Q4 2023 Usio Inc Earnings Call
Hello, and welcome to the <unk> fourth quarter and fiscal year end 2023 earnings conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
Operator: Hello, and welcome to the Usio fourth quarter and fiscal year end 2023 earnings conference call. All participants will be in listen only mode.
Operator: Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press the star key, then one on a touchtone phone.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on a touchtone phone to withdraw your question. Please press Star then two please note today's event is being recorded.
Operator: To withdraw your question, please press star, then two. Please note, today's event is being recorded. Now, I would like to turn the conference over to your host, Paul Manley. Please go ahead, sir.
Speaker Change: Now I would like to turn the conference over to your host.
Speaker Change: Paul Manly. Please go ahead Sir.
Paul M. Manley: Thank you, operator. And thank you everyone for joining our call today. Welcome to UCO's fourth quarter and fiscal 2023 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.
Paul Manly: You operator, and thank you everyone for joining our call today welcome to <unk> fourth quarter and fiscal 2023 conference call. The earnings release, which we issued today. After the market closed is available on our website at <unk> Dot com under the Investor Relations tab.
Paul Manly: On this call today are Louis Hoch, our chairman and CEO.
Paul M. Manley: On this call today are Louis Hoch, our Chairman and CEO; Greg Carter, Executive Vice President of Payment and Acceptance; and Houston Frost, Chief Product Officer. Michael White, Senior Vice President and Chief Accounting Officer, will also be available for the Q&A. Let me remind our listeners that certain statements made during the call today constitute forward-looking statements made pursuant to the safe harbor provisions of the Private Securities and Litigation Act of 1995, as amended. Such forward-looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ materially from such statements.
Paul Manly: Greg Carter Executive Vice President of payment and acceptance and Houston Frost, Chief product Officer, Michael White, Senior Vice President and Chief Accounting Officer will also be available for the Q&A.
Paul Manly: Let me remind our listeners that certain statements made during this call today constitute forward looking statements made pursuant to the safe Harbor provisions of the private Securities Litigation Act of 1995 as amended.
Paul Manly: Such forward looking statements.
Paul Manly: Both known and unknown risks and uncertainties that could cause actual results to differ materially from such statements. These risks and uncertainties are described in our earnings press release and our filings with.
Paul M. Manley: These risks and uncertainties are described in our earnings press release and our filings with the FDA. 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. During today's call, we will refer to non-GAAP financial measures such as adjusted EBITDA. Our earnings release includes a reconciliation of adjusted EBITDA to GAAP operations. Management will provide prepared remarks that will open the call to your questions.
Paul Manly: 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.
Paul Manly: During today's call, we will refer to non-GAAP financial measures such as adjusted EBITDA.
Paul Manly: In our earnings release includes a reconciliation of adjusted EBITDA to GAAP operating income.
Paul Manly: Management will provide prepared remarks, then we'll open the call to your questions.
Paul M. Manley: So let me start with some of the highlights from this afternoon's release. I am pleased to report another quarter of strong growth, with quarterly revenue up for the 13th consecutive quarter, as well as another quarter of positive adjusted EBITDA. This led to record revenues for the year, our seventh consecutive year of revenue growth. As a result, we met both our top and bottom line guidance for the year, with revenues ahead by 19% and adjusted EBITDA coming in at $2.4 million. For the year, revenue in each of our businesses and gross margins expanded despite a decrease in the fourth quarter due to the reduction in New York City breakage margin. We have previously articulated our focus on growing gross profits, potentially at the expense of tighter margins. Total selling, general, and administrative expenses grew at half the rate of revenues for the year.
Management: So let me start with some of the highlights from this afternoon's release.
Management: I am pleased to report another quarter of strong growth with quarterly revenue up for the 13th consecutive quarter as well as another quarter of positive adjusted EBITDA.
Management: This led to record revenues for the year, our seventh consecutive year of revenue growth as a result, we met both our top and bottom line guidance for the year with revenues I had 19% and adjusted EBITDA coming in at $2 4 million.
Management: For the year revenue in each of our businesses and gross margins expanded despite a decrease in the fourth quarter due to the reduction in New York City breakage margins.
Management: We have previously articulated our focus on growing gross profits potentially at the expense of tighter margins.
Management: Total selling general and administrative expenses grew at half the rate of revenues for the year and then the fourth quarter. It actually ticked down from the third quarter as we had anticipated we don't foresee any pieces in 2024. Our goal is to continue to improve operating leverage in part by maintaining a tight control on over.
Paul M. Manley: And then the fourth quarter actually ticked down from the third quarter, as we had anticipated. We don't foresee any increases in 2024. Our goal is to continue to improve operating leverage, in part by maintaining this tight control on overhead. Cash Flow is also strong, as cash increased by $1.5 million over the course of the year. This included $1.7 million of interest income as a result of our approved cash management strategy and is also after expending $600,000 on share repurchase.
Management: Yeah.
Management: Cash flow was also strong as cash increased by $1 5 million over the course of the year. This included $1 7 million of interest income as a result of our improved cash management strategy and is also after expanding 600000 on share repurchases.
Paul M. Manley: In total, we backed 400,000 shares in 2023, demonstrating our belief in the business and that our SAC group represented a great use of capital. The team will go through each of their impressive performances separately, but on the whole, it was another strong financial performance led by more than doubling in prepaid, another year of double-digit Output Solutions growth, and continued strong performance by PayFact within our card business. ACH also bounced back, growing over the second half of the year despite the challenging comps of a year ago. ACH was able to generate a full year with full year growth.
Management: Total we bought back 400000 shares in 2023, demonstrating our belief in the business and that our stock represented a great use of capital.
Management: The team will go through each of their impressive performance it separately, but on the whole. It was another strong financial performance led by a more than doubling in prepaid.
Management: Another year of double digit output solutions growth and continued strong performance by pay it back within our card business.
Management: Which also bounce back growing over the second half of the year. Despite the challenging comps of a year ago HTH wasn't was able to generate a full year with full year growth.
Management: As our most profitable business. We look forward, we look for continued growth from <unk> in 2024.
Paul M. Manley: As our most profitable business, we look forward; we look for continued growth from ACH in 2024. A common theme you'll hear today will be the increasing recognition Ucio is achieving in our markets. It's been hard earned, but we have put in the time and the effort and delivered on our promise.
Management: The common theme, you'll hear today will be the increasing recognition <unk> is achieving in our markets. It's been harder, but we have put in the time and the effort and delivered on our promises. This is building both awareness and credibility, which has enabled us to expand our market opportunities, which in turn has led to the strongest pipeline.
Paul M. Manley: This is building both awareness and credibility, which has enabled us to expand our market opportunities, which in turn has led to the strongest pipeline in the company's history. This includes some potentially game-changing large opportunities. And as our businesses achieve scale, this is leading to a greater proportion of our revenues that are recurring in nature, a solid formula for sustainable growth. Thank you, Paul. And good afternoon, everyone.
Management: In the company's history. This includes some potentially game changing large opportunities and as our businesses achieve scale. This is leading to a greater proportion of our revenues that are reoccurring in nature. These solid formula for sustainable growth.
Management: No.
Management: I'd like to turn the call over to Greg Carter.
Gregory Mark Carter: Thank you Paul and good afternoon, everyone card revenues were up again in the quarter, leading to a record for the year car growth was once again led by payback. We're processing volumes were up 17% transaction volumes were up 35% and revenues were up 25%.
Gregory Mark Carter: Card revenues were up again in the quarter, leading to a record for the year. Card growth was once again led by PAYFAC, where processing volumes were up 17%, transaction volumes were up 35%, and revenues were up 25%. So pay fat continues its strong growth. However, the full effect is somewhat masked by attrition in our legacy singular ISO portfolio. We purchased Singular primarily for their payment technology, but once that technology was developed into our PayFact solution, we essentially stopped selling into the ISO channel.
So payback continues its strong growth.
Gregory Mark Carter: However, the full effect is being somewhat masked by attrition in our legacy singular ISO portfolio.
Gregory Mark Carter: He had purchased singular primarily for their payment technology.
Gregory Mark Carter: Once that technology was developed into a payback solution, we essentially stopped selling into the ISO channel right now the two portfolios are about equal in size, but as payback continues to grow and become a larger proportion of our card portfolio total guard total card revenue growth will accelerate.
Gregory Mark Carter: Right now, the two portfolios are about equal in size, but as PayFact continues to grow and become a larger proportion of our card portfolio, total card revenue growth will accelerate. All of our card efforts are therefore completely behind payfax.
All of our card efforts are therefore, a completely behind Paypal.
Gregory Mark Carter: First, as our portfolio grows, the number of merchants onboarded continues to climb and now exceeds 100 per month. And as these merchants grow in the aggregate, the amount of their processing volume correspondingly increases. Each year, we are layering additional processing volume on top of the prior year's volume. This is essentially a built-in growth engine as we've experienced very little attrition in our payback portfolio. But new implementations are the key to faster growth. In the fourth quarter, we completed two significant new implementations, each of which went extremely well.
Gregory Mark Carter: First as our portfolio grows the number of merchants onboard a continuous decline and now exceeds 100 per month.
Gregory Mark Carter: And as these merchants grow in the aggregate the amount of their processing volume correspondingly increases.
Gregory Mark Carter: Each year, we are layering additional processing volume on top of the prior year's volume.
Gregory Mark Carter: This is essentially a built in growth engine as we've experienced very little attrition in our payback portfolio.
Gregory Mark Carter: But new implementations are the key to faster growth.
Gregory Mark Carter: In the fourth quarter, we completed two significant new implementations each of which went extremely well.
Gregory Mark Carter: After a long period of blood, sweat, and tears, I'm becoming increasingly excited with the success of our organic business development. This has led to a number of new agreements that should begin implementation and start to generate volume later this year. Payfac adoption is a phased process, and each ISV is different.
Gregory Mark Carter: After a long period of blood sweat and tears and becoming increasingly excited with the success of our organic business development efforts.
Gregory Mark Carter: This has led to a number of new agreements that should begin implementation and start to generate volume later this year.
Gregory Mark Carter: <unk> adoption is a phased process and each ISP is different.
Gregory Mark Carter: I am confident we will have implemented many more new relationships, all of which we'll be processing with Usio before the year is out. This includes an ISV that serves one of the country's largest national franchise owners. There is no doubt that our increased credibility, as Paul mentioned, is getting us opportunities with these larger ISVs. Having many referenceable ISVs eager and willing to attest to the outstanding performance of our electronic payments platform is opening up new and larger doors. While this activity has kept us busy, I continue to be heavily involved in expanding our business development. One of our newer initiatives is software development.
Gregory Mark Carter: I am confident we will have implemented many more new relationships all of which will be processing with UC or before the year's out.
Gregory Mark Carter: This includes an ISP that serves one of the country's largest national franchise owners.
Gregory Mark Carter: There is no doubt there are increased credibility as Paul mentioned is getting us opportunities with these larger Isps.
Gregory Mark Carter: Many referenced referenced are all Isps eager and willing to attests to the outstanding performance of our electronic payments platform is opening up new and larger doors.
Gregory Mark Carter: While this activity has kept us busy I continued to be heavily involved expanding our business development efforts.
One of our newer initiatives as with software developers.
Gregory Mark Carter: We have a salesperson dedicated to developing relationships in this industry, where we'll be encouraging and incentivizing them to integrate our payments technology into the software platform as it's being developed. Thus, when the ISB goes to sell the software, we become the incumbent electronics payment channel. Frost Selling with Output Solution has also been successful as we get adopted as the electronic payments processing platform for the toll roads, parking authorities, and other entities where output is distributing state. We also remain active on the conference circuit, where our steady performance at these events is leading to increased recognition, and we continue to refine and improve our basic marketing strategy, where we just hosted one of our most well-attended webinars. I've talked about the spade and shovel work we've been undertaking since I arrived at UCO.
Gregory Mark Carter: We have a salesperson dedicated to developing relationships in this industry.
Gregory Mark Carter: We will be encouraging and then sending them to integrate our payment technology into the software platform as it's being developed.
Gregory Mark Carter: Thus when the ISP goes to sell the software we become the incumbent electronics payment channel.
Gregory Mark Carter: Cross selling with output solution has also been successful as we get adopted as the electronic payments processing platform for the toll roads parking authorities and other entities where output is distributing statements.
We also remain active on the conference circuit, where our steady performance at these events is leading to increased recognition.
Gregory Mark Carter: And we continue to refine and improve our basic marketing strategy, where we just posted one of our most well attended webinars.
Gregory Mark Carter: I've talked about the speed and shovel work, we've been undertaking since I've arrived at UCL and May not had been glamorous, but it has produced significant growth in our paid back business now.
Houston Korth Frost: It may not have been glamorous, but it has produced significant growth in our payback business. Now, we are gaining recognition, establishing more relationships, and expanding into adjacent markets, which is resulting in continuing opportunities in our traditional ISV markets, as well as helping us move up the market to larger opportunities. Now, I would like to turn the call over to Houston Frost, Chief Product Officer, to talk about our prepaid business. Thank you, Greg, and thank you to everyone participating in our call this afternoon. Card issuing had a strong finish to a record year. For the second consecutive quarter, card loads exceeded 100 million, bringing total loads for the year to a record 371 million.
Gregory Mark Carter: Now we are gaining recognition, establishing more relationships and expanding into adjacent markets, which is resulting in continuing opportunities in our traditional isd markets as well as as well as helping us move upmarket to larger opportunities now I would like to turn the call over to Houston Frost Chief product Officer.
Houston Korth Frost: To talk about our prepaid business.
Houston Korth Frost: Thank you, Greg and thank you to everyone participating in our call. This afternoon Carter.
Houston Korth Frost: Card issuing had a strong finish to a record year for the second consecutive quarter carloads exceeded 100 million, bringing loads for the year to a record $371 million.
Houston Korth Frost: We are seeing strong momentum in carload volumes continuing into the new year.
Houston Korth Frost: As we often mentioned carloads are an important forward looking metrics as they are the precursor to the interchange and transaction fee revenue generated in subsequent quarters.
Houston Korth Frost: We are seeing strong momentum in car load volumes continuing into the new year. As we often mention, card loads are an important forward-looking metric as they are the precursor to the interchange and transaction fee revenue generated in subsequent quarters. They also can be used in rough projections of inactivity, fees, and breakage that can be assessed on certain cards, generally beginning 12 months or more following the low.
Houston Korth Frost: Also can be used in rough projections of inactivity fees and breakage that can be assessed on certain card accounts generally beginning 12 months or more following the loads.
Houston Korth Frost: Because of the inconsistency inherent in revenues stemming from the large New York City and other limited duration pandemic related programs. We believe this run of record load volumes is more indicative and informative of the underlying strength of our card issuing business.
Houston Korth Frost: Because of the inconsistency inherent in revenue stemming from the large New York City and other limited duration pandemic related programs, we believe this run of record load volumes is more indicative and informative of the underlying strength of our card issuing business. Cardload volumes are coming from not only an increasingly diverse group of clients and program types but from the growth of long-term clients that started out small and are now substantial. Class Wallet, Mobile Money, and others are good examples.
Houston Korth Frost: Carload volumes are coming from not only an increasingly diverse group of clients and program types, but from the growth of long term clients that started out small and are now substantial.
Houston Korth Frost: Class wallet mobile money and others are good examples.
Houston Korth Frost: As these organizations grow and their programs expand our card issuing business follows.
Houston Korth Frost: In contrast to the volatility that can arise from the addition, and discontinuation of large limited duration programs. These clients are more representative of card issuing current focus.
Houston Korth Frost: As these organizations grow and their programs expand, our card issuing business follows, in contrast to the volatility that can arise from the addition and discontinuation of large limited-duration programs. These clients are more representative of current card issuing folks. So while our total 2024 revenues will be down, if you exclude large programs, I expect our core business to deliver another year of attractive growth with continued growth and low volume. We are building a solid foundation to support our future growth. I would also like to quickly emphasize the diversity of markets we serve and solutions we offer. These include corporate expense cards, promotional, and funds disbursement programs serving the private, public, and non-profit markets.
Houston Korth Frost: So while our total 2024 revenues will be down if you exclude large programs I expect our core business to deliver another year of attractive growth with continued growth and low volumes.
Houston Korth Frost: We are building a solid foundation to support our future growth.
Houston Korth Frost: I would also like to quickly recognize the diversity of markets, we serve and solutions we offer.
Houston Korth Frost: These include corporate expense cards promotional and funds disbursement programs, serving the private public and nonprofit markets in fact private entity now comprise a majority of our top clients.
Houston Korth Frost: Mobile money is the Great example, and with our help they're launching a new infant issued general purpose reloadable card program, providing their clients and customers with new features and increased flexibility.
Houston Korth Frost: In fact, private entities now comprise a majority of our top clients. Mobile Money is a great example, and with our help, they're launching a new instant issue general purpose reloadable card program, providing their clients and customers with new features and increased flexibility, as part of our industry diversification strategy. We have also continued efforts to expand in the healthcare industry. We just signed an innovative company that enables employers to make tax-advantaged contributions to employees that have their own individual health benefit plans. These plans are known as Individual Coverage Health Reimbursement Arrangements, or ICHRA.
Houston Korth Frost: As part of our industry diversification strategy. We have also continued efforts to expand in the health care market.
Houston Korth Frost: We just signed an innovative company that enables employers to make tax advantaged contributions to employees that have their own individual health benefit plans.
Houston Korth Frost: These plans are known as individual coverage health reimbursement arrangements I see HRA.
Houston Korth Frost: The new client facilitate payments from the employer to the member accounts.
Houston Korth Frost: From the members' accounts to the insurance carriers via their IC HRA complete pay payment platform.
Houston Korth Frost: We continue to build our reputation and credibility in the markets. We serve we've mentioned previously our first state program, what the California Agency.
Houston Korth Frost: The new client facilitates payments from the employer to the member account and from the members' accounts to the insurance carriers via their ICHRA CompletePay payment platform. We continue to build our reputation and credibility in the markets we serve. We've mentioned previously our first state program with California.
Houston Korth Frost: This is a great reference account for us and could open up larger opportunities this year.
Houston Korth Frost: And of course, we continue to be a market leader and our support of numerous guaranteed income programs across the country.
Houston Korth Frost: This is a great reference account and could open up larger opportunities. And, of course, we continue to be a market leader in our support of numerous guaranteed income programs across the country. We will have some difficult quarterly revenue comparisons in 2020, but we expect our load volumes and transactions will continue to increase, and we couldn't be more positive and excited about the future of the card issuing division. All good things ahead.
Houston Korth Frost: We will have some difficult quarterly revenue comparisons in 2024, but we expect our load volumes and transactions will continue to increase this year and we couldn't be more positive and excited about the future of the card issuing division that you see at.
Houston Korth Frost: All good things ahead.
Houston Korth Frost: With that I'd like to turn the call over to our chairman and Chief Executive Officer Lewis out.
Lewis: Thank you Houston and welcome everyone.
Lewis: As you've heard from our team it was a solid finish to what was another year.
Lewis: Of record revenue and it was our seventh consecutive year of revenue growth.
Louis A. Hoch: With that, I'd like to turn the call over to our chairman and chief executive officer, Louis. Thank you, Houston, and welcome everyone. As you've heard from our team, it was a solid finish to what was another year of record revenue, and it was our seventh consecutive year of revenue growth. We met our guidance for the year, growing revenues 19% and increasing adjusted EBITDA by $3 million as we continually evolve our model to improve leverage and drive more top-line growth to the bottom line. That will be a major theme for 2024.
Lewis: We met our guidance for the year growing revenues, 19% and increasing adjusted EBITDA by $3 million as we continually evolve our model to improve leverage.
Lewis: Drive more top line growth to the bottom line.
Lewis: That will be a major theme for 2024 with much of the heavy lifting behind US we are achieving scale in many of our businesses. So that we can focus on driving more of the growth to the bottom line.
Lewis: That is demonstrated in our 2020 for guidance.
Louis A. Hoch: With much of the heavy lifting behind us, we are achieving scale in many of our businesses so that we can focus on driving more of the growth to the bottom line. That is demonstrated in our 2024 guidance. Again, results reflect our diversified business strategy, which is diversified in the markets we serve and the payment channels we offer.
Lewis: Again.
Lewis: Results reflect our diversified business strategy.
Lewis: Diversified in the markets we serve.
Lewis: And the payment channels, we offer.
Lewis: Many investors may not realize is that much of our revenue is reoccurring in nature.
Lewis: Through regular streams of card and ACTH payments and prepaid usage.
Louis A. Hoch: What many investors may not realize is that much of our revenue is recurring in nature, through regular streams of card and ACH payments and prepaid usage. As we add accounts, we build a solid foundation of recurring revenue on which to grow further. Let me quickly go through a couple of our business lines. Output Solutions had a great year despite a mild slowdown in the fourth quarter precipitated by capacity constraints. That business will now shift over into the first quarter of this year. To address this constraint, in the fourth quarter, we invested in new equipment that will enable output solutions to increase capacity by over 50 percent.
Lewis: As we add accounts, we build a solid foundation of reoccurring revenue on which to grow.
Lewis: Further.
Lewis: Let me quickly go through a couple of our business lines.
Lewis: Output solutions had a great.
Lewis: Year, despite mild mild slowdown in the fourth quarter precipitated by capacity constraints that business will now shift over into the first quarter of this year.
Lewis: To address this constraint in the fourth quarter, when we invested in new equipment that will enable output solutions to increase capacity by over 50%.
Louis A. Hoch: This new technology not only expands our capacity, but it adds new capabilities, such as piece-level validation, that will get us into new markets, such as healthcare and other larger jobs. These markets demand an unsurpassed level of uncompromising precision, which we will now be able to deliver. In addition, this new technology includes a portal that will allow customers to view their jobs in real time, what has been distributed, to whom and when. That is the kind of white glove service for which we are known.
Lewis: This new technology, not only expands our capacity, but it adds new capabilities such as peace level validation that will get us into new markets, such as health care and other larger jobs.
These markets the PE demand.
Lewis: Surpassed level of uncompromising precision.
Lewis: We will now be able to deliver.
Lewis: In addition, this new technology includes a portal that will allow customers to view their jobs and real time.
Lewis: What has been distributed to whom and when.
Lewis: That is the kind of white glove service, which we are known.
Lewis: And while this equipment opens up.
Louis A. Hoch: And while this equipment opens up vast new markets, we are simultaneously evolving our solutions to meet emerging new demands. In particular, in the fourth quarter, we delivered more electronic documents than paper documents, which led to a year where electronic documents delivered exceeded paper. That is a watershed moment and puts us at the forefront of industry transformation. Relative to print, electronic delivery is growing faster and offers more attractive markets. To support this growth, OUTPUT has hired a seasoned director of operations, who will be tasked with improving productivity and efficiency to ensure we maintain best-in-class customer service, as well as further expanding marketing. But the business still depends on getting our wide portfolio of capabilities into the market. And there we continue to be successful. We've added programs to distribute and collect fees and fines on many state toll road systems, parking services such as Los Angeles County and Miami-Dade County, and other local government fees.
Lewis: New markets, we are simultaneously evolving our solutions to meet emerging new demands and particular in the fourth quarter, we delivered more electronic documents than paper documents, which led to a year, where electronic documents delivered exceeded paper that.
Lewis: As a watershed moment and puts us at the forefront of it.
Lewis: Industry transformation.
Lewis: Relative to print electronic delivery is growing faster and offers more attractive margins.
Lewis: To support this growth output has hired a seasoned director of operations.
Lewis: There will be tasked with improving productivity and efficiency to ensure we maintain best in class customer service as well further expand margins.
Lewis: But the business still depends on getting our wide portfolio of capabilities into market and there. We continue to be successful we've added programs to distribute and collect fees and fines on many state toll road systems parking services, such as Los Angeles County.
Lewis: Miami Dade counties and other local government fees.
Lewis: <unk> we.
Louis A. Hoch: We've landed contracts to print and mail voter registration cards, and we continue to dominate the Texas rural utility market. These are solid base hits that provide recurring revenue year after year and which form a solid foundation onto which we can layer additional programs and ACH after a year of tough, tough comps. The fourth quarter was the second quarter we grew the business, and as a result, ACH revenues were up for the year.
Lewis: We've landed contracts to print and mail voter registration cards, and we continue to dominate the Texas Rural utility market. These are solid base hits that provide reoccurring revenue year after year, and which form a solid foundation on which we can layer additional.
Lewis: <unk> programs.
Lewis: And a C H after a year of tough tough comps.
Lewis: Fourth quarter was the second quarter. We grew this business as a result, ACTH revenues were up for the year in 2024, we expect our Acs business to once again outpaced the growth of the industry in part as we continue to strengthen our offering including integration of real.
Louis A. Hoch: In 2024, we expect our ACH business to once again outpace the growth of the industry, in part, as we continue to strengthen our offering, including integration of real-time payments and FedNow, which we're already losing. We view real-time payments as a complementary offering to ACH. And as such, they represent a new strategic opportunity to capitalize on constantly evolving markets. Paul took you through most of the key financial metrics, but let me add a few additional comments. First,
Lewis: Time payments and fed now.
Lewis: Which.
Lewis: We're already live.
Lewis: We view real time payments as a complementary offering to ACTH and as such they represent a new strategic opportunities.
Lewis: To capitalize on constantly evolving market.
None: Paul took you through most of the key financial metrics, but let me add a few additional comments.
None: First.
Louis A. Hoch: I want to note our strong financial position, an almost $2 million increase in cash over the course of the past year. Second, I want to note that we used $600,000 to repurchase shares in 2023, nearly 400,000 of which was in the fourth quarter. This demonstrates our conviction and our ability to continue to generate cash, including another $2 million or more in interest income in 2024. Our confidence in our strategy and our belief that our stock is significantly undervalued.
None: I want to note, our strong financial position and almost $2 million increase in cash over the course of the past year second I want to note that we used $600000 to repurchase shares in 2023, nearly 400000 of which was in the fourth quarter.
None: This demonstrates our conviction in our ability to continue to generate cash, including another $2 million or more in interest income in 2024.
None: Our confidence in our strategy and our belief that our stock is significantly undervalued.
None: Finally, I want to note that we met our financial guidance in 2023 growing revenues, 19% compared to a year that included significant portion of revenues from our industry, we no longer serve and despite the expiration of one of our largest single use card programs.
Louis A. Hoch: Finally, I want to note that we met our financial guidance in 2023, growing revenues 19% compared to a year that included a significant portion of revenues from an industry we no longer serve, and despite the expiration of one of our largest single-use card programs. And beneath the service, we strengthen our company with the majority of our revenues coming from recurring revenues and new business arising from our growing recognition throughout the industries we serve. This year could see a major breakthrough. Our pipeline is the strongest it's ever been, including several large deals that are looming on the immediate horizon.
None: Beneath the service, we strengthened our company with the majority of our revenues coming from reoccurring revenues and new business arising from our growing recognition throughout the industries we serve.
None: This year could see a major breakthrough our pipeline is the strongest it's ever been including several large deals that are looming on the immediate horizon. We've worked hard to nurture these relationships and we are becoming increasingly confident that we will be.
Louis A. Hoch: We've worked hard to nurture these relationships, and we are becoming increasingly confident that we will be rewarded with new accounts with significant volume. We have a very large and growing portfolio of existing accounts that offer a measure of stability we've never previously enjoyed. We have layered new business on top of this growing foundation for seven straight years. Consequently, I'm pleased to establish our 2024 guidance.
None: Rewarded with new accounts with significant volume.
None: We have a very large and growing portfolio of existing accounts, which offer a measure of stability. We never previously enjoyed.
None: We have layered new business on top of this growing foundation for seven straight years.
None: Consequently, I am pleased to establish our 2020 for guidance.
Louis A. Hoch: We expect revenue to be up between 10% and 12% for 2024, and adjusted EBITDA to be approximately $4 to $4.5 million. In addition, we believe we will generate a positive cash gap. EPS in fiscal 2024. Keep in mind that we believe we can achieve this growth despite the expiration of one of our largest, ever single-use card programs that contributed over $10 million in revenue and significant EBITDA in 2023. I will turn the call back to the operator to conduct our question and answer session. To ask a question, you may press star more than one on your touchtone phone. If you're using a speaker phone, please pick up your handset before pressing the keys.
None: We expect revenue to be up between 10% and 12% for 2024 and.
None: And adjusted EBITDA to be approximately four to $4 5 million.
None: In addition, we believe we will generate positive GAAP.
None: Yes, and physical 2024.
None: Keep in mind that we believe we can achieve this growth despite the expiration of one of our largest ever.
None: Ever single used card programs that contributed over $10 million in revenue and significant EBITDA in 2023.
None: With that.
None: I will turn the call back to the operator to conduct our question and answer session.
None: We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys.
Operator: If at any time, your question has been addressed and you would like to withdraw your question, please press star than two. Our first question comes from Scott Buck with H.C. Wainwright. Please go ahead.
None: At any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
None: Our first question comes from Scott Buck with H C. Wainwright. Please go ahead.
Scott Christian Buck: Thanks for taking my questions.
Scott Christian Buck: Thanks for taking my questions. Louis, I was hoping we could dig in a little deeper on the guide, and I'm trying to understand what your visibility is for the year in terms of what the 10 to 12% growth may already be baked into current contracts versus, you know, what you have to go out and earn between now and year end. Well, our first hurdle this year is to replace the spoilage revenue that we had last year that will not be at the same level this year. And we're doing that through other business units, expanding through both organic growth within the current base and some new clients. As we said on our call or in our opening notes, our pipeline is very, very rich.
Scott Christian Buck: Louis I was hoping we could dig in a little deeper on the guide and I'm trying to understand what your visibility is for the year in terms of what.
Scott Christian Buck: What are the 10% to 12% growth may already be baked into current contracts versus what you have to go out and earn between now and year end.
Louis A. Hoch: Well, our first hurdle this year is to replace the spoilage revenue that we had last year.
Louis A. Hoch: We will not be the same level this year.
Louis A. Hoch: And we're doing that through.
Louis A. Hoch: Other business units.
Louis A. Hoch: Expanding through both organic growth within the current base and some new clients as.
Louis A. Hoch: As we said on our call.
Louis A. Hoch: <unk> notes our pipeline is very very rich.
Louis A. Hoch: Yes.
Louis A. Hoch:
Louis A. Hoch: And we have four what we call kind of mega deals, which are $5 million or more in annual recurring revenue. And we'll have more news out about some of those clients as we close those accounts. So, you know, this year we're focusing on enhancing our operating leverage that will increase More EBITDA, adjusted EBITDA growth and actually yield earnings per share this year. And so, this year EBITDA, of course. Unknown Speaker Great, that's helpful.
Louis A. Hoch: For what we call kind of Mega deals, which are $5 million or more in annual recurring revenue.
Louis A. Hoch: We'll have more news out about some of those clients as.
Louis A. Hoch: As we close those accounts.
Louis A. Hoch: So this year, we're focusing on.
Louis A. Hoch: Enhancing our operating leverage that will increase.
Louis A. Hoch: More EBITDA adjusted EBITDA growth and actually yield earnings per share this year.
Louis A. Hoch: And so.
Louis A. Hoch: This year of EBITDA of course.
None: Great. That's helpful and then on the payback capacity increase.
Louis A. Hoch: And then on the payback capacity increase, What if that is already spoken for? I mean, you know, what kind of demand are you seeing there? And I know you've bumped it 50% or so. What kind of runway does that give you before you need to start thinking about capacity again? Yeah, I don't think you meant payback; you meant output solution. Yeah, output solution. Sorry. Yeah, so in the fourth quarter, we didn't complete all the work that we could have completed because we were installing new machinery. So that actually got pushed into this first quarter.
None: What is that is already spoken for.
None: You know what kind of demand are you seeing there and I know you bumped it 50% or so what kind of runway does that.
None: Give you before you need to start thinking about the capacity again.
None: Yes, I don't think <unk> been paid back.
None: Output solutions.
None: Alright excuse me.
None: Yeah, so in the fourth quarter.
None: We didn't complete all the work that we could have completed.
None: Because they're installing new machinery, so that actually got pushed into this first quarter.
None: So.
Louis A. Hoch: So, you know, for the geez, the six months before that, almost all the year, we've been operating at 100% capacity at UCO output. So, we purchased some new devices, new machines that increased their capacity 50%. So, we're able to complete a week's worth of our normal work, you know, in two and a half days now. And we're already seeing benefits from that. And so, we're able to take on more work from existing clients. And some of our clients are large enough that they work with not just one output, you know, not just output solutions, but they have other print providers. And we may be the preferred one.
None: Yes.
For the six months before that.
None: Almost all of the year, we're operating at a 100% capacity.
None: So we purchased.
None: New devices, new machines increased their capacity, 50%. So we're able to complete a week's worth of our normal work two five days now.
None: And we're already seeing benefits from that.
None: So we're able to take on more work from existing clients.
None: Some of our clients are large enough that they work with not just one output.
None: Not just output solutions, but they have other print providers and we may be the preferred one.
Louis A. Hoch: So, we can go back and get more volume from them now. All right, that's helpful. And the, you know, 200 or so million on the prepaid program that you guys have gotten over the last two quarters. Has that been dispersed to two cards or versus what you know you're holding on? Unknown Speaker in your account currently. Well, that $200 million would be either on cards, or that money would be in, you know, our bank account. It hasn't been loaded yet.
None: So we can go back and get more volume from them.
None: Alright Thats helpful. Andy.
None: 200, or so million on the prepaid program that you guys have gotten over the last two quarters. What are that has been dispersed to two cards versus what you're holding on.
None: In your account is currently.
Andy: Well it is that $200 million would be in <unk>.
Andy: Their own card.
Andy: Or is that money would be.
Andy: Our bank account hasnt been loaded.
Louis A. Hoch: And if you look at our balance sheets that were reported, it'll tell you the exact number of what's sitting in our bank account that hasn't been loaded. What's that number, Michael? $32 million. So $32 million. And then, you know, I can't tell you off the top of my head how much is on cards. It's probably around...
Andy: And if you look on our balance sheet that were reported.
Andy: It will tell you the exact number of what's sitting in our bank accounts that hasnt been loaded.
None: What's the number Michael.
Michael Keelan Diana: $18 million, so $32 million.
Michael Keelan Diana: And then.
Michael Keelan Diana: I can't tell you off the top of my head how much is on cards.
Michael Keelan Diana: It's probably around <unk>.
Michael Keelan Diana: Okay.
Michael Keelan Diana: The same.
Louis A. Hoch: It's approximately the same. And just real quick, Michael, the card load figure, that is the dollar loaded onto cards, not funds waiting to be loaded onto cards. Is that accurate? I'm pretty sure that figure is card load. It does not include funds waiting to be loaded.
None: And just real quick Michael.
None: The card load figure that is the dollars loaded to card not not fun funds waiting.
None: To be loaded the cards is that accurate.
Michael Keelan Diana: I'm pretty sure that figure is card load and does not include funds waiting to be loaded.
Louis A. Hoch: So 32 million in Houston is what's sitting in our bank account waiting to be loaded as of the end of last year. And there are roughly about 40 million on cards right now. Okay, thanks. All right, perfect guys. I appreciate the clarification there. That's it for me. Appreciate the time, guys, and congratulations on the results.
Michael Keelan Diana: So $32 million in Houston is what's sitting in our bank account waiting to be loaded at the end of last year and there is roughly about $40 million in cards right now.
None: Okay. Thanks.
None: Alright, perfect guys I appreciate the clarification there.
None: That's it for me I appreciate the time guys and congrats on the results.
None: Thanks Scott.
Scott Christian Buck: Thanks, Scott. The next question comes from Juan Hickman with Ladenburg-Fowlman. Please go ahead. Hello. This is Juan. How are you guys today?
None: The next question comes from Juan Hickman with Ladenburg.
Scott Christian Buck: Berg Thalman. Please go ahead.
None: Yeah.
None: Okay.
None: Hello.
Jon Robert Hickman: This is juan.
Jon Robert Hickman: Unknown Speaker. So. A couple of questions. Could you specify how much of the New York, how much breakage you did recognize in Q4? and then some sense of what that might be going forward. But I don't think we released that number. I know that we're still going to have some breakage to the end of the second quarter of this year, but the significant drop off occurred in Q4. Okay. All right, and then could you comment on the settlement between Visa and MasterCard? about what they can charge retailers and stuff. How does that work with your card? Unknown Speaker, Unknown Speaker, Unknown Attendee, Unknown, Yeah, so I assume you're talking about the recent news, but that case has been pending for, I don't know, five years, something like that. Yeah, it seems like they settled it today.
Jon Robert Hickman: How are you guys today.
Jon Robert Hickman: So.
Jon Robert Hickman: Couple of questions.
Jon Robert Hickman: Could you specify how much of the New York.
Jon Robert Hickman: How much broke breakage you did recognize in Q4.
And then some sense of what that might be going forward.
None: I don't think we released that number I know that we're still going to have some breakage.
Jon Robert Hickman: <unk>.
The second quarter of this year.
Jon Robert Hickman: But the significant drop off occurred.
Jon Robert Hickman: In Q4.
Jon Robert Hickman: Okay.
Jon Robert Hickman: Okay.
Jon Robert Hickman: And then could you comment on the settlement between visa and Mastercard.
Jon Robert Hickman: About what they can charge retailers and stuff how does that work into your card.
Jon Robert Hickman: Into the interchange caps that you guys are going to get.
Jon Robert Hickman: Yes.
None: Youre talking about the recent news, but that case has been pending for five years something like that yes. It seems like they've settled it today.
None: Yeah.
Louis A. Hoch: Yeah, and, and to be honest, I'm not well versed on that. But what's important to understand is we set our prices. So even if these are MasterCard half the lower rates, we do not.
None: And.
None: The honest I'm not <unk>.
First on that.
None: When.
None: What's important to understand as we set our prices.
None: So even if the visa and Mastercard have lower rates, we do not.
Louis A. Hoch: And so, in most cases, when things like this happen with interchange, it just increases our margins, but I'll go back and review it, and I'm not sure if they changed anything with interchange rates because of this. Okay, and then I have just one more question. So you've mentioned that you have four really big payback opportunities. I assume that none of those are in your guidance for the year. That's true.
None: And so.
None: In most cases when things like this happen with interchange it just increases our margins.
None: But I'll go back and review it.
None: Sure.
None: And I'm not sure if they changed anything with interchange.
None: Because of this.
None: Okay, and then I have just one more question. So you've mentioned that you have for like really big payback opportunities.
None: I assume that none of those are in your guidance for the year.
None: True.
Louis A. Hoch: Well, we assume some new growth from accounts and payback. I mean, we ended the year with a number of accounts. I'm sure Greg can quote the number that have already been sold in there that are in implementation. So we're going to get some growth there. We are also seeing organic growth from existing accounts. But what we're really excited about this year is something that we haven't had in the past, and that is, you know, we have four accounts that we consider our mega accounts, and they really move the needle. And we should have some news describing at least one of them shortly.
None: Well.
None: We assumed some new growth from accounts and the payback I mean, we ended the year with the number of accounts I'm sure Greg can quote the number.
None: Have already been sold in liver that are in implementation.
None: Yes.
Gregory Mark Carter: So we're going to get some growth there. We're also seeing organic growth from existing accounts.
None: But what we're really excited about this year is something that we haven't had in the past is that we have for accounts that we consider our mega accounts and they really move the needle.
None: And we should have some some news discrete.
None: Describing at least one of them shortly.
None: Yeah, but my question is have you put those in your guidance for the year or not.
Louis A. Hoch: Yeah, but my question is, have you put those in your guidance for the year or not? No, those four, there's a separate line for those four. Yeah, they're not. But we did do some increased sales in our guidance. Yeah, no, I could do it. I just wanted to know about those specific four.
None: No those four there are lots of green on support.
None: Yes.
None: But we did do some increased sales in our guidance.
None: Yeah, No I cannot.
None: I just wanted to know about those specific floor.
Jon Robert Hickman: Yeah, no, that's why we're saying it can really move the needle for us as we close this. Okay, thank you. That's it for me.
None: Yes, no that's why what we're saying and really move the needle for us as we close these.
None: Okay. Thank.
None: Thank you that's it for me.
Thanks Juan.
Gary Frank Prestopino: Thanks, Juan. The next question comes from Gary Prestopino with Barrington Research. Please go ahead. Good afternoon, everyone. I have a couple of questions here. Greg.
None: The next question comes from Gary pressed the piano with Barrington Research. Please go ahead.
Gary: Good afternoon, everyone.
Gary: Couple of questions here great.
Gary Frank Prestopino: You went through some metrics on processing volume, transaction growth, and revenue growth. I just want to make sure, and this was for payback, I assume. So could you just repeat that, was that a Q4 number, or was that a year number? That's a 2023 number, and that was for payback only.
Gary: You went through some metrics on processing volume transaction growth and revenue growth I just want to make sure and this was for payback I assume so could you just repeat that was that a Q4 number or was that a year number.
None: That's a 2023 number and that is for payback.
None: Okay. So what was the processing volume up.
Gregory Mark Carter: Okay, so what was the processing volume of? 17% Okay, and transactions were up 35%, and revenue was up 25%. Cool.
None: 17%.
None: Okay and transactions were up 35% and revenue was up 25.
None: Correct.
None: Okay and so you just go through my notes here at this point both portfolios are equal in size in terms of revenue generation or just in terms of.
Gregory Mark Carter: Okay, and as I just go through my notes here, at this point, both portfolios are equal in size in terms of revenue generation or just in terms of, what processing merchants, whatever. Revenue. Okay, so for this year, as pay fat grows, Unknown Speaker, we should see payback starting to become a bigger part of the business and possibly see some acceleration in the revenue generated from the card program. Um, and then I just want to understand this Houston with this card load.
None: What processing merchants whatever.
None: Revenue.
None: Okay. So for this year as Paypal grows.
None: We should see payback is starting to become a bigger part of the business and possibly see some acceleration in the revenue generated from card.
None: That's correct.
None: Okay.
None: And then I just wanted to understand this Houston with the.
Gregory Mark Carter: Well, first of all, I want to understand you had about 10 million in breakage revenue that occurred in 2023, the bulk of which will not be repeated. Is that correct? Unknown Speaker That left Prestopino.
None: Card loads well first of all I want to understand you had about 10 million of breakage revenue that occurred in 2023 that the bulk of which will not be repeated is that correct.
None: That's correct.
None: Yeah that there there's probably you know.
Houston Korth Frost: Yeah, there's probably, you know, a few million or less remaining that will come out very slowly through the remainder of the year. But now, there's going to be breakage and inactivity fees assessed to other programs. So we're really only referring to New York City with those numbers. Unknown Speaker No, that's fine.
None: $2 million or last remaining that will come out very slowly through the remainder of the year.
None: But there's gotta be breakage and inactivity fees is that the other program. So really only referring that New York city with those numbers.
None: So.
None: I'll pause there and see if I answered your question.
Houston Korth Frost: What I'm trying to understand is, I mean, if there was 10 million in breakage, you basically doubled your revenues. I mean, was that at such an extremely low de minimis margin? to the business.
None: No that's fine, but I'm trying to understand is I mean, if there was $10 million of breakage, you basically doubled your revenues I mean was that like such an extremely low de minimis margin too.
None: To the business.
None: The overall margin on that $10 million or 12 million was.
Houston Korth Frost: The overall margin on that $10 million or $12 million was over 30% kind of on average. So there was a little bit of a shunt system that occurred there, but different quarters had different margins. Unknown Speaker But it was, you know, approximately 35% overall.
None: Over.
None: With over 30%.
None: On a on average so there is a little bit of steering system that occurred there but.
None: Different quarters have different margin.
None: But it was you know.
None: Approximately 35% overall.
Houston Korth Frost: But some quarters were higher margin, and then there was, you know, some tiering. So you say it had a 35% gross margin on average for all the breakage on that particular program during 2020. Okay, so then in looking forward to what you're doing for this year, you got 371 million loaded on the cards, right? Is that that correct as I'm going through my notes? Yeah, that's a 2023 number.
None: But some quarters were higher margin and then there.
None: There was some peering.
None: So you're saying that a 35% gross margin.
None: On average for all of the breakage.
None: On that particular program.
None: During 2020.
None: Okay. So then looking forward to what Youre doing for this year, you got $371 million loaded on the cards right.
None: Is that a that correctly as I'm going through my notes.
None: Yes, that's 2023 numbers.
Houston Korth Frost: Right, okay, so that's loaded on cards with the expectations that that should be spent. So, should that, you know, is that coming in at a much higher margin? Because I mean, you're losing 10 million in revenues at a 35% margin. Is this new business that you're putting on the books at much higher margins than that 35%? I'm just trying to get to how you get to where you want to be. Well, there are a couple things.
None: Right. Okay. So that that's loaded on cards with the expectation that that should be spent so so should that.
None: Is that coming in at.
None: A much higher margin, because you're losing $10 million of revenues at 35% margins.
None: Is this new business that youre, putting on the books at much higher margins in that 35% I'm just trying to get to how you get to where you want to be.
None: Well, a couple of things, one and yes, specifically referring to breakage.
Houston Korth Frost: One is, yes, specifically referring to breakage, our margins will be higher on smaller programs. Unknown Speaker But the other thing to recognize here is that breakage is going to become a less significant component of our revenue generation. So what we're seeing is a substantial increase in corporate expense volume, which has higher interchange for us and a much larger margin on that interchange. We're seeing some more custom programs where they're direct client fees. And so that has, you know, a certain gross margin associated with it. And then, again, to reiterate, the most important thing to realize is that hard load volumes will go up from 2023 to 2024. So, uh, you know, you're going to see acceleration, really beginning in Q2, but, but then even more so in Q3, Q4, but, um, we're going to have a lot more dollars running through the, uh, car. So while our, while, while the breakage component of the revenue.
None: Our margin will be higher on smaller programs.
Okay.
But the other thing to point to recognize here is that breakage is going to become a less significant component of our revenue generation. So what we're seeing is a substantial increase in corporate expense volume.
None: Have higher interchange for us and much larger margin on that interchange.
None: We're seeing some more custom program, where their direct client fees and so that has.
None: A certain gross margin associated with it and then.
None: To reiterate the most important thing to realize is that.
None: Carload volume.
None: We'll go up from 2023 to 2024, so you know youre going to see acceleration really beginning in Q2, but then even more so Q3 Q4.
None: We're going to have a lot more dollars running through the <unk>.
None: Car so while our.
None: While all the breakage component of the revenue.
None: It's going to go down.
Houston Korth Frost: It's going to go down; we're going to be generating more revenue on interchange, transactional fees, as well as client costs. Okay, that's very helpful. Thank you. Yeah, no problem. Unknown Speaker 05.
None: We're gonna be generating more revenue on interchange transactional fees as well as clients.
None: Okay. That's very helpful. Thank you.
None: Yes, no problem.
None: This concludes sorry.
None: This concludes our question and answer session. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: This concludes our question and answer session. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.