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. 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 in 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 in 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 as customers over the past year and seven in just the last quarter. The relationship we've built with L.A. County has resulted in the expansion of that relationship, and we are now handling their check disbursement needs for fees and fines over payments, where we recently mailed 9,000 checks in one day. And because of our strong relationship in these industries, we added another three energy providers and three electric utilities in the quarter. We will continue to invest in Output as we believe there is potential to grow the business. Consequently, we hired a 30-year seasoned print and mail sales executive to complement our existing sales efforts. Let me add a few more developments at Output that are representative of the transformation and integration transpiring across the organization. Output recently signed a toll road customer for disbursement of toll bills. The bills have a QR code that the recipient scans, which takes them into a payment portal built and operated by Usio, and there's more automation coming. For instance, our last two new accounts are completely electronic with no print or mail service. We will create e-bills that are e-mailed to customers who, like the toll road business, are directed to a Usio managed payment portal. This should push the proportion of Output's revenues from electronic payments to approximately 40% and climbing. This is much more profitable work, and as a result, expanding Output's gross margins. The story is the same for card, where we're focusing on building relationships that have enabled us to continue to add new ISVs. I would point specifically to an ISV with strong government ties. We're penetrating many of their accounts such as toll roads, including the Massachusetts Department of Transportation, Florida Turnpike, Delaware Tolls and other government organizations such as the City of Miami for fees of fines. Why do ISVs keep on giving us more business? Because of our long tenure in the business, pioneering PayFac technology and our great customer service. And in ACH, we had a growth quarter despite ongoing tough comparables on the large year ago Voyager volumes. While we will face another tough quarter of comparables in the third quarter when Voyager was still running off, we expect to see performance in the ACH starting in the fourth quarter when there was virtually no Voyager volume to speak of. Our strong growth is also leading to better margins as we leverage our fixed direct costs. In addition, overhead for the second quarter was virtually unchanged from a year ago as we kept a tight lid on costs and continued to focus on improving efficiency and productivity. So far this year, revenues were up 24% on the top line with only about 1% added overhead, which includes the absorption of significant inflationary pressures. The result is another quarter of more than $1 million in adjusted EBITDA, which is now up $3 million compared to the adjusted EBITDA generated over the first half of fiscal 2022. In addition, we delivered positive GAAP net income and earnings per share for the second consecutive quarter, which has been an important objective. Consequently, as previously noted, we are reiterating our guidance for the year, although we believe that the second half will be comprised of somewhat slower third quarter followed by a stronger fourth quarter. As a result of the first half of the year being the best in the Company's history, we expect this to be a record year. Our pipeline is extremely strong and many of our existing relationships are with fast-growing organizations with whom we are growing. We're in great financial condition, and we can't wait to get back to work every day. And now, I'd like to turn the call over to Houston Frost.

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 programs. 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 expenses 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 as being driven by our operational execution, our proprietary processing platform with the flexibility and capabilities it offers and our relentless focus on the client relationship. This bolsters our confidence in our strategy, focus on clients and programs where these strengths provide true value. Class Wallet is a great example of this strategy in action. They operate a service that assists academic and government organizations with managing their purchasing and reimbursement process. We first began issuing their cards more than three years ago in 2020. The Company's product had a unique need requiring them to be involved in transaction authorization decisions, and we had a solution, what we call external authorization. Today, Class Wallet has grown to be one of our top clients by load and transaction volume. MoviePass is a similar example, a long-term relationship also using our novel external authorization solution. And of course, we also continue to build relationships at the local government and nonprofit space. Among our many newer engagements is a program with the California Department of Social Services, which will be issuing which will be using a Usio card to disburse nearly $100 million to eligible individuals who experienced hardship as a result of storms in that state. These programs often take advantage of our transaction restrictions and controls, virtual cards and/or consumer choice offerings. But what customers tell us they appreciate most is our partnership. Our willingness to jump on a call and troubleshoot an issue, facilitate an improvement or simply be honest about a mistake and work toward an acceptable resolution. In total, we continue to be on pace to add approximately 80 to 100 new clients this year. While we do expect to see card issuing revenue and gross margin decline somewhat over the next few quarters, as income generation from the New York City and City of Houston and other vaccine incentive programs wind down. We are thrilled with the programs we manage today and the business we are building. Our June record loaded transaction volume indicates Usio's card issuing business is poised for continued growth over the long term. With that, I'd like to turn the call over to Greg Carter.

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 spearhead 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. The first question today comes from Scott Buck with H.C. Wainwright. Please go ahead.

I was hoping you could provide us with more insights into what you're experiencing with MoviePass and how that business has performed compared to expectations, keeping in mind that it's still early.

Yes. Scott, this is Houston Frost. Generally speaking, MoviePass has performed in line with our expectations. We've continually seen their volumes ramp up. Ultimately, they're going to be a fairly significant client of ours. It's difficult to specify if they'll rank number one, two, three, four, or five, but they will be in the top 10. Last quarter, based on payment volume, they were already among our top 10 clients. This represents a long-term recurring revenue-type client. Unlike New York City, where we may see a lot of revenue in one quarter followed by a decline, MoviePass is 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-wide.

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 lately, nobody's been able to meet that criteria.

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

My first question is about expenses. Greg mentioned that you hired a senior marketing person and are increasing spending for growth, yet G&A expenses remain flat, which is excellent. However, there must be some offsetting factors. What are you doing to keep that G&A figure stable?

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 new senior salespeople. 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 is largely influenced by inflation and the Federal Reserve, and it might be a temporary situation. However, Tom and his team have been effectively managing our deposits in a secure way that is generating good interest. We anticipate that the interest amount will increase 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 sweeping 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 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 believe it's definitely growing. In early June, I attended a conference in Chicago focused on basic income guarantees, and I was surprised to learn that this conference has been held for nearly 20 years. They are only now starting to discuss full-scale private guaranteed income programs. It's fascinating to see how they have been talking about these concepts in a theoretical manner for over a decade, while we have actively participated in a real pilot program like the comp and pledge a couple of years ago. We are witnessing pilot programs evolve into larger initiatives that are being extended indefinitely. Additionally, we are enhancing our efforts through direct sales and partnerships with service providers that support nonprofit and local government sectors. The trends look very promising, and we fully expect this growth to continue. Our main concern is that this ongoing growth may lead to increased competition in the field. However, I do not believe guaranteed income programs are disappearing; rather, I anticipate that direct cash assistance will continue to rise moving forward.

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

Hello. Can you hear me okay?

John.

Louis, could you expand on your comments regarding the challenges for ACH in the upcoming quarters?

So without Voyager, we are continuing to grow. If we exclude Voyager from the equation, we are still adding new accounts, which are producing more than last year without Voyager. ACH is performing well in that regard. However, year-over-year comparisons are challenging, particularly for Q3, since we still have significant work for Voyager during that quarter. By Q4, those comparisons will level out, and we expect to perform well. We have several initiatives underway, including the implementation of the Clearing House network and FedNow. We believe some ACH traffic will shift to these real-time methods, and as early participants in these payment channels, we anticipate gaining new business. All of this will contribute to growth in the ACH and complementary services area.

Okay. And then on the PayFac side, you mentioned the agriculture supply. Was that an independent software vendor 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.

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