Q1 2022 Usio Inc Earnings Call
Good morning, and welcome to the U C O earnings conference call for the first quarter ended March 31, 2022, all participants will be in listen only mode. After today's presentation. There will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad.
To withdraw your question Press Star then two participants of this call are advised that the audio of this conference is being broadcast live over the Internet and is also being recorded for playback purposes.
They will be available shortly after the end of the call through May 26, 2022, and now I would like to turn the conference over to Joe Hassett Investor Relations. Please go ahead.
Thanks, Tom and thank you everyone for participating in today's call welcome to <unk> first quarter fiscal 2022 financial results conference call. The earnings release, which you see Oh issued yesterday. After market closed is available on the company's Investor Relations website at U C O Dot com backs, Washington, Backslash investors under news.
On this call today are Louis Hope President and CEO , Tom Jewell Senior Vice President and Chief Financial Officer, Greg Carter Executive Vice President of paint paint.
Payment acceptance Houston Frost senior Vice President of prepaid services.
Management will provide prepared remarks, and then we'll open the call to your questions.
Before we begin please remember that comments on today's call include forward looking statements forward looking statements can be identified by the use of such words as estimate anticipate expect believe intend may will should seek approximate or plan or the negative the negative of these words and other similar words and phrases.
Forward looking statements by their nature involve estimates projections goals forecasts and assumptions and are subject to risks and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward looking statements, including risks related to the COVID-19 pandemic and its effect on the economy the realization in the <unk>.
Opportunities from the IMS acquisition management of the company's growth the loss of key resellers the relationships with the automated clearing House network Bank sponsors third party card processing providers and merchants the volatility of stock price the loss of key personnel growing competition in electronic commerce market the security.
The company's software hardware and information compliance with federal complex federal state and local laws and regulations and other risks detailed in the company's filings with the SEC These forward looking statements speak only as of the date of this conference call and should not be relied upon as predictions of future events. You see are expressly disclaims any obligations or.
Undertaking to update or revise any forward looking statements made today to reflect any changes and you said it was expectations with regard thereto or any other changes in events conditions or circumstances on which any such statement is based except as required by law.
Please refer to the company's SEC filings on the Investor Relations website for additional information and with that I would now like to turn the call over to Lewis Lewis.
Yeah.
Thank you Joe and welcome everyone.
Pleased to report that it was another record quarter for us.
For the quarter revenues were a record 18.
Point 1 million, a 35% increase from a year ago.
All of our growth this quarter was organic.
Adjusted EBITDA was marginally negative for the quarter, we generated positive adjusted cash flow for the fourth consecutive quarter.
And ended the quarter with $7 $6 million in cash and virtually no debt as we continue to strengthen our balance sheet.
Once again, we experienced outstanding growth across all of our business segments.
H card processing prepaid card issuing.
<unk> solutions.
As a result total dollars processed in the first quarter were $2 2 billion.
18% compared to the same period last last year.
While total transactions were $10 5 million.
Our strategy of being a diverse fintech payment processor by delivering our services.
To a variety of end markets with a mixture of electronic payment channels allows for continued growth when economic conditions are optimal.
This was clearly demonstrated in the first quarter, where we generated growth above our guidance despite experiencing weakness in one of our growth verticals cryptocurrency.
However, because of the strength in our other markets, we easily absorb this weakness and still generated 35% organic revenue growth.
Consequently, we are reiterating our guidance and expect strong 18% to 20% revenue growth in 2022.
While also anticipating continued positive adjusted operating cash flows.
And we're also reiterating our expectation of positive adjusted EBITDA for this year.
With adjusted EBITDA significantly improving insect subsequent quarters from the first quarter, when we make significant investments in the business to accommodate future growth.
Also the board of directors has authorized a repurchase of up to $4 million of the company's common stock from time to time on open market block transactions or in privately negotiated transactions.
More information on the stock repurchase program will be published soon.
In particular.
The following items temporarily depressed margins and increased expenses in the first quarter.
We incurred approximately $650000 to produce plastic cards.
We anticipate issuing in future quarters under the Voyager digital debit card program.
While there's no margin on the sales of these blank card voyagers instructions to an inventory of these black cards is a strong sign that they expect to be issuing these cards to their customers in the very near future.
As previously communicated on our last fall, we've been investing in our call center operations to be ready for the influx of customer interactions that we expect Walker.
And as such we incurred significant upfront expenses to expand and strengthen our customer service organization.
Both to manage the increased growth.
Be prepared to meet the demands of our Voyager digital debit card program, where we will be servicing customers as well as issuing the cards.
Processing the transactions, thus will we will be receiving three separate revenue streams under this program.
The large prepaid program concluded in the first quarter. This program in which we shared a larger than normal proportion of the breakage and spoilage on when the unused card balances with the program sponsor this tends to depress margins on those revenues.
And on the spoilage and break as well with many of other prepaid programs sponsors had been negotiated at significantly better margins and we expect to start to see large increased contribution from these expiring contracts during the second half of the year.
Finally, there was about $200000 of non reoccurring expense in the quarter, which Tom will go through in a minute.
Consequently walled gardens is conditioned on enthusiastic fintech lending and crypto currency industries as well as no appreciable deterioration in the economic conditions, we feel very strongly that we will be able to achieve our objectives. This year. In fact, we considered the profile is set.
About these near term economic.
Near term economic outlet as favorable for some of our business lines that tend to outperform in these types of economies.
Now, let me offer some high level comments by business line.
Actually the complementary services revenue was $3 8 million up 25% is transaction volume was up.
21%.
Returned checks processed were up 32%.
And electronic check Davos, where were up 16%.
In the quarter was impacted.
Somewhat by the weakness in crypto currency market.
Since the second quarter of last year was by far the peak in crypto currency related volume, we anticipate the second quarter. This year will lag the results we experienced last year.
However, we are optimistic for a rebound in ACTH over the second half of the year not just based upon a recovery in crypto currency market, but the lending and other verticals that we serve where we have historically benefited from periods of inflation and slow economic growth.
In addition, a C H continues to board the testers.
We are confident that we will see strong growth and healthy contribution margins in this business line through the course of this year.
And card take that continues to drive significant growth.
Pay fact transaction volume was up.
67% in the first quarter, which drove another strong increase in card revenue.
Which is.
Is all the more impressive when considering this growth is from the highest revenue base of any of our business lines.
Total dollars processed were up 21% and transactions processed were up 48%.
Total dollars processed exceeded 325 million in the quarter, which puts us well in front of last year's pace of finishing with over $1 billion in volume processed.
Both volume and transactions were all time quarterly records for the company.
After doubling last year prepaid is off to even a better start with revenues nearly tripled Tripoli more importantly, total dollars loaded on prepaid cards in the quarter, which is a leading indicator of future revenues exceeded $69 million.
And all time quarterly records.
As I mentioned earlier prepaid recognized $650000 of revenue.
From the first Voyager digital prepaid.
The preorder for cards, and similarly recognize significant spoilage and breakage revenue on the completed program, although below normal more margins.
We're getting excited about the launch of the Voyager that debit card program, which has already been being strategically introduced to a selective group as an effective launch of this program.
We're all out is expected to start to accelerate soon and then throughout the remainder of the year.
Boyd or it's helpful to have great adoption, among the $3 5 million users.
At the same time many of our original Covid relief programs are coming to a close.
As some of the early Covid vaccination, our incentive programs, which have Kurt balances exceeding $20 million.
Which is subject to revenue from spoilage, having implemented over 200 prepaid programs, we expect to see a steady stream of expiring cards.
At which point, we will realize any breakage or spoilage associated with these programs. This first significant the first significant tranche of these explorations should occur in the third quarter and continuing somewhat steadily from that point forward as I mentioned earlier with much more favorable.
Economics.
Houston Frost will talk about this and other new prepaid programs in just a minute.
Finally output solutions had another strong quarter with revenues up 25%.
As they began their their second year as part of the U C. L family. One of the biggest changes that has helped output solutions has been the addition of a dedicated sales organization.
Didn't exist prior to our acquisition.
This has yielded the addition of new customers, while simultaneously many of our utility and other customers continued to grow in the first quarter. We set a record for our transactions are pieces process at over $2 9 million, we expect to see output solutions continue to make the.
<unk> contribution to our revenue and profits.
While overall gross margins in the quarter were temporary slowed as previously mentioned, we view those expenses as growth investments that strengthen our overall it infrastructure and provide us with a solid foundation foundation that we that can be leveraged as revenues increase.
Beginning in the second quarter, we expect to see margins increase and overheads to remain.
Relatively flat.
We continue we feel that these investments.
We're both wise and affordable given our very low customer acquisition costs that creates tremendous leverage in our model.
Each additional dollar of revenue is incrementally more profitable as we.
We have very few direct costs associated with additional dollars process.
Thus more of our growth with a more robust infrastructure in place, we can significantly grow the business without much.
Increased expense.
And we generated positive adjusted cash flow of $500000 in the quarter further strengthening our financial position, while we were undertaking these investments.
In summary, I consider the first quarter, great start to a year that I think can be transformed a transformational for us yet.
Electronic payments or Fintech is extremely exciting space, where innovation is being rewarded.
And we have plans to introduce exciting new products and solutions and virtually all of our operations. This year.
We have made the decision in the first quarter to absorb the cost and prepare the organization to capitalize on numerous numerous growth opportunities that are imminent.
Now we are prepared to leverage that investment for future growth with the resources in place. We can now focus on continuing the outstanding topline growth that we have generated each quarter for almost two years and what that using our improved scale to drive the increase in the bottom line to create value for our.
Shareholders.
I would like now to turn over the call to Houston Frost, our senior Vice President of prepaid services.
Thank you Louis and thank you everyone for joining our call. This morning.
The prepaid business had another great quarter with revenues up 212% to $2 8 million driven by a 270% increase in card transactions processed.
Third and 34% increase in load volume and 139% increase in purchase dollars processed.
Total dollars loaded on prepaid cards in the quarter exceeded $69 million, an all time quarterly record and a sequential increase from last quarter $65 million. I'll also note that revenue growth has now grown sequentially for five consecutive quarters.
Growth continues to be driven by our position as the leader and are supporting various fund disbursement needs of governmental municipal charitable and related entities.
We have been the prepaid program manager on approximately 200 of these types of programs, which we believe could be over 300 by the end of the year.
Much of our opportunity is arriving from the continued development of new use cases and applications, but there are many programs run by governments and nonprofits.
As discussed previously.
Previously, we participate and the Mastercard and Mastercard City possible program, which is a new model for urban innovation in which a global network of cities business as academics and communities worked together to make the world cities more inclusive and sustainable.
It's a new model of public private partnerships that unites the private sector to work with cities to co create initiatives that bring cities companies community and communities together to identify common challenges and co develop solutions that advance inclusive and sustainable urban development.
Many of these new initiatives require an effective means to zipper disburse funds to residents and you feel has been able to provide an efficient and transparent solution to this common challenge for these various programs.
Particularly with our ability to deliver cars electronically and provide detailed data on the use of funds.
We are also continuing to move forward with Mastercard civic assist platform, which is developed on the Oracle cloud to provide seamless integration between our funds disbursement capabilities and the various systems used by governments and nonprofits to administer programs such as scholarships unemployment food subsidies guaranteed.
Income pilot programs and are potentially pension and health care payments are money disbursed, one integration will offer entities, a number of disbursement forms, including AC aged car virtual card and check.
As we see the original code relief and subsequent vaccine incentive programs, mostly winding down they have been more than one.
They have been more than replaced with a multitude of new government programs and several in the pipeline for.
For instance, we were running several dozen guaranteed income programs in places like Chicago, Phoenix, and Washington D. C. Just to name a few of the major cities.
And are utilizing our technology and.
In contrast to the low dollar, but many use our model of the expiring programs near these guaranteed income programs are for two three years or longer and involve fewer participants, but far larger disbursements in general since our revenue is based on dollars dispersed. These are much easier programs to administer.
That generate equal if not greater revenues.
As just one example of a unique programs that have implemented our technology.
It's one for previously incarcerated women that are being provided funds with.
To reactivate the society and those funds are disbursed on a virtual card.
We believe there are practically the women less applications of our technology and we are just scratching the surface.
As Louis mentioned, there is a great excitement around the introduction of the Voyager digital debit card program.
This program is just getting started Voyager has been rolling out cards to employees since early April and over the past few weeks have been rolling it out to a limited data less for further validation and it is our understanding that beginning in June assuming no hang ups. There will begin to accelerate the rollout to the larger group of customers that signed up to be on the waitlist.
<unk>.
We are gearing up for this program in the first quarter as Louis mentioned, we produced about $650000 of physical cards for eventual will the.
Fulfillment and expanded.
And we've also expanded our customer service centers.
We've also significantly.
We've expanded our customer service centers over the past five months.
This was accelerated to handle the sizable.
New York City vaccine incentive program and is also preparing us to handle the anticipated voyage or volume and continued growth with the prepaid business in general.
The voyage your card or her which was a pass through at cost as well as increased telecom expenses related to customer service dramatically reduced our gross profit. This quarter. However, higher margin fees on card creation will be generated as the blazer cards are ordered and fulfilled and we will also.
I'll begin to collect revenue from inactivity fees from the N Y C vaccine incentive cards beginning in September so we're dealing with somewhat of a mismatch between the time, we are incurring expenses and generating revenue on some programs.
As such we do expect margins to expand significantly over the next few quarters.
We are also working to grow our for profit customer base and more a leader in the AD Tech space attracts several million.
Rebate checks each year isn't it.
Currently in an implementation, we expect to we expect the growth to accelerate as they migrated the portfolio from a competitor and onto our platform.
I am very pleased with the progress we have achieved over the past several years and I'm equally excited about our opportunities for the future I'm confident 2022 will be another great year of growth in the prepaid business and with that I'll go ahead, and conclude my remarks, and turn the call over to Greg Carter Executive Vice President payment acceptance.
Thank you Houston I mean, let me begin by echoing Louis in your earlier comments about the new year is off to a great start.
After a breakout 2021, our Paypal business line continues to generate strong growth.
APAC revenues were up strongly in the first quarters.
Volumes were up 67%.
This led to an 18% quarter over quarter growth in total card revenue as total dollars processed in the card business, including legacy increased 21% and transactions were up 22% card operations. We're also profitable for the fourth consecutive quarter.
<unk> remains our growth engine in the first quarter, we continued to sign several new ISP agreement. Some have already completed the integration process and are now live and processing volume.
We have more Isps in some phase of integration and implementation than we ever have demonstrating that our value proposition is recognized.
Our pipeline also remains robust, including a sizeable opportunity in the health care space that would be our largest account today.
With attrition and our penetration of the ISP customer bases remained much more favorable than industry averages. One example of how we continue to grow with our existing Isps.
Software provider in the health care industry.
They implemented two years ago with modest initial volume.
Now their volume was up 500%, primarily because of our continued penetration efforts, but also because they are mandated that all new subscribers utilize our payback platform.
The same can be said with the more recently integrated franchise operator, they are mandating that all new franchisees adopt to use your payback solution.
Win win for both us and the franchise operator using.
Using our proprietary partner scorecard, we can show Isps, how this simple strategy can substantially improve their economics as they grow the volume of electronic payments flowing through the UC or payback.
These are great examples of how increased penetration leads to one of our top growth engines from a growth perspective, our paper business as a three legged stool, we continue to add new Isps those Isps continue to grow their customer base and the individual merchants continue to grow as well. This is what we call our leverage distribution model.
Last quarter I described a couple of new products under development.
Bunge disbursement solution, we are calling consumer choice and point of sale lending also now known as buy now pay later.
Both products are now fully commercialized and are being enthusiastically received in particular point of sale lending is attracting interest from our dentists veterinarians and other similar merchants, who can now offer their customers a flexible installment payment option to better manage an unexpectedly large bill.
Additionally, consumer choice touches many different parts of our business as consumers can elect to receive funds via ACTH card, whether physical or virtual or check that we print and mail tomorrow facilities.
In contrast, the competitors that are simply Aggregators of all these services from different vendors. We can perform all of these services in house. These are just a couple of examples of how we continue to broaden our products and solutions to respond to emerging market trends and enhance our value proposition as a one stop shop and increase our revenue streams.
I also mentioned we have begun to attend in person industry events. Let me illustrate why this is important.
In April I attended the American Bar Association Technology show in Chicago that was our first face to face industry that we've done since the beginning of the Covid pandemic we.
We identified and met with several qualified opportunities in fact, we have already signed two new Isps because of attending that show and they are already in implementation.
During the pandemic the sale cycle through other marketing and sales efforts had stretched to as much as six to eight months, where in this case. The sales cycle was two weeks. We are all excited to be hitting the road again for in person events. We plan to have a physical presence at close to 20 shows over the course of this year.
Finally, let me note that one of our new Isps as well as the opportunity I previously mentioned that could be our largest to date came to us because they were extremely dissatisfied with their existing paid back relationship.
Many of our competitors simply white label, a generic paper solution from a larger processor much like the old ISO days.
Because they are not payback payback experts, who don't own and control their own proprietary technology. These competitors are not flexible more nimble enough to handle the ongoing servicing customization and modification requirements that are a routine element of any paper integration.
Once the ISP becomes aware of this they look for someone like UC as that develops and supports its own technology and can provide all the services they need.
Automated underwriting and Onboarding of one example, but one that is extremely important to boarding customers in mass and generating revenue in short order for the Isps.
We expect that many Isps, who were early to jump on the painful bagging bandwagon will now be rethinking that strategy and be looking for someone with a better solution and it has the resources to meet their needs, which we think will open a whole new market for us.
So it's been another quarter of steady stable and efficient execution lather rinse and repeat this has been our strategy and it's becoming increasingly effective every day, we are getting better across the organization.
Let me conclude by recognizing the hard work of the many use your employees and all of our business lines for their outstanding performance.
You see what was growing rapidly and without their commitment commitment and dedication our ability to provide service that delights, our customers would not be possible.
We are still in the early days of an industry that rewards innovation service and responsiveness. We look forward to continue to aggressively grow the business with the white glove service for which we are becoming known.
With that I'd like to conclude my remarks, and my remarks, and turn the call over to Tom Jewell, Our senior Vice President and Chief Financial Officer.
Thanks, Greg and welcome everyone. Thanks for joining our call today and your interest in <unk> I'm going to conclude today's prepared remarks with a brief review of our first quarter financial results before opening the call to questions as mentioned revenues third quarter ended March 31, 2022 were $18 one.
Up 35% compared to $13 5 million in the same period last year all of our growth was organic.
H and complementary services revenue was $3 8 million up 25% is transaction volume was up 21% return check transactions processed were up 32% and electronic check dollars processed were up 6%.
Per cent and within the business <unk> revenues were up 17% and our pin less debit product revenues were up 57% clearly we are sustaining the momentum built up over the past few quarters of this our highest margin business. Although as Louis mentioned, we had a tough we have adjust Q2 comparison ahead of us.
Yes.
Revenues from our output solutions business line was $4 7 million up 25% from the $3 8 million a year ago. As we are lapping full quarter contribution from output solutions. This was all organic growth total transactions in Pcs process in the quarter set an all time quarterly record.
Prepaid keeps rolling along and had another outstanding quarter with revenues up.
212% to $2 8 million driven by a 270% increase in card transactions process.
<unk>, 34% increase in low volume and a 139% increase the increase in prepaid card purchase dollars process as mentioned earlier total dollars loaded on prepaid cards in the quarter exceeded $69 million, an all time quarterly record.
We continue to support this growth by investing in more engineering and customer service resources to further enhance our reputation for providing innovative new technologies and a high level of customer satisfaction as Houston mentioned, we had some items, resulting in compressed gross margins in this category.
Revenues in our credit card line were up 18% to $6 8 million growth in both volume and track and transactions processed continued to show steady improvement and drove car driver revenue growth with dollars processed up 21% and transactions processed 48%.
Gross profit in the quarter were three 5 million up 21% Mark.
Margins were 19, 4% down from 21, 6% in Q1, 2021, primarily reflecting the rapid expansion of prepay, including prepaid card revenues at cost, causing compressed gross margins along with other revenue growth in lines of business with below.
But average margins looking back.
Q1 in 2021.
Gross margins for our lowest of the year Accordingly, we expect to see margins improve in Q2 and going forward as Louis mentioned.
As our rapid growth continues we are investing in our infrastructure to support both current and anticipated growth and last quarter. We indicated this would create an increase in our other selling general and administrative expenses in 2022.
This can be seen in the first quarter, where there were increases in compensation compensation costs and benefits.
And then by both merit increases for existing boys as well as additions to staff.
The full implementation of the new cloud technology infrastructure and incremental rents to accommodate the growth of our workforce. We also are building out our customer service centers, including preparing for the previously announced Voyager digital debit card program, which we anticipate will see increasing volumes in the third quarter.
He also the quarter also include included nearly $200000 of one time expenses.
Consequently for the quarter total other selling.
General and administrative costs were $3 8 million versus $2 7 million in the prior year period, but up unless more modestly from our fourth quarter run rate of three three maintenance you can expect to see SG&A expenses at these levels over the balance of the year.
Our depreciation and amortization reflects a slight decrease from fourth quarter of 2021 levels. The next significant adjustment in depreciation and amortization will be a reduction of the customers' list asset acquired in the singular acquisition, which will be fully amortized in September one 2022.
For the quarter, our operating loss was $1 6 million purchase of loss of 700000 in the year ago quarter. Adjusted EBITDA was a loss of 286000.
<unk> to a positive 247000, a year ago.
The company recorded a net loss of $1 6 million for the fourth quarter compared to a net loss of 720000, a year ago with earnings per share in the current period of negative <unk> <unk> per share compared to.
A negative <unk> <unk> per share for the same period last year.
<unk> continues to be in solid financial condition or cash balances over the first three months of the year increased $300000 to $7 6 million at March 31, 2022, and <unk> noticed significant debt.
We reported we recorded positive adjusted operating cash flows in the quarter generating $500000 of positive adjusted operating cash flows compared to an adjusted net cash used by operating activities of $600000 in the prior period.
Adjusted operating cash flows exclude nonoperating operational charges in merchant reserve funds prepaid card load obligations customer deposits and operating lease assets and liabilities.
Building on our strong 2021, the ear is off to a fast start with top line growth of 35% at the same time, we are investing in our infrastructure to support current as well as expected growth as we grow we will be able to leverage this investment in infrastructure with expanded margins.
We have built a solid balance sheet as well that <unk> provides more than adequate resources to fund this growth.
This is shaping up to be another exciting year at <unk>.
That concludes our prepared remarks for today and we would now like to open up the call for any questions.
Okay.
Well now begin the question and answer session.
To ask a question press Star then one on your Touchtone phone.
If youre using a speakerphone please pick up your handset before pressing any keys.
To withdraw yourself from the question queue, Chris store too well.
We will pause momentarily to assemble the roster.
And our first question comes from Barry Sine with Spartan Capital Securities. Please go ahead.
Hey, Yeah, good morning, gentlemen, and congratulations on a very strong quarter.
In this market environment I wanted to kind of our focus on risk areas that investors you know Mike be concerned with and give you a chance to kind of respond on some of these and there's three areas that I'm wondering about first of all I think you'd agree the balance sheet is pretty strong. It's all 7 million cash almost no debt.
And you even added cash in a negative EBITDA quarter second you've talked about the crypto business. I think you said <unk> for you was a little weak year, obviously cryptos going through extreme bear market. So I'm not sure how that would affect things if that continues and then the third risk.
Factor I'm wondering about is potential economic weakness and again I know that you have things like income support programs. So you have some counter cyclicality in our the products you're offering. So if you could go through those and talk about how you can deal and survive and even thrive with some of these risks in the market is thinking about.
Well, thank you Barry and thanks for calling in.
You know what we're different than.
The most of the payment processors, because our strategy is to be diverse diverse in the industries, we serve and diverse and the.
The payment channels that we offer.
No industry represents more than 10% of our revenue.
We do have dress crypto currency.
You know, we don't LIFO crypto currency trade sideways.
We like volatility and.
For example last night.
We saw triple the amount of volume that we normally see.
97% of that money was going into.
Their wallets.
So and that was fueled from volatility yesterday.
And so.
You know.
As crypto currency is volatile.
It generates more transactions for us and we don't have any.
Risks with crypto currency, we don't hold any.
It doesn't matter what the dollar is on that.
Bad news for particular point.
And again crypto currency today represents less than 10% of our revenue.
And in times of recession.
We have many segments that will generate a lot more transactions.
We have a big footprint in consumer lending short term loans.
We have the guaranteed income programs.
And in those typically do very well in hard times of the economy.
We like our balance sheet, we've continued to strengthen it every quarter.
And you know as we talked about earlier the board of directors.
<unk> 4 billion stock repurchase program.
The board wouldn't have done that unless they've had a certain amount of confidence in our balance sheet and our ability to generate cash flow for future opportunities.
Hopefully that answers your three.
Areas of concern.
It does it just one follow up on that you mentioned there is no industry more than 10% of revenue what is your largest industry and served and what percentage of revenue would that comprise.
Yeah.
There's a couple that are you know.
Close to 10% Cryptos, one health care and other consumer lending.
Especially when you include government programs in that in that segment.
Those are important to us.
Yes.
Okay. Thank you.
Okay.
The next question comes from MS. Carrie Preston P&L.
And research. Please go ahead.
Yeah. Good morning, everyone lots of get a handle on around here first of all.
When you look at your SG&A expenses, and we're looking at what it should be going forward.
Back out the one time $200000 number so we're looking at probably about.
3.6 million give or take going forward per quarter.
That's a reasonable number.
Okay.
So.
Well, let me ask you. This I heard you say that the youre looking at a quarter that is going to be challenged.
Was that versus Q2 last year.
Or sequentially versus Q1, where you generated $18 million of revenue in this quarter.
This burst 2001, and it's very specific to a C H transaction volumes.
So our aviation transaction.
Volumes in Q2 of last year.
We're part of we're in part fueled.
But you know extreme excitement of the cryptocurrency market.
In the quarter.
The peak of last year in that industry.
And you know.
We don't have that same amount of excitement.
You know this quarter, so it's gonna be a hard comp for us on our operational metrics right for ACP.
C H only.
Can you give us some idea.
Hal.
H transactions are surrounding crypto at this point have started to trend given the fact that.
So basically the market is definitely having some issues in terms of.
Pricing prices.
Yeah, well Q1 was.
You know Q1 for crypto currency started out good and it's just my personal theory I would think that crypto currency was kind of a hedge for inflation for a while then crypto currency started trading like the stock market, which made our debt debt.
Segment, a little bit tougher.
I can tell you that you know this last week.
The volatility in crypto currency is creating a lot of transactions for us so.
Okay.
We don't we don't carry any crypto so we have no.
Risk by holding it.
Moving money in and out of the platform. So we like volatility so.
Okay, and then on the card side did you say you produce 650000 cars or was that a revenue number.
That was a revenue number it was.
Yes.
270000 cards or something like that.
So are we going to as we go forward throughout the year as you ramp up this.
Product because I understand there's about three to three and a half million accounts or is this going to be something that as you ramp it up we're still going to have this margin.
Degradation issue because of your issuing more cards.
Well absolutely.
Actually as we start personalizing these cards when they get a named put on these cards. We we haven't we have margin.
And then those cards will start to produce transactions, so a car or a large card plastic order like this one.
It is just a future indicator of of marginal margins.
It will.
We're going to earn revenue.
Those cards.
So this is just the first step again, it's a leading indicator it is a great leading indicator it shows commitment by the customer.
And.
So again once you put a name on that card, we start making money and.
And so.
As you know is it shows you what we've been saying is that the program is ramping is going to be a significant program and that we're going to earn significant revenues.
This year of that program.
So as we get as we get to the back half of the year and you start issuing these cards.
The assumption would be that if youre getting.
X transaction X dollar amount per transaction on the ECH time side, how much would that increase if youre doing prepaid transactions.
With these cards that are issued.
I guess, what I'm trying to ask is that you know.
That was gonna be volatile here, who knows what's going to happen, but as you start getting these cards in the market should we see a precipitous increase in revenue from these cards that would basically or possibly dwarf what you would get on the AC side from any kind of money movement.
Well first thing is they are complemented military.
The majority of our AC ace transactions going in or is the money going in.
To the platform and as people start to use those cards and and the card is backed by a stable point in U S. D C.
So you know people are going to start using these cards as their checking account.
And you know at <unk>, 9% interest, so theyre going to be moving more and more money in.
And then the money will come out on the on the.
Usage of the card, which we earn interchange.
Well, we think it's.
The prepaid program is also a catalyst for a C H to increase.
Okay. Thank you.
Okay.
Okay.
The next question comes from Jon Hickman with Ladenburg. Please go ahead.
Hey, I.
Want to add my congratulations on the quarter can I drill down a little bit on the prepaid.
Spoilage that you're anticipating to hit in like September timeframe.
Did you say like $20 million.
Did I get that right.
There's $20 million on cards that is potentially going to spoil not all but we're kind of spoiled.
It's just to give you the kind of the order of magnitude.
You know I don't really want to throw a number out there, but it's going to be it's going to be a nice for us going forward.
Okay and then my next question is on the <unk>.
Investments you made in your call center to handle the future.
Customer volumes.
How long do you expect that to last.
Before you have to do it again.
Well. The first thing is you need to understand about the call centers. The call Center right now is the expense to us.
Yeah as we go forward as we go forward, it's actually going to create revenue.
So there'll be offset and you know right now we you know we took more lease space, where you're working obviously.
Furniture and.
And computers and.
And we establish an offshore overflow call center as well.
I'm worried.
Yeah.
<unk> enhanced our telecom infrastructure and.
And we're ready now.
So, but what can I know its volume well that's.
What kind of volume with that support.
Well Kevin.
Well, you said somewhere around 300 program.
So what what I'll, what I can let you know.
Is.
We really started to ramp up customer service and start beginning in December of last year.
And this is related to.
The New York City vaccine incentive program.
So to give you an idea around that.
We had.
Nearly a million cards go out and four to five months, the last four or five months of.
20.
'twenty, one with a large percentage, maybe even as high as 50% of those going out in the months of December January .
So.
The call center is ramped now to be able to handle.
Large card orders going out any given month.
And can support you know programs up to call it a million cards.
We'll also though state is that there's a little bit of a difference between a program like New York's vaccine incentive program and then a longer term.
Customer like a Voyager cardholder.
So I don't know if that gives you a little bit more of an idea for you now.
Our call center has ramped up.
But you know that those are numbers I think we can share is.
Yes.
We were able to handle almost half a million cards going out in one month to give you an idea.
We did we did have some strain on the call center. So I want to mention two other things just related to this real quick.
One is hold times are long that resulted.
And larger telecom expenses, which was in cost of goods.
So that was one of the items that really depressed margins for US was in the first quarter. We were still fielding a ton of calls, especially in January had a lot of long hold times, which increased.
The telecom expenses.
The other thing is we did incur expenses.
Expenses in SG&A for the increased customer service Rep head count as well as the.
As well as the customer service that we have off site.
And you know again part of that is getting ready for continued growth, but the other part of that was servicing a card program, where we're going to end up seeing about 70% of the revenue from that card program, maybe even maybe even more than that on the back end in the form of these.
In the form of this breakage interactivity piece, that's going to really get started in August .
So you know our customer service center affected both cost of goods sold as well as SG&A.
And on a program where the revenue comes in at a later time that was sort of a mismatch of timing we've talked about on the Voyager program moving forward the revenue will be coming in.
Much closer to the time that we are incurring that because Voyager gets charged directly for customer service.
Minutes as opposed to you know that we're generating revenue to cover that expense.
From other means so hopefully that that answers both the size of the customer service volume for you and a little bit more on the impact it had in first quarter SG&A and cost of goods.
Okay. Thanks I appreciate it.
Thanks, John .
Right.
The next question comes from Michael Diana with Maxim Group. Please go ahead.
Okay. Thank.
So most of my questions have been answered, but I have one for Greg.
So with.
With Oh.
These pay pack using such heavy usage.
Speeds for distribution.
You've had your leverage distribution model there for a long time now, but my view, Greg since you've taken over the execution has just been much much better.
Could could you just walk us through some of the processes that you.
<unk> implemented to improve your penetration through these Isps.
Sure.
Really it's all about talking with the ISP partner and getting aligned with their strategy their marketing and their conversion strategy as I said when we initially can work in ISP.
Those existing subscribers or their merchants.
It's early come over with that initial integration.
Some do but the majority don't.
But we've taken the time and put our internal resources to sit with their marketing and sales teams to put together specific call back campaigns.
And ours other informative means to let those merchants know that once you use the payment system. Then you do have a fully integrated software approach for your practice management.
Applications. So the example of a physician's office rather than importing that data from some other.
Payment system, that's now embedded with that operating software so when they close the month, it's much much easier so really just getting to that value proposition secondarily, showing with the ISP how much incremental essentially no cost revenue that they could earn or received by just using <unk> as the.
Payback is also a compelling reason.
For instance that I referenced.
The this talk today was this ISP in the health care space has grown almost 500% is really the.
Classic textbook example of what we're trying to do with all of our Isps.
Put the time and attention, which we are happy to assist with they will see not only economic gains, but I think a happier subscriber base. So it's really just in my opinion, focusing on the basics and executing day in and day out just putting more time and attention to to those partner relationships.
<unk>.
Okay, great. Thanks, Craig.
Thank you.
The next question is a follow up from Gary <unk> Barrington Research. Please go ahead.
Yeah, Hey, Houston I'm, just trying to understand this whole thing with the call Center.
My my understanding and it's probably wrong here has left the call center.
Investment was really for Voyager.
But it seems to me that it's for all of the business overall, given the growth that you've had X Voyager and what you anticipate for Voyager is that correct.
Yes, the growth in the call center to support prepaid.
Card accounts in general and so.
Yeah, we really are kind of saying two things at once here. We grew the call center to deal with increased the increased loads at <unk> that you saw.
Largely related to new York's but then also.
A few other cities vaccine incentive programs from last year. So that is what really kicked it off and it was December when we significantly began scaling that up.
Okay.
It was yeah.
Yeah.
We began scaling up the call center faster.
Than we anticipated and it was directly because of the growth that you were saying.
As first time cards, but what we're also saying is that.
By doing that earlier, we are now prepared also for.
Increased volume whether it come from the Voyager program.
Or other.
<unk>.
Gary and it's important to understand in Houston kind of touched on this is it.
The disbursement programs, we don't get paid for customer service the way, we recoup those costs is through spoilage, which occurs much later.
One on the Voyager program and similar programs that are reoccurring like the government.
Guaranteed income programs.
Either those cards get use like a checking account.
And you know those.
Those cards.
We will generate.
Or calls the disbursement programs generate calls in bunches right. So I'm, a big group of that.
Big chunk of cards go out then we get a spike and then it goes away.
Okay, but.
Voyager program.
And similar programs, we get paid.
Per minute.
And those are more consistent type of volumes going forward.
And in General you know.
I know that the volatility and prepaid gross margin.
Is it.
Yes.
Makes it difficult to sort of you know.
I understand where those are going to end up leveling out, but that volatility really shows that we keep signing and executing bigger and bigger deals.
It's.
These one off card orders substantial expenses and customer service.
We'll have a quarter on one quarter half.
A negative effect on gross margin and then we see gross margin snapped back up a bit.
I guess, we're then for example, collecting breakage revenue in another quarter.
As we continue to grow you know these kind of cost and expense mismatch is really going to even out.
But yes, anytime we start to see them not even out as the gas we're signing larger and larger deals that are having these kind of outsized impact on our cost of goods sold.
In a sense wallets, it's annoying to try and analyze it it's a good sign for the continued growth of the business well and Lewis answered. The question that I had I wanted to make sure you're you're Voyager is going to pay on a usage basis, but on these disbursement programs you capture all of the spoilage.
Is there any split out we go from here.
I'm sorry for that week.
We do share some spoiler, so going back on it depends on the type of program, but we almost yes.
It really is.
The larger government programs, we are sharing spoilage and they're at various rates.
Okay. So these cards do have an expiration date and Theres spoilage is only starts to be recognized once the card has expired theres no estimate of spoilage as the card program goes on.
When you say, there's no revenue brought forward.
Our estimated in.
Sure.
Recognized as revenue until we collect the revenue I don't know if that's exactly what you mean.
But to that answer no we are not estimating and recognizing any revenue was only recognized.
Its feet off the card.
Okay, not I also we're getting into a little bit of details here, but.
New York City is not a fixed exploration date theres various types of car programs. Some of them have fixed exploration base. Some of them are assessed inactivity fees.
And those models are just dependent and very variable.
And depending on how we set up a program and the negotiations with the <unk>.
Entities dispersing the funds.
So I'm just trying understand if they don't have an exploration date on some of these cards then how do you accurately determine what the spoilage is gonna be.
Theres two models.
Inactivity fee model and Theres, a fixed exploration model okay. Okay.
Yes. So I mean, you can you can still understanding then activity fee model.
$20 harder $100 card, it's pretty easy to multiply months times that activity fee.
Simple multiplication okay. Thank you.
Okay.
Thank you.
This will conclude our question and answer session, which also concludes today's conference call. Thank you all very much for attending today's presentation and you may now disconnect.