Usio(USIO) - 2022 Q4 - Annual Report

Part I Business Usio, Inc. offers integrated electronic payment processing, including ACH, credit/debit, and prepaid card solutions, expanded by acquisitions like Output Solutions and a "PayFac-in-a-Box" platform - Usio offers comprehensive payment services, including ACH, credit/debit, and prepaid cards, alongside electronic bill presentment via its Output Solutions division[22][24][25] - The company's growth strategy leverages a one-to-many distribution model, primarily through its "PayFac-in-a-Box" platform, targeting software developers[27] - Usio holds a prestigious NACHA certification for Third-Party Senders, underscoring its expertise in ACH processing[25] - The customer base expanded by 11% in 2022 to 5,601 merchant accounts, with no single customer exceeding 10% of revenues in 2021 or 2022[60][61] Risk Factors Usio faces significant business, industry, and stock-related risks, including reliance on resellers, cybersecurity threats, product expansion challenges, and stock price volatility - Business risks include reliance on key resellers, potential cybersecurity breaches, and product portfolio expansion challenges, though a December 2021 ransomware attack had no material impact[85][87][89] - Financial and operational risks encompass the need for future financing, potential system failures, business interruptions, and liability for unauthorized cardholder data disclosure[91][93][96] - The bankruptcy of its largest cryptocurrency customer in July 2022 led to an approximate $0.8 million revenue loss, alongside risks from complex regulations like the Dodd-Frank Act and anti-money laundering laws[103][68][73] - Stock-related risks include price volatility and potential dilution from future equity issuances, with directors and officers beneficially owning approximately 19% of outstanding common stock as of March 3, 2023[162][165][172] Properties Usio leases its San Antonio headquarters and Output Solutions warehouse until 2024, did not renew its Nashville sales office lease, and extended its Austin technology office lease to 2025 - The company leases its San Antonio headquarters (10,535 sq ft, expires July 2024) and an Output Solutions warehouse (22,400 sq ft, expires September 2024)[176][178] - The Nashville, TN sales office lease (3,794 sq ft) expired on April 30, 2023, and will not be renewed[177] - The Austin, TX technology office lease (1,890 sq ft) was extended to January 31, 2025[179] Legal Proceedings Usio is involved in a lawsuit with KDHM, LLC regarding alleged improper customer deposit transfers, with Usio filing a counterclaim for misrepresentation and breach of contract, considering the risk of loss remote - On September 1, 2021, KDHM, LLC sued Usio Output Solutions, Inc., alleging breach of contract and improper transfer of $317,000 in customer deposits[184] - Usio counterclaimed for fraud and breach of contract, asserting KDHM misrepresented and failed to disclose an additional $305,000 in customer deposits and withheld customer lists[186][187] - Management believes KDHM's claims lack merit and considers the risk of loss from this lawsuit to be remote[185][188] Mine Safety Disclosures This item is not applicable to the company - Not applicable[189] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Usio's common stock trades on Nasdaq under "USIO", with 26.4 million shares outstanding as of March 2023; the company has never paid dividends and repurchased 243,347 shares in Q4 2022 - The company's common stock is listed on the Nasdaq Global Market® Exchange under the ticker symbol "USIO"[192] - As of March 3, 2023, 26,392,315 shares of common stock were outstanding, held by 3,548 stockholders of record[193] - The company has never paid dividends and does not plan to in the foreseeable future[194] Fourth Quarter 2022 Stock Repurchases | Period | Total number of shares purchased | Average price paid per share ($) | | :--- | :--- | :--- | | October 1, 2022 to October 31, 2022 | 184,019 | $1.71 | | November 1, 2022 to November 30, 2022 | 54,606 | $2.24 | | December 1, 2022 to December 31, 2022 | 4,722 | $2.03 | | Total | 243,347 | | Management's Discussion and Analysis of Financial Condition and Results of Operations In FY2022, Usio's total revenues grew 12% to $69.4 million, driven by Prepaid Card and Output Solutions, despite a net loss of $5.5 million due to decreased gross profit and higher operating expenses FY 2022 vs FY 2021 Revenue by Segment | Revenue Segment | 2022 ($) | 2021 ($) | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | ACH and complementary service | $14,782,606 | $15,432,787 | $(650,181) | (4)% | | Credit card | $27,121,621 | $25,174,579 | $1,947,042 | 8% | | Prepaid card services | $9,117,670 | $6,542,651 | $2,575,019 | 39% | | Output solutions | $18,406,388 | $14,792,299 | $3,614,089 | 24% | | Total Revenue | $69,428,285 | $61,942,316 | $7,485,969 | 12% | - The company reported a net loss of $5.5 million in 2022, compared to a $0.3 million net loss in 2021, primarily due to decreased gross profits and higher SG&A expenses[257][211] - Gross profit decreased by 7% to $14.6 million in 2022 from $15.6 million in 2021, driven by exiting the high-margin crypto space and increased lower-margin business[248] - The bankruptcy of Voyager Digital, the largest cryptocurrency customer, on July 6, 2022, resulted in an approximate $0.8 million revenue loss and the company's exit from the crypto space[213] Adjusted EBITDA Reconciliation (FY 2022 vs FY 2021) | | Twelve Months Ended December 31, 2022 ($) | Twelve Months Ended December 31, 2021 ($) | | :--- | :--- | :--- | | Operating (Loss) | $(5,214,430) | $(155,381) | | Depreciation and amortization | $2,735,118 | $2,643,675 | | EBITDA | $(2,479,312) | $2,488,294 | | Non-cash stock-based compensation expense, net | $2,072,041 | $1,489,976 | | Adjusted EBITDA | $(407,271) | $3,978,270 | - Net cash used by operating activities was $17.0 million in 2022, a significant shift from $29.8 million provided in 2021, while adjusted operating cash flow was $0.7 million in 2022, down from $2.6 million in 2021[261] Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, Usio is not required to provide the information for this item - The company is a smaller reporting company and is not required to provide the information for this Item[265] Financial Statements and Supplementary Data Audited consolidated financial statements for 2022 and 2021 are presented, showing $97.9 million in total assets and a $5.5 million net loss in 2022, with auditor-identified critical audit matters - The independent auditor, ADKF, P.C., issued an unqualified opinion, identifying the valuation of intangible customer lists and deferred tax asset valuation allowance as critical audit matters[269][275][277] Consolidated Balance Sheet Data (as of Dec 31) | | 2022 ($) | 2021 ($) | | :--- | :--- | :--- | | Total current assets | $87,409,953 | $121,257,194 | | Total Assets | $97,912,969 | $133,679,715 | | Total current liabilities | $81,624,930 | $112,463,084 | | Total Liabilities | $83,978,871 | $115,010,809 | | Total stockholders' equity | $13,934,098 | $18,668,906 | Consolidated Statement of Operations Data (Year Ended Dec 31) | | 2022 ($) | 2021 ($) | | :--- | :--- | :--- | | Revenues | $69,428,285 | $61,942,316 | | Gross profit | $14,593,216 | $15,632,610 | | Operating (loss) | $(5,214,430) | $(155,381) | | Net (Loss) | $(5,483,244) | $(321,634) | | Basic (loss) per common share | $(0.27) | $(0.02) | | Diluted (loss) per common share | $(0.27) | $(0.02) | Consolidated Statement of Cash Flows Data (Year Ended Dec 31) | | 2022 ($) | 2021 ($) | | :--- | :--- | :--- | | Net cash provided (used) by operating activities | $(17,036,477) | $29,784,917 | | Net cash (used) by investing activities | $(812,242) | $(1,273,039) | | Net cash provided (used) by financing activities | $(1,399,340) | $887,457 | Changes In and Disagreements with Accountants on Accounting and Financial Disclosure There were no changes in or disagreements with accountants on accounting and financial disclosure - None[384] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2022, with no material changes during the year - As of December 31, 2022, the CEO and CFO concluded the company's disclosure controls and procedures are effective[385] - Management concluded that internal control over financial reporting was effective as of December 31, 2022, based on the COSO framework[387] - No material changes to internal control over financial reporting occurred during the year ended December 31, 2022[389] Other Information There is no other information to report for this item - None[390] Part III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2023 Proxy Statement, including the company's Code of Ethics - Information for this item is incorporated by reference from the 2023 Annual Meeting of Stockholders proxy statement[394] - The company has adopted a Code of Ethics applicable to its principal executive and financial officers[396] Executive Compensation Information regarding executive compensation is incorporated by reference from the company's 2023 Proxy Statement - Information for this item is incorporated by reference from the 2023 Proxy Statement[399] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership of beneficial owners and management, as well as matters related to equity compensation plans, is incorporated by reference from the company's 2023 Proxy Statement - Information for this item is incorporated by reference from the 2023 Proxy Statement[400] Certain Relationships and Related Transactions, and Director Independence Information regarding certain relationships, related party transactions, and director independence is incorporated by reference from the company's 2023 Proxy Statement - Information for this item is incorporated by reference from the 2023 Proxy Statement[401] Principal Accounting Fees and Services Information regarding principal accounting fees and services is incorporated by reference from the company's 2023 Proxy Statement - Information for this item is incorporated by reference from the 2023 Proxy Statement[402] Part IV Exhibits, Financial Statement Schedules This section lists financial statements and exhibits filed with the Form 10-K, including corporate governance documents, material contracts, and required certifications - Consolidated financial statements are filed in Part II, Item 8 of the report[404] - All financial statement schedules are omitted as not required, applicable, or included elsewhere[405] - A list of exhibits is provided, including corporate governance documents, material contracts, and various required certifications[407][408][410] Form 10-K Summary No Form 10-K summary is provided - None[413]