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Operator: Good afternoon, and welcome to the Usio Earnings Conference Call for the Fourth Quarter and Fiscal Ended December 31, 2022. 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 March 22, 2023. I would now like to turn the conference over to Paul Manley, Senior Vice President, Investor Relations. Please go ahead, sir.

Paul Manley: Thank you and thank you everyone for joining our call today. Welcome to Usio’s fourth quarter and fiscal 2022 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; 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 made today are as of 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. We reported both, record quarterly and full year revenue for the period ended December 31, 2022. Revenue was up 7% for the quarter, our 10th consecutive quarter of growth and up 12% for the year, which is our sixth consecutive year of record revenue.

For the quarter, we reported $1 million in adjusted EBITDA, though EBITDA was down for the year primarily due to a shift in our revenue mix driven essentially by the decrease of our highly profitable ACH business. Adjusted EBITDA and EBITDA are non-GAAP financial measures. Our 10-K and earnings release both include a reconciliation of these measures to the GAAP measures of operating income. As you will hear on today’s call, we feel we are exiting 2022 with significant momentum, which is clearly communicated in our strong guidance that we gave today. And we are in excellent financial condition to support our aggressive growth objectives for the year. Now, with all that, I will turn the call over to Louis.

Louis Hoch: Thank you, Paul, and welcome, everyone. As Paul noted, I’m pleased to report another record quarter and year. We finished the year on a high note, led by strong growth in our prepaid card and output solutions businesses. It was a profitable end to the year with the highest quarterly gross profit in the Company’s history, leading to $1 million of positive adjusted EBITDA. On a strength of this finish, we met our top line guidance for the year, growing card, prepaid and output solutions revenue, while ACH was down due to our exit from the cryptocurrency market. Once again we demonstrated the benefits of our diversified business strategy, the markets we serve and the payment channels that we offer. In addition, we are now capitalizing on our unique and proprietary full stack of integrated payment and embedded finance solutions where we can offer a broad array of technology and related services.

These are strengths not only powered our fiscal 2022 performance, but offered significant competitive advantages that will enable us to accelerate our future growth. There are a number of other significant developments in the past year, which we believe broadened our foundation for continued growth. For instance, output solutions had a breakout year, with revenues up 27% for the quarter, and 24% for the year. Output solutions profitability correspondingly improved with gross margins expanding from roughly 13% in Q1 of 2022 to finishing the year 19% gross margins in Q4 of 2022. They ran point on our large contract with LA County, which we believe will not only help propel output’s 2023 growth, but because it’s integrated across our organization, will also grow our card and prepaid revenues.

This is a great example of the advantage of our diversification and integration strategy. We’re investing in output solutions, implementing new technology that adds additional legs to the stool, such as electronic bill presentment and payment. So, we expect their growth to continue. As expected, prepaid had a great quarter. Revenues were up strongly, led by the increase in breakage and spoilage on expiring and unused cards. Now that large — that the large New York City contract has ended, we expect to recognize significant breakage revenue on this and other card programs in 2023. And with excitingly, potentially very large new programs beginning with highly recognizable brands like MoviePass, we see a path to potentially almost doubling prepaid revenues in 2023.

Houston Frost will provide additional information — additional details in just a minute. We also expect to see a recovery in our ACH business. Fiscal 2022 was extremely disruptive year with the disappointing news about our large cryptocurrency customer entering bankruptcy. But, we’ve bounced back. For instance, returned check transactions processed for the year were up 31%, while we saw even better growth in our PINless Debit revenues with transactions up 107% year-over-year. For many non-bank consumers and fintech lending customers, ACH is basically counter cyclical. So, a weak economy could be a reason to be optimistic for a rebound in ACH revenues with the opportunity to resume growth in the second half of this year. What’s missing from this afternoon’s numbers but has made the most excited is a pipeline of opportunities across the organization that we expect to contribute in 2023 and beyond.

At the heart of these opportunities is the continued innovation we’re demonstrating in helping simplified payments for our customers. I’m also confident that we will continue to generate positive operating cash flows and adjusted EBITDA in 2023 as we lever up our top-line growth through disciplined cost management. Selling, general and administrative expenses in the fourth quarter were essentially in line with the third quarter as costs have flattened out. And we expect more the same in 2023. We also ended the year in a strong financial condition, with cash on hand of $5.7 million as we generated $1.2 million in cash in the fourth quarter of 2022. Note that the end cash as is net of the approximately $1 million used to repurchase over 500,000 of our shares in fiscal 2022.

We will be opportunistic in using this buyback authorization as a means to show continued confidence in our business and create value for our shareholders. I’m going to stop here and turn over the call to the team and conclude in a moment with our outlook for 2023. And now, I’d like to turn the call over to Houston Frost.

Houston Frost: Thank you, Louis, and thank you to everyone participating on our call this afternoon. Prepaid had a strong fourth quarter with revenue up 31%, which helped us finish the year with record revenue up 39% from 2021. While load and purchase volumes were down in the quarter from a year ago, when our New York City contract was peaking, they were up 46% and 49%, respectfully and sequentially from the third quarter, clearly indicating we have resumed our growth trajectory. For the year, we demonstrated strong growth in all key metrics, with load volumes up 14%, transaction volume up 39%, and purchase volume up 23% compared to fiscal 2021, making it a record year on all fronts. Revenue in the quarter includes an increase in the amount of New York City spoilage and breakage compared to the third quarter when we first called out this is a significant item.

And we will continue to recognize spoilage and breakage over the course of all of 2023. On that basis alone prepaid has already assured we will have record revenues this year, and that will be prepaid’s most profitable year ever. The recognition of this breakage signifies the completion of our large NYC contract, but we are still very actively involved with cities, states, counties and municipalities, where we are a leader in providing funds disbursement solutions to help manage direct cash assistance programs, such as guaranteed income programs, which are proliferating throughout the country. Keep in mind while these programs consist of smaller card orders, they are longer in duration and have larger recurring card loads. They are expected to provide a steady recurring revenue stream over several years.

We continue to work on diversifying our end markets. In particular, we are finding increased success with our corporate expense product. This is not only a new growth market, but corporate expense programs typically provide higher average purchase transactions and generate 60% to 65% more interchange on a percentage basis. That combination leads to much higher margins than traditional consumer prepaid programs. You’ve heard us talk about MoviePass. I am happy to report card orders have been ramping up. They had over 800,000 individual signups for their beta and they are making good progress issuing MoviePass branded debit cards. MoviePass is another example of a client utilizing our unique and proprietary external authorization capability, which is a rare offering in the card issuing space.

We are very excited to be involved with this highly visible brand, not only because of what we can do for them, but also because of the increased awareness provided by our association with them. Another new application of our technology is with Mobile Money, a name you may recognize as pioneers of a reverse ATM solution. Mobile Money provides a solution for venue, stadium — stadiums and events to become 100% cashless by offering reverse automated teller machines that accept cash and dispense a debit MasterCard. We were able to win this engagement because of our ability to meet the client’s demanding technology requirements of this new unique product. As Louis mentioned, we are excited by the prospects of what we expect to be a record 2023.

While the headline may be NYC spoilage and breakage, we expect to continue to develop new technologies and add new governmental, corporate and fintech clients to our roster that will enable our growth and success over the long term. I am a firm believer that putting relationships first is the path to building true long-term value in our organization, and prepaid is dedicated to meeting this commitment. With that, I’ll conclude my remarks and turn the call over to Greg Carter, Executive Vice President of Payment Acceptance.

Greg Carter : Thank you, Houston, and good afternoon, everyone. The card business continued this trend of steady growth in the fourth quarter with revenue up 4% on a 3% increase in dollars processed. More representative of our growth was PayFac where dollars processed increased 25% in the fourth quarter to an all-time quarterly record. For full year 2022, revenue was up 8% as dollars processed were up 10%, once again led by PayFac, which had a record year with a 32% increase in dollars processed. The theme for 2022 was discipline, patience and preparation. We were disciplined in sticking to our plan, continuing to improve our own efficiency and productivity, and providing superior customer service. We were patient in understanding that some of our integrations and implementations we expected to come to fruition in 2022 were either delayed or slow to roll.

In 2022, we boarded 15% more merchants than we boarded in 2021. So we knew that growth was inevitable. And finally, we are prepared for the acceleration we believe is going to happen in 2023. Thus far in 2023, that plan is paying off. In January our PayFac business set a record for the most volume processed in a single month and in February, PayFac processed more volume than any other February on record. This month, we have three new ISVs that are going live, contracts that were signed as far back as early spring of last year that will have a meaningful impact in 2023. Our strategy is to remain disciplined to continue getting smarter and to be more effective in leveraging our competitive advantages. The new features we’ve been rolling out have enhanced our solutions and made our proposition even more appealing.

From point of sale credit to expanding breadth of options to accept payment, we make payments simple. Another resounding success throughout Usio is our increased cross-selling and integration. So, while LA County is primarily an output solutions customer, there’s a significant card component integrated into the program. We count but a handful of competitors that can offer our range of services, whether it’s traditional ACH, PayFac, a prepaid card or an invoice. You’ve heard us talk about the whole being greater than the sum of the parts. And I can tell you that cart is realizing the benefits of these cross-selling initiatives and integrations. And with the new technology being implemented at output solutions, we also expect to accelerate the growth of revenues from our electronic bill presentment and payments solution.

More and more of our clients are becoming multi-product Usio customers, yielding improved margins and very low attrition rates. I’m a firm believer that it’s not always the number of customers that you have, but the depth to which you serve them. That’s one of the benchmarks for our success. We are leaning into our strong momentum. This year, we will participate in more conferences, events, face to face interactions and similar activities than ever before. Although our pipeline is already robust and represents significant opportunity, we intend to accelerate our sales and marketing efforts to achieve even faster growth in 2023. 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.

Tom Jewell: Thanks, Greg, and welcome, everyone. Thanks again for joining our call today and for your interest in Usio. I’m going to provide a brief review of our fourth quarter and full year financial results before turning the call back to Louis with closing remarks and our outlook for 2023. Revenues for the quarter ended December 31, 2022 were up 7% compared to the same period in 2021, primarily on the strength of our prepaid and output solutions businesses. In the quarter, our ACH and complementary services business was up against the 2021 quarter when we had significant revenues from cryptocurrency and cryptocurrency clients. Revenues in prepaid in the quarter reflect the recognition of significant breakages and spoilage in the quarter.

The balance of spoilage and breakage still to be recognized is approximately $15 million with approximately $10 million to $12 million of this revenue expected in 2023. We had record gross profits in the quarter. Gross profits were up significantly on a sequential basis and were also up from the year-ago quarter, driven primarily by an increase in margins in our prepaid business attributable to breakage and spoilage. Somewhat offsetting these profits was lower ACH gross profits consistent with lower revenues. Going to gross margins, gross margins in the quarter expanded significantly from the third quarter and continued to generally reflect current period product mix. Total other selling, general and administrative expenses essentially stabilized in the fourth quarter, after expanding over the first three quarters of the year as we invested in the organization.

We do not foresee the need for any meaningful additional infrastructure investment over the near term. We reported a small operating loss, less than $100,000 for the quarter, compared to a $1.7 million loss in the third quarter, and a similar operating loss in the 2021 period. Adjusted EBITDA also improved significantly on a sequential basis to positive $1 million in the quarter. Again, when comparing to 2021 results, the fourth quarter of 2021 included a significant ACH contribution from strong cryptocurrency performance. The Company remains in strong financial position. Cash and cash equivalents as of December 31, 2022 total $5.7 million, up over $1.1 million sequentially, but down about $1.5 million from the beginning of the year. Looking quickly at our year-to-date results.

Revenues were up 12%, meeting our revenue guidance for the year. All businesses, except ACH, were up for the year. Gross profits were $14.7 million and gross margins were 21.1% for 2022, down compared to margins of 25.2% in 2021 due almost entirely to revenue mix shift. The non-GAAP adjusted EBITDA loss for 2022 was $421,000 compared to $4 million of non-GAAP positive adjusted EBITDA in full year 2021. And we reported a net loss for the year of $5.5 million or $0.27 per share, compared to a net loss of $0.3 million or $0.02 per share in 2021. Non-GAAP adjusted operating cash flow, which excludes nonoperational changes in merchant reserve funds, prepaid card load assets, customer deposits, and net operating lease assets and liabilities was a positive $0.7 million for the year, down from a positive $2.6 million in 2021.

Now, I’d like to turn the call over to Louis for some closing remarks.

Louis Hoch: Thanks, Tom and thanks team and thank you everyone for participating today. 2022 was a year of considerable challenges, high inflation, tight labor markets and the collapse of the cryptocurrency market, just to name a few. Nevertheless, we overcame these challenges to post our sixth consecutive year of record revenues. More importantly, we positioned Usio for exciting and dynamic 2023. We’re ramping up with great new clients across various businesses like LA County, MoviePass, Mobile Money. The significant effort undertaken on the New York City vaccination incentive and other card programs will be rewarded with significant breakage and spoilage. So, assuming no appreciable deterioration in economic conditions, we expect 2023 to be another year of strong growth, with revenue up 18% to 20% and we also expect to generate both, positive operating cash flows and adjusted EBITDA.

Operator, that concludes our prepared remarks. Will you please open the call to questions?

Operator: First question comes from Steven Wagner with Integrity Wealth Advisors. Please go ahead.

Stephen Wagner: Hey, gentlemen. Congratulations. What a fantastic quarter and year. Good work. I do have a question about MoviePass. How many cards have been issued so far?

Louis Hoch: MoviePass has about 137,000 cards out and 100,000 of those occurred in January.

Stephen Wagner: Okay. Is there a target or goal that you’re able to talk about with regard to the end game for this?

Louis Hoch: No. But, 137,000 cards is significant in itself.

Houston Frost: It’s really up to MoviePass in terms of how fast they’re deploying the enrollments or invitations, so.

Louis Hoch: Right now they’re live in nine cities.

Houston Frost: Yes.

Stephen Wagner: Okay. And remind me how you make money on that. And if I remember correctly, your profit on this is larger than in other prepaid cards?

Louis Hoch: So MoviePass uses unique technology, remote authorization engine. So, we do make a little more of these transactions. And we make money every time that the card is loaded with funds, and every time the card is used at the movie theaters.

Stephen Wagner: Okay. So, even when the card is loaded. That’s really interesting. Very good. Okay. And then, how many ISV partners are under implementation?

Houston Frost: So, at the end of the fourth quarter, we had 38 partners in the implementation queue.

Stephen Wagner: And a question regarding your, obviously, the whole crypto world collapsed last year, but it’s not dead. I’m assuming now it makes up no part of your revenue. Is that correct?

Louis Hoch: We’re doing minor wind down activities for the bankruptcy court for Voyager. But it’s not significant at all.

Stephen Wagner: Okay. And then, that’s not something that is going to end up being a rerun again. I mean, there’s — it’s just a kind of a one-off scenario because of what happened with that fund?

Louis Hoch: That’s correct. Voyager’s plans are to wind down.

Stephen Wagner: Okay. All right. I appreciate that. I mean, it sounds — everything sounds like you’re moving in the right direction. And I’m with you, barring any major downturn in the markets and economy. Let’s keep our fingers crossed, which should be a good year.

Louis Hoch: Thank you.

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

Michael Diana: I think Tom said that you don’t anticipate any further infrastructure spending? So, I assume that would be on the line item other expenses, which was about $15 million for the year. Does that imply that that number could actually be lower in 2023?

Louis Hoch: We’re expecting to be in that area. It’s certainly — there’s a possibility it could be a little bit lower.

Operator: The next question comes from Gary Prestopino with Barrington Research. Please go ahead.

Gary Prestopino: A couple of questions here. First of all, I would assume there was very little or negligible revenue from LA County and the MoviePass business this quarter.

Tom Jewell: That’s correct.

Gary Prestopino: Okay. Are you expecting to generate revenue? I’m sorry, go ahead.

Tom Jewell: LA County is a client across a couple of lines of business. So

Louis Hoch: You’re talking about print and mail and payment processing for LA County, right, Gary?

Gary Prestopino: Right. Yes. I’m just trying to get an idea of how this program is going to roll out next year, as well as with the MoviePass. And I’m just — I just want to ask if there was any positive revenues out of both of these programs in Q4?

Louis Hoch: Yes, there was, but it’s not at the level that we expect in Q1 and Q2 and the rest of this year.

Gary Prestopino: Okay. So

Tom Jewell: MoviePass is negligible in Q4, but we’ll start seeing it Q1, and then we’ll have a full three months in Q2 with reasonably sizable activity.

Gary Prestopino: Okay. And the same thing for LA County? I know it’s going across a whole bunch of different businesses, but can we — are we looking at a geometric ramp on revenues as we go into 2023?

Tom Jewell: LA County has been generating revenue on the prepaid side for two years. So, I don’t have really anything to add there and I’m not able to speak unfortunately to that.

Louis Hoch: So the output and then payment processing, February is when it really starts kicking in.

Gary Prestopino: Okay. That’s I guess what I was getting at. So February would be the output in the payment processing. Okay. And look, I apologize. I’m traveling, I don’t have the script in front of me for the earnings release. But, did you call out how much breakage you generated in this quarter from prepaid?

Louis Hoch: Yes, we didn’t separate that. No.

Gary Prestopino: Okay. But do you feel that you’ll be able to generate $10 million to $12 million next year — or this year, I’m sorry, 2023?

Louis Hoch: Yes.

Gary Prestopino: Okay. And then just the question on card, Greg. Dollars processed were up 3%, transaction processed up 49%, but your PayFac processing was up pretty strong. Is — on a dollar basis, is the legacy portfolio just really a trading there? Because there’s a big delta between what you’re doing in PayFac and what your overall portfolio is doing?

Greg Carter: Well, keep in mind, all of our sales activities are around payment facilitation or PayFac as a service. We do put some standalone merchants on our non-PayFac then, but we’re doing our best to manage the attrition from the legacy portfolios. But I guess that just speaks to our sales efforts, going specifically towards our PayFac product offering.

Gary Prestopino: Okay. Thank you. I got to jump.

Greg Carter: Thank you.

Operator: This concludes the question-and-answer session. The conference has now concluded. Thank you for attending today’s presentation. You may all now disconnect.