Q2 2024 CoreCard Corp Earnings Call
Ladies and gentlemen, good morning and welcome to CoreCard Second Quarter 2024 Earnings Conference Call.
Operator: At this time, all participants are in a listen-only mode.
Operator: At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation.
Operator: A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star and zero on your telephone keypad. As a reminder, this conference is being recorded.
Operator: At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation.
Speaker Change: If anyone should require operator assistance during the conference, please press star and zero on your telephone keypad.
Matt White: It is now my pleasure to introduce your host, Matt White, Chief Financial Officer. Please go ahead.
Operator: As a reminder, this conference is being recorded.
Operator: It is now my pleasure to introduce your host, Matt White.
Matt White: Thank you.
Matt White: 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 that the conclusion of my prepared remarks. Before I start, I'd like to remind everyone that during the call we will be making certain forward-looking statements to help you understand CoreCard 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 2023 Form 10-K and subsequent filings.
Speaker Change: Chief Financial Officer, please go ahead.
Speaker: 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.
Speaker: Thank you, and good morning everyone. With me on the call today is Leland Strange, Chairman and CEO of CorCard Corporation. He will add some additional comments and answer questions at the conclusion of my prepared remarks.
Speaker: 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 CoreCart Corporation and its business environment.
Speaker: These statements involve a number of risk factors, uncertainties, and other factors that could cause actual results to differ materially from our expectations.
Speaker: Factors that may affect future operations are included in our filings with the SEC, including our 2023 Form 10-K and subsequent filings. Processing and maintenance revenue of 5.7 million dollars and third-party revenue of 1.1 million dollars, revenue growth, excluding our largest customer, in addition to the impact from Park Mobile and the legacy cabbage business. Processing and maintenance revenues were mostly flat in the second quarter of 2024 compared to the second quarter of 2023, primarily due to the revenue decline from the legacy cabbage business that I mentioned previously.
Speaker: Factors that may affect future operations are included in our filings with the SEC, including our 2023 Form 10-K and subsequent filings.
Matt White: We'll also discuss certain non-GAAP financial measures, including adjusted diluted EPS and adjusted EBITDA, which is adjusted for certain items to affect the comparability of our underlying operational performance. These non-GAAP measures are detailed, and reconciliation tables are included with our earnings release. As we noted in our press release, our second quarter results were in line with our expectations. Total revenue for the second quarter of 2024 was $13.8 million. It's a 12% decrease year-over-year driven by lower license revenue and lower professional services revenue, primarily from our largest customer, Goldman Sachs. The components of our revenue for the second quarter consisted of professional services revenue of $7 million, a metric we guide to, which came in ahead of our previously guided range; processing a maintenance revenue of $5.7 million and third-party revenue of $1.1 million.
Speaker: We'll also discuss certain non-GAAP financial measures, including adjusted diluted EPS and adjusted EBITDA, which is adjusted for certain items that affect the comparability of our underlying operational performance.
Speaker: These non-GAAP measures are detailed in reconciliation tables included with our earnings release.
Speaker: As we noted in our press release, our second quarter results were in line with our expectations.
Speaker: Total revenue for the second quarter of 2024 was $13.8 million, a 12% decrease year-over-year driven by lower license revenue and lower professional services revenue, primarily from our largest customer, Goldman Sachs.
Speaker Change: The components of our revenue for the second quarter consisted of professional services revenue of $7 million, a metric we guide to and which came in ahead of our previously guided range.
Speaker: processing and maintenance revenue of 5.7 million dollars and third-party revenue 1.1 million dollars.
Matt White: As expected, we did not have any license revenue for the quarter. As we continued to grow revenues outside of our largest customer, Goldman represented 53% of our revenues for the second quarter of 2024 compared to 70% for the second quarter of 2023. Revenue growth excluding our largest customer was 7% in the second quarter on a year-over-year basis. Revenue growth excluding our largest customer, in addition to the impact from Park Mobile and the legacy Cabbage business, as we've detailed in Park quarters, was 34% in the second quarter on a year-over-year basis, as expected to be 15 to 20% for the full year, which is above our previously guided range of 10 to 15%.
Speaker: As expected, we did not have any license revenue for the quarter.
Speaker: revenue growth excluding our largest customer in addition to the impact from Park Mobile and the legacy cabbage business.
Matt White: We continue to onboard new customers both directly and through various partnerships we have with program managers. As in previous quarters, we currently have multiple implementations of progress with new customers to be expected to go live in the coming months. Processing quarter of 2024 compared to the second quarter of 2023, primarily due to the revenue decline from the legacy cabbage business that I mentioned previously. Turning to some additional highlights on our income statement for the second quarter of 2024, income from operations was $1.1 million for the second quarter of 2024 compared to income from operations of $2.7 million for the same time last year.
Speaker: Income from operations was $1.1 million for the second quarter of 2024 compared to income from operations of
Matt White: Our operating margin for the second quarter of 2024 was 8% compared to an operating margin of 17% for the same time last year. The decrease is primarily driven by lower license revenue, continued investments in our new platform, and lower professional services, right? and new. The income statement impact of our new platform build was $0.7 million in the second quarter of 2024 compared to $0.4 million for the prior year period. We reduced our headcount slightly in India and expected related cost savings starting in the third quarter of 2024. We will continue to look for cost savings as needed to remain ploughed profitable given the lower revenues we are currently receiving from our largest customer.
Speaker: $2.7 million for the same time last year. Our operating margin for the second quarter of 2024 was 8% compared to an operating margin of 17% for the same time last year.
Speaker: The income statement impact of our new platform build was $0.7 million in the second quarter of 2024, compared to $0.4 million for the prior year period. Our second quarter 2024 tax rate was 24.4% compared to 24.8% in the second quarter of 2023. Adjusted EBITDA was $2.5 million compared to $4.8 million for the second quarter of 2023.
Speaker: We've reduced our headcount slightly in India and expect related cost savings starting in the third quarter of 2024.
Matt White: Our second quarter of 2024 tax rate was $0.24.4% compared to $0.24.8% in the second quarter of 2023. Earnings per diluted share for the quarter was $0.11 compared to $0.22 for Q2-2023. Adjusted diluted EPS for the quarter excluding stock compensation expense was $0.15 compared to $0.23 for Q2-23. Adjusted EBITDAI was $2.5 million compared to $0.8 million for the second quarter of 2023. We have over $22 million of cash on our balance sheet as of June 30, 2024, and we expect to continue generating operating cash flow in 2024. We plan to use this success, cash, and cash generated from operations to continue our investments in our new platform that we continue buying back shares.
Speaker: Our second quarter 2024 tax rate was 24.4% compared to 24.8% in the second quarter of 2023.
Speaker: Earnings for diluted share for the quarter was $0.11 compared to $0.22 for Q2 2023. Adjusted diluted EPS for the quarter excluding stock compensation expense was $0.15 compared to $0.23 for Q2 2023.
Speaker: We have over $22 million of cash on our balance sheet as of June 30, 2024, 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 our investments in our new platform and to continue buying back shares.
Matt White: We repurchased $134,650 shares in the first quarter of 2024 for $1.6 million, and $147,040 shares in the second quarter for $2.1 million. For the full year of 2024, we continue to expect services revenue to be approximately flat. We expect license revenue to be approximately $1.4 million in either the fourth quarter of 2024 or the first quarter of 2025. As mentioned earlier, we expect growth from customers excluding our largest customer, in addition to the impact of Park Mobile, the legacy Cabbage business, and the $0.5 million of accelerated revenue recognized in Q1 2024, could be between 15-20% for the full year, which is above our previously guided range of 10-15%.
Speaker: For the full year 2024, we continue to expect services revenue to be approximately flat. We expect license revenue to be approximately $1.4 million in either the fourth quarter of 2024 or the first quarter of 2025.
Matt White: Within services, we continue to expect strong growth and processing to anticipate professional services revenue in the third quarter of 2024 to be likely in the range of $6.2 to $6.5 million.
Leland Strange: And with that, I'll turn it over to Leland. Thanks, Matt. You didn't leave me much to say. I think you're a pretty comprehensive covering the business and even where we're headed now. I guess I often say, just look at the numbers and don't pay attention to what anybody says. I think the numbers are about what we expected. We're happy with them. We're probably a little higher than what we expected from the standpoint of professional services, and I wouldn't expect that to stay up, but I've been surprised several times in the past few years on them, and they may still stay up.
Speaker: And with that, I'll turn it over to Leland.
Speaker Change: Thanks, Matt. You didn't leave me much to say. I think you were pretty comprehensive in covering the business and even where we're headed now.
Speaker: I guess I often say, just look at the numbers.
Leland Strange: Generally, our growth is good as far as the other side of the business; our largest customer is standing. Could it be a little faster and bigger when I like that? Yeah, but you couldn't handle it if it was growing a whole lot faster, so we're pretty happy with the continued growth.
Speaker: Generally, our growth is good as far as the other side of the business is concerned, other than our largest customer. It's steady. Could it be a little faster and bigger? Would I like that? Yeah, but you couldn't handle it if it was growing a whole lot faster, so we're pretty happy with the continued growth. Other than that, there's not a lot to say. We've added several other good-sized potential businesses that would come online late.
Leland Strange: and the new, what we call core power, core affinity platform we're building is coming along fine also. just reminded everybody that's not expected to be finished until the end of the fourth quarter, let's say, of 2025, but we're making good progress here. We're using parts of what we've done already in our current environment, so that's the investment. It's the investment we think is really good for the company and the shareholders of the law term.
Speaker: The new, what we call Core5 or Corefinity platform we're building is coming along fine also.
Speaker: I'll just remind everybody that's not expected to be finished until the end of the fourth quarter of 2025, but we're making good progress and we're using parts of what we've done already in our current environment. So that's an investment we think is really good for the company and the shareholders over the long term.
Leland Strange: Other than that, there's not a lot to say. We've added; I couldn't name a lot of cards or things, but we don't tend to do that. I will mention that one of our customers has got a cutter, so if you fly it to Cutter or to India through Cutter, and when I earn bonus points, you'll end up with the Cutter Airlines card, and that's big process by four cards, we're still doing well in the Middle of the East.
Speaker: I could name a lot of cards and things, but we don't tend to do that. I will mention that one of our customers has got a cutter.
Speaker Change: Cutter or to India through cutter and when I earn bonus points, you'll end up with the cutter airlines airlines card And that's being processed by for card. We're still doing well in the Middle East. So generally business is just steady
Leland Strange: The generally business is just steady, steadily growing as far as the current business, steadily growing as far as adding some new ones, and we are working on several other good-size potential business that would come online in late 2025. That is the nature of what we do if you have to work on it year to last, typically, and we have two or three that we believe at least one of those will go live, maybe all of them, in the third, fourth quarter of next year, first quarter, twenty-sixth. So, generally, I would just have to say we're pleased with the numbers that we reported this quarter. We're pleased with the way businesses go, and we're just going to continue to stay on the path we're on now.
Speaker: steadily growing as far as the current boost is, steadily growing as far as adding some new ones, and we are working on
Speaker: several other good-sized potential business that would come online in late.
Speaker: typically, and we have two or three that we're, we believe at least one of those will go live, maybe, maybe all of them.
Speaker: in the third, fourth quarter of next year, first quarter of 2026. So generally, I would just have to say, we're pleased with the numbers that we reported this quarter. We're pleased with the way business is going, and we're just gonna continue to.
Leland Strange: Operator, you can open it for questions. We have to take a few questions, and you're from Adiris. Thank you.
Speaker: to stay on the path of the world now.
Speaker: Operator, you can open it for questions, we'd be happy to take a few questions either from Matt or I.
Operator: Ladies and gentlemen, we will now be conducting a question-and-answer session. If you would like to ask a question, please press star and one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Ladies and gentlemen, we will wait for a moment while we poll for questions.
Speaker Change: Thank you. Ladies and gentlemen, we will now be conducting a question and answer session.
Speaker Change: If you would like to ask a question, please press star and 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Operator: Ladies and gentlemen, we will wait for a moment while we poll for questions. Our first question is from the line of Hal Goch with Be Riley Securities. Please go ahead.
Harold Goetsch: Our first question is from the line of how goch with beer, highly securities. Please go ahead. Hey, how we can hear you. How? Are you there? Thank you. Sorry, I was on mute.
Speaker Change: Our first question is from the line of Hal Gooch with Be Riley Securities. Please go ahead.
Speaker: Anyway, we can't hear you.
Speaker: Anyhow, we can't hear you.
Hal Goch: The tone of business This time of year ago, we were in the midst of a little bit of a banking crisis for small banks and large banks as well. A year has gone by, and you mentioned the tone of business is steady, and it's just, you know, the tone of like RFPs or inquiries, is that still steady, or is it rising from maybe a year ago or six months ago, or what's the tone?
Speaker Change: How? Are you there? Yeah, in the...
Harold Goetsch: The tone of business this time a year ago, we were in the midst of a bit of a banking crisis for small banks, large banks as well. A year has gone by, and you mentioned the tone of business is steady, and it's just, you know, is the tone of like RFPs or inquiries, is that still steady, or is that lifting from maybe a year ago or six months ago?
Hal Goch: Thank you. I'm sorry I was on mute. The tone of business this time a year ago, we were in the midst of a little bit of a banking crisis for small banks and large banks as well.
Speaker Change: A year has gone by and you mentioned the tone of business is steady and it's just, you know, is the tone of like RFPs or inquiries, is that still steady or is that lifting from maybe a year ago or six months ago or what's the tone of activity?
Leland Strange: Which is the tone of like- Yeah, I would say there's been a change in the sense that less fintech activity, a little bit more from the smaller banks. It's still not big, but it has improved some from what we're getting for the smaller banks. Fintech is slow; of course, we still get some, but I'm just trying to give you the sense of what I see in the landscape, a little better from the smaller banks and a little less from the fintech side of the business.
Speaker Change: Yeah, I would say there's been a change in the sense that less fintech activity, a little bit more from the smaller banks. It's still not big, but it has improved some from what we're getting from the smaller banks.
Speaker: A little better from the smaller banks and a little less from the Fintech side of the business.
Speaker: Fintech has slowed some, of course we still get some, but I'm just trying to give you the sense of what I see in the landscape, a little better from the smaller banks and a little less from the fintech side of the business.
Matt White: in question from Matt.
Leland Strange: Was there any buyback activity in the quarter? You have been buying back stuff. Yeah, we bought back around $147,000 shares at $2.1 million. And then again, buy back. Yeah, they forgive you. Okay.
Speaker Change: Okay. And a question for Matt.
Speaker: Yeah, we bought back around 147,000 shares for $2.1 million. So that helps you. Now, we believe it's very low risk. We have got a lot of experience with conversions. We've never had a problem. We do not think there'll be a problem, but it doesn't matter what we believe. What matters is what we believe. I boarded directors.
Speaker: Yes, we bought back around 147,000 shares at $2.1 million.
Leland Strange: And final question is, you know, you mentioned like two to three large, at least one or all could hit maybe in the back half of 2025. Like, could you give us like a kind of a range or a feel for what large is for you guys, like in terms of hard. Sure. I mean, yeah, that's a good question. Now, I'm going to place your large in the. I'm going to give you a pretty wide range. Two to eight million dollar a year type revenue. So over two is, you know, it's a small large, but it's a medium.
Speaker: Okay.
Speaker Change: I'm going to place your large in the.
Speaker: two to eight million dollar a year type revenues.
Leland Strange: And age is a big block for us. And I'm talking about annual revenue. So two, three, four, five, six, I made type annual revenue, maybe in combination. Well, no recent new combination. You either have it. You don't have it.
Speaker Change: 0.2 is a small large, but it's a medium and an 8 is a big large for us.
Speaker Change: and I'm talking about annual revenue. So two, three, four, five, six, seven, eight type annual revenue, maybe in combination, well, no reason to do combination. You either have it or you don't have it.
Leland Strange: But, but let me just add to that though, what's important in this kind of business is that it tends to snowball a little bit. You know, if you add a couple more decent size financial institutions, that tends to lower the risk for the next guy to make the decision. So that helps you now. We believe it's very little risk. We have got a lot of experience with conversions. We've never had a problem. We do not think there'll be a problem. But it doesn't matter what we believe.
Speaker Change: But, let me just add to that though, what's important in this kind of business is
Speaker Change: That tends to snowball a little bit. If you add a couple of more decent-sized financial institutions, that tends to snowball.
Speaker: lower the risk for the next guy to make the decision.
Speaker: So that helps you. Now, we believe it's very low risk. We have got a lot of experience with conversions.
Leland Strange: What matters is what I boarded directors or a risk officer believes. And of course, we can do all we can to show them that it's not much risk, but risk is taken away based on historical performance. So that's what that's kind of the way we're growing the boost. All right.
Speaker: We've never had a problem. We do not think there'll be a problem, but it doesn't matter what we believe. What matters is what a board of directors or a risk officer believes. And of course we do all we can to show them that it's not much risk, but risk is taken away based on historical performance.
Speaker: So that's what, that's kind of the way we're growing the boost. All right.
Harold Goetsch: Thank you. Appreciate that perspective. Thank you.
Speaker: So, that's kind of the way we're growing the boost.
Speaker Change: All right. Thank you. I appreciate that perspective. Thank you.
Operator: Any other questions? Thank you.
Operator: Any other questions? Thank you. There are no more questions in the queue.
Operator: No, no questions in the queue.
Operator: Any other questions? Thank you. No sir, there are no questions in the queue.
Speaker: We thank everyone for taking the time to listen to our call, and, as always, if you have any individual questions, Matt and I are always available to talk, so thank you very much. Thank you. The CoreCard conference has now concluded. Thank you for your participation. You may now disconnect your lines.
Matt White: Yeah, we thank everyone for taking the time to listen to our call. And as always, if you have any individual questions, men are always available to talk. So thank you very much.
Speaker: We thank everyone for taking the time to listen to our call, and as always, if you have any individual questions, Matt and I are always available to talk. So thank you very much.
Operator: Thank you.
Operator: The conference call card has now concluded. Thank you for your participation.
You may now disconnect your lines. Thank you.
Speaker: Thank you. The conference of CoreCard has now concluded. Thank you for your participation. You may now disconnect your lines.