CoreCard Corporation

year basis, as expected to be 10% to 15% 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. 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 of California. Turning to some additional highlights on our income statement for the first quarter of this year, income from operations was $0.5 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. The year-over-year decline in our operating margin was primarily driven by continued investments in our new platform and lower professional services revenue. The income statement impact of our new platform build was $0.7 million in the first quarter of 2024 compared to $0.4 million for the prior year period. We made some headcount reductions in India and expect related cost savings starting in the third quarter of 2024. We will continue to look for cost savings as needed to remain profitable given the lower revenues we're currently receiving from our largest customers. Our Q1 2024 tax rate was 25.7% compared to 24.7% in Q1 2023. We expect an ongoing tax rate between 25 and 27%. Earnings for diluted share for the quarter was 5 cents compared to 15 cents for Q1 2023. Adjusted diluted EPS for the quarter, excluding stock compensation expense, was 7 cents compared to 15 cents for Q1 2023. Adjusted EBITDA was $1.7 million compared to $3.5 million from the first quarter of 2023. 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 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. We repurchased 134,650 shares in the first quarter of 2024 for $1.6 million. We have approximately $13 million remaining in our current share repurchase authorization. For the full year 2024, 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. As mentioned earlier, we expect growth from customers, including our largest customer, the impact of ParkMobile, the legacy cabin business, and the $0.5 million of accelerated revenue in Q1 2024 to be 10% to 15% for the full year. Within services, we continue to expect growth in processing and maintenance as our customers continue to grow and as we need to onboard new customers. We anticipate professional services revenue in the second quarter of 2024 to be likely in the range of $5.7 to $6 million. With that, I'll turn it over to Leland.

All right. Thanks, Matt.

I think, as you said, the quarter was pretty much as we expected. I view the results simply as a little better than breakeven, and I think I expect similar results the next couple of quarters. Say similar rather than the right answer, because one might be a little better, one might be a little worse, but generally I would say similar to the next two quarters, hopefully significantly better than the fourth, but the next two will be similar. The elephant in the room is and has been our largest customer, Goldman Sachs, and variations in revenue for them, along with the question about what's going to happen in the future, becomes the unknown. Let me address that first before discussing costly things coming from our continued increasing in revenue from the segment that's outside of the largest customer. Everyone wants to know what's going to happen with the Goldman situation since they have pretty much announced that they're getting out of the business. I want to say very clearly that I have no inside information on that or what's going to happen. If I did, I couldn't talk about it. So everything I say about it is speculative and from my view is not backed up anything that's definitive that comes from the customer or any conversations. First, I do expect the General Motors card that's being processed on the car card platform at Goldman that it will go to another party either the fourth quarter this year or the first quarter next year. The Wall Street Journal speculated yesterday or a couple days ago that Barclays is funding for that card. Again, I want to emphasize that even that article was speculation, and they didn't quote anybody or anyone that said that was definitive. It really doesn't matter where the receivables go from a core card perspective. It's highly unlikely that we'll continue processing that portfolio since it's a very plain card with no special requirements. Any processor could probably pick that up. It's fairly easy as a card, so I just don't see any real problems with that. The other card, the Apple card, is different. The Apple card is one that is much more difficult. It has a lot of specialty kinds of things to it. So therefore, I would expect that not to be as simple to move somewhere else. There is, again, speculation that it will go to a new bank either the end of this year or early next year. And when I say speculation, there's speculation that a new bank will be chosen. It's my opinion that that is going to be something between Apple and a new bank, and it's not necessarily a Goldman decision, although they are obviously part of it. Again, we have no insight on that. We simply kind of do what we do every day, and we have to go along with whatever happens. I would also speculate that probably from today, we're still going to be processing that card for the next two or more years. Could be a long time. Again, we have no definitive answer on that. I constantly get questioned, 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'll probably have to say I can't discuss it. So that's going to be the clue that I may know, but that I can't say anything because we're certainly not going to give any information out about our customers. The next thing then is looking to the future. Well, we've got a handful of folks that we are talking to that are what I will call potential strategic customers. Now, what does strategic mean? Strategic means that either they have the potential or are very large, or they want to do or are doing a product that will extend the CoreCard brand and will help us get into new markets or help us progress. What does strategic mean for the customer? It means that everybody at CoreCard, all 1,000 employees, know that when that customer calls or what that customer wants, We're going to jump at it, and that's going to be the number one priority. That's what happened with the Goldman contract when they were strategic. Now it's simply ongoing as opposed to something strategic. 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 the Bank of California a strategic partner. They have card leadership. that wants to be innovative, they're willing to do innovation, and they help us together come out with a commercial card that we think the market is going to want. So once that gets live, you will see us actively promoting that card. They haven't introduced it yet, but I think it will be introduced in the next month or two. So that's a strategic partner. Of the handful of people we're talking to, I hope to get, again, two more because the maximum we can have is three. And we'll be treating them the same way. All eyes, everyone is important. I hope one of them or two of them or both of them already have significant revenues, but we're talking to a set of handful, some that have significant revenues, some that do not, but have the potential to be significant partners. So we're looking and really spending our time thinking about the non-Goldman business, and we are going to manage our expenses toward that. And simply, that's where the resources will go. Let me just make a comment, I think, last about what's happening in the business in general. The business in general, there's a little bit of cap on it because of regulators. Now, CoreCard has always taken the approach that we work for the regulators. We work for the OCC on one end or the FDIC, whoever is controlling or regulating the bank. And we work for the cardholder on the other end. If the cardholder is happy, then you'll have no regulator issues at the bank. So the fact is we work for the regulator. And recently, the regulators have issued consent orders to a good number of banks that have been sponsoring fintechs. The reason for that is they've been lax in program management, and they've been lax in terms of the money laundering and know-your-customer type activities. So the banks have a bin that they rent out or provide to a program manager, and up to this point, the bank has delegated and said to the program manager, you take care of AML, and we're counting on you doing it right. The regulators have come back into the banks and said, nope, you can't delegate it. they can do whatever they do, but you bank, you are responsible totally. So that has all of a sudden caused a good number of banks to have to say, we're taking a pause until we kind of reorient our compliance procedures to take care of what the regulators are saying at this point. So that does develop a new fintech type capability. On the other hand, the folks that are already out there that are not new fintechs are notified, no regulatory issues there, and those are the ones that we're tending to approach at this point. With that, let's just open up to questions. That's my view of where we are now and what's happening.