Usio Inc Stock

Welcome to Usio's Second Quarter Fiscal 2026 Earnings Conference Call.

[Operator Instructions]

Please note this event is being recorded.

I would now like to turn the conference over to Michael White, Senior Vice President and Chief Accounting Officer. Please go ahead, sir.

Thank you, operator, and thank you, everyone, for joining our call today. Welcome to Usio's Second Fiscal Quarter 2026 Conference Call. The earnings release, which we issued today after the market closed, is available on our website at usio.com under the Investor Relations tab.

On this call with me today are Louis Hoch, our Chairman and CEO; and Greg Carter, Executive Vice President of Payment Acceptance and Chief Revenue Officer. In addition, Houston Frost, Senior Vice President and Chief Product Officer; and Jerry Uffner, Head of Card Issuing, will be available during the question-and-answer session.

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 and more fully discussed in our press release and in our filings with the SEC. Following our prepared remarks, there will be a question-and-answer session for those who registered as a financial professional.

Let me offer just a few brief comments on the quarter before turning it over to Greg and Louis. We once again met or beat all analyst expectations on both the top and bottom lines while also delivering our second consecutive quarter of positive GAAP net income and earnings per share. Revenue growth remained strong in the second quarter, up 19%, accelerating from 15% in the first quarter. Excluding the impact of interest income, growth at the business unit level was even stronger, approaching 20%. This has led to a very strong first half of the year.

As we move through the second half of the year, we remain focused on executing our strategy and leveraging our innovative technology and diversified business operations to drive continued growth across the markets we serve. In 3 of our product lines, credit card, ACH and Output Solutions, revenue was up over 20%, illustrating continued strength across Usio. Once again, a majority of the quarter's revenue was recurring in nature with no one client accounting for more than 10% of total revenue. Client retention remains high.

Total processing transactions also set new records with total payment dollars processed up 27% and transactions up 27%. Profitability continued to improve. Gross profit dollars increased 12% with margins improving sequentially from the first quarter. Total selling, general and administrative expenses were down approximately $190,000 from a year ago. Excluding depreciation, amortization and stock-based compensation, SG&A was down marginally from a year ago despite the 19% increase in revenues.

We remain focused on maintaining a disciplined cost structure as we continue to grow, providing further opportunity for operating leverage. Adjusted EBITDA was $1.1 million for the second quarter of 2026, more than double that of the year ago quarter. For the first half of the year, we generated $1.9 million of adjusted EBITDA, our best first half in years. We reported positive net income of $280,000 or $0.01 per share in the quarter. Again, net income was from core operations and does not include any unusual, nonrecurring extraordinary or onetime items. This marks our second consecutive quarter of positive GAAP net income, an important milestone and an area where we remain intensely focused.

While operating cash flow was lower in the first half compared to last year, adjusting for the $1.5 million employee retention credit received in the prior year period, operating cash flow actually increased year-over-year. Cash and cash equivalents at the end of the quarter were $6.4 million, down from the beginning of the year, primarily reflecting the timing of several annual cash outlays during the first half. In addition, we used approximately $371,000 to repurchase 281,000 shares of our common stock during the 6 months ended June 30, 2026, including $235,000 in the second quarter. We also continue to invest in strategic growth initiatives, including capitalized development work on Usio Ion.

Overall, we are very pleased with our performance through the first half of the year. We are delivering strong revenue growth across the business and maintaining disciplined control of our cost structure to translate that growth into improved profitability. With that momentum and the opportunities we see ahead, we believe we are well positioned for a strong second half of 2026.

Now I'd like to turn the call over to Greg Carter.

Thank you, Michael, and good afternoon, everyone. It was another strong quarter for Card. Revenue was up 28% year-over-year to $9 million with growth accelerating from the first quarter and the best ever second quarter revenue. Dollars processed were up 13% and transactions processed were up 19% from a year ago. Once again, results were driven by the strength of our PayFac business, where revenue was up 43% in the quarter. PayFac continues to represent over 3/4 of Card's revenue and is the primary driver behind the inflection in our revenue growth rate.

The second quarter was consistent with the growth path we established years ago when we introduced our evolutionary PayFac technology. The formula is straightforward. PayFac's innovative technology attracts new accounts, they get implemented, they steadily bring their merchants onto our platform, and those merchants' volumes grow over time. Just the first 6 months of this year, merchant count has increased to 34%. So we have the flywheel of growth spinning nicely.

For instance, our large bodega-oriented health care account has been steadily ramping. In fact, based on the industry buzz created by this implementation, we now have another very similar opportunity. Headed into the school year, we are seeing nice growth with our education-oriented accounts, and we anticipate a nice pickup in the third quarter from a couple of new ISVs that are ramping up. There have also been more omnichannel sales wins, something we've been emphasizing with our sales organization. Whether they be entities that need onetime or on-demand printing services or a complementary disbursement solution, we signed more of those type of accounts in the second quarter and continue to do so.

Our consolidated sales team is more cohesive and more interactive than it's ever been as a part of the implementation of Usio One, and we only expect the system to improve overall sales performance. In general, we're just getting more productive and efficient. In addition to the increased productivity of our sales organization, we are likewise seeing improved efficiency in our operations, which is helping margins.

Essentially, everyone in Card's back office is a certified payments professional. So we now have an increasingly professionally educated and highly tenured organization. We just continue to get better in all facets of the business.

Now I would like to turn the call over to our Chief Executive Officer, Louis Hoch.

Thank you, Greg, and welcome, everyone. The second quarter was another strong quarter. For the second time this year, we met or exceeded analyst revenue, adjusted EBITDA and EPS estimates, and we generated positive GAAP net income and EPS. All of our key performance indicators were strong. Total payment dollars increased 27%. Payment transactions processed were also up 27% and revenues were up over 20% in 3 of our business lines. At the midway point, we are on pace for one of our best years. And based upon our performance and outlook, we are raising our full year revenue growth guidance, and we believe there is tremendous potential for even more growth ahead.

There's a lot to talk about this quarter, so let me get right into our performance and the drivers behind our success. In our most profitable business, ACH, revenues increased 21% with transactions up 34%, dollar volume up 28% and returned check processing up 35%. That momentum has continued into the third quarter with July setting a new monthly ACH transaction record. If these trends continue, we will be on pace for our sixth consecutive quarter of ACH transaction volume growth.

PINless debit and real-time payment transactions have both remained strong. While we are seeing some customers shift transactions from PINless debit to RTP, RTP transactions generally generate higher margins despite carrying a lower cost per transaction. As a result, this shift will benefit overall profitability, although modestly weighing on the top line revenue. We are now processing RTP transactions for 12 accounts from 0 last year, and we expect to see RTP revenue continue to grow at a strong rate. As one of the industry's new payment channels, our ability to capture RTP volume is indicative of our ability to innovate and develop new technology that is responsive to emerging payment needs.

Card issuing delivered an improved quarter despite continued revenue headwinds, demonstrating the strength of the business model, disciplined expense management and a meaningful progress on strategic growth initiatives. Purchase volume rebounded up 11%, although card loads were flat and transactions down slightly. These are all improvements on a sequential basis. In the quarter, issuing signed 16 new clients with over 20 clients in implementation or with volume scaling.

Of course, one of our most exciting opportunities on the horizon is the school voucher programs. Some states have already begun going live with additional states expected to follow over the second half of this year and into 2027. The potential scale of these programs is significant. One state alone is expected to disburse approximately $1.2 billion. And while these programs represent an exciting opportunity for our card issuing business, a lot of the initial disbursements have been ACH.

In line with our strategy, this one account is a revenue opportunity for multiple channels of our payments platform. Importantly, this program is with an existing client with whom we've already integrated. So some of the heavy lifting is finished. Consequently, we can focus on all of our energies on getting these programs rolled out. We also expect to begin distributing university loan payment refunds for several universities through a fintech strategic partner during the second half of the year.

Our partner currently works with 30 universities through another processor, and we believe there is an opportunity to transition those programs to Usio over time. The potential payment volumes are significant, making this another exciting growth opportunity for card issuing.

Output Solutions continues to have an outstanding year. Revenues increased 22% in the second quarter, accelerating from 19% growth in the first quarter. Pieces processed and mailed increased 43%, while electronic documents processed and delivered were up 49%. It was Output Solutions' strongest second quarter by a wide margin with the business setting a new monthly revenue record in each successive month of the first half of the year.

We also have our new high-speed printer online, representing a significant upgrade to our production capabilities. The new equipment is approximately 4x faster than our existing printer and offers 4x the resolution, expanding our ability to support both transactional and higher quality print work. Importantly, we expect it to be more cost effective as well. The increased speed requires less labor for the same level of output, while newer technologies should reduce maintenance costs and even lower ink cost despite the significantly higher print quality.

To get a sense of these capabilities of this new equipment, I encourage you to take a look at the video that we posted on our Usio LinkedIn page. In the second quarter, Output signed 11 new contracts and renewed 2 other existing agreements. This includes a large alternative retail deregulated electric provider that happens to be one of the 3 largest in the state of Texas. It is also encouraging to note that their success is not going unnoticed. Inbound traffic is on the rise, which over time, we believe will be a boost to the business.

In addition to the growth opportunities within our existing business, we have some new products under development that we expect to be launching in the near future. Most importantly is Usio Ion, the name we have chosen for PostCredit. While there's still work to do, we are making great progress. The concept has been floated by a number of existing clients, and the response has been overwhelmingly positive. We expect to host a demonstration of Ion in the near future and look forward to giving you a closer look at the platform so you can get a feel for the opportunity we believe it represents.

Let me close by reiterating our continued focus on margins and profitability. We have several tailwinds that we believe can support continued margin improvement. These include more profitable transaction mix from products such as RTP, our lower production cost at Output Solutions and the continued rollout of Ion. At the same time, we remain focused on our cost structure. As one example, our increased processing volumes have enabled us to secure improved pricing from our sponsoring banks beginning in the third quarter.

Together, we believe these initiatives provide multiple opportunities to drive greater operating leverage and improved profitability as we continue to grow. As a result, we are now raising our full year guidance. For fiscal 2026, we now expect revenue growth of 14% to 16%, up from our previous guidance of 10% to 12% expectations. We also expect to continue to generate positive adjusted EBITDA as we remain focused on driving greater profitability and operating leverage across our business.

So a great first half with a lot of strong results and increasing prospects for better growth and profitability. Most of our businesses are growing at better than 20%, and we have exciting opportunities to sustain, if not improve our long-term growth. There's also an intense focus on profitable growth.

I want to thank the Usio employees for their continued dedication and commitment to growing our business, strengthening our company and creating long-term value for our shareholders.

Operator, you can now open the call to questions.

[Operator Instructions]

The first question comes from Neil Cataldi with Blueprint Capital.

Great quarter. My first one is you mentioned PayFac merchant accounts up 34%. I was wondering if you could talk a little bit about this flywheel, as you called it, maybe for those newer to the story. What's the flywheel? And why is it really kicking in right now?

Well, as I said, the beauty of our PayFac model is we secure these ISVs or these software companies that may have anywhere from 100 to 500 subscribers today. Fast forward if their business model goes like our current ISVs 4, 5 years down the road, that merchant base goes to 500 to 1,000. And as those onboard with the software companies, we get access for providing payments to those entities.

So that, combined with the number of ISVs we've put on over the past several years, that's the flywheel of growth. It's an incredibly robust business model. And again, as we add more ISVs, the ISVs then in turn add merchants, which become our merchants by default. And that's the third leg of the stool. New ISVs, ISV growth and then merchant growth within that community.

That's helpful. It's great to see that kicking in. A couple more. So last quarter, you guided gross margins to improve towards 23% to 25% you said in the short term. 24% today is great. And I think the color on this call has been very helpful. With the new programs launching that you just discussed, is it reasonable to assume that maybe we can go even above 25% over the next few quarters?

The key to the growth there is going to be the full launch of Ion, which the way we make money off of Ion is through float primarily and some card spend, but float is obviously 100% margin for us. So Ion is going to be a big catalyst for increasing our margins.

Okay. And regarding net interest income, which I think is what you're talking about, how should we think about a recovery there through the second half as the education programs come on?

Well, the education programs, some of them have already started a little bit. Most of that traffic is occurring through ACH. And we remain very excited about the 2 verticals in the education or the 2 instances. One is school voucher programs that we talked about. I believe we've gone from 3 states to 2 states to -- how many do we have now? Around 5 or 6 that we'll be doing voucher programs for. And what's nice about these programs is it's not like all the money is disbursed when school starts, it actually happens over the course of a school year.

So we'll start seeing some good volume from that occur when school kicks off here in August and September. And the other program is Title IV payments. Those are school loan -- yes, school loan refunds, which we have 1 university coming live in this third, fourth quarter. But that one customer or that one reseller works today with 30 universities, and we're hopeful that we're going to get all of that traffic.

Okay. And just to clarify, I think -- did you say 5 or 6 states on the school vouchers? Or did I not hear that correct?

Yes. That's correct. I think the last time we talked, it was 2, and we've added a few.

Okay. And maybe some ballpark on what total volumes would be across the 5 to 6?

Around $1.5 billion.

Okay. Okay. And my last one is just on the ACH tailwinds. So Nacha, I think I'm saying that right, data shows that the P2P ACH is growing like 21%, same day is up 30%. The industry seems to be moving towards what you guys have built, which is this like embedded multi-rail kind of infrastructure.

So my question is, as AI, I think, sort of transforms SaaS companies and how they operate, do you guys have any thoughts on how embedded payments become more of a determining factor in which platforms win? And do you think that's sort of starting to show itself a bit in the ACH tailwinds you're seeing?

Well, it's definitely going to benefit PayFac, which includes Card and ACH. But AI is making some software development tasks easier. And what used to be competitive in software development was building software and having great infrastructure. Now people are able to reproduce it easier. So those software companies are looking for ways to increase the value of their platforms. And the best way to do it is to embed payments and make a financial tool out of your software application, which is an absolute perfect fit for our PayFac-in-a-Box offering. And so we think as time evolves with AI, that will create even more opportunities for us in PayFac.

[Operator Instructions]

The next question comes from Barry Sine with Litchfield.

Very good quarter, both the results and the nice surprise in positive guidance. It's almost as if you guys are carrying around lucky rabbit foot. I'm trying to understand the drivers. You gave out a lot of key points. And it seems to me that the new -- well, I guess, not so new anymore, Usio One strategy really is working. You've changed the compensation. You're now -- your team is cross-selling all the products. So we're seeing new customers. We're seeing new products with existing customers. And then you also have introduced new products like RTP, and it sounds like Ion is part of the new guidance. Can you elaborate a little bit more, please?

Well, obviously, we're very excited about Ion. We think that's a catalyst for not only top line growth, but will increase our margins, and we look forward to the full rollout of that. It's going to take time for us to do that. But we already have a handful of customers beta testing for us and the results are good. And every part of our business is doing really, really well. And it's showing credibility to our strategy of having all payment channels, too.

We're seeing some PINless transactions go to RTP. And while RTP transactions have less revenue, they have higher margins. But if we didn't have RTP, we would have missed out on that traffic and that traffic continues to grow really well. When RTP allows for debits instead of just pushing funds, we'll see a big jump in usage of RTP for our customer base. But our existing customers continue to grow and we're doing a great job of landing new deals as well. And so we're just -- we're optimistic about this year and our future growth.

So if I can drill down a little bit more on PayFac. So in the past, you've talked about -- I don't know if I missed it, but the PayFac growth rate in the quarter. But you've also, in the past, had a bit of a challenge onboarding PayFac customers or PayFac merchants rather not customers. It seems like you've solved that. Could you give us a bit of an update on PayFac and where you are now? I mean it seems much improved versus a couple of years ago.

Yes, Barry, it's really lather, rinse and repeat. I mean we've been doing the same thing for the last 7 years. And what we're seeing now is all that comes to fruition. While we sincerely appreciate everyone's patience, if you look back historically, there has been a slow but steady upward climb of the PayFac revenue model, and now we're just seeing the benefits of that. So it isn't that we're -- we found some secret sauce.

Really, the key is adding as many ISVs as we can possibly accommodate into the implementation queue and then working with each entity, each ISV individually to help them with that transition on the merchants. And really, that's been the secret. But I think it's also just a culmination of doing this for many years and that patience and persistence is paying off.

What was PayFac growth in the quarter?

43% over a year ago.

Okay. And I want to zero back in on Ion. When you announced the acquisition of PostCredit, maybe I'm wrong, but I didn't give it a lot of thought. It was a relatively small transaction. I'm not sure it was even operational. It was a platform that was used to handle expenses for movie productions in Hollywood. You guys have taken that. You've revamped it. And I'm very surprised that Louis called that out as 1 of your 3 catalysts for this year. So you've taken a tiny little product that you pay very little for. Maybe you can remind us, revamped it and now it's a major -- you're looking at it as a major catalyst for growth this year?

Well, what's exciting about Ion is that it was on our road map to develop and then when Houston located this company and did his due diligence, we figured out we could implement the product faster. So we really just bought software and it kind of leapfrogged our development. So what we were looking at developing 18 months to 2 years, we're able to do in 6 months. So that implementation time frame for us has really shortened and it allowed us to potentially go into the market quicker.

And Ion is -- the most exciting thing about Ion is the margin that's created from float. But it's also going to increase our visibility for risk and fraud. It potentially will allow us to settle funds quicker to our customers, which we will definitely charge for that action. And then we're going to see usage on cards when they use the program -- the product as an expense management system. So it is the first product that sits on top of all of our divisions, and that is really exciting to us because it works for Output customers to be sending in their prepaid postage to us.

For Card Issuing, it works for card load money to go into. For acquiring, it works for us to settle funds from ACH and from card transactions for the merchants to go in and either leave the funds there or withdraw it to whatever bank of their choice. But we believe that there's over $200 million on a daily basis that we can potentially have in the Ion platform. So today, in any given time, we have $80 million to $100 million that's not ours. If we can increase that to $300 million, that's a substantial float for us.

So to understand that, it sounds like Ion revenue will show up in the number of the product categories or service categories that you guys announced, including interest income or interest revenue. Is that correct?

Yes. Well, it's definitely going to -- the card transactions will show up in Card Issuing and interest income, we'll leave that up to Michael to figure out where that one is going to go. But it's a product that sits upon all of our -- on top of all of our divisions. So where we book it is a good problem to have, right?

Yes. A very high-class problem to have. Lastly, you just hit -- it sounds like you hit another home run with Ion. You did that several years ago with Output Solutions. Do you have any more rabbits in your hat, Louis, in terms of acquisitions? What are you guys looking at? What are the priorities? Is there anything imminent? I mean, you've now got a very good track record with acquisitions. Can you -- are you going to follow that up with additional ones?

Yes. We look at deals all the time, and we're just very selective. And I guess that's part of the reason why we've been successful. But we continue to look. And if it's complementary and we can buy it right and whatever we're buying doesn't have any issues, we'll go for it.

But it doesn't sound like there's anything imminent on the horizon right now.

Barry, if there was, I wouldn't be able to talk about it on this call, right?

[Operator Instructions]

The next question comes from Kris Tuttle with Blue Caterpillar.

They're really more housekeeping. As you know, I'm kind of newly modeling you guys, and there were just a couple of minor variances. On Output Solutions, is there some seasonality there on Q3 -- I mean, Q2, I'm sorry, which came in like just -- it was a great improvement year-over-year, but just a little bit less than I expected. And I'm just curious to know if that level, the [ 5669 ], is if that represents any kind of seasonality?

Yes. Output does experience seasonality, but that happens in Q1 when we perform tax-related print and mail and electronic document delivery, 1099s, property taxes for a lot of counties. And in Q1, we actually printed a large amount of voter registration cards for the state of Texas, which is a reoccurring deal, but it only happens once every 2 years for us. So the seasonality occurs in Q1. Q2, we just did a great job. And so the majority of that is reoccurring.

I get it. So Q1, you get a bit of an extra bump and then Q2, Q3, Q4 are more just based on strength of the business, which, as you pointed out, is at a new higher level.

Yes.

Okay. The other variance really was in the cost of services, pretty nice margin improvement. And I'm just making sure that, that's -- it's not some sort of one-off thing that happened. Maybe you could just talk a little bit about the mechanics of that. And you had a very good cost of services number this quarter.

Yes. We're comfortable in the 23% to 25% gross margins. To get above 25%, Ion is going to be a big catalyst for us. So if you're modeling, if you're 23% to 25%, you'll be in the ballpark.

Okay. All right. Great. And the last one, and this is really small. Interest on ACH and complementary services was like down a bit sequentially, which is on trend a little bit, but I'm just curious to understand what's driving that.

So this is Michael. I can answer that one. It's really just -- it's dependent on the amount of time that merchants are keeping funds in their Usio prefunding balance essentially. So the number kind of -- the number of deposits we have on hand on behalf of others fluctuates on a day-to-day basis. So there really wasn't a change in rates or anything like that. It was the timing of cash that we had. So to Louis' point, we're expecting the rollout of Ion to have more of our customers' funds on hand at any given time. So that's why we're expecting that interest income to jump up.

Okay. I got it. And yes, very much appreciate your updated guidance as we discussed in Vegas towards the upper end of what you had initially talked about earlier in the year. So we look forward to seeing you perform against that and see where we end up for the fiscal year. So thanks a lot for all your fine work.

Thank you, Kris.

Thank you.

This concludes our question-and-answer session. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Hello, and welcome to the Usio First Quarter Fiscal 2026 Earnings Conference Call. [Operator Instructions] 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.

Thank you, operator, and thank you for joining our call today. Welcome to Usio's First Quarter Fiscal 2026 Conference Call. The earnings release, which we issued today after the market closed, is available on our website at usio.com under the Investor Relations tab.

On this call with me today are Louis Hoch, our Chairman and CEO; Greg Carter, Executive Vice President of Payment Acceptance and our Chief Revenue Officer; and Michael White, Senior Vice President and Chief Accounting Officer. In addition, Houston Frost, our Chief Product Officer; and Jerry Uffner, Head of Card Issuing, will be made available during the question-and-answer session at the end of our call.

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 and as more fully discussed in our press release and in our filings with the SEC. Following our prepared remarks, there will be a question-and-answer session for those who registered as a financial professional.

In addition, please note that we will be demonstrating our new platform PostCredit on a webinar that we are planning for the investment community. Stay tuned for an announcement with all the details.

Let me just offer a few brief comments on our exciting quarter before turning it over to the team. It was a record quarter for Usio with very strong growth leading to record processing volumes and quarterly revenues. We also saw similar records achieved across many of our business units. On the bottom line, we achieved adjusted -- we achieved positive adjusted EBITDA and GAAP net income. We also generated positive operating cash flow. We are executing on all of our objectives and remain on pace to achieve our guidance for the year as we continue to succeed in converting pipeline to implementations, implementations to volumes and volumes into revenue.

Now I'd like to introduce Michael White, Senior Vice President and Chief Accounting Officer, to provide more insight into the quarter's financial performance.

Thank you, Paul, and good afternoon. It's nice to be with you today. As you heard from Paul, it was a record quarter. Revenue increased 16% year-over-year, resulting in the highest quarterly revenue in the company's history. ACH and complementary services continued its stellar run with revenue up 25%, while card was up an equally impressive 23%.

Output Solutions is also off to a good start this year with revenue growth accelerating to 19% in the quarter from 8% last quarter. And while down this quarter, we expect card issuing revenues to grow this year. Excluding the impact of interest revenue, growth at the business unit level was an even greater 17%.

All in all, a strong start to what we expect to be a very solid and potentially extraordinary year. Results were driven by record first quarter processing and transaction volume with total payment dollars processed up 28% and total payment transactions processed increasing 22%. Once again, the majority of the quarter's revenue was recurring in nature with no one client accounting for more than 10% of total revenue. Client retention remains high.

Compared to the prior year quarter, margins were somewhat lower, driven in part by the decrease in top line interest income, which has 100% gross margins. As always, revenue mix was also a factor. Our expectation is for margin to improve over the balance of the year.

On a sequential basis, overhead was down nearly $700,000 to $4.4 million for the quarter ended March 31, 2026, although modestly higher from the prior year quarter. Reflecting the operating leverage in our model, our goal this year is to keep overhead relatively flat.

Depreciation and amortization declined as the intangible assets associated with the acquisition of Output Solutions have now been fully amortized.

For the quarter, we reported positive operating income, adjusted EBITDA, net income and earnings per share. All of these key performance indicators were also up from the comparable year-ago quarter. We also reported positive operating cash flow in the quarter, which after adjusting for the large tax refund received in the first quarter of last year would have been up from the year-ago quarter.

Net income in the quarter ended March 31, 2026, was approximately $130,000 and did not benefit from any extraordinary items. In the quarter, we used approximately $235,000 in cash for stock repurchases. Cash was also used for strategic growth investments. We ended the quarter with operating cash of over $7.7 million, up about $300,000 since the end of 2025. There is only one small term loan outstanding. We continue to generate cash and maintain sufficient liquidity to support both our organic and strategic growth objectives. As Paul stated, a record start to a year, we believe, holds great promise.

Now I'd like to turn the call over to Greg Carter.

Thank you, Michael, and good afternoon, everyone. It was another record quarter for card. We reported all-time record quarterly revenue, transactions and dollar volume processed. As a result, card revenue was up 23% year-over-year to a record $9.7 million, not only our best revenue quarter ever, but more importantly, the strongest quarterly revenue growth in recent years. We continue to succeed in completing implementations, new accounts are boarding and ISVs are adding new merchants.

With PayFac quickly becoming the predominant source of overall card results as it now represents 78% of card revenues, the business unit's overall performance increasingly reflects that of PayFac. And as PayFac has been achieving rapid growth, card is now showing similar growth rates, although these programs are typically enterprise-level accounts. We now expect overall card results to more closely track those of PayFac, which again has been growing at a better than 20% rate for some time.

In the past, we've noted the growing backlog of implementations. And recently, we've had success with several meaningful new implementations, both PayFac and Enterprise. In particular, we had our first full quarter of processing volume from 2 newly recently implemented enterprise accounts, a multi-location building supply organization and an online specialty sporting goods retailer. This is all recurring volume that is making a meaningful contribution to our revenues.

We're also seeing nice growth in our filtered spend program. What's encouraging about this program is that this volume comes from only a small fraction of the thousands of merchants we've already boarded. New merchants are actively activating practically every day as word spreads quickly throughout this community, virtually providing us with viral marketing.

At the same time, we are continuing to board new merchants, further penetrating this market of nearly 10,000 locations as the program expands geographically from the Northeast into other regions across the country. We are now seeing more opportunities for more channels than ever before. New leads are now arising from online influencer reference sites like G2 from our own SEO and online marketing, from strategic trade show participation and from the increased success of our Usio One cross-selling marketing strategy.

An interesting Usio One case study is a custom payout solution provider. They initially came to us in search of a disbursement solution. So in their mind, the logical point of entry was card issuing. However, the team quickly identified this as an opportunity for both real-time payments and output solutions. Now that we have them onboarded for those solutions, we will soon be implementing a Usio prepaid card.

This is an example of how we've shifted the mindset from asking if they have a disbursement or a prepaid requirement to asking what are your needs and talking about our capabilities, something I'm not sure would have happened prior to Usio One. It's not consequential that we had announced the Usio One initiative a year ago. And now less than 12 months later, after putting the plans, procedures and process in place, it's producing results.

Now I'd like to turn the call over to Louis.

Good afternoon, and welcome, everyone. After a record 2025, this year is off to a record start. In the first quarter, we reported record transactions, record processing volume and record revenues. On the bottom line, we generated positive GAAP earnings as well as positive operating cash flow and adjusted EBITDA. We are meeting the objectives we set for ourselves as well as those of the Street.

Let me jump into a quick review of our business unit results. On card, just quickly adding to Greg's comments, it is rewarding to see a better than 20% revenue growth as their results are increasingly being driven by PayFac. We should see this trend lead to better sustainable growth rates in card as a whole.

In ACH, we had record transaction volumes and dollars processed and return check transactions processed. In addition, PINless debit continues to grow at a better than a 50% rate. Consequently, revenues were up once again strongly for ACH and complementary services. April was ACH's best ever month for transactions processed. And as a result, it appears that ACH could have a record second quarter. Our growth is attributed to both existing and new customers across a diverse set of industries. We're also benefiting from cross-selling, particularly as part of our disbursement solutions such as consumer choice.

An emerging new growth opportunity is real-time payments, which we call RTP. In January of this year, we processed only 2,000 transactions. This past month, we processed over 200,000 transactions. And what's interesting is we initially thought RTP would pull volume from ACH. However, instead, it's pulling from PINless, yet PINless still is experiencing record performance. Compared to PINless, RTP services generate less revenue per transaction, but has a more lucrative margin profile.

Prepaid had a busy quarter. They implemented 27 new accounts that are expected to scale and prepaid also processed over $80 million in card loads in the first quarter. Card issuing made progress on a number of new opportunities as they signed an agreement with a large regional bank to be a new sponsor and strategic partner. The bank was looking for a new partner to roll out programs quicker and had superior technology and also to add vendor redundancy to their existing card issuing programs.

And an existing client continues to be on track to launch 2 state-sponsored school choice voucher programs that will utilize both Usio card issuing and ACH. We expect those distributions to exceed $1 billion in disbursements.

During the quarter, card issuing introduced our private label gift card program and made numerous enhancements to consumer choice and virtual card platforms. Card issuing should grow this year, potentially starting as soon as this quarter.

Output Solutions is off to a record start to the new year. Pieces processed and mailed were up 31%, while electronic documents processed and delivered were up 41% in the first quarter and revenue growth in the quarter accelerated on a sequential basis from the preceding quarter. In the quarter, Output added 6 new cities, 2 county governments and 4 other new customer accounts. All but 2 of them represented new reoccurring revenue. The second quarter is also off to a good start, with April total activity up 50% as compared to April of last year. This should continue the momentum Output needs to be up for the year.

In addition, Output's new printer is scheduled to be installed in June. This technologically advanced machine is 4x faster than our existing equipment. It's cheaper to maintain and consumes less supplies. This will significantly increase our capacity and expand our capabilities. To capitalize on these new capabilities, we implemented an organization-wide dedicated output marketing campaign, leveraging the cross-selling skills developed through Usio One.

Output has also implemented a highly effective SEO strategy. As a result, we are creating a growing number of new opportunities for Output, both in their existing verticals as well as in new industries.

Among our strategic priorities is to grow through wallet share gains. We have noted Usio One's progress in cross-selling. In the near future, we plan to launch what we believe will be one of our most effective tools to achieve that objective, a real difference in the market, and that is what we call today, PostCredit. Implementation is rapidly progressing, and we expect it to be market-ready in the upcoming months.

Among PostCredit's most appealing features and functionality, it will enable the elimination of multiple depository accounts while allowing users to move funds back and forth without separate wires from separate banks. Users will actually settle through a Usio-managed account. So it's faster. And it's more efficient and it's easier to use. And once it's live, all new card, ACH, prepaid and other clients will automatically receive a PostCredit account. The longer-term goal is to roll out to all of our existing clients. We're working on a PostCredit demonstration webinar for financial professionals and should be announced soon.

In summary, one of the best starts to a new year in recent memory, a record start. We have read the reports concerning inflation, higher prices, potentially higher interest rate. And it only reminds us why we've intentionally avoided retail merchants. We have every reason to be optimistic about 2026, and we currently are. At the same time, we also believe it's prudent to be cautious early in the year. For that reason, we're reiterating our guidance. We expect 10% to 12% revenue growth in 2026, while also anticipating continued positive adjusted EBITDA.

Shareholders can be assumed we are -- assured we are committed to our mission to deliver secure, scalable, integrated electronic payment and embedded financial solutions to the market. This is a strategy that can optimize the value of our franchise. I thank our shareholders for their trust and support. We remain committed to building a stronger, more innovative and more valuable Usio.

Operator, you can now open the call to questions.

[Operator Instructions] Our first question comes from Barry Sine from Litchfield.

Wow, what a change, great quarter, great results, great guidance, and you gave us that nice Rigoletto opera music for the hold music. So altogether, very good. I want to start off with just making sure that I jotted down all the different points you've given in terms of guidance. So here's what I have, and correct me if I'm wrong, double-digit revenue growth, up 10% to 12%. You expect to be profitable and EBITDA positive. Cash SG&A for the rest of the year roughly flattish. And then I think I heard in Michael's comments that prepaid should return to growth for the full year. Did I get all that right?

That's correct.

Okay. And the other points for all, correct?

Yes, sir.

So the sales funnel, I don't know if you quantify it or if you use a CRM system. Can you give us a bigger picture or a numeric picture of what the sales funnel is looking like? And from the script, it sounds like you have a pretty good balance among products. Is there any -- are there any 1 or 2 products that are leading in that sales funnel before you start the cross-sale process?

No, Barry, as I've said along, last couple of years, our pipeline has been very robust and fairly consistent across all of our business lines. As I said, we are entertaining more initial inquiries on a specific product, which leads to other opportunities at Usio. And that's been kind of a dynamic of Usio One. But with respect to quantifying the pipeline, it's -- there's -- in total processing volume, there's billions of dollars. But all along, it's always been an issue of implementation and processing -- actual processing, and we finally broke through some of those challenges. And I remain optimistic for all business lines for the balance of 2026.

And just specifically on PayFac, we didn't talk much about it in the script, but historically, one of the challenges has been the tempo of getting folks who are onboarded to start activating. How are we doing on that? And did that have an impact in the very positive credit card results for the quarter?

It does. And as I said in my remarks, it's been a nice combination of both enterprise and new additions to existing PayFac or ISV customers. It's been really a combination of both. But our legacy ISVs, as I said, continue to add merchants virtually every week. We're adding new ISVs that are also adding new merchants. And then when you add on top of those, these larger enterprise accounts that are less reliant on boarding of merchants and more reliant on just flash cut or full implementation, that's what we've experienced late 2025 and then obviously, in the first quarter of '26.

And then a question on cross-selling into the existing customer base. It's been said it's often a lot easier to sell new products to your existing satisfied customers than to win existing -- to win new customers. How many of your customers are still only taking a single product from you, so implying opportunity for cross-sell? And roughly what percent have the quadfecta of all 4 product lines today where you're in good shape there?

Well, obviously, any one customer consuming all Usio products is a smaller number. I think it's fair to say that we've exhausted or interrogated more than 50% of our existing base, meaning they've been informed and notified of all of our offerings. We've had some one-off specific focused sales campaigns. For example, we had the entire sales force make some outbound calls to tax assessors or collectors to the contiguous states of Texas that yielded a number of proposal opportunities that had we not done that, would have delayed. So we're employing that strategy across all of our business lines. Our next initiative will be a prepaid or an issuing sales campaign. So we're using our salespeople, I think, on a more surgical basis rather than a more siloed basis. I hope that answers the question.

No, that's great. My last question is around the outlook for margins. So I want to ask it from 2 perspectives. First of all, on the gross margin, the low-hanging fruit I see there would be for Output to continue to move the mix towards digital, which I believe has a higher gross margin. And then the total operating margin. And again, my sense is that you guys have a relatively fixed cost base like a SaaS company. You've already talked about flattish cash SG&A for the rest of the year. If you can continue to grow at double-digit rates, the bottom line net income and EBITDA contribution should be better than the top line. So what is the outlook for both gross margin and operating margin improvement?

Well, one of the things that we're really excited about that happened this quarter that we talked about was our volume in real-time payments. And we saw existing customers pull PINless traffic and put it on the real-time payments. And real-time payments has a higher margin than PINless debit. PINless debit has higher revenue, but the margins will increase as those -- as we move traffic from PINless to real-time payments.

Obviously, we're very excited about any electronic presentments that we can do through Output. And you're right, the margins on that are almost 100%. And we'd like to see continued growth there, and it was a lot of growth this quarter. Sometimes we bundle electronic with print and mail. So it goes together in a bundled price. But it all comes down to the mix of our products.

This quarter, we also got affected by interest rates, the interest income that was last year booked as revenue into certain business segments and those volumes just decreased and we earned less interest that we could book as revenue. Obviously, interest income is 100% margin. So those factors caused it to pull down a little bit.

We expect our balances to be higher, which would earn us more cumulative interest in the future and especially as we bring some of these larger card programs online that will increase balances. But I feel that we've hit the bottom on the gross margins this quarter, and we should be able to get back to 23% to 25% in the short term.

Our next question comes from Jon Hickman with Ladenburg.

My question was just answered about the gross margin. Now I have one more. Could you talk a little bit about this comment that prepaid is going to start growing again?

Can you ask your question again? You're breaking up.

I'm sorry. Can you elaborate on the comment about prepaid growth year-over-year? Like what gives you confidence? And where is that coming from?

Well, one of them is the school voucher program that we discussed that's going to distribute mostly on cards. We've been told that as much as $1 billion is going to be distributed through us for 2 different states in the United States. And we're not sure how the -- if it all goes on cards, that's going to be huge. But part of it is going to go on ACH. And so those volumes are substantial. So -- that's part of it. And then we have another 2 card deals that Jerry, do you want to talk about?

Yes. We are implementing a large regional bank strategic partnership that comes with multiple programs, and that's on track to roll out in Q3. And then we've got a number of deals with a strategic fintech partnership that are being implemented now that will roll out no later than June. So besides that, we've got several other deals that we're implementing and -- of a material size. And then we've implemented 27 new accounts in Q1 that will contribute to the growth.

Okay. And then just one more question. The comment about that PayFac is generating 78% of credit revenues -- or card revenues. So the drag from the legacy stuff is pretty much behind you now?

Yes, we think so. I mean, the attrition primarily comes from our legacy singular portfolio. So yes, I think that those -- the worst of those days are behind us, yes.

And so going forward, the growth in card is going to match -- or the growth in PayFac is going to match the growth in cards. Is that what you meant? I mean in credit cards, sorry.

The growth in PayFac is going to be higher than in the attrition.

Right.

Okay. Okay. And then -- so didn't you also say that next quarter ACH is -- there might be a potential for that to be even better than Q1?

What we said was April was our best month for ACH transactions originated, which was very exciting to us coming off our third quarter in a row of setting records for ACH. So we're hopeful that, that trend will continue for this current quarter.

And is ACH still the highest gross margin product?

Yes.

Okay. That's it for me. And nice quarter. It's really good to see the change in revenue growth.

Our next question comes from Michael Diana with Maxim Group.

Okay. The card revenue growth was very impressive. Greg, you didn't talk much, I don't think, about specific ISV programs that you're excited about or your biggest ones. Maybe you could mention a few that are most prominent right now?

Most of them are member-oriented like we have a legal association, state bar association. So everything that's associated with that, virtually all 50 states. So those board frequently. We've got some other recreational type ISVs, camping, for example, that they're reserving camping spots, pads, et cetera. We've got insurance, health care and education type ISVs. So it really is a gamut of various industry verticals that are contributing to this growth.

Got it. And which ones seem to be boarding most quickly now?

Typically, the member-associated, the legal and health care, those 2 industry verticals are fast growing.

This concludes our question-and-answer session as well as today's conference call. You may now disconnect your lines. Thank you for participating, and have a great day.

Hello, and welcome to the Usio's Fourth Quarter and Fiscal Year 2025 Earnings Conference Call.

[Operator Instructions]

Please note, today's event is being recorded. I would now like to turn the conference over to your host, Mr. Paul Manley. Please go ahead, sir.

Thank you, operator. Good afternoon, and welcome to Usio's Fourth Quarter and Fiscal 2025 Conference Call. The earnings release, which we issued today after the market close, is available on our website at usio.com under the Investor Relations tab. On this call with me today are Louis Hoch, our Chairman and CEO; and Greg Carter, Executive Vice President of Payment Acceptance and our Chief Revenue Officer; Michael White, Senior Vice President and Chief Accounting Officer; and Jerry Uffner, Head of Card Issuing, will also be available during the question-and-answer session.

Let me remind our listeners that certain statements made today during the call constitute forward-looking statements made pursuant to the safe harbor provisions of the Private Securities and Litigation Act of 1995 as amended and as more fully discussed in our press release and in our filings with the SEC.

So let me start off today's call with some highlights from this afternoon's release. It was a solid quarter, in line with our commitment to shareholders to deliver a stronger second half of the year. Revenues were up both sequentially and on a year-over-year basis, with record growth accelerating to 8% in the fourth quarter. This led to a 3% increase in revenue for a year, but excluding revenue associated with interest, revenues from products and services were up 4%.

We set a record for total dollars processed in the year, which were up 19% and transactions processed were up 30%. As has been the case over the course of the year, revenue growth for the quarter was led by our ACH and card businesses. ACH was once again our fastest-growing segment, revenue increased more than 30% for both the quarter and the full year, driven by new client implementations and strong growth in PINless debit. For the year, ACH had a record for dollars processed, up 22%, transactions up 29% and returns, which were up 31%. PINless debit dollar process was up 81%.

Card revenue increased 7% in the fourth quarter and finished the year up 3% with continued PayFac growth driving performance. Card also reported record processing volume and transactions. Our Output Solutions finished the year with strong momentum, with pieces mailed up 11% and electronic documents processed up 18% in the fourth quarter.

This led to a 6% increase in revenues for the quarter so that revenues ended up flat for the year. Although card issuing revenues were down in the quarter, they improved relative to the third quarter. Card issuing also continues to improve its profitability. Weakness in card issuing in 2025 was almost exclusively attributable to the indirect acquisition of a reseller's amusement card program. This transaction occurred early in 2025, this should provide a relatively easy 2026 comps, which we anticipate will help card issuing's 2026 results reflect the recovery staged over the balance of the year.

The majority of the revenue in the quarter was generated from ongoing programs with the primary exception being certain card issuing programs with governmental entities. No single client accounted for more than 10% of total revenue, reflecting the diversified nature of our customer base.

From an account perspective, attrition remained very minimal. Operating cash flow for the year was $1.5 million. These proceeds were used over the past year to invest in expanding both our tangible and intangible fixed assets as well as for over $1.1 million in share repurchases. Though down from a year ago, we still have nearly $7.5 million in cash on hand positioning us to invest both inorganic and nonorganic expansion opportunities.

In the fourth quarter, we used stock for the $500,000 purchase of post credit. Bottom line, we still have plenty of dry powder for strategic development. In addition to positive cash flow, we also delivered another year of positive adjusted EBITDA and have now reported positive adjusted EBITDA for 3 consecutive years. Our guidance contemplates positive adjusted EBITDA in fiscal 2026 as well. All in all, a solid growth year with record revenues and record operating performance.

We believe 2026 is the year to take another big step forward with new initiatives to increase our share of our customers' wallets, build a portfolio of recurring revenues and to introduce new products and services that only improve on the infinity that we already enjoy with all of our clients. This is a strategy that builds value.

Now with that, at this time, I'd like to turn the call over to Greg Carter.

Thank you, Paul, and good afternoon, everyone. It was another record quarter and year for card as we reported all-time record quarterly and annual transactions and dollar volume processed led by our continued focus on PayFac. As a result, revenue growth net of our legacy portfolio was 13% for the quarter and 7% for the year. That's been card's mantra, strong processing volume and solid PayFac revenue growth, which resulted in steady, predictable reoccurring revenue growth built on the foundation of primarily ISVs who are loyal to Usio and most frequently are growing their own client base and consequently processing volume with us year after year.

Since joining Usio, I've seen our market reputation and awareness steadily increase. This success can be attributed to our multipronged sales and marketing strategy that incorporates both traditional as well as creative and new age digital marketing tactics. For instance, our SEO results continue to improve. We are leveraging the success and recently, we were added to the G2 platform, which is one of the largest online influencer reference sites. We're already starting to get quality leads from software companies that are searching on these sites, specifically for payment processing. It's not more effort, it's smarter effort with more surgical precision, something we preach from day one. Another growth lever is Usio ONE. Usio now is essentially fully integrated. The idea is to mine our existing relationships to uncover opportunities where other Usio services may be needed. This is a mandate to increase our share of our customers' wallet.

We've made changes within the sales structure that's going to improve our throughput and accountability. In addition to our efforts, Houston Frost is now focused almost exclusively on new product development that will also increase our share of the customer's wallet. Louis will provide some insight on how the post credit acquisition fits into the strategy and is the ideal platform to supplement and accelerate our existing efforts. The proof is in the pudding.

So let me offer you some examples of our new agreements that have risen from this strategy. I've talked about our growing backlog of new customers that are in various stages of implementation, and I'm pleased to report that many of these implementations are complete and are processing volume with us.

For instance, we completed the implementation of a national online specialty sports goods retailer. This is a straight merchant processing account that we expect to add meaningful volume this year. In addition, we completed the rollout with a multistate building supply company. All their stores have been boarded and processing volume is correspondingly on a very attractive growth trajectory. Finally, a quick note on the outstanding progress of our new filtered spend program, which was a massive implementation. It's up and running with thousands of bodegas and smaller grocery stores now able to accept health care assistance cards. It allows users to buy over-the-counter pharmaceuticals using a specific health care spending account.

The takeaway is that we successfully boarded well over 2,000 of those merchants during 2025 that are now live. There are over 8,000 more target merchants that are involved in this program and now that all the complex initial interfaces have been completed, we are open to board the remaining locations through mid-summer 2026. I used to say that Usio was the best kept secret in payments. I'm not so sure that's true anymore. It's also reassuring to see us more widely appear and more quickly climb among various surveys that rate payment processors as the number of successful implementation increases, so does the interest.

Now we need to capitalize on this interest to continue to deliver value to our clients and profitably grow Usio. Now I'd like to turn the call over to Louis.

Good afternoon, and welcome, everyone. I'm proud of our accomplishments and progress in what was a record 2025. It was a year in which we achieved the highest revenue in the company's history. And operationally, we set numerous full year transaction and processing volume records across many of the company's operating metrics. Of equal importance, we met our commitment to shareholders by posting a second half, that was an improvement over the first half. These records bear out the message in my shareholders' letter that throughout 2025, we executed on the mission of delivering secure, scalable and integrated electronic payment and embedded financial solutions. Time and again, our technology has been chosen by leaders such as MasterCard, Apple, the City of New York, State of California for the ability to meet this mission. And I'm very proud of our market reputation we have built on this foundation of trust and reliability. This is the value in our mission.

And as Greg alluded to, is becoming increasingly recognized. We continue to work to unlock the value by building on this legacy with innovative new technologies that meet and sometimes even exceed customer requirements. Our strategy is to pursue opportunities to increase the proportion of customers that need these services on a reoccurring basis, an area where there is significant opportunity to achieve this objective through increased penetration of our existing customer base. Greg is leading our Usio ONE initiative with the objective to increase cross-selling. At the same time, Houston is developing new products and services that similarly cater to untapped customer needs.

One of the most exciting new opportunities to capitalize on our strategy was the acquisition of PostCredit. It supports our strategy to offer our customers a comprehensive business banking solution while enhancing our visibility into managing customer risk. Today, we move over $100 million every day by virtue of our clients' processing agreements. With Usio's business banking solution, we can effectively become our clients' depository institution. When they log on to our business banking solution, clients will be greeted with a dashboard clearly illustrating their account. It will also enable them to utilize their funds for any of our services, such as the issuance of corporate cards and ACH disbursement or even selling accounts payable.

When this goes live later this year, all new clients will be encouraged to use our business banking solution to prefund their Usio accounts and receive their daily settlement funds. So when they log in, they're seeing a full suite of banking tools, representing another cross-selling opportunity. This reflects our ongoing commitment to developing innovative payment solutions, including early initiatives such as virtual cards and our Consumer Choice platform. As we roll out an enhanced version of Consumer Choice with significant upgrades, including Venmo, PayPal, Push to Debit, Instant Withdrawal, we are seeing increased interest from both new and existing clients.

As a result, card issuing is now actively engaged with large commercial and governmental entities in a need of versatile and dependable disbursement platform, especially one that offers modern payment rails.

Consumer Choice is one of the most robust disbursement solutions in the market. In fact, one of our larger prospects was virtually stunned to learn that we are integrated with all the major wallets, something they said was missing from most other comparable payment disbursement platforms. Mastercard needs to be recognized as they continue to refer business our way, any of which would layer nicely on top of the 44 deals and the 53 new implementations card issuing completed in 2025.

After a year that was disrupted by the indirect acquisition of a large amusement park client from one of our resellers, it is nice to see card issuing recovery. Card issuing has a solid base that is stable and growing. There are many new clients that require complex integrations that were implemented late in 2025 and have not yet scaled. So even without any contribution from these large opportunities, we expect card issuing to make a nice rebound.

All of these growth initiatives should also benefit Output Solutions, which finished fiscal 2025 with strong momentum, including growth in both revenue and pieces distributed and a 10% increase in higher-margin electronic document distribution. In 2025, they added 37 new clients, primarily in their core markets with vast majority representing reoccurring business. That has created momentum into 2026. In the -- early into the year, they are already setting records for the number of pieces mailed. Output also expects to put a new printer into operation this year, which will run at a better than twice the rate of our existing printer and a better resolution while reducing the quantity of the supplies consumed.

This positions us to expand to new markets, pursue additional opportunities, including the production of marketing materials. Since many clients prefund their postage, this also creates a natural opportunity to introduce our business banking solutions. We believe this will create additional cross-selling opportunities through Usio ONE initiative, including the upcoming dedicated marketing campaign.

The star of the quarter was ACH. Another quarter of better than 30% revenue growth, leading to 33% full year revenue growth. We continue to set records in virtually all of our operational metrics as we add new mortgage servicing and other customers and generate explosive PINless debit growth, which saw volume increase by over 80% in 2025. And there is no slowdown as it looks like Q1 could be PINless and ACH's best quarter ever. As you can tell, I'm excited about Q1 and all of 2026, the pipeline is strong across all of our businesses, and we are working diligently to increase the share of the wallet.

Those incremental revenues offer attractive margins, which is our most direct path to faster growth and improved profitability. We've got a lot in motion. So it would be critical this year to focus on completing those tasks that offer the most immediate return on our investment. For that reason, we're being careful on our guidance. The company continues to expect 10% to 12% growth in revenue in 2026, while also anticipating continued positive adjusted EBITDA. I thank our shareholders for their trust and support. We remain committed to building a stronger, more innovative and more valuable Usio. Operator, you can now open the call to questions.

[Operator Instructions]

And the first question will come from Barry Sine with Litchfield Hills Research.

So you've issued guidance for the year, 10% to 12%, which is in line with what you're historically capable of. I don't know if you have this number, but I know that 2025 was impacted when one of your customers lost one of their customers. It wasn't yours directly, do you have a pro forma revenue number for what 2025 would have looked like had that single event not occurred?

So the prepaid -- our card issuing division was down 22%. We were estimating really a similar number to -- if that one customer would have stayed, we would have around $3 million for that -- that lost customer. So that's where we -- that's the kind of revenue that we lost with that.

It's $3 million to $5 million.

So add about $4 million back to what you reported and then calculate the -- that growth, and that would be kind of a normalized growth if that one event had not occurred, fair enough.

Yes.

Yes. Okay. Looking forward to 2026, I know that your key strategic initiative is the reorganization of the sales force and under the Usio ONE initiative, and you've also changed their compensation models to make it more about bringing in new business rather than servicing existing. Could you -- and I think you're about a year into that process. And I understand you've had a -- your second annual all-hands meeting. Could you give us an update on how that process is going. How is the team adjusting to that? And how are the customers responding now that you're a bit into Usio ONE?

Yes. Barry, it's been a good transition. We recently completed our annual meeting here in San Antonio. As I said in my opening remarks and my comments, we've made some changes. We've actually remove some positions from the sales team. We're also doing consolidated sales outreach campaigns. For example, the first week of March, it will be an all-hands effort, calling states contiguous to Texas for taxing authorities. This is in an effort to drive more output business.

The deal that I mentioned earlier about filtered spend, which is the large bodega of health care spending that actually originated from one of our issuing sales individuals. So -- and that's a pure acquiring deal. So I would say that the Usio ONE initiative is well underway. And most, if not every individual, has wins under their belt for other areas of the company, meaning that if they were acquiring, they've sold issuing deals and if they were output, they've sold both issuing and acquiring deals. So very happy with the progress.

Okay. And then also looking on 2026. In the -- in the press release you put out in January, you talked about several new large customers where you've already signed them. And I'm wondering if I can get a little more detail on that, what kind of verticals are they in? What are the revenue from those new customers look like once they're fully onboarded? What is the current onboarding cadence with those customers? And what is the timing, which quarter in 2026 are we likely to see that revenue really start to kick in? And when will it be fully kicked in?

I think you're referring to the 3 large card issuing projects that we talked about in the shareholder letter. The largest of the 3 is a school voucher program or a state, and it will have a lot of distributions, and that will affect prepaid cards revenue and ACH revenue. That one is scheduled to start in Q3. The other two?

One's a major bank, and we're looking at that going live in Q3 and the other one is a top payment company that we're partnering with that shows us for Consumer Choice to do -- I can't get into a lot of detail, but refunds to individuals.

And that large bank forte is doing federal payments.

Yes.

So two of those, you mentioned Q3. So it sounds like the year -- the growth will be more back-end weighted for 2026 with those kicking in. Is that fair?

You're going to see some growth in Q1, and you will see those programs go live in the third, fourth quarter and give us a nice jump at the end.

And then my last question, again, going back to the 10% to 12% top line growth guidance. What's already booked? Where do you -- do you have customers that are signed, maybe not onboarded, you've already talked about some of those. How much of that 10% to 12% is already in the bag. You've got visibility on? How much of that to Greg's guys need to go out and win? How much of that is variable and dependent upon winning new customers?

Well, I would tell you that we've got tons of deals that are in implementation, if we could flush them all today, we'd be very excited for the year and probably raising guidance. We don't control when they go live. So we're always hesitant to answer a question like you're asking. So the quick answer is we have enough deals to meet our numbers. It's all about when they implement. And that hopefully, we don't get another surprise like a large customer going away because they went through an M&A activity.

Right. We'll keep our fingers crossed on that, Louis.

The next question will come from Scott Buck with H.C. Wainwright.

Thanks for the time. Great year for ACH. I'm curious, have you guys exhausted the low-hanging fruit opportunities here? Or should we expect ACH to be an outperformer again in 2026?

I think we've been pretty clear in our message that Q1 for ACH is going to be another record, which will be our third consecutive quarter of setting all-time records for ACH in the real-time payments department and PINless debit, that will also set a record, card processing will also set a record, so that includes PayFac. And so Q1 is going to be exciting. We think that ACH does have some momentum. We just recently talked a few minutes ago about school voucher program that we're going to do that's probably 50% ACH, 50% card. So we're continuing to be very excited about and real-time payments in general.

Great. And then you mentioned in the release, SG&A expenses were up 10% for the year compared to '24. I know that reflects some investment in the business. I'm curious whether that investment is over or you'll have to continue to make some additional investments here in 2026?

Yes. Well, when it comes to SG&A, our SG&A, our headcount is down compared to last year, and we'll see some savings. Hopefully, we're going to keep it flat. We'll see.

Great. I appreciate that, Louis. And then last one for me. just on Usio ONE. I'm curious, do you guys have specific cross-selling targets you're looking to achieve this year? Or maybe phrased another way, how -- what would you consider success of this program?

Well, I think we're already seeing some success as evidenced by the deals that we're talking about. It's really just more repetition. And this campaign that we're going to launch in a couple of weeks will further enforce or reinforce ONE business unit that's being Output's value proposition. But the unique thing about Usio is when we talk to any entity, we go at them now with a variety of options, meaning it's print and mail, it's issuing, whether it be plastic or virtual, ACH or credit or debit. So it's becoming a natural, almost a pleasure to address these prospects because we're not a one-trick pony.

So the success to me is going to be continued to look through the sales team and see the diverse contracts that are coming in. As I said earlier, we've got traditional or siloed salespeople that are now successfully signing contracts in those other business units. And as long as we continue to do that, I would consider that a success.

The next question will come from Jon Hickman with Ladenburg.

I want to follow up on the SG&A question. Louis, you said you want to keep it flat, you mean flat '25 over '26?

Yes. Flat with maybe some moderate growth. But again, our headcount is down, we've been not replacing people when they leave or retire. And we're trying to do more with less.

Can you elaborate on the $500,000 jump between Q3 and Q4?

What was that, Michael?

There were some onetime expenses in Q3. You'll see remain an adjustment to our bad debt expense, which represented a big portion of that. We're now more in line and you shouldn't see that type of jump there, but that was a large piece of it. There was also some year-end expenses that were in there. Because Louis said, and just to clarify, what he said that our headcount is down over the last year, our 2026 headcount is down over 2025 headcount. So there is savings in labor that we're expecting in fiscal year 2026.

Okay. And the depreciation and amortization expense should be relatively flat year-over-year?

Correct.

[Operator Instructions] And that will conclude our question-and-answer session as well as our conference call for today. Thank you for your participation. You may now disconnect.

Hello, and welcome to the Usio Third Quarter Fiscal 2025 Earnings Conference Call. [Operator Instructions] 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.

Thank you, operator. Good afternoon, and thank you for joining Usio's Third Quarter Fiscal 2025 Conference Call. The earnings release, which we issued today after the market closed, is available on our website at usio.com under the Investor Relations tab. On this call with me today are Louis Hoch, our Chairman and CEO; and Greg Carter, Executive Vice President, Payment Acceptance and our Chief Revenue Officer; Michael White, our Chief Accounting Officer; Jerry Uffner, Head of Card Issuing; and Houston Frost, our Chief Product Officer, will be available during the question-and-answer session later.

Please 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 and as more fully discussed in our press release and in our filings with the SEC. I'd like to start off today's call with some highlights from this afternoon's release.

Q3 was a solid quarter and in line with our commitment to deliver a stronger second half of the year. These results were achieved on the strength of strong across-the-board processing volumes with 7 quarterly processing volume records set in the period, including a record quarterly overall transaction volume of 16.2 million, up 8% year-over-year. This resulted in a $1.2 million sequential increase in revenues impressively led by ACH, which was up strongly from the second quarter and for the third consecutive quarter, up 30% from the year ago quarter.

While total revenues were relatively unchanged from the year ago quarter, our strong sequential momentum positions Usio for a return to top line growth in the fourth quarter and for the full year 2025. As discussed last quarter, our total revenues this period were again adversely impacted primarily by continued weakness in card issuing, along with the decline in interest income. We expect this to mark the final quarter of difficult card issuing comparisons with performance improving going forward.

One of the key themes this quarter is most of our new and total revenue are recurring in nature. This is an important milestone and one you'll hear reflected throughout our discussion today. Margins in the quarter improved year-over-year, driven by strong growth of our high-margin ACH business as well as further efficiency and productivity enhancements. While salary adjustments and other costs led to an increase in SG&A, we do expect overhead to remain stable for the balance of the year.

Our third quarter was another quarter of positive profits and cash flow. Adjusted EBITDA in the quarter was $368,000, down just incrementally on a sequential basis from $500,000 in the second quarter and also down from a year ago. Operating cash flow for the quarter was $1.4 million, reflecting the continued strength of our business. Our cash was up over $200,000 over the past 3 months to over $7.8 million at quarter end.

We anticipate continued cash growth through the remainder of fiscal '25, positioning us to invest both in organic expansion and potentially into opportunistic strategic acquisitions. In the quarter, we used approximately $60,000 for share repurchases, bringing our total year-to-date repurchases to $750,000 or just over 500,000 shares. The third quarter represented an important inflection point for Usio with record processing and transaction volumes, solid sequential recurring revenue growth and sustained profitability and cash flow.

In addition, we completed or made significant progress on a number of our larger new implementations while continuing to build a growing pipeline of attractive opportunities. From an organizational standpoint, technology upgrades, new product launches and ongoing productivity gains are positioning Usio for what we believe will be a new period of accelerated growth.

At this time, I'd like to turn the call over to Greg Carter.

Thank you, Paul, and good afternoon, everyone. September was a record quarter for Card as we reported an all-time quarterly record of transactions processed and the second highest volume of card dollars processed in any quarter. Led by our continued focus on the Payfac business, our Credit Card segment continues to grow with dollars processed up 12% and transactions processed up 75% from a year ago.

While card revenues were correspondingly up both sequentially and on a year-over-year basis, key Payfac revenues were up 32%, continuing their double-digit year-over-year growth as a result of net new client implementations. There are currently 16 new ISVs in various stages of implementation. And from last quarter's implementations, I'm pleased to report that the largest of these new enterprise merchants has now been implemented and has been processing with us over the past few months.

That's really the theme of the third quarter, this virtuous cycle of a strong pipeline, leading to implementations that then lead to volume and ultimately recurring revenue. We are starting to see the fruits of that now and into the fourth quarter, setting up for a really solid 2026. We've also been seeing existing customers adding new business.

For example, we have a long-time ISV that just added a new innovative prepaid program. The current customer base continues to evolve and grow through new programs and new merchant acquisitions. All along, referenceability has always been a key. Our capability and our unique products have attracted several referral entities that are sending larger opportunities our way as they've been impressed with our performance in the market.

So in addition to our sales team, we are cultivating referral agents that can send us meaningful opportunities. This is paying dividends for us as, for instance, the large account recently implemented was from a referral entity. I should also mention that this account is not an ISV using our Payfac. So our traditional processing capabilities remain another growth channel. Another unique application where we've been able to win business is because of our willingness to provide customization that many of our competitors won't.

One of these programs is our new filtered spin client. There are over 1,000 merchants that have already gone through underwriting and are on the program. So when it goes live, it could be meaningful. This is a new concept in the market we are helping to pioneer with the expectation that we could become a market leader. You may have seen Houston Frost on LinkedIn recently, demonstrating one of our new wearables. This is just one of the many wearables we are exploring and developing, whether that be wrist bands, tap to pay or similar products.

It's another area on which to keep an eye. Finally, let me provide a quick update on our Usio ONE initiative. Recall that Usio ONE is being implemented as a means to capture a greater share of our customers' electronic payment and printing volume. As of today, Usio is essentially integrated into one unified entity. We've rolled out a platform for boarding of all of our customers on a centralized site.

In addition, most of our sales team has been trained up and has a strong functional knowledge and understanding of all of our products. An example of how this is working is a salesperson that was originally selling legacy card processing recently sold a large print and mail program. I expect the productivity of Usio ONE to accelerate throughout 2026.

Now I'd like to turn the call over to Louis.

And welcome, everyone. Let me begin by saying that I'm thrilled with the results of our operating metrics for the third quarter. We set 7 quarterly processing records, including most transactions processed through all of our payment channels, record electronic check transactions, check dollars and return checks processed as well, including PINless debit transactions and dollars processed and credit card transactions.

This momentum continued in the month of October, where we set an all-time monthly processing record for ACH for both transactions processed and return check processed. I'm very excited about what I'm seeing with our ACH business, which also happens to be our highest margin business unit. What is different today is that the volume is primarily from recurring businesses. But when you look at our numbers, today's primarily recurring revenue is being compared to year ago quarter that included a number of onetime nonrecurring items.

That's distorting our underlying progress and the real Usio story. Stripping away the influence of those onetime items provides a better picture of the fundamental growth and the strength of our core operations. And those 7 processing records provide a great measure of our progress. I would also note that revenues were up on a sequential basis in all of our business lines, putting us on pace to meet our commitment to shareholders to deliver a better second half compared to the first half of this year.

This is a great start to the second half, which we will expect lead Usio to growing once again this year. The message is clear as a processor, our job is to grow volumes to take advantage of the operating leverage that we have created. We want more transactions, and we want more volume, and we're doing it while maintaining our pricing discipline. And most importantly, as processing statistics illustrate, it is increasingly recurring in nature.

Looking more closely at our businesses, ACH was a standout once again. Revenues were up 30% for the third quarter, led by the previously mentioned record volume. In particular, this was the eighth consecutive quarter of year-over-year growth in electronic check transaction volume and dollars processed. ACH benefited from both new deals and the growth of our existing customers. At the same time, our PINless debit offering also set all-time records for both transactions and dollars processed with growth over the same period in 2024 of 96% for transactions processed and 87% for dollars processed.

Both metrics were primarily driven by the growth in the mortgage servicing industry and the fintech industry. PINless debit is a great solution for applications where credit cards cannot be accepted. So mortgage servicers absolutely love it. And we are one of the few processors that offers this market of a PINless solution. Turning to card issuing. We generated sequential volume growth in the third quarter with total dollars loaded exceeding $75 million.

Revenue was also up slightly on a sequential basis and card issuing profitability continues to improve. As we mentioned last quarter, this year, we are comping against a very strong year ago quarter that had significant revenues from very large account as some from residual New York City revenues. Going forward, the comps should begin to normalize as the large account revenues were concentrated primarily in the second and third quarter of 2024 so that once again, you will be able to clearly see the fundamental growth of its core business in the card issuing revenues.

Because of card issuing's outstanding reputation in its various governmental and charitable organizational markets, we're receiving calls from various card program opportunities for financial aid and assistance that is related to the government shutdown. We are hopeful that we will benefit from these financial assistance programs in the fourth quarter of this year. The card issuing continues to penetrate the healthcare market, where early next year, we expect one of our signature accounts to double their volume.

And another new healthcare customer is also planning to launch their pilot with us this month. From a product standpoint, we are improving our consumer choice user interface, and we've implemented and are in a beta rollout with our initial payroll card customers, while our merchant-funded offers looks like it will launch early next year. Card issuing also has an impressive pipeline of numerous large and small new opportunities.

While it would be premature to forecast any of these opportunities into our future results, especially the larger opportunities. Based upon the ongoing dialogue and the activity levels which we are engaged, we are hopeful we should be able to land some of this business in 2026. Consequently, we believe that sequential growth generated in the third quarter is the beginning of a rebound that we expect to continue and to accelerate over the coming year. Output Solutions had a solid quarter looking beyond the year ago onetime items. Output also generated sequential revenue growth. For instance, electronic-only documents delivered were up to 20 million pieces in the quarter, up about 500,000 from a year ago, indicative of the fundamental core growth.

Unlike card issuing, output's profitability metrics continue to improve, aided by the shift to more electronic document fulfillment. While on a per unit basis, we charge less to process an electronic document than a paper document. Processing electronic documents is more profitable. So the transition to electronic documents may reduce revenues while improving earnings.

Output also had a solid quarter of closing new business with 12 new agreements signed, including municipalities, utilities, tax offices and others, a majority of which are electronic document processing that promising recurring revenue. They are also set to print and mail several million voter registration cards in the fourth quarter of this year. Output is also replacing some of their older equipment with some brand-new state-of-the-art printing technology.

Not only this will expand our capacity, but will enable a more competitive offering for large, high-growth markets like healthcare and taxation. So we're building momentum across the organization focused on recurring revenue. In the near term, we will remain profitable with another quarter of both positive adjusted EBITDA and cash flow.

The balance sheet is strong, and we continue to use this strength to build shareholder value, having now used over $750,000 to repurchase shares so far this year. And with our positive cash flow, we can fund our growth and share repurchases while maintaining sufficient dry powder to capitalize on favorable acquisition market should an appropriate opportunity arise.

Behind the curtain, we continue to invest in the organization, not only to strengthen our current infrastructure, but also to develop innovative new solutions that will leverage our technology in large and growing markets. I'm extremely encouraged by the conversations I'm having with all of our teams. Everyone is working hard, and we are seeing the results in growing volumes. This is very motivating.

There is a great sense that we're on the verge of a potential inflection point that should follow the momentum that we've been building. We appreciate your support as we continue to build value for our shareholders. And with that, I'd like to turn the call back to the operator and conduct our question-and-answer session.

[Operator Instructions] Our first question comes from Scott Buck of H.C. Wainwright.

Louis, I'm curious, you guys described a pretty -- what sounds like a pretty strong pipeline of future opportunities. Are you seeing any change in sales cycles or anything along those lines that could potentially move some of those opportunities forward or maybe push them further out versus what you've seen historically?

Well, the pipeline is strong. And if Greg wants to add anything to my comments, he's welcome to. But the sales process is very exciting for us, but we actually are focusing more on implementations and trying to get these customers that we've already sold implemented, which represent quite a bit of volume. So that's our focus is getting merchants to implement faster. But sales pipeline for every division is rich. Greg, do you want to add anything?

No. Just to echo that comment.

Okay. That's helpful. And it's a bit of a follow-up. Do you guys have levers in place where you can kind of push the pace of adoption? Or is that really outside of your control?

The implementations are out of our control. If we can figure that out, that would be the secret sauce to accelerating this very fast.

Each business unit is nuanced, in that the implementation of the adoption is slightly different. So there's really no one size fits all, but the Usio ONE initiative is doing a lot better as far as standardizing kind of the input of information within Usio, but then it's all dependent on those customers to integrate at their will.

I see. Okay. That's helpful. And Louis, hopefully, I didn't miss it. I have a couple of calls going on [ at once here. ] But the federal government shutdown during the fourth quarter, has that -- the impact of that leak down into any of the state or local governments that you work with? Or would that potentially have any impact on the business during the fourth quarter?

Well, when SNAP payments got suspended, we received numerous calls from cities and counties looking to bridge those payments on their own. And it was very heartening to hear that some of these new cities that we've never talked before and counties knew about us and reached out to us. Some of those programs, they're going to go forward, but they're not going to go forward on the basis that it could have been because it looks like we're going to be out of the government shutdown. So...

Some were pushed out. I mean a good bit are on hold pending the movement of the federal government and opening the government back up.

Okay. But nice to know that you're the first call they make. Great. And then last thing, in terms of cash levels, you mentioned M&A. Could you just kind of run through what kind of criteria you would be looking for in a potential transaction?

Yes. We'd go through this. I had this question quite a bit. We're very strict on what we acquire and our criteria is threefold. One, it's got to provide some type of synergy. The synergy could come through people, industry or technologies. We need to be able to buy it right. And the third thing is we need to -- whatever we're buying shouldn't have any issues, a problem that we think we can fix because we don't want to take our focus off of growing the company, our organic growth that we have in sight.

Got it. Okay. And then I guess if I could squeeze just one last thing in, more of a housekeeping question. What's remaining on the current repurchase authorization?

Well, Michael, do that?

Yes, sir. This is Michael. We renewed that at the beginning of the year. So there's still another just over $3 million remaining on that current plan.

[Operator Instructions] Our next question comes from Jon Hickman of Ladenburg.

Louis, can you hear me?

Yes, I can hear you.

Okay. I'd like to circle back on this -- your comments on the recurring revenue, particularly in the ACH business. What's changed that it's largely recurring now?

All of our business has been largely recurring. It's just when we compare it to last year, we had quite a few onetime events that we earned revenue.

Such as?

Yes, what was -- we printed a large bankruptcy distribution. We have large card order, plastic, which we usually don't mark up much at all.

Okay. So going forward, you don't think you're going to get like -- I guess you can't ever count out the future, but if you don't get those onetime events, then the rest of the revenues largely coming from the same customers and that should continue. Is that what I'm supposed to get out of that?

No, what you're supposed to get out of it is our comp from last year had onetime events. We may have onetime events in the future. In fact, we've already become public. At the end of this year, we're going to print the voter registration cards, a large portion of them for Texas. While that's a recurring account, it only occurs every 2 years.

So that will be another example that will occur in the fourth quarter of this year. We'll continue to get card orders, but probably not at the scale that we got in Q3 of last year. So it's just a comp issue, but you can count on the revenue that we had this quarter was almost completely recurring. They're from existing customers that will continue to be customers. We'll continue to bring on new customers that have recurring business as well to add to them.

Okay. And then I have a question for Houston. So I think you said credit card processing volumes were up 75% year-over-year. Is that accurate?

I think you want -- it's for Greg.

Yes. I think that's for me, Jon, right?

Okay. Sorry. Yes. So...

The transactions process, yes.

Transactions process. So can you -- I guess it's confusing that transaction volumes were up that much and revenues were up like 5%.

I'll take. Jon, we explained this to you when we met with you in California. The transactions for credit cards when we report the operating metrics include PINless debit. The revenue associated with PINless debit goes into ACH and complementary services because PINless is alternative to ACH.

And at some point, we believe that it will diminish our ACH traffic, just like FedNow and the clearinghouse when they get their act together and allow us to do debits. So the metrics -- operating metrics were up transaction-wise. And also remember on credit cards, transactions don't really mean anything to us. It's the dollars processed. That's how we earn revenue.

This concludes our question-and-answer session as well as today's conference call. You may now disconnect your lines. Thank you for participating, and have a great day.