Usio, Inc. 2020 Q1 Form 10-Q Summary
Business context and reporting period
Usio, Inc. provides electronic payment processing services, including ACH, credit and debit card processing, prepaid card services, and related payment technologies. This unaudited Form 10-Q covers the three months ended March 31, 2020, compared with the three months ended March 31, 2019. The company had 18,629,671 common shares outstanding as of May 10, 2020.
Key financial metrics
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Revenue | $7.77 million | $6.59 million | 18.0% increase |
| Gross profit | $1.93 million | $1.34 million | 44.4% increase |
| Gross margin | 24.8% | 20.3% | Improved approximately 4.5 percentage points |
| Operating loss | $0.87 million | $1.10 million | Loss decreased $0.23 million |
| Net loss | $0.84 million | $1.07 million | Loss decreased $0.24 million |
| Net loss per share | $0.06 | $0.09 | Improved |
| Cash used in operating activities | $1.65 million | $1.20 million | Use increased $0.46 million |
Revenue consisted of credit card services of $4.98 million, ACH and complementary services of $2.24 million, and prepaid card services of $0.55 million. Credit card revenue increased 27.6%, prepaid revenue increased 69.2%, and ACH revenue decreased 5.1%.
Total dollars processed exceeded $877 million, compared with $856 million in the prior-year quarter. Credit card transaction volume increased 21%, credit card dollars processed increased 19%, prepaid card load volume increased 8%, and prepaid card transaction volume increased 13%. ACH transaction volume decreased 4% and returned-check volume decreased 14%.
Cost of services increased 11.3% to $5.84 million. Selling, general and administrative expenses increased 15.0% to $2.80 million, including $0.29 million of stock-based compensation and $0.12 million of one-time expenses related to unsuccessful merger and acquisition activities. Depreciation and amortization declined to $0.39 million from $0.49 million because assets from the Akimbo acquisition were fully depreciated at December 31, 2019.
Cash and cash equivalents were $1.74 million at March 31, 2020, down from $2.14 million at December 31, 2019. Working capital was approximately $1.11 million, compared with $1.34 million at year-end. Current assets and liabilities include matched settlement-processing balances and merchant reserves; merchant reserves were $8.52 million at quarter-end.
Net cash used in investing activities was $0.15 million, primarily for internal-use software and other capital expenditures. Financing activities used $0.03 million for treasury-stock purchases; the prior-year period included $1.79 million of net public-offering proceeds. The filing does not disclose conventional interest-bearing debt outstanding at March 31, 2020. Operating lease liabilities totaled approximately $2.58 million.
Material changes versus the prior comparable period
- Revenue growth was driven by credit card and prepaid portfolios, while ACH revenue declined.
- Gross profit and gross margin improved substantially, but the company remained loss-making.
- Operating cash consumption increased, partly because merchant reserves declined by $1.49 million during the quarter.
- SG&A increased because of investments in prepaid and integrated-payment initiatives and $120,000 of unsuccessful acquisition expenses.
- The company had no public-offering financing in Q1 2020, unlike Q1 2019.
- The accumulated deficit increased to $62.99 million from $62.15 million at December 31, 2019.
Guidance, outlook, risks, contingencies, and unusual items
The filing provides no formal revenue or earnings guidance. Management intends to continue investing in sales, ACH merchants, software integrations, prepaid services, and payment-facilitation capabilities, while seeking operating leverage and eventual profitability. Management states that future profitability depends on revenue growth, expense control, customer acquisition and retention, technology investment, competition, personnel, and successful integration of potential acquisitions.
COVID-19 had limited impact on reported first-quarter results but affected activity late in March and more visibly in April. April ACH transactions declined 7% year over year, returned-check transactions declined 42%, and credit card processing volume in the Singular portfolio declined nearly $10 million, primarily because dental practices were closed. Management also reported gains in remote check capture, legacy credit card, and prepaid portfolios. The duration and ultimate financial impact of the pandemic were described as uncertain.
Subsequent to quarter-end, the company received $813,500 under the Paycheck Protection Program at 1% interest, maturing April 15, 2022, with principal and interest deferred for six months. The company had not determined how much, if any, would be forgiven. On April 1, 2020, it granted 1,444,000 shares subject to a 10-year vesting period and 103,000 restricted stock units subject to a three-year vesting period, creating potential future dilution and compensation expense.
The company maintains reserves for merchant processing losses of $539,153 and doubtful accounts of $160,983. Management reported no significant processing losses to date, but actual losses could exceed estimates. Ordinary-course legal matters were considered not material, and no material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Whether COVID-19-related declines in April continued or materially affected subsequent quarters.
- The company’s ability to reduce recurring operating losses and operating cash burn.
- The amount of the $813,500 PPP loan that qualifies for forgiveness and the remaining repayment obligation.
- The effect of the April equity and restricted-stock grants on future dilution and stock-based compensation.
- The adequacy of merchant-loss and doubtful-account reserves as transaction volumes and customer conditions change.
- Liquidity available after segregated settlement assets, prepaid card assets, and merchant reserves are excluded from unrestricted cash resources.