Good afternoon, and welcome to the Usio Earnings Conference Call for the Third Quarter Ended September 30, 2022. 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 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 a cash position that was relatively unchanged from three 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 will start to take hold immediately in the fourth quarter. In particular, our ACH business, 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 highest in the company's history in the third quarter, and we have already processed more returns year-to-date than we processed throughout the entirety of 2021. So while overall ACH volumes may have been down, revenues were not nearly impacted to the same degree because of the mix of the quarter as well as continued improvements in revenues generated on transactions such as PINless debit. The underlying fundamentals of the ACH business are strong, and in addition to the better return check revenues, we expect to see growth in both our nonbank consumer and fintech lending customers, which typically increase in a slowing economy. There are similar transitions happening in the prepaid business. First, many of our older incentive programs are winding down, including New York City, where there is an estimated $14 million of unused balances on the cards outstanding and over $18 million on all of our programs. Over time, these balances are returned to the partner like New York City, but in the process, as a program manager, we are entitled to our share of those balances as income. But all those balances will be recognized as revenue when spoiled. In September, we started to recognize revenue from spoilage and breakage. In the fourth quarter and extending into next year, we expect to recognize and collect even more. In addition, we're extremely excited about our recurring revenue-based prepaid card relationship with MoviePass. This program, we were awarded as one of only two prepaid card processors that have the unique capability to perform external authorizations, allowing MoviePass to fund prepaid cards the moment a customer redeems credits for a movie within the MoviePass ecosystem, which allows for greater funding control and spend management. Under the agreement, we'll be charging a load fee when money is deposited on the card as well as receiving interchange fees when the card is used at movie theaters. MoviePass signed up over 700,000 users in its first week of launching its beta program which is evidence of the strength of their offering and their brand. MoviePass has alerted us that they are hoping to have 100,000 cards live by the end of the year. Eventually, we will be issuing cards to every customer on their entire platform. So when this program ramps sometime next year, we expect to see prepaid generating significant volumes and fees. We are confident that we will see renewed growth and even better profitability in our prepaid business. Output Solutions had an outstanding quarter. Since joining Usio, we have communicated about adding more sales and marketing resources and focusing on both new customers and cross-selling to the Usio customer base. The continued growth of Output Solutions indicates this has been a winning formula and things are only about to get better. We recently initiated a new relationship with one of the largest counties in the country, where we are printing and distributing notices for fines, for parking tickets, speeding tickets, court fines, and related items. In addition, for the estimated approximately one-third of those recipients anticipated to satisfy their obligation digitally, we will be processing those payments. Statistically, it appears that the county has to mail their notices several times before receiving payment, which makes this an even more attractive opportunity for Output Solutions. This is an outstanding win. But from a bigger and long-term perspective, this is a classic example of our ability to consolidate integrated solutions and products into a single ecosystem that has displaced the multiple vendors that the county had been previously working with. Finally, it was another strong quarter for our card business where PayFac led the way by being up 21% over the same quarter in 2021. We had our best quarter in both volume and transaction processed in the history of the company, all of which led to the quarter's revenue growth. Included in the big integrated solutions win for the large county, we expect to see meaningful growth in volumes and revenue in card solely from this new relationship. Meanwhile, the pipeline remains robust, penetration of the existing ISV merchant base is on the rise and volumes continue to grow from the constant increase in the number of merchants on the platform as well as the incremental growth of the merchants themselves. As I mentioned earlier, despite the loss for the quarter, we burned minimal cash, and we remain with a strong balance sheet with virtually no debt. With the spoilage and breakage expected next quarter, the majority of which will go straight to the bottom line, we expect the financial position to strengthen which will continue to fuel our investment in growth initiatives. All in all, it was another solid quarter as we continue to leverage our unique multichannel strategy to capitalize on the rapid expansion of the electronic payments market. We're still on pace to achieve our anticipated 12% to 18% fiscal 2022 revenue growth rate and rebuild the momentum into what we believe will be a very exciting 2023, especially with the visibility that the recurring spoilage has provided us. Finally, I want to express my condolences to the family of our co-founder and longtime Chairman, Michael Long, who passed on September 7. Michael was my mentor, confidant, friend, and business partner for nearly 30 years. Usio employees saw Michael as a teacher and a leader that they loved, respected, and admired. He will be greatly missed by everyone who had the great fortune to work with him. And now I'd like to turn the call over to Houston Frost.

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 loads as opposed to being dominated by just a couple of large one-time cash disbursement initiatives. I will also point out that prepaid revenue is up 44% over the first nine 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 represent a tremendous opportunity, and we have completed and will continue to compete for similar programs, some that are ten times the size of NYC. But the reality is most of our revenue today is being generated by longer-term programs that tend to be smaller in nature. We believe focusing on a more diversified group of programs that bring in recurring revenue is the right strategy. While we will certainly not avoid these larger opportunities with a more limited lifespan, we recognize the difficulties of these programs imposed on our operations as well as the volatility they create in our processing metrics and financial results. On the disbursement side, cities, states, and counties are continuing to increase their direct cash assistance programs. We are a leader in this market, currently managing almost two dozen direct cash assistance-related card programs. Many have an initial term of between two and three years with the potential to be extended much longer than that. Recently, we've added programs in Chicago, DC, Cook County, and the City of Evanston, Illinois. The Bridge project is an interesting illustration. It is New York City's first guaranteed income program designed to support low-income mothers during the first 1,000 days of their children's lives by providing them with consistent unconditional cash on a biweekly basis. We're building up a solid base of these longer-term disbursement programs and as the Bridge project and other previously described programs illustrate, there is a large market for our technology as these entities increasingly embrace the many advantages of dispersing funds using payment cards. We are also continuing to see volume increases with our corporate expense solution and are adding new clients, and health care is a large new market opportunity for the corporate card solution, where our virtual card offers an elegant alternative to some of the more antiquated systems used to process company-sponsored rebates today. We expect to see continued growth in corporate expense related purchase volume in 2023, which generates 60% to 65% more interchange revenue per dollar transacted compared to our consumer programs. In the consumer incentive and gift category, we have well-known names such as Mobile Money and Movie Pass that are beginning to ramp up card orders. In particular, MoviePass is an exciting opportunity as Louis previously mentioned. While the dollar amount of any one transaction may be limited, there is potential for widespread adoption and heavy usage. This program has multiple revenue streams so our revenue per transacted dollar may be the best across our organization. Because of the structure of the new MoviePass, there is no credit risk to Usio and we are certainly excited to see this program get underway. Mobile Money has similar characteristics. In their case, they came to us because of our ability to provision a consumer gift card product. This illustrates our ability to offer a range of services where some of our competitors are focused only on disbursement or corporate expense. With Usio, clients can choose from a variety of card program types. These partners' products require unique solutions for authorizing transactions, and we are one of only a few processors currently offering this type of solution. I also want to mention our Consumer Choice solution which has only recently been rolled out. We've signed new clients and our pipeline is building quickly. We plan to continue to make improvements and enhancements to the consumer choice solution as we monitor feedback from consumers as well as consider the needs and requests of our clients. Our ability to provide a solution that provides payouts through a variety of payment channels is an attractive value proposition that is gaining a lot of attention. It's not all about the technology bells and whistles. In a competitive market, our strategy follows the community banking approach. Relationships matter. We strengthen our relationships through execution, operational excellence, and our willingness to undertake complicated integrations that many larger firms refuse. We recognize that the lumpiness of large programs like New York City can skew a pattern of nice, smooth straight-line growth. But even without these volumes, prepaid revenues are substantially greater than pre-pandemic levels. Whether it is by virtue of new evergreen programs or the occasional larger opportunity, we believe that we are building a strong organization that will generate attractive growth and returns key to creating value over the long term. With that, I'll conclude my remarks and turn the call over to Greg Carter.

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 processed 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 signing 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 payments, 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 gaining a lot of traction recently. We could literally go to any merchant and with zero integration, we can stand up a customized website within 12 hours that they can accept payments on a mobile or web-based environment. This is 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 touch multiple segments of our business. The large West Coast County program is an excellent example of the benefit of having a combined output and payment strategy. This entity was previously using two separate vendors for their print and payment needs, but with our multichannel capabilities, Usio can provide both solutions. Recipients of traffic tickets, fines, property tax notices, and alike will have an option to make an electronic payment through our PayFac platform. As you heard from Louis, this program has made a very fast start out of the gate. It's a classic example of our investment thesis playing out why output is so strategic to the Usio payment ecosystem. There are numerous other opportunities for multiple product sales to other ISVs. Several are looking at our prepaid card solution. In each of these cases, the sum of the parts is greater than each of these individual businesses. So our efforts not only uncover PayFac opportunities but generate leads across the entire Usio organization. One of the new solutions we mentioned last quarter, Consumer Choice, is getting an extremely warm reception. We're discussing Consumer Choice with one of our large ISVs in the legal industry for their claims and estate management funds disbursement needs. Right now, they're sending out physical checks. Consumer Choice gives the recipients of these funds the flexibility to receive their money via ACH, virtual or physical Mastercard, or push debit. This saves our ISV partner money and simplifies record-keeping while offering their customers the choice in how they ultimately want to receive funds. We are integrating with new partners and are in the final stages of a new sponsor bank relationship that will enable us to target large and completely new markets, allowing us to board margins we haven't been able to in the past. This will increase our market flexibility and autonomy and create new growth opportunities as we penetrate new markets. These are just a couple of examples of how we continue to broaden our products and solutions to respond to emerging market trends, enhance our value proposition as a one-stop shop, and increase our revenue streams. The number of integrations and onboarded merchants was lighter in the third quarter than we've experienced recently. However, we do see lighter traffic and lead volume in summer months, but the pipeline and what we have pending is still very rich. During this time, we shored up some other areas of the business, specifically the back office. I can't say enough about our back office and how it's evolved not only in customer service but also in being proactive in generating revenue that previously did not exist because of their constant outreach. It is our human touch, and now we can point to real revenue generated from these efforts. I have no doubt that the number of merchants on our system today is directly proportional to the back-office improvement and their daily proactive outreach to our ISV customers to increase not only their revenue share but the number of merchants processing on our platform. Since it’s football season now, I'll use a football analogy. I would say in the third quarter, we had no turnovers. We didn't fumble and committed no penalties, but we have great field position, and we expect the scoring to start literally next quarter. I'm incredibly optimistic for the fourth quarter and beyond. We are not sitting idle. We continue to be very active in the marketplace through face-to-face meetings, industry conferences, and trade shows, and that's improving our pipeline. But with the number of ISVs being added, the number of merchants being boarded, and the number of processing merchants improving month-over-month, we have tangible evidence that we continue to generate healthy growth. Even though our revenue improved both sequentially and year-over-year in the third quarter, they are clearly not indicative of the underlying strength of our business. And for sure, they are not a predictor of what we're going to do in the next quarter and well into 2023. We remain on pace to meet our commitment to Usio's full year 2022 revenue growth objective and to remain at the vanguard of our growth over the long term. 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 financial results in greater detail.

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 card in the quarter were up 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 wind-down 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 COVID-relief programs will eventually reduce our share of the spoilage and breakage from its current levels to a much lower percentage, once about half of the $18 million has been recognized, which will impact margins from that point forward. For the quarter, total other selling and general and administrative expenses were $3.7 million, down sequentially from $3.8 million in the second quarter of this year and up 30% from the year-ago quarter. Expenses have sensibly stabilized at current levels and represent the strengthening of our various operations in line with the growth experienced over the past several years. Continued investment in our growth initiatives as well as the impact of a tight labor market. Reflecting continued focus on the bottom line, we reduced both operating and adjusted EBITDA loss on a sequential basis from the second quarter. We reported a $1.7 million operating loss for the quarter compared to a $1.9 million loss in the second quarter, with the current period loss primarily due to the narrower gross margins and increased operating expenses. We reduced the adjusted EBITDA loss in the quarter to $551,000 down from approximately $600,000 in the second quarter. As confirmed last quarter, we continue to expect positive adjusted EBITDA in Q4. For the quarter, we reported a GAAP net loss of $1.8 million or $0.09 per share. The company remains in a strong financial position, cash and cash equivalents as of September 30, 2022, totaled $4.6 million, down about $500,000 over the past three months, of which over $325,000 represents repurchases under our stock buyback plan in the quarter. Given the increase in spoilage and breakage anticipated to be collected in the fourth quarter, we feel comfortable with our financial position as we look forward to upcoming quarters. Looking quickly at our year-to-date results, revenues were $50.7 million, up 14% from the same period last year, with growth across all of our businesses. Gross profits were $9.9 million, and gross margins were 19.5% for the first nine months of 2022, both below year-ago levels due to this year's previously noted mix shift. The adjusted EBITDA loss for the first nine months of 2022 was $1.4 million, and we reported a net loss for the first nine months of the year of $5.3 million, or $0.26 per share. Looking at non-GAAP adjusted operating cash flow, which excludes non-operational changes in merchant reserve funds, prepaid card load assets, customer deposits, and net operating lease assets and liabilities over the first three quarters of the year was a use of $1.1 million. Usio is on track for another year of double-digit growth and record revenues despite our separation from a cryptocurrency account that represented approximately 8% of prior year revenues. We have exciting new programs currently coming on board, our developing capabilities that are responsive to emerging market needs and have the financial resources to continue to invest in these initiatives. We are very optimistic about the future. That concludes our prepared remarks for today. We would now like to open the call for any questions.

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 me what the improvement in cash flow from Q2 to Q3 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, 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.

Our next question comes from an unidentified investor.

Louis, I would like to know if we 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 unions are part of our business in print and mail and e-statements, and we're always looking to expand that market. Hopefully, you'll see us do more with them. We're printing a lot of checks for credit unions for disbursements. So hopefully, you'll see us do even more in that segment.

Our next question comes from Michael Diana with Maxim Group.

Louis, the MoviePass opportunity sounds very interesting. I think you said that about 100,000 of the 700,000 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 three 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. This is a recurring revenue program, very exciting for us, with a very strong brand. They will 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 the first quarter. They have signed up pre-sign-ups for 775,000 people already because of the strength of their brand. Each one of those people is allowed to invite another ten people. So they're going to have a huge customer base. When they were previously live with one of our competitors, that was their largest prepaid program. So we are really excited about this program and the brand is super powerful. This is recurring revenue, and it should generate a lot of transactions, contributing significantly to us next year.

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