CoreCard Corporation Q1 2023 Earnings Call
We have multiple implementations in progress with new customers, we expect to go live in the coming months.
Turning to some additional highlights on our income statement for the first quarter of 2023 income from operations was $1 8 million compared to $11 8 million for the same period last year, our operating margin was 12% compared to an operating margin of 48% for the same period last year the year over year decline in our operating margin was primarily driven by.
<unk> previously mentioned lower license revenue in 2022 hiring in India.
Our head count was mostly flat from year end and we expect to stabilize our head count in 2023, as we continued to grow our revenues without adding a significant number of new people.
Our Q1 2023 tax rate was 24, 7% compared to 25, 8% in Q1 2022, we expect our ongoing tax rate to be between 25 and 27%.
Earnings per diluted share for the quarter was 15 cents.
Compared to a dollar for Q1 2022.
As noted in our press release this morning.
For full year 2023, we expect growth in services revenue of approximately 10% and license revenue to be between $3 million and $7 million.
We expect growth from customers, excluding our largest customer which is all services revenue to be approximately 20%.
License revenue in future quarters in 2023, starting in the second quarter average difficult for us to predict the timing of license revenue for Q3 and Q4 for reasons, we have discussed previously.
Within services, we continue to expect strong growth in processing and maintenance as our customers continued to grow and as we continue to onboard new customers professional services revenue continued to be strong in the first quarter and we anticipate professional services revenue in the second quarter of 2023 to be likely in the range of seven 2% to seven.
$4 million, we're expecting some slowdown in the growth of professional services for the rest of 2023. However, we expect that revenue stream to remain at a high level.
And with that I'll turn it over to Leland.
Okay. Thanks Beth.
This is the quarter, we're all going to have very little to add the best covenants for the quarter was actually stronger.
Dissipated.
But what we'd anticipated at the beginning of the quarters, but I don't want to read too much into that.
Met said, where we're going to be cautious for the rest of the year all of our customers are carefully watching their spend as we are.
We had previously been a year ago said the year to year overall person would not be good as we had.
Very large record lesson revenue the 2022 quarter that was not repeatable.
From a overall business perspective, we continue to bring a new glass, albeit smaller ones all of whom hope to grow to be larger in the future.
Every quarter, we add new customers going live with new offerings.
The likelihood of a big name or a big conversion is not as strong today as it was even six months ago due to the turmoil in the banking sector.
We're still having those conversations but I have to believe the risk appetite for bikes are greatly diminished.
So generally prefer to just remain under the radar will help all of that last no. One knows the outcome as original Budge now are really under the gun even today as we speak we've seen the.
Spot prices for a couple of the major regional bikes go down 20%, 30%.
So that does impact us we do have we do have a lower back that will be going live. This year for sure. We may have to but I don't have anything big right now as folks are just talked to you could say, whether you can see kind of see how things develop.
I'll bet.
I've got a Nemo yesterday was your question from a shareholder and I thought I'd share by answers that I gave him with you and then I'm going to comment on the ISS bolt recommendations, which will conclude my comments before we have opened up for questions.
One of our shareholders ship Matt.
Yeah.
E mail yesterday or the day before.
Whether it's not many questions being asked when we call. So would you guys be willing to answer this I assume the answer to hear the questions.
Does the Apple savings option involve the use of courtyard software and if so what impact is there for courtyard.
I answered that by saying the Apple credit card is used for Apple gathering, but not directly and Bob savings options. You do have to have a credit card to get the savings accounts. So that helps to increase the number of cards that GOR card benefits with more court I will add of course that are offering for one 5% savings so that definitely is.
Or is it more cards to be added as people want to grab that savings at Goldman.
Second question.
Which does the applebee NPL option involves the use of Cologuard software lift so while the impact is that a poker card.
I answered similar to the above core card is not directly involved with buy now pay later for Apple.
Now the net escalations are tougher, but I'm only going to really shape what percentage of the software engineers hired in the past 12 months of working such that they are directly contributing to the net profit is a courtyard.
I think the question was really up you are still hiring are the people that youre hiring are they making money. So my answer was this is an answerable as engineers were hired for a variety of tasks and we do not separate engineers that are directly in revenue producing test for example, a rideshare customers pay us maintenance as a percent of the Liza and <unk>.
Some engineers are working on things that have immediate impact and others are longer term projects that will benefit the largely other maintenance.
And then two more questions. One is how much of corporate free cash flow as they used to develop the upgrade your software and when do you expect the upgrade to be significantly completed.
My answer you don't separate the income streams into free cash flow. So again not answerable software in this business is never complete.
We'll be using some of the new software this year, but it'll be at least two more than maybe three years to fully have they do version and finally the last question was how much benefit with the upgraded software be to attracting new business are creating a significantly a significant competitive advantage for cologuard over its competition.
My answer management believes the new software is required to be competitive three plus years out even though the older software will still be used the new software should have lower operating cost, which will be advantageous and bidding for new business. There are no silver bullets that will provide significant competitive advantage as decision.
<unk> made not only on functionality and features but also pricing.
Joe.
Got a response to my answers, which let me see.
If I can find that in which I thought was surprising.
He said and I won't give you. His name is Jim Thanks for taking the time to answer my question I. Appreciate your straightforward tenured your shareholders' letter stated your ability of the company brick by brick.
He said I had answered the first stock how about when I moved to Atlanta and get this around 43 years ago.
Over to the conference call. So thank you for the questions and I'll also say thank you to many of our long term shareholders. I think were very unusual in the sense that we have a bunch of you have really stayed around for a long time.
My next comment is going to be about.
Yes.
As the institutions know, but all shareholders may not know.
The ISS actually stands out recommendations to institutions on how they should vote for.
Sure.
The company's corporate annual meetings.
Last year in National this year.
<unk> recommended that the institution vote against.
The chairman of the audit Committee.
And it's simply because the ratio of audit and audit fees is higher than a certain minimum.
Now.
It's good policy frankly to keep audit separated from consulting fees to make sure you don't take your auditors and we totally and completely agree with that.
Our case is somewhat different and Matt may weigh in on here.
But just to give you an idea.
This past year, our audit fees were $112000.
The other fees that were built.
Okay.
188000, so audit 108 to 112 other PS 188 that means the ratio is greater than the $50 50, which is kind of their minimum.
Cutoff in terms of their formulas. The reason, we have 188 and the other piece, though is because of some compliance that is required for companies that are in processing services. These are non consulting services and Matt help me out here, but they are totally independent they require our auditors to be independent and so.
They're not independent for those services, they wouldn't be able to provide them similar to the way they need to be independent and providing audit services.
Kind of view those in a similar way, although they do fall into the non audit services bucket for purposes of the proxy statement.
With that it's just not on the fees and then calculate the ratios.
Of that 188 pounds of most of the majority of it is actually repaid to us by our customers Goldman Sachs and others, and we simply use nickels callaway built in our own environment as well as the other environments in order to get some efficiency and cost we could easily go and get a third party.
Just so we can beat the rule, but our costs were to go up and I'm choosing to.
Speaking of shareholder money and the best way possible rather than worry about that particular.
Formula, but it will cause a recommendation against a boat for whoever it may be the chairman of the audit committee on any particular year.
Hope that's helpful for some of you with that I'm going to open it up for questions don't really have a lot of other comments.
Thank you ladies and gentlemen at this time, we'll be conducting a question and answer session.
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One moment, while we poll for questions.
Okay.
If there are no questions.
I think we did have one and say Hey, let me, let me kind of repricing. They ask are there any game changers coming up and I think I answered that given the current environment.
The banking environment.
But Jay any game changers coming out we're going to continue brick by brick.
So to the Calgary staying profitable.
And.
What are you waiting the time out to some of this turmoil sales. They will go back and look at the game changers.
With that I just wanted to thank you for taking the question I'm sorry go.
Go ahead.
<unk> <unk> with B Riley. Please proceed with your question.
Hey, good morning, guys.
I've got a quick question on first question on expense growth.
I think you mentioned youre going to hold employee count pretty steady after a big investment in head count over the last year I think.
Got it.
We ended the.
I think your 10-K said, yes.
Employees around 1200, when you filed it and maybe it was 750, maybe 15 months ago.
Right.
Yes.
Do you think this is a pretty.
Good level.
G&A spend in service spend.
Yes.
The rest of the year.
<unk> right now.
Im going to worsen the personnel or the head count it's going to be remain pretty steady I think.
Inflationary cost I don't know how to.
All of those yet so there probably will be an increase just simply due to inflationary cost, but generally spend as is under control. It will be it will be bought you again I'm going to even say more carefully than we have in the past given the fact that we're holding a little bit right now.
But personnel pretty much stable.
Stay in this neighborhood it all depends zone.
People, we lose we will continue to hire but you also always lose it you may not get that ratio exactly right all of that but it's going to mean what.
What do you think bed.
Alright, we should be able to stabilize hiring this year.
Maybe there's a little bit of up and down quarter to quarter.
As Leon said, but.
To keep that steady and continue to grow revenues.
Current level of head count that we have but the other expenses are mainly going to be whatever inflationary rates with us there will be some increase in salaries divorce.
Okay.
And my next question is gone.
Makes sense.
Generally speaking.
One of the kind of companies that you are quoting right now for new card programs between international issuers.
Domestic with large and small and then.
Emerging fintech that are still growing accounts, you want to add card programs.
What's kind of the lay of the land right now after Q1.
It's a little of all of those and it's hard to put a percentage there is going to be some international growth. We expect is that going to be huge but there'll be some international we continue to add emerging fintech and we're continuing to.
We will add some folks who are.
I'm not going to call it <unk>, but they may be starting your progress maybe some smaller when we do have some smaller banks that are going to continue to do some things but.
The mid size.
Our regional banks are not going to do anything so we're in conversations but I am just trying to give you my best guess of the lay of the land that is not going to happen I can't imagine them. Despite the conversations I'm going to have policy are I'd, just give it to them wanting to get out in front of regulators or any kind of risk whatsoever.
Sure.
Okay. Okay.
And I guess one follow up.
Are you seeing issuers.
Looking for.
<unk> in the marketplace by offering new types of cards.
Metal cards or economically eco cars here.
Is there any are you seeing any.
Yes, it's not so much.
<unk> card that we're seeing a differentiation in hundreds of offerings and mainly what we're seeing is that.
People want to be able to make changes to their program faster and that's really hard to do with the large legacy processors.
For good reason.
So and Thats not to knock on for good reason, they've got a lot of people on their system and you've got to be very careful and you've got to.
Finally, well advanced so mainly what we're seeing is people want speed.
Two as I see them.
Market landscape change they want to offer new things quickly and in some cases, the bigger guys wanted to try out some things that they don't even know are going to be here, thanks yourself or not but they want to test them. So we were.
We're talking to the bigger guys, mainly who say we want to move quicker we want to have more flexibility.
In terms of the ongoing process.
We're happy with what we're getting.
And we're really happy with the price, we're getting but we would like.
But were stock we can't we can't have the mobility, we'd like to have so that's kind of what we are here.
Okay.
Okay.
Whats. An example last question from me.
Okay I got it here.
He is back in the queue, if there's more questions, but what's the what's kind of example of a tactical change that your software allows you to meet currently is it like allowing it.
Hard to have maybe an installment loan on the same statement.
Okay.
That could be one but could you just might want to.
I'm not going to say just interest rate, but you might want to.
Here's an example recently.
Okay.
We're a commercial bank said that.
We want to.
The issue of car that would let folks if they pay it in seven days. There is no interest. If you have 14 days. There's this much is 'twenty one is as much. If it is 30 is there as much and if it goes over 30, we don't want to let them have any more credit.
Now you can take to all of that's parameters, but boy, that's really hard when you start cascading the different interest rates and a particular month.
A particular statement cycle and make sure you get it right for the regulators. So that's just a little example.
That's pretty complex.
Got it.
Weinstein, we can do that and we can do it fast.
Can set up our sample program, they can do that and test it in a week or two where you're just going to take months to do it somewhere else. So.
So it really is more of a state of mind, I think where the larger guys note that their home so they don't need any innovative thinkers.
Have we could change our program, but we could do with our customers because they can't do it quickly anyway.
So theyre not all so I think they're well, we got 100 ideas, but they are sitting there, saying well we've had ideas and we couldnt implement them.
What would happen it would come with you how fast can we implemented.
Excellent.
Thank you.
Yeah.
Our next question.
It comes from the line of Goodyear Ritchie with Ricky Capital Group. Please proceed with your question.
Hi, good morning, gentlemen, thanks for taking.
Taking my question.
Wanted to see if you could give us a bit more insights on.
The type of upgrades here.
Making to your software to the extent that you can talk about it what's the.
The high level strategic.
Loosen strategy and then I'd also really like to get your thoughts on the.
Evolving ecosystem within.
Card processing.
Where do you see the market going.
<unk> excited.
As far as.
Core card opportunity.
Sure.
In terms of what we're doing in terms of Idaho and rewrite a new version of it but it is written the what we're doing is coming from a blank sheet of paper is not usually what we have other than business get fair. It. So it uses all the latest technologies that are in place now.
Excluding anticipating things that are being talked about you could even talk about AI with that but the idea is that you want to make sure you have the latest and greatest software out there three years from now.
10 years from now to do what May happen and that ties into your next question Oh, Let me add one more then I'll tie it in another other thing is obviously when most of US wrote our software originally the other cloud was around yeah. We made it work on the cloud, but we didn't have full understanding of.
The applications of how many data centers will be out there how do you do this internationally how do you go across different time zones.
He has settled through throughout the world.
Internationally the way movement of money is moving now so that's what we've taken everything that we know and what we're projecting and that's why I'm more niche in terms of are running your software. So in terms of we're ash, we're actually the landscape and I am talking about several year valid now right now is that instead of dividing watching your wallet into.
A bunch of different pockets, it really just money and whether it's.
Whether it's a savings account or whether it's.
Credit card or whether it's on a column.
Call a buy now pay later with its own an installment or wherever it is it's just money in your wallet and then there are decisions made about how best to utilize that.
I guess go back to what I, just said a while ago I said now Apple buy now pay later is not really and what I'm going to call our wallet.
It's in.
Well I mean, it's all <unk>, but it's not all the same account that breakeven for the credit card and what our vision in the future is all of these things are going to be on one account and it's just money. So we're trying to build a system that will put all of this one account and then Wallace will determine how it gets.
I guess distributed.
That's a very high level.
Okay.
Just one follow up.
With the legacy processes.
That happens.
It's about making these this evolution of evolving with the market like what do you what do you feel like they'll stumble.
Little by little they are not going to really stumble, it's just going to be a slow erosion.
From.
From what Theyre doing now so I don't see any tipping points.
<unk> erosion and look at what Theyre doing now you can you can see that look at the <unk>.
They're all trying to do the big guys.
Getting rid of global a global base building back up getting rid of world pay.
So I just see this as stumbles many of those tunnels will be covered by re org, which often happens or acquisitions, but nevertheless, when you look through it there just stumbles.
Okay. Thank you.
Our next question comes from the line of Avi Fisher with long cast advisors. Please proceed with your question.
Alright, Thank you, hi, Leland and Matt.
Two quick questions. The first one.
And I'm wondering if you could help me with it. So you guys did roughly $70 million in sales last year, and you're guiding to 10% top line growth, which gets to 77.
You're guiding to license a three to seven at the high end of that.
Thanks, Eric.
Avi differentiated services growth.
We've said for a year, we're not going to be able to add back all of that license revenue this year.
Right, So youre talking about 10% growth on the services side.
Yes.
So 54, plus five gets to 60 ish.
Alright.
And thank you for the clarification and.
Layer on top of that.
Oldman roughly flat so that entirety of that 10% growth is roughly incremental like new customers coming on board.
Roughly I mean, theres going to be some increase owned well we don't know.
You have to look at the components of the revenues there. So you've got the decline in license revenue from $16 1 million to $3 million to $7 million.
Goldman related and then so you're going to see some services growth.
From Goldman but then also the <unk>.
Most of it is from new customers right that's right.
So can you get some scale in that and therefore, some sort of margin leverage on the margin there up from 34% on the services side this quarter.
Well, we do expect as we stabilize our head count and.
Just kind of look at our all of our costs and continuing to grow revenues. We should we should see some leverage on the services margin in 2023.
Got it okay.
And then the second quick question is you've invested in the middle East you've talked about investments in the middle East.
Revenue has grown their year over year, but it's still fairly small and I was just wondering if you could talk a little bit about sort of where that business could go where it is relative to your expectation.
Just to continue to grow it's going to make small but it is going to continue to grow we've got some new things planned for this year.
Alright, thank you.
Yes.
Yeah.
There are no further questions in the queue I'd like to hand, the call back to management for closing remarks.
Well again, thank you for both of your questions and for your time always if you have further questions, Matt and I are available to try to answer those but again. Thank you for your continued ownership of the company will continue to try to be good stewards of that trust placed in us. So thank you.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you.
You may disconnect your lines at this time and have a wonderful day.