Usio Announces Third Quarter 2022 Financial Results

Ninth Consecutive Quarter of Revenue Growth

Company's Card Segment - including PayFac - achieves all-time quarterly record for dollars and transactions processed, continuing strong growth trajectory

Activity at Output Solutions up 35% from year ago quarter

SAN ANTONIO--(BUSINESS WIRE)--Usio, Inc: (Nasdaq:USIO), a leading cloud-based FinTech integrated payment solutions provider, today announced financial results for the third quarter, which ended September 30, 2022.

Louis Hoch, President and Chief Executive Officer of Usio, said, “I am pleased to report our ninth consecutive quarter of revenue growth on the strength of record quarterly processing performance in our Card segment, where PayFac continues to generate outstanding growth, and record quarterly revenues in Output Solutions resulting from ongoing success cross-selling the installed Usio customer base. We also experienced rapid growth in our high-margin ACH returned check transactions processed services, offsetting lower overall ACH volumes compared to a year ago attributable to last year's strong cryptocurrency market, which we have now almost entirely wound down. In our prepaid business, many of our larger pandemic relief and similar programs are entering their breakage and spoilage phase, where there is an estimated $18 million of potential future revenue sitting on cards which we expect to generate significant revenue and margin in the fourth quarter and over the next two years. These programs are now being augmented with new recurring revenue prepaid programs in both our traditional markets as well as in new markets, including healthcare, guaranteed income and commercial, such as MoviePass, where our unique technology and capabilities have proven a winning formula.

“I am also pleased to note that, on a sequential basis compared to the second quarter, our temporary cash burn was reduced in the third quarter. With the substantial cash expected to be collected from the breakage and spoilage in our prepaid business, as well as what we expect to be significant sequential revenue growth, we anticipate generating strong positive cash flow in the fourth quarter and in 2023. I am very excited to see the strength of our business model allowing for us to recover so quickly from the loss of our largest customer due to its bankruptcy in July of 2022. Our selling efforts, combined with our existing diverse client base, has both allowed us to recover from the lost revenue and has also created strong tailwinds for Q4 and into 2023.

"One of the many advantages of our diversified channel strategy is our ability to grow revenues despite headwinds in any individual segment. Our sales pipeline is robust, most notably in our PayFac business, but also with exciting new prepaid programs that have yet to materially contribute but are now live, including the aforementioned MoviePass, which signed up over 700,000 customers upon its announcement of a launch, as well as an integrated program with a county on the West Coast that has the potential to be one of the largest programs in the Company’s history for both payment processing and for printing and mailing of notices. Year to date, revenues are up in each of our business lines. Consequently, together with our confidence in the resumption of processing volumes growth, we are maintaining our outlook of 12% - 18% revenue growth for the year, conditioned on favorable economic conditions."

Quarterly Processing and Transaction Volumes

Total payment transactions processed in the third quarter of 2022 were 10.3 million, an increase of 17% over the same quarter of last year. Total payment dollars processed through all payment channels in the third quarter of 2022 were $1.45 billion, down compared to last year’s third quarter, mainly attributable to our exit from the crypto currency market.

In our Card segment, dollars processed were up 7% and transactions processed were up 41% from a year ago; both metrics are a new all-time high for the company. Prepaid Card Load Volume was down 41%, transactions processed were up 5% and purchase dollars processed were down 26% from the same quarter a year ago, as government assistance programs for the COVID-19 pandemic have begun to wind down from their record high's a year ago. ACH electronic check transaction volume was up 4%, electronic check dollars processed were down 36% and return check transactions processed were up dramatically by 72% compared to a year ago. Increases in return check transactions is due to the continued recovery from our consumer lending customer base, while dollars processed decreased due to the loss of high ticket transactions in the cryptocurrency space. Transactions/pieces processed at Output Solutions were up 35% from the same period in 2021.

Share Repurchase Program

During the third quarter, the company repurchased approximately 140,769 shares at a cost of approximately $311,667, with an average per share cost of $2.21. In the nine months ended September 30, 2022, the company has purchased approximately 327,438 shares at a cost of approximately $768,539, with an average per share cost of $2.35. Since the initiation of the program on May 13, 2022, the company has purchased approximately 463,016 shares at a cost of approximately $1,001,149, with an average per share cost of $2.16.

Third Quarter 2022 Revenue Detail

Revenues for the quarter ended September 30, 2022 increased 4% to $16.4 million, reflecting growth in the Credit Card, Prepaid and Usio Output Solutions lines of business.

		Three Months Ended September 30, 2022
		2022				2021				$ Change				% Change
ACH and complementary service revenue		$	3,242,794			$	3,733,453			$	(490,659	)			(13	)%
Credit card revenue			6,842,065				6,509,344				332,721				5	%
Prepaid card services revenue			1,576,871				2,004,657				(427,786	)			(21	)%
Output solutions revenue			4,734,030				3,573,616				1,160,414				32	%
Total Revenue		$	16,395,760			$	15,821,070			$	574,690				4	%

		Nine Months Ended September 30, 2021
		2022				2021				$ Change				% Change
ACH and complementary service revenue		$	10,985,722			$	10,813,806			$	171,916				2	%
Credit card revenue			20,495,984			$	18,791,129				1,704,855				9	%
Prepaid card services revenue			5,733,428			$	3,968,764				1,764,664				44	%
Output solutions revenue			13,507,655				10,942,062				2,565,593				23	%
Total Revenue		$	50,722,789			$	44,515,761			$	6,207,028				14	%

Gross profits for the quarter were $3.1 million while gross margins were 19.1%. Margins reflect revenue mix in the quarter, primarily a decrease in our highest margin, ACH business, and an increase in the revenue from lower margin business lines.

Other selling, general and administrative expenses were $3.7 million for the quarter ended September 30, 2022, up 29% compared to $2.8 million in the prior year period. The increase reflects continued investments in our ACH, PayFac, Prepaid and Output Solutions business lines, a substantial portion of which represents an investment in strengthening our infrastructure to not only support our current growth, but specifically to assure we can provide the service levels in customer support for anticipated new cardholders and other clients.

We reported an operating loss of $1.7 million for the quarter and Adjusted EBITDA¹ loss of $0.5 million in the quarter. We reported a net loss of $1.8 million, or ($0.09) per share, for the quarter ended September 30, 2021 compared to a net income of $0.1 million, or $0.01 per share, for the same period in the prior year. Contributions to this loss include increased revenue contribution from lower margin lines of business and continued investments to support our current growth, customer support service levels, security and IT infrastructure, as well as staffing and employee retention.

Adjusted Operating Cash Flows (excluding merchant reserve funds, prepaid card load assets, customer deposits and net operating lease assets and obligations) used was $1.1 million for the nine months ended September 30, 2022. Cash flows used by operating activities was $22.8 million for the nine months ended September 30, 2022, compared to cash flows provided by operating activities of $8.7 million in the same period a year ago, primarily due to timing differences between periods.

We continue to be in solid financial condition with $4.6 million in cash and cash equivalents on September 30, 2022.

____________________________________
¹ Please see reconciliation of GAAP to Non-GAAP Financial Measures

Conference Call and Webcast

Usio, Inc.'s management will host a conference call on Wednesday, November 9, 2022 at 5:00 pm Eastern time to review financial results and provide a business update. To listen to the conference call, interested parties within the U.S. should call +1-844-883-3890. International callers should call +1-412-317-9246. All callers should ask for the Usio conference call. The conference call will also be available through a live webcast, which can be accessed via the company’s website at www.usio.com/investors.

A replay of the call will be available approximately one hour after the end of the call through November 23, 2022. The replay can be accessed via the Company’s website or by dialing +1-877-344-7529 (U.S.) or +1-412-317-0088 (international). The replay conference playback code is 8132750.

About Usio, Inc.

Usio, Inc. (Nasdaq: USIO), a leading, cloud-based, integrated FinTech electronic payment solutions provider, offers a wide range of payment solutions to merchants, billers, banks, service bureaus, crypto exchanges, and card issuers. The Company operates credit, debit/prepaid, and ACH payment processing platforms to deliver convenient, world-class payment solutions and services to their clients. The company, through its Usio Output Solutions division, offers services relating to electronic bill presentment, document composition, document decomposition and printing and mailing services. The strength of the Company lies in its ability to provide tailored solutions for card issuance, payment acceptance, and bill payments as well as its unique technology in the prepaid sector. Usio is headquartered in San Antonio, Texas, and has an additional office in Austin, Texas. Websites: www.usio.com, www.payfacinabox.com, www.akimbocard.com and www.usiooutput.com. Find us on Facebook® and Twitter.

About Non-GAAP Financial Measures

This press release includes non-GAAP financial measures, EBITDA and adjusted EBITDA, as defined in Regulation G of the Securities and Exchange Act of 1934, as amended. The Company reports its financial results in compliance with GAAP, but believes that also discussing non-GAAP financial measures provides investors with financial measures it uses in the management of its business. The Company defines EBITDA as operating income (loss), before interest, taxes, depreciation and amortization of intangibles. The Company defines adjusted EBITDA as EBITDA, as defined above, plus non-cash stock option costs and certain non-recurring items, such as costs related to acquisitions. These measures may not be comparable to similarly titled measures reported by other companies. Management uses EBITDA and adjusted EBITDA as indicators of the Company's operating performance and ability to fund acquisitions, capital expenditures and other investments and, in the absence of refinancing options, to repay debt obligations.

Management believes EBITDA and adjusted EBITDA are helpful to investors in evaluating the Company's operating performance because non-cash costs and other items that management believes are not indicative of its results of operations are excluded. EBITDA and adjusted EBITDA are supplemental non-GAAP measures, which have limitations as an analytical tool. Non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. Non-GAAP financial measures do not reflect a comprehensive system of accounting, may differ from GAAP measures with the same names, and may differ from non-GAAP financial measures with the same or similar names that are used by other companies. For a description of our use of EBITDA and adjusted EBITDA, and a reconciliation of EBITDA and adjusted EBITDA to operating income (loss), see the section of this press release titled "Non-GAAP Reconciliation."

FORWARD-LOOKING STATEMENTS DISCLAIMER

Except for the historical information contained herein, the matters discussed in this release include forward-looking statements which are covered by safe harbors. Those statements include, but may not be limited to, all statements regarding management's intent, belief and expectations, such as statements concerning our future and our operating and growth strategy. These forward-looking statements are identified by the use of words such as "believe," "intend," "look forward," "anticipate," "continue,” "potential," and "expect" among others. Forward-looking statements in this press release are subject to certain risks and uncertainties inherent in the Company's business that could cause actual results to vary, including such risks related to an economic downturn as a result of the COVID-19 pandemic, or overall economic challenges including performance of the cryptocurrency industry, supply chain disruptions, risks related to retaining and hiring qualified employees, the realization of opportunities from the IMS acquisition, the management of the Company's growth, the loss of key resellers, the relationships with the Automated Clearinghouse network, bank sponsors, third-party card processing providers and merchants, the security of our software, hardware and information, the volatility of the stock price, the need to obtain additional financing, risks associated with new legislation, and compliance with complex federal, state and local laws and regulations, and other risks detailed from time to time in the Company's filings with the Securities and Exchange Commission including its annual report on Form 10-K for the fiscal year ended December 31, 2021. One or more of these factors have affected, and in the future, could affect the Company’s businesses and financial results in the future and could cause actual results to differ materially from plans and projections. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that the objectives and plans will be achieved. All forward-looking statements made in this release are based on information presently available to management. The Company assumes no obligation to update any forward-looking statements, except as required by law.

USIO, INC. CONSOLIDATED BALANCE SHEETS
		September 30, 2022				December 31, 2021
		(Unaudited)
ASSETS
Cash and cash equivalents		$	4,613,123			$	7,255,321
Accounts receivable, net			3,569,082				4,979,493
Settlement processing assets			49,697,691				63,824,646
Prepaid card load assets			15,318,411				36,590,893
Customer deposits			1,585,586				1,364,193
Inventory			420,432				434,532
Prepaid expenses and other			545,435				426,963
Current assets before merchant reserves			75,749,760				114,876,041
Merchant reserves			5,654,729				6,381,153
Total current assets			81,404,489				121,257,194
Property and equipment, net			3,407,021				3,607,157
Other assets:
Intangibles, net			2,843,327				4,163,894
Deferred tax asset, net			1,504,000				1,504,000
Operating lease right-of-use assets			2,932,812				2,802,113
Other assets			355,357				345,357
Total other assets			7,635,496				8,815,364
Total Assets		$	92,447,006			$	133,679,715
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable		$	612,189			$	1,400,100
Accrued expenses			2,371,178				2,325,665
Operating lease liabilities, current portion			537,034				504,027
Equipment loan, current portion			56,429				54,760
Settlement processing obligations			49,697,691				63,824,646
Prepaid card load obligations			15,318,411				36,590,893
Customer deposits			1,585,586				1,364,193
Deferred revenues			—				17,647
Current liabilities before merchant reserve obligations			70,178,518				106,081,931
Merchant reserve obligations			5,654,729				6,381,153
Total current liabilities			75,833,247				112,463,084
Non-current liabilities:
Equipment loan, non-current portion			28,893				71,434
Operating lease liabilities, non-current portion			2,581,645				2,476,291
Total liabilities			78,443,785				115,010,809
Stockholders' equity:
Preferred stock, $0.01 par value, 10,000,000 shares authorized; -0- shares outstanding at September 30, 2022 (unaudited) and December 31, 2021, respectively			—				—
Common stock, $0.001 par value, 200,000,000 shares authorized; 26,966,300 and 26,807,145 issued, and 25,263,333 and 25,473,453 outstanding at September 30, 2022 (unaudited) and December 31, 2021, respectively			195,391				195,235
Additional paid-in capital			93,811,189				93,100,129
Treasury stock, at cost; 1,702,967 and 1,333,692 shares at September 30, 2022 (unaudited) and December 31, 2021, respectively			(3,299,099	)			(2,404,458	)
Deferred compensation			(5,992,070	)			(6,842,195	)
Accumulated deficit			(70,712,190	)			(65,379,805	)
Total stockholders' equity			14,003,221				18,668,906
Total Liabilities and Stockholders' Equity		$	92,447,006			$	133,679,715

USIO, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
		Three Months Ended September 30,								Nine Months Ended September 30,
		2022				2021				2022				2021
Revenues		$	16,395,760			$	15,821,070			$	50,722,789			$	44,515,761
Cost of services			13,261,240				11,787,439				40,819,236				33,447,448
Gross profit			3,134,520				4,033,631				9,903,553				11,068,313
Selling, general and administrative:
Stock-based compensation			515,992				343,567				1,540,375				988,567
Other SG&A expenses			3,679,484				2,844,205				11,323,326				8,349,452
Depreciation and amortization			640,599				634,912				2,163,468				1,884,268
Total selling, general and administrative expenses			4,836,075				3,822,684				15,027,169				11,222,287
Operating income (loss)			(1,701,555	)			210,947				(5,123,616	)			(153,974	)
Other income and (expense):
Interest income			2,728				1,767				4,475				6,403
Interest expense			(943	)			(1,480	)			(3,244	)			(2,964	)
Other income and (expense), net			1,785				287				1,231				3,439
Income (Loss) before income taxes			(1,699,770	)			211,234				(5,122,385	)			(150,535	)
Income tax expense			70,000				70,000				210,000				210,000
Net income (Loss)		$	(1,769,770	)		$	141,234			$	(5,332,385	)		$	(360,535	)
Income (Loss) Per Share
Basic income (loss) per common share:		$	(0.09	)		$	0.01			$	(0.26	)		$	(0.02	)
Diluted income (loss) per common share:		$	(0.09	)		$	0.01			$	(0.26	)		$	(0.02	)
Weighted average common shares outstanding
Basic			20,371,654				20,033,515				20,322,934				19,986,279
Diluted			20,371,654				24,935,517				20,322,934				19,986,279

USIO, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
		Nine Months Ended September 30,
		2022				2021
Operating Activities
Net (loss)		$	(5,332,385	)		$	(360,535	)
Adjustments to reconcile net (loss) to net cash provided (used) by operating activities:
Depreciation			842,901				480,368
Amortization			1,320,567				1,403,900
Bad debt			—				87,190
Stock-based compensation			1,540,375				988,567
Amortization of warrant costs			20,965				26,955
Changes in operating assets and liabilities:
Accounts receivable			1,410,411				(1,410,805	)
Prepaid expenses and other			(118,472	)			54,709
Operating lease right-of-use assets			(130,699	)			(249,863	)
Other assets			14,100				(45,209	)
Inventory			—				23,000
Accounts payable and accrued expenses			(742,398	)			765,512
Operating lease liabilities			138,361				258,896
Prepaid card load obligations			(21,272,482	)			7,474,626
Merchant reserves			(726,424	)			(1,004,402	)
Customer deposits			221,393				200,028
Deferred revenue			(17,647	)			(35,690	)
Net cash provided (used) by operating activities			(22,831,434	)			8,657,247
Investing Activities
Purchases of property and equipment			(642,764	)			(999,493	)
Net cash (used) by investing activities			(642,764	)			(999,493	)
Financing Activities
Proceeds from equipment loan			—				165,996
Payments on equipment loan			(40,872	)			(26,446	)
Purchases of treasury stock			(894,641	)			(198,350	)
Net cash (used) by financing activities			(935,513	)			(58,800	)
Change in cash, cash equivalents, prepaid card loads, customer deposits and merchant reserves			(24,409,711	)			7,598,954
Cash, cash equivalents, prepaid card loads, customer deposits and merchant reserves, beginning of year			51,591,560				22,192,225
Cash, Cash Equivalents, Prepaid Card Loads, Customer Deposits and Merchant Reserves, End of Period		$	27,181,849			$	29,791,179
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest		$	3,244			$	2,964
Income taxes			—				92,850
Non-cash transactions:
Issuance of deferred stock compensation			166,330				—

USIO, INC. STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
		Common Stock								Additional Paid- In				Treasury				Deferred				Accumulated				Total Stockholders'
		Shares				Amount				Capital				Stock				Compensation				Deficit				Equity
Balance at December 31, 2021			26,807,145			$	195,235			$	93,100,129			$	(2,404,458	)		$	(6,842,195	)		$	(65,379,805	)		$	18,668,906
Issuance of common stock under equity incentive plan			61,600				62				267,856				—				(12,330	)			—				255,588
Warrant compensation costs			—				—				8,985				—				—				—				8,985
Deferred compensation amortization			—				—				—				—				295,092				—				295,092
Purchase of treasury stock costs			—				—				—				(66,494	)			—				—				(66,494	)
Net (loss) for the period			—				—				—				—				—				(1,622,270	)			(1,622,270	)
Balance at March 31, 2022			26,868,745			$	195,297			$	93,376,970			$	(2,470,952	)		$	(6,559,433	)		$	(67,002,075	)		$	17,539,807
Issuance of common stock under equity incentive plan			54,233				52				258,636				—				—				—				258,688
Warrant compensation costs			—				—				8,985				—				—				—				8,985
Reversal of deferred compensation amortization that did not vest			(85,000	)			(85	)			(176,465	)			—				97,621				—				(78,929	)
Deferred compensation amortization			—				—				—				—				293,942				—				293,942
Purchase of treasury stock costs			—				—				—				(480,095	)			—				—				(480,095	)
Net (loss) for the period			—				—				—				—				—				(1,940,345	)			(1,940,345	)
Balance at June 30, 2022			26,837,978			$	195,264			$	93,468,126			$	(2,951,047	)		$	(6,167,870	)		$	(68,942,420	)		$	15,602,053
Issuance of common stock under equity incentive plan			163,322				162				406,083				—				(154,000	)			—				252,245
Warrant compensation costs			—				—				2,995				—				—				—				2,995
Reversal of deferred compensation amortization that did not vest			(35,000	)			(35	)			(66,015	)			—				37,837				—				(28,213	)
Deferred compensation amortization			—				—				—				—				291,963				—				291,963
Purchase of treasury stock costs			—				—				—				(348,052	)			—				—				(348,052	)
Net (loss) for the period			—				—				—				—				—				(1,769,770	)			(1,769,770	)
Balance at September 30, 2022			26,966,300			$	195,391			$	93,811,189			$	(3,299,099	)		$	(5,992,070	)		$	(70,712,190	)		$	14,003,221
Balance at December 31, 2020			26,260,776			$	194,692			$	89,659,433			$	(2,165,721	)		$	(5,926,872	)		$	(65,058,171	)		$	16,703,361
Issuance of common stock under equity incentive plan			51,000				51				120,484				—				—				—				120,535
Warrant compensation costs			—				—				8,985				—				—				—				8,985
Cashless warrant exercise			19,795				19				(19	)			—				—				—				—
Reversal of deferred compensation amortization that did not vest			(17,111	)			(17	)			(48,599	)			—				5,994				—				(42,622	)
Deferred compensation amortization			—				—				—				—				249,801				—				249,801
Purchase of treasury stock costs			—				—				—				(49,454	)			—				—				(49,454	)
Net (loss) for the period			—				—				—				—				—				(720,252	)			(720,252	)
Balance at March 31, 2021			26,314,460			$	194,745			$	89,740,284			$	(2,215,175	)		$	(5,671,077	)		$	(65,778,423	)		$	16,270,354
Issuance of common stock under equity incentive plan			61,556				61				150,481				—				—				—				150,542
Warrant compensation costs			—				—				8,985				—				—				—				8,985
Reversal of deferred compensation amortization that did not vest			(115,000	)			(115	)			(237,085	)			—				158,096				—				(79,104	)
Deferred compensation amortization			—				—				—				—				245,847				—				245,847
Purchase of treasury stock costs			—				—				—				(29,810	)			—				—				(29,810	)
Net income for the period			—				—				—				—				—				218,483				218,483
Balance at June 30, 2021			26,261,016			$	194,691			$	89,662,665			$	(2,244,985	)		$	(5,267,134	)		$	(65,559,940	)		$	16,785,297
Issuance of common stock under equity incentive plan			49,322				76				108,146				—				20,785				—				129,007
Warrant compensation cost			—				—				8,985				—				—				—				8,985
Cashless warrant exercise			19,950				20				(20	)			—				—				—				—
Reversal of deferred compensation amortization that did not vest			(41,000	)			(41	)			(77,164	)			—				52,434				—				(24,771	)
Deferred compensation amortization			—				—				—				—				239,331				—				239,331
Purchase of treasury stock			—				—				—				(119,086	)			—				—				(119,086	)
Net income for the period			—				—				—				—				—				141,234				141,234
Balance at September 30, 2021			26,289,288			$	194,746			$	89,702,612			$	(2,364,071	)		$	(4,954,584	)		$	(65,418,706	)		$	17,159,997

Contacts

Paul Manley
Senior Vice President, Investor Relations
paul.manley@usio.com
612-834-1804

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