Usio, Inc.

Hello and welcome to the UCO First Quarter Fiscal 2026 Only Conference Call. All participants will be in a listen-only mode. Please note today's event is being recorded. Now, I would like to turn the conference over to your host, Paul Manley. Please go ahead, sir.

Thank you, Operator, and thank you for joining our call today. Welcome to UCO's First Quarter Fiscal 2026 Conference Call. The earnings relief, 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 Koch, our Chairman and CEO, Greg Carter, Executive Vice President of Payment Acceptance and our Chief Revenue Officer, and Michael White, Senior Vice President and Chief Accounting Officer. In addition, Houston Frost, our Chief Product Officer, and Jerry Uppner, Head of Card Issuing, will be made available during the question and answer session at the end of our call. 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 and as more fully discussed in our press release and in our filings with the FCC. Following our prepared remarks, there will be a question and answer session for those who registered as a financial professional. In addition, please note that we will be demonstrating our new platform, PostCredit, on a webinar that we are planning for the investment community. Stay tuned for an announcement with all the details. Let me just offer a few brief comments on our exciting quarter before turning it over to the team. It was a record quarter for UCL with very strong growth leading to record processing volumes and quarterly revenues. We also saw similar records achieved across many of our business units. On the bottom line, we achieved positive adjusted EBITDA and GAAP net income. We also generated positive operating cash flow. We are executing on all of our objectives and remain on pace to achieve our guidance for the year as we continue to succeed in converting pipeline to implementation implementations to volumes, and volumes into revenue. Now, I'd like to introduce Michael White, Senior Vice President and Chief Accounting Officer, to provide more insight into the quarter's financial performance. Thank you, Paul, and good afternoon. It's nice to be with you today. As you heard from Paul, it was a record quarter. Revenue increased 16% year over year, resulting in the highest quarterly revenue in the company's history. ACH and complementary services continued a stellar run with revenue up 25%, while TARD was up an equally impressive 23%. Output Solutions is also off to a good start this year, with revenue growth accelerating to 19% in the quarter from 8% last quarter. And while down this quarter, we expect card issuance revenues to grow this year. Excluding the impact of interest revenue, growth at the business unit level was an even greater 17%. All in all, a strong start to what we expect to be a very solid and potentially extraordinary year. Results were driven by record first quarter processes in transaction volume, with total payment dollars processed of 28% and total payment transactions processed increasing 22%. Once again, The majority of the quarter's revenue was recurring in nature, with no one client accounting for more than 10% of total revenue. Client retention remains high. Compared to the prior year quarter, margins were somewhat lower, driven in part by the decrease in top-line interest income, which had 100% gross margins. As always, revenue mix was also a factor. Our expectation is for margins to improve over the balance of the year. On a sequential basis, overhead was down nearly $700,000 to $4.4 million for the quarter ended March 31st, 2026, although modestly higher from the prior year quarter. Reflecting the operating leverage in our model, our goal this year is to keep overhead relatively flat. Depreciation and amortization declined as the intangible assets associated with the acquisition of output solutions have now been fully amortized. For the quarter, we reported positive operating income, adjusted EBITDA, net income, and earnings per share. All of these key performance indicators were also up from the comparable year-ago quarter. We also reported positive operating cash flow in the quarter, which, after adjusting for the large tax refund received in the first quarter of last year, would have been up from the year-ago quarter. Net income in the quarter ended March 31st, 2026, with approximately 130,000 and did not benefit from any extraordinary items. In the quarter, we used approximately 235,000 in cash for stock repurchases. Cash was also used for strategic growth investments. We ended the quarter with operating cash of over 7.7 million, up about 300,000 since the end of 2025. There's only one small term loan outstanding. We continue to generate cash and maintain sufficient liquidity to support both our organic and strategic growth objectives. As Paul stated, a record start to a year we believe holds great promise. Now, I'd like to turn the call over to Greg Carter. Thank you, Michael, and good afternoon, everyone. It was another record quarter for CARD. We reported all-time record quarterly revenue, transaction, and dollar volume process. As a result, card revenue was up 23% year-over-year to a record $9.7 million, not only our best revenue quarter ever, but more importantly, the strongest quarterly revenue growth in recent years. We continue to succeed in completing implementations, new accounts for boarding, and ISDs are adding new merchants. With payback quickly becoming the predominant source of overall card results, as it now represents 78% of card revenues, The business unit's overall performance increasingly reflects that of Payback. And as Payback has been achieving rapid growth, CART is now showing similar growth rates, although these programs are typically enterprise-level accounts. We now expect overall CART results to more closely track those of Payback, which again has been growing at a better than 20% rate for some time. In the past, we've noted the growing backlog of implementations. Recently, we've had success with several meaningful new implementations, both payback and enterprise. In particular, we had our first full quarter of processing volume from two newly recently implemented enterprise accounts, a multi-location building supply organization, and an online specialty sporting goods retailer. This is all reoccurring volume that is making a meaningful contribution to our revenues. We're also seeing nice growth in our filtered spend program. What's encouraging about this program is that this line comes from only a small fraction of the thousands of merchants we've already boarded. New merchants are actively activating practically every day as word spreads quickly throughout this community, virtually providing us with viral marketing. At the same time, we are continuing to board new merchants further penetrating this market of nearly 10,000 locations as the program expands geographically from the northeast into other regions across the country. We're now seeing more opportunities for more channels than ever before. New leads are now arising from online influencer reference sites like G2, from our own SEO and online marketing, from strategic trade show participation, and from the increased success of our UCO1 cross-selling marketing strategy. An interesting UCL1 case study is a custom payout solution provider. They initially came to us in search of a disbursement solution, so in their mind, the logical point of entry was card issuing. However, the team quickly identified this as an opportunity for both real-time payments and output solutions. Now that we have them onboarded for those solutions, we will soon be implementing a UCL prepaid card. This is an example of how we've shifted the mindset from asking if they have a disbursement or a prepaid requirement to asking, what are your needs, and talking about our capabilities, something I'm not sure would have happened prior to UCO1. It's not consequential that we announced the UCO1 initiative a year ago, and now, less than 12 months later, after putting the plans, procedures, and process in place, it's producing results. Now, I'd like to turn the call over to Louis. Good afternoon and welcome everyone. After a record 2025, this year is off to a record start. In the first quarter, we reported record transactions, record processing volume, and record revenues. On the bottom line, we generated positive gap earnings as well as positive operating cash flow and adjusted EBITDA. We're meeting the objectives we set for ourselves. as well as those of the street. Let me jump into a quick review of our business unit results. On CARD, just quickly adding to Greg's comments, it is rewarding to see a better than 20% revenue growth as their results are increasingly being driven by payback. We should see this trend lead to better sustainable growth rates in CARD as a whole. In ACH, we have record transaction volumes and dollars processed and return check transactions processed. In addition, pennless debit continues to grow at a better than a 50% rate. Consequently, revenues were up once again strongly for ACH and complementary services. April was ACH's best ever month for transactions processed. And as a result, it appears that ACH could have a record second quarter. Our growth is attributed to both existing and new customers across a diverse set of industries. We're also benefiting from cross-selling, particularly as part of our disbursement solutions, such as consumer choice. An emerging new growth opportunity is real-time payments, which we call RTP. In January of this year, we processed something 2,000 transactions. This past month, we processed over 200,000 transactions. And what's interesting is we initially thought RTP would pull volume from ACH. However, instead, it's pulling from PIMLIS, yet PIMLIS still is experiencing record performance. Compared to pinless, RTP services generate less revenue per transaction, but has more lucrative margin profiles. Prepaid had a busy quarter. They implemented 27 new accounts that are expected to scale, and prepaid also processed over $80 million in card notes in the first quarter. Card issuing made progress on a number of new opportunities as they signed an agreement with a large regional bank to be a new sponsor and strategic partner. The bank was looking for a new partner to roll out programs quicker and have superior technology and also to add vendor redundancy to their existing card issuing programs. An existing client continues to be on track to launch two state-sponsored school choice voucher programs that will utilize both UCO card issuing and ACH. We expect those distributions to exceed $1 billion in disbursements. During the quarter, card issuing introduced our private label gift card program, and made numerous enhancements to consumer choice and virtual card platforms. Card issuing should grow this year, potentially starting as soon as this quarter. Output Solutions is off to a record start to the new year. Pieces processed and mailed were up 31%, while electronic documents processed and delivered were up 41% in the first quarter. And revenue growth in the quarter accelerated on a sequential basis from the preceding quarter. In the quarter, output added six new cities, two county governments, and four other new customer accounts. All but two of them represented new reoccurring revenue. The second quarter is also off to a good start. With April, total activity up 50%. as compared to April of last year. This should continue the momentum output needs to be up for the year. In addition, output's new printer is scheduled to be installed in June. This technologically advanced machine is four times faster than our existing equipment. It's cheaper to maintain and consumes less supplies. This will significantly increase our capacity and expand our capabilities. To capitalize on these new capabilities, We implemented an organization-wide dedicated output marketing campaign, leveraging the cross-selling skills developed through UCO1. Output has also implemented a highly effective SEO strategy. As a result, we are creating a growing number of new opportunities for output, both in their existing verticals as well as in new industries. Among our strategic priorities is the growth in wallet share gains. We have noted UCO's one's progress in cross-selling. In the near future, we plan to launch what we believe will be one of our most effective tools to achieve that objective. A real difference in the market, and that is what we call today post-credit. Implementation is rapidly and we expect it to be market-ready in the upcoming months. Among PostCredit's most appealing features and functionality, it will enable the elimination of multiple depository accounts while allowing users to move funds back and forth without separate wires from separate banks. Users will actually settle through a UCO-managed account, so it's faster, and it's more efficient, and it's easier to use, And once it's live, all new card, ACH, prepaid, and other clients will automatically receive a post-credit account. The longer-term goal is to roll out to all of our existing clients. We're working on a post-credit demonstration webinar for financial professionals. It should be announced soon. In summary, one of the best starts to a new year of recent memory, a record start, We've read the reports concerning inflation, higher prices, potentially higher interest rate, and it only reminds us why we've intentionally avoided retail merchants. We have every reason to be optimistic about 2026, and we currently are. At the same time, we also believe it's prudent to be cautious early in the year. For that reason, we're reiterating our guidance. We expect 10 to 12% revenue growth in 2026, while also anticipating continued positive adjusted EBITDA. Shareholders can be assured we are committed to our mission to deliver secure, scalable, integrated electronic payment and embedded financial solutions to the market. This is a strategy that can optimize the value of our franchise. 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, sir. We will now begin the question and answer session. To ask a question, you may press star, then one on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. As a reminder, please restrict yourself to one question and one follow-up. At this time, we will pause momentarily to assemble our roster. First question comes from Barry Sine from Litchfield. Please go ahead.