CoreCard(CCRD) - 2023 Q3 - Quarterly Report

Part I Financial Information Item 1 Financial Statements The unaudited consolidated financial statements for CoreCard Corporation as of September 30, 2023, include balance sheets, statements of operations, comprehensive income, equity, and cash flows Consolidated Balance Sheets Total assets increased to $66.8 million by September 30, 2023, driven by a rise in cash and cash equivalents, while stockholders' equity grew to $54.3 million Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2023 (unaudited) | Dec 31, 2022 (audited) | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $31,614 | $20,399 | | Accounts receivable, net | $5,875 | $13,220 | | Total current assets | $48,523 | $42,321 | | Total assets | $66,785 | $63,232 | | Liabilities & Equity | | | | Total current liabilities | $10,241 | $7,543 | | Total liabilities | $12,510 | $10,469 | | Total stockholders' equity | $54,275 | $52,763 | Consolidated Statements of Operations The company reported a net loss of $222,000 for Q3 2023, a significant downturn from the prior year, driven by a substantial drop in product revenue Statement of Operations Summary (in thousands, except per share data) | Metric | Q3 2023 | Q3 2022 | 9 Months 2023 | 9 Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Total net revenue | $13,399 | $14,450 | $43,847 | $53,940 | | Income from operations | $413 | $1,703 | $4,916 | $16,921 | | Net (loss) income | $(222) | $1,359 | $2,909 | $12,885 | | Diluted EPS | $(0.03) | $0.16 | $0.34 | $1.49 | Consolidated Statements of Comprehensive Income (Loss) Total comprehensive loss for Q3 2023 was $196,000, a sharp reversal from an income of $1.47 million in Q3 2022, reflecting the decline in net income Comprehensive Income (Loss) (in thousands) | Period | 2023 | 2022 | | :--- | :--- | :--- | | Three Months Ended Sep 30 | | | | Net (loss) income | $(222) | $1,359 | | Total comprehensive (loss) income | $(196) | $1,473 | | Nine Months Ended Sep 30 | | | | Net income | $2,909 | $12,885 | | Total comprehensive income | $2,913 | $13,243 | Consolidated Statements of Stockholders' Equity Stockholders' equity increased to $54.3 million as of September 30, 2023, primarily due to net income, partially offset by $1.5 million in stock repurchases - The balance of stockholders' equity at September 30, 2023 was $54.275 million[9] - During the nine months ended September 30, 2023, the company repurchased common stock amounting to a total cost of $1.551 million (including excise tax)[9] Consolidated Statements of Cash Flows Net cash from operating activities increased significantly to $18.3 million for the first nine months of 2023, contributing to a net cash increase of $11.2 million Cash Flow Summary (in thousands) | Activity | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $18,252 | $10,857 | | Net cash used for investing activities | $(5,477) | $(8,355) | | Net cash used for financing activities | $(1,528) | $(5,042) | | Net increase (decrease) in cash | $11,215 | $(2,176) | | Cash at end of period | $31,614 | $27,068 | Notes to Consolidated Financial Statements The notes detail a significant revenue concentration from a single customer, a $1 million investment impairment charge, and the adoption of new accounting standards - The company adopted new accounting standards updates (ASU 2016-13 and ASU 2022-02) related to credit losses on January 1, 2023, which did not have a material impact on the consolidated financial statements[13][29] - A single customer, Customer A, accounted for 62% of revenue in Q3 2023 and 68% in the first nine months of 2023[50][81] - The company recorded a $1,000,000 impairment charge in Q3 2023 on an investment in a privately held supply chain financing company, reducing its carrying value to $0[33] Revenue by Type (in thousands) | Revenue Type | Q3 2023 | Q3 2022 | 9 Months 2023 | 9 Months 2022 | | :--- | :--- | :--- | :--- | :--- | | License | $0 | $0 | $1,794 | $14,283 | | Professional services | $6,432 | $7,776 | $22,127 | $21,943 | | Processing and maintenance | $5,814 | $5,267 | $16,933 | $13,837 | | Third party | $1,153 | $1,407 | $2,993 | $3,877 | | Total | $13,399 | $14,450 | $43,847 | $53,940 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses a 19% revenue decrease for the nine-month period due to lower license fees, significant customer concentration, and a strong liquidity position Overview The company's revenue is highly concentrated with its largest customer, Goldman Sachs, and a recent contract amendment is expected to create more recurring revenue - The company's largest customer, Goldman Sachs Group, Inc ("Customer A"), represented 68% of consolidated revenues in the first nine months of 2023, down from 77% in the same period of 2022[91] - An Omnibus Amendment with Goldman, effective July 1, 2023, extended the Support Services term through June 30, 2026, and converted certain payment terms from time-and-materials to a fixed monthly fee, creating more predictable, recurring revenue[98][126] Results of Operations Total revenue for the first nine months of 2023 decreased by 19% to $43.8 million, driven by a steep decline in high-margin software license revenue - Product revenue (primarily software license fees) for the nine months ended September 30, 2023, was $1,794,000, a steep decline from $14,283,000 in the comparable 2022 period, which benefited from a large customer adding a new institution and achieving multiple license tiers[104] - Services revenue for the nine months ended September 30, 2023, increased by 6% to $42,053,000, driven by growth in transaction processing and software maintenance services[131] - Cost of revenue as a percentage of total revenue increased to 65% for the nine-month period of 2023, up from 44% in 2022, due to lower high-margin license revenue and continued investments in offshore personnel and infrastructure[132] - An investment loss of $1,701,000 was recorded in the first nine months of 2023, primarily from a Q3 impairment charge, compared to investment income of $196,000 in the same period of 2022[133] Revenue Comparison (in thousands) | Period | 2023 | 2022 | % Change | | :--- | :--- | :--- | :--- | | Three Months Ended Sep 30 | $13,399 | $14,450 | -7% | | Nine Months Ended Sep 30 | $43,847 | $53,940 | -19% | Liquidity and Capital Resources The company's cash position strengthened to $31.6 million, supported by strong operating cash flow, while continuing its share repurchase program - Cash and cash equivalents increased by $11.2 million during the first nine months of 2023, reaching $31.6 million[108] - The company repurchased approximately $1.5 million of its shares in the first nine months of 2023 and has about $16.8 million remaining in its share repurchase authorization as of September 30, 2023[109] Factors That May Affect Future Operations Future results face significant risk from the heavy reliance on Goldman Sachs, along with potential market instability, regulatory changes, and security breaches - A primary risk factor is the concentration of revenue with Goldman Sachs Group, Inc, which represented 68% of consolidated revenues for the nine months ended September 30, 2023[113] - Other identified risks include weakness in global financial markets, increased regulation, delays in software development, potential security breaches, and competition[114] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2023, with no significant internal control changes - Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they are effective as of September 30, 2023[115] - No significant changes to the company's internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[115] Part II Other Information Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased over 50,000 shares for $1.1 million in Q3 2023, with $16.8 million remaining under its authorized repurchase program - The company has a share repurchase program authorized by the Board, and as of September 30, 2023, approximately $16.8 million remains available for future repurchases[116] Share Repurchases in Q3 2023 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | July 2023 | 0 | N/A | | August 2023 | 40,298 | $22.05 | | September 2023 | 10,027 | $20.76 | | Total | 50,325 | $21.63 | Item 6. Exhibits Filed exhibits include a key contract amendment with Goldman Sachs, CEO and CFO certifications, and Inline XBRL financial data files - Exhibit 10.1 is the Omnibus Amendment to the GS-CoreCard Agreements[118][144] - Exhibits 31.1, 31.2, and 32.1 contain the required CEO and CFO certifications under Sections 302 and 906 of the Sarbanes-Oxley Act[118][144]