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BUSINESS COMBINATIONS
 12 Months Ended
Sep. 30, 2023
Business Combination and Asset Acquisition [Abstract]  
BUSINESS COMBINATIONS
3. BUSINESS COMBINATIONS
Acquisition of ID R&D, Inc.
On May 28, 2021 (the “Closing Date”), the Company completed the ID R&D Acquisition pursuant to an Agreement and Plan of Merger (the “Merger Agreement”) dated May 28, 2021, by and among the Company, ID R&D and Alexey Khitrov (the “Representative”). Upon completion of the ID R&D Acquisition, ID R&D became a direct wholly owned subsidiary of Mitek Systems, Inc. ID R&D is an award-winning provider of artificial intelligence-based voice and face biometrics and liveness detection.
As consideration for the ID R&D Acquisition, the Company agreed to pay an aggregate purchase price of up to $49.0 million. On the Closing Date, the equityholders of ID R&D received from the Company: (i) $13.0 million in cash, subject to adjustments for transaction expenses, escrow amounts, indebtedness and working capital adjustments (the “Initial Cash Payment”); and (ii) 867,226 shares, or $13.9 million, of Common Stock. In addition to the foregoing, the equityholders of ID R&D may become entitled to receive additional consideration from the Company upon achievement of certain milestones as follows (collectively, the “Earnout Payments”): subject to ID R&D’s achievement of target revenue for the period commencing on the Closing Date and ending on the one year anniversary thereof and the period commencing on the one year anniversary of the Closing Date and ending on the one year anniversary thereof (each such period, an “Earnout Period”): (i) an aggregate maximum amount of approximately $12.3 million with respect to the first Earnout Period and (ii) approximately $9.8 million with respect to the second Earnout Period, with 15% of the first Earnout Period’s payment to be deposited (as additional funds) into an escrow fund. The Company will make the Earnout Payments in the form of cash and up to 711,535 shares of Common Stock as set forth in the Merger Agreement. The Company has granted the Representative an option to shift the Earnout Period(s) out by one year, pursuant to the terms of the Merger Agreement. Moreover, in the event actual revenue for an Earnout Period exceeds the target revenue for such period, the amount of such excess will be credited towards the achievement of the subsequent Earnout Period’s Earnout Payment. In May and June of 2022, the Company paid the first of the Earnout Payments of an aggregate of $9.5 million which consisted of $7.7 million paid in cash and $1.8 million in shares of Common Stock to the equityholders of ID R&D. Pursuant to the Merger Agreement, 15% of the Earnout Payments with respect to the first Earnout Period, were deposited into the escrow fund which consisted of both cash and Common Stock. The Company released the cash and shares held in escrow in the fourth quarter of fiscal 2023. The second Earnout Period ended in May 2023 and the Representative did not exercise their option to shift the Earnout Period. In the first quarter of fiscal 2024, the Company paid the second Earnout Payment of an aggregate $8.0 million which consisted of $4.7 million paid in cash and $3.3 million in shares of Common Stock to the equityholders of ID R&D.
The Company estimated the fair value of the consideration for the Earnout Periods to be $15.7 million on the Closing Date, which was determined using a discounted cash flow methodology based on financial forecasts determined by management that included assumptions about revenue growth and discount rates, and is included in level three of the fair value hierarchy. Each quarter, the Company revised the estimated fair value of the consideration for the Earnout Periods. Accordingly, the Company recognized an expense of $2.1 million and gain of $1.4 million in amortization and acquisition-related costs in the consolidated statements of operations and other comprehensive income (loss) for the twelve months ended September 30, 2023 and 2022, respectively.
The Company incurred $0.6 million of expense in connection with the acquisition primarily related to legal fees, outside service costs, and travel expense, which are included in amortization and acquisition-related costs in the consolidated statements of operations and other comprehensive income (loss).
On the Closing Date, the Company deposited a portion of the Initial Cash Payment and a number of shares of Common Stock having a collective value of approximately $4.0 million into an escrow fund to serve as collateral and partial security for working capital adjustments and certain indemnification rights of the Company. As indicated above, 15% of the Earnout Payment with respect to the first Earnout Period was also be deposited into the escrow fund. The escrow fund was released to the equityholders of ID R&D in the fourth quarter of fiscal 2023. The Company used cash on hand for the Initial Cash Payment.
Acquisition of HooYu Ltd.
On March 23, 2022, the Company completed the acquisition (“HooYu Acquisition”) of HooYu Ltd (“HooYu”) pursuant to the Purchase Agreement (the “Purchase Agreement”) dated March 23, 2022, by and among the Company and certain persons identified in the Purchase Agreement (the “Sellers”). Pursuant to the Purchase Agreement, the Company, among other things, acquired 100% of the outstanding share capital of HooYu, a leading global customer onboarding platform designed to increase the integrity of KYC and maximize the success of customer onboarding. As consideration for the HooYu Acquisition, the Company paid aggregate consideration in the amount of $129.1 million (the “Closing Consideration”), as such amount may be adjusted for transaction expenses and indebtedness. Pursuant to the Purchase Agreement, $1.6 million was withheld as a reduction to the Closing Consideration and was retained by the Company for the final working capital adjustments and indemnification of certain tax matters under the Purchase Agreement.
The Company incurred $3.2 million of expense in connection with the acquisition primarily related to legal fees, outside service costs, foreign currency and realized losses on investments, and travel expense, which are included in amortization and acquisition-related costs in the consolidated statements of operations and other comprehensive income (loss).
On March 23, 2022, using cash on hand, the Company transferred an aggregate of $127.5 million to the Sellers and its third-party legal and investment advisors, net of cash acquired of $0.5 million. In July 2022 the Company paid an additional $0.4 million to the Sellers in settling final working capital.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed from the ID R&D Acquisition and HooYu Acquisition as of September 30, 2023 (amounts in thousands):
ID R&DHooYu
Accounts receivable$173 $1,234 
Property, plant, and equipment114 504 
Other current assets147 630 
Intangible assets16,930 73,100 
Goodwill27,748 74,206 
Current liabilities(425)(2,264)
Deferred revenue— (2,612)
Deferred income tax liabilities(2,355)(16,896)
Net assets acquired$42,332 $127,902 
The goodwill recognized is due to expected market participant synergies and other factors and is not expected to be deductible for income tax purposes. The Company estimated the fair value of identifiable acquisition-related intangible assets with definite lives primarily based on discounted cash flow projections that were estimated to arise from these assets. The Company exercised significant judgment with regard to assumptions used in the determination of fair value such as with respect to revenue growth rates, discount rates and the determination of the estimated useful lives of the intangible assets. The following table summarizes the estimated fair values and estimated useful lives of intangible assets with definite lives acquired from the ID R&D Acquisition and HooYu Acquisition during the twelve months ended September 30, 2023 (amounts in thousands, except for years):
ID R&D
Amortization PeriodAmount assigned
Completed technologies7.0 years$14,020 
Customer relationships3.0 years2,540 
Trade name5.0 years370 
Total intangible assets acquired$16,930 
HooYu
Amortization PeriodAmount assigned
Completed technologies7.0 years$61,400 
Customer relationships5.0 years5,000 
Trade name5.0 years6,100 
Covenants not to compete3.0 years$600 
Total intangible assets acquired$73,100 
The following unaudited pro forma financial information should not be taken as representative of the Company’s future consolidated results of operations and includes adjustments for the amortization expense related to the identified intangible assets. The following table summarizes the Company’s unaudited pro forma financial information and is presented as if the ID R&D Acquisition and HooYu Acquisition occurred on October 1, 2020 and 2021, respectively (amounts shown in thousands):
For the twelve months ended September 30,
20222021
Pro forma revenue$149,679 $130,302 
Pro forma net income (loss)$(6,683)$(8,516)
The following table summarizes the results of ID R&D and HooYu that are included in the Company’s consolidated results (amounts shown in thousands):
For the twelve months ended September 30,
20222021
ID R&D
Revenue
$5,663 $849 
Net Income (loss)
$(3,769)$(3,021)
HooYu
Revenue
$5,738 
Net Income (loss)
$(1,587)