Usio, Inc. Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2023. The filing is an annual report, not a quarterly filing; selected fourth-quarter results are included below. Usio is a cloud-based fintech payment processor providing ACH, card, prepaid-card, payment-facilitation, real-time payment and electronic billing, printing and mailing services.
Financial Performance and Key Metrics
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Revenue | $82.6 million | $69.4 million | +19% |
| Gross profit | $18.6 million | $14.6 million | +27% |
| Gross margin | 22.5% | 21.0% | +150 bps |
| Operating loss | $1.9 million | $5.2 million | Improved $3.3 million |
| Net loss | $0.5 million | $5.5 million | Improved $5.0 million |
| Adjusted EBITDA | $2.4 million | $(0.4) million | Improved $2.8 million |
| Adjusted EBITDA margin | 2.9% | (0.6)% | +350 bps |
| Cash and cash equivalents | $7.2 million | $5.7 million | +$1.4 million |
| Working capital | $8.0 million | $5.8 million | +$2.2 million |
- Revenue by business line: prepaid card services increased 105% to $18.7 million; Output Solutions increased 11% to $20.5 million; credit card revenue increased 5% to $28.5 million; ACH and complementary services increased 1% to $14.9 million.
- Cost of services increased 17% to $64.0 million, below the rate of revenue growth, supporting gross-margin expansion. SG&A increased 8% to $16.2 million, primarily from cybersecurity, IT infrastructure, customer success, onboarding, integrations and staffing investments.
- Interest income increased to $1.7 million from $15,237 because of higher interest rates and interest-bearing cash balances. The filing cautions that similar interest income may not recur if rates decline.
- Net cash provided by operating activities was $14.9 million, versus $17.0 million of cash used in 2022. Management's non-GAAP adjusted operating cash flow was $2.8 million, versus $0.7 million in 2022, after adjusting for prepaid-card load obligations, customer deposits, merchant reserves and lease-related changes.
- Cash used in investing activities was $0.8 million, primarily for property and equipment. Cash used in financing activities was $0.5 million, including $0.46 million of treasury-stock repurchases.
- Equipment-loan liabilities totaled approximately $0.83 million at year-end, including a new $0.81 million equipment-financing arrangement at 6.75% maturing in April 2029. Operating lease liabilities totaled $2.55 million. The filing does not disclose a revolving credit facility or material off-balance-sheet arrangements.
- Settlement processing assets and obligations were each $44.9 million. Prepaid-card load assets and corresponding obligations were each $31.6 million; these balances are not equivalent to unrestricted corporate liquidity.
Material Changes Versus the Prior Comparable Period
- Total payment volume declined 26% to $5.3 billion and transactions declined 9% to 37.2 million, primarily because Usio exited the cryptocurrency business and experienced attrition in legacy credit-card portfolios while shifting focus toward PayFac and independent software vendor channels.
- Despite lower aggregate payment volume, credit-card dollars processed increased 6% and credit-card transactions increased 9%, both reaching company records. Prepaid-card load volume increased 76% and prepaid-card transaction volume increased 52%.
- Merchant accounts increased 12% to 6,281 at December 31, 2023, from 5,601 at December 31, 2022. No customer represented more than 10% of revenue in either year.
- The fourth quarter generated revenue of $19.4 million, up 4% year over year. Prepaid revenue increased 19%, while Output Solutions revenue decreased 7%. Fourth-quarter adjusted EBITDA declined to $0.3 million from $1.0 million, and adjusted EBITDA margin declined to 1.5% from 5.4%, reflecting higher SG&A and lower margins.
- Fraud losses increased to $573,281 from $299,162, which management attributed to growth in the prepaid-card business and increased fraudulent accounts.
- The company repurchased approximately $0.5 million of common stock during 2023. The buyback authorization may continue through May 15, 2025, subject to earlier termination or exhaustion of funds.
Outlook, Commentary, Risks and Unusual Items
- Management expects to fund operations, capital expenditures, acquisitions and debt service for at least the next 12 months using cash and internally generated funds, but states that additional financing may be required in the future and may not be available on favorable terms.
- Growth priorities include expanding ACH merchants, software-integrator and PayFac relationships, Output Solutions, cross-selling across payment products and real-time payments. No specific revenue, earnings or margin guidance was provided.
- Management cautions that prepaid growth in 2022 and 2023 benefited from unusually large incentive programs associated with pandemic-related assistance; those programs are winding down and may require replacement programs and customers to sustain growth.
- Key operating risks include dependence on resellers, bank sponsors, card networks, processors and the ACH network; merchant chargebacks, fraud and credit losses; cybersecurity and business interruption; extensive regulation; intense competition; technology execution; customer concentration by channel; and the need to retain key personnel.
- Usio disclosed a December 2021 ransomware incident involving a small portion of non-payment-processing systems. The company states that payment and cardholder data were not compromised and that the event had no material business impact. Cybersecurity insurance covered most related direct costs, subject to a deductible.
- Pending litigation includes a trade-secret and competition case against former executives and Triple Pay Play, a lawsuit by Greenwich Business Capital alleging NACHA violations, and a dispute with former IMS owners regarding customer deposits. The filing does not provide a clear estimated maximum exposure for these matters.
- Usio reported an accumulated deficit of $71.3 million and has historically incurred losses. Deferred tax assets were $1.5 million after a $6.1 million valuation allowance; realization depends on future taxable income.
- Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2023. The independent auditor audited the financial statements but was not engaged to audit internal control over financial reporting because Usio is a smaller reporting company.
Important Facts for Investors to Verify
- Reconcile the reported $14.9 million of operating cash flow to the $2.8 million non-GAAP adjusted operating cash flow and assess the sustainability of cash generation excluding prepaid-card and settlement-related working-capital movements.
- Evaluate whether prepaid-card growth can continue as pandemic-era incentive programs wind down and whether fraud losses and processing reserves remain controlled.
- Review fourth-quarter margin compression and determine whether higher SG&A and lower margins are temporary or indicative of a structural change.
- Confirm the status, potential financial exposure and insurance coverage of the disclosed litigation matters, particularly the IMS customer-deposit dispute and Greenwich Business Capital lawsuit.
- Monitor bank-sponsor, processor and card-network agreements, as termination or adverse changes could disrupt payment processing and materially reduce revenue.
- Assess dilution from 6.4 million outstanding stock awards, 5.5 million shares remaining reserved under the equity plan and 2.5 million shares reserved under the ESPP, as well as any future capital raising.
- Verify upcoming lease expirations in San Antonio in 2024 and the scheduled repayment or refinancing of equipment loans.