CoreCard Corporation

Greetings. Welcome to CoreCard's Q1 2025 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 our host, Matt White, CoreCard's Chief Financial Officer. Thank you, Mr. White. You may begin.

Thank you. 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 at 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 of the SEC, including our 2024 Form 10-K and subsequent filings. 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. These non-GAAP measures are detailed in reconciliation tables included within our earnings release. As we noted in our press release, our first quarter results exceeded our expectations with higher than expected professional services revenue, primarily from our largest customer, Goldman Sachs. Our revenue growth, excluding Goldman, was in line with our expectations. Total revenue for the first quarter was $16.7 million, a 28% increase year over year, driven by higher professional services revenue, as I mentioned previously. The components of our revenue for the first quarter consisted of professional services revenue of $8.7 million, processing and maintenance revenue of $6.3 million, and third-party revenue of $1.6 million. As expected, we did not have any license revenue for the quarter, not expect any license revenue for the year. The higher professional services from Goldman were a function of higher managed services rates from the contract amendment we signed last October and continued high levels of development professional services from Goldman. Processing and maintenance revenue grew 3% year-over-year. One of our customers was acquired a couple years ago and subsequently terminated their contract, resulting in approximately $0.5 million of accelerated revenue in the first quarter of 2024, excluding this one-time item and the impact of Q1 2024 legacy cabbage revenues, processing and maintenance growth was 16%. Revenue growth excluding our largest customer was 8% in the first quarter on a year-over-year basis. Revenue growth excluding our largest customer and the impact from the legacy cabbage business and the half a million dollars of accelerated revenue in the first quarter of 2024 that I previously mentioned was 23% in the first quarter on a year-over-year basis and is expected to be 30% to 35% for the full year. This is in line with our expectations for the first quarter, as we expect revenue growth to accelerate as we move through 2025, as existing customers increase the number of accounts on file and new customers go live. We do have a potential headwind from the sale of one of our customers, Deserve, to Intuit. Deserve represented less than 3% of our total revenues in 2024, and we expect just over 2% for 2025, with a lot of that already recognized in the first quarter, for which payment was received in May 2025. We continue to onboard new customers, both directly and through various partnerships we have with other program managers, such as Vervent and Cardless. As in previous years, we currently have multiple implementations in progress, and new customers we expect to go live in the coming months. Turning to some additional highlights on our income statement for the first quarter of 2025, income from operations was $2.8 million compared to $0.4 million for the same period last year. Our operating margin was 16.8% compared to an operating margin of 4% for the same period last year. The year-over-year increase in our operating margin was primarily driven by higher professional services revenue. The income statement impact of our new platform build was $0.8 million in the first quarter of 2025 compared to $0.7 million for the prior year period. We have kept our headcount steady and expect to continue growing our revenues without significant increases in costs. Our Q1 2025 tax rate was 24% compared to 25.7% in Q1 2024. We expect our ongoing tax rate to be between 24% and 27%. Earnings for the diluted share for the quarter was $0.24 compared to $0.05 for Q1 2024. Adjusted diluted EPS for the quarter excluding stock compensation expense was $0.28 compared to $0.07 for Q1 2024. Adjusted EBITDA was $4 million compared to $1.7 million for the first quarter of 2024. For the full year 2025, we now expect revenues to be between $65 million and $69 million in earnings per share between $1.10 and $1.18. As mentioned earlier, we expect growth from customers, excluding our largest customer, and the impact of the legacy cabbage business and the $0.5 million of accelerated revenue in the first quarter of 2024 to be between 30% and 35% for the full year. For the second quarter of 2025, we expect total revenues between $16.2 million and $16.9 million, and earnings per share between $0.23 and $0.28. We expect professional services revenue to be between $8.4 million and $8.8 million for the second quarter of 2025. And with that, I'll turn it over to Leland, who has warned me that his comments will be pretty short this quarter.

Yeah, thanks, Matt. For those of you that read my letter that went out with the shareholder or with the proxy, I said I was tempted to start the 2025 letter as just more of the same, and then I did that. Well, this morning, I pulled up the transcript of our last earnings call, and after reading it, I'm tempted to say, even for this call, just more of the same. You can only say the same thing so many ways. Our quarter was good. We expect the rest of the year to be equally as good or better, and that really summarizes the business. The two questions that we get most often are about succession or company acquisition and about our largest customers. I'll repeat what I said in the last call and in the shareholders letter. First, about succession and acquisition. We get up and go to work every day and run the company as if it's going to be independent forever. We make every decision under that light. But we do work for shareholders, and we'll always try to do what we feel is in their best interest. As a part of that equation, we may not be independent forever, and we're constantly evaluating opportunities. The board of directors is active in those discussions, as well as thinking about my successor, if we should choose to stay independent, which, frankly, both options are good, and they're actually on the table. Then on to the risk for the largest customer, I really have nothing new to report. I've speculated in the past and can continue speculating. And frankly, if I had information that would preempt my speculation, I'd be unable to talk about it. I referenced this in my shareholder letter and nothing has changed. Of course, if there was a material event, we would report it as required under SEC rules. So today, from what we know, Nothing to report. We would hope to continue being a part of the most successful new card program in history for a very long time. That really concludes my more of the same remarks. We had a good quarter. We expect to continue that result the rest of the year. And I can say I wish I personally owned more stock. With that, we're happy to take any questions you might have.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would 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. One moment, please, while we poll for questions. Our first question comes from Hal Boshatz with B Riley. Please proceed with your question.

Hey, thank you guys. Solid quarter and pretty cool progress. I want to get your thoughts on the card issuing industry with the, you know, the global payment spinoff of their card issuing business, FIS and, and, That deal will maybe close next year. But it looks to be like some serious consolidation. I was wondering if you'd give us your thoughts on the disruption that might cause maybe new issuers to work with them or how that might benefit you. If you could share your thoughts about that, that would be great. Thanks.

I'd be happy to, Hal. I think it's probably a good move on the part of both parties. They found natural homes. In terms of disruption, I expect it not to be major. I do expect a little bit, but I don't expect it to be major disruptions. I think it's pretty much business as usual. So, again, I think it's a good move. I expect us to find a little opportunity there, but I wouldn't overplay it and expect to have a whole lot of opportunity.

Okay, terrific. All right. Matt, for some reason the conference call was a little garbled on my end. Could you just share with us, make sure I got the number right, the expected growth X Goldman this year? I just want to...

Yeah, 30 to 35 percent, 30 to 35 percent, consistent with our previous guidance.

Okay, good. All right, thank you. Thank you very much, guys.

Thank you. Our next question comes from the line of Avi Fisher with Long Cast Advisors. Please proceed with your question.

Hi, good morning. Thanks for taking my question. I wonder if you could elaborate a little bit on the Intuit purchase of Deserve. The press release that Intuit put out was a little bit opaque, but everything they described about what they were buying seemed to describe what you've offered to Deserve. So just kind of, do you have any color on, you know, are you going to be doing any work for Intuit anymore? Is your relationship with Deserve kind of over? Just elaborate a little bit on that, please.

Sure. We have no more information than what you describe as an opaque press release, which we would also agree with that description. I suspect that our business will really roll off over a period of time. We're not in discussions with Intuit. We don't expect to have any relationship with Intuit.

Okay. And this is already incorporated into your guidance for the rest of the year?

Yes, it is. Yes, it is.

Yeah, that's right. We kind of described that as a potential headwind. So it's a little bit of an unknown at this point, given the lack of clarity as to how that relationship will look going forward. So we're being a little cautious, potentially. But, you know, we did bring down our forecast for that customer in particular, given the uncertainty. Okay.

Got it. Just two other quick questions. I was a little surprised at the strength of Goldman. revenues. How much of that is the reprice contract and how much of that is they're using more hours than they had in the past?

Well, some of the some of it is the comparison of the first quarter of last year to the first quarter of this year. So, you know, if you compare it to Q4 of last year, it's pretty consistent in terms of the amount of hours or the revenues where they're paying us by the hour. So a lot of the increase is just the Q1 last year versus Q1 this year, and then the rest of it is the higher managed services rates. So it's a combination. But for Q4 last year versus Q1 this year, it's all managed services rates.

So is this the run rate expected going forward, sort of?

This is what we expect for the rest of 2025.

And then finally, There was a little new note in the quarter about employee retention pay with a particular call out about, you know, there's an acquisition before 2028 of a company with a billion dollar market cap. It seemed oddly specific. I wonder if there's any, if you could offer just any color around that. Yeah, it should be perfect around it.

Well, I mean, obviously, we wanted to keep our employees, so we put a retention plan in. And one of the concerns of employees, it's just our size. We're a small company, and we've had some of the larger companies coach our employees. And each of those companies are larger than a billion dollars. And so... we ended up saying, hey, guys, you'll be pretty safe if we were to be bought by one of those companies that we're losing employees to, but we're going to give you stock to try to keep you, but we don't think it's necessary to continue to do that if we're bought by a certain size company. So that's all it was. All right.

I appreciate the caller. I look forward to seeing you at the annual meeting. Thank you. Thank you.

Thank you. We have no further questions at this time. This does conclude today's teleconference. Thank you for your participation and have a wonderful day.