Concerned Stockholder Group Issues Letter to Mitek Systems’ Board of Directors Regarding the Urgent Need to Explore Strategic Alternatives

Rhea-AI Summary

Concerned stockholders issue open letter to Mitek Systems, Inc.

Positive

• Mitek Systems, Inc. is facing a loss of faith from stockholders and the market.
• The company's stock is trading near its lowest ever forward earnings multiple.
• Mitek's third quarter 2023 10-Q filing is delinquent.
• The 2023 Annual Meeting was postponed with less than 24 hours' notice.
• Mitek's equity has delivered a -1.8% annualized total return for stockholders.
• Mitek has spent over $150 million on unprofitable acquisitions.
• The Board is being criticized for lacking capital allocation discipline.
• Concerns are raised about Mitek's plans for further acquisitions.
• The ID Business and Deposit Business may need to be separated to unlock stockholder value.
• A comprehensive strategic review is recommended to address these concerns.

Negative

• None.

HOUSTON--(BUSINESS WIRE)-- Hammana Partners LP, Bradley L. Radoff and Joshua E. Schechter (together with their affiliates, the “Concerned Stockholder Group” or “we”), who are significant stockholders of Mitek Systems, Inc. (NASDAQ: MITK) (“Mitek” or the “Company”) collectively owning more than one million shares, today issued the following open letter to the Company’s Board of Directors (the “Board”):

Dear Members of the Board,

Today, the Board stands at a crossroads as stockholders and the market have lost faith in Mitek. The Company’s stock is trading near its lowest ever forward earnings multiple, its third quarter 2023 10-Q filing remains delinquent, an August 8-K omitted the keyword “not” and required correction, the 2023 Annual Meeting (the “Annual Meeting”) was postponed with less than 24 hours’ notice and a September press release was revised and replaced a few days later.

Mitek is quick to blame others for its share price underperformance, citing sellers of its stock, the delinquency of its financials and difficult macro conditions as potential culprits for its depressed valuation. We believe the Board should reflect inwards. Since turning down ASG Technologies Group, Inc.’s sweetened $11.50 offer and ceasing to pursue strategic alternatives back in May 2019, Mitek’s equity has delivered a -1.8% annualized total return for stockholders versus 13.6% for the NASDAQ Composite Index and 3.8% for the Russell 2000 Index.

Over this period, the consistent theme for Mitek was growing the ID Business with capital generated by the Deposit Business. Headcount ballooned, equity compensation was awarded lavishly and over $150 million of stockholder capital was spent on unprofitable acquisitions at extended price to sales multiples.

Did the Board, when it approved the acquisition of HooYu Ltd., bother to ask management for financial projections for the acquisition, or require that the transaction earn an acceptable rate of return on capital? If so, we ask how the ID Business is tracking against these projections. Based on our analysis, if Mitek had committed to a strategy of share repurchases in 2019 and refrained from acquisitions, the Company would currently earn over $1.50 in adjusted earnings per share, have avoided the need to restate financials and likely trade above $20.00 per share.

We are highly concerned with Mitek management’s commentary that once the Company’s financials are current the executive team will begin looking around again for potential acquisition targets. Further, other public software companies with stronger organic growth profiles have committed to right-sizing their operating costs to balance profitability and growth. Given the ID Business’s uneven organic growth profile, it is astonishing that Mitek is only targeting breakeven margins for the segment by the end of fiscal year 2024. These are clear indications that Mitek lacks capital allocation discipline, and we caution the Board against approving any further acquisitions.

We have no confidence in this Board. Based on the latest Annual Meeting’s voting results, other stockholders are similarly unimpressed. Mitek’s empire-building needs to end immediately. The ID Business and Deposit Business have no synergies and the natural stockholder base of one segment is likely skeptical of the other segment’s value, leading us to believe that they should be separated. Since the ID Business is too emergent and undersized to constitute a public company, it belongs in the private market. If the Board is concerned the Deposit Business will not garner a full multiple in the public markets, there are private market participants that would cherish the asset. Given the Board’s failings, running a comprehensive strategic review that evaluates all avenues to unlocking stockholder value is clearly the best path forward for Mitek and its stakeholders.

We expect the Board to move expeditiously and diligently in addressing our concerns as significant stockholders. The status quo is unacceptable.

Sincerely,

Nicholas M. O’Sullivan	Bradley L. Radoff	Joshua E. Schechter
Hammana Partners LP

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20231010147502/en/

Greg Lempel

greg@fondrenlp.com

Source: Concerned Stockholder Group of Mitek Systems, Inc.

FAQ

What are the concerns raised by the concerned stockholders?

The concerned stockholders are raising concerns about Mitek's low stock price, delinquent filings, postponed annual meeting, revised press release, and lack of capital allocation discipline.

What is the performance of Mitek's equity compared to market indices?

Mitek's equity has delivered a -1.8% annualized total return for stockholders, while the NASDAQ Composite Index has returned 13.6% and the Russell 2000 Index has returned 3.8%.

How much money has Mitek spent on acquisitions?

Mitek has spent over $150 million on unprofitable acquisitions.

What is the suggested solution to unlock stockholder value?

The concerned stockholders propose separating the ID Business and Deposit Business and conducting a comprehensive strategic review.

What is the main criticism of the Board?

The Board is criticized for lacking capital allocation discipline and potentially approving further acquisitions.