Q4 2022 CoreCard Corp Earnings Call
Greetings and welcome to the core card fourth quarter of 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 Chief Financial Officer. Thank you Sir you may begin.
Thank you and good morning, everyone.
With me on the call today is Leland Strange chairman and CEO of <unk> Corporation. He will add some additional comments and answer your questions at the conclusion of my prepared remarks.
Where I start I'd like to remind everyone that during the call we'll be making certain forward looking statements to help you understand scorecard 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 2021 Form 10-K and subsequent filings.
We will also discuss certain non-GAAP financial measures, including adjusted diluted EPS, 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 this morning, our strong profession, our strong performance continued in the fourth quarter of 2022, and we are pleased with our full year revenue growth of 45%.
In the fourth quarter, our professional services revenue remained solid we saw continued growth in processing and maintenance revenue.
And we recognize license revenue of $1 $8 million.
<unk> of our revenue for the fourth quarter consisted of professional services revenue of $7 7 million processing and maintenance revenue of $5 $1 million third party revenue of $1 $3 million and as they are already highlighted license revenue of $1 $8 million.
Total revenue for the fourth quarter was $15.8 million or 21% increase year over year.
Services revenue defined as total revenue less license revenue.
25% in the quarter on a year over year basis with full year growth of 27%.
Within services processing and maintenance grew 33% in the fourth quarter on a year over year basis with full year growth of 34%.
License revenue for the quarter was flat year over year and saw full year growth of 174%.
We expect this to be a record year for license revenue and our focus going forward will be on continued growth in services revenue with an emphasis on growing our processing business.
Revenue growth, excluding our largest customer was 18% in the fourth quarter on a year over year basis.
We continue to onboard new customers, both directly and through various partnerships, we have with program managers, such as deserve Bourbon and cartilage.
Currently have multiple implementations in progress with new customers that we expect to go live in the coming months.
We completed our connection with American Express in the fourth quarter of 2022, and expect that to open up new paths to revenue growth in the coming years.
Turning to some additional highlights on our income statement for the fourth quarter and full year for 2022.
Income from operations was $3 million for the fourth quarter of 2022, and 2021 our operating margin for the fourth quarter of 2022 was 19% compared to an operating margin of 23% for the same period last year.
The year over year decline in our operating margin was primarily driven by continued investments in our processing environment, our new office in Bogota and are hiring in India.
Additionally, we are building a new platform that is resulting in higher development costs. These.
These investments are a key component of future growth.
Our fiscal.
2022, and 2021 tax rate was 27, 1% and 23, 2% respectively.
We expect our ongoing tax rate to be between 25 and 27%.
Earnings per diluted share for the quarter was 12 cents compared to 30 cents for Q4 2021.
Full year 2022 diluted EPS was $1 61 compared to a dollar three for the full year 2021.
Adjusted diluted EPS for the quarter, excluding the impact of a write down of one of our equity method investments was 24 cents compared to sort of 30 cents for Q4 2021.
And full year 2022, adjusted diluted EPS was $1 74 compared to $1 three for the full year 2021.
We achieved significant growth in 2022 by Onboarding, a significant number of new customers converting a large portfolio of millions of cards in the first quarter.
Adding over 300 people in India, Bogota, and the U S and continuing to build out our processing infrastructure.
We expect to stabilize our work force in 2023 and continued growth in our services revenue primarily with the people. We have today. We believe we're at the point where existing customers can continue to grow and we can continue to onboard new customers without significant increases in head count or infrastructure costs.
For 2023, we expect growth in services revenue of approximately 10% and license revenue between 3 million and $7 million.
We expect growth from customers, excluding our largest customer.
Which is all services revenue to be approximately 20%.
We expect license revenue in future quarters in 2023, starting in the second quarter. However, it is difficult for us to predict the timing.
For reasons, we've discussed previously.
Within services, we expect strong growth in processing and maintenance is our Kentucky customers continuing to grow.
Add 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 2023 likely in the range of 7% to $7 $2 million.
We're expecting some slowdown in the growth of professional services in 2023.
The continued strong demand in 2022.
We expect that revenue stream to remain at a high level.
And with that I'll turn it over to Leland.
Okay. Thanks, Matt.
Let me start by just reiterating or perhaps expanding on some of the points that.
Oh man made his remarks first yes, we had a very good year it.
It was punctuated by the large license revenue received in the first quarter of last year.
I repeated in several of these calls starting a year ago that the circumstances that resulted in net income was not repeatable and could I guess practically be considered though now for accounting purposes, a one time event.
We were happy to get it as it represented the second large program Big processor core called software with millions of new cards.
And also the revenue with the cash with very low cost a good show, but we knew it would make it comparable for this first quarter that we're in now look bad in it.
Sure. So we just follow the charge are gonna be misled.
That's yet to unfold, but 2023 first quarter revenues will be Dell revenues from other than Washington revenues will be up that lashed back does not show up on the chart.
Also the one time, a large revenue balanced R 22 revenue up to $29 million, marking a 45% in inquiries for the preceding year.
If I continue to talk about license revenue. We currently expect approximately I almost hate closer about <unk> 5 billion this year.
Compared to the 16 billion, we received last year.
That projected closer about as Bob may and there's more than locked with the norm for the next few years unless the board a very large new license customer.
<unk> maintained our corrupt Washington pricing model.
I'll talk more about that later, but that difference in license revenue is.
It's not going to be able to be made up in 2023. The difference was approximately $11 million.
I've also previously said and we'll reiterate here that we believed the percent of our revenues coming from award as customer.
Peaked in 2022 and will be smaller each year going forward.
It was approximately 75 per share last year, which was again heavily skewed by the 2022 first quarter watch revenue.
While we expect our current program for Orange crush where Goldman Sachs to continue to grow and we're not currently projected increase in other income.
Generally plus or minus although perhaps from inflation adjustments.
I think the press has reported their emphasis on controlling cost. So we would expect to help in keeping our costs under control, meaning revenues to stay approximately flat, we obviously will try to.
Make more things.
Asia to run it just a lot of ways to try to keep our cost down in order to come.
Come under the pressure that they were having to reduce cost.
There's a lot of speculation about when or if they'll add new programs to the core core platform.
If I had any nonpublic information about future plans of course would it could not disclose it.
I'm going to reiterate what I've said in the past, which I believe to still be true.
We'll grow their approach.
Despite the negatives you hear the pressure any real problems or shifted as a result of too much success, rather than management screw ups. The programs really have been wildly successful in for a first shot processor that successful growth get pressure whatever shifts or do you plan for and whatever you put in place.
All of that can and will be fixed.
There are a lot of super smart people, they're making shorten.
<unk>.
[laughter], making certain that it gets fixed and they're putting in place systems that will support a robust business.
I think degrees or getting in for us really does not align with incredible success they've had with torch.
Well I'll go for a much of it would you eventually normalize and the business will be a very good business in my opinion.
Now the only makes sense that they started taking on a program. That's currently processed by someone else they'll consider leaving it there considering all of the questions that are big peppered with.
Of course, we would prefer a rig or the core of our platform and we believe the economics clearly support that but we also will not be surprised if they should take the path of least resistance public company, sometimes you have to do that.
So I guess summing up the large customer concentration topic, one the concentration is coming down to at this time, we know we will receive lower license revenue and believe other revenues will not vary greatly from 'twenty to 'twenty two and.
And three.
We simply don't know of any new programs will be added in 2023, but do believe it'll make shifts to continue growing programs of the courtyard platform in future years.
So let's talk about the rest of the business, it's always kind of a funny when when you're sitting where I am sitting that if.
Goldman being such a big part of the bushes, we have shareholders and say well, let's talk about the other parts of the business because you need to grow the other parts I did when I talk about the other part should come back when I'm talking about growing.
Growing the Goldman revenue, but anyway, so you've heard about chaparral go when he was talking about the rest of the bushes.
Non Goldman revenues grew approximately 28 per share in 2023, when we have fluid work hard, which which you know which went.
Went bankrupt is out.
We expect that to continue growing.
And approximately that pace, although perhaps a little slower in 2023.
If we look strictly at processing revenues I expect to see growth of 20 to 30 per share for the year.
We've said for some time that we're building for the future well the future is 'twenty two 'twenty three 'twenty 'twenty four.
If we achieve our target in our processing revenues this year and I believe we will I believe there'll be much higher in 2024, given the potential clubs, we're talking with.
Now another I guess recurring theme that we hear at this point is what's the pipeline.
Well, we don't use that term internally.
I'll say, we're satisfied with our current pipeline well you know big honest I'd like to say a larger.
Six months ago, we thought we'd be working with a larger client in this quarter, but that has not panned out.
We were working with the larger client and has spent a lot of time and there's been a lot of times, we're honestly not sure. What the situation is has there been no public announcements about what they may what they may have or what they're doing they've actually gone Charlotte, but it's possible, but I think they've found a prettier girl.
Maybe I shouldn't say it that way, but you know sometimes people you and we don't use makeup maybe.
Maybe they just decided to do nothing.
I should know better or more I've taken the next 60 days.
We are in various levels of discussion with a few other large potential opportunities some could be could be resolved by the third quarter and some will fall into next year, while big I.
I think contract completed this year.
We're still in the mode of under promising and over delivering so will probably only be going with one or two this year.
And I'm talking of course about large situations, where there's an existing portfolio portfolio involved and those are the only can you'll call or even though a lot of the smaller which could be very large we've got numerous smaller portfolios you all hope to grow the large numbers there lives now and log coming Rob over the next several months.
<unk>.
I take a very conservative view on their shelf spreadsheet projection show what I gave you our process of growth expectation for 2023 I don't include what might happen with these opportunities.
The competitive landscape really hasn't changed much in the last year, we still feel originally told by current prospecting by current and prospective customers that core called is recognized as the gold standard for modern card injury.
There are others that are good enough for some programs I can remember back in the earlier days of intelligent systems were built in the hardware business with personal computer and has much as it was a cold and also in the software business as we built peachtree sulfur.
I can remember vividly conversations and debate with engineers and project managers as to when to release a product.
The debate always revolved around does it where is it finished is at full proof does have a really good one or.
Is it good enough.
There are many charge we had to say stop it's good enough and we released the product.
We never did that but accounting software because it should play out to be right.
As far as Italy itself, where our core card never says it is good enough of course, even in the Saar for perfection, we sometimes don't get it perfect, but we never settle for getting a reality, we work and report to the regulators other firms who are our customers and regulators don't want get into.
Yes.
I would say they're competitors.
It will show up for good enough either consciously or because they did not know better.
Core card shuttles are reconciled to the penny each night of course, there are some exceptions.
Although they kept largest with huge bench a couch in order to balance.
They can over rock bottom pricing that typically correlates with chevron issues and poor customer service.
On another note one of our larger competitors market. Our recently purchased a company called power or around 250 million.
Power has I understand about 30 employees and provides brought and program management for card issuing programs.
It's an interesting bagged at power is actually a customer of core carbs and has been working on a new car program with us over the past I guess more than a year that I'll soon will not see much more of a lot of the day.
So they paid.
As much.
As almost as much as the current market capitalization, our core card for a broad and program management capability.
A partner of ours reserve has similar or in my opinion, better front end and functionality and we have several current and developing programs with their customers.
We're going to be jointly proposing offerings would deserve for some luxury couch.
Let's let me move to people resources I believe we're finally, reaching an equilibrium point, where I'm comfortable taking on a larger programs that require significant conversions.
Well, we'll keep hiring the pace will slow considerably now that we have caught up and are able to stabilize the organization.
I did mentioned conversions, we're really very good and experienced at doing those so that relieves some risk from programs that wants to switch from legacy to a gold standard modern issuing system.
Our newer international locations to buy in Colombia.
It would be important to our future plans.
They were not yet able to really monetize them.
As to the level, we expected in our original plans, but we're confident that it was a it's good decisions and they're really adding a lot of value to the company.
Let me end my remarks with one word.
That's seldom heard in the Fintech space today.
That word is profits.
Core code will continue in 'twenty, two 'twenty three to be nicely profitable provide a good return on average assets average equity and in bus but.
Those are key measures for long term shareholders and building real value for an enterprise.
Operator for that and with that I'll take I'll stop and see if we have any questions.
Okay.
Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
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One moment, please I'll we poll for questions.
Our first question comes from an ISO testing with Sidoti. Please proceed with your question.
Alright, and thank you for taking my question and congrats on the nice progress you're making.
I appreciate the additional color you gave on the Goldman Sachs.
Business.
I'm just wondering if it is true that there are going to want to pass the efforts to bid for any more credit card programs.
That's true.
Uh huh.
I assume those customers said that they would go to another player and I guess, maybe some did you like talking to as well or how do you think the microphone yeah.
Yeah, we we we I.
I have no information that I can disclose about what they may or may not do I I would only speculate that.
It would make search it would make sense in one way for them to heavily another supplier of card services. If they break on a large customer that's already usually someone else now the argument the other way it would make more sense for them to get a more modern process rather than a legacy processor.
And how it themselves we don't have a part in that decision. So we were just there to support them in any way they want to be supported and I'm fairly comfortable with I think I'm very comfortable with projected we've made we're not we're not projecting anything that we don't know that we don't feel it's largely become dip.
Play so I don't see any.
Impact on us.
Oh and I sit in terms of our current 20 twenty-three rejections with whatever they do.
Okay and you previously said you expect that that you could add probably two new large customers by the end of 2023.
Do you still anticipate that well what I said I have the capability of doing that I'm gosh say it. This way we have enough folks we're talking to that would allow us to have to.
Lined up before the end of this year how much work we do this year versus next year I don't know at this point, we're still early February we're still early in the conversations but again, our projections probably don't have any put any significant large program be there so that would all be.
Upside positive.
Okay and it sounds from your customers.
They are more prone to watch him you said you probably want.
You said, you think they're going to be more prompted a processing rather than licensing right or.
I don't know if I misheard that.
Yeah, Yeah yeah.
From a from a market standpoint, and just from a business standpoint, we were going to concentrate on building their processing business. We had we had good inquiries last year I expect to have a tornado 320 to 30 per cent increased issuer and processes and it could be higher I would expect to have that or better.
And the next year, so from the license at all actually.
Actually I should I would talk more about it I think and then I did we're still trying to decide whether it makes sense for us to why you should some.
Some of the folks I'll be competitors with us so that had to do that like I said so.
We're still reviewing that strategically just see how much we want to caution.
How well it will be to do it and otherwise we're not certain right now.
Okay. Thank you that almost all for me.
Yeah.
Our next question comes from Health coach Loop capital markets. Please proceed with your question.
Hey, there thanks for having this call I just wanted to.
You get a big picture question and.
You mentioned, you know going from legacy to us.
New gold standard modern platform.
Could you share with us what your vision.
What does legacy look like.
What is what's the modern platform look like in <unk>.
How difficult it is to move it.
Whereas most of the market is it mostly still on legacy that moving to a modern standards you need to define both of those four things well it is definitely a legacy.
But by huge I wonder about credit cards now not just yeah Prepays go everywhere, but in terms of credit cards. It is per Bod preponderance of up legacy right now and there's nothing wrong with that if you want to I have a cookie cutter playing program, they're Charlotte they work well.
So that could give you a little pricey and.
There's no reason to move, but there's a certain percentage and Anna Yeah. I'm just would have to guess it per se as their percentage of our problem insurers they wanted to.
Have more control they want to have the ability to make moves to make changes to dream up new ways of doing things and they can't do that with our legacy process or they have to have one of the modern platforms to do it but it has to be a modern platform that also has a a ledger a system of record that can withstand.
And the regulators would they look at what do they look and see these these unique things that people want to do so I can't give you a number I'm I've typically said, there's probably going to be 10% to 20% of the card issuers. They get I want to really be on a modern platform. Many would it be innovative now.
I'd say just really quickly there are probably 50% of the core issue issuers, who say they want to be innovative but they really don't I mean, they wouldn't be able to say it but they don't want to spend the money or take the time of really be there, so whether rich, 10%, 20% or even fiber <expletive> theres a theres a huge.
Market for folks.
Folks that need more flexibility that they could get on legacy.
Yes.
Yeah.
That makes sense. Thank you.
Would you say that you know.
Our new issue as opposed to a established bank or <unk>.
Credit issuer.
But more than likely if they want to know about want to go with a modern platform. It was a startup.
A new a new a new endeavor would that be this year.
I'll say to a strange says that I think it'd be crazy to go and legacy <unk>, if you're a new issuer, but but let me back up if you still said gosh I don't want to do is exactly what shape does maybe it'd be fine maybe they'd give you 20% lower price or did you do it but yeah I mean, your Polish greg's practically anybody that's.
The market now is going to want to go onto a modern platform.
Alright, thank you so much.
Thank you.
As a reminder, if you would like to ask a question. Please press star one on your telephone keypad.
Okay.
Yeah.
It appears that there are no further questions at this time I would now like to turn the floor back over to Leland Strange for closing comments alright. Thank you everyone for taking the time to listen to the call I Hope I've answered most of your questions we were pretty.
Please what we're doing and as I said when I when I close here, we we certainly understand the need to to make a profit we understand the need to get a good return on assets equity and bus, but and we continue to manage the company with those goals in mind. So thank you very much.
Yeah.
This concludes today's conference. Thank you for your participation you may disconnect your lines at this time.
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