Greetings. Welcome to CoreCard First Quarter 2024 Earnings Conference Call. [Operator Instructions].

Please note, this conference is being recorded. I will now turn the conference over to Matt White, CFO. Thank you. 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 with the SEC, including our 2023 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 with our earnings release. .

As we noted in our press release, our first quarter results were in line with our expectations with continued year-over-year growth in processing and maintenance revenue.

Total revenue for the first quarter was $13.1 million, a decrease of 11% year-over-year driven by lower professional services revenue primarily from our largest customer, Goldman Sachs.

The components of our revenue for the first quarter consisted of professional services revenue of $5.8 million, processing and maintenance revenue of $6.2 million and third-party revenue of $1.1 million. As expected, we did not have any license revenue for the quarter.

Goldman represented 59% of our revenues for the first quarter of 2024 compared to 72% for the first quarter of 2023. .

Processing and maintenance revenues grew 13% in the first quarter on a year-over-year basis, primarily driven by the acceleration of $0.5 million of revenue from a customer that was acquired in 2023 and formally terminated their contract in the first quarter of 2024. .

Revenue growth excluding our largest customer was [ 21% ] in the first quarter on a year-over-year basis.

Revenue growth [indiscernible] our largest customer and the impact from ParkMobile, the legacy Kabbage business and the $0.5 million of accelerated rated revenue in Q1 2024 previously mentioned [indiscernible] quarter on a year-over-year basis and is 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 like Deserve, [indiscernible] Cardless.

As in previous quarters, we currently have multiple implementation and progress with new customers that we expect to go live in the coming months, including our recently announced commercial card partnership with the Banc of California. .

Turning to some additional highlights on our income statement for the first quarter. 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 are currently receiving from our largest customer. .

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 per diluted share for the quarter was $0.05 compared to $0.15 for Q1 2023. Adjusted diluted EPS for the quarter, excluding stock compensation expense was [ $0.07 ] compared to $0.15 for Q1 2023. .

Adjusted EBITDA was $1.7 million compared to $3.5 million for 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 share, especially at the current price levels. We repurchased 134,650 shares in the first quarter of 2024 for $1.6 million. We have approximately $13 million remaining on 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, slightly in the fourth quarter of 2024.

As mentioned earlier, we expect growth from customers, including our largest customer, the impact of ParkMobile, the legacy Kabbage 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 continue to onboard new customers. We anticipate professional services revenue in the second quarter of 2024 to be likely in the range of $5.7 million to $6 million. .

With that, I'll turn it over to Leland. .

All right. Thanks, Matt. I think the -- as you said, the quarter was pretty much as we expected. I see the results simply as a little better than breakeven. And I think I expect similar results in the next couple of quarters. .

[indiscernible] is the right answer because well, it might be a little better, might be a little worse. But generally, I would say, some of the next 2 quarters, hopefully, significantly better than the fourth, but the next 2 will be similar. .

The elephant in the room is and has been our largest customer, Goldman Sachs, and variations of revenue from them, along with the question about what's going to happen in the future becomes the unknown.

Let me address that first before discussing the positive things coming from our continued increasing in revenue in 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 is from my view, it's not backed up by anything as definitive that comes from the customer or any conversations. .

First, I do expect the General Motors Card that's being processed on the CoreCard 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 of days ago that Barclays is [indiscernible] for that card. .

Again, I want to emphasize that even an article with speculation and I didn't quote anybody or anyone that said that was definitive. It really doesn't matter where the receivables go from a CoreCard 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 the 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 2 or more years, could be a long time. Again, we have no definitive answer on that. I constantly get a question, "Well, what's going to happen? What's going to happen?" And see 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 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 in that is looking to the future. Well, we've got a handful of folks that we are talking to or 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 would strategically 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 #1 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, 2 or 3. We have one right now. I'm going to call the Banc 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 2. So that's a strategic partner. .

The handful of people we're talking to, I hope to get again 2 more because the maximum we can have is 3, and we'll be treating them the same way.

[indiscernible] I hope one of them or 2 of -- 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 be -- 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 is -- there's a little bit of cap on it because of regulators. That CoreCard has always taken the approach that we work for the regulators. We work with the OCC on one end or the FDIC, whoever is controlling or regulating the bank.

And we work for the cardholder [indiscernible], the cardholder is happy that [indiscernible] regulatory issues at the bank. So it's -- 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 there have been lags in program management and there have been lags in terms of the money laundering and know your customer type activities.

So the banks have a bend that they rent out or provide to a program manager. And up to this point, the banks have said -- has delegated and said to the program manager, you take care of AML, and we're cutting that out while you're doing it right.

The regulators have come back into the banks and said, "No, you can't delegate it." They could do whatever they do, but you, bank, you are responsible totally. .

So that is, 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 new fintech type capability. .

On the other hand, the folks that are already out there that are not new fintechs [indiscernible], no regulatory issues there, and those are the ones that we're intending to approach at this point. .

So with that, let's just open it up to questions. That's my view of where we are now and what's happening. .

[Operator Instructions] Our first question is from Harold Goetsch with B. Riley Securities. .

I wanted to ask you about what you mentioned toward the end of this call, and that is the potential for one to 3 strategics, and you mentioned one or both might have significant revenue.

Does that mean they would bring up cards that they already have on to your platform and that would be the new processing platform for our existing portfolio? Or could you help us understand that a little better?.

Yes. That would require conversion. We're very good at conversions. We've got a good history of that. And that's obviously one of the issues with folks, but we have a really good history and have -- we have no hesitation in taking on the project of converting a portfolio. .

So yes, and again, that makes us lumpy.

If we get one of those now, it's something I didn't say and I should mention here, 2 of them do not have contracts [indiscernible] their current processor until, I think, one in June of next year and one in October of next year, but they'll make the decision by June to October of this year, but the -- and we will start working probably 12 months before their contract ends, but the revenue wouldn't come in until next year.

So it's 2025 revenue. .

Okay. Okay. And then on -- moving on the fintech issues with -- on the compliance side. Is this -- the fintechs you're working with, you mentioned Deserve [indiscernible] Cardless, are they in that camp taking the pause? Are they -- or do they have their... .

No. No, Harold. None of our current [indiscernible] are having that problem. There's -- there are customers that currently exist don't have any problem, but none of our customers have any problem. But as I think about it, they are dealing with some of the banks that have gotten consent orders.

But all that means for the bank, they can't take on new customers, they had to do something until they get their side. So it's not impacting, to my knowledge, any of our current customers. .

Okay. And I just want to make sure I understand kind of the [indiscernible]. Basically, you said [indiscernible] ParkMobile.

You expect your processing revenues to be up 10% to 15%? Is that right?.

Everything. All revenue. .

Everything. I should go back and mention something that -- Matt mentioned that $500,000 that we put in this year, it was a previous customer who was only paying us minimums. They had only gone live with friends and family and they got purchased by another processor.

So the other processor obviously wanting to get them on their platform, not ours, so they took it off. .

Now that -- we looked at -- should you just continue to spread that over the term of the contract. But really, the auditors and Matt determined that we have no more services to provide. So therefore, we got to have to take it all in into the first quarter.

That's going to make it difficult on some forward comparisons for the next couple of quarters, but again, that's a $500,000 that was a onetime increase we're not going to get. Now we expect to increase some other places. We expect to have some cost savings.

So that's why I said early on, I expect over the next 2 quarters to be similar to this quarter but that's a big makeup. .

Our next question is from Avi Fisher with Long Cast Advisers. .

I hopped on a little late.

Did you mention anything about expectations of license revenues this year?.

$1.4 million likely in the fourth quarter. .

I'm going to say it's possible. Matt and I differ a little bit in terms of predicting it, but it's possible. .

Okay. And then 2 other quick questions.

So do you generate any onetime or "excess revenues" as the General Motors Card leaves?.

No. .

Is there any special work you have to put in? No?.

I mean there might be a little bit of work in terms of the conversion off of the platform. We haven't assumed anything at this point. The timing is still pretty uncertain as to when that -- what might happen. .

I wouldn't expect any big increase on that, but it will just offset some of the other professional services that we're doing for the client. .

Got it.

And then within that General Motors, it doesn't -- does it change your contract with Goldman? Or are they still going to pay you what -- based on that contracted rate?.

It doesn't change our contract with Goldman. .

Got it. Okay. And then can you talk about the revenue generation on these strategic opportunities? So for example, you have a processing customer, they're going to pay you over time on monthly accounts. So essentially, on day 1, you're not going to be paid a lot.

But if the card is successful or a year or 2 out, you start making a lot of money at a high incremental margin.

But what is the revenue generation and margin profile of a strategic before it starts -- before it goes live and before those monthly accounts start accumulating?.

The strategies are so different. I can't answer the question, I'll give you an example..

Banc of California is strategic, revenue especially 0 at this point. It will grow over time, but it's 0. So they're -- all are different. All 5 or 6, we're talking to are different. The 2 or 3 or the 2 -- I can only take 2 strategic, really. The 2 that we get, I can't predict which one we'll get.

In some cases, it would be some revenue immediately, but that's not until their contract expires that they go live next year. There may be another one we're talking to, we can get a significant chunk this year if we get that one. .

Now each of these parties, in my opinion, we're not going to lose them to somebody else, but they may stay with their current provider. So I'm not going to -- I don't want to get out there predicting revenue from them. .

Sure. That's fine. But just so I understand then, I mean, to bring on board, say, Banc of California, you have to spend professional -- you have to spend money to set up the platform for them. And you don't generate [indiscernible]. .

Yes, we're spending money every month on that, and it's not -- it's just an expense. We're not building it up in terms of amortizing. There might be a tiny bit of that. But generally, we're trying to be very conservative on it. So that would be -- I think when I say there is a little bit there, but we're working on that every day. .

Yes. Everything we've done is primarily historical and we expect a public launch in the coming months on that. So most of those costs have been incurred already. The balance sheet hasn't changed significantly over the last 12 months in terms of what we've put on related to those costs that we've incurred. .

Right. So just so I understand though, ahead of a launch of a strategic, your margins will be lower because you're spending money and not generating any revenue off of it. And then the launch, and if it's successful, the margins go up because you're generating revenue without a lot of incremental costs.

Is that kind of the right way to think about it?.

A lot of those costs incurred, so similar to like if we charge an implementation fee that's going to go into the deferred revenue line, the cost associated with getting ready for a new launch also go onto the balance sheet into a deferred cost bucket, which has never been significant, never been a separate line item.

So there really isn't a huge margin impact as you're describing. .

Okay.

What -- can you then talk about the opportunity to grow your EBITDA margins?.

Again, the way we're investing is strategic. We're just not looking at margin there. We're looking at future potential and not concerning ourselves about percentage margin. .

There are no further questions at this time. So this will conclude today's conference. You may disconnect your lines. Go ahead, Leland. .

Yes. Let me just kind of give a quick summary. Just to say I'm very optimistic with the potential we have for 2025 to be a good growth year outside of our largest concentrated customer. .

As I said earlier, I don't think we'll be in a position to be very definitive on that until late third quarter. And another note I mentioned earlier, but Matt did mention, we continue to invest in a new [indiscernible] or CoreCard platform that's slated to be available in the fourth quarter of 2025. .

If I were to take a look back at our strategy, we had planned on Goldman Sachs being a partner that was going to bring additional client zone, and we've been building [indiscernible] to take care of that growth. We're accounting on growth to come from that partnership with that being the #1 partnership or the #1 strategic customer. .

When they decided to exit the business, we really were not prepared to immediately ramp up business development. And I'm going to have to acknowledge that it was my mistake to believe that the partnership would be sufficient for our future growth.

Actually, I should say, it would have been sufficient for growth if they had not changed course, but they did. .

So now we're dealing with that. We're managing expenses. We have new products coming, and we have a good number of prospects that we're talking to. So I realize there's a period of uncertainty, but I'm pretty confident that we have the only modern revolving card platform.

It's not in the hands of the multibillion dollar companies that's going to survive over the long term. So we're pleased that those of you that are current shareholders, who have been our shareholders, we're happy to continue the dialogue with anybody that would like to talk to us. Thanks for being on the call today, everyone. .

Thank you. We will now conclude today's conference. You may disconnect your lines at this time, and thank you for your participation..