Usio, Inc. Q4 FY2025 earnings call

UCO-1 Initiative

• UCO-1 aims to capture greater share of customers' electronic payment and printing volume.
• Immersing client-facing business development team in various product offerings from ACH to PayFac to output solutions and prepaid.
• Team education progressing, existing clients using second or third UCO product line from different industries.

Second Quarter Card Results

• Good growth in key performance indicators, transactions up 69%, dollar volume up 9%, all growth in PayFact portfolio, 20 new ISVs in various stages of implementation, conversion rates improving.

ACH Performance

• Revenues up 32% in Q2, electronic check transaction volume up 33%, electronic check dollars processed up 19%, return check transactions processed up 32%, pinless debit business virtually doubled, ACH benefited from UCO1's early successes with a card processing client becoming ACH user, July had highest ACH volumes of the year.

Output Solutions Performance

• Steady performance, total mail pieces processed and delivered in Q2 exceeded 5.4 million pieces, electronic-only documents delivered exceeded 20 million, transactions pieces processed mailed up 3%, electronic documents slightly down from a year ago, transition to electronic documents boosts margins, closed new business in July including utility bill contract, seeking rebound in ad hoc work, quadrupling check printing capacity this year.

Card Issuing Performance

• Progressing in fine-tuning organization to reduce costs and improve productivity, margins and adjusted EBITDA improved year over year, closed 15 new agreements in Q2, upgrades to consumer choice product, wearable prepaid product live, payroll product to be released, merchant funding offers to launch by end of year, tested biometric merchant payment system.

ACH: Revenues up over 30% for the second consecutive quarter, electronic check transaction volume up 33%, electronic check dollars processed up 19%, return check transactions processed up 32%, pinless debit business virtually doubled. Card: Transactions up 69%, dollar volume up 9%, PayFact portfolio dollars processed up 17%, revenue up 10%, 20 new ISVs in various stages of implementation. Output Solutions: Total mail pieces processed and delivered in Q2 exceeded 5.4 million pieces, electronic-only documents delivered exceeded 20 million, transactions pieces processed mailed up 3%, electronic documents slightly down from a year ago, closed new business in July including a contract for utility bills in Pasadena, Texas. Card issuing: Margin and adjusted EBITDA improved year over year, closed 15 new agreements in Q2, upgrades to consumer choice product, wearable prepaid product live, payroll product to be released, merchant funding offers to launch by end of year. ACH revenue contribution: Strong growth, UCO1 helped a card processing client become ACH user. Output Solutions revenue contribution: Steady, though transition to electronic documents may not reflect in rapid revenue growth but boosts margins. Card revenue contribution: Good growth in PayFact portfolio, but impacted by loss of large account.

Revenue Guidance

• Adjusting revenue guidance expectations to 5% to 12% growth this year with continued positive adjusted EBITDA due to prolonged customer-caused implementation delays at two large national accounts. One large national account is a multi-location building materials supplier processing payments at limited store locations, another similar account with merchants signed up but not pushing traffic through yet. If both accounts turn up quick, growth at high end, else at low end.

Implementation Delays

• Prolonged customer-caused implementation delays at two large national accounts impacting revenue guidance. One is a multi-location building materials supplier processing payments at limited store locations, another with merchants signed up but not pushing traffic through yet. ### Customer-Related Impact
• Card issuing was impacted by one client losing a large account due to corporate takeover, affecting revenue in the quarter and spilling over into third quarter but being backfilled quickly.

Q: Can you expand on the sentence about more new programs in implementation, quantify programs, compare to previous periods, talk about dollar volume and products?

A: The sentence was about card issuing programs in implementation being 20, don't have dollars associated, first big win last quarter was check processing deal for card issuing client, large ACH deal for card issuing client, working on more, clients can be on at least two products.

Q: On UCO1 initiative, talk about new programs across board and how much is more than one product?

A: First big win was check processing deal for card issuing client, large ACH deal for card issuing client, working on more, clients can be on at least two products, creating cross-selling opportunities.

Q: On cash balance and M&A activity, where will cash be utilized?

A: Will continue stock buybacks, M&A activity more active now, acquisitions need strategic value, be able to buy right, and acquired business to take care of itself.

Q: What's attributing to improvement in gross margins?

A: Mix (ACH growth, pinless debit ramp, electronic documents from Output), efficiency gains, focus on keeping expenses tight.

Q: On OpEx adjustments, details on savings?

A: Savings in SG&A and outlet division due to new machinery efficiencies, focusing on efficiencies in card issuing division, not replacing people when they leave, negotiating better deals with bank sponsors and partners due to increased volumes.

Q: Difference between low end and high end of new guide?

A: Controlled by timing of implementations, large building supply multi-retail location in US went live slow, another similar account with merchants not pushing traffic through yet, if both turn up quick, high end, else low end.

Q: Elaborate on loss of amusement park revenue-wise?

A: Approximately $2 million in the quarter.

Q: On operating expense one-time items, how much carries over?

A: About a quarter of the increase carried over.