CoreCard Corporation (ticker: CORE), a provider of card management systems and processing services, reported its first-quarter 2024 earnings, which met analyst expectations despite a revenue dip. The company announced total revenues of $13.1 million, marking an 11% decline from the previous year, primarily due to decreased professional services revenue from its largest customer, Goldman Sachs (NYSE:GS). Nevertheless, CoreCard's processing and maintenance revenues exhibited growth, and the company remains focused on expanding its customer base and investing in new platforms.
Key Takeaways
- CoreCard's Q1 2024 revenue hit $13.1 million, an 11% decrease year-over-year.
- The drop was largely due to a reduction in professional services revenue from Goldman Sachs.
- Processing and maintenance revenue grew by 13%, helped by a customer acquired in 2023.
- Full-year revenue growth is projected at 10-15%, excluding the impact from Goldman Sachs and other factors.
- Earnings per diluted share were $0.05, down from $0.15 in Q1 2023.
- The company repurchased 134,650 shares and has over $24 million in cash for investments and buybacks.
- CoreCard is developing a new platform, Corefinity, expected to launch in Q4 2025.
Company Outlook
- CoreCard anticipates 10-15% revenue growth for the full year, excluding factors such as the decreased business from Goldman Sachs.
- Services revenue is expected to remain flat year-over-year, with license revenue projected at $1.4 million in Q4 2024.
- The company is seeking to add two strategic customers in addition to its partnership with the Bank of California.
Bearish Highlights
- Income from operations decreased to $0.5 million from $1.8 million year-over-year, influenced by new platform investments and lower revenue from Goldman Sachs.
- The company is experiencing a transition period due to the loss of Goldman Sachs as a major customer.
Bullish Highlights
- CoreCard's processing and maintenance segment is showing resilience with a 13% growth.
- The company has a robust cash reserve for strategic investments and share buybacks.
- CoreCard is optimistic about its growth potential in 2025 and beyond, with investments in new technology and potential new partnerships.
Misses
- The company's earnings per share saw a significant decrease from the same period last year.
- The expected flat services revenue indicates a potential stagnation in a key revenue stream.
Q&A Highlights
- CoreCard is not focusing on growing EBITDA margins at present but is instead directing efforts toward future growth potential.
- The company addressed the impact of regulatory consent orders on banks sponsoring fintechs, stating that it is targeting fintechs unaffected by these issues.
CoreCard's first-quarter performance reflects a period of adjustment as the company navigates the challenges posed by the loss of revenue from Goldman Sachs and the evolving regulatory landscape. Despite these hurdles, CoreCard is actively pursuing new customer relationships and investing in its future through the development of its Corefinity platform. The company's management remains confident in its long-term prospects, emphasizing strategic partnerships and cost management as key components of its growth strategy. With a focus on diversifying its customer base and maintaining profitability, CoreCard is positioning itself to weather current market uncertainties and capitalize on future opportunities.
InvestingPro Insights
CoreCard Corporation's (ticker: CORE) latest financial data and market performance reveal several noteworthy points that investors may find of interest. The company's market capitalization stands at a modest $100.37 million, reflecting its position in the market. As of the last twelve months ending Q4 2023, CoreCard holds a price-to-earnings (P/E) ratio of 22.87, which suggests that investors are willing to pay $22.87 for every dollar of earnings, indicating a level of investor confidence in the company's profitability.
InvestingPro Tips highlight that CoreCard's management has been actively engaging in share buybacks, a move that often signals confidence in the company's value and future prospects. Additionally, the company's balance sheet shows a favorable position, holding more cash than debt, which provides financial flexibility and stability.
InvestingPro Data metrics show a mixed financial performance:
- Revenue for the last twelve months as of Q4 2023 was $56.0 million, with a notable decline of 19.72%.
- The company's gross profit margin stands at 36.03%, suggesting a healthy ability to retain profit from sales after accounting for the cost of goods sold.
- CoreCard's return on assets for the same period was 5.34%, which measures the effectiveness of the company in turning its assets into net income.
InvestingPro also offers additional insights, with a total of 11 tips available for CoreCard. These tips provide a deeper analysis of the company's financial health, market performance, and future outlook. For those interested in gaining a comprehensive understanding of CoreCard's investment potential, you can find these additional tips on InvestingPro's platform.
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Full transcript - Intelligent Systems (NYSE:CCRD) Q1 2024:
Operator: Greetings, and welcome to the CoreCard First Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded. I’ll now the turn the conference over to Matt White, CFO. Thank you. You may begin.
Matt White: Thank you, and good morning, everyone. With me on the call today is Leland Strange, Chairman and CEO of CoreCard Corporation. He will add some additional comments and answer questions at the conclusion of my prepared remarks. Before I start, I'd like to remind everyone that during the call, we'll be making certain forward-looking statements to help you understand CoreCard Corporation and its business environment. These statements involve a number of risk factors, uncertainty and other factors that could cause actual results to differ materially from our expectations. Factor that may affect future operations are included in our filings with the SEC, including our 2023 Form 10-K and subsequent filings. We'll also discuss certain non-GAAP financial measures, including adjusted diluted EPS and adjusted EBITDA, which is adjusted for certain items that affect the comparability of our underlying operational performance. These non-GAAP measures are detailed in reconciliation tables included with our earnings release. As we noted in our press release, our first quarter results were in line with our expectations, with continued year-over-year growth in processing and maintenance revenue. Total revenue for the first quarter was 13.1 million, an increase -- a decrease of 11% year-over-year driven by lower professional services revenue, primarily from our largest customer Goldman Sachs. The components of our revenue for the first quarter consisted of professional services revenue of 5.8 million, processing and maintenance revenue of $6.2 million and third party revenue of 1.1 million. As expected, we did not have any license revenue for the quarter. Goldman represented 59% of our revenues for the first quarter of 2024 compared to 73% for the first quarter of 2023. Processing and maintenance revenues grew 13% in the first quarter on a year-over-year basis, primarily driven by the acceleration of 0.5 million of revenue from a customer that was acquired in 2023, formally terminated their contract in the first quarter of 2024. Revenue growth excluding our largest customer was 41% for the first quarter on a year-over-year basis. Revenue growth, excluding our largest customer and the impact from ParkMobile, the legacy Kabbage business and the 0.5 million of accelerated rated revenue in Q1, 2024 previously mentioned 41% first quarter on a year-over-year basis as expected to be 10% to 15% for the full year. We continue to onboard new customers, both directly and through various partnerships we have with program managers such as Deserve, Vervent and Cardless. As in previous quarter, we currently have multiple implementations in progress with new customers that we expect to go live in the coming months including our business with commercial our partnership with the Bank of California. Turning to some additional highlights on our income statement for the first quarter. Our income from operations was $0.5 million compared to $1.8 million for the same period last year. Our operating margin was 4% compared to an operating margin of 12% for the same period last year. The year-over-year decline in our operating margin was primarily driven by continued investments in our new platform and lower professional services revenue. The income statement impact of our new platform build was $0.7 million in the first quarter of 2024 compared to $0.4 million for the prior year period. We made some headcount reductions in India [Technical Difficulty] related cost savings starting in the third quarter of 2024. We will continue to look for cost savings as needed to remain profitable given the lower revenues we're currently receiving from our largest customer. Our Q1 2024 tax rate was 25.7% compared to 24.7% in Q1 2023. We expect an ongoing tax rate between 25% and 27%. Earnings per diluted share for the quarter, was $0.05 compared to $0.15 for Q1 2023. Adjusted diluted EPS for the quarter, excluding stock compensation expense $0.7 compared to $0.15 for Q1 2023. Adjusted EBITDA was $1.7 million compared to $3.5 million in the first quarter of 2023. We have over $24 million of cash on our balance sheet as of March 31, 2024 and we expect to continue generating operating cash flow in 2024. We plan to use this excess cash and cash generated from operations. We continue investing in our new platform and to continue buying back share especially, at current price levels. We repurchased 134,650 shares in the first quarter of 2024 for $1.6 billion. We have approximately $13 million remaining in our current share repurchase authorization For the full year 2024, we continue to expect services revenue to be approximately flat to 2023, In fact, license revenue to be approximately $1.4 million likely in the fourth quarter of 2024. As mentioned earlier, we expect growth from customers, [Technical Difficulty] our largest customer impact of ParkMobile, the legacy Kabbage business and the 0.5 million of accelerated revenue in Q1 2024 to be in the 15% for the full year. Within services, we continue to expect growth in processing and maintenance as our customers continued to grow, and have stayed onboard new customers. We anticipate professional services revenue in the second quarter of 2024 to be likely in the range of $5.7 million to $6 million. With that, I'll turn it over to Leland.
Leland Strange: Thanks, Matt. I think the -- as you said the quarter was pretty much as we expected. I have seen the result, simply is a little better than breakeven. And I think, I expect similar results for the next couple of quarters. Saying some more is the right answer that will maybe a little better will not be a little worse. But generally, I would say some of the next two quarters, hopefully, achieve significantly better than before. But the next year will similar. The elephant in the room is and it has been our largest customer Goldman Sachs variations of revenue for them along with the question about what's going to happen in the future, becomes the unknown. Let me address that for reported to proceed. Actually obviously things are coming from our continued increasing in the revenue from this segment. That's outside of the largest customer. Everyone wants to know what's going to happen with the Goldman situation since they are pretty much announced that they're getting out of the business. I want to say very clearly that I have no inside information on that or what's going to happen. If I did I couldn’t talk about it. So everything I say about it speculative from my view is now back up by anything definitive that comes from the customer or any conversations? First, I do expect the General Motors (NYSE:GM) car that's being processed own the CoreCard platform at Goldman that -- go to another party either the fourth quarter this year or the first quarter next year. Wall Street Journal speculated yesterday or a couple of days ago that Barclays (LON:BARC) is funding for that card. Again I would emphasize that even that Oracle (NYSE:ORCL) was speculation and they didn’t call anybody or anyone that said that was definitive. It really doesn't matter where the receivables go from a CoreCard perspective. It's highly unlikely that we'll continue to processing that portfolio since it's a very plain card with no special requirement. Any process or it could probably pick that up its fairly easy in as a card. So I know that I just don't see the real problems with that. The other card, the Apple (NASDAQ:AAPL) Card is different. The Apple Card is one that is much more difficult. It has a lot of specialty kinds of things to it. So therefore, I would expect that not to be as support to move somewhere else. There is again, speculation that it will go to a new bank either -- either the end of this year or the next year. And when I say speculation, there's speculation that a new bank will be chosen. It's my opinion that that is going to be choppy between Apple and a new bank. And it's not necessarily a Goldman decision although, they are obviously part of it. Again we have no insight on that. We simply cannot do what we do every day and we have to go along with whatever happens. I would also speculate that probably from today we're still going to be processing that card for the next two or more years, could be a long time. Again, we have no definitive answer on that. Our cards will get questioned well, what's going to have -- what's going to happen to see if we should know. I'm just telling you, we don't know. We can't know. And by the way, when I do know, I'll probably have to say I can't discuss it. So that's going to be the clue that I may know, but that I can't say anything, because we're certainly not going to give any information out about our customers. The next thing, then, is looking to the future. Well, we've got a handful of folks that we are talking to that are what I will call potential strategic customers. Now, what does strategic mean? Strategic means that either they have the potential or are very large, or they want to do or are doing a product that will extend the CoreCard brand and will help us get into new markets or help us progress. What does strategic mean for the customer? It means that everybody at CoreCard, all 1,000 employees know that when that customer calls or what that customer wants, we're going to jump at it, and that's going to be the number one priority. That's what happened with the Goldman contract when they were strategic. Now, it's simply ongoing as opposed to something strategic. You can't have a handful of strategic partners. You can only have, in my view, two or three. We have one right now. I'm going to call the Bank of California a strategic partner. They have card leadership that wants to be innovative. They're willing to do innovation, and they help us together come out with a commercial card that we think the market is going to want. So, once that gets live, you will see us actively promoting that card. They haven't introduced it yet, but I think it will be introduced in the next month or two. So, that's a strategic partner. Of the handful of people we're talking to, I hope to get, again, two more because the maximum we can have is three, and we'll be treating them the same way. All eyes, everyone is important. I hope one of them or two of -- or both of them already have significant revenue, but we're talking to a set of handful, some that have significant revenue, some that do not, but have the potential to be significant partners. So we're looking and really spending our time thinking about the non-Goldman business, and we are going to be managing our expenses toward that, and simply that's where the resources will go. Let me just make a comment, I think, last about what's happening in the business in general. The business in general is -- there's a little bit of cap on it because of regulators. Now, CoreCard has always taken the approach that we work for the regulators. We work for the OCC on one end, or the FDIC, whoever is controlling or regulating the bank, and we work for the cardholder on the other end. If the cardholder is happy, then you'll have no regulator issues at the bank. So it's -- the fact is, we work for the regulator, and recently the regulators have issued consent orders to a good number of banks that have been sponsoring Fintechs. The reason for that is they've been lax in program management, and they've been lax in terms of the money laundering and know-your-customer type activities. So, the banks have a bin that they rent out or provide to a program manager, and up to this point, the bank has said, has delegated and said to the program manager, you take care of AML, and we're counting on you doing it right. The regulators have come back into the banks and said, nope, you can't delegate it. They can do whatever they're doing, but you bank, you are responsible, totally. So that has all of a sudden caused a good number of banks to have to say, we're taking a pause until we re-orient our compliance procedures to take care of what the regulators are saying at this point. So that does, that does, you Fintech type capability. On the other hand, the folks that are already out there that are not new Fintechs are doing fine, no regulatory issues there, and those are the ones that we're tending to approach at this point. So with that, let's just open it up to questions. That's my view of where we are now and what's happening.
Operator: Thank you. [Operator Instructions] Our first question is from Hal Goetsch with B. Riley Securities. Please proceed.
Hal Goetsch: Good morning, guys. I wanted to ask you about what you mentioned towards the end of this call and that is the potential for one to three strategics and you mentioned one or both might have significant revenue. Does that mean they would they would bring a cards that they already have on your platform and that would be the new processing platform for our existing portfolio? Or could you help us understand a little better? Thanks.
Leland Strange: Yes, that will require conversion. We're very good at conversions. We've got a good history of that. That's obviously one of the issues with folks, but we have a really good history. And as we have no hesitation in taking on the project of converting a portfolio. So yes, that again that makes us lumpy. If we get one of those now something I didn't say and I should mention here, two of them do not have contracts that they had with their current processor until as a one in June of next year, one in October of next year. But they'll make their decision by June to October of this year, but the -- and we will start working probably 12 months before that contract ends. But the revenue would come in until the pure – so is 2025 revenue.
Hal Goetsch: Okay. And then on the – moving on the fintech issues with on the compliance side is – how are the fintechs you're working with? You mentioned Deserve, Vervent and Cardless, are they in that camp taking the path when they have their…
Leland Strange: No. Go ahead. None of our [Technical Difficulty] there are customers that currently exist have that problem but none of our customers have a problem. But as I think about it they are dealing with some of the banks that have gotten consent orders. But all that means for the bank they can't take on but they're just [Technical Difficulty] until they get their sites. So it's not impacting to my knowledge any of our current customers.
Hal Goetsch: Just want to make sure I understand kind of the [Technical Difficulty] one time cancellations.
Leland Strange: Right park mobile.
Hal Goetsch: In park Mobile. You expect your processing revenues to be up 10% to 15%. Is that right? Or….
Leland Strange: Everything. All revenue.
Matt White: I should go bucket major shopping that may make you know there was that 500,000 that we put in this year it was a previous customer who is only paying us minimum. They could only gone live with friends and family and they got purchased by a another processor. So the other processor obviously wanted to get them out of their platform not ours. So they took it off now that usually we looked at it should you just continue to spread that over the term of the contract, but really [indiscernible] determined that we have no more services to provide. So therefore we're going to have to take it all in the first quarter. That's going to make it difficult owned sub forward comparisons for the next couple of quarters but that's a 500,000. That was a one-time decrease. We're not going to get now. Now we expect a decrease of other places. We expect out of some cost savings. So that's why I said earlier I expect over the next two quarters to be similar to this quarter. But that's a that's a big make-up.
Hal Goetsch: Okay. Thank you.
Operator: Our next question is from Avi Fisher with Long Cast Advisers. Please proceed.
Avi Fisher: Hi. Thanks for taking my question. I hopped on a little late. Did you mention anything about expectations of license revenues this year?
Matt White: $1.4 million likely in the fourth quarter.
Leland Strange: I am not showing its possible. Matt -- different a little bit in terms of predicting it but it is possible.
Avi Fisher: Okay. And then and then two other quick questions. So do you generate any one-timer “excess revenues” as the General Motors card leads?
Matt White: No.
Avi Fisher: Is there any special work you have to put it in?
Matt White: I mean there might be a little bit of work you know in terms of the conversion off of the platform. We haven't assumed anything at this point. The timing is still pretty uncertain as to when that might happen.
Leland Strange: I wouldn't expect any big increase on that, but it will just offset some of the other professional services that we're doing for the client.
Avi Fisher: Got it. And then within that General Motors, it doesn't -- does it change your contract with Goldman? Or are they still going to pay you what -- based on that contracted rate?
Matt White: It doesn't change our contract with Goldman.
Avi Fisher: Got it. Okay. And then can you talk about the revenue generation on these strategic opportunities? So for example, you have a processing customer, they're going to pay you over time on monthly accounts. So essentially, on day one, you're not going to be paid a lot. But if the card is successful or a year or two out, you start making a lot of money at a high incremental margin. But what is the revenue generation and margin profile of a strategic before it starts -- before it goes live and before those monthly accounts start accumulating?
Leland Strange: The strategies are so different. I can't answer the question, I'll give you an example. Banc of California (NYSE:BANC) is strategic, revenue especially nil at this point. It will grow over time, but it's nil. So they're -- all are different. All five or six, we're talking to are different. The two or three or the two -- I can only take two strategic, really. The two that we get, I can't predict which one we'll get. In some cases, it would be some revenue immediately, but that's not until their contract expires that they go live next year. There may be another one we're talking to, we can get a significant chunk this year if we get that one. Now each of these parties, in my opinion, we're not going to lose them to somebody else, but they may stay with their current provider. So I'm not going to -- I don't want to get out there predicting revenue from them.
Avi Fisher: Sure. That's fine. But just so I understand then, I mean, to bring on board, say, Banc of California, you have to spend professional -- you have to spend money to set up the platform for them. And you don't generate that kind of pass through.
Matt White: From historically.
Leland Strange: Yes, we're spending money every month on that, and it's not -- it's just an expense. We're not building it up in terms of amortizing. There might be a tiny bit of that. But generally, we're trying to be very conservative on it. So that would be -- I think when I say there is a little bit there, but we're working on that every day.
Matt White: Yes. Everything we've done is primarily historical and we expect a public launch in the coming months on that. So most of those costs have been incurred already. The balance sheet hasn't changed significantly over the last 12 months in terms of what we've put on related to those costs that we've incurred.
Avi Fisher: Right. So just so I understand though, ahead of a launch of a strategic, your margins will be lower because you're spending money and not generating any revenue off of it. And then the launch, and if it's successful, the margins go up because you're generating revenue without a lot of incremental costs. Is that kind of the right way to think about it?
Matt White: A lot of those costs incurred, so similar to like if we charge an implementation fee that's going to go into the deferred revenue line, the cost associated with getting ready for a new launch also go onto the balance sheet into a deferred cost bucket, which has never been significant, never been a separate line item. So there really isn't a huge margin impact as you're describing.
Avi Fisher: Okay. What -- can you then talk about the opportunity to grow your EBITDA margins?
Leland Strange: Again, the way we're investing is strategic. We're just not looking at margin there. We're looking at future potential and not concerning ourselves about percentage margin.
Avi Fisher: I got what you’re saying. Thank you very much.
Leland Strange: Thanks Avi.
Operator: There are no further questions at this time. So this will conclude today's conference. You may disconnect your lines. Go ahead, Leland.
Leland Strange: Yes. Let me just kind of give a quick summary. Just to say I'm very optimistic with the potential we have for 2025 to be a good growth year outside of our largest concentrated customer. As I said earlier, I don't think we'll be in a position to be very definitive on that until late third quarter. And another note I mentioned earlier, but Matt did mention, we continue to invest in a new Corefinity [ph] or CoreCard platform that's slated to be available in the fourth quarter of 2025. If I were to take a look back at our strategy, we had planned on Goldman Sachs being a partner that was going to bring additional client zone, and we've been building a bench to take care of that growth. We're accounting on growth to come from that partnership with that being the number one partnership or the number one strategic customer. When they decided to exit the business, we really were not prepared to immediately ramp up business development. And I'm going to have to acknowledge that it was my mistake to believe that the partnership would be sufficient for our future growth. Actually, I should say, it would have been sufficient for growth if they had not changed course, but they did. So now we're dealing with that. We're managing expenses. We have new products coming, and we have a good number of prospects that we're talking to. So I realize there's a period of uncertainty, but I'm pretty confident that we have the only modern revolving card platform. It's not in the hands of the multibillion dollar companies that's going to survive over the long-term. So we're pleased that those of you that are current shareholders, who have been our shareholders, we're happy to continue the dialogue with anybody that would like to talk to us. Thanks for being on the call today, everyone.
Operator: Thank you. We will now conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.
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