Mitek Systems (MITK) Q3 2022 Earnings Call Transcript

Mitek Systems (MITK -2.16%)
Q3 2022 Earnings Call
Jul 28, 2022, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, and welcome to Mitek's third quarter 2022 earnings Conference call. All participants will be in a listen-only mode. [Operator instructions] Please note that this event is being recorded. I would now like to turn the conference over to Todd Kehrli of MKR Investor Relations.

Please go ahead.

Todd Kehrli -- Investor Relations

Thank you, operator. Good afternoon, and welcome to Mitek's third quarter fiscal 2022 earnings conference call. With me on today's call are Mitek CEO Max Carnecchia and CFO Frank Teruel. Before I turn the call over to Max and Frank, I would like to cover a few quick items.

This afternoon, Mitek issued a press release announcing its third quarter fiscal 2022 financial results. 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 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 the company's 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 and 10-Q, for a complete description of these risks.

Our statements on this call are made as of today, July 28, 2022, 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. Additionally, throughout this call, we will 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 non-GAAP and GAAP reporting and present the reconciliation between the two for the periods reported in the release. With that said, I will now turn the call over to Mitek's CEO, Max.

Max Carnecchia -- Chief Executive Officer

Thanks, Todd. Good afternoon, everyone, and thanks for joining us today. Once again, I'm happy to report that we delivered record revenue for the quarter with revenue growth of 24% year over year. Congratulations to all Mitek teams for their standout work and thank you for your ongoing commitment to this important mission and our customers all over the world.

Before Frank reviews the financials in more detail, I want to focus on our significant market opportunity we are addressing. As consumers transact more business online than ever, identity verification has become essential to safe digital access. In 2021, traditional identity fraud and identity fraud scams affected 42 million consumers and cost companies a staggering $52 billion. While this is a very large number, the number of people online today is growing rapidly and is in the billions.

And identity fraud and the cost of this fraud is only going to get bigger. Mitek's identity solutions have been developed to address these growing challenges by providing organizations with the insights, technology and solutions needed to determine if the individual accessing their digital account is verified, authenticated or in fact real. With growing digital usage, verifying the identity of consumers before they can make a transaction or access to service enables organizations to prevent identity fraud keep their consumer information safe and meet the rising pressure of global regulation. Two notable use cases, driven by increased regulation are right-to-work and right-to-rent laws in the U.K.

Both require identity verification. The right-to-work law, also known as Workplace Choice, gives workers the freedom to choose, whether or not to join a labor union in the marketplace -- in the workplace. This law also makes it optional for employees to immunize workplaces to pay for union dues or other membership fees required for union representation. The importance of identity verification and identity authentication is critical, so that unions', employers, and governments stay in control and minimize fraud related to these activities.

Right-to-rent is another government policy that was introduced in the U.K. under the Immigration Act of 2014. It places restrictions on undocumented residents, accessing rented accommodations in England by making all adult documents, prove they are in the U.K. legally before being granted tenancy.

This quarter, HooYu was granted government digital identity provider certification to provide ID verification services for right to work, right to rent and criminal records checks, making HooYu one of just two identity services providers in the U.K. to have achieved this highly anticipated high-profile government trust mark. In addition to these new regulatory use cases, our customers are also diversifying their use of identity verification and leveraging the automation and scalability of mobile -- Mitek's Mobile Verify as they find creative ways to attract new consumers to their digital platforms. This quarter one of Mitek's large banking customers ran a series of televised promotional offers as part of a countrywide advertising campaign.

There was an overwhelmingly positive response, which resulted in massive sign-ups and millions of identities being verified using our solution. We're proud to be their identity partner, powering this rapid search in consumer onboarding twice within a 30-day period. Additionally, an interactive gaming client launched a new in-game feature, providing its users with the ability to make micro transactions within the game to unlock specific features or game-changing enhancements. This feature was hugely successful and resulted in over one million age verifications within the first week.

Mobile Verify powered the identity verification workflow to support this and in doing so enabled the customer to generate significant additional revenue. And one last example of Mobile Verify in action this quarter was a large tech company that used our solution to verify the identities of all the attendees of its global developer's network conference, highlighting the remote access use case as an emerging opportunity for an identity verification solution. These are just a few examples that demonstrate the ongoing and expanding business requirement for digital identity verification. As more transactions move online, our solutions are more necessary than ever and they need to be fully inclusive.

This quarter ID R&D, our biometric subsidiary, whose products are used in over 70 countries globally, announced the results of the first ever independent evaluation of a face liveness detection product for demographic bias. The assessment was performed by Pixie Labs an accredited biometric testing laboratory. And the results confirm that ID R&D's ID live face product for facial liveness detection exhibits fairness in terms of bias for target demographic groups, including gender, age, and race. Liveness detection is considered essential in preventing spoofing attacks, while biometrics are used for digital identity verification and authentication.

Similar to biometric matching algorithms, a bias liveness algorithm can lead to an increased rate of inaccurate results for individuals in a particular demographic group. This in turn can cause digital banking and other services to be less accessible to these customers. The outcomes of this report will be used to inform ID R&D's ongoing development of machine learning based products in support of responsible AI. It also reaffirms Mitek's commitment to providing inclusive digital access for all.

Mitek's product arsenal of Identity Solutions was also boosted further this quarter when we launched the Mitek Verified Identity Platform, MiVIP. Built to make digital access faster and more secure than ever, MiVIP gives companies comprehensive, secure control over the entire customer identity journey saving them time and money. Mitek's new platform is the culmination of our best technologies, our most recent acquisition of HooYu and our ongoing commitment to putting our customers in control of their consumers' experiences. As I previously mentioned, having a single platform that easily orchestrates and configures a KYC or know your customer journey to manage identities, minimize friction on good customers and identify bad actors is imperative for digital commerce.

With HooYu KYC technology at its core and the ID R&D biometrics and Mobile Verify verification integrated, we believe that MiVIP is the most comprehensive end-to-end identity platform on the market today. It's low-code no-code capabilities enable us to offer the platform to businesses of all sizes and quickly set them up to manage the KYC processes without needing an army of developers. This results in a significantly larger addressable market, more vertical segments, more geographies, and of course more use cases for our existing customers and partners. MiVIP also provides organizations with a more complete view of the consumer for more accurate decisioning throughout the customer's journey, resulting in optimization of workflows and ongoing improvement to the customer experiences.

We understand that business requirements change by region and vertical segment and consumer experience is everything. To meet these requirements, we provide flexibility with identity data signals. MiVIP offers our clients orchestration capabilities that allow them to use the most relevant data signals for their business and the flexibility to change signals with ease. Identity has moved beyond just being an enabler of digital commerce.

It's now an integral element of an organization's technology stack, because getting it wrong long means billions of dollars of identity fraud theft or fines. This is definitely not a soft problem. It's getting worse and much more complicated. But with MiVIP, we offer the market a full end-to-end platform that gives them the power to fight back.

We're excited about MiVIP and how it expands our offering and the addressable market and positions us for accelerated growth. The examples of the expanded use cases I mentioned earlier, point to greater adoption of digital identity verification as an essential recurring step in a customer safe digital journey. Our mission at Mitek is to provide trust and convenience to every digital transaction. We look forward to sharing our progress with you all in the quarters to come.

With that, I'm going to turn the call over to Frank to discuss the third quarter financial results in more detail. Following Frank's remarks, we'll open the call up for questions. Frank over to you.

Frank Teruel -- Chief Financial Officer

Thanks Max and thank you my technician for all of your significant contributions this past quarter. Bridging from Max's remarks, the consumers raise the digital channels has meant that fraud attacks continue to accelerate and the increasing complexity costing companies billions in fraud losses and significant operating costs. As discussed, the torrid pace of these attacks has been especially difficult for organizations that lack the internal technical resources, infrastructure, and the expertise to respond at the speed of fraud and as such, has created urgency for orchestration enabled solutions like our Mitek Verified Identity Platform or MiVIP. During the third quarter, we fully integrated the orchestration technology from our HooYu acquisition and we launched MiVIP.

We also continue to integrate our go-to-market teams and are already building a sales pipeline for our new orchestration platform here in the U.S. As Max mentioned, during the quarter we saw several new use cases for our digital identity verification solution, such as the regulatory requirements for the U.K. around, as Max stated, right-to-work and right-to-rent initiatives; verification for this new interactive gaming customer for in-game purchases; and also excitingly attendee verification for important events all of which bolster our view that digital identity verification is an essential, ongoing step throughout a customer's digital commerce journey. To that end we are excited about the launch this quarter of our end-to-end identity platform MiVIP which significantly expands our addressable market and will position us to accelerate our identity revenue growth.

With that preamble, let's unpack the Q3 revenue and operating results in more detail. Mitek generated third quarter results of $39.3 million, a 24% increase year over year. Software and hardware revenue was $19.8 million, up 17% year over year. The increase in software and hardware revenue is primarily due to the growing contribution of ID R&D continued mobile deposit reorders as well as Check Fraud Defender revenue.

One item to point out is, that ID R&D had another very strong quarter, as I mentioned contributed to the growth in our overall software and hardware line. While this revenue is transactional in nature and as part of our identity business, because it's offered on-premise ASC 606 requires that we put that revenue into the software line. Services and other revenue which includes transactional SaaS revenue, maintenance and consulting services was $19.5 million for the quarter up 32% year over year. Our transactional SaaS revenue increased 45% year over year to $14.7 million.

Driving this growth in transactional SaaS revenue was increased Mobile Verify volumes as well as the addition of HooYu SaaS revenue. An important highlight here to note is that even without the addition of HooYu SaaS revenue, our transactional SaaS revenue would have increased solidly both sequentially and year over year. As we move forward, ID R&D which is an on-prem solution, continues to grow we will start to move away from providing transactional SaaS revenue numbers on a quarterly basis and will instead break out deposits and identity revenue to provide a more holistic picture of each business. For Q3 2022, our deposit revenue increased 5% year over year to $21.9 million, driven by global deposit reorders and a nice contribution from our new Check Fraud Defender product offering.

Identity revenue increased 58% year over year to $17.4 million, driven by the expanded use cases we mentioned earlier as well as the addition of HooYu SaaS revenue and the very strong contribution from ID R&D. We delivered strong software and hardware gross margins of 97% for the quarter. Gross margin on services and other revenue was 79% for the quarter and our total gross margin for the quarter was 88% compared to 89% in Q3 last year. Total GAAP operating expenses, including cost of revenue, were $38.1 million, compared to $26.3 million in Q3 of last year.

And this increase is due to the investment to grow our identity business and the additional costs associated with the acquisition of ID R&D and HooYu. Sales and marketing expenses for the quarter were $11.2 million, compared to $8.1 million a year ago. R&D expenses were $9.4 million compared to $6.9 million a year ago and our G&A expenses were $6.7 million compared to $5.6 million a year ago. GAAP net loss for the quarter was $0.9 million or $0.02 per diluted share, reflective of the investment made to accelerate the growth of our HooYu business and the restructuring costs associated with realizing the acquisition synergies.

Our diluted share count was 45.1 million shares compared to 45.2 million shares a year ago. Now, as a reminder our earnings release include a reconciliation between GAAP and non-GAAP net income. We believe non-GAAP net income provides a useful measure of the company's operating results by excluding acquisition-related costs and expenses, stock comp expense, litigation expenses, amortization of debt discount and issuance costs, restructuring costs, and the related tax impact of all these items. Non-GAAP net income for Q3 was $10.2 million or $0.23 per diluted share, a decrease of 4% year over year.

Our non-GAAP adjustments included $4.5 million of amortization and acquisition-related costs, $3.6 million of stock comp expense, $2 million in cash tax, $1.8 million of restructuring costs, another $1.8 million amortization of debt discount and issuance costs, and $438,000 litigation expenses for the quarter. This was all offset by the income tax effect of pre-tax adjustments of $3 million. Looking ahead we expect sales from our new MiVIP platform will help us accelerate our identity revenue growth in fiscal 2023. While we are extremely excited about the opportunity with our new MiVIP as well as our growth initiatives, we are cautiously optimistic about our ability to deliver similar revenue as we've had in the third quarter again in the fourth quarter.

As we have mentioned, our identity revenue is transactional and varies quarter to quarter based on consumer activity, such as the expanded use cases mentioned earlier. While it's exciting to see the expanded use cases for our digital identification solutions, it is possible that our fourth quarter identity revenue could be at or even down sequentially despite being up year over year. Now, on the topic of profitability, we made the necessary investments in the third quarter to integrate our technology and our go-to-market teams as quickly as possible to magnify the opportunity of the new platform for our business. We believe this is an investment worth making given the high revenue growth and expanded addressable market and we believe the new orchestration platform that will bring to Mitek.

As I mentioned earlier our quarterly results reflect a $1.8 million restructuring charge as a result of the cost synergies we were able to gain from the integration of HooYu into our organization as well as the realignment of our expenses as we continue to move toward profitability in our identity business. We believe our identity business will reach profitability in the second half of fiscal 2024. Lastly, we're excited to welcome our new auditors, BDO, who have come onboard earlier this month and we look forward to working with them on a go-forward basis. Welcome BDO.

In closing, we are pleased with our third quarter results and we're extremely excited about the launch of MiVIP and the opportunity it creates for Mitek to accelerate our growth. We're also very pleased by the expanded use cases for our identity verification solution and the solid performance of our other growth initiatives, including ID R&D, Check Fraud Defender, and of course, our mobile check deposit business. Mitek's position as a global leader in digital identity and digital fraud prevention is strengthening day-by-day as we work to make digital access faster and more secure than ever. Operator, that concludes our prepared remarks.

Please open the line for questions.

Questions & Answers:

Operator

We will now begin the question-and-answer session. [Operator instructions] Our first question will come from Jake Roberge with William Blair. Please go ahead.

Jake Roberge -- William Blair -- Analyst

Hey, guys. Thanks for taking my questions and congrats on a great quarter. It sounds like business was actually really strong. But I think everyone knows what's out there.

And I was just wondering if you could actually touch a little bit on what you're seeing in the macro environment and specifically what you're seeing with customer buying behaviors. Have you seen any deals get pushed out whether it be mobile deposit or ID verification, or have you seen any customers decrease in usage volumes as a result of the macro environment? I know that there are likely puts and takes, but I would love to just get some color on how the macro has impacted your business?

Max Carnecchia -- Chief Executive Officer

Yes. Thanks for the question Jake. And I appreciate the positive comments. Obviously, there's a lot of uncertainty out there.

You can't read a new story or listen to radio and not come trip across it. The SaaS transactional nature of our identity business, as we use some of the examples in the prepared remarks, that fluctuates with, not just the cadence of an individual business, but also kind of the economic environment that their end consumers are working within. And the direct answer to your question is, so far we have not seen that impact, individual customers or individual use cases or individual geographies, period, full stop. Related thought, it's illogical that it wouldn't start to show up, right? So if we think about the increase in interest rates and we've got a lot of financial services customers, we've got a lot of FinTech's.

If you're doing mortgage origination, if you're doing HELOCs, you're doing refinancing, as those interest rates go up, the number of new loan originations is likely to go down. And that may not be a huge part of our business, but that would be an example that I would anticipate to start to see some headwind in transaction volumes for use cases like that. But the direct answer to your question is, so far, no.

Jake Roberge -- William Blair -- Analyst

Yes, that's great. And like I said, the numbers would show that, but just I had to ask. And then, just a second question. So you mentioned in your prepared remarks that the MiVIP platform has opened up new use cases with both customers and partners.

So, on that partner front, now that you may actually be more competitive with some of your old orchestration partners like HooYu, have you seen any changes to those relationships, or are those kind of status quo, and you're actually seeing some expansion opportunities with other partners because of the added functionality?

Max Carnecchia -- Chief Executive Officer

Yes. I think we've had some smaller partners that have felt that they view it as competitive and threatening. But our larger partners and prospective larger partners in that area of the world, information service providers, view it very much as an opportunity. You've got the best-in-class offering and solution, matched with a public company with great standing, a rock-solid balance sheet, all of the transparency that comes with being that public company.

And we just look like a great partner of choice with an enterprise class offering.

Jake Roberge -- William Blair -- Analyst

Great. And then just if I could sneak one more in. Could you talk a little bit more about how the initial customer reception has been for MiVIP? I know it's early, but have you seen any changes to the typical customer profile that your platform can target as well as have you seen any increase in velocity in terms of what you're filling up the pipeline with as a result of adding that functionality?

Max Carnecchia -- Chief Executive Officer

Yes, that's a nested set of questions. Just as a reminder for those maybe, who aren't recalling or aren't as close to it, the MiVIP is basically the HooYu platform, which had been up until our acquisition of HooYu, exclusively offered and delivered in the U.K. It is that platform rebranded, relabeled and then, hosted here in the United States and then throughout Europe for GDPR purposes, integrated along with our best-in-class biometrics of face and voice from ID R&D, and then, our world-class document identity verification solution Mobile Verify. So, that's basically what MiVIP is.

And we announced that -- we launched that at the end of June and it is now available here in the United States. We've been demonstrating it to interested prospects. We've been engaging in sales cycles. And I would say at this point, we've probably had three dozen serious engagements to be able to kind of test the hypothesis.

And it's been going well up to and including doing demonstrations and now starting to do some lightweight proof of concepts. The direct answer to your question as far as it does allow us to get to businesses that maybe are more agile, more nimble than the world's largest banks right? These born digital-native businesses that are moving very, very rapidly don't have huge development teams, but do have identity compliance requirements whether those are anti-money laundering, know your customer or just straight up something like age verification. So, we're -- just early days but we're quite encouraged from what we've seen. Those examples I just used there Jake were here in North America, but we have likewise on the continent in Europe had similar engagement and similar kind of traction initial traction.

Jake Roberge -- William Blair -- Analyst

Great. Thanks for taking my questions and congrats again on the quarter.

Max Carnecchia -- Chief Executive Officer

Thanks, Jake.

Operator

Our next question will come from Mike Grondahl with Northland Securities. Please go ahead.

Mike Grondahl -- Northland Securities -- Analyst

Hey, guys. Thank you. First question is just kind of on the revenue outperformance. Was that primarily HooYu? Was it more legacy mobile ID? Where would you kind of put performance?

Frank Teruel -- Chief Financial Officer

Yes. Hey, Mike. It's Frank. Great to hear from you.

Really as I said in my prepared remarks it's been a very interesting quarter. Our Mobile Verify product in some of the use cases Max discussed had a fantastic volume quarter and performed well. So, I would say it's a combination of both the contribution from HooYu, but also these new use cases the developer conference, the in-game kind of purchasing opportunity those are all big Mobile Verify opportunities for us. So, we had the benefit of some pretty good Mobile Verify performance as well as the HooYu performance.

Mike Grondahl -- Northland Securities -- Analyst

Got it. And those three use cases that were mentioned I won't remention them. But were those related to the HooYu sales force and Mobile ID legacy sales force? And then kind of related to that, it is a little bit different than I'll say historical customers? Meaning, I don't want to call it a one-off event, but clearly this advertising thing that the bank did and this gaming in-game purchase those seem to have more of maybe a one or two quarter big benefit than maybe slow off until an event happens again and especially a conference. So do you think this is a big new opportunity for you guys going after, I'll say a customer profile that might be more I'll say, event-driven or shorter term but a lot of transactions?

Frank Teruel -- Chief Financial Officer

Yes. So great question. I'm going to start with the latter and especially as a grand dad who buys their kids games right, this is a phenomenal market opportunity. I think it represents a great kind of test case for us to look at that new vertical is a great way to expand to other companies that are providing in-app purchases, in-game purchases new lives enhancements new features available to characters and so forth.

And same with the event business. I think these are great proof points for whether or not our technology is able to scale to handle the volumes that were significant and it did while doing that. So I think rather than viewing as one-offs, I think, there are great entrees potentially into these markets and create a great learning experience for us to turn that into kind of an ongoing revenue opportunity. As it relates to the sales force as Max mentioned in his comments the use cases we mentioned were both the HooYu sales force and the Mitek sales force.

Obviously, right-to-work in the U.K., the right-to-rent those are U.K. initiatives that were driven by our HooYu teams. But also the pipeline we're building as Max mentioned what we're seeing in the U.S. is a combination of those two workforces cross-pollinating, and kind of, learning both products.

So, I think, we've done a really good job in bringing the go-to-market teams together fostering that kind of cross-pollination in collaboration. And I think that plus these interesting new opportunities, events, games, the right-of-work all of these are interesting new use cases for us that I think have real legs and fruition could be very interesting.

Mike Grondahl -- Northland Securities -- Analyst

Related to that, the three or four use cases also help with outperformance in the quarter? It seems like a couple of them would have been big enough to drive some real dollars?

Frank Teruel -- Chief Financial Officer

Yes. Without a doubt.

Mike Grondahl -- Northland Securities -- Analyst

OK. And then just on the MiVIP or call it the new HooYu if you will almost. Are you -- is your sales force like all set to go in your pipeline? Are you-is that -- are they on the ground and running hard, or is it still sort of, hey, we're educating these guys and they're slow to get? I'm just trying to understand how quick this pipeline can fill up.

Frank Teruel -- Chief Financial Officer

Yes, it's a good question, Mike. So we're still investing in capacities in sales force and cross-pollination. Some are on the ground some more will come. So as we mentioned I think last quarter it's going to be an exercise in getting there and building the right kinds of skill sets necessary to sell both products.

So we're not there yet. We're still investing. You know, more to come in the coming quarters. But the good news is we've seen some pretty interesting pipeline growth already and we're still not at maturity in terms of fleshing out that workforce.

Mike Grondahl -- Northland Securities -- Analyst

Great. Lastly, I'll just say, it sounded like Mobile Check Deposit and Check Fraud Defender had 5% year-over-year growth. Those points were Check Fraud Defender?

Frank Teruel -- Chief Financial Officer

We had a very strong contribution from Check Fraud Defender. What's happening if you're following fraud Mike it's so interesting the fraud vector around checks and the average dollar value of fraudulent check has kind of really put the klieg light if you will on that industry. So a lot of folks are looking at it. It was a strong contributor without a doubt.

Yes, we don't break it up, but it was a strong contributor.

Mike Grondahl -- Northland Securities -- Analyst

Got it. Thank you.

Frank Teruel -- Chief Financial Officer

Yes. For sure, Mike. Thanks.

Operator

Our next question will come from Scott Buck with H.C. Wainwright. Please go ahead.

Scott Buck -- H.C. Wainwright -- Analyst

Hi. Good afternoon, guys. Thanks for taking my question. A bit of a follow-up on Mike's question on MiVIP.

Could we get a little bit more color on the go-to-market strategy? I mean have you cast a pretty wide net at this point, or are you targeting certain industries, certain companies within certain industries? What's that look like?

Max Carnecchia -- Chief Executive Officer

Sure, Scott. Thanks for the call. Thanks for the question. The -- first off MiVIP will be sold by all Mitek salespeople, the existing sales organization for HooYu, the existing sales organization for Mitek Identity.

And the second part of your question as far as, who we're segmenting and targeting, if I had to just put a big label on it, it really is the regulated industries, which is not dissimilar to what we've focused exclusively with Mobile Verify. So I think, fintech, financial services, aiming utilities, anything that's really regulated is a great opportunity for us. The difference now with MiVIP is it really opens the aperture on those segments, so that you don't have to be just the largest Tier 1 bank that has armies of developers to configure and build your own workflows and your own orchestration systems to integrate the various identity signals. This really allows us to get to some of the faster-moving, very fast-growing businesses that are out there that maybe are a little constrained on application developer resources, but still need to go quite quickly and need to get good answers, need to have an effective system.

So that's where we are so far. Similar to Frank's response to Mike, it's still early days, right? We basically got this thing launched. It was the end of June. Thanks to our team for all the hard work in making that a point of focus.

And now we're enabling our selling organization and training them and making sure that they're targeting the right organizations. And we're learning, right? It's a little bit of an iterative process. It's going to take some time to figure out where the sweet spots are for us and to make those course corrections. But as Frank indicated, we've started to build those pipelines, both here in North America as well as in Europe and we'll continue to report to you guys on the progress we're making with that.

Scott Buck -- H.C. Wainwright -- Analyst

Great. That's helpful. And second, on the uptick in sales and marketing and in R&D costs, both sequentially and year over year, how much of that is tied to the initial launch year of MiVIP versus -- is this more of the run rate going forward here?

Max Carnecchia -- Chief Executive Officer

Well, there's certainly some associated with the one-time launch. But remember, you've now got the HooYu organization in those line items and that will be ongoing, right? We held on to all of the HooYu folks.

Scott Buck -- H.C. Wainwright -- Analyst

OK, great. And then, last one for me. Can you tell us what legacy HooYu revenue was in the quarter?

Max Carnecchia -- Chief Executive Officer

We're not breaking that out. I will -- I think we shared that in the last call, we gave you a sense of what the baseline was the day that we came together in the trailing 12 months. And they continue to grow at their very nice historic growth rate or better.

Scott Buck -- H.C. Wainwright -- Analyst

OK. Super. Appreciate the time, guys. Thank you.

Max Carnecchia -- Chief Executive Officer

Thanks, Scott.

Frank Teruel -- Chief Financial Officer

Thanks, Scott.

Operator

[Operator instructions] Our next question will come from Allen Klee with Maxim Group. Please go ahead.

Allen Klee -- Maxim Group -- Analyst

Good afternoon. Can you just say again when you expect the identity segment to reach profitability?

Frank Teruel -- Chief Financial Officer

Yes. Hey, Allen, good to hear from you. As we've mentioned in the past and in today's prepared remarks, we're looking for the second half of fiscal 2024 for that identity business to turn the corner.

Allen Klee -- Maxim Group -- Analyst

Yes. So I wanted to follow up on that. So identity did around $17 million this quarter. So we're talking an annual run rate of close to $70 million.

And so, I wanted -- the market has changed and just revenue growth with not profitability is not being awarded the same way it may have been a year ago. And I'm trying to figure out if this is a good business or not pretty much. And maybe you can help me understand, why should it take so long to get to profitability? Do you have to do something with the tech to use more technology and to automate it more, or is it purely just scaling up? Because it seems like $70 million is a pretty good run rate. I'm not sure I really understand why this is going to lose money for such a long period of time.

Frank Teruel -- Chief Financial Officer

Well, so Allen, great question. Two things. One, and Max mentioned in his remarks identity is an unsolved problem. This is an arms race, right? Threat vectors change.

Fraud vectors change. We adapt. They adapt. And we kind of leapfrog each other.

By they, I mean the bad guys and then the providers come up with solutions. So there's a lot that goes into properly verifying identity right to really understanding who's behind that transaction as an important consequence. And that's a lot of work. In addition to that, you've got the sustaining efforts we've had and you're carrying along some of the acquisitions we've done and those kinds of things.

So we think certainly profit is important running march toward profitability. And that's a driving focus of this management team is growth as well as profitability. We think as you look at what it takes to address this market get identity right, we're laser-focused on getting to that fiscal 2024 kind of time frame. But it is a very difficult problem.

And getting there, getting the right models, getting the right information, getting the right data, and then recognizing that everything we do today will likely change tomorrow because some new threat vector will manifest itself. That makes us a very dynamic and rich market to operate in, but also a complicated market to operate in.

Allen Klee -- Maxim Group -- Analyst

Yeah. But what I'm trying to understand is how much of the issue is that you have to do something with your technology to upscale it versus just the scale of volume to turn the business profitable? And is there anything -- maybe you can answer that by talking about your technology a little bit how you would say it compares to the competitors?

Max Carnecchia -- Chief Executive Officer

Yeah. So Allen this is Max. I think first, the direct answer to your question is, this is a very good business. The second is we're focused here on identity, but when you zoom out and just let's recall that Mitek in composite or the entire portfolio is a rule of 50 business right getting both the growth and the very nice EBITDA profitability.

I think to come to your specific question around the technology, we've got world-leading technology. We've also done what we think are very important and differentiated acquisitions ID R&D in the biometric space and then obviously the most recent HooYu with the workflow and end-to-end low-code no-code orchestration. We are going to need some quarters to get all of these things kind of sorted out. There is some redundant capabilities across the portfolio that need to be ironed out.

And it may take us three or four quarters to make all that happen. On the other side of it though, we think this is not just a very scalable system that's highly differentiated. We think that it's also scalable from a profitability and a leverage perspective.

Allen Klee -- Maxim Group -- Analyst

OK. Thank you very much.

Max Carnecchia -- Chief Executive Officer

You bet. Thanks, Allen.

Operator

This will conclude our question-and-answer session. I would now like to turn the conference back over for any closing remarks.

Todd Kehrli -- Investor Relations

Thank you operator and thank you everyone for joining us today. We look forward to updating you again next quarter. Our call has concluded. Have a wonderful day.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Todd Kehrli -- Investor Relations

Max Carnecchia -- Chief Executive Officer

Frank Teruel -- Chief Financial Officer

Jake Roberge -- William Blair -- Analyst

Mike Grondahl -- Northland Securities -- Analyst

Scott Buck -- H.C. Wainwright -- Analyst

Allen Klee -- Maxim Group -- Analyst

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