CoreCard Corporation

Good morning, everyone. With me on the call today is Leland Strange, Chairman and CEO of CoreCard Corporation. I'll provide an overview for the first quarter of 2022, and Leland will add some additional comments and will answer questions at the conclusion of our 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 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 filings at the SEC, including our 2021 Form 10-K and subsequent filings. As we noted in our press release, our first quarter results were at the high end of our expectations. Our professional services revenue remained strong and we saw both sequential and year-over-year growth in processing and maintenance. As we expected and noted in our Q4 remarks, we had significant license revenue for the quarter. This amounted to $12.5 million, making Q1 an impressive quarter for CoreCard. We would also like to point out that we expect more license revenue in the quarters to come. The drivers of the license revenue during the first quarter were one-time fees for moving from a single institution to multiple institutions, additional license tiers achieved due to completion of a large conversion, and continued growth from existing customers. Total revenue for the first quarter of 2022 was $24.3 million, an increase of 172% compared to the first quarter of 2021. Revenue from our largest customer, Goldman Sachs, was 84% of total revenues for the first quarter of 2022. We do expect that percentage to decline in future quarters as other customers continue to grow. Revenue growth excluding our largest customer is 49% for the first quarter of 2022 compared to the same quarter in 2021. In addition to the license revenue of $12.5 million, revenue for the first quarter consisted of professional services revenue of $6.6 million, an increase of 14% versus prior year, processing and maintenance revenue of $4.1 million, an increase of 56% versus prior year, and third-party revenue of $1.2 million. We had several new customers go live in the first quarter of 2022, including, among others, a crypto exchange, an international fintech company expanding to the U.S., a newly-launched debit card program, and a new customer in the Middle East region. We also compared to this version in 2022 for a regional bank's debit card program. The strong performance in our processing and maintenance was due to the recently-added customers mentioned above and continued growth from our existing customers. We went live with the All4Don exchange in the first quarter of 2022, which is another exciting step for our Dubai office, and for our global prepaid processing platform that will drive continuing growth in our processing revenues. As previously mentioned, we recognize significant license revenue in the first quarter of 2022. We expect to achieve a new license tier in the second quarter and likely in the third and or fourth quarters of 2022. Professional services revenue was strong in the first quarter as expected. and we anticipate similar professional services revenue in the second quarter, likely in the range of $6.5 to $6.7 million. Turning to some additional highlights on our income statement for the first quarter of 2022, income from operations was $11.8 million for the first quarter compared to income from operations of $1.5 million for the same quarter last year. Our operating margin for the first quarter was 48% compared to an operating margin of 16% for the same quarter last year. This increase was primarily driven by revenue mix, partially offset by some increased bonus accruals in the first quarter of 2022. Our Q1 2022 tax rate was 25.8% compared to 26.1% in Q1 2021. Earnings per diluted share for the quarter was $1 compared to 12 cents for Q1 2021. Turning to our outlook for the year, we expect top line growth of 25 to 30% for 2022, as compared to 2021, an increase from our previous estimate of 20% to 25%. In summary, we remain incredibly optimistic about our long-term prospects and believe the investments we've made in our infrastructure, as well as hiring and training incoming talent, will yield new customer wins and continued revenue growth.

And with that, I'll turn it over to Leland. Okay, thanks, Matt. I think you gave a pretty good answer. description of where we are, where we've been, where we are, and what we expect. I'm not sure I can add a whole lot to that. I'm going to go straight to the questions, and obviously I will answer at some point what's the elephant in the room, which is the Bloomberg article. But let me start with the first question that has come in. You realize that we still get questions over email. I think it's questions at corecard.com, and we've got some good ones today. So I'm going to take the first one. It's easy, but yet it's pertinent. Question is, per the 10Q, the shares outstanding in April 30th were identical to March 31st. Why did stock repurchase activity not take place throughout April while the stock price fell significantly? Well, just like any shareholder, the company cannot purchase or sell stock based on inside information. Institutional shareholders know this, but for the many shareholders that called MatterEye in March and April asking questions If and if not, while we were not purchasing shares, the answer is that in early March, as we did the invoicing for February and we looked at our numbers, we realized we were likely to beat the informal guidance we had given. You recall we have said for several quarters, I believe, that we expected to have a very good first or second quarter this year, not knowing exactly when the license numbers would land, as we have no control over decisions our customers make. We would have really liked to have been able to buy shares over the last several weeks, but we could not and generally cannot from a point in the last month of a quarter, and it's usually early that last month, until a few days after earnings calls. I've got a side comment to this. We have two good analysts that follow us from Sidoti and BTIG. While they occasionally call us with questions or to get additional color, They have no more information than any shareholder, as the rules forbid us from any kind of selective disclosure. What they do have is the benefit of their models, and they digest all types of public information from many sources to make their best guess of our results. Generally, I think they do a phenomenal job knowing it is impossible to really model us, or to model us well at least. Even core card does not have more insight on when our customers might choose to promote their cards in order to get more growth or just lay low and accept organic growth. So the analysts are going to be wrong some quarters, just as management is wrong in their assessments on a particular quarter. I think management was wrong this time in a good way, but it may not always be in a good way when looking quarter to quarter, but we're pretty confident on our assessments when averaged over several quarters. We appreciate these analysts taking the risk of following a company with lumpy revenue that other analysts have looked at and, dare I say, chickened out, as they don't want to take the heat on an inevitable miss as dealing with our lumpy stuff. So that's the story of CoreCard buying shares. And I'm sure you observed our release this morning that our board has approved up to $20 million for share buybacks. We're not going to go wild with this. We're going to simply approach buying shares as a prudent and conservative shareholder might. We're buying shares on behalf of our shareholders and investors, not to jack up the price as many of you might want. We're not buying shares today, probably not tomorrow, and we only announce what we have done during the quarter in the quarterly reports. So that's the share buyback. The next question was, is the increase in your full-year revenue guidance primarily driven by license revenue, non-license revenue, or both? I'm going to say it's driven by both. Matt, is that? That's right.

It's a combination of higher license revenue as well as higher processing and maintenance revenue.