Usio, Inc. 2021 First-Quarter Form 10-Q Summary
Business context and reporting period
Usio provides ACH, credit and debit card, prepaid card, payment facilitation, and related electronic payment services. Following its December 2020 acquisition of Information Management Solutions, LLC (IMS), the company also provides electronic bill presentment, document composition, printing, and mailing services. The filing covers the three months ended March 31, 2021, compared with the three months ended March 31, 2020. The financial statements are unaudited.
Financial performance and position
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Revenue | $13.46 million | $7.77 million | +73.2% |
| Cost of services | $10.55 million | $5.84 million | +81.0% |
| Gross profit | $2.91 million | $1.93 million | +50.8% |
| Gross margin | 21.6% | 24.8% | Down approximately 3.2 percentage points |
| Operating loss | $(0.70) million | $(0.87) million | Improved by $0.17 million |
| Net loss | $(0.72) million | $(0.84) million | Improved by $0.11 million |
| Basic and diluted loss per share | $(0.04) | $(0.06) | Improved |
| Cash flow from operating activities | $10.48 million | $(1.65) million | Improved by $12.13 million |
Revenue included ACH and complementary services of $3.08 million, credit card services of $5.72 million, prepaid card services of $0.89 million, and Output Solutions revenue of $3.77 million. Excluding Output Solutions, management reported organic revenue growth of 24.6%.
Total dollars processed increased to $1.870 billion from $877 million. Credit card transaction volume increased 108%, credit card dollars processed increased 60%, ACH transaction volume increased 37%, prepaid card load volume increased 105%, and prepaid card transaction volume increased 89%.
Operating expenses were $3.61 million versus $2.80 million. Stock-based compensation increased to $0.33 million, other SG&A increased to $2.66 million, and depreciation and amortization increased to $0.62 million, principally because of investments in growth initiatives and amortization of the IMS customer-list asset.
At March 31, 2021, cash and cash equivalents were $4.28 million, compared with $5.01 million at December 31, 2020. Total assets were $86.90 million and total liabilities were $70.63 million. Working capital was reported as $5.6 million. The balance sheet includes $18.56 million of prepaid card load assets and $36.79 million of settlement processing assets, each substantially matched by related obligations.
The company had an equipment loan with $165,996 of proceeds, a 36-month term, a 3.95% interest rate, and monthly payments of $4,902. Operating lease liabilities totaled $2.92 million. The filing does not identify material traditional bank debt beyond the equipment loan and lease liabilities.
Material changes versus the prior comparable period
- Revenue increased 73.2%, driven by the IMS acquisition and double-digit growth in the legacy ACH, credit card, and prepaid businesses.
- Output Solutions contributed $3.77 million of first-quarter revenue; the prior-year period had no comparable Output Solutions revenue.
- Gross profit increased, but gross margin declined because cost of services grew faster than revenue.
- Operating and net losses narrowed despite higher SG&A, stock-based compensation, and amortization.
- Operating cash flow improved substantially, primarily because prepaid card load obligations increased by $10.95 million. Management stated that, excluding prepaid card assets and other settlement-related balances and lease items, cash used in operations was approximately $0.6 million versus $0.2 million in the prior-year period.
- Stockholders’ equity declined to $16.27 million from $16.70 million, principally reflecting the quarterly net loss and treasury-stock purchases.
Outlook, commentary, risks, contingencies, and unusual items
Management provided no formal financial guidance in the filing. Management expects continued investment in ACH merchants, software integrators, prepaid products, payment facilitation, technology, and customer acquisition. It also stated that future profitability depends on revenue growth, expense management, customer retention and acquisition, technology investment, competitive execution, and successful integration of acquisitions.
COVID-19 continued to create economic uncertainty. Consumer lending activity remained below pre-pandemic levels, while healthcare-related merchants recovered to levels above pre-COVID conditions. Prepaid revenue benefited from government assistance programs administered through city foundations and other organizations. The filing states that the potential incremental financial impact of COVID-19 remains unknown.
The company initiated litigation and arbitration against former Chief Revenue Officer Vaden Landers concerning alleged violations of non-compete and other employment-agreement provisions. Mr. Landers asserted counterclaims, including that the non-compete provisions are unenforceable and that he is entitled to deferred compensation. The proceedings were in their initial stages, and the company stated that it denies the allegations and does not believe the counterclaims have merit.
On April 18, 2021, after the quarter ended, the CEO’s annual base salary was increased from $350,000 to $566,000, while a $216,000 annual bonus entitlement was cancelled. The CFO’s employment term was extended from one year to two years with renewal provisions, and an additional year of base salary was approved upon a change of control.
Key ongoing exposures include payment-processing and merchant-loss risk, customer and merchant reserve requirements, prepaid-program settlement balances, dependence on third-party networks and sponsoring banks, potential bad-debt and processing-loss reserves, continued operating losses, acquisition integration, and COVID-19-related uncertainty. The company reported no material changes to previously disclosed risk factors, no material off-balance-sheet arrangements, and no impairment losses during the quarter.
Important facts investors should verify
- Whether the rapid growth in prepaid and Output Solutions revenue is recurring and what portion is attributable to government assistance programs or the IMS acquisition.
- Whether gross-margin pressure from cost of services persists as transaction volumes scale.
- The sustainability of positive operating cash flow after excluding changes in prepaid card load assets, settlement balances, customer deposits, and merchant reserves.
- Available unrestricted cash and liquidity after considering settlement obligations, prepaid card obligations, merchant reserves, lease payments, and equipment-loan payments.
- Progress toward profitability and the company’s ability to fund ongoing technology, sales, and growth investments without additional equity financing.
- The outcome and potential financial impact of the Landers litigation and arbitration.
- The effect of the IMS integration, customer-list amortization, and related operating costs on future earnings.
- The implications of executive compensation changes and the company’s continued share repurchases and equity-based compensation.