Usio, Inc.

Good morning, and welcome to the UCO earnings conference call for the third quarter ended September 30, 2021. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on your telephone keypad. To withdraw your questions, please press star, then 2. Participants of this call are advised that the audio of this conference call is being broadcasted live over the Internet and is also being recorded for playback purposes. A replay will be available shortly after the end of the call through September 25th, 2021. I would now like to turn the conference over to Joe Hassett, Investor Relations. Please go ahead.

Thanks, Sarah, and thank you, everyone, for participating today. Welcome to UCO's third quarter 2021 financial results conference call. The earnings release, which UCO issued yesterday after market close, is available on the company's investor relations website at uco.com slash investors under news. On this call today are Louis Hoke, President and CEO, Tom Jewell, Senior Vice President and Chief Financial Officer, and Houston Frost, Senior Vice President of Prepaid Services. Management will provide prepared remarks and then we'll open the call to your questions. Before we begin, please remember that comments on today's call include forward-looking statements. Forward-looking statements can be identified by the use of such words as estimate, anticipate, expect, believe, intend, may, will, should, seek, approximate, or plan, or the negative of these words and other similar words and phrases. Forward-looking statements by their nature involve estimates, projections, goals, forecasts, and assumptions, and are subject to risks and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements, including risks related to the COVID-19 pandemic and its effect on the economy, the realization and the opportunities from the IMS acquisition, management of the company's growth, the loss of key resellers, the relationships with the automated clearinghouse network, bank sponsors, third-party card processing providers and merchants, the volatility of stock price, the loss of key personnel, growing competition in the electronic commerce market, the security of the company's software, hardware, and information, compliance with complex federal, state, and local laws and regulations, and other risks detailed in the company's filings with the SEC. These forward-looking statements speak only as of the date of this conference call and should not be relied upon as predictions of future events. UCO expressly disclaims any obligation or undertaking to update or revise any forward-looking statements made today to reflect any changes in UCO's expectations with regard thereto or any other changes in the events, conditions, or circumstances on which any such statement is based, except as required by law. Please refer to the company's SEC filings on its investor relations website for additional information. With that, I would now like to turn the call over to Louis. Louis?

Thank you, Joe, and welcome, everyone. Greg Carter, Senior Vice President of Payment Facilitation, is unfortunately unable to join us this morning due to having minor back surgery today, but he will be back for our next call and the courses available next week for any follow-up questions you may have. It was another record quarter with record revenues, and we generated positive cash flow and profits for our second consecutive quarter. Revenues for the quarter were up 94% to $15.8 million compared to the same period last year. This was our fifth consecutive quarter of sequential growth. Revenues were up strongly in all of our business lines with prepaid more than doubling and ACH up 81% and card growing 28% compared to last year. Adjusted EBITDA was 1.2 million in the quarter, which was our fourth consecutive quarter of positive adjusted EBITDA. Clearly, revenues have scaled and we've achieved operating leverage to the point where we are now generating positive EBITDA on a consistent basis. Furthermore, another quarter of positive operating cash flow, we are now able to build our cash balances while simultaneously investing in our growth initiatives. With three strong quarters in the book for 2021, we are once again raising our guidance for the year and are now expecting revenue to exceed $60 million for this year. with an increase of at least 88 percent over fiscal 2020. With growth in the quarter, growth in the quarter was attributed to strong transaction processing volumes. Total dollars processed were 2.1 billion, up 145 percent from a year ago, and was our second highest quarter ever. Transaction dollars volumes have already more than doubled last year's total. And we are well on our way to process nearly $9 billion for the year. In fact, our three highest quarters of processing volumes were all this year. We are doubling down here, growing our sales force to capitalize on the growth opportunities before us and maintain this strong momentum. As an up-and-coming, growth-oriented fintech company, we're attracting some of the industry's most talented and experienced salespeople. In card, both dollars processed and transactions set all-time records, as well as total dollars loaded on prepaid cards. Card results were primarily attributed to strong performance in our payback business line. ACH also had a great quarter with electronic transactions check dollars processed up 182 percent compared to last year. And in our output, solutions revenue was 3.6 million in the quarter, continuing to run well above what we expected headed into this year. Since adopting our multichannel distribution strategy focused on serving diverse end markets, our performance has been steadily improving. This was another quarter where we were able to generate attractive returns by growing the business, all while keeping a tight rein on costs. Our goal to continue to leverage our increasing scale into greater returns. We provide business line reporting, so let me offer some high-level comments by business lines. ACH is on record pace. As expected, volumes were down somewhat sequentially this quarter due to anticipated softer cryptocurrency market. Revenues were nevertheless up 81 percent compared to the same period last year, as electronic transaction volumes was up 86 percent, return check transactions process was up 100 percent, and electronic check dollars process rose 182% compared to last year. ACH continues to be one of our most profitable businesses, and we now expect it to grow over 85% this year. In the first six weeks of this fourth quarter, we have seen the cryptocurrency market again heat up to the levels we experienced in the second quarter. We're hopeful that the current enthusiasm leads ACH to post record results In the past, we've mentioned our expanding relationship with Voyager Digital, a leader in the cryptocurrency market. Earlier this year, we announced a partnership with them to offer UCO merchants the ability to accept crypto as a payment. Like UCO, Voyager is an innovative company. A great example is a recent partnership with Mark Cuban's Dallas Mavericks, which led to tens of thousands of new accounts. all being funded through UCO technology. We have many exciting new partnerships planned with the fast-growing Voyager, and it's not just in ACH, so stay tuned. Our credit card business also had a record quarter. Card transactions process were up 76 percent, while dollars process rose 43 percent compared to the same quarter of last year, with PayFac leading the way. We believe this will be our first $1 billion year in processing volume for our card business. In some ways, prepaid was the star of the quarter, growing revenues by 101 percent compared to the same period last year and setting a new quarterly load volume record at $57 million. Over the last year and nine months, prepaid has engaged with nearly 200 government municipal charitable, and related entities to support programs ranging from cash for trash to Compton Pledge and similar guaranteed income programs to the new COVID incentive programs in major cities such as New York, Houston, and others. In fact, the New York City COVID incentive program has now dispersed over $50 million. a 150% increase from their original $20 million budget. Houston Frost will talk about some of his new programs as well as some innovative new technologies we'll be introducing in just a minute. Finally, Output Solutions had another strong quarter, not unlike our other businesses. It is now clear that Output Solutions will have a record year far exceeding our original expectations. Our bottom line is doing equally well. We generated $1.2 million in adjusted EBITDA and delivered positive adjusted cash flow this quarter. In just the last two quarters, we've generated $2.5 million in adjusted EBITDA and more than $1.6 million in positive cash flow. As we continue to scale, we believe we can drive healthy contribution margins that we can leverage into attractive returns through disciplined expense management. While we're investing in some of this cash to build the businesses, add talented engineers, sales professionals, and strengthen our customer support functions for a large upcoming prepaid card program, which we have yet to announce. We are strategically adding to our cash position so that we remain more sufficiently funded to support our ongoing growth initiatives. These are exciting times at UCL. We're well on our way to record a year where we will almost double in the size of the business while delivering significant bottom line improvement. This is creating a wealth of opportunities in this dynamic fintech payment industry. Of course, as always, I must caution to you that the results are contingent on the continued improvement in the overall economy. a measure of sustainable or renewed excitement in the cryptocurrency marketplace, and the recovery of the consumer lending industry. Those precautions aside, we've turned from facing a stiff headwind to enjoying a brisk tailwind in all of our businesses. Our strategy to provide diverse payment channels like ACH, card processing, prepaid, and other services enables us to capitalize on the industry growth opportunities while effectively mitigating any weaknesses that may arise in any one market. That's been a key to our success. Now we intend to continue to scale our businesses and take advantage of the operating leverage that we've created to strengthen our franchise and build value for our shareholders. Now, since Greg is not able to join us on the call today, I will give you more details on his business unit. Looking at our card segment, it was another record quarter. Total dollars processed for the quarter were up 43%, with transactions processed up 76% compared to the same period last year. This led to a 28% increase in revenues. Growth was especially strong in Prefax, where revenues were up 121% year over year. I'm pleased that our card business was profitable for the second consecutive quarter. With three quarters of the year in the books, we believe that for the first time ever, annual card transaction volume will exceed $1 billion and will increase approximately 45% over 2020. Furthermore, October was our best month ever in terms of transaction volumes processed. and we expect that acceleration to carry forward. Success continues to be driven by our winning formula, our three growth engine strategy. We're adding new ISVs. Those ISVs are growing organically and are continuing to further penetrate their merchant base. And as those merchants are growing year over year, now more so than ever, as inflation drives up almost all dollar transactions. On the new account side, we continue to add new ISVs and related merchants. An example is Booster Hub and ISV catering to school booster clubs. What makes Booster Hub such an attractive addition to our portfolio is the greenfield opportunity where we are their integrated electronic payments partner. So every school that implements Booster Hub will automatically be processing their payments with us. This is a perfect example of our leveraged distribution, one-to-many sales model. Our one sale to Booster Hub could effectively result in sales to thousands of schools around the country. Driving more ISV relationships is still one of our top priorities, and we've made some significant progress in creating opportunities. one that has continued to strengthen our professional business development team. Marketing is continuing to improve effectiveness through search engine optimization, inbound lead generation, outbound productivity, and lead nurturing. For instance, our SEO and brand awareness is showing a dramatic improvement. So far this year, visits to our website are up 135%. with page views increasing 61% over the same period last year. Our payment facilitation page is the most visited page on our website, providing further validation that what we provide is desired by the ISV community to solve the pain points related to payments that they are experiencing. So our brand and the product level visibility has greatly improved in just the last year, let alone compared to several years ago. We are also achieving success in penetrating the merchant base of existing ISVs, what we have come to term conversion rates. This has increased 57 percent, a substantial improvement from a year ago, more than a double, in fact. As an example, a large healthcare organization that originally signed with us years ago had long been dormant due to their internal priorities. Over the last several months, due to our conversion initiative, we have seen them board as much as 75 new merchants each month. Another example is AppClose, a relationship we announced earlier this year. Activity was very slow after the initial implementation. AppClose has been a focus of our efforts that we've been telling you about to encourage merchant engagement and adoption. Well, in the last four weeks, they've boarded a significant number of new legal offices that are actually processing to the point where it's becoming viral. Finally, with the economy growing again, we expect merchant volumes to naturally increase. Furthermore, if their pricing just keeps up with inflation, there's a good chance that We will naturally drive inherent 3% to 5% increase in dollars processed across the entire portfolio with the associated increase in revenues. One of the most attractive aspects of our businesses is its reoccurring nature. Once a merchant processes, and if you serve them well, the attrition is essentially nonexistent. That is why we're also strengthening our customer support capabilities. We're consolidating what had been separate customer support organizations for our various business lines into one unified support service. The end result is more robust, more effective, and more efficient back office. This is another illustration of our continued maturation of UCO and how we're ensuring to meet our own service delivery commitments. Finally, we remain encouraged by the progress we've been achieving with our new electronic bill payment solution we've developed in conjunction with UCO Output Solutions. The sales professionals we recently hired to target enterprise-level opportunities are uncovering strong interests and have already signed several agreements we expect to bear fruit in the near future. UCO has been a leader in the space since the emergence of payment facilitation as a service model. Having introduced the PayFax in a box back in 2015, since then we have tested and galvanized the platform, fully commercialized it, and launched it a little over two and a half years ago, long before anybody else. In fact, many competitors have discovered it's just too difficult to convince ISVs to become registered PayFax. So they are now offering what analysts like Credit Suisse call PayFact Lite or managed PayFact versions. Again, this was our strategy from day one, to provide integrated turnkey PayFact platform for ISVs seeking to modify payments flowing through their software applications without any of the upfront costs and the risks associated with becoming their own payment facilitator. Compared to the market as a whole, we've had a head start on the learnings, key findings, and best practices. Our implementation experience has taught us what breeds success and what yields success. We've made the mistakes, and we have learned from those mistakes. The competition just does not have the experience or the knowledge we do. And while there are many that are intimidating, imitating what we have built and brought to the market, we have always been innovators blazing the trail. With our recent introduction of cryptocurrency as a form of being the latest example of that pioneering spirit. Like our business as a whole, we recognize the ongoing risk that COVID represents. So it's been another quarter of steady progress as we stick to our game plan and we continue to implement our strategy. Our car business is firing on all cylinders and gaining scale that will facilitate even greater innovation and improved leverage. The hard work invested over the few past years is now bearing fruit and is our intention to build on that success and achieve even greater accomplishments. With that, I'd like to conclude my opening remarks and turn the call over to Houston Frost, Senior Vice President of Prepaid Services.

Thank you, Louis, and thanks, everyone, for participating in our call this morning. The prepaid business had another great quarter, with revenue up 101 percent compared to the same period last year, accelerating from 82 percent in the second quarter and 61 percent in the first quarter. In the third quarter, card purchase volumes were up 18 percent, and card transactions up a very strong 115 percent versus last year. In the third quarter, total dollars loaded on prepaid cards exceeded 57 million, a new quarterly record. And October was also another very strong month. As you've heard before from me and from Louis this morning, we've become the leader in supporting the various funds disbursement needs of numerous governmental, municipal, social, charitable, and related entities. Since the start of the pandemic, we have been the prepaid program manager on approximately 200 programs, which is a nice increase from the 150-plus programs we reported to you last quarter. In contrast to last year's heavy concentration of pandemic relief programs, these same cities, municipalities, and other nonprofit and governmental entities are now turning to us for a host of other needs. including a number of high-profile COVID incentive and guaranteed income programs for the largest cities in the country, including the city of New York, Houston, and many others. The strong relationships forged with these organizations during the early stages of the pandemic has opened up a myriad new opportunities supporting the many other funds disbursement needs they manage. And these tend to be longer-duration programs that can grow over time. For example, the New York COVID incentive program, which initially started out as $20 million, has already surpassed $50 million. This is one of the reasons we had record card loads in the third quarter and a strong October. One of the main reasons these organizations keep coming back to us for additional programs is because they really appreciate the flexibility, convenience, and efficiency of our virtual cards. For that reason, we are developing new product enhancements to create an industry-leading consumer choice platform. Leveraging UCO's broad product portfolio from ACH to physical and virtual card and even physical check, we want to capitalize on all of our rails to offer our users the ability to choose a payment channel that best suits their needs. This is just the latest example of our emphasis on leveraging our proprietary technology and combined services to stay ahead of the competition. We also want to build a presence in other markets and have recently added new business development staff to capitalize on the unique prepaid solution we can bring to the for-profit and other markets. there are already some interesting opportunities in the pipeline that would help us establish a broader foundation in these markets. Beginning in the spring of this year, we began recognizing inactivity fees and breakage on cards issued and loaded last year. And as our portfolio grows, we expect to see a steady stream of older programs essentially maturing quarter after quarter with these fees and revenue following suit. Prepaid is on a record pace through the first nine months of 2021. In contrast to the generally short duration of our 2020 pandemic relief programs, and again, as illustrated by the growth of the New York City COVID incentive program, many of our newer programs have the potential to be bigger and last longer. More importantly, there's been a dramatic increase in our opportunities with many of our existing relationships. And we are also investing in growth outside this core market and in new solutions. For example, the consumer choice platform I mentioned earlier. The market opportunity is vast and dynamic, which is the perfect environment for a nimble, innovative organization such as UCO to Flourish. With that, I'd like to conclude my remarks and turn the call over to Tom Jewell, our Senior Vice President and Chief Financial Officer, to discuss financial results in greater detail.

Tom? Thanks, Houston, and welcome, everyone. Thanks again for joining our call today and your interest in UCO. I'm going to conclude today's prepared remarks with a brief review of our third quarter financial results before opening the call to questions. In summary, revenues for the quarter ended September 30th, 2021 were $15.8 million, an increase of 94% compared to the same period last year. On an organic basis, Revenues increased 51%. Again, prepaid was our fastest-growing business in the quarter, with revenues up 101% from the same quarter last year, driven by a 115% increase in transaction volume. We also generated rapid growth in ACH and complementary services, which was up 81%, as electronic check transaction volume was up 86%. Returned check transactions process doubled. and electronic check dollars process rose 182%, all compared to last year. Revenues in our credit card line were up 28%, with card transactions processed in the quarter up 76% from a year ago, while dollars processed rose 43%. Growth was especially strong in PayFact, where revenues were up 121% year over year. And the December 2020 acquisition of Output Solutions contributed $3.6 million to revenues in the quarter. Gross profits in the quarter were up 134 percent to $4 million, with growth margins expanding 430 basis points to 25.5 percent from 21.2 percent in the same period a year ago. Gross margins are benefiting from our growth, which better leverages our direct fixed costs as well as a more favorable mix of our more profitable businesses, especially ACH, which is our most profitable business segment. For the quarter, total other selling and general administrative expenses were 2.8 million, essentially flat with the second quarter of this year, and up 44 percent from the year-ago quarter, reflecting the incremental output solutions overhead and our continued investment in prepaid and payback growth initiatives. Other SG&A expenses should be at a moderately higher level in the fourth quarter, reflecting continued investment in the business to support our growth and maintain our high service levels. The year-over-year increase in depreciation and amortization in the quarter reflects the amortization of the customer list acquired in the purchase of output solutions. In the third quarter, we had positive operating income for the second consecutive quarter with operating income increasing $1.1 million from the same quarter a year ago. Again, this was our fourth consecutive quarter of positive adjusted EBITDA, which was $1.2 million in the quarter, a $1.4 million improvement over the third quarter of 2020. We also recorded positive adjusted operating cash flow in the quarter and now have generated $2 million of positive adjusted operating cash flow over the first nine months of 2021. Adjusted operating cash flow excludes non-operational changes in merchant reserve funds, prepaid card load assets, customer deposits, and net operating lease assets and liabilities. For the quarter, we reported gap net income of $141,000 or one cents per share compared to a net loss of $900,000 or a negative six cents per share in the third quarter of last year. The company remains in strong financial position. Cash and cash equivalents as of September 30th, 2021 totaled 5.9 million, up $900,000 over the first nine months of the year. Providing a quick snapshot of year-to-date results, Revenues were $44.5 million, up 95% from $21.6 million from the same period last year. All lines of business were up double digits on top of incremental revenues from output solutions of $10.9 million. Organic growth for the period was 47%. Gross profits were $11.1 million, up 127% from $4.9 million in the prior year period. Gross margins for the first nine months of 2021 were 24.9 percent versus 21.6 in the prior period and above our original estimates that margins would be in the low 20s range this year. Adjusted EBITDA for the first nine months of 2021 was 2.7 million versus the prior year loss of 1 million and improvement of 3.7 million. On the bottom line, the net loss for the first nine months of the year was $360,000 compared to a prior year loss of $3.1 million and improvement of $2.7 million. We've had three strong quarters resulting in a record year-to-date results. Revenues are almost double those of a year ago, and profitability has significantly improved. This should provide the liquidity and financial strength to support ongoing investment in our growth initiatives, to fund operations, and to undertake selective accretive acquisitions consistent with our growth strategy. It's been a great first nine months of the year. That concludes our prepared remarks for today. We would now like to open up the call for any questions.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble a roster. Our first question comes from Gary Cristopino with Barrington Research. Please go ahead.

Good morning, everyone. Several questions here and jumping around a little bit. Louis, you said you were going to be adding to your sales force. Did I get that right in, you know, very early in your opening remarks? And if you are, how many are you adding and what segments are you going to add them?

So we've added four sales people this quarter and they're all industry experienced people and we're going to be announcing some in the near future to give you some more clarity on where they came from but they're they're all three out of the four will be focused on, uh, payback and, and one will be focused more on, uh, prepaid and kind of emerging markets.

Okay. All right.

So, so going forward that as these people start getting ramped up, that's definitely going to be impacting the, uh, the actually what you call other expenses, correct? Because you're adding, you know, four people there. Is that a correct assumption?

Well, it would be SG&A, but if they do their job, it's going to be hopefully impacting top line and bottom line, right?

Sure. No, I'm just trying to get an idea of the magnitude of that. In terms of the credit card revenue, What percentage of that is now generated by PayFax?

Yeah, we haven't released that number, Gary. I can tell you that we don't add any traditional credit card processing. We haven't in years. So almost all the new revenue generated for credit cards is PayFax related.

Okay. And then lastly, and I'll let somebody else get in, given what you're doing for Voyager, are you working on other relationships with crypto exchanges? Yes, but we haven't announced any. Okay, so nothing has really been signed as of yet. You're just working on them, right?

We haven't announced any, yeah.

Okay, thanks.

Our next question comes from Barry Fine with Spartan Capital Securities. Please go ahead.

Hey, good morning and congratulations on the quarter. During this quarter's earnings season, I was very surprised MasterCard called you guys out by name on a project that they're working on. And so I know normally you wouldn't comment, but now that they've you know, mentioned you by name. Can you give us any background or color? And obviously MasterCard, you know, knows this industry pretty well. So that's a pretty important endorsement for them to, A, select you and then publicly disclose it.

Yeah, you know, I don't want to give too much detail on that yet because they didn't give too much detail. But they've definitely reached out to us and we're going to have – for engagement and MasterCard chose us because of our partnership with them. And that is, is that FinCity? Finicity. So Finicity saw what they liked in us and they're gonna be leveraging payments through us or leveraging,

Yeah, the announcement that MasterCard made is related to our, you know, integration with Finicity, which is one of their new products. So it's a product they're quite excited about. And, you know, I mean, in general, I'd say our partnership with MasterCard continues to strengthen. I mean, a lot of the visibility that the card issuing, the prepaid card issuing line of business has seen has been related to our very strong partnership with MasterCard. And it's now across several MasterCard initiatives. You're going to continue to hear, I think, similar announcements related to our strong partnership with MasterCard. We also announced the Citi Possible partnership, I think, a couple of quarters ago. You know, we really appreciate that relationship, and we appreciate them mentioning us related to the finicity integration.

So just to follow up on that, you know, sitting here as an analyst with an Excel spreadsheet in front of me, how should I think about, you know, revenue and then timing from that business? I mean, MasterCard is obviously very large, and this is an important initiative for them. You know, any help you can give us, I'm assuming... at least at some point next year, one of your earnings calls, you're going to call that out as a driver of revenue growth.

Well, Barry, let me be clear. I'm not 100% sure on exactly what you're talking about, but they did mention us in terms of integrating their Finicity product. That's not technically going to be a driver of revenue for us, but you're going to hear about other partnerships, hopefully in the near term or medium term, that will be revenue drivers for us. So it's really hard for me to give you any guidance on that. The very specific mention you're talking about isn't really a revenue driver per se. It's a product enhancement that it's going to drive. But there are several – I mean, we are on – we speak with MasterCard multiple times a week. And so it is a very strong relationship, and, you know, we continue to be grateful for their support and their enthusiasm about our platform. And I don't really have any sort of guidance I can give you related to, you know, any MasterCard comments at this time, other than just saying it's a very strong and healthy partnership between the two organizations.

Okay. I think I've asked that pretty thoroughly. Thank you very much, Jonathan. Thanks, Mary.

Our next question comes from John Hickman with Lattenberg. Please go ahead.

Hey, I was wondering, or Tom, if you would elaborate a little bit on the gross margin dynamics here. You have ACH, which is picking up, and that's your highest margin business. But then it seems like prepaid's really taken off. which maybe is a little lower margin business, but now you're starting to get some maybe breakage there. So what do you expect going into next year for gross margin line?

I mean, you know, we're very fortunate with, you know, continued growth in ACH. You know, we've been hoovering around kind of the, you know, pretty consistent, you know, 25%. You know, I think we'll, you know, we'll kind of be in that area and just, you know, as the mix adjusts, it'll, you know, go up a little and, you know, potentially, you know, we could have, you know, a couple quarters where it might drop just a little bit, but I think I think we're in that range right now that, you know, that should continue. Okay. Thanks.

Thanks, John.

Again, if you'd like to ask a question, please press star then one. Our next question comes from Michael Diana with Maxim Group. Please go ahead.

Okay. Thank you. I have two questions for Houston on prepaids. One, Lewis said you have more than 200 municipal and government programs. I mean, that's a big number. Can you give us some granularity on that, how some of it might break down into different categories or different types of programs? And then secondly, could you just remind us, I mean, you booked... I think it was 57 or loads, you had 57 million of loads this quarter. What's sort of the lag between the time that shows up in the income statement in fees and possibly breakage?

Yeah, great questions, Michael. So the first part of your question, just to clarify, or using that 200 figure, we're really talking about municipalities, counties, some state agencies, and nonprofits as well. So we're lumping really all those together. And the general theme of what those organizations are using us for are direct cash assistance programs. And they really kind of, you know, span the gamut of all, you know, types of cash assistance. So, you know, a lot of this obviously got started with the pandemic, but the biggest growth area we're seeing now is totally unrelated to that, which are, you know, guaranteed income programs and similar programs of that nature. A lot of these are pilot size and scale today, but they're still big dollars. And they're also, you know, recurring dollars. So, you know, a family that gets on one of these programs will be on for two, three, even more years. So, you know, I guess the general theme is direct cash assistance. And then when you kind of dive into more of the details of those, it can be, you know, for a number of reasons, right? And you would even consider in some ways, you know, the COVID incentives that's kind of direct cash assistance in a sense as well. But, you know, some of these are very specific. So we have, you know, one organization that is supporting single mothers that are enrolled in community college or, you know, state college, and they're actually running studies to see if it improves graduation rates. So there's a lot of kind of R&D being done, and it started at the nonprofit side of it, and we really had the pioneer nonprofit, the Fund for Guaranteed Income, come to us. And so there's been a lot of word and mouth through that relationship and the Compton Pledge, but now the cities are moving into it, and they're running pilot programs. So, you know, that's what that 200 – organizations are doing. It's not, you know, all for one reason, like a COVID incentive or anything like that, but it's generally cash assistance going directly to an individual. And we're seeing that these programs are becoming, you know, more and more popular for nonprofits and cities to sponsor and run. And, you know, we hope that And we really expect, you know, a lot of the data that's being collected right now on these guaranteed income programs are going to show that they're quite effective. So we think it's going to continue to grow. I think it's a great space for us to be building our name in. And, I mean, you know, I can give you countless examples of those types of programs.

Well, could I just ask you one follow-up on that? Is anything that's been passed in Washington already or that might be passed? Could that increase these programs?

You know, it would be a trickle-down type effect, meaning, you know, the federal dollars going to states, state dollars going to cities, and then it going into these types of programs. Because what you're really seeing, at least at this time, is they're very local in the sense that it's a city wanting to support a very specific community within the city. So they're not being run by states or the federal government. So the answer is yes, but it's when dollars get trickled all the way down kind of through the governmental hierarchy, if you will. So it's not really a clear answer there. But right now, these programs are really kind of focused at the nonprofit and city, maybe county level. And they may expand, and we'll see where that goes, but I think there's a lot that's going to be done more at the local level for the time being.

Yeah.

Well, even a trickle from the sort of numbers they're talking about could be big.

Yeah, absolutely.

And about the lag between when the cards get loaded and

Yeah, it's generally, you know, 13 to 15 months is when you start seeing that type of revenue come in. So, you know, when you look at our Q3 of 2020 was our best quarter in load volumes last year. And it was our best quarter ever until this quarter. And so that's why the comp is kind of difficult. We still saw an increase of 2%. But, you know... A lot of the revenue growth was driven by last year's volume. And I'm not saying the majority, because we did have a lot of card orders come from the city of Houston and New York, et cetera. But point being is that that income, that fee income, if you will, was generated by Q3 of last year. So it's 13 to 15 months is when you really start seeing those dollars kick in.

Okay, great. Thank you very much.

Michael, before you get off, low dollars are important because, you know, we do generate a lot of money from spend, right? So having money on the cards gets spent. A lot of it gets spent. But a lot of it gets put away for what Houston was describing for, you know, 13 to 15 months later. So, you know, getting money on the cards is kind of step one. And And it was very exciting seeing all that money go on the cards and knowing that we're putting some away for next year. And, you know, we already experienced that this quarter from last year. And, and you know, so you want to see those low dollars be as much as possible.

Yeah. And this was our biggest or Q3 was our biggest quarter on spend dollars. And that, that does generate a significant revenue for us. So, you know, it's, it's, Less than 50% of revenue from card activity is going to happen, you know, 13 to 15 months out, but I would say more than maybe 30 to 40% happens. So, you're still getting, you know, a good amount of revenue from the activity that occurs today.

Yeah. Okay. Great. Thanks, Houston. Thanks, Louis.

Thanks, Michael.

Our next question is a follow-up from Gary Prestapino with Banking Research. Please go ahead.

Yeah, just, Houston, in terms of when you're talking about breakage, does that mean that the cards have expired and you're taking whatever level of funds are still on that card into your revenue?

That's accurate, and it's really up to the client whether they want that type of firm. And so, you know, there's breakage and then there's, you know, kind of inactivity fees. And, you know, generally, you know, with breakage, we are sharing, you know, a sizable portion of that with, you know, with the client. So, you know, it's not necessarily 100% gross margin or anything of that nature there. But depending, you know, if it's a breakage card or an expiring card, all the funds are debited from that account, you know, the first day of the month after it expires.

Okay, so that's what I was getting at. It is an actual event once the card expires. You're not estimating any – you're not doing any kind of estimate of what breakage could be in booking that.

No, we're never doing that. We're only booking it as we take it. Okay, thank you.

Thank you. That's what I wanted to find out. Thanks.

This concludes our question and answer session as well as our conference for today. Thank you for attending our presentation. You may now disconnect.