Q1 2022 CoreCard Corp Earnings Call

May 5, 2022

[music].

Greetings welcome to acquire acquired first quarter 2022 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 will now turn the conference over to Matt White Chief Financial Officer. Thank you you may begin.

Thank you and good morning, everyone with.

With me on the call today is Leland Strange chairman and CEO of Scorecard Corporation.

I'll provide an overview for the first quarter of 2022, and Leila will add some additional comments.

To answer your questions at the conclusion of our prepared remarks.

Sure I'll start I would like to remind everyone that during the call we will be making certain forward looking statements to help you understand courtyard 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 <unk> filings with the SEC, including our 2021 Form 10-K and subsequent filings.

As we noted in our press release, our first quarter results were at the high end of our expectations. Our professional services revenue remained strong and we saw both sequential and year over year growth in processing of maintenance.

As we expected and noted in our Q4 remarks, we had significant license revenue for the quarter. This amounted to $12 $5 million, making Q1, an impressive quarter for core card we.

We'd also like to point out that we expect more license revenue in the quarters to come.

The drivers of the license revenue during the first quarter for one time fees for moving from a single institution to multiple institutions additional license tiers achieved due to completion of a large conversion and continued growth from existing customers.

Total revenue for the first quarter of 2022 was $24 3 billion, an increase of 172% compared to the first quarter of 2021.

Revenue from our largest customer Goldman Sachs was 84% of total revenues for the first quarter of 2022.

We do expect that percentage to decline in future quarters as other customers continued to grow.

Revenue growth, excluding our largest customer is 49% for the first quarter of 2022 compared to the same quarter of 2021.

In addition to the license revenue of $12 $5 million revenue for the first quarter consisted of professional services revenue of $6 6 million, an increase of 14% versus prior year.

Processing and maintenance revenue of $4 1 million, an increase of 56% versus prior year at third party revenue of $1 2 million.

We had several new customers go live in the first quarter of 2022, including among others.

Exchange and international Fintech company expanding to the U S.

Newly launched debit card program.

And a new customer in the Middle East region.

We also completed a conversion.

'twenty two.

<unk> debit card program.

The strong performance in our processing and maintenance it was due to the recently added customers mentioned above.

And continued growth from our existing customers.

We went live with the offer Dawn exchange in the first quarter of 2022, which is another exciting step for our Dubai office and for our global prepaid processing platform that will drive continued growth in our processing revenues.

As previously mentioned, we recognized significant license revenue in the first quarter of 2022.

We expect to achieve a new licensed here in the second quarter and likely in the third and or fourth quarters of 2022.

Professional services revenue was strong in the first quarter as expected and we anticipate similar professional services revenue in the second quarter likely in the range of six 5% to $6 $7 million.

Turning to some additional highlights on our income statement for the first quarter of 2022 income from operations was $11 8 million for the first quarter compared to income from operations of $1 $5 million for the same quarter last year, our operating margin for the quarter for the first quarter was 48% compared to an operating margin of 16% for the same quarter.

Last year. This increase was primarily driven by revenue mix, partially offset by some increased bonus accruals in the first quarter of 2022.

Q1, 2022 tax rate was 25, 8% compared to 26, 1% in Q1 2021.

Earnings per diluted share for the quarter was $1 compared to <unk> 12 for Q1 2021.

Turning to our outlook for the year, we expect top line growth of 25% to 30% for 2022 as compared to 2021, an increase from our previous estimate of 20% to 25%.

In summary, we remain incredibly optimistic about our long term prospects and believe the investments we've made in our infrastructure as well as hiring and training incoming talent will yield new customer wins and continued revenue growth.

And with that I'll turn it over to Leland.

Okay. Thanks, Ben I think you gave a pretty good job description of where we are where we've been where we are and what we expect.

I'm not sure I could add a whole lot to that let me go straight to the questions and obviously I will answer at some point whats the elephant in the room, which is the Bloomberg article, but let me start with.

The first question.

Coming in.

Realize that we still get questions over E mail.

I think it's a questions at courtyard dot com and we've got some good bunch today, so I'm going to take the first one is easy but it's permanent.

Question as per the 10-Q the shares outstanding at April 30 were identical to a March 31.

While our stock repurchase activity not take place throughout April while the stock price fell significantly.

We're just getting shareholder of the company cannot purchase or sell stock based on insider information.

<unk> shareholders know this but for the many shareholders that called matter in March and April asking.

And if not why we were not pushing shares the answer is that in early March.

Did the invoicing for February and we looked at our numbers. We realized we were largely debate the informal guidance we had given you.

You recall, we have said for several quarters I believe that we expected to have a very good first or second quarter of this year.

Knowing exactly when the license numbers with land.

We have no control over decision as our customers like.

We would have liked to have been able to buy shares over the last several weeks, but we could not and generally cannot probably a point in the last month of the quarter and it's usually early that last month.

A few days after earnings calls.

Hi.

Aside comment to this we have two good analysts that follow us from Sidoti and <unk> G.

While they occasionally.

Carlos with questions or to get additional color. They have no more information than any shareholder as the rules forbid us from any kind of selective disclosure what they do have is the benefit of their models and they did just all types of public information from many sources to make their best gifts of our resolve.

<unk> <unk>.

Generally I think they do a phenomenal job knowing it is impossible to really model us.

Our model as well at least EBIT core card does not have more insight on what our customers choose to promote their cards in order to get more growth or just low.

Organic growth.

So the analysts are going to be Rob some quarters, just as management's wrong in their assessments on a particular quarter.

I think management was raw this time in a good way, but it may not always be a good way of looking quarter to quarter, but we're pretty confident.

Settlements when averaged over several quarters.

We appreciate these Alice taking the risk of following a company with lumpy revenue that other analysts have looked at and.

Dare I say chicken out is they don't want to take the heat owning available bit O&M that inevitable bes as daily.

Dealing with are lumpy stuff. So that's the story of courtyard buying shares.

And I am sure you observed are released this morning that our board has approved up to $20 million for share buybacks.

Not going to go Wow. This is simply approached by.

Simply approached by Ishares, as a prudent and conservative shareholder might.

We're buying shares on behalf of our shareholders and investors not to Jack up the price as many of you about what we're not.

<unk> Bancshares today, probably not tomorrow, and we only announce what we have done during the quarter and the quarterly reports.

So that's that's the share buyback and the next question was is the increase in your full year revenue guidance, primarily driven by license revenue non loss of revenue or both.

I'm going to say is driven by both matches that.

That's right, it's a combination of.

Higher higher license revenue as well as higher processing and maintenance revenue.

Okay. The next question was Q1 $12 5 billion of total expenses.

And thats, what cost of goods, so G&A and R&D, which is a good way to look at it a good base for Bush a model or whether they're significant one time bonus accruals in Q1, given the strong license revenue well off.

Obviously.

Obviously prudent management would put in a recruit the accrual for bonus at a quarter like this and yes, we did.

Put some significant accruals with it.

I don't know how to answer the about the modeling, it's just really really hard to model those periods had any other continental that not really.

As you said there is definitely going to be some bonus accruals are a little bit higher than then we had other quarters.

But yes, there's a you kind of look probably more to Q3 and Q4 of last year for a better base and we did do some significant hiring in Q1.

And we do expect.

Continue to do that future quarters.

Okay.

Other question was how many additional license tiers do you expect to hit the remainder of 'twenty two.

And any update on the pipeline of potential large new customers.

And then further should these be life should be able to process eight deals.

I don't think I can answer how many additional license tiers like Matt said earlier, we do expect to hit additional license tiers.

We don't know how much promotion some of our customer will be putting into increasing their their core count shovel will try to do it in the spring sunlight low during the summer some push it darrin.

The fall in order to be ready for the Christmas purchases, but there will be additional license tiers in this year.

As far as an update on the pipeline of potential large new customers I don't expect a large new customer this year to be announced either directly or indirectly.

We're going to have a pretty dark telecom good year this year and we'd be looking at that to happen sometime next year in terms of being able to have another large customer at this point were getting close to two.

Our employees work as normal employees with normal hours as opposed to tons of overtime, but we've had to do in the past in order to keep up we're still stress to some degree but opening in Colombia is just beginning to have pushed in a small way hasn't really contributed a lot yet.

Additional employees have certainly made some difference again theyre not that will frame. So I'm looking for the rest of this year to hopefully continue to catch our breath and be pretty normal although.

That said, we're adding new customers every quarter, they're going live on our own processing theyre not big at this point, but many of them could be big in the future. So those who feel like that all we're doing is is working with <unk> that is not the truth we.

We do have a significant number of people working on other.

Small to medium customers that that could be large in the future.

Next question was I was hoping you could address a shrinking services margin the product license revenue was very good but I can't help but notice how services margin pill provide dramatically and it has been following the last year or so.

We stood I understand you're investing in the future, but any comments on when you expect to see that turn around.

I'll, let Matt answer, but let me, let me just say gosh I'm almost offended by the word turnaround.

If we are absolutely not tried to focus on what our margin is right now we're trying to build a large company and do what it takes to do that and I couldn't care less maybe thats not a good thing to see it I should say, but could.

Could not care less what my margins on a quarter to quarter basis now match. The CFO . He may have a different view I'll, let you comment on that so we will continue to hire.

Invest in certainly in Colombia.

And hiring in India.

So that's that's the big driver.

The decline in the margins over the last few quarters.

But all of the customers as Elon mentioned that have gone live those are some.

Some of those are new programs.

So it's going to take time for those to ramp up and as they do ramp up and as we continue to add other customers.

<unk>, we expect to improve.

But we're still not going to be focused on.

Quarter to quarter.

Do you want to do the right thing for hiring and training and.

Adding new processing equipment for that for the long term benefit of the company.

Okay. Thanks, So so that goes back to my comment about the problem analyst. How many of you have been trying to model us we understand that we have the same problem, but we're really focused on building the company.

On a profitable basis, which obviously, we are very profitable compared to some of the others out there.

But we're not going to focus on what our margins are right now.

So the last comment we're going to be about the elephant in the room.

The subject is the Bloomberg article about Apple writing their own financial services software.

My comments here are probably going to be all I wanted to say about the subject today and I'll, probably repeat pretty much exactly the same as I can so don't expect anymore and thought about questions.

First we're bound legally and more importantly than legal ethically did.

It did not disclose any confidential information about most of our customers and that would go for their customers also.

Particularly if it's not publicly available now things that are public obviously, we can comment on.

Ah and courtyard take that very seriously.

Similar vein.

Two companies were talking about Goldman Sachs and Apple is very important to them. It's equally important to us. So I will in no way directly or indirectly Boyd that confidence.

Now that's a pretty easy for me in terms of.

This subject even though.

I believe I have more transparent and straightforward diminished CEO , particularly on calls like this.

Don't follow our richest grill and tried to tell us the way I see it.

It should come as no surprise that depressed also called batten offer comments on stories as this one.

But you didn't see any comment from us.

And here's the key to the rest of what Im going to say if I don't have any confidential information about a subject.

And I am not at risk of disclosing that.

Im pretty to speculate.

Offer an opinion and go through logical progression is just as you do.

To be clear I have no information that would lead me to believe that core of our software will not be used like Goldman Sachs. As its main process again for many years now.

Now I'm not privy to the contractual arrangements.

Goldman Sachs had their customers.

And even if I were I couldnt speak about them.

But similar to my earlier statement I have no reason to believe Goldman Sachs will not be processing the Apple card.

For many years to come.

And I have no reason to believe it would not be processed on the core of our software.

So with that as the facts I am willing to speculate.

Just as you do keep in mind I've always warn companies I've been involved with to not kind of a logical decision from large corporate entities.

<unk> catalyst something that clearly appears logical from your point of view.

Be perfectly logical from theirs as you reach dealing with different sets of information and really calculating from different angles.

But having said that.

Here's my.

I guess logical case for my confidence that core of our software will be processing, the Apple card for many years and of course, that's assuming they.

They believe we can handle their volumes and our prices competitive.

First Goldman has a very large investment to this point and the courtyard software that's pretty obvious place stone R.

Earnings in our revenues the last few years.

Net investment.

Circuit.

The Apple card rollout is the most successful new credit card introduction in history, and I would say that by a long shot incredibly successful of course that has to do a lot to the Apple features and functionality in their own.

I phone applications, but it's also due to the ability of the core of our software to be flexible.

And I guess next I would say the Apple credit card is a complex offering.

With rewards and our family plan.

It's difficult but of course, it can be done to rewrite that it's much.

Much more difficult than most people would assume just being in the software business.

Next.

So by actually asked this question, but I would say neither <unk>, nor our app will have access to our code.

For a rewrite but frankly they'd do it different anyway. Just says we're rebranding our code is another way to continue to make it better and better.

There are a lot of too much sulfur capabilities that would be attractive for a rewrite that are for easier from a coding perspective.

And operating perspective.

And I would say much more aligned and critical to the Apple ecosystem the credit.

I believe absolutely that Apple's working on many payment software solutions as the article said directly and in partnership with others such as Goldman.

It just makes sense.

They have a great ecosystem there is other ways they can offer.

<unk> sales or other ways. They can last dixon lineup with their retailers to average but to make buying easier and I believe they are probably doing that both directly and probably with Goldman that's not inside information I'm, just telling you I believe the article that that is happening.

I do not believe they are working on a credit rewrite.

Ed.

Let me carry that a little bit further.

I, absolutely believe Goldman Sachs will diversify suppliers vendors for credit card processing.

It makes all the sense of the world for them to do this.

I have no knowledge.

Eminent but depressed talks about banking and debit card at Goldman and I expect a debit card to be with another processor, while we do debit cards, we have no inherent advantage there, but we do have an advantage with credit. So it will not surprise me to see them to even offer a simple credits.

Solution already another processor at some point that does not mean, they're going off.

Core carbon processing, let's face it Goldman has big aspirations as they are expressed on their calls for the markets bank and thats going to require probably a lot more than what our core car could do on their own and obviously just stays there youre looking to diversify where good safety.

With our other customers and building up our other side of the business, while we hope to remain and believe we will remain a good partner with Goldman Affordably long term, where we're going to also have another good business just like the state will have other processors.

I'd say in summary, if you carefully read my letter to shareholders you should get a very good idea of what we feel based on our daily interactions with all of our customers.

As I said earlier, we want to be totally transparent with what we know and while we feel the way, we do outlining the risk and the potential rewards.

We're pretty confident with maintaining our current customers are growing now as well as.

Adding new words.

I think our.

In my comments with that and hope I have been as clear as I could beat and trends that can be in terms of the elephant in the room, we're pretty we feel pretty good.

It's business as usual for us so operator at this point, let's stick to really further questions that we can answer.

Thank you Sue we'd like to ask a question. Please press star one on your telephone keypad.

Alicia Dale will indicate your line is in the question queue. You May press star two if he would like to remove your questions in the queue.

So participants using speaker equipment may be necessary to pick up your handset before pressing the star keys.

Our first question is from Mark Palmer with <unk>. Please proceed.

Yes.

Thank you for taking my question and congratulations on the strong quarter.

As we're looking at the.

The license revenue in the first quarter.

Obviously, we had a significant conversion.

That had been anticipated and that occurred during the quarter.

And Matt you made reference to.

A few of the drivers of.

The license revenue.

Beyond that.

Just wanted to get some incremental color to understand.

Why there was the outperformance in that particular line item this quarter you.

You had mentioned.

That there was one particular instance of.

A transition from.

Single to multiple.

Issuers in one case and growth among other customers, but it.

It would be great to understand what the other drivers were and in particular, if there was any apple related license revenue that occurred during the quarter.

MSP, but but let me tell you we cannot differentiate on calls like this between the Apple the other customers.

Just had to talk about license in total and I'll be looking at Matt here, but but.

Our.

Actually I have a backup a little bit you'll remember last year, we consistently.

It's probably a bad word for that but we had to kind of.

Change when we thought.

Revenue would have been because we're trying to.

So I can't guess, what our customers buy do for example that conversion.

I think it was originally scheduled maybe for last.

Maybe September which would hit the quarter and then it got moved into what would be the fourth quarter and then it got moved into the first quarter and none of that had to do with it as a core or does it I keep emphasizing this.

We make decisions based on things they are doing so.

So once we get a good feeling that it would be first quarter, we talked about it but I think we ended up with.

Definitely more total license revenue.

From Chevron of Goldman's customers with what we would anticipate vantage that yes. It was a combination. So it's the three things you mentioned Mark it was the.

So that move from single institution to multiple institution, which was conversion related and then there was the additional tiers from converting those accounts and then there was.

Also.

Growth from existing customers.

That's kind of the way you described it so it was really those three things and they were just there was.

Maybe another tier than we expected in the quarter. So it wasn't it wasn't.

Way out of line from what we anticipated and expect future quarters to be more like Q.

Q4, Q3 last year, yes, the others will be more for more predictable because you had a couple of things working together, but I changed the categories that onetime transition that got compounded when you also ended up with another license here shortly.

So there is more than what would normally be there and frankly I didn't expect it for that quarter I expected to be for this quarter and.

So that's what happened.

Okay very good.

As you look at adding.

Additional license tiers at Goldman.

On.

A lot of that is going to be based on the growth of the existing programs, but it's also going to be based on Goldman adding additional big clients and I knew that.

Yeah.

Has any particular insight with regard to when Goldman will do that.

But how would you judge your capacity.

You add additional license clients at this point.

You've done a tremendous amount of work.

Upgrading.

Your.

Internal operations.

A lot of investment over the last couple of years, where do you stand now in terms of your ability to take on.

That much more volume.

Well I would show you that.

That we could take on another large win.

For the year, but it would be pushing really hard to kind of like this last one was we're not ahead of the game in terms of BMO take on but if if if goldman needed to convert another one by the end of the year, obviously, we would do it.

But it would not be easy, but we would do it.

It's really easy for us to do it until.

More than a year from now I mean, it's going to be it's going to be over a year 15 15 to 18 months before we put a lot we really have enough employees to do it under normal business practices that we've got the kind of workforce that if we have to do something we do it.

So we're not going to turn down something that can go but would have in the meantime, but we're but we're not going to be in a position to shovel something outside of that.

That would happen this year.

Right now just looking forward a little bit further.

When a large program like GM comes along.

<unk> seen that.

You become aware of that you prepare for that but there's a lag time between the point at which you know that that program is coming on and the point at which.

It launches in U S.

New revenue tiers and more license revenue.

Given the fact that Youre talking about a 15 to 18 months.

Window here before you would have that additional capacity.

I'm.

Just trying to understand as you think about.

Forward planning as it pertains to capacity.

But by the time, we get to 2022 at the end of 2022.

And whether there is a new.

Partner that Goldman has brought on or not.

It seems to me.

You would be in a position at that point to entertain more conversations with the garden too bigger licensing programs is that they are that.

By the end of this year that kind of conversation will become.

Oh, absolutely given the timeframe, we'd be in position to entertain that towards the end of the year.

Yes without question now part of it.

Sure.

Part of that.

Formula will be driven by having the other smaller or medium sized customers we get.

Because they all also take some resources.

What we really ramp up that side of the business. If we continue to ramp that up that pushes out the bigger get a little bit longer.

And one more question from me.

Mentioned that among your.

New signings that you had during the first quarter new customers.

Crypto exchange.

We're seeing tremendous growth in there.

That space.

What are you seeing in terms of the opportunity there I know you've as you've said previously.

Providing processing for crypto exchanges, new different and processing for other financial institutions.

Just in terms of pipeline.

Amount of interest that those sorts of institutions have shown in courtyard software how would you size that up.

No not not a huge change I mean, it's still peripheral to the main business.

It's not the main driver at all.

Understood. Thank.

Thank you very much.

And they tend to grow pretty quickly.

But it's still kind of too early to see how big it is going to be.

Really early stages, but it is the second they've got one through a partner and then now we have one direct so that is our second.

Customer in that in that space.

Okay.

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