10-Q: Usio Reports Q3 Loss Amid Revenue Shifts, Legal Settlement

Usio, Inc. reported a net loss of $0.42 million for the third quarter of 2025, a significant decline from prior year's net income, despite strong growth in ACH services.

Summary

• Usio reported a net loss of $415,086 for the three months ended September 30, 2025, a significant decrease from net income of $2,851,267 in the same period of 2024.
• For the nine months ended September 30, 2025, the company recorded a net loss of $1,016,710, compared to net income of $2,676,572 for the corresponding period in 2024.
• Total revenues for Q3 2025 decreased by 1% to $21,180,333, from $21,321,478 in Q3 2024.
• Year-to-date revenues for 2025 increased by 1% to $63,150,373, from $62,371,752 in 2024.
• ACH and complementary services revenue grew strongly by 36% in Q3 and 33% year-to-date, driven by increased transactions and dollar volumes.
• Prepaid card services revenue declined significantly by 30% in Q3 and 24% year-to-date, primarily due to a key client losing downstream customers.
• Output Solutions revenue decreased by 8% in Q3 and 2% year-to-date, partly due to non-recurring revenues in the prior year and a shift towards electronic document delivery.
• Adjusted EBITDA for Q3 2025 was $368,257, down from $776,840 in Q3 2024, with margins decreasing from 3.6% to 1.7%.
• Adjusted EBITDA for the nine months ended September 30, 2025, was $1,536,389, down from $2,369,279 in the prior year, with margins decreasing from 3.8% to 2.4%.
• An operating loss of $464,171 was reported for Q3 2025, compared to an operating loss of $376,650 in Q3 2024.
• A legal dispute with Ben Kauder, Nina Pioletti, and Triple Pay Play, Inc. was settled for $115,000, which was recorded as a reduction of SG&A expense.
• The KDHM, LLC lawsuit is ongoing, with the Fourth Court of Appeals reversing a trial court's judgment in Usio's favor on one claim, and KDHM appealing to the Supreme Court of Texas.

Sentiment

Score: 4

Explanation: The company reported a net loss for both the quarter and year-to-date periods, a significant reversal from prior year's net income, largely due to the absence of one-time tax benefits and credits. While ACH services showed strong growth and a legal settlement was favorable, overall revenue growth was flat to negative, and Adjusted EBITDA declined. Increased SG&A expenses also contributed to the negative financial performance. The ongoing KDHM lawsuit and macroeconomic risks add uncertainty.

Positives

• ACH and complementary services revenue showed strong growth, increasing by 36% to $5,844,267 in Q3 2025 and 33% to $16,081,008 year-to-date, driven by increased transactions and dollar volumes.
• Credit card processing volume increased by 12% and transaction counts by 75% in Q3 2025, indicating successful PayFac strategy and new client onboarding.
• A new enterprise customer in the credit card business line has the potential to consistently generate $100 million in annual processing volume.
• Total dollar volumes processed across all business lines increased by 8% to $2.18 billion in Q3 2025, compared to $2.02 billion in Q3 2024.
• The legal dispute with Triple Pay Play, Inc. was settled in Usio's favor for $115,000, reducing SG&A expense.
• The Fourth Court of Appeals reversed a trial court's judgment in the KDHM lawsuit, ruling that KDHM should take nothing against Usio on its money had and received claim.
• The company maintains sufficient liquidity with $7,746,456 in cash and cash equivalents and available credit facilities.
• Stock-based compensation expenses decreased in both the quarter and nine-month periods due to completed amortization of previously issued awards.
• Depreciation and amortization expense decreased due to the completed amortization of intangible assets, specifically related to capitalized labor for internal use software.

Negatives

• Usio reported a net loss of $415,086 in Q3 2025, a significant decline from net income of $2,851,267 in Q3 2024.
• Year-to-date net income shifted to a net loss of $1,016,710 in 2025, compared to net income of $2,676,572 in the prior year.
• Total revenues for Q3 2025 decreased by 1% year-over-year.
• Prepaid card services revenue declined substantially by 30% in Q3 and 24% year-to-date due to a key client losing downstream customers.
• Output Solutions revenue decreased by 8% in Q3 and 2% year-to-date.
• Adjusted EBITDA decreased by 53% to $368,257 in Q3 2025 and 35% to $1,536,389 year-to-date, with corresponding declines in Adjusted EBITDA margins.
• Operating loss increased by 23% to $464,171 in Q3 2025 and 27% to $1,100,725 year-to-date.
• SG&A expenses increased by 9% to $4,501,762 in Q3 2025 and 9% to $13,282,842 year-to-date, driven by higher salaries, network infrastructure, travel, and professional fees.
• Interest income declined due to lower interest rates and interest-bearing deposits.
• The prior year's net income benefited from a federal income tax benefit of $3,186,053 and an employee retention tax credit, which were not present in 2025, contributing to the current net loss.
• Cash provided by operating activities decreased to $1,414,156 for the nine months ended September 30, 2025, from $1,891,086 in the prior year.
• Cash used in investing activities increased to $1,138,965 for the nine months ended September 30, 2025, from $698,271 in the prior year.
• Cash used in financing activities was $6,512,096 for the nine months ended September 30, 2025, compared to cash provided of $4,721,965 in the prior year, primarily due to a decrease in assets held for customers.
• Accumulated deficit increased to $69,049,366 at September 30, 2025, from $68,032,656 at December 31, 2024.

Risks

• The Inflation Reduction Act (IRA) imposes a 1% excise tax on certain corporate stock repurchases, which Usio may be subject to if its buyback program continues.
• Declining federal funds rates will reduce interest earnings on cash balances, impacting an incremental source of income.
• Global economic activity is impacted by inflation and ongoing geopolitical concerns (Russia-Ukraine, Hamas-Israel conflicts), creating market volatility.
• Uncertainty from changes in international trade policies, including potential for new or increased tariffs, could create risks for the U.S. and global economies.
• The prospect of a U.S. recession and deterioration in macroeconomic conditions could increase the risk of lower consumer spending, merchant and consumer bankruptcy, insolvency, business failure, and higher credit losses.
• Litigation is subject to inherent uncertainties, and an adverse result in the KDHM lawsuit or other matters could harm the business.
• Actual processing losses may be greater than the company's estimates, which are variable based on transaction volume.
• If the financial condition of customers deteriorates, additional allowances for estimated credit losses might be required.
• The ability to use Net Operating Loss (NOL) carryforwards is dependent on generating future taxable income, and Pre-2018 NOLs could expire before full utilization.
• IRC Sections 382 and 383 could significantly restrict the utilization of NOLs and other tax carryforwards in the event of an "ownership change."
• There is no assurance that the company will be able to complete future acquisitions or sell equity securities on acceptable terms.

Future Outlook

The company aims to grow revenues, manage SG&A expenses, add quality customers, meet evolving customer requirements, adapt to technological changes, and assimilate current and future acquisitions. It plans to continue investing in its sales force and technology platforms, focusing on growing ACH merchants, adding new software integrators, and expanding its electronic bill presentment, document composition, document decomposition, printing, and mailing services. The company also expects to leverage and optimize its infrastructure to expand payment processing and mail/printing capabilities without significantly increasing operating costs. SG&A expenses are anticipated to remain relatively flat sequentially in the near term future, though increased versus prior year periods. The company believes existing cash balances and credit facilities are sufficient to meet operational needs and legal obligations for at least the next 12 months.

Management Comments

• Our success will continue to depend in large part on our ability to (a) grow revenues, (b) manage our selling, general, and administrative 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 will continue to invest in our sales force and technology platforms to drive revenue growth.
• We believe that carefully evaluating our existing selling, general and administrative, or SG&A, expenses, and balancing them against the need for client implementation and support, together with our technology staff driving product innovation, will guide our operational strategies while maintaining a focus on efficiencies and profitability.
• We maintain a committed focus on the ever changing technological landscape within the payments ecosystem.
• Management continues to monitor its financial position and believes that existing cash balances, along with these credit facilities, are sufficient to meet operational needs and legal obligations.

Industry Context

Usio operates in the dynamic Fintech payment processing industry, serving multiple verticals with a full-stack ecosystem for payment acceptance and funds disbursement. The company is adapting to broader industry trends such as the rise of Real Time Payments (RTP) as an alternative to ACH, and the increasing demand for diversified payment options in an e-commerce driven world. The competitive landscape in credit card processing is noted, driving down pricing rates. The shift towards electronic-only document delivery in Output Solutions reflects a broader digital transformation trend, impacting revenue per unit but improving profitability. The company's 'One Usio' strategy aims to unify its brand and offerings to better compete and cross-sell in this evolving market.

Comparison to Industry Standards

• The company is one of nine companies holding the prestigious NACHA certification for Third-Party Senders and was the second to receive it, making it the most tenured. This indicates a strong compliance and operational standing in the ACH network compared to peers.
• The PayFac-in-a-Box platform offers real-time merchant enrollment, credit card, debit card, ACH, and prepaid card issuance capabilities through a single vendor partner relationship, providing a true single channel commerce experience through an API, which is competitive in the payment facilitation space.
• The UsioCard platform supports Apple Pay, Samsung Pay, and Google Pay, aligning with modern mobile payment trends and offering competitive features for prepaid card services.
• The company's focus on niche markets like lending, legal, government, and healthcare fields allows it to build a strong reputation and address specific customer needs, differentiating it from broader payment processors.

Corporate Governance

Legal Proceedings

• **Ben Kauder, Nina Pioletti, & Triple Pay Play, Inc.**: Usio settled its lawsuit for breach of contract and misappropriation of trade secrets against former executives and their competing company for $115,000. A Joint Notice of Voluntary Nonsuit with Prejudice was filed on October 10, 2025.
• **KDHM, LLC**: An ongoing dispute regarding customer deposits from the 2020 IMS acquisition. The Fourth Court of Appeals reversed a trial court's judgment against Usio on a 'money had and received' claim and remanded other claims. KDHM has filed a Petition for Review with the Supreme Court of Texas, to which Usio is preparing a response. Usio considers the risk of loss remote.
• The company may be involved in other legal matters in the ordinary course of business, which are not currently considered material but could have an adverse effect on its business, financial condition, or results of operations.

Related Party Transactions

• During the nine months ended September 30, 2025, Usio purchased $4,841 of corporate imprinted sportswear, promotional items, and caps from Angry Pug Sportswear LLC.
• The company's Chairman of the Board, President, Chief Executive Officer, and Chief Operating Officer, Louis A. Hoch, is a 50% owner of Angry Pug Sportswear LLC.

Stakeholder Impact

• **Shareholders**: Experienced a net loss and diluted EPS of $(0.02) for the quarter and $(0.04) year-to-date, a significant decline from prior year's net income. The stock buyback program is ongoing, potentially supporting share value.
• **Employees**: Stock-based compensation grants were made to officers and employees. Increased SG&A expenses were partly driven by salary increases.
• **Customers**: The company continues to invest in technology and product enhancements (e.g., new EBPP, RTP expansion, 'One Usio' strategy) to meet evolving customer demands and improve service.
• **Creditors**: The company has existing equipment loans and has secured additional credit facilities (line of credit, letter of credit) to meet legal obligations and operational needs, indicating a managed approach to debt.
• **Suppliers**: Purchases from related party Angry Pug Sportswear LLC.

Next Steps

• Continue to grow revenues, manage SG&A expenses, add quality customers, meet evolving customer requirements, adapt to technological changes, and assimilate current and future acquisitions.
• Invest in sales force and technology platforms to drive revenue growth.
• Focus on growing ACH merchants, adding new software integrators, and expanding electronic bill presentment, document composition, document decomposition, printing, and mailing services.
• Leverage and optimize business infrastructure to expand payment processing and mail/printing capabilities without significantly increasing operating costs.
• Prepare a response to KDHM's Petition for Review filed in the Supreme Court of Texas.
• Monitor financial position and manage cash balances effectively in response to Federal Reserve monetary policy decisions.

Key Dates

Recommendation

The company's shift from net income to a net loss, coupled with declining Adjusted EBITDA and flat to negative overall revenue growth, presents a concerning financial picture. While strong growth in ACH services and a favorable legal settlement are positive, the significant decline in prepaid card services and increased SG&A expenses are headwinds. The ongoing KDHM lawsuit adds uncertainty. The stock buyback program and available liquidity provide some stability, but the overall financial performance suggests a 'hold' recommendation until there is clear evidence of sustained profitability and a reversal of the negative trends in key segments.

Keywords

Fintech, Payment Processing, ACH, Credit Card Processing, Prepaid Cards, Electronic Bill Presentment, Output Solutions, SEC Filing, 10-Q, Financial Results, Earnings Report, Corporate Governance, Legal Proceedings, Stock Buyback, Sarbanes-Oxley, Financial Technology, Payment Facilitation, PayFac, Real Time Payments, RTP