Q1 2024 CoreCard Corp Earnings Call
Greetings welcome to core card first quarter 'twenty 'twenty four earnings conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone.
Keypad. Please note. This conference is being recorded I will now turn the conference over to Matt White CFO. Thank you you may begin.
Matthew A. White: Thank you and good morning, everyone.
Matthew A. White: With me on the call today is Leland Strange chairman and CEO of core car Corporation.
Matthew A. White: It will add some additional comments and answer questions at the conclusion of my prepared remarks.
Matthew A. White: 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 core car Corporation and its business environment.
Matthew A. White: These statements involve a number of risk factors uncertainties and other factors could cause actual results to differ materially where expectations factors.
Matthew A. White: We'll also discuss certain non-GAAP financial measures, including adjusted diluted EPS and adjusted EBITDA.
Matthew A. White: Which is adjusted for certain items that affect the comparability of our underlying operational performance.
Matthew A. White: These non-GAAP measures are detailed in reconciliation tables included with our earnings release.
Matthew A. White: As we noted in our press release, our first quarter results were in line with our expectations with continued year over year growth in processing and maintenance revenue.
Matthew A. White: Total revenue for the first quarter was $13 1 million.
Matthew A. White: An increase a decrease of 11% year over year, driven by lower professional services revenue, primarily from our largest customer Goldman Sachs.
Matthew A. White: The components of our revenue for the first quarter consisted of professional services revenue of $5 $8 million processing and maintenance revenue of $6 $2 million in third party revenue of $1 1 million as expected. We did not have any license revenue for the quarter.
Matthew A. White: Goldman represented 59% of our revenues for the first quarter of 2024 compared to 70% for the first quarter of 2023.
Matthew A. White: Processing and maintenance revenues grew 13% in the first quarter on a year over year basis, primarily driven by the acceleration of zero point $5 million of revenue from a customer that was acquired in 2023 and formally terminated their contract in the first quarter of 2024.
Matthew A. White: Revenue growth, excluding our largest customer was 21% in the first quarter on a year over year basis.
Matthew A. White: Revenue growth, excluding our largest customer.
Matthew A. White: And the impact from park mobile.
Matthew A. White: Legacy <unk> business.
Matthew A. White: And the zero point $5 million of accelerated revenue in Q1 2024 previously mentioned was 41% in the first quarter on a year over year basis is expected to be 10% to 15% for the full year.
Matthew A. White: We continue to onboard new customers, both directly and through various partnerships, we have with program managers, such as deserve Bourbon and cartilage as in previous quarters. We currently have multiple implementations in progress with new customers that we expect to go live in the coming months, including our recently announced commercial card partnership with the bank.
Matthew A. White: In California.
Matthew A. White: Turning to some additional highlights on our income statement for the first quarter of 2020 for income from operations was zero point $5 million compared to $1 $8 million for the same period last year, our operating margin was 4% compared to an operating margin of 12% for the same period last year a.
Matthew A. White: The year over year decline in our operating margin was primarily driven by continued investments in our new platform and lower professional services revenue.
Matthew A. White: The income statement impact of our new platform build was zero point $7 million in the first quarter of 2024 compared to zero point $4 million for the prior year period.
Matthew A. White: We made some head count reductions in India, and expect related cost savings starting in the third quarter of 2024.
Matthew A. White: We will continue to look for cost savings as needed to remain profitable given the lower revenues were currently receiving from our largest customer.
Matthew A. White: Our Q1 2024 tax rate was 25, 7% compared to 24, 7% in Q1 of 2023, we expect an ongoing tax rate between 25 and 27%.
Matthew A. White: Earnings per diluted share for the quarter was five <unk> compared to 15 cents for Q1 2023, adjusted diluted EPS for the quarter, excluding stock compensation expense was seven cents compared to 15 cents for Q1 2023 <unk>.
Matthew A. White: Adjusted EBITDA was $1 $7 million compared to $3 $5 million for the first quarter of 2023.
Matthew A. White: We have over $24 million of cash on our balance sheet as of March 31, 2024, and we expect to continue generating operating cash flow.
Matthew A. White: 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.
Matthew A. White: We repurchased 134650 shares in the first quarter of 2024 for $1 $6 million we.
Matthew A. White: We have approximately $13 billion remaining on our current share repurchase authorization.
Matthew A. White: For the full year 2024.
Matthew A. White: We continue to expect services revenue to be approximately flat compared to 2023, we expect license revenue to be approximately $1.4 million likely in the fourth quarter of 2024.
Matthew A. White: As mentioned earlier, we expect growth from customers, excluding our largest customer the impact of park mobile the legacy <unk> business.
Matthew A. White: And the zero point $5 million of accelerated revenue in Q1, 2024 to be 10% to 15% for the full year.
Matthew A. White: Within services, we continued to expect growth in processing and maintenance as our customers continued to grow and as we continue to onboard new customers. We anticipate professional services revenue in the second quarter of 2024 to be likely in the range of $5 $7 million to $6 million.
Matthew A. White: With that I'll turn it over to Leland.
James Leland Strange: Alright, it takes place.
Matthew A. White: Yeah.
James Leland Strange: I think the as.
James Leland Strange: You said the quarter was pretty much as we expected I E. The results simply is a little better than breakeven.
James Leland Strange: And I think I expect similar results in the next couple of quarters.
Speaker Change: Cig, so more rather than saying this is the right answer to what might be a little better what might be a little worse, but generally I would say.
James Leland Strange: The next two quarters to hopefully achieve significantly.
James Leland Strange: Significantly better in the fourth but the next to be similar.
James Leland Strange: The elephant in the room is and has been a reuters customer.
James Leland Strange: Goldman Sachs and variations of revenue per bill along with the question about what's going to happen in the future becomes the unknown. Let me address that first before discussing the positive things is coming from our continued increasing the revenue from this segment that's outside of the largest customer.
James Leland Strange: Everyone wants to know what's going to happen with the Goldman situation since they are pretty much it now.
James Leland Strange: Getting out of the business.
Speaker Change: I wanted to say very clearly that I have no inside information on that or whats going to happen.
James Leland Strange: Did I could talk about it.
James Leland Strange: So everything I say about it is speculative as from my view is not back.
James Leland Strange: Buy anything definitive that come from the customer or the conversations.
James Leland Strange: First I do expect that General Motors Corp, that's being processed.
James Leland Strange: One the core core platform at Goldman debt.
James Leland Strange: It will go to another party either the fourth quarter this year or the first quarter next year.
James Leland Strange: The Wall Street Journal speculated yesterday or a couple of days ago that Barclays is in the running for that cohort.
James Leland Strange: Again, I would emphasize that EBITDA Oracle was speculation and they didn't call antibody or anyone that said that was definitive.
James Leland Strange: It really doesn't matter, where the receivables go from core card perspective.
James Leland Strange: It's highly unlikely that we'll continue processing that portfolio since it's a very plain cord with no special requirement.
James Leland Strange: Any processor it could probably pick that up.
James Leland Strange: It's a fairly easy as a cord. So I don't I, just don't see any real problems with that.
James Leland Strange: Uh huh.
James Leland Strange: The other car the Apple card is different.
James Leland Strange: The Apple card is one that is much more difficult. It has a lot of especially casual things to it. So therefore, I would expect that not to be as simple to move somewhere else.
James Leland Strange: There is again speculation that it will go to a new bank either.
James Leland Strange: Either the end of this year early next year, when I say speculation there speculation that a new bike will be chosen.
James Leland Strange: It's my opinion that that is going to be choppy between.
James Leland Strange: Apple and the new bag and it's not necessarily a goldman.
James Leland Strange: Decision, although there are obviously part of it.
Speaker Change: Again, we have no insight on that we simply.
Speaker Change: Got it and do what we do everyday and we have to go along with whatever happens I would also speculate that.
Speaker Change: Probably from.
Speaker Change: From today, we're still going to be processing that card for the next.
Speaker Change: Two or more years.
Speaker Change: Could be a long term again, we have no definitive eventual bad.
Speaker Change: Constantly get question well, what's going to happen what's going to happen is if we should know I'm just telling you. We don't know we can't know and by the way when I do know I, probably have to say I can't discuss it.
Speaker Change: So and that's going to be the clue that I may know, but did I can't say anything he could were shortly.
Speaker Change: Give any information out about our customers.
Speaker Change: Yeah.
Speaker Change: The next leg as it is looking to the future well, we've got a handful of folks that we are.
Speaker Change: Target to that or what I will call potential strategic customers.
Speaker Change: Now what is strategic main strategic means that either.
Speaker Change: Or have the potential or or very large.
Speaker Change: Or they are.
Speaker Change: They want to do or are doing a project that will extend the core card brand and will help us get into new markets or our help us progress.
Speaker Change: Strategically for the customer it means that everybody at core card all thousand employees know that with that customer calls or what that customer watch we're going to jump at it and that's going to that's going to be the number one priority that's what happened with the Goldman.
Speaker Change: Contract when they were strategic.
Speaker Change: Now, it's simply ongoing as opposed to something strategic.
Speaker Change: You can't have a handful of strategic partners you can only have in my view two or three we have one right now I'm going to call a bug called the banc of California, a strategic partner they have.
Speaker Change: Card leadership that wants to be innovative they are willing to to do innovation and they help us together come out with a commercial card that we think the market is going to work, but once that gives guests love you will see us.
Speaker Change: Actively promoting that cord.
Speaker Change: <unk> introduced it yet, but I think it will be reduced in the next month or two.
Speaker Change: So that's a strategic partner.
Speaker Change: A handful of people, we're talking to a hope to get again to more because the maximum we can have this three and we'll be treating them. The same way all as everyone has reported.
Speaker Change: One of them or two of our both of them already have significant revenues, but we're talking to a set of handful of some that have significant revenue some that do not but have the potential to be significant partners.
Speaker Change: So we're looking at and really spending our time.
Speaker Change: They can give about the.
Speaker Change: The non Goldman business.
Speaker Change: We are going to be manage our expenses toward that and ship Lee.
Speaker Change: For the resources will go.
Speaker Change: Let me just make a comment I think last about what's happening in the business in general the business in general is yes, there's.
Speaker Change: There is a little bit of cap out at because the regulators that core card has always taken the approach that we work for the regulators we work with the OCC awarded or the FDIC whoever is controlling regularly debate and we work for the card holder of the other areas. The cardholders happy that you'll have the rig luder issues at the bank. So.
Speaker Change: Is it the fact is we work for the regulator.
Speaker Change: Recently, the regulators have issued could ship orders to a good number of banks that have its bumps rebid tags.
Speaker Change: The <unk>.
Speaker Change: Reasonable that is they've been lags and program management and they've been lags in terms of the money laundering and know your customer type activities. So the banks Hello beyond the day.
Speaker Change: Rent out or provide to a program manager and up to this point. The bank has said it's delegated it said to the program manager you take care of AML and we're getting all your doing a right. The regulators have come back a little bags had said no you can't delegate it.
Speaker Change: They can do whatever they do but you buy you are responsible totally so bad as Aldo said calls.
Speaker Change: A good number of banks to have to say, we're taking a pause until we reach kind of reorient, our compliance procedures to take care of what the regulators are saying at this point, but that does that.
Speaker Change: That does.
Speaker Change: New Fintech type capability.
Speaker Change: On the other hand, the folks that are already out there that are.
Speaker Change: Now that <unk>.
Speaker Change: Our Dubai no regulatory issues. There those are the ones that we are tending to approach at this point.
Speaker Change: So with that let's just open it up to questions that should my view of where we are now what's happening.
Speaker Change: Thank you as he would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
Speaker Change: You May press star two if he would like to remove your question from the queue and for participants using speaker equipment. It may be necessary to pick up your handset before.
Speaker Change: We're pressing the star keys.
Speaker Change: Our first question is from Howard <unk> with B Riley Securities. Please proceed.
Howard: Hey, Good morning, guys I wanted to ask you about what's you mentioned towards the end of this call and that is the potential for one to three strategics.
Howard: And you mentioned in one or both might have significant revenue.
Howard: Does that mean they would.
Speaker Change: It would bring up.
Howard: Cards that they already have onto your platform and that would be the new processing platform for an existing portfolio or could you help us understand that a little better. Thanks.
Speaker Change: Yeah that would require conversion who were very good at <unk>. We've got a good history of that that's obviously what are the issues with boats, but we have a really good history and <unk>.
Speaker Change: We have no.
Speaker Change: Hesitation to take the project of converting our portfolio. So yeah again that makes us lumpy if we get one of those now.
Speaker Change: I did say and I should mention it here.
Speaker Change: Two of them.
Speaker Change: Do not have contracts they need with their current processor until I think one in June of next year. One in October of next year.
Speaker Change: But they will make their decision by June to October of this year, but the and we would start working probably 12 months before the contract ends but the revenue would come in until next year. So it's 20 to 25 revenues.
Speaker Change: Okay.
Speaker Change: Okay and then on.
Speaker Change: Moving on the on the Fintech issues with on the compliance side.
Speaker Change: And do the plaintext Youre working with you mentioned.
Speaker Change: Deserve Bourbon and Carlos or are they in that camp.
Speaker Change: The pause when they when do they have their oh.
Speaker Change: Yeah Knowhow.
Speaker Change: None of our current customers are having a problem of this digital realty.
Speaker Change: There are some customers that currently exist or not having a problem, but none of our customers.
Speaker Change: Have any problems, but as I think about it they are dealing with some of the banks that have gotten consent orders, but all that means for the bank is they can't take on new customers, where they had to do something until they get their side. So it's not impacting to my knowledge any of our current customers.
Speaker Change: Okay.
Speaker Change: And that's what to make sure I understand kind of the.
Speaker Change: The revenue guidance again.
Speaker Change: No.
Speaker Change: Basically you said ex Goldman ex Cat ex this one time.
Speaker Change: Cancellations right.
Speaker Change: Yes and park mobile.
Speaker Change: Do you expect your philosophy revenues to be up 10% to 15% is that right or.
Speaker Change: Everything all revenue everything.
Speaker Change: I should go bucket major something that Matt.
Speaker Change: <unk> there was a.
Speaker Change: <unk> hundred 1000 that we put in this year.
Speaker Change: English a previous customer who was only paying us minimum stay at only gone wild with friends and family.
Speaker Change: And they got purchased by another processor.
Speaker Change: So the other processor, obviously, when we get them.
Speaker Change: Their platform not ours. So they took it off now that's the way.
Speaker Change: We look at it should you just continue to spread that over the term of the contract, but really the auditors and Matt determined that.
Speaker Change: We have no more services to provide so therefore, we're going to have to take it all in in the first quarter.
Speaker Change: Are you going to make it difficult on sub.
Speaker Change: Forward comparisons for the next couple of quarters, but you've got your 500000 that was a one time.
Speaker Change: Increase we're not going to get now we expect take ratio other places we expect to have.
Speaker Change: So cost savings. So that's why I said earlier I expect over the next two quarters to be similar to this quarter, but that's a that's a big like a.
Speaker Change: Okay. Thank you.
Speaker Change: Our next question is from Avi Fisher with long cast advisors. Please proceed.
Avram Fisher: Hi, Thanks for taking my question.
Avram Fisher: Hopped on a little late did you mention anything about expectations of license revenues this year.
Avram Fisher: $1 $4 million likely in the fourth quarter.
Speaker Change: As soon as possible.
Avram Fisher: But he did a little bit in terms of predicting it but it is possible.
Speaker Change: Okay and then.
Speaker Change: And then two other quick questions. So.
Speaker Change: Do you generate any one time or quote unquote access revenues as the general motors cards needs.
Speaker Change: No because there is there any special works you have to put it now.
Speaker Change: I mean, there might be a little bit of work you know in terms of the conversion off of the platform.
Speaker Change: We haven't assumed anything at this point.
Speaker Change: The timing is still pretty uncertain as to when that.
Speaker Change: Well it might happen I wouldn't expect any big increase on that.
Speaker Change: Just offset some of the other professional services that we're doing for the slides.
Speaker Change: Got it and then and then within that General Motors. It doesn't does it change your contract with Golden or Theres still going to pay you what.
Speaker Change: Based on our contracted rate.
Speaker Change: It doesn't change our contract with Goldman.
Speaker Change: Got it okay.
Speaker Change: Then can you talk about the revenue generation on the strategic opportunities. So for example, you know you have a processing customer theyre going to pay you overtime on monthly accounts.
Speaker Change: Essentially on day, one youre not getting paid a lot, but if the card is successful in a year or two out you start making a lot of money.
Speaker Change: At a high incremental margin.
Speaker Change: But what is the revenue generation and margin profile of a strategic before it starts before it goes live and before those monthly accounts start accumulating.
Speaker Change: The strategics are so different I can't answer the question I'll give you. An example, banc of California strategic revenues basically deal at this point.
Speaker Change: It will grow a tad, but it's neal.
Speaker Change: <unk>.
Speaker Change: So theyre all our gear for all five or six we're talking to a defer the two or three.
Speaker Change: Two I can only take two strategic relates the two that we get I get I cant predict which one will get in some cases it will be some revenue immediately but that's not until their contract.
Speaker Change: Expires then they go live next year.
Speaker Change: There may be a little we're talking to we could get a significant chunk. This year, if we get that one now.
Speaker Change: Each of these parties.
Jud: Hey, Jud.
Jud: We're not going to lose them to somebody else, but they may stay with their current provider.
Speaker Change: So I'm not I don't want to get.
Speaker Change: Out there predicting revenue from them.
Jud: Sure that's fine, but just so I understand and I mean.
Jud: To bring on Board Fame Banc of California, you have to spend professional you have to spend money to setup.
Jud: To set up the platform for them and you don't generally.
Jud: Yeah.
Jud: Alrighty historical yeah, we're spending money.
Jud: Every bus all that and it's not it's just an expense we're not building it up.
Jud: It might be a tiny bit of that but generally we're trying to be very conservative.
Jud: On it so yes, there'll be I think.
Jud: So there is a little bit sooner, but we're working on that every day.
Jud: And every day.
Jud: Everything we've done is primarily historical and.
Jud: We expect the public launch in the coming months on that so most of those costs have been incurred already.
Jud: The balance sheet hasn't changed significantly over the last 12 months in terms of what we've put on related to those costs that we've incurred.
Speaker Change: So just so I understand though ahead of a launch of a strategic your margins will be lower because you're spending money and not generating any revenue off of it and then the launch and if it's successful the margins go up because you're generating revenue without a lot of incremental costs is that kind of the right way to think about it.
Speaker Change: A lot of those those costs incurred so similar to like if we charge an implementation fee that is going to go into the deferred revenue line the costs associated with that.
Speaker Change: Getting ready for a new launch also go onto the balance sheet into a deferred cost.
Jud: Okay.
Jud: Net which has never been significant never been a separate line item. So there really isn't a huge margin impact.
Jud: As youre describing.
Jud: Okay.
Speaker Change: Well what can you then talk about the opportunity to grow your EBITDA margins.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Again, the way the way we are investing strategic we're just not looking at margin there and we're looking at future potential and not not.
Speaker Change: Concerning ourselves about percentage margin.
Speaker Change: Yeah.
Speaker Change: I hear what Youre, saying, thank you very much.
Speaker Change: Thanks Tommy.
Speaker Change: There are no further questions at this time. So this will conclude today's conference you may disconnect. Your lines, let me just.
Speaker Change: Yes, let me just kind of give a give a quick summary, just to say I'm very optimistic with potential we have for 2025 to be a good growth year outside of our largest cost really customer.
Speaker Change: As I said already I don't think we'll be in a position to be very definitive on that until late third quarter and another note I missed earlier, but Matt did mention we continued to invest in a new core tenancy. Our core file platform is slated to be available in the fourth quarter of 2025.
Speaker Change: If I were to.
Speaker Change: Take a look back at our strategy.
Speaker Change: We had planned on Goldman Sachs being a partner that was going to bring additional plateaued and we'd been building a bench to take care of that growth, where we're counting on growth to come from that partnership with that being the number one partnership are the number one strategic customer.
Speaker Change: When they decided to exit the business, we really were not prepared to immediately ramp up business development.
Speaker Change: And I'm gonna have to acknowledge that it was my mistake to believe that the partnership would be sufficient for our future growth.
Speaker Change: Actually I should say it would have been sufficient for growth if they adopt change course, but they did.
Speaker Change: So now we're dealing with that we are managing expenses, we have new products coming and we have a good number of prospects that we're talking to so I realize there's a period of uncertainty, but I'm pretty confident that we have the only moderate revolving card platform.
Speaker Change: Not in the hands of the multibillion dollar companies that you pointed to survive over the long term.
Speaker Change: We're pleased that those of you that are current shareholders roadbed shareholders were happy to continue the dialogue with anybody that would like to talk to us thanks for being able to hold a day everyone.
Speaker Change: Thank you we will now conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.
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