Hello, and welcome to the Usio Third 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 Third Quarter Fiscal 2024 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. Joining me on this call are Louis Hoch, our Chairman and CEO; and Greg Carter, Executive Vice President of Payment Acceptance. Michael White, Senior Vice President and Chief Accounting Officer; Jerry Uffner, Head of Card Issuing; and our Chief Product Officer, Houston Frost, will also be available during the question and answer session. I want to remind our listeners that certain statements made during the call today are forward-looking statements made under the safe harbor provisions of the Private Securities and Litigation Reform Act of 1995, as discussed in our press release and in our SEC filings. Let me start by sharing some highlights from this afternoon's release. We continue to see strong momentum, with third quarter results generally meeting expectations and GAAP earnings significantly surpassing them. The GAAP earnings this quarter include an income tax benefit due to an increase in our deferred tax asset, reflecting our projections for higher taxable income. For the quarter, total payment dollar processing volume growth accelerated to 46% from 24% last quarter, while transactions processed rose by an impressive 31%. Our electronic transaction processing businesses all experienced growth, with prepaid achieving new all-time records for card loads, processing, and transaction volumes. Additionally, we have the strongest pipeline of signed deals and the largest backlog of pending implementations in the company’s history. While revenue growth was modest, it is important to note that we are replacing nearly $12 million in annualized revenue from the New York City COVID incentive program, which ended earlier this year, with stable recurring revenue. Including the income tax benefit, we reported positive GAAP net income and earnings per share for the second consecutive quarter, keeping us on track for a profitable full year on a GAAP basis. Moreover, we reported nearly $800,000 of adjusted EBITDA for the quarter, more than double what we saw a year ago, highlighting our ongoing improvement in operational profitability. Importantly, cash was up again this quarter, even after buying back approximately $200,000 of our stock, as we continue to make full use of our share repurchase authorization. Our cash position was bolstered by $2.4 million of adjusted operating cash flows over the first nine months of 2024. Adjusted operating cash flow is defined in our press release. Margins have typically been influenced by revenue mix, but with initiatives in Output Solutions and Prepaid driving efficiencies, their improved margins are now contributing as well. Coupled with the renewed growth of our ACH, which is our most profitable segment, we expect margins to gradually improve as we transition into the fourth quarter of this year and into 2025. SG&A expenses were down this quarter and have only increased by $200,000 through the first nine months of the year. We believe our ability to reduce costs while enhancing revenues this quarter is a strong testament to our commitment to improving Usio's overall profitability. In conclusion, we are positive on GAAP net income, generating cash to invest in our growth initiatives, repurchasing our stock, and holding the largest signed backlog of pending implementations along with the strongest pipeline in the company’s history. We are exceptionally well positioned in every business unit for long-term growth now more than ever. I will now turn the call over to Greg Carter.

Thank you, Paul, and good afternoon, everyone. Card had another solid quarter. Transactions processed were up a very healthy 22%, dollars processed up 7%, and we recorded another quarter of significant PayFac revenue growth, up 27%. Keep in mind that while we continue to support our legacy portfolios, all of our efforts are focused on PayFac so that revenues for the card segment are net of the natural anticipated attrition of a service we no longer market. In contrast, we are experiencing virtually no attrition in the PayFac portfolio. Let me start with a quick update on the large leading web-based ERP ISV recently signed. We continue to make progress with their non-franchisee merchants, and those are getting boarded, with several already processing reasonable volume. The largest opportunity is with their franchisees where they continue to push out the start of their pilot. So while implementations have been slower than anticipated, we continue to make progress and support their efforts for a wider implementation. More importantly, we've had a very robust onboarding quarter with respect to legacy or existing ISVs with our merchant conversion from the entire ISV base remaining very strong. Right now, there are over 20 new ISVs that are working with us in some stage of implementation. One of the most encouraging is an association management software company that has extensive customers in the legal space. What has me excited about this new customer is the rapid pace at which they've implemented and the unbelievable relationship we've already developed with them. They've already provided their customer list, and we're bringing on their customers much sooner than is typical. This is an excellent case study. They chose Usio for many of the same reasons we see with all of our ISV clients. Our economic solution was attractive. They appreciated our general responsiveness. They met our Chief Architect, who designed the system. They met the Director of Sales Operations and the Vice President of Client Services. In contrast to competitors who automate the process or tier it depending on your size, we inundate our prospects with resources and expertise, and I think they like that. They know we care. In fact, they were so pleased with the process, they've already expanded our relationship to include ACH, which is a big part of their business. So I'm very optimistic that this is going to have an impact on our revenue stream going forward. We are also seeing an increase in the rate at which merchants from our existing portfolio are boarding. From only a handful just a few years back, we are now seeing 20 new merchants boarded every week. You've heard me talk about BoosterHub before. When we brought them on, they were just a start-up. Today, through this constant onboarding of more of their merchants, they are now among our top 10 ISVs. This illustrates the potential from our growing portfolio of ISVs. In today's competitive market, our success starts with these legacy ISVs who we brought on and bring us business now and into the future. I believe that had we started PayFac in 2024, we could never have achieved the success we are now experiencing. We were early adopters, and today, we're getting rewarded as the ISVs signed 2, 3 and 4 years ago are still producing results. I'm also excited that the marketing groundwork of the past few years is paying dividends. We've implemented a 3-pronged marketing strategy. In addition to a direct sales effort, we've got a referral model, and we have our newest channel, a software development referral model. These are firms that ISVs use for technical assistance. We are making significant inroads with these software development companies. We now have 4 or 5 of these development firms sending us referrals. In conclusion, card continues to pound out solid quarters while building a record backlog of potential new business and growing our pipeline of exciting new opportunities. Now I'd like to turn the call over to Louis Hoch, Chief Executive Officer, to talk about our other businesses.

Thank you, Greg, and welcome, everyone. I just want to reiterate what you heard from Paul and Greg. While the quarter's results were basically in line with expectations, the real story is the increasing strength of our organization, the steady improvement in our financial condition and most importantly, the record backlog of pending implementations and the sales pipeline we have built through the introduction of innovative new products and the care we exercise in assuring the success of our customers. So let me quickly conclude today's prepared remarks with some high-level observations on the business, starting with ACH. ACH revenues were up 22% in the quarter and are now up 10% for the year, our fifth consecutive quarter of recovery. Performance is now approaching that of our previous participation in the cryptocurrency industry. But in this case, it is comprised primarily of recurring revenue from less volatile industries. Volumes were very strong. Electronic check transaction volume was up 25%. Check dollars processed were up 61% and returned checks processed up 18%. All of these growth rates once again accelerated from the preceding quarter, and October was just our highest ever ACH processing month. As our highest margin business segment, this recovery continues to favorably impact operational profitability. I will note that ACH has been one of our main beneficiaries of our integrated sales and marketing approach. Both mobile money and more recently, Greg's new association software ISV have added ACH to Usio services that they already use. In fact, we estimate that the association's ISV alone should increase our ACH volumes by more than 10%. And as we announced during the quarter, ClassWallet has also added Usio ACH to payment solutions that they offer to their customers. We continue to invest in real-time payments initiatives as we await the widespread adoption. With solutions for both the clearinghouse and the FedNow, we feel we will be major beneficiaries of this innovative new technology. And as part of our record sales pipeline, ACH has many exciting opportunities, which is working. Output Solutions revenues were up 2% in the quarter, a nice turnaround after being down over the first half of the year. Comparison would have been better if not for a large one-time deal in last third quarter. More importantly, output had another quarter of strong sales success, signing 7 new agreements and 3 renewals, including a 5-year deal with one of our largest clients. Deals were primarily our typical mix of new governmental entities and electric utilities. Included in these new clients was a start-up electric company for whom we are doing payments, ACH, bill presentment, print and mail, basically all of our services. This is another illustration of increasing success of our integrated approach to the market. The addition of the new equipment earlier this year is having a positive effect on our sale of digital solutions. And while this does have a tendency to reduce our per unit revenues, those pressures are being more than offset by improvements in productivity and efficiency. Consequently, while revenues were up only modestly in this quarter, output recorded a nice expansion in margins. We are confident our strategy will yield significant results over the long term as output continues to leverage its capabilities and integrate with all of our businesses. Once again, this quarter, output produced more electronic documents than paper documents, a trend that should continue and will result in expansion of our margins for output. Card issuing continued its momentum in the third quarter. Total dollars loaded on cards was over $140 million, up 21% and the fifth consecutive quarter exceeding $100 million. Meanwhile, the purchase volume increased 23%, and the total transactions processed increased 58%. The company also set another record for active cards on our system. In addition, profitability meaningfully increased as margins significantly expanded. As a result, over the course of the year, card issuing has effectively backfilled essentially a $12 million gap in annual revenues that was created with the conclusion of the New York City COVID program. If you look at revenues, excluding New York City, card issuing has generated a very attractive growth rate this year. One reason for our success is the organic growth of many of our accounts, such as mobile money, where the launch of a general purpose reloadable card has been extremely successful. We're also adding new accounts such as a large health care client that processes insurance claims. They plan to start using Usio for all their payments needs this month. And we added another governmental program in the state of California for energy-efficient cars. In total, during the quarter, we implemented over 30 new programs, including more than 10 new programs with existing clients, and these implementations have better margins. While we build a presence in targeted verticals where we are finding some success such as corporate disbursements and health care, we're still focusing a lot of effort on our core non-profit business. It's a market in which we are well known and we have a great reputation. It generates a ton of referral business. To build on those strengths, we are growing relationships with platform providers from whom we expect big growth. Two other exciting developments. We signed a merchant-funded offer deal with MasterCard and have also put more of their fraud and risk management security on each transaction we process. Every transaction is now scrubbed by another source to detect potential fraud and stop high-risk transactions, ensuring that we have some of the strongest security protection in the industry. Merchant-funded offers enable cash back features on spend on cards we issue, adding more value and increasing the stickiness of our cardholders. Again, we want to continue to enhance our offerings as a means to improve our service offerings to clients and expand our market opportunity. We're clearly excited about the future prospects for card issuing over the next few years. So a lot of good things are happening and with even better things to come. Implementation backlog and the sales pipeline are at all-time records. Significant GAAP net income and EPS this quarter and also expected to be positive for the year. Of course, the degree of success in the near term is still dependent on the timing of various implementations. Consequently, the fourth quarter is expected to look much like the third quarter, unless we see further slippage from some of our ISV implementations. That would result in a flat year compared to fiscal 2023, which would still be a notable achievement given that we replaced the large one-time revenue in 2023 from the conclusion of the New York City program, but we have greater aspirations. Beyond this year, fiscal 2025 is shaping up to be potentially one of our greatest years ever. Given its strong margins, we plan to reinvigorate our ACH efforts, especially throughout the Usio family, where we already have existing clients with large ACH requirements. There will be a more disciplined and combined sales approach to better leverage our integrated capabilities. And Houston, in his new role as Chief Product Officer, will be evaluating new technologies such as AI to see how they can fit into our existing solution and improve our competitive advantages. I'm very optimistic about 2025 with our existing business, what we have in the pipeline and the people we have to get the job done. I think it will be a year in which the hard work we have put in and the challenges we have overcome will be richly rewarded. With that, I'd like to turn the call back to the operator to conduct our question-and-answer session.

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

Hi, good evening guys. Thanks for taking my questions. Louis, I'm curious, when do you guys start to anniversary the COVID spoilage from New York? Is that in the first quarter of next year?

When does it end? Is that what you're saying?

No. When does it anniversary? When do the comps start to look easier?

It's going to be second quarter of next year.

Okay. All right. That's helpful. And then I wanted to ask about the gross margin difference between electronic and paper in Output Solutions. You highlighted the kind of shift there. I'm curious what that could mean over time in terms of margin improvement.

Well, electronic is almost pure margin, right, when we create a PDF and deliver it electronically, and paper is about 20% gross margin. So you can see that the opportunity to increase gross margin is great by producing more electronic.

Yes. No, that makes a ton of sense. And then last, you guys are really starting to stack some cash on the balance sheet. How are you feeling about potential acquisition or just general thoughts on capital allocation?

Well, it's good to have cash. It's good to be continuing to generate cash. So we're excited about that. The M&A market these last two years has not been great. We've looked at numerous deals, and we haven't found one that had our criteria of having synergies and that we can buy it right and it's able to take care of itself. And so we continue to look. We're hopeful that the M&A market is going to get more exciting after the election is now concluded, and we'll continue to look.

That’s it for me. I appreciate the color.

Thanks, Scott.

The next question comes from Jon Hickman with Ladenburg. Please go ahead.

Louis, could you provide an update on the margin for Output Solutions? It used to be around 20% to 21%. With the new equipment and increased automation, what can we expect for that division going forward?

24% to 25%, so mid-20s.

Mid-20s now?

Yes.

Okay. Then I have another question. So sequentially, the gross margin was down about 1% this quarter from Q2, whereas you talked about Output Solutions being better, more ACH number. Where did the decline in gross margins come from?

A significant factor was the spoilage in New York City that we previously discussed, which is no longer benefiting us. Consequently, the margins on that revenue declined as 2023 progressed. Overall, this is the main reason for the change in our gross margins.

No, I'm talking about sequentially from June to September.

Excuse me. So that is really just a mix in product lines, really. So it's a mix on where our revenues are coming from. Specifically in Prepaid, we can have big cardholders that have less margins versus revenue coming off on spend, which is higher margin. So it's really just due to the mix in revenues.

Okay, thank you.

Thanks, Jon.

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