Good morning, everyone, and welcome to the Usio Earnings Conference Call for the Second Quarter Ended June 30, 2022. All participants will be in a listen-only mode. After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Participants of this call are advised that the audio of this conference is being broadcast live over the Internet and is also being recorded for playback purposes. A replay will be available shortly after the end of the call through August 18, 2022. At this time, I’d like to turn the floor over to Joe Hassett, Investor Relations. Sir, please go ahead.

Thank you, Jamie, and thank you, everyone, for participating today. Welcome to Usio’s second quarter fiscal 2022 financial results conference call. The earnings release, which Usio issued yesterday after market close is available on the company’s Investor Relations website at usio.com Investors under News. If you can’t find it there, please contact me and I’ll be able to access for you. On this call today are Louis Hoch, President 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. Management will provide prepared remarks, and then we will open the call to your questions. Before we begin, please remember that comments on today’s call include forward-looking statements. Forward-looking statements can be identified by the use of such words as estimate, anticipate, expect, believe, intend, may, will, should, seek, approximate or plan or the negative of these words and other similar words and phrases. Forward-looking statements, by their nature, involve estimates, projections, goals, forecasts and assumptions and are subject to risks and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements, including risks related to the COVID-19 pandemic and its effect on the economy; the realization and the opportunities from the IMS acquisition; management of the company’s growth; the loss of key resellers; the relationships with the automated clearinghouse network, bank sponsors, third-party card processing providers and merchants; the volatility of stock price; the loss of key personnel; growing competition in the electronic commerce market; the security of the company’s software, hardware and information; compliance with complex federal, state and local laws and regulations; and other risks detailed in the company’s filings with the SEC. These forward-looking statements speak only as of the date of this conference call and should not be relied upon as prediction of future events. Usio expressly disclaims any obligations or undertaking to update or revise any forward-looking statements made today to reflect any changes in Usio’s expectations with regard thereto or any other changes in the events, conditions or circumstances on which any such statement is based, except as required by law. Please refer to the company’s SEC filings on its Investor Relations website for additional information. And with that, I would now like to turn the call over to Louis. Louis?

Thank you, Joe, and welcome, everyone. I’m pleased to report another great quarter for Usio, our eighth consecutive quarter of year-over-year revenue growth and our highest card processing quarter in the history of the company. It was also another quarter in which we undertook decisive actions to build value for our shareholders. In May, we announced the share repurchase agreement, and in the second quarter we repurchased nearly $0.5 million dollars of our stock in the open market. We also strengthened and expanded our Board with the addition of accomplished financial professional Michelle Miller. All of our business lines grew over the first half of 2022. And with a strong pipeline of new business opportunities and the potential of substantial spoilage from prepaid cards beginning in the third quarter, and with the flexibility afforded by our strong unlevered balance sheet, we are optimistic that this will be another record revenue year for Usio. Considering the ongoing uncertainty of the Voyager Digital exiting from bankruptcy quickly and continuing it as a customer of Usio, we’re revising our expectations for the full year 2022 revenue growth to 12% to 18% conditioned on the continued enthusiasm in the FinTech lending industry and favorable economic conditions. For the quarter, revenues were $16.2 million, a 6% increase from a year ago, while adjusted EBITDA was a $600,000 loss. Revenues in card processing prepaid card issuing Output Solutions were all up for the quarter and year-over-year. While ACH was up for the first six months of the year, it was down from a year ago quarter when cryptocurrency market was at its peak. In the first quarter, we called out our expectations for ACH for this quarter. Crypto also distorted our year-over-year total dollars process comparisons in the quarter, but on a sequential basis, total dollars…

Thank you, Louis, and thank you, everyone, for participating in our call this morning. Prepaid strong year-over-year growth carried into the second quarter where card transactions processed nearly tripled, load volume was up 81% and prepaid card purchase dollars processed were up 76%. Compared to the first quarter of 2022, however, revenue and card load volumes were down. The first quarter included over 600,000 of one-time revenue from printing cards for Voyager Digital, as well as elevated card orders and load volumes from New York City’s COVID incentive program. NYC’s program began winding down in February and while we had another substantial albeit short lived disbursement program boost volumes in March and April, April, actually setting a record as our largest card load volume month ever. The revenue from this program in March and April fell below expectations, as most of the funds were accessed as cash at ATMs. This led to decreased interchange revenue in the second quarter as compared to the first. Since May, pandemic relief or incentive related card volumes have been minimal. And while May and June’s load volumes were down compared to the first part of 2022, it is important to mention that monthly card load volumes in May, June and July are still up nearly ten-fold from the volumes we processed in the months prior to the pandemic. This activity is from more sustainable programs, including corporate incentive and promotional cards, as well as non-profit and government general assistance and guaranteed income programs. It’s important to note that while the pandemic related card volume spikes we experienced in the past two years may now be over, a substantial portion of the revenue from these programs is just beginning to be recognized as card accounts expire or become dormant. We expect to recognize these revenues…

Thank you, Houston, and good morning, everyone. The card business continues to generate exceptional growth led by PayFac’s increase in market penetration. PayFac revenue was up nearly 8% in the second quarter, as volumes were up 23% year-over-year. This led to a 5% quarter-over-quarter growth in total card revenue as total dollars processed were a quarterly record of $332 million with 2.8 million transactions processed also a record. Relative to the quarter a year ago, dollars process were up 10% and transactions increased by 14%. Card operations were also profitable for the fifth consecutive quarter. PayFac remains our growth engine. In the second quarter, we signed five new ISV agreements. Our pipeline also remains robust, including a sizeable opportunity in the healthcare industry, we feel confident we’ll contract an onboard soon. Let me provide some color on another success story that shows how Usio is winning in the market. We got in on the ground floor of an ISV that provides a solution for schools to raise money from literally a standing start they’re on their way to becoming a multimillion dollar account in the next several months. They are growing and deploying more terminals every week. It’s really rewarding to work with a startup, educating them on best practices, what works and what doesn’t with respect to technology and marketing is really a bright spot. That’s the heart of Usio and what really sets us apart. We have our own proprietary technology. We’re flexible, we’re nimble and our customer service team is unparalleled so that we can work with ISVs at any and all stages of their life cycle. And we onboard new merchants every single day from both legacy and new ISVs. We do have employees who watch customer counts on a daily basis. But when I look…

Thanks, Greg, and welcome everyone. Thanks for joining our call today and your interest in Usio. I’m going to conclude today’s prepared remarks with a brief recap of our second quarter of financial results before opening the call to questions. Revenues for the quarter ended June 30, 2022 were $16.2 million up 6% compared $15.2 million in the same period last year. All of our growth was organic. ACH and complimentary service revenues were $3.9 million down 3% from a year ago that up consequentially from $3.8 million in the first quarter. As Louis mentioned, the year ago quarter benefited from record cryptocurrency transactions. Revenues from output solutions were $4 million, up 12% from $3.8 million a year ago, all of which was organic growth. Total pieces processed in the quarter were very strong. Output Solutions continues to run ahead of our expectations. Prepaid had another quarter of strong growth with revenues up 29% to $1.4 million. We continue to support this growth by investing in more engineering and customer service resources to further enhance our reputation for providing innovative new technologies and a high level of customer satisfaction. On a sequential basis, prepaid revenue is down from the first quarter when we booked $600,000 of even zero margin prepaid card sales and had no comparable revenues in Q2. Revenues in our credit card line were up 5% to $6.9 million, both dollar volume and transactions processed in the quarter were record. For the quarter, our card business was profitable. Gross profits in the quarter were $3.4 million, gross profit margin in the quarter was 20.1% up sequentially from 19.4% in the first quarter, but down from the year ago quarter. In the second quarter, we saw faster growth in our lower margin products while revenues and our most profitable…

Ladies and gentlemen, at this time, we’ll begin the question-and-answer session. [Operator Instructions] Our first question today comes from Barry Sine from Spartan Capital Securities. Please go ahead with your question.

Hey, good morning gentlemen. I know the stock’s down quite a bit, but my perspective, I see a strength in all the diversity of the businesses and customers. Maybe it’s just the illiquidity on the stock. On Voyager, obviously that’s the elephant in the room. A three part question, if you don’t mind. First of all, if you look at the Voyager relationship in hindsight. Would you do it again? You got a lot of very profitable revenue, obviously it didn’t last. But you structured it so that there’s no write off. And if a buyer comes in, in an auction, you may actually continue that. Secondly, maybe you could discuss the transition process a bit more. I’m not sure if I heard that you’re – you’ve backed out of all the expenses, people, call center, telecom, what is the process and how long will it take. And then thirdly, from a consolidated standpoint and you talked about the new Los Angeles contract, you’ve talked about a number of contracts for ISV that Greg has talked about. And you’ve talked about getting back to EBITDA positive by fourth quarter, maybe you could provide a little more visibility on how we recover from Voyager and get back to growing and profitability. So I know that’s a lot, but three part question on Voyager.

It is a lot, but I mean, it’s great questions. The first one is yes, we would gladly take Voyager over again and any customer like it. I mean, Voyager was a great example of the value that we provide to a customer. We had Voyager since they were a startup and we integrated our systems with theirs in a way that allowed them to grow from zero revenues to – I didn’t remember what their latest revenues were the last quarter $168 million. They grew rapidly and we like to think that we help them grow by providing them first class services. And they’re a great customer for us. It’s unfortunate that they’re into situation they are. It’s great. We believe they’re a great management team and we’re hopeful that they exit out bankruptcy in a way that we continue the relationship, obviously, that’s very uncertain and we are operating that in a manner that’s not going to happen. We’re not planning on that happening. We did – we had high hopes for their card program and we thought it was going to come live in June. So we geared up for that and mostly in our customer service area telecom, we took lease space and we’re going to have to scale that back. And it’s outsource call center lease space, that’s not going to go away – head count, we can adjust, but it was going to be a huge, huge program kind of give you idea of the scale. We had about 800 card holders live and off of those 800 card holders in one month, we earned $13,000 in interchange. So if you can kind of extrapolate that to the scale of customers that they had over a million card – also potential card holders, it…

No, that’s fantastic. If I could squeeze in one more on card spoilage, maybe you can kind of educate us, because it sounds like, there’s a big pilot of revenue just sitting there waiting to start to get recognized later this year, and that will continue. So I just want confirm that cash is already there. You’re just waiting for the clock to run down. And maybe you could talk about your visibility on how you determine what spoilage is likely to be in the future and maybe put some numbers around that and then how investors can get some predictability on that. If I look at, let’s say, car load volume from six to eight quarters ago, is that predictive? Or how should we think about that card’s spoilage and that revenue to come?

The first thing is the money’s already sitting on the cards. So it’s not like we have to go collect that from somebody. So it’s already there. It’s just the matter of recognizing it through fee in the cards. So we have great visibility into it. And these cards start to expire in September. And then we’ll continue to expire from September on. And the funds are taken offer in the form of a monthly fee and as long as there’s funds there, we’ll capture them until there’s no more funds on the cards. And we know the balances on the programs that spoil or potential to spoil are significant. And we have – the way we look at it is kind of through a waterfall and a waterfall analysis, and we’re able to determine with some amount of certainty. What the revenue will be? And we’re pretty confident what’s going to occur in the end of this quarter and the fourth quarter. The balances are huge. And so the revenue will come off quicker in the beginning and slower in the end slower in the end because the balances will decrease. And there is no way for you to with the data we give you for you to know exactly, I mean to predict what future spoilage is, because the numbers we give you don’t help you there.

Okay.

Because load dollars are a mixture of reloadable cards versus that have no spoilage versus cards that are – that do have spoilage.

Thank you, Louis. That answers my question. Just now I know who to call to get out of a speeding ticket at LA County.

Yes, there you call. Thanks, Barry.

[Operator Instructions] Our next question comes from Jon Hickman from Ladenburg. Please go ahead with your question.

I was wondering if you could elaborate a little bit on this Mastercard relationship. What’s it called again and what’s it going to do for you exactly?

So Mastercard has this program called to Engage program and it’s their open banking platform and they invited a handful. I believe there was three or four ACH companies to provide services to their end clients. And these are larger clients and we’re the only one that is not just certified. So their clients get to choose among that those lists of preferred providers, who they want to use. And we believe that we will stick out as the preferred provider. We also as you know have a amazing relationship with Mastercard and we think it was a great honor to be chosen and we’re already integrated. So we haven’t seen any revenue from there yet, but Mastercard did announcement about us a few weeks ago.

So how would that like if I’m one of Mastercard’s clients and I need ACH services and you are on the list and I pick you, then what happens after that? And you’re integrated with Mastercard. It just all of a sudden transactions start occurring across your network.

No, no, no. I mean, obviously, we’d get contacted and we would contract with them, but yes, through the Mastercard Engage network is how those transactions would flow to us. But yes, we would contract with the end customer.

Okay. Okay. And then I was wondering if you could, it was great to hear about LA County as in your pipeline and the fact that it’s closed. Is there any other near-term I don’t know, contracts, maybe not that size, but that you could mention or elaborate on?

Yes. The one that Greg was talking about, the healthcare account on PayFac is pretty substantial. It’s actually potentially worth $6 million a year in annualized revenue. It is a card account, so it’s lower margin than the LA County one, which will be higher margin. But that one is likely to close in the near future.

And that’s a copay card like I use it…

That’s not a card, it’s actually PayFac its credit card processing.

But it’s for copay custom or a copay user type?

Jon, we’re doing some other work on the prepaid card side that I mentioned in the healthcare space. But these are just to make sure you’re talking about unrelated solutions here between what Greg’s team doing on the PayFac side and what we’re doing on the prepaid side. So I don’t know if you’re getting mixed up with those two.

Yes. The healthcare opportunity is just billing for healthcare services via he PayFac.

Okay. It’s just a straight. Okay. But it’s an ISV that’s okay, bringing you more business. I got it. Okay. And then on the prepaid side, you are getting involved in copay type products or services.

Yes. It’s not – I don’t – copay usually refers to insurance, et cetera. These are more kind of rebate and promotional pay aspects of those kind of drug purchases. So you’re close there, but yes, it’s related to clients – yes, related to using our virtual card platform to facilitate a similar type of payment to a copay, I guess if you will.

More like a coupon, take it to the pharmacy.

Yes. Promotional and rebate type payment.

Okay. Okay, thank you for that. My other questions have been answered. Thanks.

Thanks, Jon.

And our next question comes from Michael Diana from Maxim Group. Please go ahead with your question.

Okay. Thank you. So Greg mentioned a tweak that they made to the website that had a big impact. Could you – I mean it sounds fascinating. Could you just tell us a little more about that?

Sure. Just the way that we had labeled our solutions and products just differentiating between mainly just terminology was instrumental. The people come to the website or prospective customers come to the website and they’re looking for a solution versus a product. So we massaged the way that that’s presented. And we did a comparison from the previous version next to this changed or amended version. And we saw an increased click through with higher quality leads. So it was really more stylistic and terminology versus net new. But it did have a positive impact. As you can probably appreciate, we get lots of interest through the website and significant amount of that is noise. So we are now able to get more qualified leads that we can pursue. And as I said, some of those have led to new contracts.

Okay, great. Thanks. Also you mentioned an IOC that related to school, is that like universities or public schools or…?

That’s a good question. It’s primarily elementary, high school. It’s not at the university level yet. And there are service addresses, not only tickets, but booster type fundraising events, whether that’s concessions at a volleyball game or a football game or fundraising events for the teams themselves. And the rate at which this entity is growing is really impressive. And that was before school started. So we’re seeing tremendous pickup now that the school year has started in a lot of areas.

Okay, great. Thanks very much.

Thanks.

And ladies and gentlemen, with that I’m showing no additional questions, we’ll end today’s question-and-answer session, as well as today’s conference call. We do thank you for attending today’s presentation. You may now disconnect your lines.