CoreCard Corporation (CCRD) Q4 2022 Earnings Call Transcript

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CoreCard Corporation (NYSE:CCRD) Q4 2022 Earnings Conference Call February 16, 2023 11:00 AM ET

Company Participants

Matt White – Chief Financial Officer

Leland Strange – Chairman and Chief Executive Officer

Conference Call Participants

Anja Soderstrom – Sidoti

Hal Goetsch – Loop Capital Markets


Greetings, and invited to nan CoreCard Fourth Quarter 2022 Earnings Conference Call. At this time, each participants are successful a listen-only mode. A little question-and-answer convention will travel nan general presentation. [Operator Instructions] As a reminder, this convention is being recorded.

It is now my pleasance to present your host, Matt White, Chief Financial Officer. Thank you, sir. You whitethorn begin.

Matt White

Thank you. Good morning, everyone. With maine connected nan telephone coming is Leland Strange, Chairman and CEO of CoreCard Corporation. He will adhd immoderate further comments and reply questions astatine nan conclusion of my prepared remarks.

Before I start, I’d for illustration to punctual everyone that during nan call, we’ll beryllium making definite forward-looking statements to thief you understand CoreCard Corporation and its business environment. These statements impact a number of consequence factors, uncertainties and different factors that could origin existent results to disagree materially from our expectations.

Factors that whitethorn impact early operations are included successful our filings pinch nan SEC, including our 2021 Form 10-K and consequent filings. We’ll besides talk definite non-GAAP financial measures, including adjusted diluted EPS, which is adjusted for definite items that impact nan comparability of our underlying operational performance. These non-GAAP measures are elaborate successful reconciliation tables included pinch our net release.

As we noted successful our property merchandise this morning, our beardown capacity continued successful nan 4th fourth of 2022, and we are pleased pinch our afloat twelvemonth gross maturation of 45%. In nan 4th quarter, our master services gross remained solid. We saw continued maturation successful processing and attraction revenue, and we recognized licence gross of $1.8 million.

The components of our gross for nan 4th fourth consisted of master services gross of $7.7 million, processing and attraction gross of $5.1 million, third-party gross of $1.3 million, and arsenic already highlighted, licence gross of $1.8 million.

Total gross for nan 4th fourth was $15.8 million, a 21% summation year-over-year. Services gross defined arsenic full gross little licence revenue, grew 25% successful nan 4th connected a year-over-year ground pinch afloat twelvemonth maturation of 27%.

Within services, processing and attraction grew 33% successful nan 4th fourth connected a year-over-year ground pinch afloat twelvemonth maturation of 34%. License gross for nan 4th was level year-over-year and saw afloat twelvemonth maturation of 174%. We expect this to beryllium a grounds twelvemonth for licence revenue, and our attraction going guardant will beryllium connected continued maturation successful services revenue, pinch an accent connected increasing our processing business.

Revenue growth, excluding our largest customer was 18% successful nan 4th fourth connected a year-over-year basis. We proceed to onboard caller customers some straight and done various partnerships we person pinch programme managers, specified arsenic Deserve, Vervent, and Cardless.

We presently person aggregate implementations and advancement pinch caller customers that we expect to spell unrecorded successful nan coming months. We completed our relationship pinch American Express successful nan 4th fourth of 2022 and expect that to unfastened up a caller way to gross maturation successful nan coming years.

Turning to immoderate further highlights connected our income connection for nan 4th fourth and afloat twelvemonth for 2022, income from operations was $3 cardinal for nan 4th fourth of 2022 and 2021. Our operating separator for nan 4th fourth of 2022 was 19% compared to an operating separator of 23% for nan aforesaid play past year. The year-over-year diminution successful our operating separator was chiefly driven by continued investments successful our processing environment, our caller agency successful Bogotá and our hiring successful India.

Additionally, we’re building a caller level that is resulting successful higher improvement costs. These investments are a cardinal constituent to early growth. Our fiscal 2022 and 2021 taxation complaint was 27.1% and 23.2%, respectively. We expect our ongoing taxation complaint to beryllium betwixt 25% and 27%.

Earnings per diluted stock for nan 4th was $0.12, compared to $0.30 for Q4 of 2021. Full twelvemonth 2022 diluted EPS was $1.61, compared to $1.03 for nan afloat twelvemonth 2021. Adjusted diluted EPS for nan quarter, excluding nan effect of a write-down of 1 of our equity method investments was $0.24, compared to $0.30 for Q4 2021. And afloat twelvemonth 2022 adjusted diluted EPS was $1.74, compared to $1.03 for nan afloat twelvemonth 2021.

We achieved important maturation successful 2022 by onboarding a important number of caller customers, converting a ample portfolio of millions of cards successful nan first quarter, adding complete 300 group successful India, Bogotá and nan U.S. and continuing to build retired our processing infrastructure.

We expect to stabilize our workforce successful 2023 and proceed maturation successful our services revenue, chiefly pinch nan group we person today. We judge we’re astatine nan constituent wherever existing customers tin proceed to grow, and we tin proceed to onboard caller customers without important increases successful headcount aliases infrastructure costs.

For 2023, we expect maturation successful services gross of astir 10% and licence gross betwixt $3 cardinal and $7 million. We expect maturation from customers, excluding our largest customer, which is each services gross to beryllium astir 20%.

We expect licence gross successful early quarters successful 2023, starting successful nan 2nd quarter. However, it’s difficult for america to foretell nan timing for reasons we’ve discussed previously. Within services, we expect beardown maturation successful processing and attraction arsenic our customers proceed to turn and arsenic we adhd caller customers.

Professional services gross continued to beryllium beardown successful nan 4th quarter, and we expect akin master services gross successful nan first 4th of 2023, apt successful nan scope of $7 cardinal to $7.2 million.

We’re expecting immoderate slowdown successful nan maturation of master services successful 2023 owed to nan continued beardown request successful 2022. However, we expect that gross watercourse to stay astatine a precocious level.

And pinch that, I’ll move it complete to Leland.

Leland Strange

Okay. Thanks, Matt. Let maine commencement by conscionable reiterating aliases possibly expanding connected immoderate of nan points that Matt made successful his remarks. First, yes, we had a very bully year. It was punctuated by nan ample licence gross received successful nan first 4th of past year. I’ve repeated successful respective of these calls, starting a twelvemonth ago, that nan circumstances that resulted successful nett income was not repeatable and could, I guess, practically beryllium considered, though not for accounting purposes, a onetime event.

We were happy to get it arsenic it represented a 2nd ample programme being processed connected CoreCard package pinch millions of caller cards. And besides nan gross went to rate pinch very debased costs of bully sold, but we knew it would make it comparable for this first 4th that we’re successful now look bad. And investors, who conscionable followed nan charts are going to beryllium misled.

That’s yet to unfold, but 2023 first 4th revenues will beryllium down, while revenues from different than licence revenues will beryllium up. That past truth does not show up connected nan chart. Also, nan onetime ample gross balanced our 2022 gross up to $29-plus million, marking a 45% summation for nan preceding year.

If I proceed to talk astir licence revenue, we presently expect astir – I must say, positive aliases minus $5 cardinal this twelvemonth compared to nan $16 cardinal we received past year. That projected positive aliases minus $5 cardinal is much than apt nan norm for nan adjacent fewer years, unless we committee a very ample caller licence customer and/or support our existent licence pricing model.

I’ll talk much astir that later. But that quality successful licence gross is not going to beryllium capable to beryllium made up successful 2023. The quality is astir $11 million. I’ve besides antecedently said, and we’ll reiterate present that we judge nan percent of our revenues coming from our largest customer peaked successful 2022 and will beryllium smaller each twelvemonth going forward.

It was astir 75% past year, which was, again, highly skewed by nan 2022 first 4th licence revenue. While we expect nan existent programs for our largest customer Goldman Sachs, to proceed growing, we’re not presently projecting immoderate summation successful different income, mostly positive aliases minus, different than possibly from ostentation adjustments. I deliberation nan property has reported their accent connected controlling costs.

So we would expect to thief and keeping our costs nether control, meaning revenues to enactment astir flat. We evidently will effort to make much things easier to run. It’s conscionable successful a batch of ways effort to support our costs down successful bid to travel nether nan unit that they’re having to trim costs. There’s a batch of speculation astir erstwhile aliases if they’ll adhd caller programs to nan CoreCard platform.

If I had immoderate non-public accusation astir early plans, I of people would and could not disclose it. I’m going to reiterate what I’ve said successful nan past, which I judge to still beryllium true. They will turn their programs. Despite nan negatives you perceive nan press, immoderate existent problems are group to nan consequence of excessively overmuch occurrence alternatively than guidance screw-ups. The programs really person been wildly successful. And for our first-time processor, that successful maturation tin unit immoderate systems you scheme for and immoderate you put successful place. All of that tin and will beryllium fixed.

There are a batch of ace smart group location making churn that – making definite that it gets faced and they’re putting successful spot systems that will support a robust business. I return nan condolences aliases getting nan property really does not align pinch nan unthinkable occurrence they’ve had pinch cards. Loan capacity is going to yet normalize, and nan business will beryllium a very bully business, successful my opinion.

And it only makes consciousness that if they return connected a programme that’s presently processed by personification else, they’ll see leaving it there, considering each of nan questions that are being tempered with. Of course, we were preferring going nan CoreCard platform, and we judge nan economics we intelligibly support that. But we besides would not beryllium amazed if they should return nan way of slightest resistance. Public companies sometimes person to do that.

So I conjecture summing up, nan ample customer attraction topic: one, nan attraction is coming down; two, astatine this time, we cognize we will person little licence gross and judge different revenues will not alteration greatly from 2022; and three, we simply don’t cognize if immoderate caller programs will beryllium added successful 2023, but do judge it will make consciousness to proceed increasing programs complete nan CoreCard level successful early years.

So let’s talk astir nan remainder of nan business. It’s ever benignant of funny erstwhile you’re sitting wherever I’m sitting, that if Goldman being specified a large portion of nan business, we person shareholders that say, well, let’s talk astir nan different parts of nan business because you request to spell to different parts. I did want to talk astir nan different parts, I want to talk astir increasing nan Goldman revenue. But anyway, truthful you’ve heard astir summary connected Goldman. Let’s talk astir nan remainder of business. Non-Goldman revenues grew astir 28% successful 2023, erstwhile we exclude Wirecard, which bankrupt is out. We expect that to proceed increasing astatine astir that pace, though possibly a small slower successful 2023.

If we look strictly astatine processing revenues, I expect to spot maturation of 20% to 30% for nan year. We’ve said for immoderate clip that we’re building for nan future. Well, nan early is 2023 and 2024. If we execute our target connected processing revenues this year, and I judge we will, I judge they’ll beryllium overmuch higher successful 2024, fixed nan imaginable clients we’re talking with. And another, I guess, recurring taxable that we perceive astatine this constituent crossed nan pipeline. Well, we don’t usage that word internally. I’ll opportunity we’re satisfied pinch nan existent pipeline. Well, being honest, I’d for illustration to spot it larger.

Six months ago, we thought we’d beryllium moving pinch a larger customer successful this quarter, but that has not panned out. We were moving pinch nan larger client, and person spent a batch of clip and they walk a batch of time. We’re honestly not definite what nan business is, arsenic location person been nary nationalist announcements astir what they make, what they whitethorn person aliases what they’re doing. They’ve really gone silent, but it’s imaginable they deliberation they’ve recovered a prettier girl. Maybe I shouldn’t opportunity it that way, but sometimes dress up tin propulsion you and we don’t usage makeup.

Maybe they conscionable decided to do nothing. I should cognize amended aliases more, I think, successful nan adjacent 60 days. We’re successful various levels of discussions pinch a fewer different ample imaginable opportunities. Some could beryllium resolved by nan 3rd quarter, and immoderate will autumn into adjacent year, while being, I think, statement completed this year. We’re still successful nan mode of underpromising and overdelivering. So we’ll yet only beryllium going 1 aliases 2 this year. And I’m talking, of course, astir ample situations, wherever there’s an existing portfolio involved. And those are nan only tin that you’ll telephone large, moreover though a batch of nan smaller ones could beryllium very large.

We’ve sewage galore smaller portfolios. They each dream to turn to ample numbers. They’re unrecorded now and a batch coming unrecorded complete nan adjacent respective months. I return a very blimpish position connected their Excel spreadsheet projection. So erstwhile I springiness you our processing maturation expectations for 2023, I don’t see what mightiness hap pinch these opportunities. The competitory scenery really hasn’t changed overmuch successful nan past year. We still consciousness and our regularly told by existent prospective – by existent and prospective customers that CoreCard is recognized arsenic nan golden modular for modern paper issuing.

There are others that are bully capable for immoderate programs. I tin retrieve backmost successful nan earlier days of Intelligence Systems, we were built successful nan hardware business pinch individual machine enhancements arsenic it was past called, and besides nan package business arsenic we built [indiscernible] software. I tin retrieve vividly conversations and debates pinch engineers and task managers arsenic to erstwhile to merchandise our product. The statement ever revolved around, does it work? Is it finished? Is it fool proof? Does it person everything we want? Or is it bully enough?

There were galore times erstwhile we had to say, stop. It’s bully capable and merchandise nan product. We ne'er did that pinch accounting package because it simply had to beryllium right. As acold arsenic [indiscernible] software, CoreCard ne'er says it is bully enough. Of course, moreover successful desire for perfection, we sometimes don’t get it perfect, but we ne'er settee for bully enough.

In reality, we activity and study to nan regulators of nan firms who are our customers, and regulators don’t want bully enough. I would opportunity their competitors look truthful for bully enough, either consciously aliases because they did not cognize better. CoreCard settles are reconciled to nan penny each night, of course, for immoderate exceptions. Many others judge ample disbursal accounts successful bid to balance. They tin connection stone bottommost pricing, that typically correlates pinch colony issues and mediocre customer service.

On different note, 1 of our larger competitors, Marqeta, precocious purchased a institution called Power for astir $250 million. Power has, I understand, astir 30 labor and provides front-end programme guidance for paper issuing programs. It’s an absorbing truth that Power is really a customer of CoreCard and has been moving connected a caller paper programme pinch america complete nan past, I guess, much than a year, but I presume we’ll not spot overmuch much retired of nan day.

So they paid arsenic overmuch arsenic – almost arsenic overmuch arsenic nan existent marketplace capitalization of CoreCard for a front-end programme guidance capability. A partner of ours merit arsenic similar, aliases successful my opinion, amended front-end functionality. And we person respective existent and processing advancement pinch their customers. We’re going to beryllium jointly proposing offerings pinch Deserve for immoderate larger accounts.

Let maine move to group resources. I judge we’re yet reaching an equilibrium constituent wherever I’m comfortable taking connected larger programs that require important conversions. While we’ll support hiring, nan gait will slow considerably now that we person caught up and are capable to stabilize nan organization.

I did mention conversions. We’re really very bully and knowledgeable astatine doing those, truthful that relieves immoderate risks from programs that want to move from bequest to a golden modular modern issuing system. Our newer world locations to Bancolombia proceed to beryllium important successful our early plans. I will say, we’re not yet capable to really monetize them arsenic to nan level we expected successful our original plans, but we’re assured that it was a – it’s bully decisions and they’re really adding indebtedness worth to nan company.

Let maine extremity my remarks pinch 1 connection that’s seldom heard successful nan fintech abstraction today. That connection is profits. CoreCard will proceed successful 2023 to beryllium nicely profitable, supply a bully return connected mean assets, mean equity and investment. Those are cardinal measures for semipermanent shareholders successful building existent worth for an enterprise.

Operator, for that – pinch that, I deliberation I’ll extremity and spot if we person immoderate questions.

Question-and-Answer Session


Thank you. We will now beryllium conducting a question-and-answer session. [Operator Instructions] Our first mobility comes from Anja Soderstrom pinch Sidoti. Please proceed pinch your question.

Anja Soderstrom

Hi. And convey you for taking my questions and congrats connected nan bully advancement you are making. And I admit nan further colour you gave connected nan Goldman Sachs business. I’m conscionable wondering if it is existent that they are going to walk nan efforts to bid for immoderate much in installments paper programs. How could that impact you? I presume those customers that they’re talking to would spell to different subordinate and there’s possibly immoderate that you are talking to arsenic well? Or really do you deliberation that mightiness impact you?

Leland Strange

Well, again, we – I person nary accusation that I tin disclose astir what they whitethorn aliases whitethorn not do. I would only estimate that it would make consciousness successful 1 measurement for them to person different supplier of paper services if they bring connected a ample customer that’s already utilizing personification else. Now nan statement nan different way, it would make much consciousness for them to get a much modern processor alternatively than a bequest processor and person it themselves.

We don’t person a portion of that decision. So we’re conscionable location to support them successful immoderate measurement they want to beryllium supported. And I’m reasonably comfortable pinch – I deliberation I’m very comfortable pinch nan projections we’ve made, and we’re not projecting thing that we don’t cognize – that we don’t consciousness apt go to play. So I don’t spot immoderate effect connected america successful position of our existent 2023 projections pinch immoderate they do.

Anja Soderstrom

Okay. And you antecedently said you expect that you could adhd astir apt 2 caller ample customers by nan extremity of 2023. Do you still expect that?

Leland Strange

Well, what I said, I person nan capacity of doing that. I’m – gosh, I opportunity it this way. We person capable folks we’re talking to that would let america to person 2 lined up earlier nan extremity of this year. How overmuch activity we do this twelvemonth versus adjacent year? I don’t cognize astatine this point. We’re still early February. We’re still early into conversations. But again, our projections astir apt don’t person immoderate important ample programme successful there. So that would each beryllium upside positive.

Anja Soderstrom

Okay. And successful position of caller customers, do you deliberation they are much prone towards – you said you astir apt want – you said you deliberation they’re going to beryllium much prone to nan processing alternatively than licensing, right? Or I don’t cognize if I misheard that, but…

Leland Strange

Yes. I deliberation nan – from a marketplace standpoint and conscionable from a business standpoint, we’re going to ore connected building nan processing business. We had bully summation past year. I expect to person a 20% to 30% summation this twelvemonth successful processing, and it could beryllium higher. I would expect to person that aliases amended successful nan adjacent year. So from nan licence side, actually, I said I would talk much astir it, I think, and I did. We’re still trying to determine whether it makes consciousness for america to licence immoderate of nan folks that will beryllium competitor pinch america and really to do that license. So we’re still reviewing that strategically to spot really overmuch we want to – really consenting we’ll beryllium to do different license. We’re not definite correct now.

Anja Soderstrom

Okay. Thank you. That was each for me.

Matt White

Thank you.


Our adjacent mobility comes from Hal Goetsch, Loop Capital Markets. Please proceed pinch your question.

Hal Goetsch

Hey, acknowledgment for having this call. I conscionable wanted to get a large image question. And you mentioned, Leland, going from bequest to a caller golden modular modern platform. And could you stock pinch america what your imagination of – what does bequest look like? And what is – what’s nan modern level look like? And really difficult is to move? Where is astir of nan marketplace at? Is it mostly still connected legacy? Is it moving to modern standard? Can you specify some of those words? Thanks.

Leland Strange

Well, it’s decidedly connected legacy. By a immense – we’re talking astir in installments cards now, not conscionable – prepaid is still everywhere. But successful position of in installments cards, it’s preponderance of bequest correct now. And there’s thing incorrect pinch that if you want to person a cooky cutter scheme program. They’re solid. They activity well. They tin springiness you debased pricing, and there’s nary logic to move.

But there’s a definite percentage. And I conscionable would person to conjecture nan percentage. The percent of problem issuers, they want to person much control. They want to person nan expertise to make moves, to make changes. It’s a dream of caller ways of doing things, and they can’t do that connected a bequest processor. They had to person 1 of nan modern platforms to do it, but it has to beryllium a modern level that it besides has a ledger, a strategy of grounds that tin withstand nan regulators would they look astatine – erstwhile they look and spot these unsocial things that group want to do.

So I can’t springiness you numbers. I’ve typically opportunity there’s astir apt going to beryllium 10% to 20% of nan paper issuers. They’re going to want to really beryllium connected a modern platform. Meaning, they want to beryllium innovative. Now I would opportunity conscionable arsenic quickly, they’re astir apt 50% of nan paper issuers who opportunity they want to beryllium innovative, but they really don’t. I mean they wouldn’t beryllium capable to say, but they don’t want to walk nan money aliases return nan clip aliases really beryllium there. So – but whether it’s 10%, 20% aliases moreover 5%, there’s a immense marketplace for folks that request much elasticity than they tin get connected legacy.

Hal Goetsch

Yes, makes sense. Thank you. Would you opportunity that a caller issuer arsenic opposed to an established slope aliases in installments issuer would much than apt if they were de novo want to spell pinch a modern level if it was a start-up – it was a commencement a caller endeavor? Would that beryllium faster you think?

Leland Strange

I’ll opportunity it nan measurement strange. So I could beryllium crazy to spell connected bequest if you’re a caller issuer. But – possibly backmost out. If you still said, each I want to do is precisely what Citibank does. Maybe it’d beryllium fine. Maybe that gives you a 20% little value than you do it. But yes, I mean your larboard is correct. Frankly, anybody that comes to nan marketplace now is going to want to spell connected to a modern platform.

Hal Goetsch

All right. Thank you truthful much.

Matt White

Thank you.


[Operator Instructions] It appears that location are nary further questions astatine this time. I would now for illustration to move nan level backmost complete to Leland Strange for closing comments.

Leland Strange

All right. Thank you, everyone, for taking nan clip to perceive to nan call. I dream I’ve answered astir of your questions. We are beautiful pleased pinch what we’re doing. And arsenic I said erstwhile I closed, we surely understand nan request to make a profit. We understand nan request to get a bully return connected assets, equity investment, and we proceed to negociate nan institution pinch those goals successful mind. So convey you very much.


This concludes today’s conference. Thank you for your participation. You whitethorn disconnect your lines astatine this time.

Editor: Naga

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