Usio Inc

NASDAQ:USIO

Earnings Call Transcript

[Operator]

Good afternoon, everyone, and welcome to the Usio Earnings Conference Call for the Third Quarter of Fiscal 2023. [Operator Instructions] Please note, today's event is being recorded.

I would now like to turn the conference over to your host today, Paul Manley. Please go ahead, sir.

[Paul Manley, executive]

Thank you, operator. And thank you, everyone, for joining our call today. Welcome to Usio's Third Quarter Fiscal 2023 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 today are Louis Hoch, our Chairman and CEO; and Tom Jewell, Senior Vice President and Chief Financial Officer; Greg Carter, Executive Vice President of Payment and Acceptance; and Houston Frost, Senior Vice President of card issuing.

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. Such forward-looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ materially from such statements. These risks and uncertainties are described in our earnings press release and in our filings with the SEC. The forward-looking statements made today are as of the date of this call, and we do not undertake any obligation to update these forward-looking statements.

During today's call, we will refer to non-GAAP financial measures such as adjusted EBITDA. Our earnings release includes a reconciliation of adjusted EBITDA to GAAP operating income. Management will provide prepared remarks, then we'll have a question-and-answer session.

So let me start off with some highlights from this afternoon's release. I am pleased to report another quarter of strong growth with revenue up 25%, our 13th consecutive quarter of revenue growth. We also are reiterating our guidance of 18% to 20% revenue growth for the year.

In our release, we announced a number of exciting developments across our entire organization. This includes an investment in output solutions that should increase capacity by 50% and our largest ever quarter of prepaid card load volumes, our strongest ever card pipeline and the expectation that ACH volumes will start to grow again in the fourth quarter. In addition, we continue to be in excellent financial condition with strong cash flow this quarter, in part supported by record interest income, which we expect will add over $1 million to our cash position over the second half of this year. In total, this has enabled us to add nearly $2 million of cash to our balance sheet over the first 9 months of the year. So at a time when many companies are forecasting slowdowns in their business, Usio continues to charge ahead.

Now I will turn the call over to Louis.

[Louis Hoch, executive]

Thank you, Paul, and welcome, everyone. It was another quarter of strong growth. Consequently, I am pleased to reiterate our guidance for revenue to be between 18% and 20% for the year. Results once again reflect our diversified business strategy, diversified in the markets we serve and the payment channels that we offer.

This quarter results were led by a strong performance at prepaid, where revenues were up 197%. As a sign of prepaid growing momentum, the third quarter was the first quarter in the company's history in which the volume loaded on to prepaid cards exceeded $100 million. Quarter-to-quarter, prepaid continued to have solid growth not just in load volumes but in transactions processed and purchase dollars process. While residual revenues from expiring card programs were certainly a contributor to our strong revenue growth, load volumes, transactions and purchase dollars processed were all generated from ongoing programs. Consequently, these record amounts provide a clear indication of the strength of our prepaid business beyond any reliance on expired cards. Houston will discuss the new accounts and the strong growth with the long-term corporate expense and disbursement clients. But let me quickly touch on one of the most -- one of his most significant accomplishments.

As recently announced, we won our first state-administered program. This is totally new, and a very large market opportunity for us. So we believe prepaid is building a solid foundation of reoccurring revenue programs as a solid base on which we can grow evidenced by the increasing load dollars. Loaded dollars on the cards is a leading indicator of future revenues, creating either revenue from spend our revenue from spoilage. Both revenue and margins were up again at Output Solutions this quarter as Sai Green and his team continue to utilize every ounce of available capacity. For that reason, we're investing approximately $1 million in new technology and output solutions that should increase our capacity by 50%.

At the same time, this should also increase the speed of production and reduce costs. This new system will increase our flexibility, including the ability to handle male run data files which is a key requirement for large projects where we were previously less competitive.

Last quarter, we noted that we had hired a seasoned print and mail sales executive, so combining his contacts throughout the industry with expanded capacity will make us a formidable competitor for larger, more lucrative programs. Ultimately, this should lead to what we believe will be both a better top and bottom line. We continue to expand our relationship with L.A. County, handling their check disbursements needs, with fees and fines that were overpaid. We mailed 142,000 letters and 27,000 checks for L.A. County in the third quarter. We also took on additional cities in the quarter, handling their utility bill printing. For the quarter, in total, we sent out a record 900,000 checks.

Developments and output continue to be representative of the transformation and the integration taking place across Usio. Output recently launched with a toll road customer for disbursement bill by plate cold bills. The bills have a QR code that the recipient scans which takes them into a payment portal built and operated by Usio. There is strong interest among government agencies and utilities in these scan-to-pay options. Not only is it easier to set up then creating a more traditional customer portal, it also seems to drive payments early.

We also continue to attract new accounts, which are completely electronic with no print or mail service. Such accounts involve the creation of e-bills that are e-mailed to customers and then directed to a Usio managed payment portal. This is obviously a higher-margin business.

Turning the card, PayFac continues to generate strong growth, 27% for the quarter. As Greg will discuss, it's been a busy quarter of increasing penetration with existing ISVs, implementing new ISVs and building a strong pipeline, including 3 significant new opportunities, which we are aggressively targeting. In the ACH, total revenues were up on the strength of associated services such as PINLess debit and account inquiry. We expect this to be the last quarter in which volumes are below year ago levels. As this is the last year ago quarter that included meaningful Voyager volumes. This, in turn, should help us improve overall segment revenue growth and profitability.

Margins were up in the quarter due to the highly profitable ACH revenue growth as well as due to spoilage revenues from our prepaid segment. Our business will always include some spoilage from expiring cards. In the immediate term, the majority has been generated on the New York City COVID-incentive program, which will be winding down further in upcoming quarters.

In the third quarter, we did see an increase in our selling, general and administrative expenses. Many were onetime in nature. We expect these expenses to trend down in the fourth quarter but probably not to the levels we experienced in the first and second quarter of the year. Having grown revenues 25% over the first 3 quarters of the year, costs are understandably up to support this rapid expansion. Our goal is to keep the rate of overhead expense growth below that of revenues in order to realize the significant operating leverage our business model can deliver. And we expect to see that improve as we move forward.

The net result is an increase in operating income, adjusted EBITDA and EPS from a year ago, although each was down sequentially from the second quarter, which we called out on our last quarter conference call. Cash was a good story as we generated nearly $750,000 of cash over the last 3 months. Some of that was a product of over $500,000 in interest income in the third quarter. We anticipate another significant increase in interest income in the fourth quarter.

In summary, prepaid is positioned for the future with its high low on cards. Card is sitting on some of the potentially largest new ISPs in our history. ACH is rebounding and we are increasing our capacity at output by 50% due to strong demand. Another solid quarter with strong top line growth, internal investments to sustain that growth and improve operating leverage over time. Consequently, as Paul noted, we are reiterating our guidance for the year.

And now I'd like to turn over the call to Houston Frost.

[Houston Frost, executive]

Thank you, Louis, and thank you to everyone participating on our call this afternoon. As Louis noted, prepaid had an exceptional quarter with strong revenue growth in our first-ever quarter with over $100 million in card loads. It is important to remember that card loads are a forward-looking metric, providing a measurement of clients. These loaded funds will generate interchange and transaction fee revenue over the ensuing months as well as inactivity fees and breakage beginning 12 months after the loads occur. As such, our record Q3 card load results are particularly exciting for the impact they could have on 2024 revenue, considering the roll-off in activity and inactivity fees generated from vaccine incentive programs from 2021 and 2022. Perhaps more importantly, the record load volumes demonstrate the card issuing businesses continued growth and strength even in the complete absence of any pandemic-related card programs.

Our client base is increasingly diverse. Today, 6 of our 10 largest clients are expense management or disbursement programs with private enterprises. Equally important, many of these are long-term growing clients we've been serving for years. Among them are fintechs, such as Class Wallet and MoviePass, which we've mentioned on previous calls. While our government clients are drawn to the transaction restrictions and controls, virtual cards and/or consumer choice offering, the fintech market appreciates our ability to integrate our external authorization feature with their technology. Our ability to offer technology that appeals to both government and private sector are essential in attracting new customers as well as retaining existing clients over the long term. As these organizations grow or programs expand, we are growing right alongside them.

We also continue to board new clients. Most recently, we won our first state-administered program. This program actually arose from the recommendation of a very happy smaller government entity Usio customer within the state. We are extremely proud that the card issuing division continues to receive introductions like this as it illustrates the customer satisfaction on which we pride ourselves. This steady stream of referral business also enables us to run a lean sales and marketing organization with the attendant benefits to our profitability. Our success continues to be built on operational execution, the flexibility and capabilities of our proprietary processing platform and our relentless focus on the client relationship. As we look to the future, we will continue to focus on the increasing -- on increasing the diversity of our client base, and the card programs we support and continue to seek out opportunities that generate recurring revenue.

With that, I'd like to turn the call over to Greg Carter.

[Greg Carter, executive]

Thank you, Houston, and good afternoon, everyone. Card revenues were up again with year-over-year growth in our PayFac business, accelerating sequentially to 27% in the third quarter. Both dollars and transactions processed were up from a year ago, with PayFac on target for $0.75 billion of processing volume in what is shaping up to be a record year.

While the third quarter is typically a slower time, this year, we onboarded a record number of new merchants from our existing ISV relationships up substantially compared to any previous quarters with an average of more than 100 new onboards a month compared to 60 recently. I attribute the steady improvement to our business strategy where we keep adding new ISVs and they, in turn, continue to penetrate their account basis. As our base of ISVs grows, this is a natural result of our disciplined processes. Was even more exciting to the number of ISVs that are mandating their users adopt our PayFac solution.

One example is a new fitness exercise practice management ISV we recently implemented. This ISV is rapidly transitioning all of their users from Braintree to Usio. Once adopted by their entire client base, this ISV could be one of our largest. There's been a recent industry development that is providing an additional tailwind, it's becoming much harder to become a registered PayFac. The requirements are much more stringent and many ISVs simply don't have the experience or resources to justify building the necessary infrastructure themselves. Consequently, this is making our PayFac as a service value proposition increasingly attractive to ISVs who want to monetize payments.

Louis alluded to a number of large prospects in our pipeline which we attribute to both our silent marketing efforts, but also in part due to these new complexities and challenges. The third quarter is always a great time for prospecting. It's the boring part of sales involving a lot of spade work but it sets us up to have a strong pipeline for the fourth quarter and on into the new year. We attended several different conferences this quarter, especially in the lending industry. For instance, we attended LIN 360 which is probably the biggest lending conference for the subprime and ultimate lending channels. We are seeing increased activity in the tribal lending space. We've always been in that space, but we're becoming more visible, and that is yielding new agreements directly with the tribes. It's a good market that contributes to ACA, both ways, both in funding and then servicing of the loans.

In the third quarter, we also attended a trial lending conference in California. PINLess debit is also doing very well. It's a less expensive alternative to credit card and is becoming very popular with fintech lenders and loan servicers. Revenue growth in this product line has been outstanding, and we intend to capitalize on the momentum being created by more widespread adoption. So the third quarter can be characterized by strong growth in onboarding new merchants, driven by growth in our existing ISV relationships and the recent implementation of other ISVs that have had an immediate impact. We have a solid pipeline of new ISVs in various stages of implementation, we are doing this spade work now to build our prospect pipeline for the future. I remain very optimistic for the balance of this year and for 2024 in general.

With that, I'd like to conclude my remarks and turn the call over to Tom Jewell, our Senior Vice President and Chief Financial Officer, to discuss our financial results.

[LowellJewell, executive]

Thanks, Greg, and welcome, everyone. Thanks again for joining our call today and for your interest in Usio. Let me quickly provide some highlights around this quarter's results before opening the call to questions.

Revenues for the quarter were up 25% to $20.5 million, driven by growth in all of our segments, especially prepaid. I also note that ACH revenues were up year-over-year in the quarter after being down in the first half of the year. Output Solutions was also up nearly double digits once again, while credit card revenues were up 5% and as our PayFac business continues to grow at a faster rate than the wind down of our legacy traditional payment processing.

Gross profits were $4.1 million and margins were up 170 basis points from the year ago quarter. Gross margin improvement reflects a higher contribution from breakage and spoilage and better margins at Output Solutions. Gross profits and gross margins were down compared to the second quarter, principally due to a sequential decrease in prepaid profits and gross margins as our share of the New York City COVID-incentive breakage and spoiled stepped down. As our share of New York City breakage and spoilage profits are sequentially reduced we expect prepaid profits and margins to contract further in the fourth quarter.

Our long-term strategy remains to manage strong growth in gross profit dollars, although potentially at lower margins. Selling, general and administrative costs were up from a year ago, reflecting increases in marketing and professional fees. Since some of the increase in the quarter was from nonrecurring expenses, we expect fourth quarter SG&A to trend lower. As Louis stated, over the long term, we expect to improve the operating leverage in our model by keeping the rate of overhead growth below that of revenues. We reported an adjusted EBITDA loss of just under $100,000, which was a $400,000 improvement from the year ago quarter, although down from the last 3 quarters. For the quarter, we reported a net loss of $700,000 or $0.04 per share, which was a big improvement over the net loss of $1.8 million or $0.09 per share a year ago, but again, down sequentially.

Non-GAAP adjusted operating cash flows, as defined in our SEC filings, was $2.4 million for the first 9 months of the year. Our cash position at the quarter end was $7.4 million or approximately $1.7 million higher than at the beginning of the year. A contributing factor was the over $500,000 of interest income in the quarter, and we expect another quarter of strong interest income in the fourth quarter.

Transitioning to year-to-date results. For the first 9 months of the year, revenues were up 25%. Gross margin has expanded 290 basis points and SG&A was up just 7%. From a profitability perspective, adjusted EBITDA was $2.1 million compared to a loss of $1.4 million in the first 9 months of last year. Again, this reflects my previous comment about the significant improvement in profitability this year compared to last year. As Louis noted, we expect to meet our revenue guidance for the year, but expect to see a slight slowdown in revenue growth and gross profits in the fourth quarter due to declining breakage and other items.

With that, I will turn the call back to the operator to conduct our question-and-answer session.

[Operator]

[Operator Instructions] And the first question comes from Scott Buck with H.C. Wainright.

[Scott Buck, analyst]

I was hoping to get a little bit more color on the new state card program. I guess what I'm trying to figure out is whether or not there's an opportunity for this program to be renewed 12 months from now or if this is more of a one-and-done type deal?

[Houston Frost, executive]

Well, the program that we're supporting is -- it's got a fixed amount of funds. What I will say is that as of end of Q3, it was less than 1/3 deployed. So it's going to be deployed over time, but it is a fixed amount of funds. That being said, we obviously [indiscernible] continue to have additional opportunities from other state programs like this. So does that help with your question? It's the particular you're talking about is [indiscernible]

[Louis Hoch, executive]

Yes. And they have told us that they're going to put out $95 million on the cards.

[Scott Buck, analyst]

Okay. Yes. No, that's helpful. And I guess, Louis, can you talk a little bit about the flow of funds? I mean I think it probably has a little something to do with the high level of interest income in the quarter, but do they give you all of that money upfront and you load it incrementally over time onto cards? Or how does exactly does that work?

[Louis Hoch, executive]

Yes. Any time we send a credit out at our company. Our customer base has to send us good funds before we initiate that credit. So the cards are no different. To date, they've send us $80 million of the $95 billion, and we're about $35 million which has been loaded under the cards. The rest of it sitting in our bank account.

[Scott Buck, analyst]

Okay. Perfect. That's great. And then I wanted to ask about Output Solutions and the new capacity you're bringing on. When does that become available? And kind of as a follow-up or a second piece of that, have you guys lost business or turned away business due to the capacity constraints you're under currently?

[Louis Hoch, executive]

Yes. So we are investing in a new machine that will increase our capacity by 50%. And Output Solutions has an amazing pipeline of business from internal sales and from cross-selling across our divisions. And we know that there's business out there that we can have. Right now, we're running 2 shifts or 16 hours a day. We could be filling up another shift if we could find people that work at night, but that's kind of impossible. So we believe there's a lot of business for us to capture, and we're able to get a bank loan, a very favorable one to purchase that equipment.

[Operator]

And the next question comes from Jon Hickman with Ladenburg.

[Jon Hickman, analyst]

I have a couple of questions. The new machine, is it smaller than your other one? Is that why it's only 50% and not double?

[Houston Frost, executive]

No, it's the [indiscernible] this bit, Jon. But it's not a new printer. It's a different way to fold and insert in cut paper that will remove some other folding in existing machines. It also takes less labor to operate. So we'll see some savings there. But it just increases the speed of the overall process from the beginning of receiving a data file to the point where it actually gets put into postal service. So it's not a printer. It's a supplemental improvement.

[Jon Hickman, analyst]

Okay. Then can you elaborate on the onetime expenses? How much were onetime expenses in the quarter?

[Louis Hoch, executive]

You have that as well?

[LowellJewell, executive]

About $250,000.

[Operator]

And the next question comes from Michael Diana with Maxim Group.

[Michael Diana, analyst]

Okay. Greg, I think you referred to some of the ISVs not being large enough to be -- I think you or registered pretax if I got the word wrong, you can tell me the right word. What is that all about? I'm not familiar with that.

[Greg Carter, executive]

Sure. Our registered payback is with the card brands themselves. So it's a it's a level of diligence and capabilities that you have to display before you become a registered payback and what we offer is payback as a service. So our ISVs don't have to go through that diligence review or that process to become registered with the card brands themselves.

[Michael Diana, analyst]

I see. Okay. So that's a competitive advantage basically.

[Greg Carter, executive]

Absolutely. There is -- speed to market is -- could be as much as 2 to 2.5 years faster by using Usio rather than trying to embark upon that yourself as the ISV.

[Michael Diana, analyst]

All right. Okay. And you also mentioned fitness ISV. Can you give us any more color on, I mean, where that is and being rolled out are the end customers actually using it.

[Greg Carter, executive]

Absolutely. They have in excess of 300 merchants or facilities online now. They -- the owner of that ISV is a practice management software for that industry and they are going to require everyone to be using the payment component by the end of this year. The good news is when they went live, most of their -- or a large part of their merchants went live with the processing capabilities of Usio. So we'll see some additional uptick this month and then into December, beginning in January, then all existing fitness studios and all net new will be using the payments solution powered by Usio.

[Michael Diana, analyst]

Okay. Great. And then I think you mentioned tribal lending. What -- how do you interface with that? I mean, who exactly are you providing services to the -- so there's really a middle man or something right?

[Greg Carter, executive]

Yes. There's really two components to that. Traditionally, the tribes themselves are sovereign nations or their sovereign entities that use loan servicers as an intermediary for processing or issuing those loans. But most recently, several tribes have taken that servicing capability upon themselves so now we can deal directly with the tribe and not with a third-party entity that is providing services to the tribe. The best, hopefully, that's clear.

[Operator]

[Operator Instructions] And the next question comes from Gary Prestopino with Barrington Research.

[Gary Prestopino, analyst]

A couple of questions. First of all, Greg, you said the PayFac growth was up 27%. Is that processing volume or revenues?

[Greg Carter, executive]

Revenue.

[Gary Prestopino, analyst]

Okay. So I guess -- and I've always asked this question, but your card revenues were only up 4.8% in the quarter. Yet PayFac was generated -- there is a really big delta there. What percentage of the card revenues are generated by PayFac? Because it's got to be that, that legacy portfolio keeps a trading, and that's what keeps this from really showing pretty strong revenue growth in your segment.

[Greg Carter, executive]

No, that's exactly correct. I mean we added an additional $45 million in processing volume through the first 9 months. That new processing volume on the PayFac platform. And the legacy Singular portfolio is trading faster than it has historically. So making up for that, it's kind of -- we've got to sell or we've got to process twice as much just to show that growth curve. But the...

[Gary Prestopino, analyst]

How much of the portfolio singular is left then?

[Greg Carter, executive]

There's a meaningful amount. We have 2 legacy portfolios. One from PDS and Singular that's about -- if you add those two up, it's about 60% of our card business. But the increase that we saw, the $1.1 million increase over the first 9 months is 100% payback.

[Gary Prestopino, analyst]

Okay. So this is still going to be something that is going to continue to impact the growth in card for quite some time?

[Greg Carter, executive]

That's a macro level, that's correct. I mean card in general, we're not selling into those portfolios any longer. We're doing our best to manage the attrition. So obviously, the sales efforts are on new ISVs exclusively.

[Gary Prestopino, analyst]

Have you -- I mean have you given any effort to just thinking about selling those portfolios and then you just have a pure payback comparison there?

[Louis Hoch, executive]

No, we don't want to sell the portfolios. I mean, the majority of those portfolio customers are integrated with us, which makes it a hard portfolio to sell. And that portfolio is still generating quite a bit of revenue for us.

[Gary Prestopino, analyst]

Okay. And then, Tom, I was writing down what you're saying. Did I hear you right that we're going to see a step down in gross margin in Q4 or a decline in gross profit in Q4, I couldn't quite get that because you were talking about that prepaid spoilage coming down.

[LowellJewell, executive]

Is definitely going to depend on what the mix is on product lines, but we will know that we're going to be paying New York the majority of the spoilage in the fourth quarter and first [indiscernible] second quarter of next year. And so we're anticipating the quarter should look very similar to this quarter.

[Gary Prestopino, analyst]

Okay. So similar quarter and a step down in SG&A, right?

[LowellJewell, executive]

Yes, because we don't have as many onetime things as we had this quarter.

[Gary Prestopino, analyst]

Okay. And then with the state program that you signed up, is that a guaranteed income program? Or is that an unemployment program? Or what exactly is that used to can you elaborate this?

[Louis Hoch, executive]

State of California, good disaster relief funded partly from federal funds from the USDA with the State of California administering it. And they've told us that there's $95 million that will go out with cards. And we've only loaded about $35 million today. So that program will continue for -- until the money is all exhausted. And now in the state of California, they'll probably add more money to it, too. So.

[Gary Prestopino, analyst]

So that would deal with things like fires, earthquakes that they have out there. That money would be released at that [indiscernible] or is it ...

[Houston Frost, executive]

No. Well, it's really been from the floods that occured. So it was already a disaster that's already occurred. And people have to for the apply over time.

[Gary Prestopino, analyst]

There's so many disasters out there. Okay. So this dealt with the floods that were last year, right? .

[Houston Frost, executive]

Yes. And we won this business because of our success with L.A. County.

[Operator]

And the next question comes from Steve Widner with Integrity Wealth Advisors.

[Unknown Analyst]

Great work in the quarter and the year so far. Just a quick follow-up on the last gentleman's question about the next quarter. Louis, I think you said that it's going to be similar -- very similar to this one, but the exception that those onetime charges won't be in there. So is that -- am I understanding that correct?

[Louis Hoch, executive]

Yes. And interest income will be up dramatically.

[Unknown Analyst]

Okay. So on an adjusted EBITDA basis, we'll have a profit there because, I mean, this -- we only had $100,000 adjusted EBITDA loss in the quarter. So if the expenses are down and the interest is up that should be a really good look for us. Am I reading that correctly?

[Louis Hoch, executive]

I'm not going to provide guidance there, but I can assume where you're going.

[Unknown Analyst]

It's just simple math, I guess. So I just wanted to make sure I heard it right. The other thing is congratulations on the state, whether it's onetime or not, it's a good new market. You mentioned it was a new market. Can you talk about any other new markets that you're getting in or you're looking at getting in? Any expansion of what you're going to be able to do, especially after the $1 million investment into the capacity?

[Louis Hoch, executive]

Well, with the outputs, new machinery, we're going to be able to have some technology implemented that will allow us to take on larger print jobs that require each item in the envelope to be monitored. We do some of that today, but we can't do it at a high volumes and we're soon to be able to do it at high volumes. We know that there's cross-selling business out there that we haven't got because we haven't tried to close it because we didn't have the capacity. We are hitting the ball out of the park with our chat production. We've hit a new niche with bankruptcy distributions and, last year, we printed like 1 million checks all year for Spectrum, Verizon, AIG and DIRECTV and -- this year, I think we're going to do over 3 million checks. And for us to print 900,000 checks last quarter, I mean give you idea of the niche that we're starting to develop the bankruptcy distributions does have some legs.

[Unknown Analyst]

That is remarkable. Yes. Good work. I guess the other question -- Paul, before I get to Paul. MoviePass, can you give us an update on that business?

[Houston Frost, executive]

I can't give any specific metrics, but we're continuing to see current activity there. We do know that they're kind of in the middle of another financing round, I believe. And so we'll probably see additional marketing efforts and promotional efforts by MoviePass. But yes, I can't really share much more beyond that.

[Unknown Analyst]

Okay. Can you share if you're generally pleased with the way things are progressing with them?

[Louis Hoch, executive]

We're way level. The transaction volumes continue to go up.

[Unknown Analyst]

Thats all I'm asking. Yes, because I know your profit percentage is much better with MoviePass and with some of the alternatives. So I guess the question I would have, Paul, for you is, as you look -- obviously, we're in a terrible small-cap, microcap bear market, you guys are trading for well less than onetime sales. You're generating cash. What are you hearing? What are investors telling you as to what they're looking for, what they're waiting for in order to get more aggressive with your stock, with your company.

[Houston Frost, executive]

Yes. We talk to funds all the time, and you're aware of that. And we get to conferences. We do not do roadshows. We're definitely committed to educating these phones. They all -- almost all of them love the story. The other ones that don't just don't have a capacity to understand technology and they admit it. But investment decisions are the funds and they all have different reasons why they haven't pulled the trigger or they haven't increased their position. We have seen some very positive activity with a few phones that we've been working with. And hopefully, our -- us telling the story on a regular basis, we'll increase that activity.

[LowellJewell, executive]

And I would just add, Steve, that a few of the funds. They just want to see us maybe execute for a couple more quarters and get into 2024. So like Louis said, we're planting a lot of seeds right now. We're meeting it in a lot of calls with bulk. So I'm excited about the pipeline of people that we're meeting with that can pull the trigger.

[Operator]

And we have a follow-up question from Gary Prestopino with Barrington Research.

[Gary Prestopino, analyst]

Yes. I just wanted to ask, you say you're investing in marketing and sales. I mean have -- does PayFac have its own dedicated sales force yet to go to ISVs? Have you expanded that in a big way? And where are you putting the sales muscle into the company?

[Greg Carter, executive]

Yes. We've always had a dedicated ISV or a PayFac sales team, and we still to this day, in addition to a proxy sales force of referral agents and referral partners. So they are quota-bearing, they are very active in the industry, and they're exclusively targeting [indiscernible] around that, generally, marketing supports the entire enterprise, all 3 business units, but the short answer to your question is, by all means, we have a dedicated sales force just for payback.

[Louis Hoch, executive]

It's our largest sales force, Gary, because we realized that PayFac is our main growth engine. And it's interesting enough is that seasoned industry salespeople have come to us because we have a unique product and they know that there's a need for it.

[Gary Prestopino, analyst]

Have you given any thought to extending the sales force into going after markets that maybe the ISVs are not going after? Or is that just not applicable within the industry?

[Greg Carter, executive]

Well, I mean the return on our investment on the headcount, obviously, is maximize when we sign ISVs that can bring hundreds, if not thousands of merchants with one sale. But we don't ignore stand-alone certain enterprise opportunities as well. So we've got two individuals that kind of span not only PayFac, but the acquiring ACH side, and they did go after the markets that you're talking about. So they're ACH, single stand-alone processing merchants as well.

[Louis Hoch, executive]

And Gary, the pipeline for PayFac is bigger than it's ever been. And there's 3 deals in that pipeline than what we would call mega deals. And hopefully, we're able to close some of those.

[Gary Prestopino, analyst]

Well, yes, I mean, if I'm reading this right, what you're saying is it's going to be very difficult for others to become a registered PayFac because of, I guess, regulations or whatever. So there's going to be a very natural lack of supply on the PayFac side for the market. So it should lead to much more frequent growth, much more explosive growth for you guys versus what you have had, although you've had good growth overall. So that's why I'm bringing it up.

[Louis Hoch, executive]

Yes, you're reading it right, Gary. I mean, the hurdle to become a PayFac is very largely financial, but it is also technology and risk management. Because when you're a PayFac, you take 100% risk on all your traffic. And so it's hard for companies to qualify even on just that first metric. And so -- and they've got to have a bank that sponsors them, and those banks are attendant. And us being around 25 years and generating cash is very important.

[Operator]

And this concludes the question-and-answer session as well as the call itself. Thank you so much for attending today's presentation. You may now disconnect your lines.