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.