion?

We experienced a 200 basis points improvement year-over-year this quarter, which gives us confidence in our ability to enhance our gross margins through automation. We believe there is still room to grow, especially as we transition from our Mobile Verify Point solution to our MiVIP platform, making automation increasingly crucial.

And that's just a mindset of when we talk about operational excellence, it's just a mindset of continuing to drive improvement in the business. It will ebb and flow from quarter to quarter, but how do we continue to expand margin, delight customers, deliver more and more value and operate more efficiently and expand margins and free cash flow.

There are no further questions at this time. I would like to turn the call back over to Ed West.

Great. Well, thank you very much for your time today, and we look forward to seeing you in person and talking about the business. So thank you for your support, and good day.

Ladies and gentlemen, this concludes today's conference call. Thank you so much for your participation. You may now disconnect.