Operator: Hello and welcome to the UCO First Quarter Fiscal 2026 Only Conference Call. All participants will be in a listen-only mode. 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.
Paul Manley: Thank you, Operator, and thank you for joining our call today. Welcome to UCO's First Quarter Fiscal 2026 Conference Call. The earnings relief, which we issued today after the market closed, is available on our website at uco.com under the Investor Relations tab. On this call with me today are Louis Koch, 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 Uppner, 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 FCC. 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 UCL 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 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 implementation 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 a stellar run with revenue up 25%, while TARD 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 issuance 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 processes in transaction volume, with total payment dollars processed of 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 had 100% gross margins. As always, revenue mix was also a factor. Our expectation is for margins 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 31st, 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 31st, 2026, with 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's 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, transaction, and dollar volume process. 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 for boarding, and ISDs are adding new merchants. With payback 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 Payback. And as Payback has been achieving rapid growth, CART is now showing similar growth rates, although these programs are typically enterprise-level accounts. We now expect overall CART results to more closely track those of Payback, 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. Recently, we've had success with several meaningful new implementations, both payback and enterprise. In particular, we had our first full quarter of processing volume from two newly recently implemented enterprise accounts, a multi-location building supply organization, and an online specialty sporting goods retailer. This is all reoccurring 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 line 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're 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 UCO1 cross-selling marketing strategy. An interesting UCL1 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 UCL 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 UCO1. It's not consequential that we announced the UCO1 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 gap earnings as well as positive operating cash flow and adjusted EBITDA. We're 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 payback. We should see this trend lead to better sustainable growth rates in CARD as a whole. In ACH, we have record transaction volumes and dollars processed and return check transactions processed. In addition, pennless 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 something 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 PIMLIS, yet PIMLIS still is experiencing record performance. Compared to pinless, RTP services generate less revenue per transaction, but has more lucrative margin profiles. Prepaid had a busy quarter. They implemented 27 new accounts that are expected to scale, and prepaid also processed over $80 million in card notes 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 have superior technology and also to add vendor redundancy to their existing card issuing programs. An existing client continues to be on track to launch two state-sponsored school choice voucher programs that will utilize both UCO 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 six new cities, two county governments, and four other new customer accounts. All but two 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 four times 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 UCO1. 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 the growth in wallet share gains. We have noted UCO's 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 post-credit. Implementation is rapidly 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 UCO-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 post-credit account. The longer-term goal is to roll out to all of our existing clients. We're working on a post-credit demonstration webinar for financial professionals. It should be announced soon. In summary, one of the best starts to a new year of recent memory, a record start, We've 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 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 UCO. Operator, you can now open the call to questions.
Operator: Thank you, sir. We will now begin the question and answer session. To ask a question, you may press star, then one on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. As a reminder, please restrict yourself to one question and one follow-up. At this time, we will pause momentarily to assemble our roster. First question comes from Barry Sine from Litchfield. Please go ahead.
Paul Manley: Hey, good afternoon, gentlemen. Wow, what a change. Great quarter, great results, great guidance. And you gave us that nice regaletto opera music for the whole 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 percent, you expect to be profitable and even dot positive, cash SG&A for the rest of the year roughly flattish. And 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 are all correct? Yes, sir. So the sales funnel, I don't know if you quantified or if you used, you know, a CRM system. Can you give us a bigger picture or a numeric picture what the sales funnel is looking like? And from the script, it sounds like you have a pretty good balance among products. Are there any one or two products that are leading in that sales funnel before you start the cross-sale process? No, Barry, as I've said along the 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 UCO, and that's been kind of the dynamic of UCO1. But with respect to quantifying the pipeline, it You know, there's total processing volume. There's billions of dollars, but, you know, 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 on board 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 TAPAC 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, you know, less reliant on boarding of merchants and more reliant on just flash credit or full implementation, that's what we've experienced late 2025 and then obviously in the first quarter of 2025. And then the 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 new customers. How many of your customers are still, you know, only taking a single product from you, so implying opportunity for cross-sale, and roughly what percent? you know, have the quad effect of all four product lines today where you're in good shape there? Well, obviously, any one customer consuming all UCO 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 focus sales campaigns. For example, we had the entire sales force make some outbound calls to tax assessor 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 your question. No, that's great. My last question is around the outlook for margins. So, I want to ask you from two 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 flat-ish cash STNA 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 10 list traffic and put it on the real-time payments. And real-time payments has a higher margin than pinnace debit. Pinnace debit has higher revenue, but the margins will increase as we move traffic from pinnace 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. It was a lot of growth this quarter. Sometimes we bundle electronic with print and mail. And so, you know, it goes together in a bundled price. But, you know, it all comes down to the mix of our products. This quarter we also got affected by interest rates, that interest income that was, you know, last year booked as revenue into certain business segments, and those volumes just decreased, and we are in less interest that we could book as revenue. Obviously, interest income is 100% margin, so those factors cause it to pull down a little bit. We expect our balances to be higher, which would earn us more accumulative 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, you know, we should be able to get back to 23 to 25% in the short term. Okay, that's a great answer. Thank you, Louis, and those are my questions. Thank you, gentlemen. Thank you, Barry.
Operator: Thank you. Our next question comes from John Hickman with Ladinville. Please go ahead.
Paul Manley: Hey, Louis, my question is just the answer to the question. Thank you. That's... John?
Operator: John, you may please proceed with the question. Mark?
Paul Manley: Lewis? John? John. I'm sorry. Okay. Could you talk a little bit about the... Talk a little bit about this comment that paid's going to start again. Can you ask me a question again? I'm sorry. Have you ever done the comment about prepaid's growth year over year? It gives you confidence. Where's that coming from? One of them is the school voucher program that we discussed that's going to distribute, you know, mostly on cards. We've been told that as much as a billion dollars is going to be distributed through us for two 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. So those volumes are substantial. So that's part of it. And then we have another two card deals that, Jerry, you want to talk about? Yeah, 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, but we'll roll out no later than June. So, besides that, we've got several other deals that we're implementing and of material size, and then we implemented 27 new accounts in Q1 that will contribute to the growth. Okay. And then just one more question. The comment about the payback is generating 78% of credit revenues or card revenues. So the drag from the legacy stuff is pretty much behind you now? Yeah, we think so. I mean, the attrition primarily comes from our legacy singular portfolio. Yeah. So, yeah, I think that the worst of those days are behind us, yes. And so going forward, So going forward, the growth in card is going to match, or the growth in paybacks is going to match the growth in cards. Is that what you said? I mean... No, no. The growth in paybacks is going to be higher than in the attrition. Right. Okay. Okay, and then... So I... Didn't you also say that next quarter ACH is, there might be a potential for that to be even better in Q1? What we said was April was our best month for ACH transactions originated, which was very exciting to us coming off, you know, our third quarter in a row of setting records for ACH. So we're hopeful. So that trend will continue from this current quarter. And is ACH still the highest gross margin product? Yes. Okay. Thanks. That's it for me. And nice quarter. It's really good to see the change in revenue growth. Thank you. Thank you.
Operator: Thank you. Our next question comes from Mike in general with Maxine, please, Greg.
Mike Ingram: Okay, thank you. The card revenue growth is 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.
Paul Manley: 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, healthcare, and education-type ISPs. So, it really is a gamut of various industry verticals that are contributing to this growth.
Mike Ingram: Which ones seem to be boarding most quickly now?
Paul Manley: Typically, the member-associated, the legal and healthcare, those two industry verticals are fast-growing.
Mike Ingram: Okay, great. Okay, thank you very much.
Operator: Thank you. Thank you. 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
