Q2 2023 Usio Inc Earnings Call
I would point, specifically to an ISP with strong government ties were penetrating many of their accounts such as toll roads, including the Massachusetts Department of Transportation, Florida.
<unk> Pike, Delaware tolls and other government organizations, such as the city of Miami for fees and fines.
Why do I SBS keep on giving us more business because of our long tenure in the business.
Ryanair in paid fact technology and our great customer service.
And in a C. H, we had a growth quarter, despite ongoing tough comparables.
On the large year ago voyage or volumes.
While we will face another tough quarter of comparable in the third quarter with Voyager.
They'll running off we expect to see performance in the a C. H starting in the fourth quarter. When there was virtually no voyage or volume to speak of.
Our strong growth is also leading to better margins as we leverage our fixed direct costs.
In addition overhead for the second quarter was virtually unchanged from a year ago as we kept a tight lid on costs and continue to focus on improving the efficiency and profit.
Productivity.
So far this year revenues were up 20%, 24% on the top line with only about 1% added overhead.
Which includes the absorption of significant.
Inflationary pressures.
Pressures.
The result is another quarter of more than $1 million and adjusted EBITDA, which is now up.
3 million compared to the adjusted EBITDA generated over the first half of fiscal 'twenty to 'twenty two.
In addition, we delivered positive GAAP net income and earnings per share for a second consecutive quarter, which has been an important objective.
Consequently, as previously noted we are reiterating our guidance for the year, although we believe that the second half will be comprised of somewhat slower third quarter, followed by a stronger fourth quarter as a result of the first half of the year.
Or is the best they can.
Company's history.
And we expect this to be a record year, our pipeline is extremely strong and many of our existing relationships are with fast growing organizations with whom we are growing.
We're in great financial condition, and we can't wait to get back to work every day.
And now I'd like to turn the call over to Houston Frost.
Thank you Louis and thank you to everyone participating on our call. This afternoon.
As Louis noted prepaid had an exceptional quarter nearly tripling revenue, while growing load volume by 48% and purchase volume by 51%.
Revenues benefited from the breakage earned on inactive in New York City incentive card load and purchase volume trends reflect the strong growth of new and existing client card programs.
June was our best month ever for both pre funded Cartload and transaction volume and early figures show continued growth in July .
Importantly, this load and transaction volume is largely coming from longer term programs with recurring and our larger card loads.
These include guaranteed income and other multiple load cash assistance programs as well as corporate expense and other specialty car programs.
As you see us card issuing business matures, we believe it's important to build a base of programs that will generate longer term recurring payment volume.
Admittedly there is a tradeoff here tingled.
Pingo load card programs, especially with loads of $100 or less generate higher revenue as a percentage of loan volume vandy recurring and larger load programs.
And typically single load program revenue is higher gross margin, although from a net profit perspective. The additional gross margin is partially consumed by higher customer service and operational expense as a percentage of loads.
That said, we're confident that continuing to focus on and shift toward longer term or recurring load programs is the right long term decision.
These programs and clients are less price sensitive and have higher switching costs.
A business that is more defendable and more stable will ultimately be more valuable.
That said, we certainly don't plan to turn away any single load card programs.
We see our success is being driven by our operational execution, our proprietary processing platform with the flexibility and capabilities that offers and our relentless focus on the client relationship.
This bolsters our confidence in our strategy.
Focus on clients and programs, where these strengths provide true value.
Class wallet is a great example of this strategy in action.
Operator service that assist academic and government organizations with managing their purchasing and reimbursement process.
We first began issuing their cards more than three years ago in 2020.
The company's product had a unique need requiring them to be involved in transaction authorization decisions and we had a solution.
What we call external authorization.
Today class, while it has grown to be one of our top clients by load in transaction volume.
Movie pass as a similar example, a long term relationship also using our novel external authorization solution.
And of course, we also continue to build relationships and the local government and nonprofit space.
Among our many newer engagements as a program with the California Department of social services, which we'll be issuing which we'll be using a used do you see a car to this first nearly 100 million to eligible individuals who experienced hardship as a result of storms in that state.
These programs often take advantage of our transaction restrictions and controls virtual cards, and our consumer choice offerings.
But what customers tell us. They appreciate most is our partnership our willingness to jump on a call and troubleshoot an issue facilitated improvement or simply be honest about a mistake and work toward an acceptable resolution.
In total we continue to be on pace to add approximately 80 to 100 new clients. This year.
While we do expect to see card issuing revenue and gross margin declined somewhat over the next few quarters and income generation from the New York City and city of Houston.
Other vaccine incentive programs winds down we are thrilled with the programs, we managed today and the business we are building.
Our June record load and transaction volumes.
Indicates ucs card issuing business is poised for continued growth over the long term.
With that I'd like to turn the call over to Greg cargo.
Thank you Houston and good afternoon, everyone card revenues were up once again in the second quarter led by a 26% growth in our paper business, where virtually all of our efforts and resources are being concentrated where the quarter dollars processed were up 2% and transactions processed were up 15% from.
A year ago.
Louis noticed a nice recent wins with governmental entities all of which are from a very strong I asked the relationship we have.
Also added a fitness exercise practice management ISP, who software is being rapidly adopted by gyms and fitness centers.
Illustrates the dynamics affecting our implementation process and to use one of my Dad's analogies. This was way more than the carpenters old rule measure twice and cut once it was closer to measure 14 times. That's okay. While competitors may have bought can walk away. This is what makes us different and we fully expect this to be along a mutually.
Beneficial relationship.
There was an equally exciting new implementation with an agricultural and ranch supply company, they're already set up with a C. H and are now switching all of their e-commerce transactions onto our card platform our.
Our expectation is that eventually the only moved the remainder of their payment needs primarily on premises to use your which could be quite significant.
In addition to our strong relationship with this firm they like the flexibility that used youll provides and of course, we remain price competitive.
On the product side, we've made a significant upgrade in our card present transaction device, which we believe will drive incremental revenues.
And I think that we have the strongest prospect pipeline, we've ever had including opportunities arising primarily from trade show attendance with organizations in the veterinarian fundraising and waste industries.
As with all of the used your business development efforts. Our success is primarily a function of a variety of payment channels and the strong relationships. We are building in the market.
For many of our new accounts, we may be their first payments platform.
In addition, there's a lot of cross selling taking place for instance, as a result of their relationship with output solutions, we were talking to a large player in the printing market about how to provide an electronic payment solution to complement their existing business.
And in May we added Stephanie Gonzales to spirit of our marketing efforts and amplify our various initiatives.
As previously noted in the short term results can be impacted by the pace of new ISP implementations as well as the rate at which they ramp.
Actually as we grow our pipeline engage with an ever greater number of Isps the rate of implementations continues to improve so we are optimistic about the second half of the year with revenue growth returning to the strong trajectory the last several years.
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.
Thanks, Greg and welcome everyone. Thanks, again for joining our call today and for your interest in <unk>.
Let me quickly provide some color around this quarters results before opening the call to questions.
Revenues were up 31% to a record $21 $3 million driven by strong growth in prepaid and output solutions.
Card revenues were up 3% a C H and complementary services were up 5% this quarter after being down the last few quarters.
Gross profit of $5 million were a quarterly record for the third consecutive quarter and margins expanded 340 basis points from a year ago.
The gross margin improvement reflects a higher contribution from breakage, and spoilage, which significantly improved margins in the prepaid segment growth in our high margin ACTH revenues as well as strong margins and output solutions.
Selling general and administrative costs were basically flat with the year ago period and are up just slightly more than 1% for the first half of the year.
For the third consecutive quarter, we generated over $1 million and adjusted EBITDA.
For the quarter, we reported <unk> per share of GAAP EPS, while also reporting one cents per share of GAAP EPS for the first six months of the year.
non-GAAP adjusted operating cash flows as described in our 10-Q and earnings release was $1 $5 million for the six months ended June 32023.
Our cash position at the end of the quarter was $6 $6 million <unk>.
Approximately $900000 over the first half of 2023.
For the first half of the year revenues were up 24, 4%.
Gross margin has expanded 350 basis points.
SG&A is up 1% and adjusted EBIDTA was $2 $2 million compared to a loss of $875000 for the first half of last year.
I do want to call out our efforts to drive interest income, where we have employed investment suites to generate over $300000 of interest income over the first half of the year.
In July 2023 alone in interest income was $160000.
As Louis noted, we expect to meet our revenue guidance for the year, but expect to see a slight slowdown in revenue growth and gross profits due to declining breakage and other items.
With that I will turn the call back to the operator to conduct our question and answer session.
We will now begin the question and answer session.
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At this time, we will pause momentarily to assemble our roster.
The first question today comes from Scott Buck with H C. Wainwright. Please go ahead.
Hi, Good afternoon, guys. Thanks for taking my questions are.
First of all right.
Oh good good I was hoping you could give us a little bit more color around what you're seeing with our with movie pass and maybe how that business has performed versus expectations granted it's early.
Yeah, Hi, God. This Houston Frost, you know I think.
Generally speaking.
The movie pass has performed in line with.
Our with our expectations.
You know they are.
We've continually seen their volumes ramp up.
And ultimately they're going to be.
Uh huh.
Hum fairly.
Significant client of ours I mean, it's hard for me to say it was going to be number one number two number three number four number five but you.
Yeah, well, we'll be in the top 10.
And I think last quarter, just by payment volume they were already in our top 10 clients. So.
It's a long term recurring revenue type quite it's not a new York City, where you are and how we're going to make a ton of revenue in one quarter and then we watch it roll off or.
Wafer breakage at the end of it it's going to provide consistent revenue month over month end.
That revenue should continue to grow from here.
Thanks, Houston, that's a that's helpful second one I wanted to ask about gross margin.
I know, it's you know mix dependent but curious given the progress you've made so far where can we expect to see gross margin go over the next 12 months or so.
Are you referring to prepaid.
Because everybody will find a companywide companywide sorry companywide.
I'll take that question.
You know obviously, the big component is the mix and.
The last few.
Quarters have been very positive in terms of prepaid breakage.
You know Albert solutions has been pretty consistent.
It might a bit.
So drop a little bit depending really on the pickup in the Acs business.
Alright.
That's helpful. And then last one I just wanted to ask quickly about the acquisition environment. I mean is there anything out there that could potentially be interesting for you guys.
Or is the are you strictly focused on the organic business.
We look at deals all the time, we don't have anything in the hopper.
But we're we're we're open to acquiring more companies, we have very strict criteria.
And nobody's lately, its been able to meet that criteria.
Yeah.
Alright, that's helpful. I appreciate the time guys and congrats on the quarter.
Thanks Scott.
The next question comes from Michael Diana with Maxim Group. Please go ahead.
Thank you.
My first question is on expenses. So I think Greg mentioned that you hired a senior marketing person.
Hey, Pat.
You're obviously, adding are spending more money.
For growth and yet the the G&A expenses are very flat, which is great, but there must be a where their pluses, there's gotta be a minus to upset at somewhere so what what are what are some of the things maybe youre doing to keep that G&A number as well.
Well the first thing is we hired a new head of marketing for.
For the company.
And that was a replacement so that doesn't increase our SG&A.
And then we hired a new senior salespeople, we're always looking for experienced salespeople across the organization. So you'll you'll see us continue to add sales positions.
But we're continuing to scale, where we need to scale, but you know we're definitely at the point, where we have operating leverage where we.
We're leveraging our fixed costs.
Our volumes are going up so.
You know, that's really helping out with Opex in general.
Okay great.
Tom mentioned, you're you're generating interest income, which I notice.
Way up from sweeps could could you just tell us a little how that works so.
It has a lot to do with the inflation.
The fed.
And you know.
And then maybe somewhat temporary but.
You know we've been Tom and his team have been really doing well.
Investing our our deposits in a safe manner that are yielding good interest and we think that interest amount will even go up this quarter.
Right. So so.
It's not necessarily the sweeps me more efficient.
The interest rates going up or some combination of both.
It's definitely a combination of both.
Like are we have we have multiple banks and we basically went through all of the banks.
Our sleeping the money and then you also have the compounding effect of the higher interest rates and just list.
It talks about his load increases you know everything we do in essence sort of business as you know business changes all of that factors into the incremental interest income.
Okay, Great and then Houston, you mentioned again, I mean, you've mentioned before guaranteed income programs.
Can you give us an update on Oh.
And whether that's something.
Something that that's growing as far as number of programs or individual programs.
Yeah, you know I think broadly speaking absolutely it's growing in fact I.
I guess it was early June we were at a conference in Chicago.
Called the Big Conference basic income guarantee.
And it's almost surprising to me to know that that Congress has been going on for.
Almost 20 years I believe.
But they were just now discussing.
Yeah.
You know pilot scale, all flash guaranteed income programs set for.
It was just an interesting context to hear about how they've been talking about these as kind of a theoretical or academic.
Kind of a way for well over a decade.
And you know we.
We participated in that very first.
A real pilot programs the content to watch a couple of years ago. So what we're seeing our pilot programs turning to.
Larger programs and also being extended and even.
Saying that there.
There is no into those programs.
And we continue to add to both both through direct sales as well as by partnering with service providers that are kind of servicing the nonprofit and local government space that cover something so yeah.
Very positive trends there.
And and you know we absolutely expect it to continue.
I think if there's anything on your mind is that the continued growth will likely lead to increasing competition in the space.
But no I don't think guaranteed income programs are going away.
I think direct cash assistance is only going to continue to go up from here just broadly speaking.
Okay, great. Thank you.
Yeah.
Thanks, Michael.
The next question comes from Jon Hickman with Ladenburg. Please go ahead.
Yeah.
Hello can you hear me okay.
Hi, John .
Hum.
Louis would you elaborate on your comments about headwinds for usage and a couple in the coming quarter.
So a C H absent Voyager is continues to grow.
So if we take Voyager out in the mix, we're continuing to add new accounts.
And those counts are actually producing more than they would they did last year without buoyed a true. So a CHS is doing well in that aspect.
It's you know.
The comparable.
Year over year, right now are tough and they will be for Q3.
Because we still do a lot of work for board during Q3, but.
Q4 Youll see.
The comparable even now.
And we should do well from there we.
We do have initiatives.
We're implementing the.
The clearinghouse network, we're implementing the fed now we do believe that some of the ACA as traffic will go through those real time methods.
Our early entrant in that and those are two payment channels. So because we're early well, we'll get some new business out of it.
And all that goes into that a C H.
Complementary services bucket, so if youre going to see.
So some growth there.
Okay.
Yeah.
And then.
On the <unk> side, you mentioned, the ag's look quiet.
With that I I S D or is that a retail chain.
It's actually more of an enterprise account.
Fair play ISP, but given the size and the the requirements that they had it was a good fit for use C O but to be clear, it's not an IFC.
Okay.
And then.
Let's see.
I had one more question what was it.
I guess, that's it for me thanks for taking my questions.
Thanks, Jonathan Thanks, John .
As a reminder, if you would like to ask a question. Please press Star then one to answer the question to you.
The next question I understand Gary practical with Barrington Research. Please go ahead.
Hey, good afternoon, all yeah, Mike.
Louis My questions are all around this fed now is this going to be a positive for you or does this take away from your <unk> business.
It's going to pull away some ACA just traffic.
Not much I mean, a C. H is still the cheapest Matt.
Method to send a payment.
A C. H you can still do same day.
So it fits for a lot of different applications.
Nobody's going to pay their mortgage real time in their life insurance real time, and it's that same day or next day is fine so.
So ACTH is always going to be around in fact, ACTH globally. The volume continues to increase and in no fed now anything with real time payments.
It's definitely going to grow and where they are and where we have a strategy being diverse independent channels that we offer so we're going to be implementing fed now.
<unk> said now is opt in program for banks.
Even though every bank has access to a fed terminal it doesn't mean that they can accept fed now payments. So it's gonna be a limited rollout.
Just like the clearinghouse and spend a limited rollout so the clearing house.
As the network the zelle runs on and I'm sure you've been if you use that before you realize that you can't send payments to everybody.
The clearinghouse today is primarily just credits and segment, but now and you know where it can be.
Effective payment mechanism it needs to be credits and debits.
And.
So we'll see that.
Debit once the debit portion rolls out.
Minerals.
We will have more applications available to it but where we're implementing boat.
We don't care, which one wins will take the margins are going to be somewhat similar to a C. H.
And we take our hgh business in itself is going to continue to grow.
Well, that's what I'm kind of asking I mean, you kind of kind of danced around it here I mean.
With your ACTH business as I understand it that is three two or three days payment like you said on a mortgage spread now is instantaneous. So you are will be capable of doing both ECH and fed now once you hook up to now I realize spend now is not has not proliferate has just recently come out but.
If there is business that is gonna be pulled away what would it be pulled away. What are you doing right now that that has to have same day settlement.
So ACTH is can we can do same day a C H.
Okay. We can do next day C H that technology exists and.
And we do that every day.
We we do a lot in real time payments today, we'd call that pin less debit. That's the same technology that you would use if you're making a venmo payment with somebody.
That's pin less debit that goes across the debit rails. So.
It doesn't really matter when you're looking at it you see it as a company it doesn't really matter what payment method is going to win we're involved in every one of them.
And fifth now and the clearing house once they implement debits.
We'll become more have more applications right now the clearinghouses good for sending money.
And it's not good for somebody who received a payment of merchant receiving payment. So declared house started or zelle is pretty much person to person payments. So.
You can see they've limited themselves.
You know in the way they are rolling out.
But.
When they get their habits.
No, it's going to be important and it will shift.
The payment World shifts all the time, you know we had big shift in Covid.
You know people willing to insert their card or swipe their card to contactless.
Hmm.
You know Houston team, you know before Covid would issue more plastic cards. After COVID-19, we issue more virtual cards.
I want to touch the car so.
It didn't matter that that shift occurred within prepaid because we were in both channels.
And that's important to understand about our company is that we believe that we need to have all channels.
Thank you.
Very unlike our competitors.
Okay. Thank you thank you Luiz.
You bet.
This concludes our question and answer session and concludes the conference call. Thank you for attending today's presentation. You may now disconnect.
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