Usio, Inc.

Good day and welcome to the iAccess Alpha's Tax Loss Recovery Summit 2024. The next presenting company is USIO, Incorporated. If you would like to ask a question during this webcast, you may do so at any point during the presentation by clicking on the Ask Question button on the left side of your screen. Type your question into the box and hit the Send button to submit your question. I'd now like to turn the floor over to today's host, Lewis Hock of USIO. Lewis, over to you.

Thank you. This is Lewis Hock. I'm the CEO of UCO. We're trading on NASDAQ. UCO is a FinTech payment processor and we process payments for some of the largest companies in the United States. What makes us different is we are diverse in the payment channels that we offer and diverse in the industries that we serve. This diversity strategy is important and is designed to shield us from macro events like COVID where our strategy allowed us to grow year over year revenue when a lot of our competitors did not. We believe that consumers should be able to choose how they wanna get paid and how they wanna pay you as a merchant. So because of that, we have all payment channels and they don't have to choose, we won't miss out on a payment if we don't have a certain channel. Our industries that we serve are very diverse and you'll hear a lot about them today and it's government sectors, financial sectors, mortgage, short-term loan industry, you name it, we'll talk about it today. But the key is the diversity and helps us shield

us from macro events. The company's been around

for a long time. Initially, the first five years of our company, we were the industry leader of electronic bill presentment and payment. We ended up exiting that business in 2003 and sold our customer base and technology and refocused to be with the mission of being a leader in ACH processing. And today we've accomplished that goal. We're always in the top three largest ACH processors in the United States based upon the volume that we pump through the Federal Reserve in a year. But really what matters is the last six years when we changed our strategy to be a high growth company. And we've done a really great job at growing the company

during

that timeframe

and executing on that strategy. So

being

a FinTech payment processor

means

that our technology wins us a lot of business. And this slide feels a little bit dated today, especially since we're in 2024 and we haven't announced our Q4 numbers and end of year numbers, but we should be able to do that very timely this year. And so last year, 2022 over 2021, we had 12% revenue growth. We're gonna far exceed that this year just based upon our public guidance, which we should be right on those numbers. In 2022, we did 69.4, our public guidance for this last year, 2023, was 18 to 20% top line growth. And that number is still valid. We only have one type of shareholder, we're all common shareholders. A large amount of the shareholders are

insiders. There's two operational metrics

that we track, transactions process and dollars process. Both are important. Some of our business lines we earn a click fee for each transaction we process. Some of our business lines we earn a percentage of the dollars that go through our platform. Ideally, you wanna see both of them increase, but they don't have to. So in 2022, our dollars process decreased, but we still grew revenue 12%. And that was because transactions were up. The decline in dollars process had to do with us exiting the crypto market, which were typically high ticket transactions.

Again, we've done a great job growing top line revenue.

And then this year that was just concluded was no exception to that.

We'll

hit within

our guidance of 18 to 20%. So

we have four business lines. We're

gonna talk about each one of them today. Payment facilitation, ACH processing,

card issuing and output solutions. Our offerings are across each of the four

are very unique. Our payment, everyone's payment channels we own our own technology. And technology wins us business a lot because it's highly flexible, highly adaptable, very scalable. But we also focus on customer service. And it seems to be a very important competitive advantage in our space. We have people that pick up the phone and we actually have teams of people building that are relationship managers with our customers. We also have very unique go to market strategy. Most of our business lines we only sell to integrated software vendors. So those are companies that are right software or industry vertical. And by working with them or partnering with them, we get access to all their downstream merchants. And we're gonna talk a little bit more about that but that go to market strategy is very leveraged. It brings in new accounts for us daily without us having any

touch points with those new prospects. So payment facilitation is a high growth engine for our company.

And it is card processing. It's credit and debit card processing. But what makes it unique is this very unique technology associated with it that allows us to onboard merchants in real time. So a merchant can click a button on the website and we're able to have them processing payments within eight seconds as long as all their data matches up and we'll put in our background checks. And payment facilitation, we only sell to customers and we sell to integrated software vendors. So again, those are companies that write software for a specific industry vertical. One of our customers that's easy to understand is a company called Practice Suite. And they write software, practice management software for doctors offices all over United States and they have 20,000 plus doctors offices that run their software. They've chosen to integrate into our tech stack because it makes them look like a payment processor. So it enhances their relationship with their doctors. Their doctors only have one place to call and that's Practice Suite. We also share revenue with Practice Suite so we become a new source of income for them, a substantial new source of income. And because of that, it makes a very long-term relationship. So Practice Suite, when we sell a new ISV, like Practice Suite and they integrate, every time they add new customers, they go on our platform. And so every day we wake up to new accounts being loaded by Practice Suite and by other ISVs. We have very unique, well not unique, we have very diverse set of industry verticals that we support in payment facilitation from government sectors to a lot in healthcare, insurance and

mortgages and many others.

ACH

processing is direct debits and credits off your checking or savings account. It's the cheapest form of payment processing available to a merchant. In this segment, we have substantial volume. We're always a leader in this space. We have so much volume and because we're certified with the regulator. We actually have direct access to the Federal Reserve, which gives us the competitive advantage because we can process payments in all Fed windows, four Fed windows across the United States and gives us a unique offering. Our tech stack for ACH is very strong. We've been doing ACH for a long time. And again, we have such amount of volume that we pretty much have everybody's checking and savings account in the United States. So we can use that data to feed back to our merchants before they accept a transaction. So using me for example, if a merchant sees my checking account for the first time, we're gonna be able to tell that merchant upfront, hey, we've seen Louis's checking account 12 times in the last two months, but the last two transactions have been NSF. So that merchant is able to decide if they wanna do business with me or not. ACH is our highest margin part of our business and is doing really well right

now. Card issuing,

very high growth engine for us. It grew last year over 100% and same type of growth rates the previous year. And so card issuing is we issue prepaid primarily mastercards for many different use cases. Our biggest use case is government disbursements. Our platform operates in over 200 cities in the United States, including seven out of the top 10 largest cities in the United States use our platform to distribute payments. We recently won our first state deal. The state of California is using our platform to distribute disaster relief payments and they will distribute over $90 million on these cards over the next six or eight months. So when they distribute money on these cards, we earn income through two methods. One is if it gets spent, we average about 2% of whatever gets spent. If somebody leaves money on the card, eventually that money will spoil and will turn into revenue for UCF. Sometimes we share spoilage back with the company or any need to put money on the card, sometimes we don't. But those are the two ways we make money off of like a government disbursement program. We actually issue cards for a lot of fun cases, like the top 30 universities in the United States, we issue their cards branded with the university logo. We recently did the top four bowl games. We did the per diem cards for all the players. We have open table as a customer where we issue their master cards as incentives when you turn in your open table points. We are the issuer of choice for MoviePass and MoviePass uses a unique technology that only our company and Marketa has, which is remote authorization. And it allows MoviePass to actually say if a transaction's good or bad. But MoviePass has been a nice growing account for us.

In this deck

we have a highlight of consumer choice. So consumer choice is relatively a new product for us, or a new offering. And we recently did a program with State of Connecticut where they were handing out $100 distributions. And I don't remember the reason why they were handing out $100, but when they handed out the $100, they sent either a text or an email or even a paper letter directing that person to go to a website managed by us, and a consumer choice website. And they get to determine how they wanna get paid. So they knew that they were gonna get paid $100, but they got to choose on this website, I want an ACH payment, or I want a real-time payment to my Bank of America debit card, or I want a virtual master card, or maybe you want a physical master card because you wanna give it to your grandchild as a gift. But it's all about the consumer choosing, and when the consumer chooses, it's more likely that they're gonna actually receive that payment, which is very important to customers like the State of

Connecticut. So, Output Solutions is our fourth business

offering, and it is a print and mail house. We only print first-class mail, and we print statements, invoices, tax notices. Customer base are primarily financial institutions, and we print out the results of the print and mail. Banks and credit unions, mortgage companies, we work quite a bit with utilities, and taxing entities like cities and counties. And what makes Output Solutions unique is that we digitize everything before we print it. So a lot of our customers, our banks and utilities, ask us to produce electronic delivery of documents, and sometimes, like in the case of utilities, we'll even add payment button attached to that PDF. This last year, we actually delivered more electronic documents than paper. I don't have the final stats yet, but it was the first year that we did more electronic than we did paper, and it was very exciting for us. And because of that, you've seen our margins continue to increase in this business division. At the beginning of last year, they were like 13%, gross margins, the end of the year was 20 plus, and it had a lot to do with the push towards electronic. Also in this division, we print a lot of checks, and we print checks for Spectrum, T-Mobile, Verizon, many other household names like AIG. At the end of last year, we started getting into bankruptcy processing. We were doing distribution checks for bankruptcies cases, and it's been a really good niche for us, and we look forward to doing more of

that

next

year. Again,

these financials seemed a little bit dated because we're in transition of a reporting period, but you can see our top line growth has been really well. We generated cash, a lot of cash flow last year, which will continue this year, and our EBITDA margins should expand as well this year. Our balance sheet, again, we continue to generate cash. We have enough cash to execute on our growth plans, and during this time of high interest rates, we've been earning a lot of interest income. In fact, this last quarter, I think we did nearly a million dollars in interest income, and it's part because we're holding funds that aren't ours. So in our balance sheet, we have restricted cash and settlement funds. There's actually three buckets in there. One is prepaid loads. So that's customers like the state of California that send us money, and we hold on to it until they actually hit our tech stack and say move $300 to a card. So we'll sit on millions of dollars and earn interest on that until they actually go to a card. Another bucket is we have reserve funds. So a lot of our customers, we ask them to put up a deposit, and those funds are long-term funds. They stay with us up to six months after consumers left us for whatever reason, and we typically don't lose merchants unless there's some type of M&A activity or they go bankrupt or just go out of business. And the third bucket is settlements. And so if you process payments with us on a Monday, we're not gonna pay you until Wednesday. And so those funds will sit in our bank account for a couple days, but that's a constant flow of transaction dollars. So you can see on this balance sheet, we had invested over $100 million

at that point in time. It's our senior management team. Let me go look at questions. Yeah, so the question is,

we've been focusing on top line, which we have, and we've done a great job at that. And the person asking those questions, I admit it, that we've done a great job at that. And we're now at the point where we've got kind of, we've got the operating leverage, and we're gonna do our best to grow our EBITDA margins. Been operating at about 5% EBITDA margins. We have visibility to that going to 10. And that should occur when we hit revenue of 100 million, a little bit more than 100 million. So we're kind of knocking at that door. And we've been generating cash. So every year we have more money than we've had before. So you'll see us continue to operate that way. When you talk about earnings per share, obviously that's important. We're focusing on that. But EBITDA is more important because it takes out our non-cash expenses, which we have a lot. So we have a lot of appreciation. We have a lot of stock expense. And every quarter that's $500,000, $600,000 of non-cash expense.

So hopefully that answered your question. Are there any more questions? There are, please type them in.

I think if you hit the refresh, you might

see if any more come in. I don't think we have anymore. Yeah, there's a new one

that just came in. Oh,

okay. It says you're expanding your output solutions

business.

Can

you walk through this segment? Yeah, we just went through that one. But we'll go through it in a little more detail. You know, we've been working on it for a while now. Output's been doing so well. We operated the majority of this year at 100% capacity. And in that environment, that's a good problem to have because it's pretty easy to fix. And so in the Q4, we added a significant machine that will increase our capacity. We'll double our capacity. So, and we have the business to go out there and use up that capacity. We saw in the Q4, we printed just tons and tons of checks, bankruptcy cases. And, you know, we start, you know, Q1 of this year, like every Q1, we do a lot of tax business. But one of the things that's happening in this space is our focus on the electronic side. And so we put together an offering that utilities love and the financial institutions love. And, you know, it's not just about printing anymore. It's also about electronic. And we're getting more customers that are electronic only, you know, so that they're asking us to generate just statements or just electronic bill presentment payment. And there's no print. So that's expanding our margins within that space. And, you know, it's also created, you know, payment, increased payment volume

for the company as well. So as you said,

the state of California may pay for additional states. And yes, it's very important to have that first referenceable account. It's also very helpful that it's California because anything they do is big. And so, you know, that first offering with them was $95 million in disbursements. So at the minimum, we know that we're gonna earn 2% off that 95 million. Some of those dollars are gonna spoil. And, you know, they'll start spoiling Q4 of this year. And so we've already had state of California ask about additional offerings or projects at the state level because our success the last three months with this disaster program. So having California is very important. It will help when we do RFPs for other state business. We did win the state of California from references from LA County. So LA County is a customer that uses every one of our products. And they have, you know, 12 or 13 active card programs today with us and they disbursed funds for many different reasons. But we also do their print and mail for fees and fines. And we do their payment processing for fees and fines. So because that was such a great referenceable account, the state

became

aware of us through Los

Angeles. Yeah, so he was asking about, you know,

large deals. And, you know, I can tell you our pipeline is as rich as it's ever been. In our pipeline, we have what we call three mega deals. And to us, kind of a definition of mega deal is more than $5 million in annual recurring revenue. And, you know, we're hopeful that we're gonna close at least one of those in Q1. So, but the pipeline is very, very rich. And the other thing that's happening is, you know, every night we're waking up to more and more accounts. So we've built up this queue of ISVs that are becoming our sales force for us. And we're very excited about our deals

pipeline

for this year.

Then there's one more question. What should investors look

most forward to 2024? Other than the election with the UCO, you know, we're gonna continue to execute and like we always have, hopefully you're gonna see us expand our EBITDA margins this year. And that's gonna be more of our focus this year than growing at 20%. So you're gonna continue to see growth, but we wanna,

really

wanna expand

our EBITDA margins this year. That concludes our questions. Well, thanks everybody for attending.

Go ahead, Jenny. Thank you very much. Thank you so much, Lewis. And thank you everybody. That does conclude Isayo's presentation. You may now disconnect your lines and please consult the conference agenda for the next presenting company.