Item 7. Management’s Discussion and Analysis
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
FORWARD-LOOKING STATEMENTS DISCLAIMER
This Annual Report on Form 10-K contains forward-looking statements that involve risks and uncertainties. If used in this report, the words "will," "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 this annual report on Form 10-K and other reports we file with the Securities 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 audited consolidated financial statements and the notes thereto included in this report.
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Table of Contents
Overview
Usio, Inc. was founded under the name Billserv Com, Inc. in July 1998 and incorporated in the State of Nevada. On June 26, 2019, we changed our corporate name from Payment Data Systems, Inc. to Usio, Inc. Our principal offices are located at 3611 Paesanos Parkway, Suite 300, San Antonio, TX 78231. Our telephone number is (210) 249-4100.
We serve multiple industry verticals with technology that facilitates payment acceptance and funds disbursement in a single, full-stack ecosystem. We provide payment acceptance, card-based processing, prepaid card, payment facilitation and electronic billing products and services to businesses, merchants and consumers.
In addition, we offer customizable prepaid cards which companies use for expense management, incentives, refunds, claims and disbursements, as well as unique forms of compensation such as per diem payments, government disbursements, and similar payments. We also offer prepaid cards to consumers for use as a tool to stay on budget, manage allowances and share money with family and friends. Our UsioCard platform supports Apple Pay®, Samsung Pay™ and Google Pay™. Our PINless debit product allows merchants to debit and credit accounts in real-time. In our over 25-year history, we have created a loyal customer base that relies on us for our convenient, secure, innovative and adaptive services and technology, and we have built long-standing and valuable relationships with premier banking institutions such as Fifth-Third Bank, Sunrise Bank, and Wells Fargo Bank.
We also offer payment facilitation, or PayFac services through a leveraged, one to many, distribution model. Following the completion of the Singular Payments acquisition, we launched our payment facilitation, PayFac, platform called "PayFac-in-a-Box" in late 2018 targeting partnership opportunities with app and software developers in bill-centric verticals, such as legal, healthcare, property management, utilities and insurance. The PayFac-in-a-Box platform 'integration layer' offers a simple integration experience for technology companies who are looking to monetize payments within an existing base of downstream clients. The added value of offering our integration partners access to credit card, debit card, ACH and prepaid card issuance capabilities through a single vendor partner relationship in face-to-face, mobile and virtual payment acceptance environments provides a true single channel commerce experience through an application programming interface, API.
As a result of the acquisition of substantially all of the assets of Information Management Solutions, LLC, or IMS, in December 2020, we also offer additional services relating to electronic bill presentment, document composition, document decomposition and printing and mailing services serving hundreds of customers representing a wide range of industry verticals, including utilities and financial institutions through our wholly-owned subsidiary, Usio Output Solutions, Inc., or Output Solutions. This product offering provides an outsourced solution for document design, print and electronic delivery to potential customers and entities looking to reduce postage costs and increase efficiencies.
Summary of Results
We believe that our success will continue to 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 will continue to invest in our sales force and technology platforms to drive revenue growth, and assess the needs of the market to both enhance and maintain our existing product set, alongside the incorporation of new features and payment processing products. In particular, we are focused on growing our ACH merchants, adding new software integrators, growing our electronic bill presentment, document composition, document decomposition, printing and mailing services business while also 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 and mail and printing capabilities without significantly increasing our operating costs.
We reported net income of $3.3 million and a net loss of $0.5 million for the years ended December 31, 2024 and December 31, 2023, respectively. We had an accumulated deficit of $68.0 million at December 31, 2024.
In 2024, we processed $7.1 billion for all payment types, which was up 33% from the prior year volume of $5.3 billion total dollars processed due to strong growth in our ACH and complimentary services business unit via organic growth and net new customer acquisitions. In addition, success in our PayFac platform drove growth, and exceeded the attrition in our legacy credit card processing portfolios by focusing on our distributed sales force and Independent Software Vendor, or ISV, market. We believe this strategy will continue to drive superior results over time. Total transactions processed were up 26% to 46.9 million. ACH or electronic check transactions processed for 2024 increased by 18.5% compared to 2023. Returned check transactions increased by 17.1% in 2024 compared to 2023. Credit card dollars processed in 2024 increased by 9.9% compared to 2023 and credit card transactions processed for 2024 increased by 23.8% compared to 2023. Both the credit card dollars and transactions processed represent all-time records for the Company. Prepaid card load volume increased by 34.8% and transaction volume increased by 45.1%. These improved transactional metrics helped offset the significantly reduced revenues as part of the anticipated wind down of our COVID incentive card programs at the start of 2024. These incentive programs contributed approximately $12.1 million in prepaid card services revenue during 2023 that needed to be replaced in 2024. Our processing metrics help reflect the improved organic growth and sales activity that took place in the year as part of our initiative to minimize the impact of these expired programs, while also indicating a positive sign for continued growth in the future.
Material Trends and Uncertainties
On August 16, 2022, President Biden signed the Inflation Reduction Act, or IRA, which implemented a 1% excise tax on certain corporate stock repurchases, when repurchases of stock on an established securities market exceed $1 million in a tax year. On May 13, 2022, and again on March 24, 2025, the Board of Directors authorized a renewal of the buy-back program, with a limit up to $4 million of the Company's common stock with a three year duration. In the year ended December 31, 2024, the Company had repurchased approximately $1.4 million of stock as part of its buyback program for which the Company may be required to pay approximately $14,000 in excise tax. Should the Company opt to continue the repurchase of its securities on the open market, and the IRA remain in effect, we may qualify for this tax in 2025, and future years.
The broader implications of the macroeconomic environment, including uncertainty around recent international conflicts including the Russia and Ukraine conflict, supply chain shortages, a recession globally or in markets in which we operate, higher inflation rates, higher interest rates, and other related global economic conditions, remain unknown. A deterioration in macroeconomic conditions could continue to increase the risk of lower consumer spending, merchant and consumer bankruptcy, insolvency, business failure, higher credit losses, or other business interruption, which may adversely impact our business. If these conditions continue or worsen, they could adversely impact our future financial and operating results.
As the Federal Reserve has worked to fight economic inflation, the federal funds rate has experienced rapid growth from the beginning of 2022 into the third quarter of 2023, and remained flat until September 2024 when the federal funds rate was lowered. This resulted in the Company's receiving more favorable interest rates on its current cash balances, amounting to $2.8 million in interest earnings in 2024. Of this interest, $2.3 million was recognized as revenue in the respective business lines for which the cash balances are held, and $0.5 million as interest income. In September 2024, the Federal Reserve lowered the federal funds rate 0.50%, followed by a further 0.25% decline in each of November and December 2024. which has resulted in lower interest earnings on our interest bearing cash accounts. Should the Federal Reserve continue lowering the federal funds rate in the future, this incremental source of income would decline. We continue to work closely with our bank partners, to ensure we effectively manage our cash balances, and monitor the Federal Reserve's monetary policy decisions.
The Company continues to invest in growth initiatives to drive increased revenues, and profitability metrics. Such initiatives include our "One Usio" strategy, designed to unify our brand, sales approach, and payments offerings. Through this strategy, we are developing enhanced client onboarding features, superior customer management, improved reporting and fraud monitoring, alongside a consolidated sales and marketing team to better cross-sell our various payment methods and ancillary services. While we recognized high levels of growth in 2023, a significant portion of this growth was due to the Prepaid card business benefitting from outsized growth in 2022 and 2023 as a result of large incentive programs brought on by the Covid-19 pandemic. Those programs were wound down and completed during 2024, requiring new card programs and clients being brought on to replace prior revenues. While we expect growth to continue, it is possible that we may not see similar rates of expansion moving forward.
Changes in these factors are difficult to predict, and a change in one factor could affect other factors, which could result in adverse effects to our business, results of operations, financial condition, and cash flows.
Critical Accounting Policies and Estimates
General
Our management’s discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with U.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, revenue 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, credit losses, investments, intangible assets, income taxes, 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 these accounting policies 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 Consolidated Financial Statements, Note 1. Description of Business and Summary of Significant Accounting Policies.
Reserve for Processing Losses
If, due to insolvency or bankruptcy of one of the Company’s merchant customers, or for any other reason, the Company is not able to collect amounts from its card processing, credit card, ACH or merchant prepaid customers that have been properly "charged back" by the customer or if a prepaid cardholder incurs a negative balance, the Company must bear the credit risk for the full amount of the transaction. The Company may require cash deposits and other types of collateral from certain merchants to minimize any such risk. In addition, the Company utilizes a number of systems and procedures to manage merchant risk. ACH, prepaid and credit card merchant processing loss reserves are primarily determined by performing a historical analysis of our loss experience and considering other factors that could affect that experience in the future, such as the types of transactions processed and nature of the merchant relationship with its consumers and the Company with its prepaid card holders. This reserve amount is subject to the risk that actual losses may be greater than our estimates. The Company has not incurred any significant processing losses to date. Estimates for processing losses vary based on the volume of transactions processed and could increase or decrease accordingly. The Company evaluates its risk for such transactions and estimates its potential processing losses based primarily on historical experience and other relevant factors. At December 31, 2024 and 2023, respectively, the Company’s reserve for processing losses was $897,116 and $826,528, respectively.
Accounts Receivable/Allowance for Estimated Credit Losses
Accounts receivable are reported as outstanding principal net of an allowance for expected credit losses of $324,000 at December 31, 2024 and 2023.
The Company maintains an allowance for credit losses for estimated losses resulting from the inability or failure of its customers to make required payments. The Company determines the allowance based on an account-by-account review, taking into consideration such factors as the age of the outstanding balance, historical pattern of collections and financial condition of the customer. Past losses incurred by the Company due to credit losses have been within its expectations. If the financial condition of its customers deteriorates, resulting in an impairment of their ability to make contractual payments, additional allowances might be required. Estimates for credit losses are variable based on the volume of transactions processed and could increase or decrease accordingly. The Company normally does not charge interest on accounts receivable.
Accounting for Income Taxes
Our annual tax rate is based on our income, statutory tax rates, and tax planning opportunities available to us. Tax laws are complex and subject to different interpretations by the taxpayer and respective government taxing authority. Significant judgement is required in determining our tax expense and in evaluating our tax positions, including evaluating uncertainties. We review our tax positions yearly and adjust the balances as new information becomes available.
Deferred tax assets represent amounts available to reduce income taxes payable on taxable income in future years. Such assets arise because of temporary differences between the financial reporting and tax bases of assets and liabilities, as well as from net operating loss and tax credit carryforwards. We evaluate the recoverability of these future tax deductions and credits by assessing the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings, and available tax planning strategies. These rely heavily on estimates that are based on a number of factors, including historical data, and business forecasts. To the extent deferred tax assets are not expected to be realized, we record a valuation allowance.
We recognize and measure uncertain tax positions in accordance with U.S. GAAP, pursuant to which we only recognize the tax benefit from an uncertain tax position if it is more likely than not that the tax position will be sustained on examination by the taxing authorities.
As with all businesses, the Company’s tax returns are subject to periodic examination. The Company’s federal returns for the past four years remain open to examination. The Company is subject to the Texas margin tax and Tennessee franchise tax. Management is not aware of any tax positions that would have a significant impact on its financial position.
Revenue Recognition
Revenue consists primarily of fees generated through the electronic processing of payment transactions and related services. Revenue is recognized during the period in which the transactions are processed or when the related services are performed. The Company complies with ASC 606-10 and reports revenues at gross as a principal versus net as an agent. Although some of the Company's processing agreements vary with respect to specific credit risks, the Company has determined for each agreement it is acting in the principal role. Merchants may be charged for these processing services at a bundled rate based on a percentage of the dollar amount of each transaction and, in some instances, additional fees are charged for each transaction. Certain merchant customers are charged a flat fee per transaction, while others may also be charged miscellaneous fees, including fees for chargebacks or returns, monthly minimums, and other miscellaneous services. Revenues derived from electronic processing of credit, debit, and prepaid card transactions that are authorized and captured through third-party networks are reported gross of amounts paid to sponsor banks as well as interchange and assessments paid to credit card associations. Certain card distributors remit payment of fees earned 45 days after the end of the processing period. Prepaid card distributors have payment terms of 30 days following the end of the month. Sales taxes billed are reported directly as a liability to the taxing authority and are not included in revenue. Usio Output Solutions, Inc. provides bill preparation, presentment and mailing services. Revenue from Output Solutions is recognized when the related services are performed for printing and delivered to USPS for postage. We also earn revenues from interest and fees earned on certain assets underlying customer balances. Interest earned on assets directly related to our core business line operations are recorded in the revenue source underlying the associated customer balances. Customer balances held on which the Company earns interest revenues include balances from our Automated Clearing House, or ACH, and complementary services, prepaid card services, and Output Solutions business lines.
Key Business Metrics - Non-GAAP Financial Measures
This report includes the following non-GAAP financial measures as defined in Regulation G adopted by the Commission: EBITDA, adjusted EBITDA, and adjusted EBITDA margins. The Company reports its financial results in compliance with GAAP, but believes that also discussing non-GAAP financial measures provides investors with financial measures the Company uses in the management of its business.
•
The Company defines EBITDA as operating income (loss), before interest, taxes, depreciation and amortization of intangibles.
•
The Company defines adjusted EBITDA as EBITDA, as defined above, plus non-cash stock based compensation costs and certain non-recurring items, such as costs related to acquisitions.
•
The Company defines adjusted EBITDA margins as adjusted EBITDA, as defined above, divided by total revenues.
Management believes that EBITDA, adjusted EBITDA, and adjusted EBITDA margins are helpful to investors in evaluating the Company's operating performance because non-cash costs and other items that management believes are not indicative of its results of operations are excluded.
We reported adjusted EBITDA of $0.5 million for the quarter ended December 31, 2024, as compared to an adjusted EBITDA of $1.1 million for the same period in the prior year. The decrease in adjusted EBITDA in the 2024 quarter was attributable to increases in SG&A combined with reduced profit margins.
We reported adjusted EBITDA of $2.9 million for the twelve months ended December 31, 2024, as compared to an adjusted EBITDA of $3.9 million for the same period in the prior year. The decrease in adjusted EBITDA in 2024 was attributable to slightly lower revenues and profit margins, alongside increases in SG&A.
The following table is a reconciliation of Net Loss to EBITDA for the three and twelve months ended December 31, 2024 and 2023.
Three Months Ended (unaudited)
Twelve Months Ended
December 31, 2024
December 31, 2023
December 31, 2024
December 31, 2023
Reconciliation from Operating Income/(Loss) to Adjusted EBITDA:
Operating income (loss)
$
(602,797
)
$
(3,788
)
$
(1,470,345
)
$
(447,364
)
Depreciation and amortization
555,581
521,932
2,263,302
2,081,533
EBITDA
(47,216
)
518,144
792,957
1,634,169
Non-cash stock-based compensation expense, net
564,300
545,711
2,093,406
2,222,969
Adjusted EBITDA
$
517,084
$
1,063,855
$
2,886,363
$
3,857,138
Calculation of Adjusted EBITDA margins:
Revenues
$
20,560,088
$
20,130,642
$
82,931,840
$
84,066,245
Adjusted EBITDA
517,084
1,063,855
2,886,363
3,857,138
Adjusted EBITDA margins
2.5
%
5.3
%
3.5
%
4.6
%
In previous periods, the Company reported the non-GAAP financial measure of adjusted operating cash flows, which excluded certain items from operating cash flows to provide a measure of cash generated from its core operations. Beginning with the current reporting period, the Company is no longer presenting adjusted operating cash flows as a non-GAAP financial measure. The decision to discontinue reporting adjusted operating cash flows is due to changes in the presentation of certain assets, specifically the movement of assets held for customers, into the financing activities section of our cash flow statement. As a result of this reclassification, we believe that the need for the adjusted operating cash flows measure is no longer required, as the adjustments previously made to exclude these amounts are not necessary.
Use of Non-GAAP Financial Measures
EBITDA, adjusted EBITDA, and adjusted EBITDA margins should be considered in addition to, not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. They are not measurements of our financial performance under GAAP and should not be considered as alternatives to revenue, or net income, as applicable, or any other performance measures derived in accordance with GAAP and may not be comparable to other similarly titled measures of other businesses. EBITDA, adjusted EBITDA, and adjusted EBITDA margins have limitations as analytical tools and you should not consider these Non-GAAP measures in isolation or as a substitute for analysis of our operating results as reported under GAAP.
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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, the program management and processing of prepaid debit cards, and we also offer additional output solution services relating to electronic bill presentment, document composition, document decomposition and printing and mailing services serving hundreds of customers representing a wide range of industry verticals, including utilities and financial institutions. We also earn revenues from interest and fees earned on certain assets underlying customer balances. Interest earned on assets directly related to our core business line operations are recorded in the revenue source underlying the associated customer balances. Customer balances held on which the Company earns interest revenues include balances from our Automated Clearing House, or ACH, and complementary services, prepaid card services, and Output Solutions business lines.
Three Months Ended December 31,
2024
2023
$ Change
% Change
ACH and complementary service revenue
$
4,599,750
$
3,940,961
$
658,789
17
%
Credit card revenue
7,248,182
6,851,743
396,439
6
%
Prepaid card services revenue
3,048,855
4,019,266
(970,411
)
(24
)%
Output Solutions revenue
5,140,816
4,550,748
590,068
13
%
Interest - ACH and complementary services
186,299
239,975
(53,676
)
(22
)%
Interest - Prepaid card services
299,183
506,617
(207,434
)
(41
)%
Interest - Output Solutions
37,003
21,332
15,671
73
%
Total Revenue
$
20,560,088
$
20,130,642
$
429,446
2
%
Year Ended December 31,
2024
2023
$ Change
% Change
ACH and complementary service revenue
$
16,678,324
$
14,888,973
$
1,789,351
12
%
Credit card revenue
29,267,546
28,476,591
790,955
3
%
Prepaid card services revenue
14,080,650
18,729,350
(4,648,700
)
(25
)%
Output Solutions revenue
20,618,996
20,496,195
122,801
1
%
Interest - ACH and complementary services
789,717
495,972
293,745
59
%
Interest - Prepaid card services
1,345,679
932,048
413,631
44
%
Interest - Output Solutions
150,928
47,116
103,812
220
%
Total Revenue
$
82,931,840
$
84,066,245
$
(1,134,405
)
(1
)%
Total revenues for 2024 decreased by 1% to $82.9 million from $84.1 million in 2023. This decrease came entirely from our prepaid business line, which declined 25% as a result of the anticipated reduction in breakage revenues from COVID incentive programs, which began winding down in 2024. The revenue lost from COVID incentive programs was approximately $12.1 million in 2024. However, the lower revenues in our prepaid business line were partially mitigated thanks to the growth of existing relationships, and net new customers, specifically in the corporate and commercial card space. The decline in the prepaid business line was further offset by gains in our ACH and complementary services business line of 12%, through continued sales efforts to grow our organic customer base, alongside net new client acquisitions. Output solutions and credit card revenues were up slightly, 1% and 3% respectively. This was due to new processing equipment being acquired in October 2023 for Output Solutions, and our PayFac business line's continued traction with independent software vendors, or ISVs. The growth in our Payfac business line was 22%, countering the attrition in our legacy credit card portfolios, and now represents over 50% of total credit card processing revenues. The growth in PayFac is anticipated to have a more significant impact overall credit card revenues. Interest revenues were also up 55% on the year across all sectors, benefiting from higher interest rates, and improved management of our cash balances.
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 services expense was $63.3 million and $64.0 million for 2024 and 2023, respectively. Cost of services expenses decreased by $0.7 million, or 1%, in 2024 as compared to 2023 primarily due to decreased transaction costs associated with our lower revenues.
Gross Profit
Gross profit is the net profit after deducting the cost of services. Gross profit was $19.6 million and $20.1 million for 2024 and 2023, respectively. Gross profit decreased by $0.5 million, or 2%, in 2024 as compared to 2023. The key drivers of the decreased gross profit were attributable to slightly lower revenues, though gross margin percentages were also down slightly from 23.9% in 2023 to 23.7% in 2024 resulting in lower total gross profits. The decline in gross margin percentage was in large part due to the anticipated wind down of our highly profitable COVID incentive programs in 2024.
Stock-based Compensation
Stock-based compensation expense decreased slightly to $2.1 million in 2024 from $2.2 million in 2023. Our stock-based compensation expenses for 2024 and 2023 represented the amortization of deferred compensation expenses related to incentive stock grants to employees, officers and directors. The decrease in stock-based compensation is primarily attributable to various three year RSUs and 10 year grants fully vesting during 2024. These vesting offset the increase in stock-based compensation expense related to our June 21, 2024 stock grants. Please refer to Notes 8 and 10 to our Consolidated Financial Statements included elsewhere in this annual report for incremental information regarding these stock grants.
Other Selling, General and Administrative Expenses
Other selling, general and administrative expenses, or SG&A, increased to $16.7 million in 2024 from $16.2 million in 2023. The increase of $0.5 million, or 3%, represented continued investments in staffing and employee retention through various hires and salary increases, alongside increased expenditures related to the Company's security and IT infrastructure to strengthen the Company's defense from cybersecurity risks. Further investments were made to increase our customer success, implementations of merchant onboarding processes, and partner and client integrations strategy to sustain existing operations and future growth.
Depreciation and Amortization
Depreciation and amortization expense consist of the reduction in value of our tangible and intangible assets over their useful life. These assets include property, plant, and equipment, along with intangible assets acquired through acquisition, or developed as internal use software.
Depreciation and amortization expense increased to $2.3 million in 2024 as compared to $2.1 million in 2023. The increase of $0.2 million, or 9%, was primarily attributable to our continued investment in our internal use software, which is continually being developed to offer new or improved consumer offerings.
Other Income
Interest income increased to $0.5 million in 2024 from $0.2 million in 2023 due to higher interest-bearing cash balances. Other income was $1.7 million for 2024, as compared to expense of $0.1 million for 2023 due to the employee retention tax credit recorded under the CARES Act, and extended by the ARPA, received in the year ended December 31, 2024, recorded as other income in our consolidated statement of operations.
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Income Taxes
State income tax expense was $449,227 in 2024 and $292,524 in 2023. The state income tax expense represents amounts incurred under the Texas margin tax.
Net income tax benefit reported was $2.6 million in 2024, and an expense of $0.3 million in 2023 due to the decrease in our valuation allowance of approximately $3.0 million, increased our deferred tax asset to approximately $4.7 million, resulting in a federal income tax benefit to the Company of $3.0 million. Please refer to Note 9 to our Consolidated Financial Statements included elsewhere in this annual report for incremental information regarding this deferred tax asset.
Net Income (Loss)
Income (loss) before income taxes was $0.7 million in 2024 and a loss of $0.2 million in 2023, due primarily to $1.7 million recorded as part of the employee retention tax credit issued under the CARES act.
We reported a net income of $3.3 million and a net loss of $0.5 million for the years ended December 31, 2024 and December 31, 2023, respectively. The increase in net income (loss) was due to the decrease in our valuation allowance of approximately $3.0 million, increased our deferred tax asset to approximately $4.7 million, resulting in a federal income tax benefit to the Company of $3.0 million. Please refer to Note 9 to our Consolidated Financial Statements included elsewhere in this annual report for additional information regarding this deferred tax asset.
Liquidity and Capital Resources
Our primary sources of liquidity are available cash and cash equivalents and cash flows provided by operations and, if an appropriate opportunity presents itself, the sale of debt or equity securities, although we may not be able to complete any financing on terms acceptable to us, if at all. At December 31, 2024, we had $8.1 million of cash and cash equivalents, as compared to $7.2 million of cash and cash equivalents at December 31, 2023. The increase was primarily a result of the increase in net income. For the year ended December 31, 2024 net cash provided by operating activities was $2.9 million and for the year ended December 31, 2023, cash provided by operations was $3.5 million due primarily to the increase of prepaid expenses and decrease in merchant reserves. We expect available cash and cash equivalents and internally generated funds to be sufficient to support working capital needs, capital expenditures (including acquisitions), and our debt service obligations. We believe we have sufficient liquidity to operate for at least the next 12 months from the date of filing this report. Cash from operating activities is dependent on our net income (loss), less depreciation, amortization, credit losses, deferred federal income tax, non-cash stock-based compensation, the amortization of warrant costs, and net of the changes in our operating assets and liabilities. These assets and liabilities include our accounts receivable, prepaid expenses, operating lease right-of-use assets, inventory, other assets, accounts payable and accrued expenses, operating lease liabilities, merchant reserves, customer deposits, and deferred revenues. To the extent we require other sources of capital, we may seek a commercial line of credit or sell debt or equity securities, although we may not be able to complete any financing on terms acceptable to us, if at all.
We reported net income of $3.3 million and a net loss $0.5 million for the years ended December 31, 2024 and 2023, respectively. Additionally, we reported working capital of $10.2 million and $8.0 million at December 31, 2024 and 2023, respectively.
We have in the past, and may in the future, utilize equipment loans in order to finance the cost of particular pieces of equipment. On March 20, 2021, we entered into a debt arrangement to finance $165,996 for the purchase of an Output Solutions sorter. The loan is for a period of 36 months with a maturity date of March 20, 2024. The repayment amount is for 36 months at $4,902 per month. Annual payments are $58,821. The financing is at an interest rate of 3.95%. Payments in 2024 on this equipment loan were $14,536.
On October 1, 2023, the Company entered into a debt arrangement to finance $811,819 for the purchase of an Output Solutions folder and inserter. The loan is for a period of 66 months with a maturity date of April 5, 2029 and annual interest of 6.75%. Monthly principal and interest payments are required in the amount of $16,017. Payments on this equipment loan were $146,074. We cannot assure you that such financing may be available to us on terms acceptable to us, or at all, in the future.
As of December 31, 2024, the Company maintains an undrawn line of credit and an outstanding letter of credit,
both of which were established in connection with a bond required for the Company's appeal of the court’s decision in the KDHM lawsuit.
The Company has an unsecured revolving line of credit with a maximum borrowing capacity of $475,000. The facility was established on May 29, 2024, and matures on June 5, 2026. As of December 31, 2024, no amounts had been drawn under this line of credit since its origination. This line of credit was secured to support the bond requirement in the KDHM lawsuit appeal, but remains fully available.
The Company has an irrevocable letter of credit in the amount of $474,229, issued on June 3, 2024, with a maturity date of July 3, 2025. This letter of credit was obtained as part of the bonding requirement for the KDHM lawsuit appeal and has not been drawn upon since its issuance.
These credit facilities were arranged to comply with legal requirements related to the Company’s appeal and provide additional liquidity resources if needed. 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.
From time to time, we have sold shares of our common stock in order to provide us liquidity. For example, on November 19, 2021, Voyager Digital purchased 142,857 unregistered shares of common stock at an offering price of $7.00 per share in a private offering. The gross proceeds to us from the private offering were $1,000,000. We have also sold securities in public offerings from time to time. For example, in September 2020, we sold 4,705,883 shares of our common stock and received net proceeds of approximately $8 million. We cannot assure you that in the future we will be able to sell shares of our equity securities on terms acceptable to us or at all.
Cash Flows
Net cash provided by operating activities totaled $2.9 million for 2024 as compared to net cash provided by operating activities of $3.5 million in 2023. The decrease in cash provided by operating activities was driven primarily by increases in prepaid expenses, and decreases in merchant reserves.
Net cash used by investing activities was $0.9 million for 2024 and $0.8 million in 2023. The minor increase in investing activities was due to increased expenditures in property and equipment.
Net cash used by financing activities for 2024 was $5.1 million compared to net cash provided by financing activities of $6.1 million for 2023. The increase in cash used by financing activities was primarily attributable to changes in the balance of our assets held for customers related to their payment processing, and in increase of treasury stock repurchases in 2024 by approximately $1.0 million over 2023.
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Off-Balance Sheet Arrangements
We 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and in Item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting obligations and therefore are not required to provide the information requested by this Item.
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