Good afternoon, everyone, and welcome to the Usio Earnings Conference Call for the First Quarter of Fiscal 2023. All participants will be in a listen-only mode. After today’s presentation, there will be an opportunity to ask questions. 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 end of the call through May 17, 2023. I would now like to turn the conference over to Paul Manley, Senior Vice President of Investor Relations. Please go ahead, sir.

Thank you, and thank you everyone for joining our call today. Welcome to Usio’s first 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 and 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 today are made on the date of this call, and we do not undertake any obligation to update these forward-looking statements. Management will provide prepared remarks, then we’ll have a question-and-answer session. But let me lead off with the highlights from this afternoon’s release. I am pleased to report another quarter of record results, with first-quarter revenue up 18% and our 11th consecutive quarter of revenue growth, exceeding analyst estimates. We also reported a quarter of positive adjusted EBITDA, which improved by nearly $1.4 million from the same quarter of 2022. Adjusted EBITDA is a non-GAAP financial measure, and our earnings release includes a reconciliation of adjusted EBITDA to GAAP-operating income. We continue to be in excellent financial condition to support our growth objectives for the year. Last quarter, we told you that we were entering fiscal 2023 with strong momentum. Thanks to a strong 2022 with revenue growth that has already accelerated compared to last year. And with many new and exciting pipeline opportunities, we have established a firm foundation to meet our 2023 financial guidance. Now, I will turn the call over to Louis.

Thank you, Paul and welcome everyone. As Paul noted, I'm pleased to report another record quarter driven by continued growth in card and output solutions. Also contributing to our strong quarter was record prepaid performance from the strength of residual revenues from expiring card programs. This spoilage will continue throughout 2023 and into 2024. Once again, our results demonstrated the benefits of our diversified business strategy, diversified in the markets that we serve and the payment channels that we offer. Two programs I'd like to highlight that have us excited are MoviePass and LA County. Both have the potential to be transformative. Due to LA County being extremely pleased with our performance to date, they are expanding their engagement with us. Our success has also drawn the attention of other large counties across the country with similar programs. MoviePass is continuing to see positive momentum and is scheduled to launch their service nationwide in the summer. While both programs contributed to our first quarter performance with LA County's revenues benefiting multiple UCO business units, we expect them to be a part of our future growth story, having recently heard of MoviePass' partnership with Walmart being a pleasant surprise. As you can see from our ACH results, we're comparing against strong volume from Voyager in the first half of last year. However, our relationship with Voyager is essentially being completely wound down due to their bankruptcy. Adjusting for Voyager, ACH would have shown year-over-year growth in the first quarter, and we expect outright ACH growth in the second half of the year. Our output solutions business grew 26% in the quarter and $1 million sequentially, and it was all organic. We believe that output solutions can continue to deliver strong growth by focusing on programs that offer attractive, recurring revenue characteristics like printing and distributing statements, as well as selling more integrated disbursement solutions through check printing that is required for our consumer choice disbursement platform. In particular, I see tremendous opportunity in expanding our electronic bill presentment and payment capabilities, and we are working on strategies to pursue these opportunities more aggressively. Now that our prepaid incentive programs sold in previous years are coming to expiration, we're now earning enhanced breakage and spoilage. This has been beneficial to our overall effort to improve profitability. In the first quarter, margins were up over 300 basis points, while SG&A was up less than $100,000 compared to the first quarter a year ago. This enabled us to sustain positive adjusted EBITDA, generate strong cash flow and reach positive GAAP earnings per share. Since we primarily serve recession-resistant markets, we're not overly concerned about any economic slowdown. In fact, if the economy slows, many of our businesses could generate even better growth. Our pipeline across all segments continues to be the strongest in the company's history. We have large opportunities in prepaid, LA County type opportunities with other municipalities, output solutions, and new payback deals, such as the recently announced integration with Microsoft's Business Central platform, which has great revenue potential. This is one of the best quarters in Usio's history, not only due to record financial performance, but also because of the success of penetrating new markets and building new relationships across all of our businesses. This is going to be an extremely exciting year in which we believe we will achieve our top-line guidance and expand our foundation in these rapidly growing markets for even greater success in the future. Now I'd like to turn the call over to Houston Frost.

Thank you, Louis, and thank you to everyone participating in the call this afternoon. In the first quarter, card-issuing revenues were up 74%, primarily attributable to the breakage revenue earned on the New York City COVID incentive program. In the year-ago quarter, we were in the heart of this program, which is why our year-over-year volume, transaction and purchase activity were down. Importantly, on a sequential basis compared to the fourth quarter, both load and purchase volume were up as we continued to build our underlying business. The card-issuing business continues to grow and solidify its relationships. We are keeping up with our clients launching general funds disbursement programs, guaranteed income programs, and corporate expense programs. The implementation team has been particularly busy with clients employing our remote authorization service. This service powers deeply integrated Fintech, enabling card programs like MoviePass. Speaking of MoviePass, their beta customer transactions have been ramping up, and we are expecting their public launch this summer. In true Hollywood style, the paparazzi published an unofficial piece discussing a potential Walmart MoviePass partnership. To reiterate Louis's comments earlier, demand for solutions that offer recipients additional choice in how they receive their funds continues to increase. Our team is refining the service, which currently offers physical and virtual debit cards, ACH, Push to Debit, and checks. It is a flexible and powerful solution that leverages UCO's diverse payment services. With that, I'd like to turn the call over to Greg Carter.

Thank you, Houston, and good afternoon everyone. It was another record quarter in par, with revenues up 8% on a similar 8% increase in dollars processed and a 24% increase in transactions. Results were once again led by the strength of our flagship PayFac business, where revenues advanced 27% on a 30% increase in volume and a 31.4% increase in transactions processed, all were record performances. We had a really good first quarter with a positive trajectory into the second quarter. It's just a continuation of what we've talked about before. Our efforts and model deliver the steady growth we have been discussing. In the call just a few short weeks ago, we mentioned that we had both a strong January and February driven by ISV growth, as well as the addition of new ISVs that began processing immediately. Subsequently, it was also a record March. We also had 38 ISVs in implementation at the beginning of the year, and we are focused on industries such as healthcare, legal, and certain field service applications, which are generally recession-resistant and as the results demonstrate have strategically paid off. I'm very excited about the relationship we announced recently with Suite Engine, an important element of the Microsoft Dynamics environment, essentially Microsoft's CRM solution. This program provides large, sophisticated enterprise customers the ability to facilitate payments without having to leverage a third-party payments application outside the MS Dynamics environment. We were introduced to Suite Engine by one of our customers at a trade show last year who was using technology from both companies. Suite Engine said, ‘If we can do the same for them, then they want to be a Usio-ISV partner.’ So even though they are considerably larger than our average ISV serving Fortune 500 clients, they selected Usio for the same reasons as everyone else: our technology, our customer service, and our ability to turn the electronic payments traversing their system into a revenue stream. Clearly, participation in trade shows is paying dividends, and my team and I continue to have a significant presence at these events. We continue to invest to broaden and strengthen our offering. For instance, we will be adding another physical terminal provider, as well as another back-end processing partner to serve a more diverse set of merchant category codes. All-in-all, it's been a strong start to the New Year. We are looking forward to the addition of Suite Engine and the imminent completion of our other in-process implementations. 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. In summary, revenues were up 18% driven by strong growth in prepaid and output solutions. Credit card revenues were up, and ACH and complementary services were down, primarily as a result of the Voyager bankruptcy. Gross profits were a quarterly record for the second consecutive quarter, and margins expanded 370 basis points from a year ago. The gross margin improvement reflects a higher contribution from breakage and spoilage, as well as strong margins from output solutions. Selling, general and administrative costs were up 2% from the year-ago period. For the second consecutive quarter, we generated over $1 million in non-GAAP adjusted EBITDA. Non-GAAP adjusted operating cash flows as reflected in our earnings release and 10-Q was $1.3 million for the quarter, up from $0.5 million in the same year-ago period. Our cash increased by $1.1 million in the quarter reaching $6.7 million as of March 31, 2023. With that, I will turn the call back to the operator to conduct our question-and-answer session.

Operator Instructions. And our first question comes from Jon Hickman of Ladenburg. Please go ahead.

Hi! Can you hear me okay?

Hi, Jon.

Great quarter. Thanks for beating my numbers. Could you tell me a little bit. OpEx was pretty flat. Do you expect it to be pretty flat for the rest of the year?

What was the OpEx question?

Yes, yes, it should be very flat.

Okay. And could you give us a little guidance about gross margins?

We'd like to be in the mid-20s.

By the end of the year?

By the end of the year.

Okay. So, I'm a little bit confused about MoviePass. Is there – do they have a deal with Walmart or was that just somebody jumping the gun or is there a potential deal or a real deal?

MoviePass is not – can you hear me okay? MoviePass has not made any official announcement. So we’ll just level it that. It's obviously MoviePass's business, and we'll wait for their official announcement.

Okay. I take it, as long as I'm talking to Mr. Frost, could you give us a little more guidance about how you're making – what the pipeline looks like for how you're making up for those one-time programs, like the New York COVID vaccination program? Because if you did $10 million in residual income, how do you make that up next year?

Well, we continue to sell card programs, both recurring and one-time low card programs. We also continue to add new relationships. I think if you go back to kind of 2020, 2021, those were years where we added just around 100 clients. I think we even exceeded that in 2020, and then we were around the same number last year. So we've been adding around 100 clients a year and we'd like to keep that pace. It's a wide range in terms of revenue on these clients. We might end up with one that's going to bring in $20,000 in annual revenue, and then we end up with another client that could do $1 million in annual revenue. The diversity of the programs is continuing to increase. So guaranteed income programs has been one. We hope to have some announcements on some healthcare-related programs. We've also seen a substantial and noticeable increase in the volume and activity on our COVID expense spend, which is exciting because that actually helps with margins. We earn higher interchange on the volume on those corporate expense spends. So I think we've got a really good pipeline, but we continue to build a base for this business, and we sure hope the results will show that. We're likely to see a bit of a peak in that fee income I think this quarter and next quarter. But by and large, the line of business is growing every month and every week with new implementations and programs.

Yeah. Jon, don't forget that residual spoilage income is part of our business model, and it has grown year-over-year, every year for the last five years. So, it's something we're focused on.

Yeah. The card issuing and prepaid business has really matured over the last few years, and it's a real business and it continues to mature, like I said, every month with new implementations and partnerships.

Okay Louis, just one last question. So you've anniversaried the Voyager issue from last spring now. Is that true?

I'm sorry. You broke up again. Can you ask the question?

Is it true that you've anniversaried the Voyager thing on the ACH side, now that you're into the second quarter of 2023?

So Voyager filed bankruptcy I believe January 1 of last year and so they stopped processing about that same time. We did some residual stuff for them, but that was minor.

Yeah, okay. So on a year-over-year basis, that should be behind us, right?

After Q2.

After Q2 okay, okay. Okay, thanks, that's it for me.

Thank you.

The next question comes from Gary Prestopino of Barrington Research. Please go ahead.

Hey! Good afternoon, all. Could you – do you have what the total payment dollars processed were last year in Q2?

I obviously do not have that specific number.

I’m sorry – Q1, I’m sorry, I’m a head of myself. You say it was down to $1.23 billion this quarter, but what was last year's Q1?

I don't know. I mean, we can pull that number and send it to you.

Okay.

That Q1 number from last year was obviously inflated by Crypto’s processing. Crypto payments average ticket is $500. So they were a big part of those dollars. But you've got to be careful when you're looking at dollars, because our metrics, financial metrics can still do well if dollars go down, but transactions go up and that's what we saw last year. Overall dollars for the year were down, but transactions were up, and of course we did really well growing the company.

Yeah. No, just as a frame of reference there and then I just wanted to get an idea. When you're talking about ACH Electronic, check transactions were down, dollars processed were down. Were you doing those kinds of transactions for Voyager? I was under the assumption you were just doing ACH switch transactions for Voyager.

I don't see the difference between what you just described. Maybe I'm missing your question. But all we did for Voyager was ACH. We would debit checking and savings accounts and fund the Voyager loans. So, it's in the ACH numbers. Now, ACH is growing year-over-year if you take out the Voyager traffic.

Okay. It must just be semantics with what I'm thinking and what you're actually putting in here, no problem there. Greg, did you give the growth in the payback revenue in the quarter? I tried to write down what you said and I couldn't get it all.

So, it's 27%.

Okay, that’s great. And then maybe could you elaborate a little bit on this new relationship with Microsoft? I'm unfamiliar with this. I really want to understand it because obviously the reach of Microsoft is very large and how does this work? And could this be something where you're just going to get a ton of processing volume once this thing starts ramping up?

Yeah, so Suite Engine essentially facilitates a plugin that now allows these enterprise accounts to utilize the Usio payments environment. So if you look at streamlining these implementations that we've talked about for the last several years, those organizations that use Microsoft, the Dynamics environment, their speed to payment processing is substantially reduced by using that plugin that Suite Engine facilitates.

And Microsoft Business Central is like QuickBooks, except it's on steroids. It's used by bigger organizations. And so you can go to the plugin library now and choose Usio as a payment option.

Unfortunately, we have a pipeline of accounts that are in queue as a result of that technology and relationship. So we're real excited about that.

Okay. And then maybe I'll talk to you about this offline, because again, I've never heard of this. I don't understand it. I'm trying to understand it.

Sure. Happy to do so.

What it can bring to you, it just seems large. And then lastly, Louis, you did say you expanded your engagement with LA County. Could you elaborate a little bit on that please?

Yeah. So, we've been printing notices for fees and fines, had a lot of success with that. And they came back to us and said, ‘Hey, we've got all these overpayments.’ So when someone has a $100 parking fine and they send us $110, we have to send them back the $10. And they said, the only efficient way we can do that is via check. And so we're printing a whole bunch of checks now for LA County.

Okay. So, it's a nice shot of incremental business from what you're doing right now with LA County.

It is. And it shows the trust that we've earned in a few months of doing business with them.

Okay. Thank you.

Thanks.

Operator Instructions. That will conclude our question-and-answer session. The conference has now also concluded. Thank you for attending today's presentation and you may now disconnect.