CoreCard(CCRD) - 2025 Q2 - Quarterly Report

Part I. Financial Information Item 1. Financial Statements CoreCard Corporation's unaudited consolidated financial statements for Q2 2025 and related periods are presented, covering balance sheets, income, comprehensive income, equity, and cash flows, with detailed explanatory notes Consolidated Balance Sheets The Consolidated Balance Sheets show an increase in total assets and stockholders' equity from December 31, 2024, to June 30, 2025, primarily driven by higher cash and cash equivalents and accumulated earnings Consolidated Balance Sheet Highlights (in thousands) | Total stockholders' equity | $56,316 | $51,697 | +$4,619 | Consolidated Statements of Operations CoreCard reported significant revenue and net income growth for both the three and six months ended June 30, 2025, compared to the same periods in 2024, driven by increased service revenue Consolidated Statements of Operations Highlights (in thousands, except per share) | Diluted Earnings per share | $0.24 | $0.11 | $0.48 | $0.16 | - Total net revenue increased by 28% for both the three and six months ended June 30, 2025, compared to the respective periods in 2024[11] - Net income more than doubled for both the three and six months ended June 30, 2025, compared to the respective periods in 2024[11] Consolidated Statements of Comprehensive Income (Loss) The Consolidated Statements of Comprehensive Income (Loss) show a significant increase in total comprehensive income for the three and six months ended June 30, 2025, primarily driven by higher net income, despite foreign currency translation adjustments Consolidated Statements of Comprehensive Income (Loss) Highlights (in thousands) | Total comprehensive income | $1,636 | $865 | $3,524 | $1,298 | Consolidated Statements of Stockholders' Equity Stockholders' equity increased from December 31, 2024, to June 30, 2025, primarily due to net income and stock compensation expense, partially offset by accumulated other comprehensive loss Stockholders' Equity Changes (in thousands) | Total Stockholders' Equity | $51,697 | $3,890 | $1,095 | $51 | $(417) | $56,316 | - The company had approximately $7.1 million authorized for future common stock repurchases as of June 30, 2025[16] Consolidated Statements of Cash Flows Cash provided by operating activities significantly increased for the six months ended June 30, 2025, compared to the same period in 2024, leading to a net increase in cash, while investing activities remained a net use of cash and financing activities saw no repurchases in 2025 Consolidated Statements of Cash Flows Highlights (in thousands) | Cash at end of period | $26,621 | $22,589 | - The substantial increase in operating cash flow in 2025 was primarily due to lower accounts receivable, higher net income, and increased accounts payable and accrued payroll[99] Notes to Consolidated Financial Statements Detailed disclosures on CoreCard's financial statements cover accounting policies, revenue, investments, stock-based compensation, fair value, commitments, segment information, income taxes, and significant subsequent events 1. Summary of Significant Accounting Policies The company's unaudited consolidated financial statements are prepared in accordance with GAAP for interim reporting, with no material changes to significant accounting policies in the first half of 2025. New accounting pronouncements, ASU 2023-09 (Income Taxes) and ASU 2024-03 (Expense Disaggregation), are being evaluated for future impact - No material changes in significant accounting policies during the first half of 2025 compared to the 2024 Form 10-K[21] - FASB issued ASU 2023-09 (Income Taxes) effective for annual periods beginning after December 15, 2024, which the company will adopt in its 2025 Form 10-K[22] - FASB issued ASU 2024-03 (Expense Disaggregation) effective for fiscal years beginning after December 15, 2026, which the company is currently evaluating[23] 2. Revenue CoreCard's revenue is primarily from professional services, processing, and maintenance, with no product (software license) revenue in the reported periods. Revenue increased significantly year-over-year, with the United States being the dominant geographic market and Customer A (Goldman Sachs) representing a substantial concentration of revenue Revenue Disaggregation by Type (in thousands) | Total | $17,594 | $13,797 | $34,282 | $26,873 | Revenue by Geographic Area (in thousands) | Total | $17,594 | $13,797 | $34,282 | $26,873 | - Customer A (Goldman Sachs Group, Inc.) represented 62% and 63% of consolidated revenue for the three and six months ended June 30, 2025, respectively, indicating significant customer concentration[29][74] 3. Notes Receivable CoreCard holds promissory notes with a total carrying value of $486,000 as of June 30, 2025, split between current and noncurrent assets, all bearing a 5.25% annual interest rate and maturing in December 2028 - Current portion of notes receivable: $240,000 at June 30, 2025[30] - Noncurrent portion of notes receivable: $246,000 at June 30, 2025[30] - All notes have an annual interest rate of 5.25% and mature in December 2028[30] 4. Investments CoreCard holds significant equity method and cost-method investments in privately held FinTech-related companies. The primary equity method investment resulted in losses of $681,000 for the six months ended June 30, 2025, but no impairment was recorded due to a recent funding round valuation exceeding carrying value - 20.2% ownership in a privately held identity and professional services company (FinTech industry) with a carrying value of $2,842,000 at June 30, 2025, accounted for using the equity method[31] - Equity method investment resulted in losses of $165,000 (Q2 2025) and $681,000 (YTD Q2 2025), included in investment loss[31] - CoreCard participated in an $8.5 million funding round for the equity method investee in April 2025, contributing an additional $300,000 in Q4 2024, which diluted ownership to 20.2%. The valuation from this fundraise was above CoreCard's carrying value, indicating no impairment[31] - Other investments include a 12.5% interest in a supply chain/receivables financing company ($182,000 carrying value) and a 3.4% interest in a FinTech technology company ($155,000 carrying value), both recorded at cost[32] 5. Stock-Based Compensation CoreCard recorded $1,145,000 in stock-based compensation expense for the six months ended June 30, 2025, a significant increase from the prior year. Shareholders approved a new 2025 Employee Stock Incentive Plan, authorizing 750,000 shares. The company also granted shares to non-employee directors and has unrecognized compensation costs for RSUs Stock-Based Compensation Expense (in thousands) | Six Months Ended June 30 | $1,145 | $585 | - Shareholders approved the 2025 Employee Stock Incentive Plan in May 2025, authorizing 750,000 shares[33] - 5,703 shares ($150,000) were granted to independent directors in Q2 2025, vesting upon issuance[34] - As of June 30, 2025, unrecognized compensation costs for unvested RSUs totaled $3.6 million, to be recognized over a weighted-average period of 1.9 years[40] 6. Fair Value of Financial Instruments The carrying values of most financial instruments approximate their fair value due to short-term maturities. The company faces credit risk concentrations in cash, marketable securities, and receivables, with cash balances potentially exceeding FDIC insurance limits - Carrying values of cash, marketable securities, accounts receivable, notes receivable, accounts payable, and certain other current liabilities approximate fair value due to short-term maturities[41] - Concentrations of credit risk exist in cash, marketable securities, trade accounts, and notes receivable, with cash balances potentially exceeding FDIC insurance limits[42] 7. Fair Value Measurements CoreCard uses a three-level hierarchy for fair value measurements, prioritizing observable inputs. As of June 30, 2025, all measured assets (cash equivalents and marketable securities) were classified as Level 1, indicating valuations based on quoted prices in active markets - Fair value measurements are categorized into Level 1 (quoted prices in active markets), Level 2 (quoted prices in less active markets or observable inputs), and Level 3 (unobservable inputs)[45][46][47] Fair Value Hierarchy of Assets (in thousands) as of June 30, 2025 | Total assets | $25,631 | $− | $− | $25,631 | - No transfers of financial instruments between fair value hierarchy levels occurred during the six months ended June 30, 2025 or 2024[50] 8. Marketable Securities CoreCard's marketable securities, primarily corporate, municipal debt, and treasury securities, had an estimated fair value of $5,642,000 as of June 30, 2025, with an unrealized gain of $207,000. The majority of these securities mature after one year Marketable Securities (in thousands) as of June 30, 2025 | Corporate, municipal debt and treasury securities | $5,435 | $207 | $− | $5,642 | - No marketable securities were in an unrealized loss position or identified as other-than-temporarily impaired as of June 30, 2025[51] Maturities of Marketable Securities (in thousands) as of June 30, 2025 | Total | $5,435 | $5,642 | 9. Commitments and Contingencies CoreCard has operating lease commitments of $4,738,000 and approved a retention program with a maximum liability of $13.151 million, recording an initial $50,000 liability, with no material legal proceedings pending Lease Information (in thousands, except years and rate) | Weighted average discount rate | 7.2% | 6.6% | - Cash paid for operating leases was $718,000 for the six months ended June 30, 2025[55] - A retention program for long-term employees was approved in May 2025, with a maximum liability of approximately $13,151,000, to be paid if employees remain through December 31, 2028. An initial liability of $50,000 was recorded in Q2 2025[56] - No pending or threatened legal proceedings are expected to have a material adverse effect on the company's financial condition or results of operations[57] 10. Segment Information CoreCard operates as a single operating segment, with its CEO reviewing consolidated financial information, operating margin, and net income to assess performance and allocate resources - The Company operates as one operating segment[58] - The Chief Operating Decision Maker (CODM) uses consolidated operating margin and net income to assess financial performance and allocate resources[58] Selected Financial Information by Segment (in thousands, except per share data) | Net income | $1,984 | $896 | $3,890 | $1,326 | 11. Income Taxes CoreCard recognizes deferred tax liabilities and assets based on temporary differences and has determined no uncertain tax positions or unrecognized tax benefits. The effective tax rates for the three and six months ended June 30, 2025, were 26.2% and 25.1%, respectively - Effective tax rates for the three and six months ended June 30, 2025, were 26.2% and 25.1%, respectively, compared to 24.4% and 24.8% for the same periods in 2024[98] - No unrecognized tax benefits or accrued interest/penalties associated with unrecognized tax benefits at June 30, 2025, or December 31, 2024[61] - The company is generally no longer subject to U.S. federal, state, local, or foreign income tax examinations for returns filed more than three years ago[62] 12. Subsequent Events Subsequent to the reporting period, CoreCard entered into a definitive merger agreement with Euronet Worldwide, Inc., valuing the company at approximately $248 million ($30 per share), with the transaction expected to close in Q4 2025. Additionally, the One Big Beautiful Bill Act (OBBBA) was enacted, which is expected to decrease the company's current year cash tax liability - On July 30, 2025, CoreCard entered into a Merger Agreement with Euronet Worldwide, Inc., where CoreCard will become a wholly-owned subsidiary of Euronet[63] - The proposed merger values CoreCard at approximately $248 million, or $30 per share of common stock[65] - The merger is expected to close by January 30, 2026 (with potential extensions), and CoreCard Common Stock will be delisted from NYSE upon consummation[65][66] - On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) was enacted, which is anticipated to decrease CoreCard's current year cash tax liability[66] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses CoreCard's financial performance, condition, and significant revenue growth, particularly from Goldman Sachs, alongside the proposed Euronet merger, liquidity, capital resources, and key risk factors Overview CoreCard Corporation, a FinTech industry technology and processing services provider, operates globally through subsidiaries. Its revenue growth is increasingly driven by processing services, with Goldman Sachs (Customer A) being a major client, contributing 63% of consolidated revenues in the first six months of 2025. The company's infrastructure is designed for scalability, and it continues to invest in personnel and global expansion - CoreCard provides technology solutions and processing services to the FinTech industry[71] - Operations are conducted through affiliate companies in Romania, India, UAE, and Colombia, with executive support from Norcross, Georgia[72] - Customer A (Goldman Sachs) accounted for 63% of consolidated revenues in the first six months of 2025, and their agreement was extended through December 31, 2030[74][75] - The company is adding new processing customers at a faster pace than license customers, leading to steady growth in processing revenue[73] Proposed Merger with Euronet Worldwide Inc. CoreCard has entered into a merger agreement with Euronet Worldwide, Inc., where CoreCard will become a wholly-owned subsidiary. The transaction values CoreCard at approximately $248 million ($30 per share), with shareholders receiving Euronet common stock based on an exchange ratio. The merger is subject to shareholder and regulatory approvals and is expected to close in Q4 2025, after which CoreCard stock will be delisted - CoreCard entered into a Merger Agreement with Euronet Worldwide, Inc. on July 30, 2025, for CoreCard to become a wholly-owned subsidiary[81] - The transaction values CoreCard at approximately $248 million, or $30 per share[84] - Upon merger, outstanding RSUs will vest and convert to Per Share Merger Consideration, and stock options will become fully vested and exercisable for cash[85] - The merger is subject to conditions including shareholder approval, HSR Act clearance, and effectiveness of Euronet's Form S-4 registration statement, with an expected closing in Q4 2025[87][91] Results of Operations CoreCard experienced strong financial performance for the three and six months ended June 30, 2025, with significant revenue growth driven by professional services and processing. Operating expenses increased due to higher bonus accruals, but cost of revenue as a percentage of total revenue decreased, leading to improved operating income and net income Revenue Total revenue increased by 28% for both the three and six months ended June 30, 2025, primarily due to higher professional services revenue from Goldman Sachs and increased transaction processing and software maintenance services. No product revenue was recognized in these periods - Total revenue for the three and six months ended June 30, 2025, was $17,594,000 and $34,282,000, respectively, representing a 28% increase compared to 2024[92] - Service revenue growth was driven by an increase in the number and value of professional services contracts, particularly from Goldman Sachs, and increased transaction processing and software maintenance due to more customers and accounts[94] - No product (software license) revenue was recognized in the three and six months ended June 30, 2025 or 2024[94] Cost of Revenue Cost of revenue as a percentage of total revenue decreased to 55% for both the three and six months ended June 30, 2025, down from 66% and 69% in the prior year, primarily due to higher rates for professional services, particularly from increased managed services revenue from Goldman Sachs - Total cost of revenue was 55% of total revenue for the three and six months ended June 30, 2025, a decrease from 66% and 69% in the corresponding 2024 periods[93] - The decrease in cost of revenue as a percentage of revenue is primarily due to higher rates for professional services, especially from increased managed services revenue from Goldman Sachs, partially offset by higher low-margin third-party revenues[93] Operating Expenses Total operating expenses increased by 49% and 48% for the three and six months ended June 30, 2025, respectively. Development and general and administrative expenses saw significant increases, mainly due to higher bonus accruals, while marketing expenses decreased - Total operating expenses increased 49% (three months) and 48% (six months) in 2025 compared to 2024[96] - Development expenses increased 63% (three months) and 66% (six months) due to higher bonus accruals[96] - General and administrative expenses increased 37% (three months) and 31% (six months) due to higher bonus accruals[96] - Marketing expenses decreased 40% (three months) and 10% (six months) as client acquisition continues with minimal marketing efforts[96] Investment Loss Investment losses decreased for the three months ended June 30, 2025, but increased for the six-month period, primarily due to the equity method investment in a privately held FinTech identity and professional services company that is investing in future growth Investment Loss (in thousands) | Six Months Ended June 30 | $(580) | $(438) | - The investment loss primarily relates to the equity method investment in a privately held identity and professional services company in the FinTech industry[97] Other Income, net Other income, net, decreased for both the three and six months ended June 30, 2025, compared to the prior year periods Other Income, net (in thousands) | Six Months Ended June 30 | $306 | $526 | Income Taxes The effective tax rates for the three and six months ended June 30, 2025, were 26.2% and 25.1%, respectively, showing a slight increase compared to the prior year Effective Tax Rates | Six Months Ended June 30 | 25.1% | 24.8% | Liquidity and Capital Resources CoreCard's cash and cash equivalents significantly increased to $26,621,000 at June 30, 2025, primarily due to a substantial increase in cash provided by operating activities. The company expects sufficient liquidity for operations and future FinTech business expansion, with $7.1 million remaining authorized for share repurchases - Cash and cash equivalents increased to $26,621,000 at June 30, 2025, from $19,481,000 at December 31, 2024[99] - Cash provided by operations for the six months ended June 30, 2025, was $10,716,000, a significant increase from $2,341,000 in the prior year[99] - The company used $3,105,000 for property, equipment, and capitalized internal-use software in the first six months of 2025[101] - As of June 30, 2025, approximately $7.1 million remained authorized for future share repurchases, with no repurchases made in the first six months of 2025[102] Off-Balance Sheet Arrangements CoreCard currently has no off-balance sheet arrangements that are reasonably likely to have a material effect on its financial condition, liquidity, or results of operations - The company does not have any off-balance sheet arrangements likely to have a material effect on its financial condition, liquidity, or results of operations[103] Critical Accounting Policies and Estimates CoreCard's critical accounting policies include revenue recognition and valuation of investments, which involve significant estimates and judgments. There were no significant or material changes in the application of these policies during the six-month period ended June 30, 2025 - Critical accounting policies include revenue recognition and valuation of investments[104] - No significant or material changes in the application of critical accounting policies during the six-month period ended June 30, 2025[104] Factors That May Affect Future Operations CoreCard faces numerous risks that could impact future operations, including significant customer concentration with Goldman Sachs, uncertainties and potential costs related to the pending merger with Euronet, market volatility, increasing regulations, and operational challenges such as software development delays, security breaches, and talent retention - High customer concentration: Goldman Sachs Group, Inc. represented 63% of consolidated revenues for the six months ended June 30, 2025, posing a risk of revenue loss if the customer is lost or reduces business[106] - Merger-related risks: The completion of the merger with Euronet is subject to various conditions, and failure to complete it could result in additional costs, loss of revenue, negative market reactions, and a $7.5 million termination fee[106][107] - Operational risks: Delays in software development, failure to meet market requirements, security breaches, and inability to attract/retain key employees could negatively impact the business[107] - Market and regulatory risks: Weakness in global financial markets, increased federal and state regulations (e.g., data privacy, financial transactions), and competitive pressures could adversely affect results[107][115] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, CoreCard Corporation is not required to provide quantitative and qualitative disclosures about market risk - Not required for smaller reporting companies[108] Item 4. Controls and Procedures CoreCard's management, including the CEO and CFO, evaluated the effectiveness of the company's disclosure controls and procedures and concluded they were effective as of June 30, 2025. No significant changes in internal control over financial reporting occurred during the period - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2025[109] - No significant changes in internal control over financial reporting occurred during the period covered by the report[109] Part II. Other Information Item 1. Legal Proceedings CoreCard is not currently a party to any legal proceedings that are expected to have a material adverse effect on its business, financial condition, or results of operations - The company is not currently a party to or aware of any proceedings that are believed to have a material adverse effect on its business, financial condition, or results of operations[110] Item 1A. Risk Factors As a smaller reporting company, CoreCard Corporation is not required to make disclosures under this Item - Not required for smaller reporting companies[111] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds CoreCard had approximately $7.1 million remaining authorized for share repurchases under its program as of June 30, 2025, but did not purchase any shares during the quarter ended June 30, 2025 - Approximately $7.1 million of authorized share repurchases remained as of June 30, 2025[112] - No shares of common stock were repurchased during the quarter ended June 30, 2025[112] Item 3. Defaults Upon Senior Securities CoreCard reported no defaults upon senior securities during the period - None[113] Item 4. Mine Safety Disclosures Mine safety disclosures are not applicable to CoreCard Corporation - Not applicable[114] Item 5. Other Information No director or officer of CoreCard Corporation adopted or terminated any Rule 10b5-1 or Non-Rule 10b5-1 trading arrangements during the fiscal quarter ended June 30, 2025 - No director or officer adopted or terminated a Rule 10b5-1 or Non-Rule 10b5-1 trading arrangement during the fiscal quarter ended June 30, 2025[116] Item 6. Exhibits This section lists the exhibits filed or furnished with the Form 10-Q, including the Merger Agreement, the 2025 Employee Stock Incentive Plan, CEO/CFO certifications, and Inline XBRL data - Key exhibits include the Agreement and Plan of Merger with Euronet Worldwide, Inc. (Exhibit 2.1), the CoreCard Corporation 2025 Employee Stock Incentive Plan (Exhibit 10.1), and certifications from the CEO and CFO (Exhibits 31.1, 31.2, 32.1)[118] - Inline XBRL data (Exhibits 101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE) is furnished but not filed for certain purposes[118] Signatures The report is duly signed on behalf of CoreCard Corporation by J. Leland Strange, Chief Executive Officer and President, and Matthew A. White, Chief Financial Officer, on August 14, 2025 - Signed by J. Leland Strange, Chief Executive Officer, President, and Matthew A. White, Chief Financial Officer, on August 14, 2025[118]