Q4 2022 Usio Inc Earnings Call
Speaker 1: Tr other.
Speaker 1: I.
Speaker 2: Good afternoon everyone and welcome to the UCO Earnings Conference call for the fourth quarter and fiscal year ended December 31, 2022. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by 0.
Speaker 2: After today's presentation, there will be an opportunity to ask a question. To ask a question, you may press star, then 1 on a touchstone phone. To withdraw your question, please press star, then 2. All participants on this call are advised that the audio of the conference call is being broadcast live over the internet.
Speaker 2: and is also being recorded for playback purposes.
Speaker 2: A replay will be available shortly after the end of the call through March 22, 2023.
Speaker 2: I would now like to turn the conference over to Paul Manley, Senior Vice President, Investor Relations. Please go ahead, sir.
Speaker 3: Thank you and thank you everyone for joining our call today. Welcome to UCO's fourth quarter and fiscal 2022 conference call. The earnings release, which we issued today after the market closed, is available on our website at UCO.com under the investor relations tab.
Speaker 3: 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.
Speaker 3: 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.
Speaker 3: Such forward-looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ maturely from such statements. These risks and uncertainties are described in our earnings press release and in our filings with the FCC.
Speaker 3: 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.
Speaker 3: Management will provide prepared remarks, then we will 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 is up 7% for the quarter, our 10th consecutive quarter of growth.
Speaker 3: end up 12% for the year, which is our sixth consecutive year of record revenue. For the quarter, we reported $1 million in adjusted EBITDA. So 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.
Speaker 3: adjusted EBITDA.
Speaker 3: and EBITDA are non-GAAP financial measures. Our 10K 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.
Speaker 4: And welcome everyone. As Paul noted, I'm pleased to report another record quarter and year.
Speaker 4: We finish the year on a high note led by strong growth in our prepaid card and output solution businesses.
Speaker 4: 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.
Speaker 4: 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.
Speaker 4: the markets we serve, and the payment channels that we offer.
Speaker 4: we serve and the payment channels that
Speaker 4: 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.
Speaker 4: These are strengths not only powered our fiscal 20...
Speaker 4: performance, but offered significant
Speaker 4: competitive advantages that will enable us to accelerate our future growth.
Speaker 4: There are a number of other significant developments in the past year which we believe broadened our foundation for continued growth. For instance....
Speaker 4: 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 at 19%.
Speaker 4: gross margins in Q4 of 2022.
Speaker 4: They ran point on our large contract with LA County, which we believe will not only help propel outputs 2023 growth.
Speaker 4: But because it's integrated across our organization, we'll also grow our card and prepaid revenues.
Speaker 4: This is a great example of the advantage of our diversification and integration strategy.
Speaker 4: 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.
Speaker 4: As expected, prepaid had a great quarter. Revenues were up strongly, led by the increase in breakage and spoilage on expiring and unused cards.
Speaker 4: has ended, we expect
Speaker 4: to recognize significant breakage revenue on this and other card programs in 2023.
Speaker 4: And with excitingly potentially very large new programs beginning
Speaker 4: with highly recognizable brands like MoviePass.
Speaker 4: we see a path to potentially almost doubling.
Speaker 4: prepaid revenues in 2023.
Speaker 4: Houston Frost will provide additional information, additional details in just a minute.
Speaker 4: We also expect to see a recovery in our ACH business.
Speaker 4: Fiscal 2022 was an extremely disruptive year with the disappointing news about our large cryptocurrency customer entering bankruptcy.
Speaker 4: that we have bounced back.
Speaker 4: For instance, return check transactions processed for the year were up 31%, while we saw even better growth in our penless debit revenues with transactions up 107% year-over-year. For many non-bank consumers and fintech lending customers,
Speaker 4: ACH is basically counter-cyclical.
Speaker 4: So, a weak economy could be a reason to be optimistic for a rebound in ACH revenues.
Speaker 4: with the opportunity to resume growth in the second half of this year.
Speaker 4: What's missing from this afternoon's numbers, but has me 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.
Speaker 4: positive operating cash flows and adjusted EBITDA in 2023 as we lever up
Speaker 4: top-line growth through disciplined cost management.
Speaker 4: Selling, general, and administrative expenses in the fourth quarter were essentially in line with the third quarter as costs have flattened out.
Speaker 4: and we expect more of the same in 2023. We also ended the year in a strong financial condition.
Speaker 4: 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 is net of the approximately $1 million used to repurchase over $5 million.
Speaker 4: 500,000 of our shares.
Speaker 4: 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.
Speaker 4: I'm going to stop here and turn over the call to the team and conclude in a moment with our outlook for 2023.
Speaker 4: And now I'd like to turn the call over to Houston Frost. Thank you, Louis. And thank you to everyone participating in 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.
Speaker 4: 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 percent, 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.
Speaker 5: 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 as a significant item.
Speaker 5: And we will continue to recognize spoilage and breakage over the course of all of 2023.
Speaker 5: On that basis alone, Pre-Paid is already assured we will have record revenues this year and that it will be Pre-Paid's most profitable year ever.
Speaker 5: 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, and other
Speaker 5: 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.
Speaker 5: We continue to work on diversifying our end markets. In particular, we are finding increased success with our corporate expense product.
Speaker 5: 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.
Speaker 5: That combination leads to much higher margins than traditional consumer prepaid programs.
Speaker 5: You've heard us talk about MoviePass. I am happy to report card orders have been ramping up. They had over 800,000 individual sign-ups 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.
Speaker 5: 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.
Speaker 5: provided by our association with them.
Speaker 5: Another new application of our technology is with mobile money.
Speaker 5: A name you may recognize as pioneers of a reverse ATM solution.
Speaker 5: Mobile Money provides a solution for venues, stadiums, and events to become 100% cashless by offering reverse automated teller machines that accept cash and dispense a debit mastercard.
Speaker 5: We were able to win this engagement because of our ability to meet the clients demanding technology requirements of this new unique product.
Speaker 5: As Lewis 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.
Speaker 5: 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 will conclude my remarks and turn the call over to Greg Carter, Executive Vice President of Payment Acceptance.
Speaker 6: Thank you, Houston, and good afternoon, everyone. The card business continued its trend of steady growth in the fourth quarter with revenue up 4% on a 3% increase in dollars processed.
Speaker 6: More representative of our growth was Payback, where dollars processed increased 25% in the fourth quarter to an all-time quarterly record.
Speaker 6: For full year 2022 revenue was up 8% as dollars processed were up 10% once again led by payback which had a record year with a 32% increase in dollars processed.
Speaker 6: 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.
Speaker 6: 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 rule.
Speaker 6: 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.
Speaker 6: Thus far in 2023, that plan is paying off. In January , our payback business set a record for the most volume processed in a single month and in February , payback 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.
Speaker 6: Our strategy is to remain disciplined, to continue getting smarter, and to be more effective in leveraging our competitive advantages.
Speaker 6: 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.
Speaker 6: Another resounding success throughout UCO is our increased cross-selling and integration.
Speaker 6: whether it's traditional ACH, payback, 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.
Speaker 6: 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.
Speaker 6: to which you served them. That's one of the benchmarks for our success.
Speaker 6: 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.
Speaker 6: 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.
Speaker 4: call today and for your interest in UCO. 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.
Speaker 4: Revenues for the quarter ended December 31, 2022. We're up 7% compared to the same period in 2021, primarily on the strength of our prepaid and output solutions businesses.
Speaker 4: 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.
Speaker 4: Revenues and prepaid in the quarter reflect the recognition of significant breakage and spoilage in the quarter. The balance of spoilage and breakage still to be recognized is approximately 15 million.
Speaker 4: dollars with approximately 10 to 12 million dollars of this revenue expected in 2023.
Speaker 4: We had record gross profits in the quarter.
Speaker 4: 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.
Speaker 4: Somewhat offsetting these profits was lower ACH gross profits consistent with lower revenues.
Speaker 4: Going to gross margins, gross margins in the quarter expanded significantly from the third quarter and continued to generally reflect current period products mix.
Speaker 4: 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.
Speaker 4: 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.
Speaker 4: Adjusted EBITDA also improves significantly on a sequential basis to a positive $1 million in the quarter.
Speaker 4: Again, when comparing to 2021 results, the fourth quarter of 2021 included a significant ACH contribution from strong cryptocurrency performance.
Speaker 4: The company remains in strong financial position.
Speaker 4: Cash and cash equivalents as of December 31, 2022, totaled $5.7 million, up over $1.1 million sequentially, but down about $1.5 million from the beginning of the year.
Speaker 4: Looking quickly at our year-to-date results, revenues were up 12%, meeting our revenue guidance for the year.
Speaker 3: All businesses except ACH were up for the year.
Speaker 4: 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.
Speaker 4: The non-GAAP adjusted EBITDA loss for 2022 was $421,000 compared to $4 million of non-GAAP positive adjusted EBITDA.
Speaker 4: in full year 2021, and we reported a net loss for the year of $5.5 million or dollars or 0.27 cents per share, compared to a net loss of 0.3 million or 2 cents per share in 2021.
Speaker 4: non-GAAP adjusted operating cash flow, which excludes non-operational changes in merchant reserve funds, prepaid card load assets, customer deposits, and net operating lease.
Speaker 3: Assets and liabilities was a positive $0.7 million for the year, down from a positive $2.6 million in 2021.
Speaker 4: Now, I'd like to turn the call over to Louis for some closing remarks.
Speaker 4: Thanks, Tom, and thanks, team, and thank you, everyone, for participating today.
Speaker 4: 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 UCO for exciting, exciting, and exciting opportunities.
Speaker 4: and Dynamic 2023. We are ramping up with great new clients across various businesses like LA County, MoviePass, Mobile Money.
Speaker 4: 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.
Speaker 4: with revenue up 18 to 20 percent. And we also expect to generate both positive operating cash flows and adjusted EBITDA.
Speaker 7: Operator.
Speaker 4: That concludes our prepared remarks. Will you please open the call to questions?
Speaker 2: We will now begin the question and answer session. To ask a question you may press star then one on your touch tone phone. If you're using a speakerphone please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question you can press star. If you'd like to withdraw your question, please press star.
Speaker 2: Our first question comes from Steven Wagner with Integrity Weld Advisors. Please go ahead.
Speaker 4: Hey gentlemen, congratulations. What a fantastic quarter and year. Good work.
Speaker 4: So I do have a question. Yeah, absolutely. I do have a question about Movie Pass. How many cards have been issued so far?
Speaker 4: That movie pass has about 137,000 cards out and...
Speaker 4: 100,000 of those occurred in January .
Speaker 4: Okay is there a target or goal that you're able to talk about with regard to the end game for this? So are you able to? No. Okay. The 137,000 cards is significant in itself.
Speaker 5: So I mean, it's really up to MoviePass in terms of how fast they're, you know, deploying the enrollments or invitations.
Speaker 4: So right now they're live in nine cities. Yeah, okay, okay and remind me how you make money on that and if I remember correctly your Your profit on this is larger than in other prepaid cards.
Speaker 4: So, MIMI-PASS uses unique technology, our 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. And this particular token cost effective Whirlpool- restitution and there are a number of tokens
Speaker 4: at the movie theaters. Okay, so even when the card is loaded, that's really interesting. Very good. Okay. And then how many ISV partners are under implementation? So at the end of the fourth quarter, we had 38 partners in the implementation queue.
Speaker 4: Okay. All right, very good. 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?
Speaker 4: We're doing minor wind down activities for the bankruptcy court for Voyager, but it's not significant at all.
Speaker 6: Okay, and that's not something that is going to end up being a rerun again. It's just a one-off scenario because of what happened with that font.
Speaker 4: That's correct. Voyager's plans are to wind down.
Speaker 4: Okay, very, very good. Okay, all right, well I appreciate that. I mean, everything sounds, you know, 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. You know, anywhere in California did that, you can Swisslet anywhere in the country.
Speaker 4: very good. Okay, all right, well I appreciate that. I mean it sounds, everything sounds, you know, 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. Thank you.
Take care. Bye. The next question comes from Michael Diana with Maxim Group. Please go ahead.
Okay, thank you. 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? We're expecting it to be in that area. It certainly, you know, there's a possibility it could be a little bit lower.
a question, please press star then 1 to join into the queue.
The next question comes from Gary Prestobino with Barrington Research. Please go ahead. Hey, good afternoon everyone. A couple of questions here. First of all,
I would assume there was very little or negligible revenue from LA County and the movie pass business this quarter.
That's correct. Okay, are you expecting to generate revenue?
I'm sorry, go ahead. LA County is a client across a couple lines of business. You're talking about print and mail and payment processing for LA County, right, Gary? Right, yeah, I'm just trying to get an idea of how this program is going to roll out next year as well as with the movie past.
So we'll be passing the negligible in Q4, but we'll start seeing it Q1 and then we'll have, you know, a full three months in Q2 with
with, you know, reasonable, reasonably sizable activity. 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, you know, a geometric ramp on revenues as we go into 2023?
I mean, LA County has been generating revenue on the prepaid side for two years. Right. So, I don't have really anything to add there. I'm not able to speak, unfortunately, to the... The output and payment processing...
February is when it really starts kicking in. Okay, that's I guess what I was getting at. So February would be the output and the payment process. 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?
Yeah, we didn't separate that, no.
Okay, but you feel that you'll be able to generate 10 to 12 million next year or this year, I'm sorry, 2023.
But you feel that you'll be able to generate 10 to 12 million next year or this year, I'm sorry 2023 Yes
Okay. And then just a question on card.
And then just a question on card, Greg.
you know, dollars process were up 3%, transaction process of 49%. But your payback 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 and payback and what your overall portfolio is.
that just speaks to our sales efforts going specifically towards our payback product offering.
to our sales efforts going specifically towards our payback product offering. Okay, thank you, I gotta jump.
The conference is now concluded. Thank you for attending today's presentation. You may all now disconnect.