Q4 2023 CoreCard Corp Earnings Call
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Operator: Greetings and welcome to the CoreCard Q4 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode.
Greetings and welcome to the core car Q4 of 2023 earnings Conference call.
At this time all participants are in a listen only mode.
Operator: 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.
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.
It is now my pleasure to introduce your host Matt White CFO. Thank.
Thank you. Please go ahead.
Matt White: Thank you, and good morning, everyone. With me on the call today is Leland Strange, Chairman and CEO of CoreCard Corporation. He will add some additional comments and answer questions at the conclusion of my prepared remarks. Before I start, I'd like to remind everyone that during the call, we'll be making certain forward-looking statements to help you understand CoreCard Corporation and its business environment. These statements involve a number of risk factors, uncertainty, 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 2022 Form 10-K and subsequent filings. We'll 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 report.
Thank you and good morning, everyone.
With me on the call today is Leland Strange chairman and CEO of core car Corporation.
We'll add some additional comments and answer questions at the conclusion of my prepared remarks.
Before I start I'd like to remind everyone that during the call we'll be making certain forward looking statements to help you understand courtyard Corporation.
And its business environment. These statements involve a number of risk factors uncertainties and other factors that could cause actual results to differ materially from our expectations.
Actors that may affect future operations are included in our filings with the SEC.
Putting our 2022 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 on our press release, our fourth quarter results were in line with our expectations.
Matt White: As noted in our press release, our fourth-quarter results were in line with our expectations, and with continued year-over-year growth in processing and maintenance revenue. Total revenue for the fourth quarter was $12.2 million, a 23% decrease year-over-year. Services revenue, defined as total revenue excluding license revenue, decreased 13% in the quarter on a year-over-year basis, with full-year growth of 1%.
When and with continued year over year growth in processing and maintenance revenue.
Total revenue for the fourth quarter was 12 point to $2 million or 23% decrease year over year services revenue defined as total revenue excluding license revenue.
Decreased 13% in the quarter on a year over year basis with full year growth of 1%.
Matt White: The components of our revenue for the fourth quarter consisted of professional services revenue of $6.1 million, processing and maintenance revenue of $5.5 million, and third-party revenue of $0.5 million. Processing and maintenance revenues grew 8% in the fourth quarter on a year-over-year basis with full year growth of 18%. The decline in professional services revenue was driven by lower demand for development personnel from Goldman Sachs, our largest customer.
The components of our revenue for the fourth quarter consisted of professional services revenue of $6 1 million.
Processing and maintenance revenue of $5 5 million.
Third party revenue of zero point $5 million.
Processing and maintenance revenues grew 8% in the fourth quarter on a year over year basis with full year growth of 18%.
The decline in professional services revenue was driven by lower demand for development personnel from Goldman Sachs, our largest customer.
As a reminder, we converted the managed services revenue we received from Goldman which is included in professional services to a fixed monthly fee of $1 million, which is contract contracted through 'twenty.
Matt White: As a reminder, we converted the managed services revenue we received from Goldman, which is included in professional services, to a fixed monthly fee of $1 million, which is contracted through June 30, 2025. Additionally, maintenance revenue from Goldman was approximately $2 million in the fourth quarter of 2023, and that has contracted through June 30, 2026. Revenue growth, excluding our largest customer and excluding the impact of Park Mobile, which we talked about in the last quarter, and the legacy cabbage business, which is currently in runoff, with 12% in the fourth quarter on a year-over-year basis and 13% for the full year. We continue to onboard new customers both directly and through various partnerships we have with program managers such as DESERVE. Vervant, and Cardless.
At June 30 of 2025.
Maintenance revenue from Goldman was approximately $2 million in the fourth quarter of 2023 and that is contracted through June 32026.
Revenue growth, excluding our largest customer.
And excluding any impact from park mobile, which we've talked about on the last quarter and the legacy <unk> business, which is currently in runoff.
Was 12% in the fourth quarter on a year over year basis, and 13% for the full year.
We continue to onboard new customers, both directly and through various partnerships, we have with program managers such as deserve.
Servant and cartilage. We currently have multiple implementations in progress with new customers that we expect to go live in the coming months. However, these new customers typically build their account base prudently remember, they're issuing credit paying mostly our minimum fees initially of around 10 to $15000 per month in the initial 12.
Matt White: We currently have multiple implementations in progress with new customers that we expect to go live in the coming months. However, these new customers typically build their account base prudently, remember they're issuing credit, and pay mostly our minimum fees initially of around $10,000 to $15,000 per month in the initial 12 to 18 months of their program. We expect our new customers to become more significant over time as they grow their own business at a measured pace. Now, turning to some additional highlights for the fourth quarter and full year of 2023. Income from operations was $0.4 million for the fourth quarter of 2023 compared to income from operations of $3 million for the fourth quarter of 2022. Our operating margin for the fourth quarter of 2023 was 3% compared to an operating margin of 19% for the same period last year.
The 18 months of their program, we expect our new customers to become more significant over time as they grow their own business at a measured pace.
Now turning to some additional highlights for the fourth quarter and full year for 2023 income from operations was zero point $4 million for the fourth quarter of 2023 compared to income from operations of $3 million for the fourth quarter of 2022.
Our operating margin for the fourth quarter of 2023 was 3% compared to an operating margin of 19% for the same period last year a.
Matt White: The year-over-year decline in our operating margin was primarily driven by continued investments in our new platform, hiring in India, and lower license and professional services revenue year-over-year. The income statement impact of our new platform build was $0.6 million in the fourth quarter of 2023 and $1.8 million for the full year. Those amounts are included in our development expenses on our income statement. Fiscal 2023 and 2022 tax rates were 24.5% and 27.1%, respectively.
The year over year decline in our operating margin was primarily driven by continued investments in our new platform hiring in India, and lower license and professional services revenue year over year.
The income statement impact of our new platform build was zero point $6 million in the fourth quarter of 2023 and $1 $8 million for the full year. Those amounts are included in our development expenses on our income statement.
Okay.
Fiscal 2023 and 2022 tax rate was 24, 5% and 27, 1% respectively.
Matt White: We expect our ongoing tax rate to be between 25 and 27%. Earnings per diluted share for the quarter was $0.06 compared to $0.12 for the fourth quarter of 2022. Full year 2023 diluted EPS was $0.40 compared to $1.61 for the full year 2022. Adjusted diluted EPS for the quarter, excluding the fourth quarter 2022 impact of a write-down of one of our equity method investments was six cents compared to 24 cents for Q4.
We expect our ongoing tax rate to be between 25 and 27%.
Earnings per diluted share for the quarter was six <unk> compared to 12 for the fourth quarter of 2022.
Full year 2023 diluted EPS was <unk> 40 cents compared to $1 61 for the full year 2022.
Adjusted diluted EPS for the quarter.
Excluding the fourth quarter 2022 impact of a write down.
One of our equity method investments was six cents compared to 24 cents for Q4 2022.
Full year 2023, adjusted diluted EPS was <unk> 52, compared to $1 74 for the full year 2022.
Matt White: Full year 2023 adjusted diluted EPS was 52 cents compared to $1.74 for the full year 2020. We generated significant operating cash flows in 2023 of $16.8 million. We used $3.7 million on share repurchases in 2023, including $2.1 million of share repurchases in the fourth quarter of 2023. We have excess cash on our balance sheet as of December 31, 2023, and we expect to continue generating operating cash flow in 2024. We plan to use this excess cash and cash generated from operations to continue investing in our new platform and to continue buying back shares, especially at current price levels, for 2024. We expect services revenue to be approximately flat and license revenue of approximately $1.4 million to come in the second half.
We generated significant operating cash flows in 2023 of $16 $8 million we.
We used $3 $7 million on share repurchases in 2023, including $2 $1 million of share repurchases in the fourth quarter of 2023.
We have excess cash on our balance sheet as of December 31, 2023, and we expect to continue generating operating cash flow in 2024.
Plan to use this excess cash and cash generated from operations to continue investing in our new platform and to continue buying back shares, especially at current price levels.
For 2024.
We expect services revenue to be approximately flat and license revenue of approximately $1 $4 million coming in the second half.
Matt White: We expect growth from customers, excluding our largest customer, and excluding the impact of Park Mobile and Legacy Cabbage, which are all services revenue, to be approximately 11%. Within services, we expect continued growth in processing and maintenance as our customers continue to grow and as we add new customers. We anticipate professional services revenue in the first quarter of 2024 in the range of $6 to $6.2 million. And with that, I'll turn it over to Leland. Okay, thanks Matt. Let me just say start planning your questions now because my comments are going to be short.
We expect growth from customers, excluding our largest customer.
And excluding the impact of a park mobile and legacy cabbage, which is all services revenue to be approximately 11%.
Within services, we expect continued growth in processing and maintenance as our customers continue to grow and as we add new customers.
We anticipate professional services revenue in the first quarter of 2024 in the range of six to $6 $2 million.
And with that I'll turn it over to Leila.
Okay. Thanks, Matt.
Just say start planning your questions down because my comments are going to be short.
Leland Strange: First, let me comment on the lack of license revenue for the quarter. As most of you know, license revenue comes in buckets of about a million new cards, and we had none, and I don't think we expected it in the first half of the year. There have been pundits trying to extrapolate the success or failure, or the growth or lack of growth, or maybe just translate that to measure the success of the card program of our largest customer. That's bad logic and a mistake. The largest individual brand processed on our software continues to grow their program, and it continues to be a phenomenal success. How can that be if there are no new licenses? Well, our licensee processes more than one program with their license from CORECard.
First let me comment on the lack of license revenue for the quarter as most of you know license revenue comes in buckets of about 1 million new cards, albeit nod and I don't think we expected in the first half of the year.
There have been pundits trying to extrapolate the success or failure.
Or the growth or lack of growth or maybe just translate that to measure to measure. The success of the card program are our largest customer.
It's bad logic at a mistake.
The largest individual brand processed on our software continues to grow their program and it continues to be a phenomenal success.
After that.
No new launches as well.
I should have elisha knee process with more than one program, where the ratio from courtyard.
Leland Strange: And the CoreCard license revenue is not split by program, but it's for the total number of active cards that they process. For example, if one of the programs should clean their books by canceling old, unused cards, that would be one way that would slow new license revenue and could possibly mislead one into the growth of the other program. I'll show the license and revenues on ACTIVCOR. Depending on the definition, some cards could become an act.
And the core correlation revenues not split by program, but it's for the total number of active cards that they process. For example, if what are the program should clean clean their books by casualty Golar Newscorp.
One way that would slow new license revenue and could possibly mislead one is the growth of the program.
Also the license revenues on active cards and depending on destination some cards could become active.
Leland Strange: I should say here, however, that the largest program of the system probably has the most average number of transactions of any large program that I've ever seen. Cardholders love the card. They often use it for breakfast, lunch, and dinner on the same day, plus a lot of other daily transactions. So it's a very, very good program, and even though we may not have new license revenue in the first half, the program itself is growing at a good rate. Second, let me comment on Matt's statement that the projected adjusted growth for services in 2024 is about 11%. Now, I'm not happy with that slow growth rate, but he's probably right based on the new business.
Should say here have or that's the largest program of the system probably has the most average number of transactions of any large broker David rose.
Cardholder wildcard the altra user for breakfast lunch and dinner on the same day plus all the other daily transaction, So Wednesday Eric.
Very very good program and even though we may not have new license revenue in the first half the program itself is growing at a good rate.
Second let me comment on that statement that the projected adjusted growth for services, a 'twenty 'twenty four is about 11%.
I'm not happy with that slow growth rate.
Probably right based on the new business. We are currently working with.
I'm hopeful we can squeeze some other business in this year or that some of them will grow faster than that projected but it may end up being in that range.
Yes.
As most of you know we've historically not spent much in business development and I've been in the good position of business, putting us well.
Well that was part of the past.
And we recognized that we were prioritizing providing excellent service for our largest partner.
<unk> growth plans now.
Now that there are real plans have changed we're also changing we've added shale may add more it will beef up a marketing program.
It's still true that the larger potential clients and the consultants you know bill are keenly aware of which issuer processors are capable of handling their potential business, but.
But we still need your bike shortened that we have a portion of the table that discussion so we'll be adding to that.
I think for 2024 will add to business development expenses will continue with building a next generation software while at the same time it will be lower in the hedge on the areas that are not growing as we had anticipated by the way are our new.
<unk> platform is downhaul, CT energy, especially inside name, but we've recently introduced the first output from that effort into our own core processing environment. It's a service that we offer to our customers doubled the output from the new platform development will go which our current posture Xu Bourbon and some of it.
Will not be available until second half of next year, when we finish it.
Let me just stop against just summarize that.
We're focused on the continued growth of processing of maintenance revenues.
So out of gold.
And as I, just mentioned, we're doing that partly with adding shifts.
Which of those areas. We do have increased revenue visibility. The Goldman revenues are now longer term contracts that are recurring in nature.
We do have reduced customer concentration now that's a bump in the road today towards a healthier customer base going forward.
As we continue to grow non Billboard revenue.
The measure of the success for the company I think.
Thank you we have deep platform coming out in the data portion of our cash flows possibly have a very strong balance sheet with no debt.
If you look at the bigger picture card issuance globally is strong and continues to grow despite the economic conditions.
Core Karnes gets paid on a number of cards issued so even in an economic downturn.
We are bad.
Our differentiation is sharply courtyard competes on program innovation customization flexibility speed.
<unk> service levels, while the legacy service providers. They do have skilled advantages although at some point I'll talk about that because I think they are not what they appear to be.
B b aspects that core car all for Harley just state for the competition and have driven customer wins. The past that we think will continue to do so.
With that I'll open it for questions we have at <unk>.
Thank you ladies and gentlemen, the floor is now opened for questions.
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Today's first question is coming from <unk> <unk> of B Riley Securities. Please go ahead.
Hey, Good morning, guys, Hey, Matt could you just refresh us like I know you mentioned it but the.
The contract term lengths for a goal that he gave two different years could you just go over that again and Leland for you.
Could you could you could.
Could you discuss maybe what the banking crisis might have.
It had an impact on on just programs and the pace of movement.
Grams in 2023, how that's shaping up right now thanks.
Sure Yeah. So there's two there's two contracts that we renewed back in July are effective July one 2023, one was for managed services and that that's running the software and that goes through professional services. That's through June 30 of 2025 at a million dollars a million dollars a month run rate.
The CPI increases after 12 months and the other was a debate nets are.
Contract that are again was extended on July one 2023 through June 30 of 2026.
Okay. So that's the second question on the bakery garages.
I think we're finally getting back to somewhat normal.
There was a period of uncertainty where nobody wanted to do anything since it now does that slowly going away I think the theres still a regulated regulatory overhang in the sense that the regulators are looking hard at.
Looking at hard at any card program that deviates from the standard, but the good side from our view and for our future is I believe things are normalizing and unless something else happens that.
The way that we can foresee at this point with each profile.
Middle of the end of the year everything to be back like it was three years to four years ago folks will be looked at for the best way to process their program there'll be looking for growth again.
Okay.
Terrific.
Yes.
One follow up for me on on.
Growth spending and then share buybacks, meaning you have a really rich.
The balance sheet for a small company.
They bought back stock in Q4.
You mentioned in the bathroom for growth, but can you kind of like.
Give us your thoughts on how that would break out in 2020 more like how much you might allocate to a buyback.
Is it opportunistic and that how much kidney is capital spending for the year.
Well, obviously, how much we would allocate but it will depend partly on what what happens to the share price but.
We're likely to be a graduate will likely be aggressive with the share prices given what we see in the future given the folks who were talking to give him.
How we look at our outlet so that that's probably the best guidance I could give to two big met yes, we've got plenty of room left on our current authorization over $14 million remaining so.
You know, we won't be able to use all of that.
One year, so there's plenty of runway there.
And then on the the Capex, it's probably between 5% to $6 million capital spending some of that goes towards the new platform and some of that is continued investment in equipment for our current platform, where we're in really good shape with both our cash flow even with the spending of a.
The new platform and the increased spending per business day boat, but an and and we frankly discussion at the board would discuss of EBIT.
EBIT biking.
Biking, a buyback authorization of higher we decided there was no need to right now because we're limited in how much we can buy out any one day.
He will give it the rule.
Yeah, but we will be we will be buyback.
Terrific I'll get back in the queue. Thanks.
Thanks Al.
Thank you that brings us to the end of today's question and answer session. We would like to thank everyone for their participation and interest in core card.
This concludes today's event you may disconnect your lines at this time or log off the webcast and enjoy the rest of your day.
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