CoreCard Corporation
Q2 2016 Earnings Call Transcript

Published: 12 Aug 2016

[Operator:]

Good morning. My name is Kim [ph] and I will be your conference operator today. At this time, I would like to welcome everyone to the Earnings Release and Investors Conference Call. All lines have bee placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Leland Strange, CEO of Intelligent Systems, you may begin your conference, sir.

[Leland Strange:]

Okay. Good morning and everyone welcome to the Intelligent Systems investor conference call. Today our callers easily last under 30 minutes, including question and answer will be brief. But on the call we are going primarily do two things. First, I will briefly comment on 2016 results at June 30, balance sheet which I am going to assume that you are on the call that you have already read it, as it hit the wire this morning. I guess, looking at trading volume, I will sarcastically comment that we may as well not even reported as there has been no shares trading according to what actually, but we will comment more on that later. The second thing is we will update you on the progress and the outlook for our CoreCard business. As usual at the end of the call, we will have some time for questions and answers. With me this morning in the conference room of the call is our CFO, Karen Reynolds along with our former CFO, Bonnie Herron. Depending on the questions, if we have any, I am not deferred to one of them for the answers. We're filing our 10-Q for June 30 quarter later today. It is going to be available on our website at intelsys.com and sec.gov shortly thereafter. I would encourage you to read the Business section, the MD&A and the Risk section of the 10-Q for a more complete understanding of our business and its risks and opportunities. Before I say too much more, I do need to cover quickly the forward-looking statements that's referenced and defined by the SEC. My comments and discussion today will definitely contain some forward-looking statements relating to Intelligent Systems, CoreCard, and its other operations. I do have a script outline, but I also tend to add statements are nuances and many of my statements and other information contained in this discussion are likely to be forward-looking statements. As I use the words anticipate, believe, plan, estimate, expect, likely, intend, along with other similar expressions those obviously are forward-looking statements. If you’re an investor, thinking about investing, you should know such forward-looking statements are not guarantees. Future performance is always somewhat of a guess and involve risks and uncertainties. I give you my best judgment of things as I see them and I judged that might prove to be wrong. I am simply conveying my expectations and beliefs based on what I know and believe with the information I have available today as I have said in this conference room of this call. I may be misinterpreting the information or the info may be wrong so in no way I am not making a firm prediction about the future events or results. Now with that behind us, let's cover financial results. As you are probably all aware, since we sold our ChemFree subsidiary on March 31, 2015, that’s a little over a year ago, our financial reports for all periods show the ChemFree operations as discontinued operations. And, just as an aside, the purchaser of the business appears to be using their worldwide sales and distribution channels to gradually increase ChemFree revenues. They’re obviously very happy with the purchase. They’ve also purchased some of the ChemFree’s former distributors in other parts of the world. So with that sale in all material respects, the CoreCard operation is now ISC’s core business. CoreCard is the primary focus of our management time and our resource allocation. Continuing with the financial summary, the ChemFree sale generated approximately $90 million in cash, not including $2.2 million in escrow to be received in September of this year, so we’ve got a total cash of a little over $21 million. We’re using this cash to support our ongoing operations and strategic initiatives as well as earlier we provided some returns to shareholders. With the Dutch auction tender offer, we distributed a cash dividend of $0.35 per share in the first quarter of this year and that used approximately $3 million of the cash. So, our cash has decreased from $18.1 million at the end of 2015 to $16.8 million as of June 30. That's a reduction of just $1.3 million, even though I said earlier, we distributed $3.1 million. So what’s the difference? Well the difference can be accounted for in large part by the receipt of $2.2 million in cash that related to the sale of our former investee company, which we actually recognized in the fourth quarter but received the cash this year. So even though we gave out $3.1 million, we’re not down a deficit of $3.1 million in cash. In addition for the first six months of 2016, we invested approximately $145,000 capital equipment for our processing and technical [ph] operations and we used approximately $164,000 in cash for operation support as well as corporate and other public company expenses. So from a cash standpoint, we’re in very good shape with another $2.2 million breaking from escrow next month, in September. Now let’s talk about strategic initiatives before getting to operations, because I think that’s something that I’m certainly focused on, something I think you guys are very interested in. I’ve often stated that we’re exploring and open to strategic initiatives that would benefit the shareholders. We've worked long and hard to get CoreCard operations to this point, and I think we've got to do whatever we can to maximize our return to shareholders, of which I happen to be a large one. But what does that really mean for our company? From our perspective, strategic initiatives could take several forms

[Operator:]

[Operator Instructions] And your first question comes from the line of Sam Robotsky. Your line is open.

[Sam Robotsky:]

Yeah, good morning, Leland and Bonnie, and welcome Karen.

[Leland Strange:]

Thank you.

[Karen Reynolds:]

Thank you.

[Sam Robotsky:]

So, let's see. We consider the possibility of being profitable and it appears you're going to have more revenue in the second half than the first half, is there something that we need to do to generate greater revenue, or is there more salespeople we need to hire, or what do we need to do to sort of increase the revenue stream for the processing?

[Leland Strange:]

Yeah, the only place that really matters is in the processing, that's where you get the leverage. Let me say, first of all. That's where you get the leverage without adding a lot more people. Now, we're adding more people because of the professional services and licensing primarily. But I honestly can't take own poor business in the next six months than what we have. We are adding people as fast we can. It takes time to train the kind of people we have to have in this business. And we will do find this year. We will -- I am pretty sure we're going very well next year. We're not going to grow about 50% next year, but we are going to grow. So, I don’t -- there is nothing else we can do now except continue to add people and get them up and trained to try to get ahead of the game.

[Sam Robotsky:]

Okay. Now the bank that instituted the credit card, are they still working on that, or where are they?

[Leland Strange:]

I am not sure what you're referring to Sam.

[Sam Robotsky:]

There was one the bank that was going to have a credit card and they had a right to buy some stock in Intelligent Systems and CoreCard. Are they still with us or--?

[Leland Strange:]

Yeah, that wasn’t really a credit card, that was a prepaid card, and they are still with us.

[Sam Robotsky:]

Okay. Are they making the progress we'd like them to make, or is there anything that needs to be done to make that move along quicker to increase.

[Leland Strange:]

They're not growing their business very quickly, but there's nothing we can do about it. They're totally independent. We just process more on.

[Sam Robotsky:]

Okay. The…

[Leland Strange:]

We're not that interested in any way. There is noting we can do that.

[Sam Robotsky:]

Okay. Now, we wrote down the luminance investment to $50,000, is there any -- do we expect any transaction to happen with that this current year, or is that--?

[Leland Strange:]

We actually have written it off completely this quarter.

[Sam Robotsky:]

Okay.

[Leland Strange:]

That means we don't expect any return from it.

[Sam Robotsky:]

Okay. And the other investments that would carrying, are they worth more and were not able to write it up or there's any value of these other investments that we're carrying now?

[Leland Strange:]

There's very few that we have remaining. And you can't write any of them on our balance sheet, there will be very few -- I must say it’s a less than $0.25 million on our balance sheet for investment, poor investment. Let me get an answer from Karen. 240, pretty close to say than $0.25 million on our balance sheet and I don't think it would be realistic to expect any great return from them, although we are obviously would be happy with a surprise. We were surprised with one last year. But there's no objective information that will tell you that you could expect any big hit from them.

[Sam Robotsky:]

Okay. And we -- yes.

[Leland Strange:]

But I am not going to write anything off this point. We will hope to as least get our money back.

[Sam Robotsky:]

Okay. And at this point, we've used all the tax losses that we had that we can on the gain in the ChemFree.

[Leland Strange:]

Yes, there are some incidental losses out there, but not enough for a matter.

[Sam Robotsky:]

Okay. Now, we spoke of looking for some type of transaction. But is it fair to say that we are not at the stage where we're hiring an investment banker to explore this, we're just doing this on our own as we develop the business and we're looking for opportunities, and if something happens, but we're not ready to hire somebody to speed up the process?

[Leland Strange:]

That is accurate.

[Sam Robotsky:]

Okay. All right. Leland, you have done a good job and hopefully something will happen where people will want to work with us and grow the company and that makes sense. And we'll -- maybe the stock will get more active. But let's see what happens. Good luck.

[Leland Strange:]

All right. Thank you, Sam.

[Operator:]

[Operator Instructions] And there are no further questions at this time

[Leland Strange:]

Okay. Well, I want to thank you for taking the time to be on the call. As you know we generally hold calls twice a year, so you can expect the next call to be after the end of the fiscal year, unless there are some significant new developments to report before that. So, again, thank you for your time this morning. And if you have further questions you can always try to call myself or Karen, our CFO. Thanks everyone.

[Operator:]

Ladies and gentlemen, this concludes today's conference call and you may now disconnect.