Usio, Inc. Common Stock 2026 Q2 Earnings Call

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 Litigation Reform 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 three of our product lines, credit card, ACH, and Output Solutions, revenue was up over 20%, illustrating continuing 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 the 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, non-recurring, extraordinary, or one-time items. This marks our second consecutive quarter of positive GAAP net income, an important milestone in 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 six months ended June 30, 2026, including $235,000 in the second quarter. We also continued 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 three-quarters 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%. We have the flywheel of growth spinning nicely. For instance, our large bodega-oriented healthcare account has been steadily ramping. In fact, based on the industry buzz created by this implementation, we now have another very similar opportunity. Heading 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 omni-channel sales wins, something we have been emphasizing with our sales organization. Whether they be entities that need one-time 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 has ever been as a part of the implementation of UCO ONE, and we only expect the system to improve overall sales performance. In general, we are 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%. 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 is 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 return 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 transactions 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 zero 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 approved quarter despite continued revenue headwinds, demonstrating the strength of the business model, disciplined expense management, and 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.