Usio, Inc. (USIO) Q4 2024 Earnings Report, Transcript and Summary

Hello, and welcome to the Usio's Fourth Quarter and Fiscal Year-End 2024 Earnings Conference Call. [Operator Instructions]. Please also note that today's event is being recorded. Now I'd like to turn the conference call over to your host, Paul Manley. Please go ahead, sir.

Thank you, operator, and thank you, everyone, for joining our call today. Welcome to Usio's fourth quarter and fiscal year-end 2024 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 with me today are Louis Hoch, our Chairman and CEO; and Greg Carter, Executive Vice President of Payment Acceptance; and our newly appointed Chief Revenue Officer. Michael White, Senior Vice President and Chief Accounting Officer; Jerry Uffner, Head of Card Issuing; and our Chief Product Officer, Houston Frost, will be available during the question-and-answer session. 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 SEC. Let me start off the call today with some highlights from this afternoon's release. As expected, our fourth quarter performance was consistent with our third quarter. Excluding interest income inputted to each of our business units, total revenue was up 3% for the quarter with growth in each Card, ACH and Output Solutions. Margins were up sequentially from the third quarter, primarily attributed to productivity and efficiency enhancements in both Card and Output Solutions. Expenses were relatively flat, and we reported GAAP net income of $600,000 or $0.02 per share, which included a $1.5 million ERC benefit. This was our third consecutive quarter of positive GAAP net income. All of our electronic transaction processing businesses grew, leading to another quarter of record total dollars processed, which exceeded $1.9 billion in the fourth quarter, a 36% increase from a year ago. And for the full year 2024, total dollars processed were up a very strong 33% to a record $7.1 billion. We also continue to generate positive cash flow. And in 2024, we generated $2.9 million of operating in the fourth quarter. We used some cash to repurchase stock during the year, including nearly $500,000 in the fourth quarter alone. And in the year, we repurchased nearly $1.5 million of stock. Even with these purchases and a modest year-over-year increase in capital expenditures, our cash position rose to over $8 million at year-end, and we expect cash to increase again this year. Louis will talk more about this and what it means about our confidence in our strategy, as well as the new share repurchase authorization the Board approved, as we announced today. This was a solid conclusion to a year we aggressively pursued new stable and recurring revenue to replace nearly $12.1 million in annualized revenue, which we lost from our large COVID incentive program, which expired earlier this year. We are also committed to improving profitability through better margins and operating leverage, as well as continuing to fund operations through positive cash flow. All of this progress puts us in a very solid position for 2025. At this time, I'd like to turn the call over to Louis Hoch.

Thank you, Paul, and welcome, everyone. As I reflect on last quarter, I have come to realize that our real story is not only in the current financial results. The real story is in the increasing strength of our organization, the steady improvement in our financial condition and most importantly, the unique capabilities we have both in terms of innovative technology behind our products and solutions as well as an organization that is uniquely positioned with a portfolio of diversified electronic payment solutions. Consequently, it should come as no surprise today that I'm happy to announce a new initiative that leverages our competitive strengths to further unlock Usio's full potential and value, and we call it Usio One. Usio One will unite and integrate all of our products, services and resources under one brand. This will enable us to better leverage our innovative technology and extensive capabilities to gain an increasing share of our customers' electronic payment spend. Instead of individually selling ACH, Card or Prepaid, we will now be selling Usio as a comprehensive solutions provider that offers a multitude of products and services to meet a wide range of customers' needs. Our unified brand will make it easier for customers to understand our value proposition and will be supported by a seamless sales support and onboarding process. One Usio brand with one unified IT team, one risk and compliance team, one sales team, one support team and one marketing team. Already, Usio One initiative has developed a new client onboarding system that has a single universal application that can be used across all of our product platforms. This should improve cross-selling success by making it easier for an existing client to add additional Usio products. For instance, although we have many card-issuing clients that do funds disbursing, only four of them use Usio for ACH. Another Usio One initiative will shortly launch as a proprietary checkout page tool, which will enable merchants to upload and send invoices. There are other new initiatives underway to complement and capitalize on Usio One. For example, we have consolidated our risk and compliance teams and are adopting AI for processes like fraud protection, improving marketing and sales efficiency as well as increasing our own efficiency and productivity. As example, we are using AI-driven analysis as a means to improve merchant conversion rates. In addition, one of my personal goals is to test a biometrics AI-driven application by the end of this year. As one of my first actions implementing this new initiative, I've named Greg Carter to newly created position of Chief Revenue Officer. All of our sales and marketing resources are now under Greg's direction, and his job will be pointed in the same direction. I'm very excited to get this new initiative underway, and I'm even more pleased to have Greg leading it. So now I will turn the call over to Greg.

Thank you, Louis, and good afternoon, everyone. Card remains on its growth trajectory, led by PayFac. Total card processing dollars were up 15%, and transactions processed were up 34% in the quarter, leading to record full-year processing volume of over $1.5 billion, an increase of 10% from fiscal 2023. Again, Card remains focused on growing our PayFac business, where dollars processed were up 44% in the quarter, leading to another quarter of outstanding PayFac growth with revenue up 29%. For the full year, PayFac volume was up 28%, so that you can see the acceleration in PayFac growth over the course of the year. As Card's growth engine, PayFac now accounts for approximately 54% of total card activity. Our success continues to reflect our growing scale economies as the increase in new ISV programs naturally leads to more new implementations. We are enjoying success signing new ISV agreements, and this has benefited from our new marketing initiatives, especially digital. The steady flow of new accounts has enabled us to greatly offset the variability in our performance previously resulting from the timing of implementations. Now even if some ISVs delay implementation, there are sufficient deals in hand that we are always undertaking new implementations, a great path to rapid growth. So, for instance, as of today, we have 15 new ISVs that are in various stages of implementation, which is consistent from this time a year ago. This year has been an all-time high, so I can safely say Card will grow nicely again in 2025. PracticeSuite, which I have mentioned before, as well as another ISV that caters to associations and is strong in the legal vertical are two clients where we have developed strong relationships that are helping power growth. These are prime examples of how Usio can land and expand as these ISVs are now adding our ACH capability as another payment option for their merchants. Our second growth engine, the boarding of the ISV merchants is also benefiting from increased scale. Before concluding my remarks, I want to thank Louis for his confidence in appointing me as Usio's Chief Revenue Officer. I just recently attended a conference where I met with some of our clients that were using one of our solutions. I was somewhat surprised to learn they were not familiar with our other capabilities. Now with Usio One, as we speak with a single collective voice and work as one cohesive unit, there is tremendous opportunity to better leverage our various capabilities, both on the front and the back end. I think we can all also hold ourselves to a higher standard. As I've said many times, Usio is the industry's best-kept secret. I'm excited to continue to build on this very solid foundation and to lead the Usio One sales and business development efforts to accelerate growth. Now I'd like to turn the call back to Louis.

Thanks, Greg. Now that Paul and Greg have done a good job in reviewing many of the high-level results for the quarter, let me just add a few additional thoughts. ACH and complementary services are now in full growth mode and has quickly returned to being one of our best-performing products. For the 3 months ending December 31, 2024, ACH electronic transactions volumes were up 34%. It's fifth consecutive quarter of growth, while return check transactions processed was up 27% and electronic check dollars processed was up 44%. And for the year, electronic check transaction volume was up 18%, while return check transactions processed was up 17%. And the electronic check dollars processed was up 42%. Clearly, you can see how growth accelerated in the fourth quarter. As I mentioned last quarter, ACH has been one of the first beneficiaries of our integrated sales and marketing approach with increased transactions volumes from cross-selling adding to our growth rate in the quarter. Our goal is to achieve the same kind of synergy across the entire organization from the implementation of Usio One. Output Solutions followed up its rebound in third quarter with even stronger growth. The electronic documents processed were up 86%, while total pieces mailed exceeded 5.4 million, electronic-only documents delivered exceeded 20 million in the quarter. Consequently, output had a record year with electronic documents processed and delivered more than doubling, while electronic-only documents processed and delivered exceeded 80 million. This is -- this increasing proportion of electronic documents processing and delivery is an important driver as electronic documents are more profitable than print and mail. So not only does Output continue to add more of its bread-and-butter utility financial institutions and governmental entities clients to its roster, adding to its growing base of recurring revenues, they are also simultaneously increasing the amount of electronic document delivery clients. At the same time, last year, investing in new equipment has enabled Output to grow revenues while concurrently reducing costs. This combination of higher-margin revenue and reduced costs is showing up in significant profit improvement. Card issuing made tremendous progress in 2024, backfilling much of the roughly $12.1 million onetime revenue recognized in 2023 from the expired COVID incentive programs. Card issuing added nearly 70 new client partner agreements with a focus on longer duration clients so that there is now more volume arising from reoccurring revenue. Many of our larger client partners are implementing general purpose reloadable gift, health care and funds distribution programs. In addition, we implemented over 75 new card programs in 2024. Consequently, for the sixth consecutive quarter, prepaid dollars loaded in the quarter were over $100 million, with transactions processed up 36% and purchase volume up 7%. With a strong finish, prepaid card load volume was up 35% for the year and transaction volume was up 45% and purchase volume was up 26%. Both total dollars loaded and purchase volume were all-time yearly records. And through a number of new initiatives, card issuing margins continue to improve. Before concluding today's remarks, I'm pleased to announce that the Board of Directors of Usio has approved a new share repurchase program, adding another $4 million to the original authorization and allowing the company to purchase shares in the open market, private transactions and through other avenues. We made significant progress in 2024, and we believe it will lead to further growth in 2025 with organic revenue expected to increase 14% to 16% with steady improvement in our bottom line and financial position. I'm particularly excited about our new Usio One initiative, and the Board shares our confidence, authorizing an increase and extension of our share repurchase agreement. We appreciate your support as we continue to build value for our shareholders. And with that, I'd like to turn the call back to the operator to conduct our question-and-answer session.

[Operator Instructions]. Our first question today comes from Scott Buck from H.C. Wainwright.

Good afternoon, guys. Thanks for taking my questions. I guess, Louis, the first question I have is on the guide. Curious what your visibility looks like through 2025? And how should we think about revenue cadence through the year? Do we build to a stronger second half? Or is the strength kind of spread throughout the year?

It's definitely in loaded as these implementations start to come live. And our visibility for 2025 has changed a little bit, but we're still expecting great growth.

Great. And are we relying on a single or maybe two large customers to meet that 14% to 16% growth? Or is it more widespread?

Widespread.

Perfect. Thank you. And then second one, just on the repurchase authorization, how are you prioritizing repurchases versus reinvestment in the business or even potentially M&A?

Yes. Well, repurchases, we're authorized to do up to $4 million. The Board has given us that. And we will be making purchases in the market if the market conditions allow for that. And we're always looking at M&A deals, and we're just very picky on who we acquire. So, we continue to generate cash, and we can put that cash to work in many different ways, and M&A is one of them.

Great. And then last question for me. Just curious if you guys are seeing any change in your kind of sales conversations with maybe local or state governments, just given the change in the administration at the federal level.

From a PayFac side, not -- really not affected. But from the potential in the disbursement space, I think that might open some doors. But nothing -- I mean, nothing that we can really comment on now.

And ladies and gentlemen, I'm showing no additional questions. We'll be ending today's question-and-answer session as well as today's presentation. We do thank everyone for joining. Please have a pleasant day. You may now disconnect your lines.