Usio, Inc. (USIO) Q4 2025 Earnings Report, Transcript and Summary

Hello, and welcome to the Usio's Fourth Quarter and Fiscal Year 2025 Earnings Conference Call. [Operator Instructions] Please note, today's event is being recorded. I would now like to turn the conference over to your host, Mr. Paul Manley. Please go ahead, sir.

Thank you, operator. Good afternoon, and welcome to Usio's Fourth Quarter and Fiscal 2025 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 with me today are Louis Hoch, our Chairman and CEO; and Greg Carter, Executive Vice President of Payment Acceptance and our Chief Revenue Officer; Michael White, Senior Vice President and Chief Accounting Officer; and Jerry Uffner, Head of Card Issuing, will also be available during the question-and-answer session. Let me remind our listeners that certain statements made today during the call 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. So let me start off today's call with some highlights from this afternoon's release. It was a solid quarter, in line with our commitment to shareholders to deliver a stronger second half of the year. Revenues were up both sequentially and on a year-over-year basis, with record growth accelerating to 8% in the fourth quarter. This led to a 3% increase in revenue for a year, but excluding revenue associated with interest, revenues from products and services were up 4%. We set a record for total dollars processed in the year, which were up 19% and transactions processed were up 30%. As has been the case over the course of the year, revenue growth for the quarter was led by our ACH and card businesses. ACH was once again our fastest-growing segment, revenue increased more than 30% for both the quarter and the full year, driven by new client implementations and strong growth in PINless debit. For the year, ACH had a record for dollars processed, up 22%, transactions up 29% and returns, which were up 31%. PINless debit dollar process was up 81%. Card revenue increased 7% in the fourth quarter and finished the year up 3% with continued PayFac growth driving performance. Card also reported record processing volume and transactions. Our Output Solutions finished the year with strong momentum, with pieces mailed up 11% and electronic documents processed up 18% in the fourth quarter. This led to a 6% increase in revenues for the quarter so that revenues ended up flat for the year. Although card issuing revenues were down in the quarter, they improved relative to the third quarter. Card issuing also continues to improve its profitability. Weakness in card issuing in 2025 was almost exclusively attributable to the indirect acquisition of a reseller's amusement card program. This transaction occurred early in 2025, this should provide a relatively easy 2026 comps, which we anticipate will help card issuing's 2026 results reflect the recovery staged over the balance of the year. The majority of the revenue in the quarter was generated from ongoing programs with the primary exception being certain card issuing programs with governmental entities. No single client accounted for more than 10% of total revenue, reflecting the diversified nature of our customer base. From an account perspective, attrition remained very minimal. Operating cash flow for the year was $1.5 million. These proceeds were used over the past year to invest in expanding both our tangible and intangible fixed assets as well as for over $1.1 million in share repurchases. Though down from a year ago, we still have nearly $7.5 million in cash on hand positioning us to invest both inorganic and nonorganic expansion opportunities. In the fourth quarter, we used stock for the $500,000 purchase of post credit. Bottom line, we still have plenty of dry powder for strategic development. In addition to positive cash flow, we also delivered another year of positive adjusted EBITDA and have now reported positive adjusted EBITDA for 3 consecutive years. Our guidance contemplates positive adjusted EBITDA in fiscal 2026 as well. All in all, a solid growth year with record revenues and record operating performance. We believe 2026 is the year to take another big step forward with new initiatives to increase our share of our customers' wallets, build a portfolio of recurring revenues and to introduce new products and services that only improve on the infinity that we already enjoy with all of our clients. This is a strategy that builds value. Now with that, at this time, I'd like to turn the call over to Greg Carter.

Thank you, Paul, and good afternoon, everyone. It was another record quarter and year for card as we reported all-time record quarterly and annual transactions and dollar volume processed led by our continued focus on PayFac. As a result, revenue growth net of our legacy portfolio was 13% for the quarter and 7% for the year. That's been card's mantra, strong processing volume and solid PayFac revenue growth, which resulted in steady, predictable reoccurring revenue growth built on the foundation of primarily ISVs who are loyal to Usio and most frequently are growing their own client base and consequently processing volume with us year after year. Since joining Usio, I've seen our market reputation and awareness steadily increase. This success can be attributed to our multipronged sales and marketing strategy that incorporates both traditional as well as creative and new age digital marketing tactics. For instance, our SEO results continue to improve. We are leveraging the success and recently, we were added to the G2 platform, which is one of the largest online influencer reference sites. We're already starting to get quality leads from software companies that are searching on these sites, specifically for payment processing. It's not more effort, it's smarter effort with more surgical precision, something we preach from day one. Another growth lever is Usio ONE. Usio now is essentially fully integrated. The idea is to mine our existing relationships to uncover opportunities where other Usio services may be needed. This is a mandate to increase our share of our customers' wallet. We've made changes within the sales structure that's going to improve our throughput and accountability. In addition to our efforts, Houston Frost is now focused almost exclusively on new product development that will also increase our share of the customer's wallet. Louis will provide some insight on how the post credit acquisition fits into the strategy and is the ideal platform to supplement and accelerate our existing efforts. The proof is in the pudding. So let me offer you some examples of our new agreements that have risen from this strategy. I've talked about our growing backlog of new customers that are in various stages of implementation, and I'm pleased to report that many of these implementations are complete and are processing volume with us. For instance, we completed the implementation of a national online specialty sports goods retailer. This is a straight merchant processing account that we expect to add meaningful volume this year. In addition, we completed the rollout with a multistate building supply company. All their stores have been boarded and processing volume is correspondingly on a very attractive growth trajectory. Finally, a quick note on the outstanding progress of our new filtered spend program, which was a massive implementation. It's up and running with thousands of bodegas and smaller grocery stores now able to accept health care assistance cards. It allows users to buy over-the-counter pharmaceuticals using a specific health care spending account. The takeaway is that we successfully boarded well over 2,000 of those merchants during 2025 that are now live. There are over 8,000 more target merchants that are involved in this program and now that all the complex initial interfaces have been completed, we are open to board the remaining locations through mid-summer 2026. I used to say that Usio was the best kept secret in payments. I'm not so sure that's true anymore. It's also reassuring to see us more widely appear and more quickly climb among various surveys that rate payment processors as the number of successful implementation increases, so does the interest. Now we need to capitalize on this interest to continue to deliver value to our clients and profitably grow Usio. Now I'd like to turn the call over to Louis.

Good afternoon, and welcome, everyone. I'm proud of our accomplishments and progress in what was a record 2025. It was a year in which we achieved the highest revenue in the company's history. And operationally, we set numerous full year transaction and processing volume records across many of the company's operating metrics. Of equal importance, we met our commitment to shareholders by posting a second half, that was an improvement over the first half. These records bear out the message in my shareholders' letter that throughout 2025, we executed on the mission of delivering secure, scalable and integrated electronic payment and embedded financial solutions. Time and again, our technology has been chosen by leaders such as MasterCard, Apple, the City of New York, State of California for the ability to meet this mission. And I'm very proud of our market reputation we have built on this foundation of trust and reliability. This is the value in our mission. And as Greg alluded to, is becoming increasingly recognized. We continue to work to unlock the value by building on this legacy with innovative new technologies that meet and sometimes even exceed customer requirements. Our strategy is to pursue opportunities to increase the proportion of customers that need these services on a reoccurring basis, an area where there is significant opportunity to achieve this objective through increased penetration of our existing customer base. Greg is leading our Usio ONE initiative with the objective to increase cross-selling. At the same time, Houston is developing new products and services that similarly cater to untapped customer needs. One of the most exciting new opportunities to capitalize on our strategy was the acquisition of PostCredit. It supports our strategy to offer our customers a comprehensive business banking solution while enhancing our visibility into managing customer risk. Today, we move over $100 million every day by virtue of our clients' processing agreements. With Usio's business banking solution, we can effectively become our clients' depository institution. When they log on to our business banking solution, clients will be greeted with a dashboard clearly illustrating their account. It will also enable them to utilize their funds for any of our services, such as the issuance of corporate cards and ACH disbursement or even selling accounts payable. When this goes live later this year, all new clients will be encouraged to use our business banking solution to prefund their Usio accounts and receive their daily settlement funds. So when they log in, they're seeing a full suite of banking tools, representing another cross-selling opportunity. This reflects our ongoing commitment to developing innovative payment solutions, including early initiatives such as virtual cards and our Consumer Choice platform. As we roll out an enhanced version of Consumer Choice with significant upgrades, including Venmo, PayPal, Push to Debit, Instant Withdrawal, we are seeing increased interest from both new and existing clients. As a result, card issuing is now actively engaged with large commercial and governmental entities in a need of versatile and dependable disbursement platform, especially one that offers modern payment rails. Consumer Choice is one of the most robust disbursement solutions in the market. In fact, one of our larger prospects was virtually stunned to learn that we are integrated with all the major wallets, something they said was missing from most other comparable payment disbursement platforms. Mastercard needs to be recognized as they continue to refer business our way, any of which would layer nicely on top of the 44 deals and the 53 new implementations card issuing completed in 2025. After a year that was disrupted by the indirect acquisition of a large amusement park client from one of our resellers, it is nice to see card issuing recovery. Card issuing has a solid base that is stable and growing. There are many new clients that require complex integrations that were implemented late in 2025 and have not yet scaled. So even without any contribution from these large opportunities, we expect card issuing to make a nice rebound. All of these growth initiatives should also benefit Output Solutions, which finished fiscal 2025 with strong momentum, including growth in both revenue and pieces distributed and a 10% increase in higher-margin electronic document distribution. In 2025, they added 37 new clients, primarily in their core markets with vast majority representing reoccurring business. That has created momentum into 2026. In the -- early into the year, they are already setting records for the number of pieces mailed. Output also expects to put a new printer into operation this year, which will run at a better than twice the rate of our existing printer and a better resolution while reducing the quantity of the supplies consumed. This positions us to expand to new markets, pursue additional opportunities, including the production of marketing materials. Since many clients prefund their postage, this also creates a natural opportunity to introduce our business banking solutions. We believe this will create additional cross-selling opportunities through Usio ONE initiative, including the upcoming dedicated marketing campaign. The star of the quarter was ACH. Another quarter of better than 30% revenue growth, leading to 33% full year revenue growth. We continue to set records in virtually all of our operational metrics as we add new mortgage servicing and other customers and generate explosive PINless debit growth, which saw volume increase by over 80% in 2025. And there is no slowdown as it looks like Q1 could be PINless and ACH's best quarter ever. As you can tell, I'm excited about Q1 and all of 2026, the pipeline is strong across all of our businesses, and we are working diligently to increase the share of the wallet. Those incremental revenues offer attractive margins, which is our most direct path to faster growth and improved profitability. We've got a lot in motion. So it would be critical this year to focus on completing those tasks that offer the most immediate return on our investment. For that reason, we're being careful on our guidance. The company continues to expect 10% to 12% growth in revenue in 2026, while also anticipating continued positive adjusted EBITDA. I thank our shareholders for their trust and support. We remain committed to building a stronger, more innovative and more valuable Usio. Operator, you can now open the call to questions.

[Operator Instructions] And the first question will come from Barry Sine with Litchfield Hills Research.

So you've issued guidance for the year, 10% to 12%, which is in line with what you're historically capable of. I don't know if you have this number, but I know that 2025 was impacted when one of your customers lost one of their customers. It wasn't yours directly, do you have a pro forma revenue number for what 2025 would have looked like had that single event not occurred?

So the prepaid -- our card issuing division was down 22%. We were estimating really a similar number to -- if that one customer would have stayed, we would have around $3 million for that -- that lost customer. So that's where we -- that's the kind of revenue that we lost with that.

It's $3 million to $5 million.

So add about $4 million back to what you reported and then calculate the -- that growth, and that would be kind of a normalized growth if that one event had not occurred, fair enough.

Yes.

Yes. Okay. Looking forward to 2026, I know that your key strategic initiative is the reorganization of the sales force and under the Usio ONE initiative, and you've also changed their compensation models to make it more about bringing in new business rather than servicing existing. Could you -- and I think you're about a year into that process. And I understand you've had a -- your second annual all-hands meeting. Could you give us an update on how that process is going. How is the team adjusting to that? And how are the customers responding now that you're a bit into Usio ONE?

Yes. Barry, it's been a good transition. We recently completed our annual meeting here in San Antonio. As I said in my opening remarks and my comments, we've made some changes. We've actually remove some positions from the sales team. We're also doing consolidated sales outreach campaigns. For example, the first week of March, it will be an all-hands effort, calling states contiguous to Texas for taxing authorities. This is in an effort to drive more output business. The deal that I mentioned earlier about filtered spend, which is the large bodega of health care spending that actually originated from one of our issuing sales individuals. So -- and that's a pure acquiring deal. So I would say that the Usio ONE initiative is well underway. And most, if not every individual, has wins under their belt for other areas of the company, meaning that if they were acquiring, they've sold issuing deals and if they were output, they've sold both issuing and acquiring deals. So very happy with the progress.

Okay. And then also looking on 2026. In the -- in the press release you put out in January, you talked about several new large customers where you've already signed them. And I'm wondering if I can get a little more detail on that, what kind of verticals are they in? What are the revenue from those new customers look like once they're fully onboarded? What is the current onboarding cadence with those customers? And what is the timing, which quarter in 2026 are we likely to see that revenue really start to kick in? And when will it be fully kicked in?

I think you're referring to the 3 large card issuing projects that we talked about in the shareholder letter. The largest of the 3 is a school voucher program or a state, and it will have a lot of distributions, and that will affect prepaid cards revenue and ACH revenue. That one is scheduled to start in Q3. The other two?

One's a major bank, and we're looking at that going live in Q3 and the other one is a top payment company that we're partnering with that shows us for Consumer Choice to do -- I can't get into a lot of detail, but refunds to individuals.

And that large bank forte is doing federal payments.

Yes.

So two of those, you mentioned Q3. So it sounds like the year -- the growth will be more back-end weighted for 2026 with those kicking in. Is that fair?

You're going to see some growth in Q1, and you will see those programs go live in the third, fourth quarter and give us a nice jump at the end.

And then my last question, again, going back to the 10% to 12% top line growth guidance. What's already booked? Where do you -- do you have customers that are signed, maybe not onboarded, you've already talked about some of those. How much of that 10% to 12% is already in the bag. You've got visibility on? How much of that to Greg's guys need to go out and win? How much of that is variable and dependent upon winning new customers?

Well, I would tell you that we've got tons of deals that are in implementation, if we could flush them all today, we'd be very excited for the year and probably raising guidance. We don't control when they go live. So we're always hesitant to answer a question like you're asking. So the quick answer is we have enough deals to meet our numbers. It's all about when they implement. And that hopefully, we don't get another surprise like a large customer going away because they went through an M&A activity.

Right. We'll keep our fingers crossed on that, Louis.

The next question will come from Scott Buck with H.C. Wainwright.

Thanks for the time. Great year for ACH. I'm curious, have you guys exhausted the low-hanging fruit opportunities here? Or should we expect ACH to be an outperformer again in 2026?

I think we've been pretty clear in our message that Q1 for ACH is going to be another record, which will be our third consecutive quarter of setting all-time records for ACH in the real-time payments department and PINless debit, that will also set a record, card processing will also set a record, so that includes PayFac. And so Q1 is going to be exciting. We think that ACH does have some momentum. We just recently talked a few minutes ago about school voucher program that we're going to do that's probably 50% ACH, 50% card. So we're continuing to be very excited about and real-time payments in general.

Great. And then you mentioned in the release, SG&A expenses were up 10% for the year compared to '24. I know that reflects some investment in the business. I'm curious whether that investment is over or you'll have to continue to make some additional investments here in 2026?

Yes. Well, when it comes to SG&A, our SG&A, our headcount is down compared to last year, and we'll see some savings. Hopefully, we're going to keep it flat. We'll see.

Great. I appreciate that, Louis. And then last one for me. just on Usio ONE. I'm curious, do you guys have specific cross-selling targets you're looking to achieve this year? Or maybe phrased another way, how -- what would you consider success of this program?

Well, I think we're already seeing some success as evidenced by the deals that we're talking about. It's really just more repetition. And this campaign that we're going to launch in a couple of weeks will further enforce or reinforce ONE business unit that's being Output's value proposition. But the unique thing about Usio is when we talk to any entity, we go at them now with a variety of options, meaning it's print and mail, it's issuing, whether it be plastic or virtual, ACH or credit or debit. So it's becoming a natural, almost a pleasure to address these prospects because we're not a one-trick pony. So the success to me is going to be continued to look through the sales team and see the diverse contracts that are coming in. As I said earlier, we've got traditional or siloed salespeople that are now successfully signing contracts in those other business units. And as long as we continue to do that, I would consider that a success.

The next question will come from Jon Hickman with Ladenburg.

I want to follow up on the SG&A question. Louis, you said you want to keep it flat, you mean flat '25 over '26?

Yes. Flat with maybe some moderate growth. But again, our headcount is down, we've been not replacing people when they leave or retire. And we're trying to do more with less.

Can you elaborate on the $500,000 jump between Q3 and Q4?

What was that, Michael?

There were some onetime expenses in Q3. You'll see remain an adjustment to our bad debt expense, which represented a big portion of that. We're now more in line and you shouldn't see that type of jump there, but that was a large piece of it. There was also some year-end expenses that were in there. Because Louis said, and just to clarify, what he said that our headcount is down over the last year, our 2026 headcount is down over 2025 headcount. So there is savings in labor that we're expecting in fiscal year 2026.

Okay. And the depreciation and amortization expense should be relatively flat year-over-year?

Correct.

[Operator Instructions] And that will conclude our question-and-answer session as well as our conference call for today. Thank you for your participation. You may now disconnect.