Executive Summary / Key Takeaways

• Integrated FinTech Powerhouse: Usio is transforming into a unified, cloud-based, full-stack FinTech provider through its "Usio ONE" strategy, aiming to leverage its diverse payment solutions (ACH, Credit Card/PayFac, Prepaid, Output Solutions) and proprietary technology to capture a greater share of customer electronic payment volume.
• Profitability and Cash Flow Focus: Despite a recent revenue guidance adjustment, Usio remains committed to consistent positive Adjusted EBITDA and strong cash flow generation, driven by favorable product mix (high-margin ACH growth), operational efficiencies, and disciplined expense management.
• Technological Differentiation: Usio's competitive edge stems from its PayFac-in-a-Box platform, the flexible Consumer Choice product, early investments in Real-Time Payments (RTP), and innovative R&D in biometrics and wearables, all designed to enhance customer value and operational efficiency.
• Growth Amidst Headwinds: While Q2 2025 revenue was impacted by a key client loss and implementation delays, Usio's robust pipeline, cross-selling successes from Usio ONE, and strategic investments position it for accelerated growth in the second half of 2025 and beyond.
• Strategic Capital Allocation: With a healthy cash position and renewed share repurchase authorization, Usio is actively creating shareholder value through buybacks and remains poised for strategic, accretive acquisitions that align with its integrated ecosystem vision.

The Integrated FinTech Vision: Setting the Scene for Usio's Evolution

Usio, Inc. (NASDAQ:USIO) stands at a pivotal juncture, evolving from a collection of specialized payment services into a cohesive, cloud-based, full-stack FinTech ecosystem. At the heart of this transformation is the "Usio ONE" strategy, a bold initiative launched in early 2025 to unify the company's diverse offerings—Automated Clearing House (ACH), Credit Card/Payment Facilitation (PayFac), Prepaid Card Services, and Output Solutions—under a single brand. This strategic pivot is designed to maximize cross-selling opportunities, streamline client onboarding, and enhance customer management, ultimately unlocking greater operating leverage and sustained profitability.

The company's journey began in 1998 with an Electronic Bill Presentment and Payment (EBPP) product, quickly expanding into the electronic funds transfer space via the ACH network. Over the years, Usio strategically augmented its capabilities through both organic development and targeted acquisitions. Key milestones include the 2014 acquisition of Akimbo Financial, Inc., which launched its UsioCard prepaid business, and the 2017 acquisition of Singular Payments, Inc., which paved the way for its proprietary PayFac-in-a-Box platform. The 2020 acquisition of Information Management Solutions (IMS) brought sophisticated printing and mailing services, forming the Output Solutions segment. These historical moves have shaped Usio into a comprehensive solutions provider, capable of addressing a wide spectrum of payment and document management needs across various industry verticals, including utilities, financial institutions, healthcare, and government.

In the broader industry, the payments landscape is characterized by rapid technological advancement, the increasing demand for diversified digital payment options in an e-commerce-driven world, and the emergence of Real-Time Payments (RTP). Usio's strategic responses, including its investment in RTP solutions for both The Clearing House and FedNow, directly address these macro trends. Furthermore, the growing influence of AI and data centers on utility investments presents a significant opportunity for Usio's Output Solutions segment, given its strong presence in the utility sector.

Technological Edge: The Foundation of Usio's Moat

Usio's competitive differentiation is deeply rooted in its proprietary technology, which underpins its integrated payment ecosystem. The company's cloud-based platform is designed for speed, security, and scalability, enabling seamless growth as market demands evolve.

A cornerstone of its credit card offering is the PayFac-in-a-Box platform, launched in late 2018. This technology offers app and software developers a simple integration experience, providing real-time merchant enrollment and a comprehensive suite of payment options (credit card, debit card, ACH, prepaid card issuance) through a single API. This streamlined approach allows technology companies to monetize payments within their existing client bases, offering a true single-channel commerce experience. The tangible benefit is evident in PayFac's robust performance, with dollars processed up 17% in Q2 2025, and 20 new ISVs currently in various stages of implementation, including a new large enterprise merchant with the potential to generate $100 million in annual processing volume. This early adoption of PayFac has provided Usio a significant competitive advantage, as ISVs signed years ago continue to produce results, a testament to the platform's stickiness and value proposition.

The Consumer Choice product, debuted in 2022 and upgraded in Q2 2025, exemplifies Usio's integrated approach. It offers clients a single solution for dispersing funds, allowing recipients to choose from virtual cards, physical cards, ACH transfers, paper checks (printed by Output Solutions), or real-time PINless debit. This flexibility enhances customer satisfaction and generates revenue regardless of the chosen method, effectively cross-selling Usio's services within a single solution.

Usio is also at the forefront of emerging payment technologies. It began expanding into Real-Time Payments (RTP) in 2023, developing solutions for both The Clearing House and FedNow. This proactive investment positions Usio to capitalize on the shift towards faster payment methods, offering an alternative to traditional ACH.

Perhaps most revolutionary is Usio's biometric merchant payment system, which successfully completed testing in Q2 2025. This AI-driven application ties a token generated from a human iris with a payment wallet, eliminating the need for a physical card. At checkout, AI automatically selects the payment method that delivers the greatest value (e.g., rewards, cash back). This cutting-edge system has potential applications beyond traditional payments, such as event ticketing and in-venue purchases, with a promotional demonstration video anticipated later in 2025. Complementing this, a wearable prepaid product is set to go live in Q3 2025, targeting large incentive and promotional markets, further diversifying Usio's innovative offerings.

These technological differentiators are not merely features; they are strategic assets that contribute directly to Usio's competitive moat, enabling higher customer retention, driving cross-selling, and improving operational efficiency. For investors, this translates into a stronger market position, potential for higher average selling prices (ASPs) for integrated solutions, lower processing costs through automation, and ultimately, better margins and long-term growth.

Segment Deep Dive: Performance and Strategic Contributions

Usio's diversified business model, encompassing four distinct yet interconnected segments, is central to its resilience and growth strategy.

ACH and Complementary Services: The Profit Engine

The ACH and complementary services segment is Usio's highest-margin business unit and has consistently demonstrated robust growth. In Q2 2025, revenues surged by 33% year-over-year to $5.19 million, marking the second consecutive quarter of over 30% growth. For the first half of 2025, revenues reached $10.24 million, up 32% from the prior year. This impressive performance is driven by strong underlying metrics: electronic check transaction counts were up 33%, returned check transactions up 32%, and electronic check dollars processed up 19% in Q2 2025. The PINless debit business virtually doubled, and Remotely Created Checks (RCC) also contributed incrementally. Management noted July 2025 saw the highest ACH volumes for any month this year, signaling continued momentum.

This segment is an early beneficiary of the "Usio ONE" initiative, with a substantial card processing client now also utilizing Usio for ACH. Usio's status as one of only nine NACHA-certified Third-Party Senders underscores its expertise and reliability in this critical area. The strategic focus on cross-selling ACH services to existing clients with large requirements is expected to further accelerate growth and enhance overall profitability.

Credit Card & PayFac: Growth Amidst Competition

The credit card segment, particularly its PayFac-in-a-Box platform, is a key growth driver. In Q2 2025, total credit card dollars processed increased by 9% year-over-year, with transactions up 69%. PayFac volume alone grew by 17%, contributing 10% to revenue growth within the segment. PayFac now accounts for approximately 59% of total card revenues, highlighting its increasing importance. Usio has 20 new ISVs in various stages of implementation, including a large enterprise merchant with the potential for $100 million in annual processing volume.

However, Q2 2025 credit card revenues decreased by 3% to $7.05 million, primarily due to the loss of a meaningful PayFac customer through a corporate takeover and attrition in legacy portfolios. The credit card processing market is highly competitive, leading to pricing pressures that can offset volume growth. Despite these challenges, Usio anticipates that new client implementations will offset these losses in future periods, leveraging its early adoption of PayFac and its strategy to "land and expand" within existing ISV relationships.

Prepaid Card Services: Diversification and Innovation

Usio's prepaid card services, offered through its UsioCard business and FiCentive, Inc., provide customizable Mastercard (MA)-branded programs for various uses, including incentives, disbursements, and corporate expenses. Q2 2025 revenues for this segment decreased by 26% to $2.73 million, and by 20% for the first half of 2025, primarily due to a key client losing a significant downstream customer. This impact is expected to extend into Q3.

Despite the revenue decline, the segment's margins and Adjusted EBITDA were "much improved year-over-year," reflecting ongoing efforts to reduce costs and improve productivity. Usio closed 15 new agreements in Q2 2025, with 20 client partners beginning to scale. The company is also expanding its product portfolio with a new payroll product expected in Q3 2025 and merchant funding offers in partnership with Mastercard by year-end, further enhancing its competitive offerings and cardholder stickiness.

Output Solutions: Efficiency and Margin Expansion

The Output Solutions segment provides electronic bill presentment, document composition, and printing and mailing services. In Q2 2025, revenues were $4.64 million, down 1% year-over-year, primarily due to the absence of one-time revenues from Q2 2024. However, total mail pieces processed were up 3% to over 5.4 million, and electronic-only documents delivered exceeded 20 million. For the first half of 2025, revenues were up 1% to $10.38 million.

The strategic shift towards electronic document processing, while potentially reducing per-unit revenue compared to print and mail, significantly boosts margins. Electronic document processing is described as "almost pure margin," compared to print and mail's approximately 20% gross margin. Management targets mid-20s (24-25%) for this division's gross margin. Investments in new equipment in 2024 have enhanced efficiency and automation, contributing to rising profits. In July 2025, Output Solutions closed more new business than in all of Q2, including a significant contract for the city of Pasadena, Texas, for utility bill print, mail, and electronic delivery. The company is also quadrupling its check printing capacity to capitalize on opportunities in check-dependent use cases like bankruptcy and government distributions.

Financial Health: A Path to Sustained Profitability

Usio's financial performance in the first half of 2025 reflects a company actively managing its cost structure and pursuing profitable growth, even as it navigates revenue fluctuations. For Q2 2025, total revenues were $19.96 million, a slight decrease of 1% year-over-year, while for the six months ended June 30, 2025, revenues increased 2% to $41.97 million.

Gross profit in Q2 2025 increased by 7% to $5.14 million, with gross margins widening by 185 basis points to 25.8%. This margin expansion is a direct result of a favorable revenue mix, particularly the strong growth of the high-margin ACH business, coupled with efficiency and productivity improvements across the organization. For the first half of 2025, gross profit increased 3% to $9.95 million, with margins at 23.7%.

Despite these improvements, Usio reported an operating loss of $396,970 in Q2 2025 and a net loss of $366,654. For the first half, the operating loss was $636,554 and net loss was $601,624. Adjusted EBITDA for Q2 2025 was $0.50 million, down from $0.80 million in the prior year, and Adjusted EBITDA margin was 2.50%. This decline was primarily attributed to temporarily elevated Selling, General, and Administrative (SGA) expenses, which included one-time costs for insurance renewals, marketing, travel, and professional fees. Management expects SGA expenses to decline sequentially and remain relatively flat year-over-year due to improved expense management and workforce efficiencies from new equipment in Output Solutions. The company's long-term goal for EBITDA margins is 8% to 10%.

Liquidity remains a strength, with cash and cash equivalents at $7.51 million as of June 30, 2025. Operating activities provided $1.10 million in cash during the first half of 2025, an increase from $0.50 million in the prior year, primarily due to tax credit collection and reduced accounts receivable. Usio maintains an unsecured revolving line of credit of $475,000 and an irrevocable letter of credit of $474,229, both secured for a lawsuit appeal bond but fully available for additional liquidity. The company's capital allocation strategy includes consistent share repurchases, with $708,298 of stock repurchased in the first half of 2025 under a renewed $4 million authorization. This demonstrates management's confidence in the company's intrinsic value and commitment to shareholder returns.

Competitive Arena: Differentiating in a Crowded Market

Usio operates in a highly competitive electronic payment processing industry, facing formidable rivals such as Fiserv (FISV), Global Payments (GPN), Block (TICKER:SQ, formerly Square), and PayPal (PYPL). These larger competitors benefit from immense scale, broader offerings, extensive network effects, and significantly greater financial resources for R&D and market penetration.

Comparing Usio's TTM financial ratios to these giants reveals the scale disparity: Usio's TTM Gross Profit Margin is 23.19%, Operating Profit Margin is -1.93%, and Net Profit Margin is 3.43%. In contrast, Fiserv boasts TTM Gross Profit Margin of 61%, Operating Profit Margin of 29%, and Net Profit Margin of 15%. Similar gaps exist with Global Payments (TTM Gross Profit Margin 63%, Operating Profit Margin 23%, Net Profit Margin 16%), Block (SQ) (TTM Gross Profit Margin 37%, Operating Profit Margin 4%, Net Profit Margin 12%), and PayPal (TTM Gross Profit Margin 46%, Operating Profit Margin 17%, Net Profit Margin 13%). These figures underscore Usio's challenge in achieving comparable profitability and efficiency metrics against market leaders.

However, Usio strategically carves out its niche through several competitive advantages. Its proprietary web-based platforms and reseller partnerships provide strong distribution channels, particularly for small to mid-sized businesses and specialized verticals like lending, legal, government, and healthcare. Usio's NACHA certification as one of only nine Third-Party Senders highlights its expertise in ACH processing. The company's early adoption of PayFac has proven crucial, with ISVs signed years ago continuing to generate business, a testament to its platform's stickiness. Furthermore, Usio differentiates itself through a high-touch customer service model, providing extensive resources and expertise to prospects, contrasting with competitors who often automate processes or tier support based on client size. This personalized approach fosters strong customer loyalty.

The "Usio ONE" initiative is a direct strategic response to this competitive landscape, aiming to leverage its integrated capabilities to offer comprehensive solutions rather than siloed products. This approach, combined with its focus on technological innovation like the biometric payment system and wearable products, seeks to enhance customer value and create new revenue streams. The strategic partnership with Mastercard for merchant-funded offers and enhanced fraud/risk management security further strengthens Usio's competitive offering, adding value and increasing cardholder stickiness. While Usio may lag in overall market share and innovation speed compared to its larger, more agile rivals, its focused strategy on niche markets, integrated solutions, and customer-centric approach provides a distinct positioning.

Outlook and Risks: Navigating Growth and Headwinds

Usio's outlook for 2025 reflects both significant growth opportunities and near-term challenges. The company has adjusted its revenue guidance for 2025 to 5% to 12% growth, down from a previous expectation of 14% to 16%. This revision is primarily due to "prolonged customer caused implementation delays at 2 large national accounts," including a multi-location building material supplier that is ramping up slower than anticipated. These delays, largely outside Usio's direct control, highlight a key operational risk. Despite this adjustment, management maintains its outlook for "continued positive adjusted EBITDA," underscoring its unwavering commitment to profitability.

The company anticipates a "significant pick-up in the second half" of 2025, driven by the ramp-up of the "Usio ONE" initiative and more favorable year-over-year comparisons as the impact of the New York City COVID program fully phases out. The card business is expected to "grow nicely in 2025," fueled by existing accounts and steady pipeline conversion. The ACH segment continues its strong momentum, with July 2025 marking its highest volumes for the year. Output Solutions is also poised for growth, having closed more new business in July than in all of Q2, including a significant utility contract. New product launches, such as a payroll product in Q3 2025 and Mastercard merchant funding offers by year-end, along with the potential for the biometric payment system, are expected to contribute to future growth.

Key risks include the ongoing uncertainty in global economic conditions, which could impact consumer spending and increase credit losses. Fluctuations in interest rates will continue to affect interest income from customer funds, a high-margin revenue source. The 1% excise tax on stock repurchases under the Inflation Reduction Act could also impact capital allocation decisions if buybacks exceed $1 million annually. Legal proceedings, such as the KDHM lawsuit, while currently deemed remote in terms of loss risk, represent ongoing operational distractions.

However, Usio's diversified business model provides a degree of insulation from macroeconomic shocks. Its proactive expense management, coupled with the "Usio ONE" strategy, aims to enhance operating leverage and drive consistent profitability. The company's robust pipeline of new business and its focus on high-margin segments like ACH position it to overcome these headwinds and capitalize on long-term growth trends in digital payments.

Conclusion

Usio, Inc. is executing a deliberate and strategic transformation, unifying its diverse payment processing capabilities under the "Usio ONE" banner to unlock greater operating leverage and drive sustained profitability. While recent customer-caused implementation delays have necessitated a revision to its 2025 revenue guidance, the underlying investment thesis remains robust: a company leveraging proprietary technology, a diversified product portfolio, and a customer-centric approach to capture market share in a dynamic FinTech landscape.

The company's commitment to achieving mid-20s gross margins and 8-10% EBITDA margins, coupled with its consistent generation of positive cash flow and strategic capital allocation through share repurchases and targeted acquisitions, signals a clear path to enhanced shareholder value. Usio's technological differentiators, from its PayFac-in-a-Box to its pioneering biometric payment system, provide a competitive edge against larger rivals, enabling it to thrive in niche markets and adapt to evolving industry trends. As Usio continues to integrate its offerings and scale its operations, the second half of 2025 and beyond hold the promise of accelerated growth and a realization of its full potential as an integrated FinTech powerhouse.