Hearte Enterprises(HTCR) - 2024 Q1 - Quarterly Results

Company Overview & Highlights First Quarter 2024 and Recent Operational Highlights HeartCore achieved several operational milestones in Q1 2024, including the successful sale of Go IPO client warrants, first dividend payment, establishment of a new AI software development division, and strategic partnerships with Luvina Software and Toshiba Elevator - The company sold Go IPO client warrants for $9.0 million, with $5.0 million received in Q1 and the remaining $4.0 million in April 2024, expected to be recognized as revenue in Fall 2024 upon client IPO[7] - The company distributed its first dividend of $0.02 per share on May 3, 2024[7] - An Artificial Intelligence software development division was established, securing two deals within its first month[7] - A joint venture, HeartCore Luvina Vietnam Co., Ltd., was formed with Luvina Software Joint Stock Company, and a CMS platform implementation agreement was signed with Toshiba Elevator and Building Systems Corporation[7] Management Commentary CEO Sumitaka Kanno Yamamoto highlighted the software business's Q1 profitability as a key transformation, driven by cost reductions and new division establishments, noting that reported quarterly performance did not include $9.0 million from Go IPO client warrant sales, which was used for strategic investments and dividend payments - The software business segment achieved profitability in Q1, primarily due to aggressive cost-cutting measures and sales and marketing investments[4] - Two newly established divisions, including the joint venture with Luvina Software and the AI software development division, contributed to the software business's profitability, with the Luvina JV projected to generate approximately $1.0 million in first-year sales and the AI division securing two deals in its first month[4] - Quarterly results did not include $9.0 million from Go IPO client warrant sales in March, which, due to specific accounting treatment, will be recognized as revenue only after the client's IPO but has already been utilized for strategic investments and dividend payments[4] About HeartCore Enterprises, Inc. HeartCore Enterprises, a leading enterprise software and consulting services company based in Tokyo, Japan, offers SaaS solutions, data analytics, Customer Experience Management (CXM) platforms, digital transformation services, and US IPO consulting for Japanese companies - The company provides SaaS solutions, data analytics services, and Customer Experience Management (CXM) platforms, encompassing marketing, sales, service, and content management systems[11] - It operates a digital transformation business, offering Robotic Process Automation (RPA), process mining, and task mining services[11] - It offers GO IPO consulting services, assisting Japanese companies in listing on US stock exchanges[11] First Quarter 2024 Financial Performance Summary of Financial Results HeartCore's Q1 2024 revenue decreased year-over-year, primarily due to reduced Go IPO consulting service income, leading to significant declines in gross and net profit, shifting from net income to a net loss, though operating expenses decreased due to cost-cutting, and cash and cash equivalents grew sequentially Key Financial Data for Q1 2024 (YoY) | Metric | Q1 2024 ($) | Q1 2023 ($) | YoY Change ($) | Change Rate (%) | Notes | | :--- | :--- | :--- | :--- | :--- | :--- | | Revenue | $5.0 million | $8.7 million | -$3.7 million | -42.5% | Primarily due to decrease in Go IPO consulting service revenue | | Cost of Sales | $3.0 million | $3.1 million | -$0.1 million | -3.2% | | | Gross Profit | $2.0 million | $5.6 million | -$3.6 million | -64.3% | Primarily due to decrease in revenue | | Operating Expenses | $2.7 million | $3.3 million | -$0.6 million | -18.2% | Primarily due to decrease in selling and general & administrative expenses | | Operating Income (Loss) | -$0.7 million | $2.3 million | -$3.0 million | -130.4% | | | Net Income (Loss) | -$1.5 million | $1.8 million | -$3.3 million | -183.3% | | | Diluted Net Income (Loss) Per Share | -$0.06 | $0.10 | -$0.16 | -160.0% | | | Cash and Cash Equivalents at Period End | $1.2 million | $1.0 million | +$0.2 million | +20.0% | Increased from December 31, 2023 | - The revenue decrease was primarily due to reduced Go IPO consulting service income, as two IPO consulting clients successfully listed on Nasdaq in the prior year period, partially offset by increased revenue from on-site software sales and custom software development services[5] Strategic Outlook 2024 Strategic Outlook HeartCore will continue to expand its enterprise software business for the remainder of 2024, focusing on cost reductions and synergistic opportunities across subsidiaries and divisions to achieve overall profitability, while the Go IPO team remains optimistic about the IPO market, expecting multiple IPO completions and additional warrant gains this year - The company will continue to expand its enterprise software business through cost-cutting strategies and identifying synergistic opportunities across subsidiaries and divisions to optimize operational efficiency and capabilities, aiming for overall profitability in 2024[10] - The Go IPO team will continue to guide an expanding client base through the IPO process, maintaining an optimistic outlook on the IPO market, with expectations to announce the completion of multiple IPOs and secure additional Go IPO warrant gains this year[10] Consolidated Financial Statements Consolidated Balance Sheets As of March 31, 2024, HeartCore's total assets and liabilities increased from December 31, 2023, with a significant rise in current assets primarily driven by changes in prepaid expenses and other current liabilities, while total stockholders' equity decreased Key Consolidated Balance Sheet Data | Metric | March 31, 2024 ($) | December 31, 2023 ($) | Sequential Change ($) | Change Rate (%) | | :--- | :--- | :--- | :--- | :--- | | Total Assets | 22,330,268 | 19,623,767 | +2,706,501 | +13.8% | | Current Assets | 9,021,261 | 5,494,893 | +3,526,368 | +64.2% | | Cash and Cash Equivalents | 1,219,251 | 1,012,479 | +206,772 | +20.4% | | Prepaid Expenses | 3,942,371 | 536,865 | +3,405,506 | +634.3% | | Total Liabilities | 15,972,254 | 11,956,953 | +4,015,301 | +33.6% | | Current Liabilities | 11,018,328 | 6,511,555 | +4,506,773 | +69.2% | | Other Current Liabilities | 5,268,130 | 216,405 | +5,051,725 | +2334.4% | | Total Stockholders' Equity | 6,358,014 | 7,666,814 | -$1,308,800 | -17.1% | Unaudited Consolidated Statements of Operations and Comprehensive Loss In Q1 2024, HeartCore's revenue and gross profit significantly declined year-over-year, shifting operations from profit to a net loss of $1.478 million, or $0.06 diluted loss per share, compared to a net income of $1.808 million, or $0.10 diluted earnings per share in the prior year, with reduced operating expenses partially offsetting the revenue decline Key Consolidated Statements of Operations and Comprehensive Loss Data (YoY) | Metric | Three Months Ended March 31, 2024 ($) | Three Months Ended March 31, 2023 ($) | YoY Change ($) | Change Rate (%) | | :--- | :--- | :--- | :--- | :--- | | Revenue | 5,046,732 | 8,734,150 | -3,687,418 | -42.2% | | Cost of Sales | 3,014,543 | 3,101,066 | -86,523 | -2.8% | | Gross Profit | 2,032,189 | 5,633,084 | -3,600,895 | -63.9% | | Total Operating Expenses | 2,715,144 | 3,333,473 | -618,329 | -18.5% | | Operating Income (Loss) | -682,955 | 2,299,611 | -2,982,566 | -129.7% | | Net Income (Loss) | -1,478,002 | 1,808,037 | -3,286,039 | -181.8% | | Net Income (Loss) Attributable to HeartCore Enterprises, Inc. | -1,333,350 | 1,882,289 | -3,215,639 | -170.8% | | Diluted Net Income (Loss) Per Share | -0.06 | 0.10 | -0.16 | -160.0% | Unaudited Consolidated Statements of Cash Flows In Q1 2024, HeartCore's operating cash flow shifted from a net outflow to a net inflow of $0.741 million year-over-year, primarily due to a significant increase in other liabilities, while investing cash flow remained a small net inflow and financing cash outflow increased, leading to a rise in period-end cash and cash equivalents from the beginning of the period Key Consolidated Statements of Cash Flows Data (YoY) | Cash Flow Type | Three Months Ended March 31, 2024 ($) | Three Months Ended March 31, 2023 ($) | YoY Change ($) | | :--- | :--- | :--- | :--- | | Net Cash Provided by (Used in) Operating Activities | 741,381 | -1,048,059 | +1,789,440 | | Net Cash Provided by (Used in) Investing Activities | 10,814 | -722,364 | +733,178 | | Net Cash Provided by (Used in) Financing Activities | -474,752 | -134,296 | -340,456 | | Cash and Cash Equivalents at End of Period | 1,219,251 | 5,209,915 | -3,990,664 | - The significant improvement in operating cash flow was primarily attributable to an increase in other liabilities, which contributed $5.06 million in cash inflow during Q1 2024[19] - Non-cash investing and financing transactions included $125,735 for operating lease right-of-use assets obtained in exchange for operating lease liabilities, and $172,689 for insurance premium financing[20] Additional Information Forward-Looking Statements This press release contains forward-looking statements subject to risks and uncertainties, where actual results may differ materially from expectations, and the company undertakes no obligation to publicly update or revise these statements, advising investors not to place undue reliance - All statements in this press release that are not historical facts are forward-looking statements, subject to known and unknown risks and uncertainties[12] - These factors, risks, and uncertainties could cause actual results to differ materially from those expressed or implied in the forward-looking statements[12] - HeartCore undertakes no obligation to publicly update or revise these forward-looking statements for any reason[12]