Usio, Inc.

Good afternoon, everyone, and welcome to the UCO Earnings Conference Call for the second quarter of fiscal 2023. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch-tone phone. To withdraw your question, please press star, then two. All participants on this call are advised that the audio of the conference call is being broadcast live over the internet and is also being recorded for playback purposes. A replay will be available shortly after the call through August 28th, 2023. I would now like to turn the conference over to Paul Manley, Senior Vice President, Investor Relations. Please go ahead.

Thank you, and thank you everyone for joining our call today. Welcome to UCO's second quarter fiscal 2023 conference call. The earnings release, which we issued today after the market closed, is available on our website at uco.com under the investor relations tab. On this call today are Louis Hoke, our chairman and CEO, Tom Jewell, senior vice president and chief financial officer, Greg Carter, executive vice president of payment acceptance, and Houston Frost, senior vice president of prepaid services. Let me remind our listeners that certain statements made during the call today constitute forward-looking statements made pursuant to the safe harbor provisions of the Private Securities and Litigation Act of 1995 as amended. Such forward-looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ maturely from such statements. These risks and uncertainties are described in our earnings press release and in our filings with the SEC. The forward-looking statements made today are as of the date of this call, and we do not undertake any obligation to update these forward-looking statements. During today's call, we will refer to non-GAAP financial measures such as adjusted EBITDA. Our earnings release includes a reconciliation of adjusted EBITDA to GAAP operating income. Management will provide prepared remarks, then we'll have a question-and-answer session. But let me start with some highlights from this afternoon's release. I am pleased to report another quarter of record results with second quarter revenue up 31%, accelerating significantly from the 18% growth rate reported in the first quarter and our 12th consecutive quarter of revenue growth. And for the third consecutive quarter, we reported over 1 million of positive adjusted EBITDA, which was once again up dramatically from the year-ago quarter. These results solidly exceeded expectations from the analysts and have us well on our way to meeting our fiscal 2023 financial guidance. In addition, we continue to be in excellent financial condition with cash up again this quarter, which we believe is more than sufficient to support our growth objectives for the year. So another record quarter along with strong bottom line results and positive cash flow. What you will further hear on this call from our team are the many opportunities in our pipeline that illustrate how our strategy is working and why we are extremely excited about the future here at UCO. Lastly, I'd like to announce that UCO has initiated a comprehensive ESG process with the goal to issue our inaugural ESG report sometime early next year, reporting on the progress that we will be making in this important area. Now, I will turn the call over to Louis.

Thank you, Paul, and welcome, everyone. I want to begin by reiterating Paul's key points, that not only was this a record quarter in terms of current financial performance, but it was also another quarter of significant progress in expanding our franchise and planting the seeds for even a better future performance. For those reasons, we today are reiterating guidance for revenue growth in the 18 to 20% range this year. Results, once again, reflect our diversified business strategy. diversified in the markets we serve and the payment channels that we offer. This quarter, results were led by performance at prepaid, where revenues were up 276% and output solutions, which had another 20% growth quarter. Prepaid continues to benefit from growth of the underlying business aided by a growing stream of residual revenues from expiring card programs. As Houston will discuss, we are bringing on numerous new accounts with both diverse needs and diverse in markets as our reputation and technology within these markets continue to grow. While in this era of high tech, we are very proud of our advanced technology not only at prepaid, but across UCO. We are equally, if not prouder, of our high touch customer service strategy. In all of our businesses, paying attention to the customer is a corporate imperative. Output had another great quarter with revenue up 20% and bottom line profitability significantly improving. Keep in mind that unlike the first quarter where we had some unique programs such as printing tax documents, the second quarter did not have similar programs, putting that 20% year-over-year growth in better perspective. The output growth strategy is also customer relationship focused. For instance, a new relationship with FundView, a cloud ERP system that is provided to local governments resulted in the addition of 30 new cities as customers over the past year and seven in just the last quarter. The relationship we've built with LA County has resulted in the expansion of that relationship. And we are now handling their check disbursement needs for fees and fines over payments. Where we recently mailed 9,000 checks in one day. And because of our strong relationship in these industries, we added another three energy providers and three electric utilities in the quarter. We will continue to invest in output as we believe there is potential to grow the business. Consequently, we hired a 30-year seasoned print and mail sales executive to complement our existing sales efforts. Let me add a few more developments at output. that are representative of the transformation and integration transpiring across the organization. Output recently signed a toll road customer for disbursement of toll bills. The bills have a QR code that the recipient scans, which takes them to a payment portal built and operated by UCO. And there's more automation coming. For instance, Our last two new accounts are completely electronic with no printer mail service. We will create e-bills that are emailed to customers who, like the Toll Road business, are directed to a UCO-managed payment portal. This should push the proportion of the output's revenues from electronic payments to approximately 40% and climbing. This is much more profitable work, and as a result, expanding outputs gross margins. The story is the same for CARD, where we're focusing on building relationships that has enabled us to continue to add new ISVs. I would point specifically to an ISV with strong government ties, where penetrating many of their accounts, such as toll roads, including the Massachusetts Department of Transportation, Florida Turnpike, Delaware Tolls, and other government organizations such as the City of Miami for Fees and Fines. Why do ISVs keep on giving us more business? Because of our long tenure in the business, pioneering pay fact technology, and our great customer service. And in ACH, we had a growth quarter despite ongoing tough comparables on the large year-ago Voyager volumes. While we will face another tough quarter of comparables in the third quarter when Voyager was still running off, we expect to see performance in the ACH starting in the fourth quarter when there was virtually no Voyager volume to speak of. Our strong growth is also leading to better margins as we leverage our fixed direct costs. In addition, overhead for the second quarter was virtually unchanged from a year ago as we kept a tight lid on costs and continued to focus on improving efficiency and productivity. So far this year, revenues are up 24% on the top line with only about 1% added overhead, which includes the absorption of significant inflationary pressures. The result is another quarter of more than $1 million in adjusted EBITDA, which is now up $3 million compared to the adjusted EBITDA generated over the first half of fiscal 2022. In addition, we delivered positive GAAP net income and earnings per share for second consecutive quarter, which has been an important objective. Consequently, as previously noted, We are reiterating our guidance for the year, although we believe that the second half will be comprised of somewhat slower third quarter, followed by a stronger fourth quarter. As a result, the first half of the year is the best in the company's history, and we expect this to be a record year. Our pipeline is extremely strong, and many of our existing relationships are with fast-growing organizations with whom we are growing. We're in great financial condition, and we can't wait to get back to work every day. And now I'd like to turn the call over to Houston Frost.