Usio, Inc. Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2022; filed March 8, 2023. Usio provides ACH, credit, debit, prepaid-card, payment-facilitation, electronic bill-presentment, printing and mailing services. The company had 5,601 merchant customers, up 11% from 5,039 at year-end 2021, and 117 full-time employees.
Financial Performance and Position
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Revenue | $69.4 million | $61.9 million | +12% |
| Gross profit | $14.6 million | $15.6 million | -7% |
| Gross margin | 21.0% | 25.2% | Down 4.2 percentage points |
| Operating loss | $5.2 million | $0.2 million | Material deterioration |
| Net loss | $5.5 million | $0.3 million | Material deterioration |
| Adjusted EBITDA | $(0.4) million | $4.0 million | Declined by $4.4 million |
| Adjusted EBITDA margin | (0.6)% | 6.4% | Down 7.0 percentage points |
| Cash and equivalents | $5.7 million | $7.3 million | Down $1.5 million |
Revenue mix: Credit card revenue increased 8% to $27.1 million, prepaid card services increased 39% to $9.1 million, and Output Solutions increased 24% to $18.4 million. ACH and complementary-service revenue decreased 4% to $14.8 million.
Transaction activity: Total payment volume declined 24% to $7.2 billion, primarily because of the company’s exit from cryptocurrency-related processing. Total transactions increased 16% to a record 40.8 million. Credit-card dollars processed increased 10%, credit-card transactions increased 44%, prepaid load volume increased 14%, and prepaid transaction volume increased 39%.
Costs and margins: Cost of services rose 18% to $54.8 million, outpacing revenue growth because of increased transaction costs and a less favorable mix. Other SG&A increased 29% to $15.0 million, while stock-based compensation increased to $2.1 million from $1.5 million.
Cash flow: GAAP cash used in operating activities was $17.0 million, compared with $29.8 million provided in 2021. The filing attributes much of the year-over-year change to fluctuations in prepaid-card load obligations and merchant reserves. Management’s non-GAAP adjusted operating cash flow was $0.7 million, down from $2.6 million.
Liquidity and debt: Working capital was $5.8 million at year-end, compared with $8.8 million in 2021. The company reported approximately $71,000 outstanding on an equipment loan, plus $3.0 million of operating lease liabilities. Management believes cash, cash equivalents and internally generated funds are sufficient for at least the next 12 months, but states that additional financing may be required in the future.
Balance-sheet structure: Settlement processing assets and obligations were each $49.7 million, and prepaid-card load assets and obligations were each $20.2 million. These matched balances are primarily intermediary or customer-related funds rather than unrestricted corporate liquidity. Stockholders’ equity declined to $13.9 million from $18.7 million, and accumulated deficit increased to $70.9 million.
Material Changes Versus 2021
- Revenue grew 12%, but gross profit declined 7% as higher-growth businesses generally carried lower margins than ACH processing.
- The bankruptcy of Voyager Digital, the company’s largest cryptocurrency customer, led Usio to exit the cryptocurrency market and reduced 2022 ACH and complementary-service revenue by approximately $0.8 million.
- Net loss widened to $5.5 million from $0.3 million, driven principally by lower gross profit and higher SG&A.
- Adjusted EBITDA declined from $4.0 million to a loss of $0.4 million.
- Cash used in operations shifted from $29.8 million provided in 2021 to $17.0 million used in 2022, while adjusted operating cash flow remained positive but decreased to $0.7 million.
- The company repurchased approximately $1.3 million of common stock in 2022 and had $2.7 million remaining under its repurchase authorization at year-end.
Guidance, Outlook, Risks and Unusual Items
The filing provides no formal revenue, earnings or margin guidance. Management expects to focus on growing ACH merchants, software-integrator relationships, prepaid-card programs, Output Solutions and cross-selling across its customer base while controlling operating expenses and leveraging existing infrastructure.
- Key business risks: loss of resellers or bank sponsors, merchant and cardholder fraud, chargebacks, cybersecurity incidents, payment-network rule changes, extensive regulation, competition, consumer-spending weakness and the need for future financing.
- Cryptocurrency exposure: the Voyager bankruptcy and broader cryptocurrency distress materially reduced ACH-related activity; future re-entry into the sector remains uncertain and would carry legal, regulatory and technology risks.
- Cyber event: a December 2021 ransomware incident affected a limited portion of non-payment-processing systems. The company remained operational, states that no payment or cardholder data was compromised, and reports that related losses were largely covered by insurance other than a deductible.
- Fraud losses: prepaid-card fraud losses increased to $299,162 from $136,608, attributed to rapid prepaid growth and an increase in fraudulent accounts.
- Legal contingency: KDHM, LLC alleges that $317,000 of customer deposits were improperly transferred in connection with the IMS acquisition. Usio has filed counterclaims and considers its risk of loss remote.
- Supply chain: paper availability remains a risk to Output Solutions’ project completion, margins and growth.
- Equity dilution and compensation: approximately 4.98 million stock awards were outstanding at year-end, with $5.7 million of unrecognized compensation cost. The company granted additional restricted stock and RSUs in February 2023.
- Controls and audit: management concluded that disclosure controls and internal control over financial reporting were effective. The independent auditor issued an unqualified opinion and identified customer-list intangible valuation and deferred-tax-asset valuation as critical audit matters.
Investor Verification Checklist
- Verify whether adjusted operating cash flow improves sufficiently to support operations, capital expenditures and potential acquisitions without new financing.
- Assess the sustainability and margins of prepaid-card, credit-card and Output Solutions growth after the loss of high-margin cryptocurrency-related ACH revenue.
- Review unrestricted cash separately from settlement, prepaid-load and merchant-reserve balances.
- Monitor fraud losses, chargebacks, processing-loss reserves and merchant credit exposure.
- Evaluate the effect of stock repurchases, equity awards and potential future capital raises on dilution and liquidity.
- Review the KDHM litigation, executive separation obligations and approximately $3.0 million of lease liabilities.
- Track cybersecurity remediation, insurance coverage and compliance with payment-network, prepaid-card, privacy and anti-money-laundering requirements.