Usio, Inc.

Hello, and welcome to the UCO Third Quarter 2023 Earnings Conference Call. All participants will be in the Sun 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 the star, then one, on your touch-tone phone. To withdraw your question, please press the star, then two. Please note, today's event is being recorded. Now I turn the conference over to your host today, Paul Manley. Please go ahead, sir.

Thank you, Operator, and thank you, everyone, for joining our call today. Welcome to UCO's third 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 and Acceptance, and Houston Frost, Senior Vice President of Card Issuing. 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. So let me start off with some highlights from this afternoon's release. I am pleased to report another quarter of strong growth with revenue up 25%, our 13th consecutive quarter of revenue growth. We also are reiterating our guidance of 18% to 20% revenue growth for the year. In our release, we announced a number of exciting developments across our entire organizations. This includes an investment in output solutions that should increase capacity by 50%, our largest ever quarter of prepaid card load volumes, our strongest ever card pipeline, and the expectation that ACH volumes will start to grow again in the fourth quarter. In addition, we continue to be in excellent financial condition with strong cash flow this quarter, in part supported by record interest income, which we expect will add over $1 million to our cash position over the second half of this year. In total, this has enabled us to add nearly $2 million of cash to our balance sheet over the first nine months of the year. So at a time when many companies are forecasting slowdowns in their business, UCO continues to charge ahead. Now I will turn the call over to Louis.

Thank you, Paul, and welcome, everyone. It was another quarter of strong growth. Consequently, I am pleased to reiterate our guidance for revenue to be between 18 and 20% for the 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 a strong performance at prepaid, where revenues were up 197%. As a sign of prepaid's growing momentum, the third quarter was the first quarter in the company's history in which the volume loaded onto prepaid cards exceeded $100 million. Fourth quarter, prepaid continued to have solid growth, not just in load volumes, but in transactions process and purchase dollars process. While residual revenues from expiring card programs were certainly a contributor to our strong revenue growth, load volumes, transactions, and purchase dollars process were all generated from ongoing programs. Consequently, these record amounts provide a clear indication of the strength of our prepaid business beyond any reliance on expired cards. Houston will discuss new accounts and the strong growth with the long-term corporate expense and disbursement clients. But let me quickly touch on one of his most significant accomplishments. As recently announced, We want our first state-administered program. This is totally new, a very large market opportunity for us. So we believe prepaid is building a solid foundation of reoccurring revenue programs as a solid base on which we can grow, evidenced by the increasing load dollars. Loaded dollars on the cards is a leading indicator of future revenues, creating either revenue from spend or revenue from spoilage. Both revenue and margins were up again at Output Solutions this quarter as Cy Green and his team continue to utilize every ounce of available capacity. For that reason, we're investing approximately $1 million in new technology at Output Solutions that should increase our capacity by 50 percent. At the same time, This should also increase the speed of production and reduce costs. This new system will increase our flexibility, including the ability to handle mail run data files, which is a key requirement for large projects where we were previously less competitive. Last quarter, we noted that we had hired a seasoned print and mail sales executive. So combining his contacts throughout the industry, with the expanded capacity will make us a formidable competitor for larger, more lucrative programs. Ultimately, this should lead to what we believe will be both a better top and bottom line. We continue to expand our relationship with LA County, handling their check disbursements needs for fees and fines that were overpaid. We mailed 142,000 letters and 27,000 checks for LA County in the third quarter. We also took on additional cities in the quarter, handling their utility bill printing. For the quarter in total, we sent out a record 900,000 checks. Developments and output continue to be representative of the transformation and the integration taking place across UCO. Output recently launched with a toll road customer for disbursement of bill-by-plate toll bills. The bills have a QR code that the recipient scans, which takes them to a payment portal built and operated by UCO. There is strong interest among government agencies and utilities in these scan-to-pay options. Not only is it easier to set up than creating a more traditional customer portal, it also seems to drive payments early. We also continue to attract new accounts, which are completely electronic with no print or mail service. Such accounts involve the creation of e-bills that are emailed to customers and then directed to a UCO managed payment portal. This is obviously higher margin business. Turning the card, payback continues to generate strong growth, 27% for the quarter. As Greg will discuss, it's been a busy quarter of increasing penetration with existing ISVs, implementing new ISVs, and building a strong pipeline, including three significant new opportunities, which we are aggressively targeting. In the ACH, total revenues were up on the strength of associated services, such as pinless debit and account inquiry. We expect this to be the last quarter of which volumes are below year-ago levels, as this is the last year-ago quarter that included meaningful Voyager volumes. This, in turn, should help us improve overall segments revenue growth and profitability. Margins were up in the quarter due to this highly profitable ACH revenue growth, as well as due to spoilage revenues from our prepaid segments. Our business will always include some spoilage from expiring cards. In the immediate term, the majority has been generated on the New York City COVID incentive program, which will be winding down further in upcoming quarters. In the third quarter, we did see an increase in our selling, general, and administrative expenses. Many were one time in nature. We expect these expenses to trend down in the fourth quarter, but probably not to the levels we experienced in the first and second quarter of the year. Having grown revenues 25 percent over the first three quarters of the year, costs are understandably up to support this rapid expansion. Our goal is to keep the rate of overhead expense growth below that of revenues in order to realize the significant operating leverage our business model can deliver. And we expect to see that improve as we move forward. The net result is an increase in operating income, adjusted EBITDA EPS from a year ago, although each was down sequentially from the second quarter, which we called out on our last quarter conference call. Cash was a good story as we generated nearly $750,000 of cash over the last three months. Some of that was the product of over $500,000 in interest income in the third quarter. we anticipate another significant increase in interest income in the fourth quarter. In summary, prepaid is positioned for the future with its high loans on cards. The card is sitting on some of the potentially largest new ISBs in our history. ACH is rebounding, and we are increasing our capacity at output by 50 percent due to strong demand. Another solid quarter with strong top-line growth, internal investments to sustain that growth and improve operating leverage over time. Consequently, as Paul noted, we are reiterating our guidance for the year. And now I'd like to turn over the call to Houston Frost.