Earnings Transcript for CCRD - Q3 Fiscal Year 2024

Operator: Ladies and gentlemen, greetings, and welcome to CoreCard Third Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Matt White, Chief Financial Officer. Please go ahead, sir.

Matt White: Thank you, and good morning, everyone. With me on the call today is Leland Strange, Chairman and CEO of CoreCard Corporation. He will add some additional comments, probably more than you are typically used to, 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. Before I get to the financial highlights for the quarter, I'll comment on the filing this morning regarding the decision by our auditor not to stand for reappointment following the completion of our fiscal 2024 audit. This is a business decision that our auditor made, given the expense involved in auditing public companies and the fact that we are currently their only public company client. They may take on public companies in the future but, for now, it didn't make sense for them to have only one public company client, so we will be looking for a new auditor as a result. And now on to the results for Q3, as we noted in our press release, our third quarter results were better than expected with earlier than expected license revenue. Total revenue for the third quarter of 2024 was $15.7 million, a 17% increase year-over-year, driven by higher license revenue, higher professional services revenue, and higher processing and maintenance revenue. The components of our revenue for the third quarter consisted of license revenue of $1.4 million, professional services revenue of $7 million, which came in ahead of our previously guided range, processing and maintenance revenue of $6.1 million and third-party revenue of $1.2 million. Revenue growth excluding our largest customer was 7% in the third quarter on a year-over-year basis. Revenue growth excluding our largest customer, in addition to the impact from Park Mobile** 0

Leland Strange: Okay, thanks Matt. Yeah, I showed a day like this when both the Russell and S&P are down 110%. Asked Matt not to schedule our conference calls on days when the market crashes, but nevertheless it is Halloween. So as Matt said, the quarter results did exceed our expectations from our call even a quarter ago. We do frequently have lumpy revenues that are hard to project. We've talked about that many times before. It consists of license revenue or the lack thereof, and that revenue often distorts period-to-period comparisons. We don't know in advance, it's based on active cards of licensed clients at the end of the quarter. We don't know the answer until reports are run several days following the quarter end. Best we can do is give you our predictions given what we know at the time. I'll admit we try to be conservative, but also accurate. It's what I call the line of sight view and not a hopeful view. With Matt's comments today, I think we're providing a little more of a forward view of how we see things while noting areas of risk. My comments today will follow a four point outline incorporating the four most frequently asked questions we get in conversations with investors. We certainly don't selectively disclose info, so for you who have asked these questions in the past and didn't get a satisfactory answer, hopefully you will today. Now they'll include a lot of opinions, beliefs and just thoughts as of right now, so they clearly fall under forward-looking statements for safe harbor purposes, so you should consume them with that caveat in mind. The outline for my comments or questions is first Goldman Sachs relationship and all that entails nephrologists [Phonetic] 0

Operator: Thank you. Ladies and gentlemen, we will now be conducting a question-and-answer session. [Operator Instructions] Ladies and gentlemen, we will wait for a moment while we poll for questions. The question comes from the line of Hal Goetsch from B. Riley Securities. Please go ahead.

Hal Goetsch: Hey, thanks guys and thanks Leland for your commentary and the story about your family. That's terrific. I wanted to ask if you could help us bridge the change in non-Goldman revenue growth from the prior guidance. What's kind of going on in the last quarter and a half that allow you to take that guidance up and can you just give us as much detail as you can? Thanks.

Leland Strange: Yeah, I'm going to let Matt talk to that a little bit.

Matt White: You're talking about just from taking it from 15 to 20 to 25 to 30. You know, a lot of that is some of the new programs that have come on. Some of that's reflected in the third party revenues being higher than expected and really that's hopefully in anticipation of future processing revenue. So, I think that speaks to the numbers for next year as well. But that was a big, a big driver I would say of why the number came up from Q2 to Q3 for the full year to 25 to 30% excluding Goldman.

Hal Goetsch: Okay. And on next year's guidance, can you give us any feel for how much of it of that is a license revenue or is it too soon to guide to that?

Matt White: It's really too soon given that the license revenue came in a little sooner than we expected here in Q3. And then the timing of the deconversion of the GM program will be a big -- will have a big impact on license revenue. So we're really not counting on license revenue in 2025, given those dynamics.

Leland Strange: Yeah, I think the story is a good growth in the non Goldman stuff. So license revenue, if we get any somewhere along the way that's fine, but it's not something we're counting on. We're counting on just continuing to grow the company from the non-government side.

Hal Goetsch: Okay. And if you were -- last question for me until I get back in the queue. If JP Morgan maybe you can't comment but I would think JP Morgan would take this program in house given their vast processing businesses and payments businesses. How long do you think it will be before a decision for a sale? Because as you mentioned Leland, there's been multiple parties interested in the Apple card. Any thoughts on your timing there?

Leland Strange: I think -- as I said, I don't think anybody, and I don't really mean that anybody knows timing. There may be some people guessing right now, but I don't think it's at a point where anybody can know the timing and the difference there, you rightly surmise that it would make sense for JPMorgan to take it inside. On the other hand, it might not, it actually could be disruptive. The Apple program has some unique things to it and it's a decision that we're not going to be party to. So I'm just sort of speculating here. I mean that will be happening outside of any conversation we might have as to where it goes. I would say yeah, common sense says they might take it on, but also you could also make a good argument it might be cheaper and less disruptive to work with someone like ourselves to continue it going if it is going to JP Morgan of which we're not privy to or whatever comment about.

Hal Goetsch: Okay, thank you.

Matt White : Thanks Hal.

Operator:

Operator: Thank you. Ladies and gentlemen, this concludes our question answer session. I would now hand the conference over to Mr. Leland Strange for his closing comments.

Leland Strange: Okay. Well that does conclude our call today. We appreciate the interest in the company and as I usually say, if you have any further questions, please let Matt or I know, and we thank you for your interest in the company. Have a good day. Thanks.

Operator: Thank you. The conference of CoreCard has now concluded. Thank you for your participation. You may now disconnect your lines.