Good afternoon, everyone, and welcome to the Usio Earnings Conference Call for the Second Quarter of Fiscal 2023. All participants will be in a listen-only mode. [Operator Instructions] All participants on 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 call through August 28, 2023. I would now like to turn the conference over to Paul Manley, Senior Vice President, Investor Relations. Please go ahead.

Thank you, and thank you, everyone, for joining our call today. Welcome to Usio second quarter fiscal 2023 conference call. The earnings release, which we issued today after the market closed is available on our website at usio.com under the Investor Relations tab. On this call today are Louis Hoch, our Chairman 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. 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. 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 these forward-looking statements. During today's call, we will refer to non-GAAP financial measures such as adjusted EBITDA. Our earnings release includes a reconciliation of adjusted EBITDA to GAAP operating income. Management will provide prepared remarks then we'll have a question-and-answer session. But let me start with some highlights from this afternoon's release. I am pleased to report another quarter of record results with second quarter revenue up 31%, accelerating significantly from the 18% growth rate reported in the first quarter and our 12th consecutive quarter of revenue growth. And for the third consecutive quarter, we reported over $1 million of positive adjusted EBITDA, which was once again up dramatically from the year ago quarter. These results solidly exceeded expectations from the analysts and have us well on our way to meeting our fiscal 2023 financial guidance. In addition, we continue to be in excellent financial condition with cash up again this quarter which we believe is more than sufficient to support our growth objectives for the year. So another record quarter, along with strong bottom line results and positive cash flow. What you will further hear on this call from our team are the many opportunities in our pipeline that illustrate how our strategy is working and why we are extremely excited about the future here at Usio. Lastly, I'd like to announce that Usio has initiated a comprehensive ESG process with the goal to issue our inaugural ESG report sometime early next year, reporting on the progress that we will be making in this important area. Now, I will turn the call over to Louis.

Thank you, Paul, and welcome, everyone. I want to begin by reiterating Paul's key points that not only was this a record quarter in terms of current financial performance, but it was also another quarter of significant progress in expanding our franchise and planting the seeds for even a better future performance. For those reasons, we today are reiterating guidance for revenue growth in the 18% to 20% range this year. Results once again reflect our diversified business strategy, diversified in the markets we serve and the payment channels that we offer. This quarter results were led by performance at prepaid, where revenues were up 276% and Output Solutions which had another 20% growth quarter. Prepaid continues to benefit from growth of the underlying business, aided by a growing stream of residual revenues from expiring card programs. As Houston will discuss, we are bringing on numerous new accounts with both diverse needs in diverse end markets as our reputation and technology within these markets continue to grow. While in this era of high tech, we are very proud of our advanced technology not only a prepaid but across Usio, we are equally, if not prouder of our high-touch customer service strategy. In all of our businesses, paying attention to the customer, is a corporate imperative. Output had another great quarter with revenue up 20% and bottom line profitability significantly improving. Keep in mind that unlike the first quarter where we had some unique programs such as printed tax documents, the second quarter did not have similar programs putting that 20% year-over-year growth and better perspective. The Output growth strategy is also customer relationship focused, for instance, a new relationship with Fun View, a cloud ERP system that is provided to local governments resulted in the addition of 30 new cities…

Thank you, Louis, and thank you to everyone participating on our call this afternoon. As Louis noted, prepaid had an exceptional quarter, nearly tripling revenue while growing load volume by 48% and purchase volume by 51%. While revenues benefited from the breakage earned on inactive New York City incentive cards, load and purchase volume trends reflect the strong growth of new and existing client card programs. June was our best month ever for both prefunded card loads and transaction volume and early figures show continued growth in July. Importantly, this load and transaction volume is largely coming from longer-term programs with recurring and/or larger card loads. These include guaranteed income and other multiple load cash assistance programs as well as corporate expense and other specialty card programs. As Usio's card issuing business matures, we believe it's important to build a base of programs that will generate longer-term recurring payment volume. Admittedly, there's a trade-off here. Single-load card programs, especially with loads of $100 or less generate higher revenue as a percentage of load volume than do recurring and larger load program. And typically, single load program revenue is higher gross margin. Although from a net profit perspective, the additional gross margin is partially consumed by higher customer service and operational expense as a percentage of loads. That said, we're confident that continuing to focus on and shift toward longer-term recurring load programs is the right long-term decision. These programs and clients are less price sensitive and have higher switching costs. Building a business that is more defendable and more stable will ultimately be more valuable. That said, we certainly don't plan to turn away any single load card programs. We see our success is being driven by our operational execution, our proprietary processing platform with the flexibility and capabilities it…

Thank you, Houston, and good afternoon, everyone. Card revenues were up once again in the second quarter, led by a 26% growth in our PayFac business, where virtually all of our efforts and resources are being concentrated. For the quarter, dollars processed were up 2% and transactions processed were up 15% from a year ago. Louis noticed some nice recent wins with governmental entities, all of which are from a very strong ISV relationship. We also added a fitness exercise practice management ISV whose software is being rapidly adopted by gyms and fitness centers. To illustrate the dynamics affecting our implementation process, and to use one of my dad's analogies, this was way more than the carpenter's old rule, measure twice and cut once. It was closer to measure 14x. That's okay. While competitors may have bought and walked away, this is what makes us different, and we fully expect this to be a long and mutually beneficial relationship. There was an equally exciting new implementation with an agricultural and rent supply company. They're already set up with ACH and they're now switching all of their e-commerce transactions onto our card platform. Our expectation is that eventually, they will move the remainder of their payment needs, primarily on-premises to Usio, which could be quite significant. In addition to our strong relationship with this firm, they like the flexibility that Usio provides. And of course, we remain price competitive. On the product side, we've made a significant upgrade in our card-present transaction device which we believe will drive incremental revenues. And I think now we have the strongest prospect pipeline we've ever had, including opportunities arising primarily from trade show attendance with organizations in the veterinarian, fundraising and waste industries. As with all of the Usio business development efforts, our success is primarily a function of the variety of payment channels and the strong relationships we are building in the market. For many of our new accounts, we may be their first payments platform. In addition, there's a lot of cross-selling taking place. For instance, as a result of their relationship with Output Solutions, we are talking to a large player in the printing market about how to provide an electronic payment solution to complement their existing business. And in May, we added Stephanie Gonzales to spirit our marketing efforts and amplify our various initiatives. As previously noted, in the short term, results can be impacted by the pace of new ISV implementations as well as the rate at which they ramp. Fortunately, as we grow our pipeline and engage with an ever greater number of ISVs, the rate of implementation continues to improve, so we are optimistic about the second half of the year with revenue growth returning to the strong trajectory for the last several years. With that, I'd like to conclude my remarks and turn the call over to Tom Jewell, our Senior Vice President and Chief Financial Officer, to discuss our financial results.

Thanks, Greg, and welcome, everyone. Thanks again for joining our call today and for your interest in Usio. Let me quickly provide some color around this quarter's results before opening the call to questions. Revenues were up 31% to a record $21.3 million, driven by strong growth in prepaid and output solutions. Credit card revenues were up 3%, ACH and complementary services were up 5% this quarter after being down the last few quarters. Gross profits of $5 million were a quarterly record for the third consecutive quarter and margins expanded 340 basis points from a year ago. The gross margin improvement reflects a higher contribution from breakage and spoilage, which significantly improved margins in the prepaid segment growth in our high-margin ACH revenues as well as strong margins at Output Solutions. Selling, general and administrative costs were basically flat with the year ago period, and are up just slightly more than 1% for the first half of the year. For the third consecutive quarter, we generated over $1 million in adjusted EBITDA. For the quarter, we reported $0.01 per share of GAAP EPS, while also reporting $0.01 per share of GAAP EPS for the first six months of the year. Non-GAAP adjusted operating cash flows, as described in our 10-Q and earnings release was $1.5 million for the six months ended June 30, 2023. Our cash position at the end of the quarter was $6.6 million, up approximately $900,000 over the first half of 2023. For the first half of the year, revenues were up 24.4%. Gross margin has expanded 350 basis points. SG&A is up 1% and adjusted EBITDA was $2.2 million compared to a loss of $875,000 for the first half of last year. I do want to call out our efforts to drive interest income where we have employed investment suites to generate over $300,000 of interest income over the first half of the year. In July 2023 alone, interest income was $160,000. As Louis noted, we expect to meet our revenue guidance for the year but expect to see a slight slowdown in revenue growth and gross profits due to declining breakage and other items. With that, I will turn the call back to the operator to conduct our question-and-answer session.

We will now begin the question-and-answer session. [Operator Instructions] The first question today comes from Scott Buck with H.C. Wainwright. Please go ahead.

First one, I was looking if you could give us -- I was hoping you could give us a little bit more color around what you're seeing with MoviePass and maybe how that business has performed versus expectations, granted, it's early.

Yes. Scott, this is Houston Frost. I think generally speaking, MoviePass has performed in line with our expectations. They've -- we've continually seen their volumes ramp up. Ultimately, they're going to be a fairly significant client of ours. I mean it's hard for me to say, they're going to be number one, number two, number three, number four or number five. But they'll be in the top 10. And I think last quarter, just by payment volume, they were already in our top 10 clients. So, it's a long-term recurring revenue type client. It's not a New York City, where we're going to make a ton of revenue one quarter and then we watch it roll off or away from breakage at the end of it. It's going to provide consistent revenue month-over-month, and that revenue should continue to grow from here.

Houston. That's helpful. Second one, I wanted to ask about gross margin. I know it's mix-dependent, but curious, given the progress you've made so far, where can we expect to see gross margin go over the next 12 months or so?

Are you referring to prepaid? Specifically, you're referring to company-wide Company-wide?

Sorry, company-wise.

Take that question.

There's obviously, the big component is the mix. And the last few period quarters have been very positive in terms of prepaid prices. Output Solutions has been pretty consistent. It might drop a little bit depending really on the pickup in the ACH business.

All right. That's helpful. And then last one, I just want to ask quickly about the acquisition environment. I mean, is there anything out there that could potentially be interesting for you guys? Or are you strictly focused on the organic business?

We look at deals all the time. We don't have anything in the hopper, but we're open to acquiring more companies. We have very strict criteria. And nobody's lately has been able to meet that criteria.

All right. That's helpful. I appreciate the time and congrats on the quarter.

The next question comes from Michael Diana with Maxim Group. Please go ahead.

My first question is on expenses. So, I think Greg mentioned that you hired a senior marketing person in CapEx you're obviously adding -- spending more money for growth and yet the G&A expenses are very flat, which is great. What -- there must be a -- where there are pluses, there's got to be a minus to offset it somewhere. So what are some of the things maybe you're doing to keep that G&A number well?

Well, the first thing is we hired a new head of marketing for the Company, and that was a replacement. So that doesn't increase SG&A. And then we hired a new senior sales people. We are always looking for experienced salespeople across the organization. So, you'll see us continue to add sales positions. But we're continuing to scale where we need to scale, but we're definitely at the point where we have operating leverage, where we're leveraging our fixed costs and our volumes are going up. So that's really helping out with OpEx in general.

Okay. Great. And Tom mentioned you're generating interest income, which I noticed went way up from sweeps. Could you just tell us a little how that works though?

It has a lot to do with inflation and the Fed. And it may be somewhat temporary. But we've been -- Tom and his team have been really doing well, investing our deposits in a safe manner that are yielding good interest. And we think that interest amount will even go up this quarter.

All right. So it's not necessarily the sweeps being more efficient. It's interest rates going up or some combination about...

It's definitely a combination of both. Like we have multiple banks and we basically went through all the banks and are sleeping the money, and then you also have the compounding effect of the higher interest rates. And just talks about his loan increases, everything we do as we grow business as business changes, all of that factors into the incremental interest income.

Okay. Great. And then Houston, you mentioned again, I mean, you've mentioned for guaranteed income programs. Can you give us an update on whether that's something that's growing as far as number of programs or individual programs?

Yes. I think broadly speaking, absolutely, it's growing. In fact, I guess, it was early June. We were at a conference in Chicago -- called the big conference basic income guarantee. And it was almost surprising to meet and know that, that conference has been going on for almost 20 years, I believe, but they were just now discussing private scale, full-fledged guaranteed income programs. So for -- it was just an interesting context to hear about how they've been talking about these in kind of a theoretical or academic kind of way for well over a decade and we've participated in the very first real pilot program is the comp and pledge a couple of years ago. So what we're seeing are pilot programs turn into larger programs and also being extended and even just saying that there is no into those programs. And we continue to add to both through direct sales as well as by partnering with service providers that are kind of servicing the nonprofit and local government space that covers them. So very positive trends there, and we absolutely expect it to continue I think if there's anything on our mind is that the continued growth will likely lead to increasing competition in the space. But no, I don't think guaranteed income programs are going away. I don't -- I think direct cash assistance is only going to continue to go up from here, just broadly speaking.

Next question comes from Jon Hickman with Ladenburg. Please go ahead.

Hello. Can you hear me okay?

John.

Louis, would you elaborate on your comments about headwinds for ACH in a couple -- in the coming quarters?

So ACH absent Voyager continues to grow. So if we take Voyager out in the mix, we're continuing to add new accounts. And those accounts are actually producing more than they would they did last year without Voyager. So ACH is doing well in that aspect. It's -- the comparables year-over-year right now are tough, and they will be for Q3 because we still do a lot of work for Voyager during Q3. But Q4, you'll see the comparables even out, and we should do well from there. We do have initiatives. We're implementing the Clearing House network. We're implementing the FedNow. We do believe that some ACH traffic will go to those real-time methods. We're early entrant in that -- in those two payment channels. So because we're early, we'll get some new business out of it. And all that goes into the ACH and complementary services bucket. So you're going to see some growth there.

Okay. And then on the PayFac side, you mentioned the ag supply -- was that an ISV? Or is that a retail chain?

It's actually more of an enterprise account, not a pure-play ISV, but given the size and the requirements that they had, it was a good fit for Usio, but to be clear, it's not an ISV.

Okay. And then let's see. I had one more brilliant question. What was it? I guess that's it for me.

[Operator Instructions] The next question comes from Gary Prestopino with Barrington Research. Please go ahead.

Louis my questions were all around this FedNow. Is this going to be a positive for you? Or does this take away from your ACH business?

It's going to pull away some ACH traffic, not much. I mean, ACH is still the cheapest method to send a payment. ACH, you can still do same day. So it fits for a lot of different applications. Nobody is going to pay their mortgage real time or their life insurance real time. It's that same day or next phase fun. So ACH is always going to be around. In fact, ACH globally, the volume continues to increase. And now FedNow, anything with real-time payments is definitely going to grow in we're there. And we have a strategy being diverse in the payment channels that we offer. So we're going to be implementing FedNow. FedNow is opt-in program for banks even though every bank has access to a Fed terminal, it doesn't mean that they can accept FedNow payments. So it's going to be a limited rollout just like the Clearing House has been a limited Fed rollout. So the Clearinghouse is the network that Zelle runs on. And I'm sure if you've used that before, you realize that you can't send payments to everybody. The Clearing House today is primarily just credits and segment FedNow and for it to be effective payment mechanism it needs to be credit and debit. And -- so we'll see that the debit -- once a debit portion rolls out, then the will have more applications available to it. But we're implementing both. And -- we don't care which one wins. We think the margins are going to be similar to ACH. And we think our ACH business in itself is going to continue to grow.

Well, that's what I'm kind of asking, I mean you kind of kind of danced around it here. I mean with your ACH business, as I understand it, that is two or three days payment like we said on a mortgage, FedNow is instantaneous. So you are -- will be capable of doing both ACH and FedNow once you hook up to -- way I realize FedNow has not proliferated. It's just recently come out. But if there's a business that's going to be pulled away, what would it be pulled away? What are you doing right now that has had same-day settlement.

So, ACH is -- we can do same day ACH. We do next day ACH, that technology exists, and we do that every day. We do a lot in real-time payments today. We call that PINless debit. That's the same technology that you would use if you're making a Venmo payment with somebody, that's PINless debit. It goes across the debit rails. So, it doesn't really matter. When you're looking at UCO as a company, it doesn't really matter what payment method is going to win. We're involved in every one of them. And FedNow and the Clearing House, once they implement debits will become -- have more applications. Right now, the Clearing House is good for spending money and it's not good for somebody receiving a payment, a merchant receiving payment. So Clearing House or Zelle is pretty much person-to-person payments. So you can see they've limited themselves in the way they're rolling out. But when they get debits, it's going to be important, and it will shift. The payment world shifts all the time. We had a big shift in COVID, where we went from people willing to insert their card or swipe their card to contactless. Houston's team before COVID would issue more plastic cards after COVID, we issue more virtual cards. People really want to touch their car. So it didn't matter that, that shift occurred within prepaid because we were in both channels. And that's important to understand about our company is that we believe that we need to have all channels. And it's very unlike our competitors.

This concludes our question-and-answer session and concludes the conference call. Thank you for attending today's presentation. You may now disconnect.