Usio, Inc. (NASDAQ:USIO) is a leading, cloud-based, integrated FinTech electronic payment solutions provider that offers a wide range of payment solutions to merchants, billers, banks, service bureaus, integrated software vendors and card issuers. The company operates credit, debit/prepaid, and ACH payment processing platforms to deliver convenient, world-class payment solutions and services to its clients through its unique payment facilitation platform as a service.

Usio was founded in 1998 under the name Billserv Com, Inc. and was incorporated in the State of Nevada. In June 2019, the company changed its corporate name from Payment Data Systems, Inc. to Usio, Inc. The company's principal offices are located in San Antonio, Texas, and it also has offices in Austin, Texas.

Business Overview

Usio's core business is divided into four main segments: ACH and Complementary Services, Credit Card, Prepaid Card Services, and Output Solutions. The ACH and Complementary Services segment includes the company's ACH processing, PINless debit, and other complementary services. The Credit Card segment encompasses the company's credit and debit card processing services. The Prepaid Card Services segment covers the company's prepaid card issuance and management. Lastly, the Output Solutions segment provides electronic bill presentment, document composition, document decomposition, and printing and mailing services.

In the first quarter of fiscal 2024, Usio reported total revenue of $20.3 million, a decrease of 5% compared to the same period in the prior year. This decline was primarily attributable to lower revenues from the company's Prepaid Card Services segment, as the COVID-19 pandemic-related incentive programs began to wind down. However, the company's ACH and Complementary Services, as well as its Credit Card segments, both experienced growth during the quarter.

The ACH and Complementary Services segment generated revenue of $3.9 million in Q1 2024, up 16% year-over-year. This growth was driven by increased transaction volumes and the continued traction of the company's PINless debit product. The Credit Card segment reported revenue of $7.6 million, an increase of 3% compared to the same period in 2023. This was largely due to the success of Usio's PayFac strategy, which has been driving increased penetration across multiple industries, including healthcare and legal.

In contrast, the Prepaid Card Services segment saw revenue decline 30% year-over-year to $3.3 million in Q1 2024. This was primarily due to the wind-down of the high-margin COVID-19 incentive programs that had boosted the segment's performance in the prior year. The Output Solutions segment also experienced a 7% decrease in revenue to $5.5 million, as the prior year period had included several one-time government and voter card jobs.

Despite the revenue decline, Usio's gross profit for the first quarter of 2024 was $4.2 million, representing a gross margin of 20.7%. This was down from the 22.9% gross margin reported in the same period of 2023, largely due to the lower-margin Prepaid Card Services and Output Solutions segments.

Operational Highlights and Growth Initiatives

Usio has been actively investing in its sales force and technology platforms to drive revenue growth across all of its business segments. The company's focus on growing its ACH merchants, adding new software integrators, and expanding its electronic bill presentment, document composition, and printing and mailing services has been paying off.

In the first quarter of 2024, the company's credit card transaction volumes increased by 18% year-over-year, while the volume of credit card dollars processed grew by 8%. This growth was primarily attributable to the company's PayFac strategy, which has been driving increased penetration across multiple industries.

The company's ACH (eCheck) transaction counts during the first quarter of 2024 increased by 4% compared to the same period in 2023, while returned check transactions processed increased by 9% and electronic check dollars processed increased by 22%. These increases were primarily due to the company's successful ACH sales efforts, which have resulted in new merchant onboarding and increased processing volumes.

Prepaid card load volumes processed during the first quarter of 2024 increased by 108% compared to the same period in 2023, while prepaid card transaction counts increased by 26% and prepaid card purchase volume increased by 42%. This growth was driven by the continued traction of the company's corporate expense and healthcare market programs, as well as its guaranteed income and government assistance programs.

Usio's total dollar volumes processed across all business lines in the first quarter of 2024 were $1.5 billion, up 19% from the $1.2 billion processed in the first quarter of 2023. This increase was attributable to the growth in processing volumes across all of the company's business lines.

Financials

For the fiscal year ended December 31, 2023, Usio reported annual revenue of $82.6 million, a decrease of 5% compared to the prior year. The company's net income for the year was -$475,104, and its operating cash flow was $14.9 million, while its free cash flow was $14.1 million.

In the first quarter of fiscal 2024, Usio reported revenue of $20.3 million, a decrease of 5% compared to the same period in the prior year. The company's net loss for the quarter was $250,188, and its operating cash flow was -$2.8 million, while its free cash flow was -$2.9 million.

Liquidity

Despite the revenue decline in the first quarter, Usio remains in a strong financial position, with $7.1 million in cash and cash equivalents as of March 31, 2024. The company's current ratio was 1.11, and its quick ratio was 1.10, indicating a healthy liquidity position.

Guidance and Outlook

Usio has reaffirmed its guidance for fiscal 2024, expecting revenue to increase between 10% and 12% compared to the prior year. The company also expects to generate adjusted EBITDA of approximately $4 million to $4.5 million and positive GAAP earnings per share in fiscal 2024.

The company's strong financial position, coupled with its focus on enhancing operating leverage, positions it well to achieve its financial objectives for the year. Usio's management team remains confident in the company's ability to capitalize on the growth opportunities across its business segments, particularly in the wake of the signing of a potentially record-breaking PayFac payments processing agreement.

Risks and Challenges

While Usio has demonstrated impressive growth and operational execution, the company faces several risks and challenges that investors should be aware of. These include the potential impact of macroeconomic conditions, such as a global recession or higher inflation, which could affect consumer spending and merchant and consumer bankruptcy rates. Additionally, the company's reliance on a limited number of large customers and the potential for increased competition in the electronic payments industry could pose risks to its future performance.

Conclusion

Usio, Inc. is a leading FinTech company that has demonstrated its ability to adapt and thrive in the rapidly evolving electronic payments landscape. Despite the revenue decline in the first quarter of fiscal 2024, the company's strong financial position, innovative solutions, and focus on growth initiatives position it well to capitalize on the significant opportunities ahead. With a robust pipeline, including the potential for a record-breaking PayFac agreement, and a reaffirmed guidance for the year, Usio is poised for accelerated growth and improved profitability in the coming quarters and fiscal year.