Hello, and welcome to the Usio Second Quarter Fiscal 2024 Earnings Conference Call. All participants will be in a listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note today's event is being recorded. Now, I would like to turn the conference over to your host, Paul Manley. Please go ahead, sir.

Thank you, operator, and thank you, everyone, for joining our call today. Welcome to Usio's Second Quarter Fiscal 2024 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 Chairman and CEO; Greg Carter, Executive Vice President of Payment and Acceptance; Michael White, Senior Vice President and Chief Accounting Officer; and Jerry Ofner, Head of Carding and newly named Chief Product Officer. 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. Let me start off with some highlights from this afternoon's release. Momentum remained strong into the second quarter with total payment dollar processing volume growth accelerating to 24%, with all of our electronic transaction processing businesses generating double-digit growth across all their key processing metrics. Once again, second quarter results were in line with our expectations. Reflecting on our profit prioritization mandate, we reported positive GAAP net income and earnings per share for the quarter. Additionally, cash was up this quarter even after expending $105,000 to repurchase 65,519 shares of our stock at an average price of $1.60. In keeping with a practice being adopted in the payments industry, as noted in our press release, interest earned on merchant funds held for payment processing and reserves are now classified as revenue. This change recognizes that interest income is a key component of our company's core operations. The interest earned on our corporate cash account continues to be classified as interest income below the line. So we are GAAP net income positive, generating cash to continue to invest in our growth initiatives, buying back our own stock, and building a backlog, all great signs of a healthy, thriving enterprise. Just a few more comments on our financial results. The slight year-over-year revenue decrease was due to the planned wind down of the New York City COVID program. Without this contract, revenues would have shown an increase. Margins continue to reflect the changes in our revenue mix, and second quarter margins primarily reflect the impact of the New York City COVID initiative program, which were better than a year ago. However, the renewed growth of our most profitable segment, ACH, as well as significant improvements in the profitability of prepaid are certainly encouraging developments we expect to help buoy margins. Additionally, on a sequential basis, a more accurate comparison since the New York City program was winding down in both quarters, margins have improved. SG&A was up slightly due to an increase in employee compensation and some incremental marketing investment. I'd like to reiterate that our goal for 2024 is to keep our overhead spending growth rate below that of renewal, and we fully expect to meet this objective. This is an integral element of our strategy to increase operating leverage to improve Usio's overall profitability. In summary, another fundamentally solid quarter that did not benefit from any individually large programs. We continue to be optimistic as our base of recurring business is growing and represents a solid foundation on which to layer some recently signed new business that we expect to ramp, potentially representing a step change for Usio. Due to the success of our profitability-focused initiatives, we are raising our full-year adjusted EBITDA guidance to a range of $4.25 million to $5.0 million, and expect continued improvements in our liquidity. We believe we will increase full-year 2024 bottom line profitability compared to 2023, and that has been our top priority, while setting the table for even greater future performance. Now with that, I'd like to turn the call over to Greg Carter.

Thank you, Paul, and good afternoon to everyone. Card once again set an all-time quarterly record for transactions processed and achieved our second highest all-time record for processing volumes, which were up 10% with transaction volumes up 19%. All of our growth is in PayFac as our legacy non-ISV portfolio continues to attrit in line with our overall card strategy. We continue to grow organically, and there are a number of ISPs currently in implementation. For instance, we just implemented a company that provides operating software for independent recruiters. This gets us into a new industry vertical, and I feel very optimistic that this will be a meaningful account not just for card, but in this case, for ACH as well, another illustration of our cross-selling success. Another ISV that has been implemented and is up and running is a company that is similar to our current client Bitly. They provide software management systems for gyms and fitness facilities. In all, there are 20 ISVs that are in various stages of implementation that will contribute to future revenues. I should also note that PayFac continues to see virtually no attrition. That supports our organic growth strategy, in that as this stable portfolio of merchants grows, our processing volume naturally grows with them. I'm also pleased with the progress and improvements we are achieving in our marketing activities. We remain strong on social media. We've revamped our website, and we've added some new marketing resources. As a result, the pipeline remains strong. Last quarter, we announced that we signed an agreement with a leading web-based ERP ISV whose customers process over $1 billion in annual credit card volume. That program is live and moving through the implementation and integration process. Right now, we are making progress with our non-franchisee merchants. Two of these merchants have completed the enrollment process and are awaiting the integration phase with the ISV. We are in the process of onboarding a janitorial sanitation supply company, which we expect to be our first customer officially processing with us through this ISV. We continue to operate and execute towards the plan. This program should ramp over time, but it's rolling out a little slower than they indicated it would. For some perspective, one of our larger ISV customers PracticeSuite went through a similar digestion period and is now in our top five highest performing ISVs. It's an integration, and it takes time. So we will provide additional information as it becomes available. PayFac has been growing at a double-digit rate without a single large account, and we believe our activity levels support our goal to sustain our growth with the expectation that when this ISV ramps it will contribute significant incremental processing volume. Now, I'd like to turn the call over to Louis Hoch, Chief Executive Officer, to talk more about our other businesses.

Thank you, Greg, and welcome, everyone. It was another solid quarter that was in line with our expectations, one that enabled us to raise our guidance for 2024 for adjusted EBITDA, increasing the top end of the range to $5 million. Since Paul provided many of our key financial metrics, and Greg provided an update on card, let me quickly go through our other business lines and additional corporate highlights. Starting with ACH and complementary services, it was our best quarter since the third quarter of 2022, and our fourth consecutive quarter of recovery. Electronic check transaction volume was up 10%, return check transaction processing volume was up 13%, and electronic check dollars processed was up 36%, all as compared to the second quarter of 2023. Also, all these growth rates accelerated sequentially compared to the first quarter of this year. Since this is our highest margin business segment, it is encouraging to see the momentum building. One of the reasons for our success is that we are not only closing more stand-alone ACH deals, but we're also closing deals that require a PIN-less Debit solution since we are among a few providers in this space that have this highly complex technology. This capability, along with the growing number of ISVs incorporating ACH, is helping us secure more deals and achieve significant growth. Last quarter, I mentioned our real-time payments initiative with Clearing House and FedNow. This quarter, I'm pleased to announce that we boarded our first real-time payment customer, Clearing House. We expect to also go live with FedNow shortly. Both real-time payment channels are integrated into a single tech stack and are already available for most of our existing merchant integrations. Both of these payment channels should see strong adoption once the channels allow for debiting of accounts in addition to the current ability of crediting accounts. The ACH sales pipeline remains full of additional opportunities. For instance, last month in July, ACH recorded its best month since August of 2022, up 28% on transactions, 29% on returns, and 82% on dollars processed. So you can see the momentum has not slowed. In Output Solutions, we continue our strategic growth initiatives with electronic documents delivered exceeding $20.7 million, a quarterly record, and up 6% sequentially from the first quarter of this year. Once again, we delivered more documents electronically than by mail. Per unit revenue for electronic delivery is below that of mail and is contributing to a year-over-year decrease in output revenues. Output continues to add new accounts. In the quarter, we added seven new cities where we will be providing services for either water, electric, sewer, energy, or other municipal buildings. So the business is fundamentally growing. Last year, we invested in new equipment that gives us the opportunity to bid on jobs that we could not previously execute due to either reconciliation or volume requirements that exceeded our capacities. Our new equipment has already landed us a sizable program to handle the printing and distribution of 500,000 checks for bankruptcy distribution that started in late July. There is another sizable opportunity virtually on the doorstep that we could only contemplate by having this equipment. While these big jobs entail longer sales cycles, they represent the opportunity to raise output solutions to a new level and better leverage our fixed investment to improve profitability, which is our number one strategic priority. Card issuing continued its momentum in the second quarter. Total dollars loaded on prepaid cards exceeded $133 million, which was an all-time record and was also the fourth consecutive quarter exceeding $100 million in loans. In addition, prepaid card transaction volume increased 58%, purchase volume increased 39%, while total card load volume was up 55%, all compared to the second quarter a year ago. We now have more active cards in our system than ever. Card loads are an important forward-looking metric, and we expect this accelerated load volume to continue in the third and fourth quarters. We continue implementing our strategy to build a portfolio of corporate expense, general purpose reloadable cards, and other long-term programs with the intention of increasing our recurring revenue. In keeping with Usio's overall top strategic priority, profitability increased dramatically in the quarter. Our relationship with Mobile Money continued to expand with their successful launch of a new instant issue general-purpose reloadable card program at hundreds of amusement parks, water parks, and resorts through their reverse ATM kiosk technology. We also saw continued growth with our card issuing customer, Class Wallet, which recently expanded their relationship with Usio by adding our ACH services. We remain committed to expanding our partnerships with governmental agencies, nonprofits, and related organizations. Additionally, we have intensified our marketing efforts, including recently co-sponsoring a successful webinar with MasterCard. Our card issuing team completed over 20 implementations in the second quarter and is working on several more, including nonprofit, GPR, and funds distribution programs. We are continuing implementations of unique and key gift card clients in the third and fourth quarters of this year. We are also working on new functionality and features, including upgrading our client portal and expanding our relationship with MasterCard by adding additional fraud protection and other MasterCard services to our reloadable products. I'm very pleased with the progress. Finally, Usio continues to strengthen its financial position, having added $400,000 in cash to our balance sheet in the second quarter of 2024. We now have $10.5 million available to support our growth initiatives, and we believe that balance should grow throughout the year. I also want to echo Greg’s sentiments that we remain very excited and essentially on track with the large ISV that we announced earlier this year. This is a large implementation, and it takes time. We indicated it was expected to seriously ramp in 2025, with some prospects that early adopters would come on board later this year. Those rollouts have been a little slower than anticipated. Otherwise, nothing has changed. Since it's merely a matter of when they will ramp processing, forecasting revenues over the short term is challenging. Also, in addition to the 500,000 check order currently in process, our output solutions team has an understanding with a prestigious bankruptcy administration firm that Usio will be handling the issuing and mailing of potentially significant numbers of checks associated with a much larger bankruptcy distribution. Again, the timing is uncertain. But if the deal is closed, it will create a significant revenue opportunity for output solutions. If any of this work ramps in the near term, there is still time to meet or exceed our initial 2024 revenue guidance. However, we are not counting on that. So correspondingly, it looks like revenue growth will come in somewhat below our initial guidance at between 3% and 7% for 2024. But more importantly, adjusted EBITDA for the year will be equal to or even potentially better than the originally anticipated $4 million to $4.5 million. We also expect full-year earnings per share to be between $0 and $0.03 a share. With that, I would like to 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 comes from Scott Buck with H.C. Wainwright. Please go ahead.

Hi. Good afternoon, guys. Thanks for taking my questions. Louis, on PayFac, I understand the slower implementation. I'm assuming that is on them, not a capacity issue on Usio's ability to onboard. Is that correct?

We're prepared to move forward. Our systems are quite standard, and we are currently in the implementation phase. This applies not only to our new large funding but also to agreements with outlets that we plan to announce throughout the year.

Okay. I think you mentioned this in your prepared remarks, but you're not in danger of losing any of that volume, right? I mean, it's all going to come over eventually.

Yes. We already signed these deals. Some have a whole customer base that ends up switching. That's obviously our preference. But we are experiencing different verticals to make the services better for different governments or customers.

Okay. That's helpful. And then you guys had a nice step-up in gross margin. I understand mix can drive very different quarter-to-quarter gross margins. But as we think longer term and as the business continues to mature, do you think there's some room to push gross margin kind of regularly in that 25%-plus range?

It's definitely a goal for us. We're trying to get there. There are some economies that we haven't achieved yet. So yes, in 2024, 2025 we are working towards that.

Okay. Perfect. That's great. And then last one for me. It sounds like there's going to be a little bit more marketing spend. Could you give us a sense kind of percentage-wise, how much you're increasing spend there and maybe where some of those incremental marketing dollars are going?

Yes. Well, first, I don't think we're very restricted in our current expenditures. We're leveraging existing relationships and resources available out there in our existing operations.

Okay. Great. That’s helpful. I appreciate the added color, guys. Thanks again.

There are no further questions. This concludes our question-and-answer session. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.