USIO, INC. FORWARD-LOOKING STATEMENTS DISCLAIMER
This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. If used in this report, the words "anticipate," "believe," "estimate," "intend," and other words or phrases of similar import are intended to identify forward-looking statements. You should not place undue reliance on these forward-looking statements. Our actual results could differ materially from those anticipated in the forward-looking statements for many reasons, including the risks described in our annual report on Form 10-K and other reports we file with theSecurities and Exchange Commission . Although we believe the expectations reflected in the forward-looking statements are reasonable, they relate only to events as of the date on which the statements are made. We do not intend to update any of the forward-looking statements after the date of this report to conform these statements to actual results or to changes in our expectations, except as required by law. This discussion and analysis should be read in conjunction with the unaudited interim condensed consolidated financial statements and the notes thereto included in this report, and our annual report on Form 10-K for the fiscal year endedDecember 31, 2020 , filed onMarch 30, 2021 , including the audited consolidated financial statements and the notes contained therein. Name Change
Effective on
Overview We provide integrated electronic payment processing services to merchants and businesses, including all types of Automated Clearing House, or ACH processing, credit card, PINless debit, prepaid card and debit card-based processing services. Through Akimbo, under the domain name www.akimbocard.com, we offer MasterCard prepaid cards to consumers for use as a tool to stay on budget, to manage allowances, and to share money with family and friends. We have further developed our Akimbo platform to include Akimbo Now for businesses, Akimbo Gift for consumers and support for Apple Pay®, Android Pay™ and Samsung Pay™. With the acquisition of the assets of IMS inDecember 2020 , we now offer additional services relating to electronic bill presentment, document composition, document decomposition and printing and mailing services. During the first quarter of 2021, the volume of credit card transactions processed increased by 108% versus the first quarter of 2020. The amount of credit card dollars processed during the first quarter of 2021 increased by 60% compared to the same time period in 2020. Both credit card transactions processed and dollars processed were the highest in our history. The continued growth in credit card metrics was primarily attributable to our card processing growth initiatives with the Integrated Payments (Payment Facilitation) segment due to increased penetration of multiple industries including healthcare and legal. 12
-------------------------------------------------------------------------------- ACH (eCheck) transaction volumes during the first quarter of 2021 increased by 37% compared to the first quarter of 2020. Returned check transactions processed during the first quarter of 2021 increased by 24% compared to the first quarter of 2020. The increases in eCheck transactions and returned check transactions were primarily attributable to higher volumes of activity. Prepaid card load volume during the first quarter of 2021 increased by 105% compared to the first quarter of 2020. Prepaid card transaction volumes during the first quarter of 2021 increased by 89% compared to the first quarter of 2020. These increases occurred primarily due to the continued implementation and sales of many prepaid government assistance programs including organizations such asGreater Washington Community Foundation (Washington DC Program),United Way of Central andNortheastern Connecticut ,Mayor's Fund for Los Angeles ,New York Immigration Coalition ,One Fair Wage, Inc. ,Dorcas International ofRhode Island ,National Domestic Workers Alliance ,Alliance for Open Society International (City of Baltimore ) andCompton Community Development Corporation (Compton Pledges Guaranteed Income Program).
Total dollars processed for the first quarter of 2021 were
Critical Accounting Policies Our management's discussion and analysis of our financial condition and results of operations is based upon our interim condensed consolidated financial statements, which have been prepared in accordance withU.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to the reported amounts of revenues and expenses, bad debt, investments, intangible assets, income taxes, and contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates under different assumptions or conditions. We consider the accounting policies described in Note 1 to the Notes to the Interim Condensed Consolidated Financial Statements to be critical because the nature of the estimates or assumptions is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change or because the impact of the estimates and assumptions on financial condition or operating performance is material.
For a summary of Critical Accounting Policies, please refer to the Notes to Interim Condensed Consolidated Financial Statements, Note 1, Basis of Presentation.
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--------------------------------------------------------------------------------Results of Operations Revenues
Our revenues are principally derived from providing integrated electronic payment services to merchants and businesses, including credit and debit card-based processing services and transaction processing via the Automated Clearing House, or ACH, network and the program management and processing of prepaid debit cards.
Three Months Ended March 31,
2021 2020 $ Change % Change
ACH and complementary service revenue
37.6 %
Credit card revenue 5,723,709 4,982,658 741,051 14.9 %
Prepaid card services revenue 886,576 551,275 335,301 60.8 %
Output solutions revenue 3,772,809 - 3,772,809 100.0 %
Total Revenue $ 13,461,550 $ 7,771,679 $ 5,689,871 73.2 %
Revenues for the quarter ended March 31, 2021 increased by 73.2% to
$13.5 million , as compared to $7.8 million for the quarter ended March 31, 2020 .
Excluding the impact of the Output Solutions revenues, the organic growth was
24.6% versus the same period last year. The revenue increases were across all
business lines including incremental revenues from our Output Solutions plus
double-digit gains in our other business lines as referenced above. During the
first quarter we saw a strong rebound in our ACH and complementary service
category which was a reversal of recent negative trends.
Cost of Services
Cost of services includes the cost of personnel dedicated to the creation and
maintenance of connections to third-party payment processors and the fees paid
to such third-party providers for electronic payment processing services.
Through our contractual relationships with our payment processors and sponsoring
banks, we process ACH and debit, credit or prepaid card transactions on behalf
of our customers and their consumers. We pay volume-based fees for debit,
credit, ACH and prepaid transactions initiated through these processors or
sponsoring banks, and pay fees for other transactions such as returns, notices
of change to bank accounts and file transmission. Cost of service fees also
include fees paid to referral agents and partners.
Cost of services increased by 81% to $10.6 million for the quarter ended March
31, 2021 , as compared to $5.8 million for the same period in the prior year. The
increase in the three month period ended March 31, 2021 , as compared to the same
period in the prior year, was primarily due to the incremental Output Solutions
business plus the cost of goods sold component of double-digit revenue growth in
each of our business lines.
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Table of Contents Gross Profit Gross profit is the net profit existing after the cost of services. Gross profits increased by 51% to$2.9 million for the quarter endedMarch 31, 2021 , as compared to$1.9 million for the same period in the prior year. The increase in gross profit for the quarter endedMarch 31, 2021 , as compared to the same period in the prior year, was primarily a result of incremental profits from our Output Solutions business plus profits associated with our double-digit revenue growth in our other business lines. Stock-based Compensation Stock-based compensation expenses increased to$327,715 for the quarter endedMarch 31, 2021 as compared to$287,710 for the quarter endedMarch 31, 2020 . The increase was attributable to our stock grant onApril 1, 2020 and incremental stock awards associated with the IMS acquisition.
Other Selling, General and Administrative Expenses
Other selling, general and administrative expenses (SG&A) increased to$2.7 million for the quarters endedMarch 31, 2021 as compared to$2.1 million in the prior year. The increase in other SG&A reflects our continued investment in our prepaid and PayFac growth initiatives and incremental SG&A expenses associated with the Output Solutions line of business.
Depreciation and Amortization
Depreciation and amortization totaled
Other Income (Expense) Other income was$2,467 for the quarter endedMarch 31, 2021 compared to other income of$11,844 for the quarter endedMarch 31, 2020 . Lower interest-bearing merchant reserves and lower interest rates drove the lower other income. Net Loss
We reported a net loss of
We may incur future operating losses. To regain and sustain profitability, we must, among other things, incrementally grow and maintain our customer base, sell our ACH, credit card, prepaid product offerings and output solutions offerings to existing and new customers, implement successful marketing strategies, maintain and upgrade our technology and transaction-processing systems, provide superior customer service, respond to competitive developments, attract, retain and motivate personnel, and respond to unforeseen industry developments among other factors. We believe that our success will depend in large part on our ability to (a) grow revenues, (b) manage our operating expenses, (c) add quality customers to our client base, (d) meet evolving customer requirements, (e) adapt to technological changes in an emerging market, and (f) assimilate current and future acquisitions of companies and customer portfolios. We continue to invest in our sales force and technology platforms to drive revenue growth. In particular, we are focused on growing our ACH merchants, adding new software integrators and providing incremental services to existing merchants. In addition to our near-term growth opportunities, we are focused on leveraging and optimizing the infrastructure of the organization allowing expansion of our payment processing capabilities without significantly increasing our operating costs.
Liquidity and Capital Resources
At
On
OnSeptember 25, 2020 , we entered into a placement agency agreement withLadenburg Thalmann & Company Inc. for the issuance and sale of an aggregate of 4,705,883 shares of common stock at an offering price of$1.70 per share in a public offering. We agreed to pay Ladenburg a cash fee of equal to$0.12325 per share of common stock sold in the offering as well as legal fees and expenses of up to$100,000 . The net proceeds to the Company from the public offering were$7.4 million , after deducting the offering expenses and fees payable by the Company. Cash Flows We reported a net loss of$0.7 million for the quarter endedMarch 31, 2021 . AtMarch 31, 2021 , we had an accumulated deficit of$65.8 million . Additionally, we had working capital of$5.6 million atMarch 31, 2021 andDecember 31, 2020 , respectively. Net cash provided by operating activities, including merchant reserve funds, prepaid card load assets, customer deposits and net lease assets was$10.5 million and net cash used by operating activities of$1.7 million for the three months endedMarch 31, 2021 andMarch 31, 2020 , respectively. Excluding merchant reserves, prepaid card load assets, customer deposits and lease right-of-use assets and liabilities, our cash used by operating activities was$0.6 million and$0.2 million for the three months endedMarch 31, 2021 andMarch 31, 2020 , respectively. We continue to invest resources and infrastructure in our prepaid and PayFac integrated payments growth initiatives to achieve scale in these business lines.
Net cash used by investing activities was
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Table of Contents
Net cash provided from financing activities for the three months endedMarch 31, 2021 andMarch 31, 2020 was$0.1 million and$26,629 , respectively. The 2021 cash provided from financing activities was primarily a result of proceeds from our equipment loan.
Material Trends and Uncertainties
The ongoing COVID-19 pandemic has had a notable impact on general economic conditions, including but not limited to the temporary closures of many businesses, "shelter in place" and other governmental regulations, reduced consumer spending due to both job losses and other effects attributable to the COVID-19 pandemic. There remain many uncertainties as a result of the pandemic. As a result of the spread of COVID-19, economic uncertainties could continue to impact our operations. Any potential incremental financial impact is unknown at this time. At this time, certain states are reducing mandated operating restrictions and efforts are underway to provide vaccinations to as many people as possible. During 2020 and 2021, the government issued several rounds of COVID-19 relief and stimulus payments and other programs to stimulate economic activity and facilitate an economic recovery. Our business was initially adversely affected as doctor's offices, dental offices, veterinarian offices and non-bank consumer lending accounts were ordered closed in connection with curbing the spread of the pandemic. As these doctors, dental and veterinarian offices re-opened, these businesses quickly recovered and returned to levels higher than pre-COVID. Consumer lending merchants were adversely affected by COVID relief payments made during the pandemic and the pause placed on past due amounts owed. The level of activity for consumer lending merchants has not returned to pre-COVID levels. We received an increase in revenues in our prepaid business line, as we were able to work in conjunction with major cities across theU.S. to use our prepaid debit cards to facilitate the transfer of money via our debit cards from city foundations to the local residents in need of financial assistance. The impacts and recovery from the COVID-19 pandemic are still a work in process. To date, we have not been impacted in the magnitude that other payment processors were, as our customer base had limited exposure to retail facing businesses. Within that framework, we will continue to monitor the overall impact on our operations and take necessary steps to ensure the safety of our employees and the well-being of our customers.
Off-Balance Sheet Arrangements
We currently have no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
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