Participants

Matthew White; Chief Financial Officer, Secretary; CoreCard Corp

Leland Strange; Chief Executive Officer; CoreCard Corp

Hal Goetsch; Analyst; B. Riley Securities

Presentation

Operator

(Operator Instructions) Greetings and welcome to the core card 4th quarter 2024 earnings conference call. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Matt White, Chief Financial Officer. Thank you. You may begin.

Matthew White

Thank you and good morning everyone.
With me on the call today is Leland Strange, Chairman and CEO of ForCar Corporation. He will add some additional comments and answer questions at the conclusion of my prepared remark.
Before I start, I'd like to remind everyone that during the call we'll be making certain forward-looking statements to help you understand Corear Corporation in its business environment.
These statements involve a number of risk factors, uncertainties and other factors that could 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 2023 Form 10k and subsequent filings. We'll also discuss certain non-gap financial measures, including adjusted diluted EPS and adjusted EBITA, which is adjusted for certain items that affect the comparability of our underlying operational performance.
These non-gap measures are detailed in reconciliation tables included with our earnings release.
As we noted in our press release, our 4th quarter results were above our expectations due to unexpected license revenue and in line with our expectations excluding the license revenue with continued year over year growth in processing and maintenance revenue.
Total revenue for the quarter was $14.8 million a 22% increase year over year. Services revenue, defined as total revenue excluding license revenue, increased 10% in the quarter on a year over year basis with full year growth of 1%.
The components of our revenue for the fourth quarter consisted of license revenue of $1.4 million professional services revenue of $6.2 million processing and maintenance revenue of $6.1 million and third party revenue of $1.1 million.
Processing and maintenance revenues grew 11% in the fourth quarter on a year to year basis with full year growth of 7%.
A majority of our professional services revenue is from our largest customer, Goldman Sachs. As a reminder, we converted the managed services revenue we received from Goldman, included in professional services, to a fixed monthly fee of approximately $1 million for 2024.
In October of 2024, we extended our managed services contract through the end of 2030 and guaranteed it through at least the end of 2026 at a higher monthly rate that starts in 2025.
Revenue growth excluding our largest customer and the impact from Park Mobile and the legacy cabbage business.
Was 29% in the fourth quarter on a year to year basis and 33% for the full year.
We continue to onboard new customers both directly and through various various partnerships we have with program managers such as Deserve, Verva, and Cardless. We continue to work on multiple implementations with new customers that we expect to go live in the coming months. As a reminder, these new customers typically build their account base over time, paying mostly our our minimum fees of 10,000 to 15,000 per month in the initial 12 to 18 months of their program. We expect our new customers to become more significant as they grow their own businesses, and we are seeing the impact of this and the significant growth rates of our non-Goldman business.
Turning to some additional highlights for the fourth quarter and full year for 2024, income from operations was $2.1 million for the fourth quarter of 2024 compared to income from operations of $0.4 million for the fourth quarter of 2023.
Our operating margin for the 4th quarter of 2024 was 14% compared to an operating margin of 3% for the same period last year.
The income statement impact of our new platform build.
Was $0.7 million in the fourth quarter of 2024 and $2.7 million for the full year 2024.
Compared to $0.6 million in the fourth quarter of 2023 and $1.8 million for the full year 2023.
Our fiscal 2024 and 2023 tax rate was 21.1% and 24.5% respectively. We expect our ongoing tax rate to be between 24% and 26%.
Earnings per diluted share for the quarter was $0.24 compared to $0.06 for Q4 2023.
Full year 2024 delivered EPS was $0.67 compared to $0.40 for the full year 2023.
Adjusted diluted EPS for the quarter, excluding stock-based compensation expense was $0.28 compared to $0.06 for Q4 2023.
Full year 2023 adjusted the EPS was $0.79 compared to $0.53 for the full year 2023.
We generated operating cash flows in 2024 of $5.8 million.
We use $7.6 million on share repurchases in 2024, including $2.2 million of share repurchases in the fourth quarter of 2024.
We continue to have excess cash on our balance sheet as of December 31, 2024, and we expect to continue generating operating cash flow in 2025. We plan to use this excess cash and cash generated from operations to continue investing in our new platform and to continue investing in growing the business.
For 2025, we expect revenues of $60 million to $64 million earnings per share between $0.88 and $0.94, and revenue growth excluding Goldman of 30 to 40%.
We do not expect any license revenue in 2025.
Within services, we expect continued growth in processing and maintenance and growth in professional services reflecting the impact of higher managed service rates from Goldman.
For the first quarter of 2025, we expect total revenue between $14.4 million.15 million dollars in earnings per share between $0.15 and $0.19.
We expect professional services revenue to be between $6.8 million and $7.2 million for the first quarter of 2025.
With that, I'll turn it over to Leland.

Leland Strange

Okay, thanks, Matt. I'll start off with a light comment that we had, Matt received a text this morning after earnings release. I received a call. His text said, marketing cost of 30%. Have you lost your mind? Now for those new to us, we don't spend any money on marketing, virtually any money. We don't spend money and we have no sales people, so. 30% of $100,000 is nothing, so that was said in jest, but, yeah, no, we haven't lost our mind. We still have no sales people. We still spend very little on marketing.
And I got a call also this morning after the after the release and from one of our long term advisor and he said, I'm surprised you're still doing this. I thought you said you were looking for younger leadership in the last couple of calls. Well, we are. I told him as long as Ma keeps reporting good results, things keep going really good, maybe I'll hang around, but not really, and I'll say more about that then we call and so.
It just, as Matt said, a revenue and profits they exceed our expectations due to another license your payment. Everything else is pretty much what we expected.
I don't expect another license to your surprise this year, but I'm not going to say it will not happen.
Our processing and licensing revenue components grew just 7% for the year but 11% of the quarter, and adjusted for a couple of old customers that were acquired by other parties in 2023 and had to leave the platform, we were at, I believe, over 30%, and that's the number that I look at. It's really what do we, what kind of new business are we acquiring outside of our mortgage customer?
For 2025, we do see revenue north of 60 million and most importantly for metrics and long-term projections, we believe we will grow 30 to 40%, excluding our largest customer.
We see a path for that to continue in future years.
Total revenue for the year actually could be even in the 64 or higher range, although we had brother guide to a little bit lower, and we don't have that confirmed and under contract at this point.
I will say we've already had 3 new customers this quarter, typically fintech, and they'll go live in the next few quarters and they're small and it'll take time for them to grow. At least one of those that we cite is moving from another so-called modern processor who just could not reconcile accounts, which Corecard, of course, does every day to the pity.
I think the newer processors who are trying to compete in the revolving credit space are finding what I found to my surprise many years ago that trying to reconcile re revolving credit card balances is really hard.
For the data for the networks often gets corrected a day later.
Cardholders pay the wrong amount days late and then they claim they paid on time so a human has to decide whether to change the payment received date or not.
Returns are sometimes taken several months later and they end up being partial returns for which interest has already been charged and in some cases, the portfolio which is holding the credit has actually been sold off.
Then the regulator says prove to me the interest conforms to the published cards, terms and conditions. That's hard.
And then you have to keep all those details. It's legally required for 7 years, but sometimes regulators going back to a transaction made several years past to prove or disprove it claim.
Not easy.
It is not primarily a technology challenge but a business knowledge challenge that has to be transformed into technology outcomes.
That's why the legacy processors have had no real competition in 40 years. They know how to do this and they know how to do that scale.
Any smart coder can do it for a few 100 or a few 1,000 accounts. You just manually adjust for errors, but it doesn't work when you've got millions of accounts.
I believe CoreCard is the only modern processor that can legitimately compete with the legacy processor today for large scale revolving credit program.
I know no other modern processor that it has even half a million active revolving credit cards. Gore card has around 15 million of their platform.
A comment about our new platform called Corefinity or Corefi. It's incorporating all of the complexity and features of the current platform, but using the latest technologies and architecture for the cloud.
Most importantly, it's factored in time travel testing that will speed up adding unique programs for innovative measures.
I guess that brings me full circle my opening comments. I previously talked about companies inquiring by court card as a possible acquisition candidate.
I've been forever open and regularly say we always TRY to do what's best for shareholders and that might mean selling the company to a larger enterprise that can more easily scale the value from our platform.
But at the same time, we get up every day and run the company as if it's going to be independent forever.
We have over the last few months a dialogue with different parties and more recently focused on discovery of what interest may be in the financial services market for a first class revolving credit platform, both our current proven scalable semi modern platform as well as our new core platform.
The board wants to make a decision to either do a transaction or we're talking about it and focus on finding a new President.
I'm not going to be the President who gets to take advantage of future cofinity platform, as we'll either partner with someone else rather soon or we'll go find the right President to keep building.
That said, we put in place an informal but comprehensive process to discover interest in order to maximize value for our shareholders. We'll know in the next few months the future direction, and it may simply be turning this great company over to a successful President to continue building or it may be accepting an acquisition an acquisition offer.
I guess finally because I know I get questions on this, talk about the status of the Goldman Sachs relationship.
Matt talked and we've talked about the amended contract last call that goes through 2030, but does have termination rights with compensation after the end of the 2026 year.
Nothing has changed on that end, and I continue to speculate as I have in the past, just based on news we all read that GOMA would get out of the issuing business as soon as it can and a new bank will take on the Apple program.
The press reports the conversations are going on with different banks, and I would certainly expect that to be true.
I have no information that would provide any certainty that whatever new bank has chosen would keep the program on core card.
All banks have existing agreements with processors, either FIS, Payments, or buyer, but JP Morgan Chase mostly does their own processing.
Forard would hope to maintain the processing and will do whatever he can to keep the valuable plan that introduced the most successful new credit card ever to the market.
I know any of the legacy processors could eventually code to the current card specs. I also believe it would take 2 to 3 years to transition as Apple expects perfection and then go through months of testing.
I say that also believing that keeping core card would be the best outcome for whatever bank up of the. I could be less risk and no more costly.
Other than that, I have nothing more than that. So at that point, I'll take questions that you might have a better eye.

Question and Answer Session

Operator

(Operator Instructions) Hal Goetsch, B. Riley Securities.

Hal Goetsch

Hey, thanks for the chance to answer the question here. Just want to make sure I heard you correctly. There's in your forecast there's no plan license.
Fees expected in 2025, is that right?

Matthew White

That's right.

Hal Goetsch

Yeah, is that to be conservative you would think, maybe you had some.
Some new issuers in the pipeline would might make an initial first license or an initial first license for a new program when so I hope this doesn't mean you don't have a pretty good funnel that you've been working on. Could you give us your thoughts on why.

Leland Strange

That, that's the Goldman situation. That's where we get the license here. We're not primarily in the licensing business, yeah, we're the processing business now. Yeah.

Matthew White

We're expect new customers to be on the processing side rather than on the license. No, something did come in, we still.
We would still, bring on a licensed customer, but that's not our focus at the moment.

Hal Goetsch

So if you were if you were to onboard a new customer, it would show up in both maybe some professional services launch and maybe some third party for cards, and then you get the processing afterwards. That that's yeah, okay.

Matthew White

That's right, okay, mostly in the processing maintenance line.

Hal Goetsch

Okay, good. Okay. And then, help us think about, total dollars of cost to run the business this year, it's.
Your marketing GNA and R&D kind of been quite variable in in terms of moving like, with 3 million in Q1 but it almost hit 4.5 million in Q4, you know.
Any points they're on just kind of dollars of spending to run the businesses as you kind of execute in 2025 yeah.

Matthew White

Well, we do expect some increases in costs.
In 2025, but we don't need to add a lot of personnel and we don't need to add a lot of equipment to support the growth that we're expecting in 2025.
We think we have, the people that we need, so, primarily the increase in overall cost will be, just the normal.
Cost of living adjustments for salaries and you know just other costs that come along to run the business, but we're not expecting, a significant increase year over year in operating expenses from 24 to 25.

Hal Goetsch

Okay.
Okay.
And then you have about 15 million cards right now on the platform. Is that what Leland said that right?

Leland Strange

No, I said, I said there's nobody that we know of in terms of the modern processors that have even a half a million revolving credit cards and we have Around 15 million revolving cards in one in one instance actually.

Hal Goetsch

Yeah, right, that's that's make sure I heard that number right. Yeah, I heard that the others don't have a half a million. You've got it. That's what I make sure I I heard that heard that right. Okay, that's right.

Leland Strange

Yeah, so reports ahead of these other modern processors in terms of numbers and scale is important building to scale.

Hal Goetsch

Okay.
Okay, and, but that, those are my questions, follow up, after with you guys, if I have for some extra questions I'll get back in the two. Thanks.

Matthew White

Yeah.

Operator

Thank you.
And we have reached the end of our question and answer session, and this also concludes today's conference, and you may disconnect your live at this time. We do thank you for your participation.