Q3 2022 CoreCard Corp Earnings Call
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Greetings and welcome to the courtyard Q3, 2022 earnings conference call. At this time all participants are in a listen only mode. A brief 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.
As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host Matt White CFO . Thank you you may begin.
Thank you and good morning, everyone.
With me on the call today is Leland Strange chairman and CEO of <unk> Corporation.
To 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 will be making certain forward looking statements to help you understand corporate card 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 filings with the SEC, including our 2021 Form 10-K and subsequent filings.
As we noted in our press release, our third quarter results were in line with our expectations total revenue for the third quarter of 2022 was $14 5 million, a 12% increase compared to the third quarter of 2021.
The components of our revenue for the third quarter consisted of professional services revenue of $7 8 million, an increase of 12% processing and maintenance revenue of $5 3 million, an increase of 52% and third party revenue of $1 4 million.
Services revenue, which represents total revenues less license revenue.
Grew 30% for the third quarter of 2022 compared to the third quarter of 2021 led by 52% growth in our processing and maintenance revenues.
We continue to onboard new customers, both directly and through various partnerships, we have with the program managers, such as deserve Bourbon and cartilage.
We currently have multiple implementations in progress with new customers that we expect to go live in the coming months, we are working on launching a new program with an existing customer heartless on a co branded card with American Express and Simon.
Which is a real estate investment trusts that own shopping dining entertainment and mixed use properties and has an S&P 100 company. Once live we will have a direct connection with American express similar to what we have with visa and Mastercard today, and we will be able to process other customers, who want to use the American Express network.
We completed the American Express certification process in October and we expect this program to be live later this month.
Okay.
We're happy to have recently announced the addition of catheter petralia to our board of directors Catherine brings extensive fintech experience to our board. It was a cofounder of cabbage a customer that we've talked about previously and that was acquired by American Express in 2021.
We recently finalized a new contract with American express to processes Amex Cabot's loans and has seen steady growth in this new program.
Separately, we continue to service legacy cabbage loans under the case servicing name as.
As discussed previously these legacy and PPP loans continue to run off as the loans are paid off or forgiven we.
We recognized revenues of approximately.
<unk> 5 million for the third quarter from this customer and expect the runoff to continue at a faster pace going forward S. K servicing announced its intentions to wind down.
I'll now dive deeper into the results for the quarter processing and maintenance revenues grew 52% as I mentioned in the third quarter of 2022 compared to the third quarter of 2021 from the recently added customers mentioned above who are now live and continued growth from existing customers revenue growth, excluding our largest customer.
Was 22% in the third quarter of 2022 compared to the third quarter of 2021.
As a reminder, we typically charge for our services based on the number of accounts on file.
Transaction volume.
As a result, we expect our processing revenues to be resilient during weak periods of economic growth or during economic unit declines.
Turning now to license revenue as expected we did not recognize any license revenue in the third quarter of 2022. However, we do expect our new licensed here in the fourth quarter of 2022.
Professional services revenue remained strong in the third quarter.
We anticipate professional services revenue in the fourth quarter in the range of $6 $7 million to $7 million.
We consider this revenue to be repeating as evidenced now by four plus years of significant growth in professional services. However, there are still fluctuations quarter to quarter and we could still have both positive and negative surprises from what we expect although we don't anticipate any large surprises either way.
Turning to some additional highlights on our income statement for the third quarter of 2022 income from operations was $1 7 million for the third quarter of 2022 compared to income from operations of $3 3 million for the same time last year.
The decline primarily relates to lower license revenue in the 2022 period as we've said previously our license revenue is lumpy and can have a significant impact on our results.
Our operating margin for the third quarter of 2022 was 12% compared to an operating margin of 26% for the same time last year the.
The decrease was primarily driven by lower license revenue and.
And continued hiring in India.
And in our Columbia Office that we opened in October 2021.
Our third quarter 2022 tax rate was 24, 6% compared to 26, 3% in the third quarter of 2021 earnings per diluted share for the quarter was <unk> 16, compared to 2009 for Q3 2021.
We remain optimistic about our long term prospects and believe the investments we've made in our infrastructure and in hiring and training new people will continue to yield new customer wins and revenue growth.
Due to our solid performance through the third quarter of 2022, we're confident in top line growth expectations of at least 40% for fiscal 2022 compared to our previously provided guidance of at least 30%.
The opportunity ahead of US is significant and courtyard remains a growth business focused on meeting the evolving needs of modern issuers, while generating long term value for our shareholders.
And with that I'll turn it over to Leland.
Okay. Thanks, Matt.
Beautiful Paul David Atlanta, with the leaves carnitas, it's both on the tree on the grandfather color.
So let me add a little color here about what Matt said about the company by the way I Hope, it's beautiful where you are headed and the St. Paul We do as we look out in this beautiful weather.
I'll give you some of my views on the quarter.
And 'twenty two 'twenty to 'twenty to 'twenty, two year to date as well as a pattern of what they expect for this quarter and in some product here.
My comments really should not be interpreted as any careful guy that says I'm speculating on how things will unfold from where I sit today.
Always you look different tomorrow as I said the weather right today it may not be the same for us.
Matt gave you the hot for the quarter, maybe my first comment.
Will be what we could call low lights, and then I'll move on to the highlight color.
And I would say the low light would probably be considered the expense growth.
What may appear to be margin issues.
There's no question our expenses have continued to grow.
And they grow actually at a faster rate compared to our non Washington revenue.
Most of that growth was planned at all in cost of people.
Salary inflation is tipped above what we would expect long term.
But I really don't expect it to moderate until perhaps the middle of next year.
We are intentionally bringing on more people.
Ready for more growth in the coming years.
You've heard me in the past talk about how long it takes to train to be able to offer our customers our partners the quality high end expertise that differentiates us from others.
Our source base of at least 18 months of trading surpluses.
But for others it will be a three year process.
We've now caught up in this sense, we have a steady process that will enable us to grow at a steady 20% to 25%.
We've stated that should be a practical limit for a responsible fintech company by the way when I say, 2025% I would say over any five year period that should be our annual growth there'll be ups and downs at all it just as quickly.
That <unk>.
2024 is not likely to grow at that port and more on that comment later.
Let me expand on the employee topic a bit more.
We now have over equivalent employees.
I think just about four years ago, we had about 430 employees.
So we tripled the number moving at a very rapid pace.
If we add this past year roughly so far through September we've added 300, okay.
In India, So that's a 25% increase.
30% increase.
Already this year, so I used to work caught up earlier.
Mainly to represent how we now feel that we have a stable environment for recruiting.
Onboarding and training.
All of this growth came with that.
Dislocated factors brought on by Covid and also work from home.
We're also caught up on stabilized environment from that perspective, with our major current opportunity big facilities or the employment growth and dealing with the continued poaching of our trained employees, but larger companies.
I think I should pause and give the highest cough a bunch of praise to the president and general manager.
Perfect.
Of our India operations for his leadership through this growth is also one of the primary architecture of our cocoa platform and has just done a marvelous job.
I guess some other facts that we shared with the board yesterday about our employees that we have a large number of employees who have been with courtyard for over five years actually many over 15 years.
But the numbers for over five years or 200, plus in India 20 in the U S and six in Romania.
I will have two both as a significant shareholder and also CEO say I am very thankful for their loyalty and dedication to the success of the platform that they themselves built.
Only a good team can make things happen and perhaps of all of the characteristics of an organization such as ours teamwork is the most important.
We just have a remarkable group of Tesla energy and longevity.
With that background on expenses margin and employees now flood.
Earlier I alluded to the fact that my prediction of 20% to 25% growth over any five year horizon.
Be my expectation, how does that play into this year when Matt just said he expected growth this year to be in the range of 40%.
Well it really doesn't change by expectations. In addition to lumpy quarters Youll get lumpy years, the coastal wildlife and revenues booked.
I know some you are probably tired of hearing the word lumpy, but it is what it is and we make business decisions on what is best to grow the business not in modeling it for Wall Street.
We're still of the old Warren Buffett's, Google just buying the business, we run a business out of the business plan.
I suspect that this year is our largest license revenue historically, and perhaps will be our largest year ever.
When you have.
A year like that you could expect it to be lumpy and that poses issues and comparisons.
There's a good chance, we will get more license revenue at a four quarter, if not definitely in the first quarter of next year.
I think you would understand if I said I hope it gets delayed the first quarter as our 2023 first quarter comparisons will be against this year's very large first quarter of over $12 million.
The couple of bad either way.
We're likely to hit 16 million of license revenue in 2022.
And Thats why I say this is probably the largest we've ever had and probably the largest <unk> ever had.
Of course, I wish some of the first quarter of this year had come out for core last year's smoothed out the results of <unk> half year, but I think you know by now we've managed to lower term and take it as it comes.
And shareholders are offsetting growth over several years are comfortable with us as we have and we will deliver.
Those kind of returns that those who want to manage the number four charter are not going to be very happy.
I cant category categorically state that will not.
Anywhere close to the 60 million less revenue in 2023.
Our best guess at this point is that it will be between three and let's say $7 million.
And that leaves a big topline and earning hold field in 2023.
In comparison 2022 remember that license revenue all drops to the bottom line in terms of gross profit.
That profit really.
Can we fill that hole.
Surprisingly filling the hole is definitely possible and possibly even to beat it but that's not a prediction at this point in time.
How do we do it if we do it.
Well currently we have potential partners, they've made liaison or may want to be processed at the license we get more upfront if they choose processing, we are more upfront and expansion of infrastructure and then roughly numbers just add up over time.
We can't predict our choices have been the staff, so I cannot predict how that will play out.
There is still another factor.
And I know that because they told me they listen to these calls and Thats a company that we chose not to take on.
Is wondering while we did not take them alone if we might have a revenue hole.
The answer to that is that we continue to choose customers based on their strategic value to us over the long haul we want to devote the scarce resources to the most profitable long term value creating opportunities.
So do we have a mini or.
For those.
Im going to say, yes, and.
That should be put in capital letters in the transcript.
Matt talked about some of the newer customers each with a particular value to us and also the opportunities they bring to increase our processing revenues.
There are others.
In addition to those we talked about that we expect to go live in the fourth and the first quarter there.
There are combinations of <unk> with particular needs and large corporations are glitter provide color of their customer base.
The large corporations almost always start small to test our offerings before large rollouts.
The right way to do it it's a rollout faster than EBIT I would recommend that can fill that revenue and earnings hole fast.
What about larger opportunities.
We fully expect by this time next Paul have either announced or being working on one or two large programs.
They will either be the right scorecard.
Our through current partners such as Goldman.
Our two new ones currently in discussion stage stages brought to us by other program managers.
We have sufficiently trained and skilled resources to take on too.
Size prospects by this time next year, and probably end up with three or four good sized prospects by late 2024.
In terms of current discussions they are a mix of license realized needs and process and potential customers.
We're incurring the personnel expenses currently to be able to make that happen of course, a processing, we will still have to add more infrastructure costs to take that up.
We can't take it out three big one successfully next year, while still serving the strategic newer fintech.
And as I've said before we will not take any business.
That we have any questions as to our ability to successfully implement our serve.
So don't expect more than two next year and some combination.
Matt pointed out that our processing and maintenance revenue grew 52% in this quarter compared to last year the same quarter.
Now I'm not going to project, 50% each quarter, but I can comfortably say, we will have significant growth in this recurring revenue line next year, even though license revenues will be significantly down.
Many shareholders. This is what they want to see and they.
Actually discount the license revenue income.
Don't do that but nobody does.
Goldman Sachs is recognized in our final legs as our largest customer.
And the Golden CEO has recently stated that their customer Apple.
Renewed their contract until the end of decade.
I expect the Goldman and concentration to be coming down next year as we grow the other businesses.
And that does not mean, we expect to lose Goldman business, Although I've said for some time don't be surprised if they take a simple card program because legacy processor in order to diversify their rollout so a courtyard.
As their portfolios and core cash grow while we serve them well and they remain our number one priority for best resources, we do have growth challenges as they themselves also have.
They are a great holiday professional highly talented organization and our partnership is bad courtyard infinitely better as a result of that association.
If they were to choose to bring another program elderly cohort platform.
And if that program has a current base of card conversion, which by the way. We're very good at we would see more license revenue and perhaps maintain current professional service revenues at the current pace.
A new program the license revenue would be more spread out with the pro growth that we would see a dip in professional services.
The fourth quarter this fourth quarter with the holiday hugely 14th and.
In professional service work as you have fewer hours available such people take holidays.
I think.
Goldman has stated in their own in their own earnings calls that they want to take 2023 to stabilize their consumer offerings before growing them again.
As I said earlier, we're planning on two larger customers by this time next year Goldman.
Goldman may or may not be one of them, but we can only do too.
I hope I've given you what you need to know as you make your ongoing investment decisions. We're conservative because we want our customers to always be able to trust us.
The company that believes in doing what's right regardless of the construct of the contract and it's really not unusual for us to suggest before anyone else or the cultural Brexit up that our terms should be modified and even what's jesper pace should be reduced.
We also sometimes step up it may also lead the credits will benefit, but we're not in any way contractually obligated to do if for some reason.
We have unilaterally messed up we wanted to do what's right, even as we become much larger and not hide behind process.
Now before you as shareholders taking share with that statement, believing were easy rollover you could just as easily find examples where we are tough as nails, because we simply want to get paid for the.
Good value that we provide.
Pay us the right amount at the agreed upon tab.
We simply want to be known as 100% completely totally trustworthy and we want to be known as that by our actions and not by our slogans.
Your choice if you want to correlate that statement with the fact, we still have no salespeople that I'm aware of the 12000 plus employees and by the way I would say that in the end here with a smile as we open up for questions still no salespeople among the 1200 employees he said with a smile.
Operator, you can open it up for questions we'd like.
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And we're happy if there are no questions becomes sure. They can always call Mad rush to get answers. So if you don't have any at this point why don't we just have a question that's okay through from Anja Soderstrom with Sidoti. Please proceed.
And then on.
Sure.
Hey, there.
Uh huh.
Yes.
Curious if you can talk to.
Sure.
Let me see you say.
Thank you Mike.
The license booking you had this year.
In the coming years can you talk to you about potential new customers.
Nice as customers at the end of next year can you just talk about sort of the magnitude of those.
Are they going to be slowly building up.
New customers.
It could be.
Larger than just building up from scratch.
Yeah right right now it's hard to know we were talking.
We are our partners you're talking to somehow portfolios that would be converted at the end of next year first of all read that means it will be a big lump, but we're also talking to those are just going to build up overtime and were talking to some 900 lastly, do have inflation, but it will be smaller and may even.
International.
It's really hard for us to project, how we're going to feel that home and I know you've kind of model.
Trying to we're trying to help with what we know about it it's really it's really difficult to another combination Matt do you have any other comment on that.
I think your comments earlier about if it's a processing customer builds a little slower.
As they add accounts to the to the platform if it's a license customer.
License revenue maybe more upfront.
A lot of that depends on timing.
Alive.
She's asking though is how much of each are we going to have I think what we're saying we don't know right now we just believe between the combinations of those who were talking to that we could then we'll talk about home run in front of the home, but we don't know whether it will be.
<unk> processing right now.
Okay. Thank you and then in terms of the license revenue you would expect in the fourth quarter is that from both the GM and <unk>.
And then just one of them.
Well, we don't separate member.
Remember our customers Goldman is non Apple G. M. So the nicer revenue would come from Goldman Sachs not from now from just from growth in existing programs. So it could be any combination of that growth between them.
Okay.
Okay, Alright, thank you that will come from me alright. Thank you.
There are no further questions in queue at this time I would like to turn it back to management for closing comments.
Okay. Thank you everyone for your interest in the company and we.
I appreciate that interested as usual if you have any further questions that will be able to answer. Please contact me directly. So thank you and everybody have a great nice fall day bye.
Thank you. This does concludes today's teleconference. You may disconnect. Your lines at this time and thank you for your participation and have a great day.
Yeah.