Usio, Inc. Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Record Volumes: Set seven quarterly processing records including most transactions processed through all payment channels, record electronic check transactions, etc. October set all-time monthly processing record for ACH.
• Recurring Revenue: Most new and total revenue are recurring in nature. Sequential recurring revenue growth.
• Profitability and Cash Flow: Third quarter had positive profits and cash flow, adjusted EBITDA $368,000, operating cash flow $1,400,000, cash up over $200,000 to over $7,800,000 at quarter end.
• UCL1 Initiative: Rolled out platform for boarding customers on centralized site, sales team trained, expecting productivity to accelerate in 2026.
• Product Launches and Upgrades: Technology upgrades, new product launches, and ongoing productivity gains.
• Pipeline: Growing pipeline of attractive opportunities, including significant progress on larger new implementations.

Segment Performance

• ACH: Revenues up 30% year-over-year, with eighth consecutive quarter of year-over-year growth in electronic check transaction volume and dollars processed. It is the highest margin business unit.
• Card (Credit Card): Credit card segment saw dollars processed up 12% and transactions processed up 75% year-over-year. Key PayFac revenues up 32% due to net new client implementations. September was a record quarter for Card with all-time quarterly record of transactions processed and second highest volume of card dollars processed.
• Card Issuing: Sequential volume growth in Q3 with total dollars loaded exceeding $75,000,000, revenue up sequentially, and profitability improving. Potential benefits from government shutdown-related financial assistance programs in Q4. Continues to penetrate healthcare market with upcoming pilot and volume doubling for a signature account.
• Output Solutions: Sequential revenue growth, electronic-only documents delivered up to 20,000,000 pieces, 12 new agreements signed, and replacing older equipment with new technology to expand capacity and competitiveness.

Guidance

• Anticipate return to top-line growth in Q4 and full year 2025.
• Continued cash growth through remainder of fiscal 2025 for organic expansion and potential strategic acquisitions.
• Expect card issuing comparisons to improve as final quarter of difficult comps.
• UCL1 productivity to accelerate throughout 2026.

Risks

• Implementations of new business are out of the company's control as each business unit has nuanced implementation processes.
• Impact of federal government shutdown on state or local governments Usio works with; some programs related to SNAP payments were on hold pending resolution of the shutdown.

Q: Scott Buck asks about changes in sales cycles for pipeline opportunities and if there are levers to push adoption pace.

A: Sales focus is on getting already sold customers implemented faster. Implementations are out of control as each business unit is nuanced, but UCL1 initiative is standardizing input of information.

Q: Scott Buck asks about federal government shutdown impact on state/local governments in Q4.

A: Received calls from cities/counties to bridge SNAP payments, some programs on hold pending government shutdown resolution.

Q: Scott Buck asks about M&A criteria.

A: Criteria include synergy (people, industry, technologies), buying at right price, and no issues that take focus away from organic growth.

Q: Jon Robert Hickman asks about recurring revenue in ACH and if one-time events affected comparisons.

A: Last year had one-time events, but current revenue is mostly recurring from existing customers with new customers also having recurring business.

Q: Jon Robert Hickman asks about credit card processing volumes and revenue discrepancy.

A: Transactions include penless debit, but revenue from penless debit goes to ACH and complementary services as Penless is an alternative to ACH, and transactions don't directly drive revenue for credit cards; revenue is from dollars processed.