Hello, and welcome to Usio's First Quarter Fiscal 2025 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, everyone, for joining our call today. Welcome to Usio's first quarter fiscal 2025 conference call. The earnings release we issued today after the market closed is available on our website at usio.com under the Investor Relations tab. On this call, I am joined by Louis Hoch, our Chairman and CEO; Greg Carter, Executive Vice President of Payment Acceptance and our Chief Revenue Officer; Michael White, Senior Vice President and Accounting Officer; Jerry Uffner, Head of Card Issuing; and our Chief Product Officer, Houston Frost, who will be available during the question-and-answer session at the end of the call. I want to remind our listeners that certain statements made during the call include forward-looking statements under the safe harbor provisions of the Private Securities and Litigation Act of 1995, as amended, and discussed in our press release and our SEC filings. I will start today's call with a summary of the highlights from this afternoon's release. We are pleased to report record first quarter revenues, a significant increase in processing volume, solid profitability, and strong cash flow. We are also pleased to share that our cash position has increased again. These results reflect the growing acceptance of our products in the market and the success of our strategy to better utilize our infrastructure to enhance profitability. Total processing volume increased by 34%, with a record in card volumes, largely due to another impressive quarter at PayFac. ACH also experienced robust growth, with processing volume up 36% this quarter. This strong processing volume growth resulted in a 5% rise in revenues, and a 6% increase when excluding net income, which decreased from a year ago. Gross profits remained relatively unchanged from a year ago, though margins softened slightly due to the revenue mix. Aside from the product mix, we are observing improvements in efficiency and productivity across our organization, supporting our goal of achieving mid-20s corporate margins. Our selling, general and administrative expenses remained stable compared to last year and decreased sequentially from last fourth quarter. In fact, our headcount is currently lower than it was a year ago, further reflecting our commitment to enhancing operating leverage. All of this has resulted in a sequential improvement in profitability, with adjusted EBITDA increasing to $700,000 this quarter, up from $500,000 in the fourth quarter of 2024. Cash rose to $8.7 million by the end of the quarter, as we generated $700,000 of cash in this quarter. This ending cash balance is after accounting for approximately $1.2 million used to reduce accrued expenses and accounts payable, as well as $350,000 for share repurchases. This is just the beginning of what we expect to be a year where revenue growth will significantly accelerate in the second half, driven by our Usio ONE implementation and more favorable year-over-year comparisons as prior COVID-related revenues in New York City fade. In closing, we are seeing strong growth in processing volume, maintaining positive cash flow, improving productivity, and implementing plans and processes to enhance our products, infrastructure, and technology. We are also focused not only on growing the business but also on effectively leveraging our infrastructure to continuously improve our bottom line and provide value to our shareholders. Therefore, we are reiterating our expectation for 14% to 16% top line revenue growth this year. Now I will turn the call over to Greg Carter.

Thank you, Paul, and good afternoon, everyone. Let me begin with a few comments about the exciting launch of our Usio ONE initiative. In April, we officially introduced the company-wide initiative called Usio ONE with a meeting here in San Antonio. This brought together key business development, marketing, and sales representatives from our three business units. While this marked the official launch of Usio ONE, our sales representatives have been actively cross-selling with a few wins already in the books. For instance, through their strong customer relationship, our card issuing team sold a large deal where output solutions have been chosen to print nearly 1.5 million physical checks. The meeting was a great exercise in team building and education as we equipped the team with the tools they need to introduce Usio's entire suite of capabilities to entities with whom we already have relationships as well as future customers. The expectation is to increase the acceptance of the Usio suite of services to as many current customers as we can over the next two quarters while also exposing the suite of services to new customers. The team is off to a great start, and we expect the synergies from this new initiative to really start to produce results in the second half of the year. Meanwhile, card remains on its growth trajectory led by PayFac. Total processing dollars were up 17% and transactions processed were up 65% in the quarter. Again, card remains focused on growing our PayFac business, where dollars processed were up 33% in the quarter, leading to another quarter of outstanding PayFac growth with revenue up 25%. PayFac now accounts for approximately 59% of total card revenues. Our success continues to stem from the steady drumbeat of new implementations with 17 new ISVs currently in various stages of implementation. In order to support future growth, we have tasked our Director of Sales Operations to streamline, accelerate, and improve implementations across all Usio business lines. Consequently, I can confidently reiterate today my previous expectation that card will grow nicely in 2025. Our confidence is two-fold. First, growth with and within our existing accounts. For instance, one of our large healthcare ISV has been authorized by a major manufacturer to begin selling a larger range of products, which should naturally add incremental processing volume beginning this month. There are several other land and expand opportunities that should mirror this ISV, and we remain optimistic that processing volumes within these existing accounts will increase. We're also ramping up a new filtered spend program for small retail merchants. Filtered spend is a program that allows cardholders to spend funds for specific approved items or services as defined by the card issuing organization. It's a more targeted way to control spending than a general purpose prepaid card. Organizations can use filtered spend cards to encourage specific purchasing behaviors such as healthy eating or purchasing certain healthcare supplies. New terminals are going in at hundreds of locations, and we will begin processing the payments as they are activated. Second, I am confident we will continue to see the steady pipeline conversion that is already driving our strong PayFac growth. We are having better success with our social marketing and SEO efforts, which are getting us to the top of more relevant search pages than ever before. As I've said all along, it's a matter of taking a disciplined approach to the fundamentals and executing every day. Let me just wrap up by reiterating how excited I am to be leading our collective sales efforts and our new Usio ONE initiative. And while it may take some time for this program to reach its full potential, I remain confident in our sales and support teams to meet or exceed this year's financial targets. Now I'd like to turn the call over to Louis.

Thank you, Greg, and welcome everyone. First, a big shoutout to Greg for taking the reins of the Usio ONE initiative, a potential game-changing initiative and getting it off to a running start. At the kickoff meeting, I was encouraged to hear our team already shifting how we talk about our business, moving product-centric language like ACH to solution-oriented conversations such as disbursements and acceptance. While it may seem subtle, I believe this marks the beginning of a meaningful paradigm shift, a reflection on how we're evolving our thinking to focus on leveraging our technology to deliver greater value to our clients. Although these types of cultural and strategic shifts may be difficult to quantify, they can also be transformative. And while it's still early, the wins we have heard today already suggest that Usio ONE is becoming a powerful catalyst in capturing a larger share of our customers' electronic payment volume and associated services. Now my thoughts on the quarter. After a strong end of the year, ACH and complementary services growth accelerated in the first quarter. For the first three months ending March 31, 2025, ACH revenues were up 33% as electronic transaction volumes were up 36%, our sixth consecutive quarter of growth. Return check transactions processed were up 24% and electronic check dollars processed up 42%. PINless debit and RCC remain strong contributors to the growth of our complementary services. Although somewhat modestly lower margins in our core ACH business, we continue to outpace industry growth. ACH has proven an attractive add-on to many of our existing accounts, and we expect to expand our presence within more accounts as Usio ONE rolls out. Output Solutions had another strong quarter, with revenues increasing 12% sequentially and also up from last year's particularly strong first quarter. Electronic documents processed were up 5%, while total pieces mailed exceeded 6.7 million pieces. With our emphasis on transitioning to the more profitable electronic document processing, it's encouraging to note another strong quarter of growth with electronic-only documents delivered exceeding $20.5 million in the quarter. The increase in electronic-only documents also boosts margins. The Output new business pipeline remains strong, highlighted by the recent cross-sell win with card issuing that Greg referenced earlier. With the acceleration of marketing efforts, output will prove a strategic resource, offering a competitive advantage for what we believe will be a robust market for integrated solutions. Card issuing also had a strong start to the year, narrowly missing the continuation of its streak of $100 million in quarterly card loads. As new programs go live, we should exceed that level soon. For the quarter, revenues were slightly down in comparison to the prior year's quarter due to the New York City COVID program, which provided over $1 million in revenue that quarter. However, this will be the last quarter where the New York City COVID program will affect prepaid comps. Our sales pipeline is especially strong with numerous implementations completed and others in various stages of implementation. Our volume is positioned to ramp significantly. To better leverage our unique capabilities and extensive infrastructure, card issuing has recently hired a new sales executive with extensive industry experience and broad connections in target markets such as legal settlements, rebates, incentives, and rewards. Because many of these markets serve a broad spectrum of customers, including both banked and unbanked individuals, there's a strong demand for a single solution capable of meeting diverse payment needs and preferences. That's why we're putting more resources behind our proprietary product called Consumer Choice, a branded solution, which has a proven track record of offering integrated payment disbursement solutions that these markets are increasingly demanding. While the sales pipeline includes some meaningful opportunities, we are strategically focused on the steady recurring revenue of the small to medium business market as we have built a strategic roadmap to leverage our technology and greatly diversify our account base. One of the first steps is to add a payroll card offering to our portfolio as another opportunity to ease cross-selling. The tenor of our business is good, as we look forward to the strong second half of the year. Longer term, we are leveraging our technology advantages. For instance, we're moving closer to a demonstration of our biometrics AI-driven application. This new technology uses biometrics to eliminate the need for a physical card. At checkout, it uses AI to automatically select the payment method that delivers the greatest value, whether it be rewards, cash back, or many other proprietary incentives. We think this could be revolutionary. So look for our demo in the near future. We will also utilize this technology for events where consumers can use their retina as their ticket to enter the event and pay for items while in attendance. It was another quarter of growth and further strengthening of our organization top to bottom. I'm extremely excited by the promise of Usio ONE to deliver accelerated growth as soon as the second half of this year. Furthermore, we are steadfast in our focus on efficiency and productivity efforts to improve gross and EBITDA margins, which is a key corporate strategic initiative. Our cash balance and our ability to generate positive cash flow remains a great story. This not only provides us with the financial resources to fund our internal growth initiatives but also gives us the flexibility to evaluate acquisitions that would be both strategic and accretive. And we are seeing more opportunities in M&A. Usio succeeds because of the unique nature of our organization. Right now, many companies are trying to ward off the impact of tariffs and possible consumer recession. Because we offer a diversified portfolio of products to a wide range of end markets, we are highly insulated from the impact of many of these potentially macroeconomic challenges. That's why we remain confident and steadfast in our guidance we issued earlier this year that revenues will increase 14% to 16%. We appreciate your support while we continue to build value for our shareholders. And with that, I'd 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. Your first question comes from Barry Sine with Litchfield Hills Research. Please go ahead.

Hey, good afternoon. Congratulations on the quarter. First, just a minor clarifying point on organic revenue growth. I believe, and correct me if I'm wrong, you said in the year-ago period, there was $1 million in spoilage revenue. So if you adjust that out, I think the growth rate in the quarter was over 10% organically. Am I on the right track there?

Yeah. It was $1 million, a little more than $1 million, and it's also the last quarter that we'll have any comp issue.

Okay. And that's, therefore, the guidance for revenue acceleration in the second half of the year and the 14% to 16% full year revenue guidance number, correct?

Well, the number of deals that we have in implementation are likely to implement and provide a lot of value in Q3 and Q4.

Okay. And then maybe for Greg, you talked about the Usio ONE, the kickoff meeting was only recently in April. So it sounds like the benefits of that are to come. Now that you've kind of changed your focus, Greg, if you could talk about the composition of the sales team? How many quota-bearing sales reps do you have? Where are you seeing initial opportunities in cross-selling what product to what product? And what else can you tell us about the early going on the Usio ONE sales initiative?

Sure. Barry, we have 12 quota-bearing salespeople across the enterprise. And previously to Usio ONE, they all had expertise in one of our business lines, whether that be ACH, PayFac, issuing, or acceptance and output as well. So as a part of that meeting, we are now having consolidated sales meetings. We've moved to a standardized CRM. For example, the issuing side had their own dynamics platform. We're all moving to HubSpot. So it's really just a decisive move to one voice, one effort. We have teams at various trade shows as we speak. So I'm very confident that this initiative is going to really facilitate more cross-sales in that light as well. We are running parallel pipeline type meetings, meaning new opportunities, net new logos, as well as existing accounts and where those could be. Clearly, there's more opportunity for our issuing side and our acquiring side to introduce print. And then, from the issuing side, expose those customers to our ACH capabilities. So yes, I'm very bullish and optimistic on what we're going to do with Usio ONE on the sales side.

Okay. Great. And then lastly, a financial question. In terms of the gross margin that declined year-over-year a little bit, which was a little surprising because ACH is your highest margin business, that was the fastest growing. However, as we discussed a year ago, had the $1 million plus in spoilage, which is probably even higher margin. So I assume that's the answer to why the margin was down a little bit year-over-year.

Well, last year, the $1 million in spoilage, we gave back all that money to the City of New York, so that was no margin revenue.

Yeah. And this is Michael. I'll jump in here. If you look, our interest revenue related to funds held for our customers was actually down for Q1 of 2025. So compared to Q1 of last year, our basically balances for customer funds had decreased, resulting in a decrease in interest income, which was basically 100% revenue to the topline.

Okay. That's helpful, Michael. And then obviously, there's no expenses associated with the interest revenue. So, 100% gross margin.

Correct.

Got it. Okay. Those are my questions. Thank you.

Thanks.

And your next question comes from Scott Buck with H.C. Wainwright. Please go ahead.

Hey. Good afternoon, guys. Thanks for taking my questions. First one, kind of piggybacking off of Barry's question there on gross margin. Where do you think you can take gross margins back to? Understanding that there are some mix and mechanic issues during the first quarter. But can we get back to kind of mid-20s as revenue scales here through the year?

Well, it does depend on the mix, right? But our goal is 25% or so gross margins. Our long-term goal for EBITDA margins is 8% to 10%, which we think we can get to 10%.

Great. I appreciate that, Louis. And then look, revenue was up 5%. OpEx was down 2% year-over-year. How much capacity do you have to grow given the current cost infrastructure? When do you need to start layering in kind of more cost to support that growth in the second half?

Well, our technology and infrastructure can support tons and tons more transactions. We might have to add some people to support those new accounts, but the expense associated with that, on a percentage basis, will be far less than the revenue and the associated margins.

Okay. So any headcount adds are directly tied to revenue, I guess?

Yeah. We're truly at the point of having operating leverage. We can load a whole bunch of traffic on our platform.

That's great. And then last one, you brought up M&A and you're starting to see some new or more opportunities in the market. Can you kind of run us through what it would be that you'd be looking for, what the M&A criteria looks like?

Yeah. Well, we've talked about this a few times. Our criteria is strict, and we've been successful in every acquisition we've done. First, we've got to identify a company that has synergies. Synergies can be technology, it can be people, and it can be industries that we're not in today. Secondly, we need to be able to buy the company correctly at a multiple that's less than what we're trading at. And then thirdly, the company has got to be able to take care of itself post-acquisition. We don't want to buy somebody else's problem and try to fix it. So, we are seeing some opportunities, and that's about all I can say right now.

If I could sneak one more in. The stock is up year-to-date, which is somewhat rare among small caps this year. I'm curious if the conversations that you and your team have been having with investors, whether you noticed a change in tone or something in the story that's resonating better with folks.

I'll let Paul answer the second part of this. But having earnings per share, generating positive cash flow like we have been with a tremendously healthy balance sheet, the quant funds have found us. They generated a lot of volume for us in January. In fact, in January, we generated more volume than we had all last year in just three days. So quant funds are definitely a plus for us. Paul?

Yeah. I think they are looking at us and seeing the valuation based on any metric, and the risk-reward to take a position here is very solid. They recognize that the potential growth we have going forward will be significant, and they will be rewarded for starting positions here.

Perfect. Appreciate the time today, guys. Thanks for the added color.

Thanks, Scott.

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

Hey, Louis. Can you help us understand the relationship between 36% processing growth and 5% revenue growth?

Yeah. The 36% is based upon the dollars that we process through the system. Some of our products, we don't earn revenue based upon dollars. On PayFac, we do. ACH, we do not. And a lot of those dollar increases occurred in ACH.

Okay. So sometimes you earn on dollars and sometimes you earn on transactions?

That's correct.

Okay. Then I have a question on PayFac. I think you said that PayFac revenues were up 25% year-over-year. Is that correct? Did I hear that correctly?

Yes. That's correct.

Okay. So if you combine PayFac and the legacy card business, what was the revenue growth year-over-year?

I don't have that number in front of me. I believe it was 4%.

4%.

Okay. Thank you. And then can you elaborate again on this Consumer Choice product? You were talking fast, and I think I missed some of it.

Yeah. I'll let Houston talk about that. Houston is the designer of that product.

So the Consumer Choice product is a solution for clients that are dispersing funds, whether it be cash assistance or incentives or promotions. And what it allows for is really a combination of multiple Usio services in a single solution. So this is part of that Usio ONE initiative. The consumer, when they receive funds with a consumer choice account, if you will, can use those funds with a virtual card, they can order a physical card. They can request an ACH to their bank. They can request a paper check that will be printed by output solutions. There's also other options push to debit. So it gives the consumer the choice of a variety of methods to receive the dollars that the client is disbursing. And then each one of those methods actually has a fee associated with it that is either charged to the client or to the consumer depending on the contract we have with the client. So regardless of the method that is chosen, we're obviously generating revenue. And again, what it really highlights is how we can build products that essentially cross-sell all of Usio's services for us. And it's a philosophy that we're going to have, I think, moving forward with a number of our products.

So right now, that's mainly a prepaid card product or offering.

Well, it is offering that has been attractive to clients of the card issuing division. And this is really what Greg was mentioning as well, a large percentage of our clients in card issuing need or leverage ACH services with another provider. So one of our biggest opportunities in Usio ONE is cross-selling ACH as well as PINless debit services to our card issuing clients. So again, this goes back to that Usio ONE initiative where what we really should be focused on is the solution of funds disbursement to our clients and in that sense, our sales guys will be selling all of our funds disbursement solutions, ACH, PINless debit, and cards to the clients that need those solutions. So I don't know if that answers your question directly, but it's not really just a prepaid card account, but it is something that our card issuing clients, it is in demand from our card issuing clients.

Okay. Thanks. Appreciate it.

Thanks, Jon.

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

Okay. Thank you. You mentioned filtered spend cards. Would these be of interest to government assistance programs? Would that be the main use or who would other customers be?

It certainly could be. I mean, in filtered spend really is just a way to control certain products or services within a retail environment. So I'm certain it could extend into that market segment. But for this, it's primarily healthcare-related items with the program that we're managing.

Okay. Great. Thank you.

Your next question comes from Gordon Holmes with Lookout Ridge. Please go ahead. Seeing no further questions, this concludes our question-and-answer session and today's conference call. Thank you for attending today's presentation. You may now disconnect.