Usio, Inc.

Hello, and welcome to the UCO's fourth quarter and fiscal year 2025 earnings conference call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note, today's event is being recorded. I would now like to turn the conference over to your host, Mr. Paul Manley. Please go ahead, sir.

Thank you, operator. Good afternoon, and welcome to UCO's fourth quarter and fiscal 2025 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 with me today are Louis Hoke, our chairman and CEO, and Greg Carter, executive vice president of payment acceptance and our chief revenue officer. Michael White, senior vice president and chief accounting officer, and Jerry Uffner, head of card issuing, will also be available during the question and answer session. Let me remind our listeners that certain statements made today during the call constitute forward-looking statements made pursuant to the safe harbor provisions of the Private Securities and Litigation Act of 1995 as amended and as more fully discussed in our press release and in our filings with the SEC. So, let me start off today's call with some highlights from this afternoon's release. It was a solid quarter in line with our commitment to shareholders to deliver a stronger second half of the year. revenues were up both sequentially and on a year-over-year basis with record growth accelerating to 8% in the fourth quarter. This led to a 3% increase in revenue for a year, but excluding revenue associated with interest, revenues from products and services were up 4%. We set a record for total dollars processed in the year, which were up 19%, and transactions processed were up 30%. As has been the case over the course of the year, revenue growth for the quarter was led by our ACH and card businesses. ACH was once again our fastest-growing segment. Revenue increased more than 30% for both the quarter and the full year, driven by new client implementations and strong growth in pinless debit. For the year, ACH set a record for dollars processed, up 22%. Transactions, up 29%. and returns which were up 31%. Pinlist debit dollar process was up 81%. Card revenue increased 7% in the fourth quarter and finished the year up 3% with continued payback growth driving performance. Card also reported record processing volume and transactions. Our output solutions finished the year with strong momentum, with pieces mailed up 11% and electronic documents processed up 18% in the fourth quarter. This led to a 6% increase in revenues for the quarter, so that revenues ended up flat for the year. Although card issuing revenues were down in the quarter, they improved relative to the third quarter. Card issuing also continues to improve its profitability. Weakness in card issuing in 2025 was almost exclusively attributable to the indirect acquisition of a reseller's amusement park card program. Since this transaction occurred early in 2025, this should provide relatively easy 2026 counts, which we anticipate will help card issuing's 2026 result reflect the recovery staged over the balance of the year. The majority of the revenue, in the quarter was generated from ongoing programs with the primary exception being certain card issuing programs with governmental entities. No single client accounted for more than 10% of total revenue, reflecting the diversified nature of our customer base. From an account perspective, attrition remained very minimal. Operating cash flow for the year was $1.5 million. These proceeds were used over the past year to invest in expanding Both are tangible and intangible fixed assets, as well as for over $1.1 million in share repurchases. So down from a year ago, we still have nearly $7.5 million in cash on hand, positioning us to invest both organic, inorganic, and non-organic expansion opportunities. In the fourth quarter, we used stock for the $500,000 purchase of post credit. Bottom line, we still have plenty of dry powder for strategic development. In addition to positive cash flow, we also delivered another year of positive adjusted EBITDA and have now reported positive adjusted EBITDA for three consecutive years. Our guidance contemplates positive adjusted EBITDA in fiscal 2026 as well. All in all, a solid growth year with record revenues and record operating performance. We believe 2026 is the year to take another big step forward with new initiatives to increase our share of our customers' wallets, build a portfolio of recurring revenues, and to introduce new products and services that only improve on the infinity that we already enjoy with all of our clients. This is a strategy that builds value. Now, with that, at this time, I'd like to turn the call over to Greg Carter. Thank you, Paul, and good afternoon, everyone. It was another record quarter and year for Carter as we recorded all-time record quarterly and annual transactions and dollar volume process led by our continued focus on PayFax. As a result, revenue growth net of our legacy portfolio was 13% for the quarter and 7% for the year. That's been CARD's mantra, strong processing volume and solid payback revenue growth, which resulted in steady, predictable, reoccurring revenue growth built on a foundation of primarily ISVs who are loyal to UCO and most frequently are growing their own client base and consequently processing volume with us year after year. Since joining UCO, I've seen our market reputation and awareness steadily increase. This success can be attributed to our multi-pronged sales and marketing strategy that incorporates both traditional as well as creative and new age digital marketing tactics. For instance, our SEO results continue to improve. We are leveraging the success, and recently we are added to the G2 platform, which is one of the largest online influencer reference sites. We're already starting to get quality leads from software companies that are searching on these sites specifically for payment processing. It's not more effort, it's smarter effort with more surgical precision. something we've preached from day one. Another growth lever is UCO One. UCO Now is essentially fully integrated. The idea is to mine our existing relationships to uncover opportunities where other UCO services may be needed. This is a mandate to increase our share of our customer's wallet. We've made changes within the sales structure that's going to improve our throughput and accountability. In addition to our efforts, Houston Frost is now focused almost exclusively on new product development that will also increase our share of the customer's wallet. Lewis will provide some insight on how the post-credit acquisition fits into this strategy and is the ideal platform to supplement and accelerate our existing efforts. The proof is in the pudding, so let me offer you some examples of our new agreements that have risen from this strategy. I've talked about our growing backlog of new customers that are in various stages of implementation. And I'm pleased to report that many of these implementations are complete and are processing volume with us. For instance, we completed the implementation of the National Online Specialty Sports Good Retailer. This is a straight merchant processing cap that we expect to add meaningful volume this year. In addition, we completed the rollout with the Multi-State Building Supplies Company. All their stores have been boarded and processing volume is correspondingly on a very effective growth trajectory. Finally, a quick note on the outstanding progress of our new filtered spend program, which was a massive implementation. It's up and running with thousands of bodegas and smaller grocery stores now able to accept healthcare assistance cards. It allows users to buy over-the-counter pharmaceuticals using a specific healthcare spending account. The takeaway is that we successfully boarded well over 2,000 of those merchants during 2025 that are now live. There are over 8,000 more target merchants that are involved in this program. And now that all the complex initial interfaces have been completed, we are hoping to board the remaining locations through mid-summer of 2026. I used to say that UCO was the best kept secret in payments. I'm not so sure that's true anymore. It's also reassuring to see us more widely appear and more quickly climb among various surveys that rate payment processors. As the number of successful implementation increases, so does the interest. Now, we need to capitalize on this interest to continue to deliver value to our clients and profitably grow UCO. Now, I'd like to turn the call over to Louis. Good afternoon and welcome, everyone. I'm proud of our accomplishments and progress in what was a record 2025. It was a year in which we achieved the highest revenue in the company's history. And operationally, we set numerous full-year transaction and processing volume records across many of the company's operating metrics. Of equal importance, we met our commitment to shareholders by posting a second half that was improvement over the first half. These records bear out the message in my shareholders' letter that throughout 2025, we executed on the mission of delivering secure, scalable, and integrated electronic payment and embedded financial solutions. Time and again, our technology has been chosen by leaders such as MasterCard, Apple, the City of New York, State of California, for the ability to meet this mission. And I'm very proud of our market reputation we've built on this foundation of trust and reliability. This is the value in our mission. And as Greg alluded to, it's becoming increasingly recognized. We continue to work to unlock the value by building on this legacy with innovative new technologies that meet and sometimes even exceed customer requirements. Our strategy is to pursue opportunities to increase the proportion of customers that need these services on a reoccurring basis. An area where there is significant opportunity to achieve this objective through increased penetration of our existing customer base. Greg is leading our UCO1 initiative with the objective to increase cross-selling. At the same time, Houston is developing new products and services that similarly cater to untapped customer needs. One of the most exciting new opportunities to capitalize on our strategy was the acquisition of post credit. It supports our strategy to offer our customers a comprehensive business banking solution while enhancing our visibility into managing customer risk. Today, we move over $100 million every day by virtue of our clients' processing agreements. With UCO's business banking solution, we can effectively become our client's depository institution. When they log on to our business banking solution, clients will be greeted with a dashboard clearly illustrating their account. It will also enable them to utilize their funds for any of our services, such as the issuance of corporate cards and ACH disbursement, or even selling accounts payable. When this goes live later this year, all new clients will be encouraged to use our business banking solution to pre-fund their UCO accounts and receive their daily settlement funds. So, when they log in, they're seeing a full suite of banking tools representing another cross-selling opportunity. This reflects our ongoing commitment to developing innovative payment solutions, including early initiatives such as virtual cards and our consumer choice platform. As we roll out enhanced version of consumer choice, with significant upgrades, including Venmo, PayPal, push to debit, instant withdrawal. We are seeing increased interest from both new and existing clients. As a result, card issuing is now actively engaged with large commercial and governmental entities in the need of versatile and dependable disbursement platform, especially one that offers modern payment growth. Consumer Choice is one of the most robust disbursement solutions in the market. In fact, one of our larger prospects was virtually stunned to learn that we are integrated with all the major wallets, something they said was missing from most other comparable payment disbursement platforms. MasterCard needs to be recognized as they continue to refer business our way, any of which would layer nicely on top of the 44 deals and the 53 new implementations card issuing completed in 2025. After a year that was disrupted by the indirect acquisition of a large amusement park client from one of our resellers, it is nice to see card issuing recovering. Card issuing has a solid base that is stable and growing. There are many new clients that require complex integrations that were implemented late in 2025. and have not yet scaled. So, even without any contribution from these large opportunities, we expect card issuing to make a nice rebound. All of these growth initiatives should also benefit output solutions, which finish fiscal 2025 with strong momentum, including growth in both revenue and pieces distributed, and a 10% increase in higher margin electronic document distribution. In 2025, they added 37 new clients, primarily in their core markets, with the vast majority representing reoccurring business. That has created momentum into 2026. In the early, early in the new year, they are already setting records for number of pieces nailed. Output also expects to put a new printer into operation this year, which will run at a better than twice the rate of our existing printer and at better resolution, while reducing the quantity of the supplies consumed. This positions us to expand to new markets, pursue additional opportunities, including the production of marketing materials. Since many clients pre-fund their postage, this also creates a natural opportunity to introduce our business banking solutions. We believe this will create additional cross-selling opportunities for the UCL1 initiative, including the upcoming dedicated marketing campaign. We started the quarter with ACH, another quarter of better than 30% revenue growth, leading to 33% full-year revenue growth. We continue to set records on virtually all of our operational metrics as we add new mortgage servicing and other customers and generate explosive pinless debit growth, which saw volume increase by over 80% in 2025. And there is no slowdown, as it looks like Q1 could be pinless and ACH's best quarter ever. As you can tell, I'm excited about Q1 and all of 2026. The pipeline is strong across all of our businesses, and we're working diligently to increase the share of the wallet. Those incremental revenues offer attractive margins, which is our most direct path to faster growth and improved profitability. We've got a lot in motion, so it will be critical this year to focus on completing those tasks that offer the most immediate return on our investment. For that reason, we're being careful on our guidance. The company continues to expect 10 to 12% growth in revenue in 2026, while also anticipating continued positive adjusted EBITDA. I thank our shareholders for their trust and support. We remain committed to building a stronger, more innovative, and more valuable UCO. Operator, you can now open the call to questions.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you will have to withdraw your question, Please press star, then two. And at this time, we'll pause momentarily to assemble our roster. And the first question will come from Barry Stein with Lynchfield Skills Research. Please go ahead.