Q4 2021 CoreCard Corp Earnings Call
Greetings and welcome to the core card Q4, 2021 earnings conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.
Please note this conference is being recorded.
I'll now turn the conference over to your host Matt White, Chief Financial Officer, you may begin.
Thank you and good morning, everyone.
With me on the call today is Leland Strange Chairman and CEO of Scorecard 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 courtyard Corporation and its business environment.
These statements involve a number of risk factors uncertainties and other factors that could cause actual results to differ materially from our expectations.
Factors that may affect future operations are included in our filings with the SEC, including our 2020 and Form 10-K and subsequent filings.
As we noted in our press release, our strong performance continued in the fourth quarter. Our professional services revenue remained solid we saw continued growth in processing and maintenance revenue and we recognized license revenue of $1 8 million in the fourth quarter of 2021.
Resulting in full year growth of 34% the top end of the range, we gave on our third quarter call.
Total revenue for the fourth quarter of 2021 was 13% $13 million or 36% increase compared to the fourth quarter of 2020 Services' revenue grew 48% compared to the same quarter last year and 31% year over year, while license revenue, which is hard to predict on a quarterly basis decline.
And 11% compared to the same quarter last year and grew 63% year over year.
The components of our revenue for the fourth quarter consisted of professional services revenue of $6 $4 million processing and maintenance revenue of $3 $9 million third party revenue of a $1 million and as I already highlighted license revenue of $1 $8 million.
As we've said previously we expect continued growth in our processing and maintenance revenues from a combination of recently added customers who are now alive continued growth from existing customers and implementations that are currently in progress, including a large conversion for one of our existing customers that we expect to complete in the first quarter of 2000.
'twenty, two which will result in significant license revenue and future increases in maintenance revenue.
We signed several new customer contracts in 2021, and we recently opened an office in Bogota, Colombia, where we have begun hiring and training operations and development personnel to enable this new and continued growth. We also continue to hire as fast as possible in India, where we added approximately 50, new people in the fourth quarter.
We expect to add another 202 hundred 50 to 300 operations and technical personnel in India in 2022.
Hiring and training new personnel continues to be a top priority both to enable continued growth from existing customers and to enable us to take on significant new customers.
Professional services revenue continued to be strong in the fourth quarter and we anticipate similar professional services revenue in the first quarter of 2022.
And the range of $6 four to $6 $6 million.
Turning to some additional highlights on our income statement for the fourth quarter and full year for 2021 income from operations was $3 million for the fourth quarter of 2021 compared to income from operations of $2 $7 million for the same period last year.
Our operating margin for the fourth quarter of 2021 was 23% compared to an operating margin of 28% for the same period last year.
The year over year decline in our operating margin was primarily driven by revenue mix.
New investments in our processing environment, and our new office openings and Dubai in Bogota.
Additionally, we are building a new platform that is resulting in higher research and development costs.
These investments are a key component to future growth.
Our fiscal 2021, and 2020 tax rate was 23, 2%, we expect our ongoing tax rate to be between 23 and 25%.
Earnings per diluted share for the quarter was 30 <unk> compared to 24 cents for Q4 2020 full year 2021 diluted earnings per share was $1 three compared to 91 cents for the full year 2020.
Now turning to our expectations for 2022 weeks.
We expect top line growth of 20% to 25% for 2022 with a significant amount of license revenue in the first quarter.
We expect license revenue in future quarters in 2020 two.
However, it is difficult for us to predict the timing for reasons, we've discussed previously.
We expect strong growth in processing and maintenance as our customers continue to grow and as we add new customers. We're expecting some slowdown in the growth of professional services due to the strong demand for our services in 'twenty 'twenty. One however, we expect that revenue stream to remain strong as I have discussed.
And with that I'll turn it over to Leland.
Okay. Thanks, Matt.
And I'll add my thanks for.
Joining us today.
Mad ended his comments with what I think most analysts shareholders and prospective shareholders want to know.
Which is what are you going to do it now.
I don't know about the future and then you wanted to drill down so I'll come back to that but I want to make a couple of other observations first.
Note that we are now core card not intelligent systems.
It's hard to break the habit.
Matt reminded me yesterday over I call today. He said intelligence says of earnings call before catching himself and saying scorecard on each call. So it's a it's gonna be a habit that will have a hard time breaking intelligence systems actually was first incorporated around 1974 or shouldn't be fab not about me by the way had no affiliation knowledge.
The company at that time.
It actually produce one of the first desktop computers and a lot of about the same time example, it was called copy color.
The founder of the company was big on the future of color Computing later had one of the first color copying machines and another company I wish Charles Bennett.
He took indulgent citizens public and 1981.
Well, it's one of the earliest technology companies to go public one of the leading V cez, but today that especially the company was oak investment partners out of Greenwich, Connecticut partner by the name of it Glassmeyer, who is a co founder of them. So after 40 years.
Intelligent systems is no more and we are now core card courtyard Corporation.
We have a singular focus to be the most agile and deep financial platform for the processing of money that's available with a particular focus and expertise at credit.
Can I just come back to our results note first that our revenues increased 34%.
You might ask why did we project around 20% a year ago in this 2020 call.
30%, 34% substantially more than what we thought would be the case. This time a year ago, but we did update guy that says we saw it picking up in the year.
And I have to say the answer to that question is.
He is going to sound a little bit like a broken record, but the word is.
Lumpy.
Our not only our quarter to quarter, but sometimes year to year, but hawsawi lots of revenue.
So I know you've heard that word before you'll hear it again.
But we are on a consistent average growth path of 28 to 25 per share.
We're a considerable number of passionate future years.
You'll recall that we get our revenue based on I'll call. It a stair step for active account growth whether it per each a kiln that would smooth the revenue recognition, but while smoothing it would play havoc with the actual operating accounting for both our customers and ourselves. So we accept the reality of what we should do so which they're still active accounts.
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Our net earnings grew 11%, we spent as Matt said in 2021 and by the way doing so in 2022 to continue putting the pieces in place to grow much larger than we are now.
This is mainly investments in people infrastructure and R&D R&D, both ROIC Android.
Well, we don't concern ourselves with the precise just a profit, but we're darn sure wasn't to make certain we remain nicely profitable.
Many of our peer fintech competitors.
So something that was part of the discussion up we underestimated a year ago revenues.
By studying calls as the year progressed.
We will do the same revisions this year as it progresses.
Let me make a pretty important prediction for the 2022 year.
Well again, we're halfway through the first quarter or just the middle of February we believe and I'll say with a 90% probability that revenues the first quarter will be the largest of any quarter in 2022.
No I understand is as we're on the call at this minute I don't believe we've invoiced build draw otherwise economy or even 20% of the revenue. We believe we'll end up reporting for the first quarter.
I emphasize this back to this degree for two reasons one.
Drilling down to the specifics of where are we or will in no way help you predict what the quarter or the year old finally, upbeat little finally ended up being and too.
What we know is a second or maybe even a third derivative, but in some instances. So we and you have for a while and the instinct and judge what a benchmark for forecasting the future.
I'll say that until we get much larger over 100 million in revenues.
And then I guess you have to look at management track record of what they've said and how results are correct, what they've said.
So once again.
Revenues for the first quarter are expected to be larger than any other quarter.
And we expect to grow at 20% to 25% rate for the year.
Does this mean that the other quarters or bad absolutely not all of the other quarters will show progress every area other than license revenue in comparison to the first quarter and some cases core year over year or quarter to quarter.
Comparisons will be better for the year.
Again back to that lumpy problem.
So first quarter license revenue, we believe will ship that overwhelmed the other numbers.
We are creating a profitable scalable growing business.
Which I know are especially important to a lot of so called modern companies and investors that happened narrative.
I used the word profit starting with a capital P. As someone originally said is paramount for us and we're going to stay that course, we do believe that the present value of future cash flows will in the end be the winning formula for our shareholders.
I don't really have a lot of narrative to add other than what Matt had were pretty much continue to do the same thing we did last year, which is grow at a reasonable rate where up to our oh balls in terms of work we need more people in order to take home or more work.
Adding more people as quickly as we can that's all working well our training programs are up and running so we do expect to set ourselves up in 2020 two.
For even a better call one year from now.
I'm just going to end it at that Matt and see if we have any questions.
For anyone on the line.
And at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.
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Participants using speaker equipment, it may be necessary to pick up your handset before pressing to start Keith.
One moment, please while we poll for questions.
Yeah.
Our first question comes from the line of Mark Palmer with B I D.
See with your question.
Yes, good morning, gentlemen, thanks, very much for taking my questions.
First of all as you look forward into the coming years made it very clear that the first quarter is going to be the strongest that's going to be a function of license revenue.
<unk> been very strong during that particular quarter.
If you look at the pipeline for new business.
How should we think about that and in particular.
To what extent are there potential additional.
License customers.
Customers or additional programs with existing licensed customers that could contribute in the coming quarters.
Okay. Thank you Bart well, yeah, clearly they they're all going to contributing in coming quarters, we do expect.
New programs up pipeline, yeah, there's a word that we don't use very often we have.
A good number of votes that will be going live this year, but most of them are small shove up it could be end up being very large before the end of the year. We have a several large companies that are discussing programs with us again, they would be early progress we're not talking today about.
Our core card directly converting any large programs in this year.
So most of what we have would be starting programs that again, they all feel like they'll help substantial growth of the year, we're going to be more.
Reserved on that because some doing some adult when we'll never know, which ones will or which ones will not but I can assure you we have new programs every quarter.
That ended up going live we have some large ones that are in the pipeline are sub contracted some in and discussions for contracting but no big conversion for this year. So most of their big numbers or will actually to come next year.
And I would just add that a to answer the other part of your question Mark We don't expect any of those customers to be licensed customers at.
At this point.
But that's always an option yep, that's right for someone big.
We expect them to meat processing customers at this point in time.
Right and what is your outlook with regards to your largest customer for 'twenty 'twenty. Two you know from from what they are telling you from what they have said.
How do you view the prospects for.
For additional revenue from them, especially in so far as they've made it clear that they wanted to add additional customers to their processing platform.
Well I think you've just stated what we know are they.
They don't really tell us much we have to as I said.
In my comments, we have to use our judgment based on what we hear and see.
And we expect them to continue to grow I mean, they've said, they're going to grow we expect them to continue to grow we certainly hope to be a part of that.
And one final question and then I'll get back into queue, Yeah with regard to the R&D spend on the new platform that CT card is building.
What is the timing in terms of the go live for that platform.
And what are the benefits that you anticipate you will receive from going live well.
Well, it's it's another three years out for Boeing line at least three years out for going live on a a full platform and it might be bore but we take we take parts of what we're doing.
In that process and added to what we have now.
And remember all of the all of this is really long lives, we will not be getting at all.
We nor our why shouldn't knees.
Or why actually to be getting off of our current platform for over 10 years, we will simply have a another platform that will be even more agile than our current platform and we think it will be less costly to operate and be more scalable I mean, it's all of these all of these little things that you've learned.
In doing this before that you're going to try to do in a another time to continue to advanced technology.
Thanks, very much and I'll get back in the queue.
Thanks Mark.
And again as a reminder, if anyone has any questions you May press star one on your telephone keypad to join the question queue. Our next question comes from the line of Andrew So what are some of them with Sidoti. Please proceed with your question.
And thank you for taking my question on Highland.
Good questions asked already I'm, just curious about pretty guidance means for 2022, what needs to happen for you to be at the higher end of that.
[laughter].
Well, it's not that it's you know some of our customers may grow faster than anticipated and some of those new customers are younger.
As Leon mentioned on his comments, yeah, it's kind of a second order a prediction, where we're trying to predict what our customers are going to do so.
So you know if they go a little faster than we think then and that will put us at the higher end and if they grow slower than that puts us at the probably the lower end you know late last year. We were surprised you know with a little more growth and since we don't have been so I don't have much marketing that any one customer is going to spend one growing the program.
We're going to assume a pretty steady state when we say, 20% to 25% if if if someone decided to pull back on our program. It's gonna be able below it if somebody decided somebody or several of them decide to put more dollars into marketing.
It could be on the higher it can be higher and it can be lower we're trying to give you our best selves, a bunch not trying to.
Tried to neither sandbag it nor tried to be oh by being ultra conservative nor nor making you'll hope is report our predictions were trying to look at what we see.
But none of it's specifically contracted but look at what we say and make the best projects that we can own the numbers. Another big factor is timing of implementations you know would typically we're able to get.
Our our platform ready very quickly as quickly as 30 days, but then there's other players involved that they tend to drag out the implementation process. So that can be a factor as well.
Okay. Thank you I appreciate the additional color and then I'm just curious you were talking about them.
Your hiring plans for India.
Give us some numbers around that but Ah ha.
And Colombia, it's fairly new for you.
And how many headcounts do you think you're going to have that at the end of the year.
And then how has that been.
He tells me it on on their ability to hire talent there.
It's a little still a little early where we're obviously hiring there and I don't think we're not going to put a specific go out play yet until we see how that works out and what kind of tell it we get so far we're pleased at it frankly been a little slower than I had anticipated or hoped but it's a we're getting a good stuff there.
<unk> and I wanted to give it a couple of months to see how it works out to decide whether we want to speed it up and we've got pretty ambitious plans out, but we may speed. It up states. It's a there are a couple of benefits there not just a stay out there we also help.
Good number of our India employees that will be traveling there I think they're either 10 or 12, there right now that helps us with time zone coverage for particularly our largest customer. It also helps us would training there. So I would say, it's a little early but by our next call we'll have a whole lot more.
Definitive data to be able to tell you what our projections are.
Okay. Thank you I appreciate that thank you for taking my question.
Sure.
And we have reached the end of the question and answer session and I'll now turn the call over to chairman and CEO and strange for closing remarks.
Okay well. Thank you. Thank you for.
Taking the time to be able to car card earnings call and we look forward to another conversation.
About three months for now thank you everyone.
And this concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
Yeah.
Yeah.
Okay.
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