Good afternoon, and welcome to the Usio Earnings Conference Call for the Third Quarter Ended September 30, 2022. [Operator Instructions]. Our participants of this call are advised that the audio of the conference call 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 November 23, 2022. I would now like to turn the conference over to Paul Manley, Senior Vice President, Investor Relations. Please go ahead.

Thank you. My name is Paul Manley, and I'm Senior Vice President of Investor Relations at Usio. I joined in August of this year, and I'm very excited to be a part of this great senior management team. Thank you, everyone, for joining our call today, and welcome to Usio's Third Quarter Fiscal 2022 Conference Call. The earnings release, which we issued today after the market close, is available on our website at usio.com under the Investor Relations tab. On this call today are Louis Hoch, our President 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 Prepaid Services. Management will provide prepared remarks, then we will have a question-and-answer session with our covering analysts. I'd like to take a moment to remind you 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 materially 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 the forward-looking statements. Now, with all that, I will turn the call over to Louis.

Thank you, Paul, and welcome, everyone. I'm pleased to report another great quarter for Usio, our ninth consecutive quarter of year-over-year revenue growth. Our highest card processing quarter in the history of the company and our best-ever quarter for Output Solutions. More importantly, it was a quarter in which we recalibrated the organization, adding very large and exciting new clients, continuing to add to our already robust pipeline and expanding our growth opportunities through both existing and new products and services. As anticipated, consolidated volumes were down due to the exit from the cryptocurrency market. While there were no material direct associated costs, this business was a significant contributor to our performance in the year ago quarter and to a lesser extent, the second quarter of this year as well. I am pleased, however, that this -- that we grew the business in Q3, which illustrates the strength of our strategy to diversify our businesses and the markets we serve and the payment channels that we offer. And while the bottom line was down sequentially, more importantly, we managed to significantly reduce our cash burn and ended the quarter with the cash position that was relatively unchanged from 3 months ago. Now with all those efforts wound down, we have absorbed the attendant inefficiencies they caused in our operations and bottom line. We are focused on accelerating growth, profitability and cash flow, which we are confident we will start to take hold immediately in the fourth quarter. In particular, our ACH business, which is most directly involved in the crypto -- which was most directly involved in the cryptocurrency market is quickly on the rebound. Continuing a trend we saw last quarter, growth in our high price and high margin return checks remained on a steep trajectory. Returns were the…

Thank you, Louis, and thank you to everyone participating in our call this afternoon. Prepaid had a solid third quarter, although we admittedly had a difficult comparison to the third quarter of 2021 when the New York City vaccine incentive program began ramping up. It is important to note that the revenue generated in Q3 of this year comes from several smaller card programs with recurring lows as opposed to being dominated by just a couple of large onetime cash disbursement initiatives. I will also point out that prepaid revenue is up 44% over the first 9 months of the year. Given the expectation Louis mentioned regarding the recognition of significant spoilage and breakage revenue in the fourth quarter, this will once again be a record year for prepaid and more importantly, a year in which we strengthen our product set, diversify our client base and expand our opportunities to grow in new large markets. Processing metrics for the quarter reflect the evolving nature of our business. As we previously mentioned, while the large New York City contract has wound down, a substantial portion of the revenue from this program is just beginning to be recognized as account balances become dormant and inactivity fees are assessed. This fee-related revenue should also lead to improved gross margins and cash flow which means we should see record prepaid results in the fourth quarter of this year and through the first half of 2023. With these benefits to both our top and bottom line extending throughout 2023. Programs like New York City represents a tremendous opportunity, and we have completed and will continue to compete for similar programs, some that are 10x the size of NYC. But the reality is most of our revenue today is being generated by longer-term programs that tend…

Thank you, Houston, and good afternoon, everyone. the card business continues to perform exceptionally well, fueled once again by PayFac growth this quarter. PayFac revenue was up 14% in the third quarter as volumes were up over 20% 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, total dollars processed were up 7%. I'm pleased to say that PayFac through October 2022 has already exceeded the total dollars processed in all of 2021. Every dollar process through the end of the year is incremental growth. Additionally, card operations were profitable for the fifth consecutive quarter, a trend we see continuing. APAC remains our growth engine. In the third quarter, we continued to sign new ISV agreements while maintaining a robust pipeline. Behind the scenes, we've been hard at work refining and iterating our product set, growing our features and functionalities. We now offer an even greater breadth of options to accept payment, whether that's a traditional card present, card not present, our QR code implementation or hosted payment pages. This last channel or hosted payment pages has been getting a lot of traction as of late. We could literally go to any merchant and with 0 integration, we can stand up a customized website within 12 hours they can accept payments on a mobile or web-based environment. It's an effective way for new customers to use and experience Usio without incurring any development expense. And it's proven to be an effective bridge whenever ISVs take longer than anticipated to integrate. We are also starting to sign deals that are touching multiple segments of our business. The large West Coast County program…

Thanks, Greg, and welcome, everyone. Thanks again for joining our call today and for your interest in Usio. I'm going to conclude today's prepared remarks with a brief review of our third quarter financial results before opening the call to questions. Revenues for the quarter ended September 30, 2022, were $16.4 million, an increase of 4% compared to the same period last year. Output Solutions was our fastest-growing business in the quarter with revenues up 32% from the same quarter last year driven by organic growth and cross-selling into the installed Usio customer base. Revenues for the -- for card in the quarter were 5%, once again primarily attributable to the strength of our PayFac business. Revenues in ACH and complementary services were down from a year ago when we generated significant revenues due to our participation in processing transactions for the cryptocurrency clients we serve. Prepaid revenues were down, primarily as a result of the winddown of the card issuance and transaction processing phases of our COVID relief programs. However, there's still approximately $18 million of total revenue to be recognized with our share of that amount being approximately $500,000 in Q3 and which is expected to more than double in the fourth quarter. Gross profits in the quarter were $3.1 million, down about $100,000 on a sequential basis from the second quarter of this year, while gross margins were at 19.1%, marginally lower than in the second quarter. This year, we have seen margins trending in this range as a result of a shift in product mix due to a reduction in the proportion of revenues generated in our highest-margin ACH business. A rebound in ACH and the recognition of prepaid spoilage and breakage should provide an immediate lift in margins. The terms of our agreement with some…

[Operator Instructions]. Our first question comes from Jon Hickman with Ladenburg.

A couple of questions. First of all, what was the cash burn or free cash flow for Q3 versus Q2?

So it's $1 million.

$1 million. Okay. I'm sorry. I'm confused. The free cash flow for Q3 was what?

Okay. So you're looking at the cash flow statements, operating cash flows. Is that what you're asking?

No. I just want you to tell -- Louis, I just said that the cash -- that there was an improvement in cash flow from Q2 to Q3. And I was wondering what that improvement was?

You're talking about the burn rate, right?

Yes.

The burn rate was up $500,000 right, versus $2 million.

Okay. And then my next question has to deal with the County program. In the discussion about that program, there was a mention of the use of cards along with payments and printing or did I misunderstand?

It's our card business, which is credit cards. So we print the notices. There'll be multiple notices printed before somebody initiates a payment, either a credit card, debit card or ACH payment.

LA County though, is LA County is what we're talking about.

Yes. But he's -- LA County is also a prepay.

They're also applying to prepay, but that's not what was being discussed. So that.

And that county went live in late September.

Okay. And then one last question. You said that you recognized $500,000 of spoilage in Q3.

That's correct. Yes.

[Operator Instructions]. Our next question comes [indiscernible], Private Investor.

Louis, I would like to know if [indiscernible] will ever get involved with credit unions and the processing and handling support they need.

So we have a lot of credit unions that we print mail for and produce e-statements.

Okay. It seems that some of the nonbank people that lean on the credit unions could use Usio's help because you have been involved with nonprofit people since 1998 as well as banked people. So if you could give me a glimpse of a chance that we might get more involvement with the credit unions. I'd appreciate it. I'll hang up and listen to what you say.

Yes. Credit are part of our business in print and mail and e-statements and we're always looking to expand that market. And hopefully, you'll see us do more with them. We're printing lot of checks for credit unions for disbursements. So hopefully, you'll see us do even more in that segment.

[Operator Instructions]. Our next question comes from Michael Diana with Maxim Group.

Louis, the MoviePass opportunities sounds very interesting. I think you said that about 100,000 of the 7,000 are going to go live in the fourth quarter and then probably the rest next year, is so should that come in sort of throughout next year or front-end loaded or what?

Launched in beta mode in 3 cities and that will continue throughout the end of the year. They're hoping to have 100,000 cards live by the end of the year. Those are reoccurring revenue -- it's a reoccurring revenue program, very exciting for us, have a very strong brand. And then they'll go into full general availability sometime next year. They haven't communicated to us when that will be. We're hoping it's going to be first quarter. They have signed -- they have pre-sign-ups for 775,000 people already because of the strength of their brand. Each one of those people are allowed to invite another 10 people. So they're going to have a huge customer base. When they are previously live with one of our competitors, that was their largest prepaid program. So we have -- we're really excited about this program and the brand is super powerful. So again, it's reoccurring revenue, and it's a lot of -- it should be a lot of transactions and it should be a very big contributor to us next year.

[Operator Instructions]. This concludes the question-and-answer session. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.