What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-08-06 compared with 2025-05-14 · 141 added, 91 removed, 226 unchanged (51% of the section changed)

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Further, our credit card payment offering was expanded in 2017 with the development of Payment Facilitation, or PayFac, that utilizes our unique technology that allows for instant enrollment of merchants and combined our suite of payment options into an integrated platform for merchants and customers to utilize.

In the first half of 2025, we began, and completed, development of a new EBPP.

This offering allows merchants to create and distribute bills to their customers that can be viewed, and paid, online through our platform and payment processing services.

Through our innovative Prepaid Debit Card platform, we offer a variety of prepaid card products such as reloadable, incentive, promotional and corporate card programs.

Combined with Output Solutions' printing and mailing services, we can satisfy the diverse requirements of customer needs with physical and virtual document creation and distribution, including traditional paper checks.

Our Consumer Choice product developed and debuted in 2022 that provides flexible ways to initiate a variety of payment distributions through a multitude of payment methods including physical prepaid and virtual cards, ACH, paper checks, real-time PINless debit and others.

This offering allows us a superior opportunity to increase our cross-selling efforts through all of our payment methods.

Our Consumer Choice product, which was developed and debuted in 2022, provides flexible ways to initiate a variety of payment distributions through a multitude of payment methods, including physical prepaid and virtual cards, ACH, paper checks, real-time PINless debit and others.

This offering provides us with a superior opportunity to increase our cross-selling efforts through all of our payment methods.

With the growing need for faster payment methods, we continue to invest in technology that can help us further expand our suite of payment technology.

With the rise of Real Time Payments, or RTP, we began expansion into this market vertical in 2023, which serves as an alternative to ACH payments.

As well, we continue to enhance our existing product offerings, with improvements in reporting, data management, fraud and risk monitoring, ease of access, and accelerations in client onboarding and implementation times.

We also continue to enhance our existing product offerings, with improvements in reporting, data management, fraud and risk monitoring, ease of access, and accelerations in client onboarding and implementation times.

With our transition to a cloud-based platform, our speed, security, and scalability in payment processing is further expanded, allowing us to seamlessly grow as the market demands.

The Company has recently adopted its "One Usio" strategy, designed to unify our brand, sales approach, and payments offerings.

The Company recently adopted its "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.

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Through our December 2014 acquisition of the assets of Akimbo Financial, Inc., we added a highly talented technical staff of industry subject matter experts and an innovative cardholder service platform including cardholder web and mobile applications and launched what is now our UsioCard business.

As a result of this acquisition, through our subsidiary, FiCentive, Inc., we offer customizable prepaid cards which customers 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.

As a result of this acquisition, through our subsidiary, FiCentive, Inc., or FiCentive, we offer customizable prepaid cards which customers 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.

This comprehensive money disbursement platform allows businesses to pay their contractors, employees, or other recipients by choosing among a prepaid debit Mastercard, real-time deposit to a checking account, traditional ACH, direct deposit or paper check.

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On December 15, 2020, we entered into the business of 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 the acquisition of substantially all of the assets of IMS.

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.

This product offering, through Output Solutions, provides an outsourced solution for document design, print, and electronic delivery to potential customers and entities looking to reduce postage costs and increase efficiencies.

This acquisition increased our ability to grow new revenue streams and allowed us to reenter the electronic bill presentment and payment revenue stream.

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We will 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, growing our electronic bill presentment, document composition, document decomposition, printing and mailing services business while providing incremental services to existing merchants.

In particular, we are focused on growing our ACH merchants, adding new software integrators, and growing our electronic bill presentment, document composition, document decomposition, printing and mailing services business while providing incremental services to existing merchants.

In addition to our near-term growth opportunities, we are focused on leveraging and optimizing the infrastructure of our business allowing expansion of our payment processing and mail and printing capabilities without significantly increasing our operating costs.

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Revenue growth remains a consistent focus for the Company, as we strive to achieve expanded scale, and establish a strong reputation within the financial technologies space.

This growth assists us in maintaining our diversified offerings, and remain relevant by developing payment platforms that address the current needs of our marketplace.

In the first quarter of 2025, our revenues increased 5% to $22.0 million, as compared to $21.0 million for the quarter ended March 31, 2024, due primarily to strong growth in our ACH and complimentary services line of business, helping to offset lower breakage revenues from our prepaid card line of business as the COVID incentive programs wound down during 2024.

Managing Other Selling, General and Administrative Expenses.

By appropriately managing our expenses (which are discussed under "- Results of Operations - Other Selling, General and Administrative Expenses" below), we believe we can achieve better economies of scale, and drive revenue growth.

This growth assists us in maintaining our diversified offerings and remaining relevant in the payments ecosystem by developing payment platforms that address the current needs of our marketplace.

In the second quarter of 2025, our revenues decreased 1% to $20.0 million, as compared to $20.1 million for the quarter ended June 30, 2024, due primarily to declines in all but our ACH and complimentary services line of business.

Declines in our credit card line of business were due primarily to the loss of a meaningful customer in our Payfac business during the second quarter, compounded by attrition in our legacy portfolios.

However, net new customers from our pipeline have already been implemented and onboarded, which we believe will help offset and overcome this loss in future periods.

The decrease in our prepaid card services revenues were due to declines from one our key prepaid card programs, as their business was impacted by the loss of key customers that made significant contributions to Usio revenues in 2024.

Declines in Output Solutions were due to the absence of some one-time revenues that occurred in the second quarter of 2024.

Additional declines in revenues came from lower interest revenues, as interest rates and interest bearing deposits declined versus the prior year period.

These revenue declines were partially offset, however, by strong growth in our ACH and complementary services line of business, due to organic growth from existing customers, and net new client implementations and onboarding.

In the six months ended June 30, 2025, our revenues increased 2% to $42.0 million, as compared to $41.1 million for the six months ended June 30, 2024, due primarily to growth in our ACH and complimentary services line of business.

This growth, however, was partially offset by the aforementioned declines in revenue that occurred during the second quarter of 2025.

Managing Selling, General and Administrative Expenses.

By appropriately managing our expenses (which are discussed under "- Results of Operations - Selling, General and Administrative Expenses" below), we believe we can achieve better economies of scale, and drive revenue growth.

We believe that carefully evaluating our existing 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.

Other SG&A expenses in the quarter were relatively flat, at $4.1 million as compared to $4.1 million in the prior year quarter.

As a result of improved expense management, alongside workforce efficiencies due to new equipment in our Output Solutions line of business, we anticipate year over year SG&A to remain relatively flat.

For more information, see "-Results of Operations - Other Selling, General and Administrative Expenses" below.

SG&A expenses were up in the quarter, at $4.6 million as compared to $4.0 million in the prior year quarter.

The increase in SG&A expense was primarily due to some one-time expenses incurred during the quarter, related to insurance renewals, marketing and travel expenditures, professional fees, and other various one-time expense accruals.

We believe all of the aforementioned expenses, and SG&A in general, will decline sequentially, combined with improved expense management, alongside workforce efficiencies due to new equipment in our Output Solutions line of business.

Considering these cost saving initiatives we anticipate year over year SG&A to remain relatively flat.

For more information, see "-Results of Operations - Selling, General and Administrative Expenses" below.

Adding Quality Customers and Meeting Their Evolving Requirements.

The addition of new, and quality customers, represents one of our largest opportunities to grow revenues, and stay relevant in the marketplace.

The addition of new, quality customers, represents one of our largest opportunities to grow revenues and stay relevant in the payments ecosystem.

We believe a large and quality client base allows us to stay in touch with the broader needs of the changing payment landscape, while providing a reliable book of business to help fund current and future operations.

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We maintain a committed focus on the ever changing technological landscape within the payments ecosystem.

We believe by regularly attending payments focused conferences, webinars, and training sessions, alongside our consistent communication with customers and clients, enables us to be informed of the most current, and future, applications and evolutions of financial technologies.

We believe that regularly attending payments focused conferences, webinars, and training sessions, alongside our consistent communication with customers and clients, enables us to be informed of the most current, and future, applications and evolutions of financial technologies.

We believe that this allows us to implement new feature functionality to existing products and introduce new payment methods.

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Acquisitions have been a key element in our growth focused strategy, both to add net new customers, and enhance our suite of payment technologies.

This is evident through our acquisition of Akimbo Financial, Inc., Singular Payments, and IMS, which allowed us to introduce new offerings such as prepaid card issuance, PayFac, and electronic bill presentment, all of which represent significant portions of our current revenues.

The assimilation of those acquisitions were critical in both the retention of purchased assets, and their growth, through cross-selling, and implementation into our broader infrastructure that allows for increased diversity of offerings and support.

This is evident through our acquisitions of Akimbo Financial, Inc., Singular Payments, and IMS, which allowed us to introduce new offerings such as prepaid card issuance, PayFac, and electronic bill presentment, all of which represent significant portions of our current revenues.

The assimilation of those acquisitions was critical in both the retention of purchased assets, and their growth, through cross-selling and implementation into our broader infrastructure that allows for increased diversity of offerings and support.

We cannot assure you that we will be able to complete any acquisitions in the future.

In addition to the factors discussed above, we believe that processing volume and transaction counts are a vital measure which indicate our addition and implementation of net new customers, and growth from existing customers, which we believe correlate to both current and future revenues.

In addition to the factors discussed above, we believe that processing volume and transaction counts are vital measures that indicate our addition and implementation of net new customers, and growth from existing customers, which we believe correlate to both current and future revenues.

The change in credit card processing volume, ACH transaction counts, and prepaid card purchase volume are the most direct metrics that drive revenues in their respective business lines, while prepaid card load volumes specifically, are an indicator of future revenue change within the prepaid card business line.

While there are many components to the revenues of our business units that could impact revenue growth or decline, these processing metrics offer an indication to the current health of our overall company and success in our strategies to grow the business.

During the first quarter of 2025, the number of credit card transactions processed by us increased by 65% versus the first quarter of 2024.

The volume of credit card dollars processed during the first quarter of 2025 increased by 17% compared to the same time period in 2024.

During the second quarter of 2025, the number of credit card transactions processed by us increased by 69% versus the second quarter of 2024.

The volume of credit card dollars processed during the second quarter of 2025 increased by 9% compared to the same period in 2024.

The continued growth in credit card metrics was primarily attributable to our PayFac strategy to drive increased penetration across multiple industries including healthcare and legal.

The significant increases in transaction and processing volume growth were offset by the more competitive landscape in credit card processing, resulting in lower than expected revenue growth as the pricing rates for credit card processing are driven down by market competition.

This was compounded by continued attrition in the legacy customer base, who were typically onboarded at higher prices, reducing the impact of the transaction count and processing volume growth we experienced.

ACH (eCheck) transaction counts during the first quarter of 2025 increased by 36% compared to the first quarter of 2024.

Returned check transactions processed during the first quarter of 2025 increased by 24% compared to the first quarter of 2024.

Electronic check dollars processed during the first quarter of 2025 increased by 42% compared to the first quarter of 2024.

ACH (eCheck) transaction counts during the second quarter of 2025 increased by 33% compared to the second quarter of 2024.

Returned check transactions processed during the second quarter of 2025 increased by 32% compared to the second quarter of 2024.

Electronic check dollars processed during the second quarter of 2025 increased by 19% compared to the second quarter of 2024.

The increases in eCheck transactions, returns, and electronic check dollar volumes processed were primarily attributable to traction in our ACH sales efforts driving new merchant onboarding and processing, alongside organic growth from existing customers.

Prepaid card load volumes during the first quarter of 2025 decreased by 15% compared to the first quarter of 2024.

Prepaid card transaction counts processed during the first quarter of 2025 increased by 5% compared to the first quarter of 2024.

Prepaid card purchase volume during the first quarter of 2025 decreased by 8% compared to the first quarter of 2024.

These declines were primarily due to the plateauing and processing reductions in the existing client base.

These clients contributed significant load and purchase volumes in 2024 due to their rapid expansion after their onboarding and implementation as they built up their prepaid cardholder base.

These declines were compounded by delays in the integration of net new client implementations to replace the load and processing volume experience in the first quarter of 2024.

However, despite these declines, we believe revenues from our prepaid card line of business should start to better reflect our focus on growing programs with recurring revenues.

Prepaid card load volumes during the second quarter of 2025 decreased by 51% compared to the second quarter of 2024.

Prepaid card transaction counts processed during the second quarter of 2025 decreased by 37% compared to the second quarter of 2024.

Prepaid card purchase volume during the second quarter of 2025 decreased by 23% compared to the second quarter of 2024.

These declines were primarily due to processing reductions from one of our key clients, who lost their own downstream customers during the quarter.

This client contributed significant card load, purchase volume, and purchase transactions during the prior year period.

We continue to invest time and resources in the development of additional net new customers and clients that are at various stages of the implementation process.

Total dollar volumes processed across all business lines in the first quarter of 2025 were $2.0 billion compared to $1.5 billion processed in the first quarter of 2024, up 34% over the prior year quarter, attributable to processing volume growth in our credit card, and ACH and complementary services business lines, countering the decline of prepaid card processing volume.

Output Solutions total mail pieces processed and delivered were up 3% for the second quarter of 2025 compared to the second quarter of 2024, exceeding 5.4 million, and electronic only documents delivered exceeded 20 million for the second quarter of 2025.

This strong processing activity is not reflected in revenues as the ongoing transition to a more electronic only document delivery model has the effect of reducing the price per unit processed compared to print and mail while at the same time improving profitability.

Total dollar volumes processed across all business lines in the second quarter of 2025 were $1.94 billion compared to $1.68 billion processed in the second quarter of 2024, up 15% over the prior year quarter, attributable to processing volume growth in our credit card, and ACH and complementary services business lines, countering the decline of prepaid card processing volume.

For more information, see "Results of Operations - Revenues."

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Should the Company continue the repurchase of its securities on the open market, and the IRA remains in effect, we may be subject to this tax in 2025 and future years.

During the three months ended March 31, 2025, the Company repurchased $351,640 of stock as part of the buyback program, which may become subject to the IRA's 1% excise tax if the Company meets or exceeds the IRA's 1% excise tax repurchase minimum of $1 million in stock buybacks.

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 $0.5 million in interest earnings in the three months ended March 31, 2025.

During the six months ended June 30, 2025, the Company repurchased $708,298 of stock as part of the buyback program, which may become subject to the IRA's 1% excise tax if the Company meets or exceeds the IRA's 1% excise tax repurchase minimum of $1 million in stock buybacks.

As the Federal Reserve worked to fight economic inflation, the federal funds rate 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 $1.0 million in interest earnings in the six months ended June 30, 2025.

Of this interest, $0.8 million was recognized as revenue in the respective business lines for which the cash balances are held, and $189,919 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.

In September 2024, the Federal Reserve lowered the federal funds rate by 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.

During the first quarter of 2025, global economic activity continued to be impacted by inflation and ongoing geopolitical concerns including the Russia – Ukraine and Hamas – Isreal conflicts.

During the first six months of 2025, global economic activity continued to be impacted by inflation and ongoing geopolitical concerns including the Russia – Ukraine and Hamas – Israel conflicts.

Additionally, the uncertainty resulting from changes in international trade policies (including the potential for new or increased tariffs) created market volatility.

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In addition, markets have been focused on the timing and amount of policy interest rate cuts by central banks globally.

Uncertainty and concerns about geopolitical risks, global central bank policies, inflation and trade policies, including tariffs, escalated over the course of the first quarter.

Uncertainty and concerns about geopolitical risks, global central bank policies, inflation and trade policies, including tariffs, escalated over the course of the first six months of the year.

In April 2025, developments relating to tariffs intensified concerns over the global macroeconomic environment.

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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.

We base our estimates on historical experience and on various other assumptions that we believe 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 such highly uncertain matters or due to 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.

For a summary of Critical Accounting Policies and Estimates, please refer to the Notes to Interim Condensed Consolidated Financial Statements, Note 1, Basis of Presentation.

Reserve for Processing Losses

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Estimates for processing losses are variable based on the volume of transactions processed and could increase or decrease accordingly.

At March 31, 2025 and December 31, 2024, the Company’s reserve for processing losses was $541,521 and $897,116, respectively, and carried on the Company's balance sheet as an accrued expense, and in the statement of cash flows as a change in accrued expenses.

Reserve for Expected Credit Losses

Accounts receivable are reported as outstanding principal net of an allowance for expected credit losses of $324,000 at March 31, 2025 and December 31, 2024.

At June 30, 2025 and December 31, 2024, the Company’s reserve for processing losses was $725,591 and $897,116, respectively, and carried on the Company's balance sheet as an accrued expense, and in the statement of cash flows as a change in accrued expenses.

Accounts Receivable/Allowance for Estimated Credit Losses

Accounts receivable are reported as outstanding principal net of an allowance for expected credit losses, which was $324,000 at June 30, 2025 and December 31, 2024.

The Company maintains an allowance for credit losses for estimated losses resulting from the inability or failure of its customers to make required payments.

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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 $0.7 million for the quarter ended March 31, 2025, as compared to Adjusted EBITDA of $0.8 million for the same period in the prior year.

The decrease in Adjusted EBITDA in the 2025 quarter was attributable to nominally decreased gross profits, and marginally increased SG&A expenses in the period.

Adjusted EBITDA margins were 3.0% in the period, as compared to Adjusted EBITDA margins of 3.8% for the same period in the prior year.

The decrease in Adjusted EBITDA margins was due primarily to lower interest revenues in the period, a high margin revenue source, which resulted in a reduction of gross profit percentage of revenue, and contributing reduced operating income, alongside marginally higher SG&A expenses versus the prior year period.

We reported Adjusted EBITDA of $0.5 million for the quarter ended June 30, 2025, as compared to Adjusted EBITDA of $0.8 million for the same period in the prior year.

The decrease in Adjusted EBITDA in the 2025 quarter was attributable to increased SG&A expenses in the period.

Adjusted EBITDA margins were 2.5% in the quarter ended June 30, 2025, as compared to Adjusted EBITDA margins of 4.0% for the same period in the prior year.

The decrease in Adjusted EBITDA margins was due primarily to higher SG&A expenses versus the prior year period, alongside lower interest revenues in the period, a high margin revenue source.

We reported Adjusted EBITDA of $1.2 million for the six months ended June 30, 2025, as compared to Adjusted EBITDA of $1.6 million for the same period in the prior year.

The decrease in Adjusted EBITDA in the 2025 period was attributable to increased SG&A expenses in the period.

Adjusted EBITDA margins were 2.8% in the six months ended June 30, 2025, as compared to Adjusted EBITDA margins of 3.9% for the same period in the prior year.

The decrease in Adjusted EBITDA margins was due primarily to higher SG&A expenses versus the prior year period, alongside lower interest revenues in the period, a high margin revenue source.

The following tables set forth reconciliations of Operating (Loss) to EBITDA;

EBITDA to Adjusted EBITDA;

and Revenues to Adjusted EBITDA margins for the three months ended March 31, 2025 and 2024.

Three Months Ended March 31,

and Revenues to Adjusted EBITDA margins for the three and six months ended June 30, 2025 and 2024.

Three Months Ended June 30,

Six Months Ended June 30,

Reconciliation from Operating (loss) to Adjusted EBITDA:

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Adjusted EBITDA margins

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 was 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

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Customer balances on which the Company earns interest revenue include balances from our ACH and complementary services, prepaid card services, and Output Solutions business lines.

Three Months Ended March 31,

Three Months Ended June 30,

ACH and complementary services

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Total Revenue

Consolidated revenue for the quarter ended March 31, 2025 increased by 5% to $22.0 million, as compared to $21.0 million for the quarter ended March 31, 2024 due primarily to the 30% growth in our ACH and complimentary services business line, countering the lower breakage revenues from our prepaid card line of business, which declined 13% in the period, primarily as a result of the completion of large prepaid card programs that were effectively wound down completely by the close of the first quarter of 2024.

ACH and complementary services revenue growth was primarily attributable to an increase in ACH check dollar volume of 42%, an increase in transactions of 36%, and an increase in returned check transactions of 24%.

Six Months Ended June 30,

ACH and complementary services

Prepaid card services

Output Solutions

Interest - ACH and complementary services

Interest - Prepaid card services

Interest - Output Solutions

Total Revenue

Consolidated revenue for the quarter ended June 30, 2025 decreased by 1% to $20.0 million, as compared to $20.1 million for the quarter ended June 30, 2024, due primarily to the 26% decline in our prepaid card services business line.

This decrease in prepaid revenues was attributable to one of our key clients losing a portion of their downstream customer base during the second quarter of 2025, which contributed significant revenues in the prior year period.

Further declines were attributable to the 3% decrease in our credit card business unit, which incurred the loss of a key customer during the second quarter of 2025, compounded by attrition in our legacy credit card portfolios.

However, we believe the implementation and onboarding of net new clients during the second quarter of 2025, including a new enterprise customer that we believe has the potential to consistently generate $100 million in annual processing volume, will offset and overcome this loss in future periods.

Output Solutions revenue was also down 1% for the quarter ended June 30, 2025 compared to the same period of 2024, due primarily to the presence of some non-recurring revenues during the prior year period.

Further declines in revenues were attributable to lower interest revenue, associated with lower interest rates and interest bearing deposits versus the prior year period.

All of this decline, however, was almost entirely offset by the 33% growth in our ACH and complimentary services business line.

ACH and complementary services revenue growth was primarily attributable to an increase in ACH check dollar volume of 19%, an increase in transactions of 33%, and an increase in returned check transactions of 32%, in each case, for the quarter ended June 30, 2025 compared to the same period of 2024.

This growth was a result of organic growth within our existing customer base, alongside net new client implementations that began processing during the second quarter of 2025.

Our ACH business also benefited from an increase in revenue from ancillary product offerings, such as RCC and PINless debit.

Our Output Solutions lines of business were also up 4% in the quarter due to the addition of net new recurring billing;

however, delays in some net new customer implementations resulted in lower growth than anticipated.

Our credit card revenues were also up 4%, due primarily to continued success in our PayFac division, where revenues were up 25%, offsetting attrition from our legacy credit card base and increased competition.

As our PayFac book of business now exceeds our legacy credit card processing in total revenue contribution, the impact of its growth is anticipated to become more apparent in overall credit card processing growth figures in future periods.

For more information, see "- Summary of Results."

Interest revenues on underlying customer assets recognized in the quarter ended March 31, 2025 were $0.4 million compared to interest revenues of $0.6 million in the quarter ended March 31, 2024 primarily due to lower interest rates and interest bearing cash deposits.

Consolidated revenue for the six months ended June 30, 2025 increased by 2% to $42.0 million, as compared to $41.1 million for the six months ended June 30, 2024, due primarily to the 32% growth in our ACH and complimentary services business line.

This growth was a result of organic growth within our existing customer base, alongside net new client implementations that began processing during the first six months of 2025.

Our ACH business also benefited from an increase in revenue from ancillary product offerings, such as RCC and PINless debit.

Output Solutions revenue was also up 1% for the six months ended June 30, 2025 compared to the same period of 2024 as the business unit continues to attract new customers due to its enhanced capacity and efficiency related to the purchase and integration of new equipment in 2024.

Further growth was attributable to the 1% revenue increase in our credit card business unit for the six months ended June 30, 2025 compared to the same period of 2024, despite the loss of a key customer during the second quarter of 2025, and attrition in our legacy credit card portfolios.

We believe the implementation and onboarding of net new clients during the second quarter of 2025 will offset and overcome this loss in future periods.

Revenue growth was offset by a 20% decline in our prepaid card services business line for the six months ended June 30, 2025 compared to the same period of 2024.

Further declines in revenues were attributable to lower interest revenue, associated with lower interest rates and interest bearing deposits versus the prior year period.

For more information, see "- Summary of Results."

Cost of Services

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Cost of service fees also include fees paid to referral agents and partners.

Cost of services increased by $1.1 million, or 7%, to $17.2 million for the quarter ended March 31, 2025, as compared to $16.1 million for the same period in the prior year, due to increased revenues driving similar increases in our processing, banking and transactional expenses.

Cost of services decreased by $0.5 million, or 3%, to $14.8 million for the quarter ended June 30, 2025, as compared to $15.3 million for the same period in the prior year, due to lower total revenues, with increased revenue contribution from higher margin business lines such as ACH and complementary services, and declines in our other, lower margin business units, driving similar decreases in our processing, banking and transactional expenses.

Cost of services increased by $0.6 million, or 2%, to $32.0 million for the six months ended June 30, 2025, as compared to $31.4 million for the same period in the prior year, due to increased total revenues driving similar increases in our processing, banking and transactional expenses.

Gross profit is the net profit existing after the cost of services.

Gross profit decreased by 1% to $4.8 million for the quarter ended March 31, 2025, as compared to $4.9 million for the same period in the prior year.

Gross profit percentage of revenue was 21.9% for the quarter ended March 31, 2025, down from 23.1% in the prior year period.

The decrease in gross profit in the quarter ended March 31, 2025, as compared to the same period during the prior year, was primarily attributable to lower gross profit percentage of revenue.

The decrease in gross profit percentage of revenue was primarily due to the decrease in interest revenues versus the prior year period.

In addition, ACH and complementary services segment revenue growth was strongest in the slightly less profitable complementary services.

Gross profit increased by 7% to $5.1 million for the quarter ended June 30, 2025, as compared to $4.8 million for the same period in the prior year.

Gross profit percentage of revenue was 25.8% for the quarter ended June 30, 2025, up from 23.9% in the prior year period, an increase of approximately 1.85%, or 185 basis points.

The increase in gross profit in the quarter ended June 30, 2025, as compared to the same period during the prior year, was primarily attributable to higher gross profit percentage of revenue.

The increase in gross profit percentage of revenue was primarily due to the ACH and complementary services segment revenue growth, our highest margin business unit, while lower margin revenues from other business lines declined.

Gross profit increased by 3% to $9.9 million for the six months ended June 30, 2025, as compared to $9.7 million for the same period in the prior year.

Gross profit percentage of revenue was 23.7% for the six months ended June 30, 2025, up from 23.5% in the prior year period, an increase of approximately .19%, or 19 basis points.

The increase in gross profit in the six months ended June 30, 2025, as compared to the same period during the prior year, was primarily attributable to higher total revenue with a nominal increase in gross profit percentage of revenue, both of which were related in growth in our ACH and complementary services line of business.

Stock-based Compensation

Stock-based compensation expenses were $0.4 million for the quarter ended March 31, 2025 as compared to $0.5 million for the quarter ended March 31, 2024, with minor decreases versus the prior year period due to completed amortization of previously issued stock based awards.

Other Selling, General and Administrative Expenses

Other SG&A expenses were $4.1 million for the quarter ended March 31, 2025 as compared to $4.1 million in the prior year quarter.

The essentially flat SG&A for the quarter ended March 31, 2025 reflects realized efficiencies in our workforce, driven by enhancements in equipment from our Output Solutions line of business reducing labor costs, alongside strategic spending management in our other lines of business, allowing revenues to increase without commensurate increases in our SG&A expenses.

Stock-based compensation expenses were $0.4 million for the quarter ended June 30, 2025 as compared to $0.5 million for the quarter ended June 30, 2024, due to completed amortization of previously issued stock based awards.

Stock-based compensation expenses were $0.8 million for the six months ended June 30, 2025 as compared to $1.0 million for the six months ended June 30, 2024, due to completed amortization of previously issued stock based awards.

Selling, General and Administrative Expenses

SG&A expenses were $4.6 million for the quarter ended June 30, 2025 as compared to $4.0 million in the prior year quarter.

The increase in SG&A for the quarter ended June 30, 2025 was driven by several one-time expenditures, such as insurance renewals, marketing and travel related expenses, professional fees, and other one-time expense accruals.

We anticipate SG&A expenses to decline sequentially, and remain essentially flat relative to prior year periods.

SG&A expenses were $8.8 million for the six months ended June 30, 2025 as compared to $8.1 million in the prior year period.

The increase in SG&A for the six months ended June 30, 2025 was driven by several one-time expenditures during the second quarter of 2025, such as insurance renewals, marketing and travel related expenses, professional fees, and other one-time expense accruals.

We anticipate SG&A expenses to decline sequentially, and remain essentially flat relative to prior year periods.

Depreciation and Amortization

Depreciation and amortization expense consists 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 totaled $0.5 million and $0.6 million for the quarters ended March 31, 2025 and 2024, respectively.

These assets include property, plant, and equipment, along with intangible assets acquired through acquisitions, or developed as internal use software.

Depreciation and amortization expense totaled $0.5 million for each of the quarters ended June 30, 2025 and 2024.

The slight decrease in depreciation and amortization expense for the quarter ended June 30, 2025 compared to the prior year quarter was due to the completed amortization of intangible assets, specifically related to capitalized labor for our internal use software, decreasing overall depreciation and amortization expense versus the same period a year ago.

Depreciation and amortization expense totaled $1.0 million and $1.1 million for the six months ended June 30, 2025 and 2024, respectively.

The decrease in depreciation and amortization expense was due to the completed amortization of intangible assets, specifically related to capitalized labor for our internal use software, decreasing overall depreciation and amortization expense versus the same period a year ago.

Other income, net was $0.1 million for the quarter ended March 31, 2025 compared to $0.1 million for the quarter ended March 31, 2024.

State income tax expense in the three months ended March 31, 2025 and 2024 was $62,554 and $70,000, respectively.

We reported a net loss of $0.2 million for the quarter ended March 31, 2025, as compared to a net loss of $0.3 million for the same period in the prior year.

The decrease in net loss was driven primarily by higher revenues, alongside lower stock-based compensation and depreciation and amortization expenses countering slightly lower gross profits and interest income.

Other income, net was $0.1 million for the quarter ended June 30, 2025 compared to $0.4 million for the quarter ended June 30, 2024.

This decrease in the 2025 quarter compared to the corresponding 2024 quarter was driven primarily by the receipt of an employee retention tax credit issued under the CARES Act in the prior year period.

Other income, net was $0.2 million for the six months ended June 30, 2025 compared to $0.5 million for the six months ended June 30, 2024.

This decrease in the 2025 period compared to the corresponding 2024 period was driven primarily by the receipt of an employee retention tax credit issued under the CARES Act in the prior year period.

State income tax expense in the three months ended June 30, 2025 and 2024 was $68,857 and $70,000, respectively.

State income tax expense in the six months ended June 30, 2025 and 2024 was $131,411 and $140,000, respectively.

Net Income (Loss)

We reported a net loss of $0.4 million for the quarter ended June 30, 2025, as compared to net income of $0.1 million for the same period in the prior year.

The decrease from net income to a net loss was driven primarily by increases in SG&A, alongside the receipt of an employee retention tax credit issued under the CARES Act in the prior year period.

We reported a net loss of $0.6 million for the six months ended June 30, 2025, as compared to a net loss of $0.2 million for the same period in the prior year.

The increase in net loss was driven primarily by increases in SG&A, alongside the receipt of an employee retention tax credit issued under the CARES Act in the prior year period.

We may incur future operating losses.

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Our primary sources of liquidity are available cash and cash equivalents and cash flows provided by operations.

As of March 31, 2025, we had cash and cash equivalents of $8.7 million.

For the three months ended March 31, 2025, cash provided by operations was $1.4 million.

As of June 30, 2025, we had cash and cash equivalents of $7.5 million.

For the six months ended June 30, 2025, cash provided by operations was $1.1 million.

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.

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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.

We reported a net loss of $0.2 million for the three months ended March 31, 2025 compared to a net loss of $0.3 million for the three months ended March 31, 2024.

We had an accumulated deficit of $68.3 million and $68.0 million at March 31, 2025 and December 31, 2024, respectively.

Additionally, we had working capital of $10.2 million and $10.2 million at March 31, 2025 and December 31, 2024, respectively.

We reported a net loss of $0.6 million for the six months ended June 30, 2025 compared to a net loss of $0.2 million for the six months ended June 30, 2024.

We had an accumulated deficit of $68.6 million and $68.0 million at June 30, 2025 and December 31, 2024, respectively.

Additionally, we had working capital of $9.9 million and $10.2 million at June 30, 2025 and December 31, 2024, respectively.

From time to time we have sold shares of our common stock in order to provide liquidity.

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The facility was established on May 29, 2024, and matures on June 5, 2026.

As of March 31, 2025, no amounts had been drawn under this line of credit since its origination.

As of June 30, 2025, 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.

The Company has an irrevocable letter of credit in the amount of $474,229, issued on June 3, 2024, with a maturity date of June 3, 2026.

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.

These credit facilities were arranged to comply with legal requirements related to the Company’s lawsuit 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.

Net cash provided by operating activities for the three months ended March 31, 2025 was $1.4 million, as compared to net cash provided by operating activities of $0.1 million for the three months ended March 31, 2024.

The increase in cash provided by operating activities was due primarily to the larger decrease in accounts receivable, alongside improved net income, and reduced depreciation expense versus the same period last year.

Net cash provided by operating activities for the six months ended June 30, 2025 was $1.1 million, as compared to net cash provided by operating activities of $0.5 million for the six months ended June 30, 2024.

The increase in cash provided by operating activities was due primarily to the collection of a tax credit and reducing accounts receivable versus the same period last year.

We continue to invest resources in the infrastructure of our business such as the retention, and acquisition of employees, sales-related travel, and marketing efforts to achieve scale across all business lines.

Net cash used in investing activities was $0.3 million for the three months ended March 31, 2025 as compared to cash used in investing activities of $0.2 million for the three months ended March 31, 2024.

Net cash used in investing activities was $0.7 million for the six months ended June 30, 2025 as compared to cash used in investing activities of $0.5 million for the six months ended June 30, 2024.

The primary driver of our investing activities was capital expenditures associated with capitalized software development costs and other capital investments associated with growing our business lines and associated employee counts.

The increase in cash used in investing activities was primarily attributable to the increased amount of fixed asset purchases and capitalization of internal use software relative to the same period a year ago.

Net cash provided by financing activities for the three months ended March 31, 2025 was $3.6 million and net cash used in financing activities for the three months ended March 31, 2024 was $6.8 million.

The increase in cash provided by financing activities was primarily attributable to the increase in assets held for customers, which includes settlement processing and prepaid card load assets relative to the same period a year ago.

Net cash provided by financing activities for the six months ended June 30, 2025 was $2.5 million and net cash used in financing activities for the six months ended June 30, 2024 was $2.5 million.

The increase in cash provided by financing activities was primarily attributable to the increase in assets held for customers, which include settlement processing and prepaid card load assets relative to the same period a year ago.

Off-Balance Sheet Arrangements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis