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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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.
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.
We continue to actively work on expanding and supplementing our product offerings in order to retain key customers, as well as extend our market reach. Through our diverse payment channels, we believe we offer a comprehensive payment ecosystem that can satisfy the variety of needs any client may have. As a result, not only do we have a portfolio of products that we believe is attractive to the broader payment market and can drive new customer growth, but our embedded technology also improves relationships with existing clients by increasing engagement and customer loyalty.
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Strategy
We believe that our success in 2026 and beyond will continue to depend in large part on our ability to (a) scale recurring revenues and deepen partner relationships, (b) expand our product offerings, (c) pursue disciplined, accretive opportunities, (d) enhance shareholder value via operational execution and capital allocation, and (e) 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. 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 to enable expansion of our payment processing and mail and printing capabilities without significantly increasing our operating costs. We continue to seek ways to grow revenue, and net new client implementations and onboards occur regularly due to our ability to address the needs of our market.
Growing Revenues. 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 remaining relevant in the payments ecosystem by developing payment platforms that address the current needs of our marketplace. In 2025, our revenues increased 3% to $85.4 million, as compared to $82.9 million in 2024, due primarily to strong growth in our ACH and complementary services line of business, though offset in large part by declines in our prepaid card services line of business and interest revenues. The strong growth in our ACH and complementary services line of business was due to organic growth from existing customers and net new client implementations and onboarding. The decrease in our prepaid card services revenues was due to declines from one of our key prepaid card programs, as its business was impacted by the loss of a key customer that made significant contributions to Usio revenues in 2024. Lower interest revenues were driven by interest rates and interest bearing deposits declining versus the prior year.
Expand our product offerings. We maintain a committed focus on the ever changing technological landscape within the payments ecosystem. 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. This has led to our evolution from being an EBPP provider at the Company's founding, to the diverse payment provider we are today, with offerings such as ACH processing, PINless debit, RTP, prepaid card issuance, and credit card processing. In the digital marketplace, it is especially crucial to match the need for diversified payment options in an increasingly ecommerce driven world.
Pursue disciplined, accretive opportunities. Acquisitions have been a key element in our growth-focused strategy, both by adding net new customers and by enhancing our suite of payment technologies. 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 Company continually evaluates the markets for opportunities to acquire or partner with accretive opportunities that align with our core competencies. In 2025, we acquired the assets of PostCredit, which we believe once again represents an opportunity to enhance our existing products and to introduce us as a new competitor in the expense management market vertical. We cannot assure you that we will be able to complete any acquisitions in the future.
Enhancing shareholder value via operational execution and capital allocation. 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 selling, general and administrative, or SG&A, expenses, and balancing them against the need for client implementation and support, together with our technology staff driving product innovation, will guide our operational strategies while maintaining a focus on efficiencies and profitability. SG&A expenses were up in the year, at $18.4 million as compared to $16.7 million in the prior year. The increase in SG&A expense was primarily due to increases in salary alongside increases in network infrastructure, travel expenditures, professional fees, and other various general expenses. For more information, see "-Results of Operations - Selling, General and Administrative Expenses" below.
Assimilating Current and Future Acquisitions. The assimilation of our previous acquisitions has been critical in both the retention of purchased assets and their growth, through cross-selling and implementation into our broader infrastructure, which allows for increased diversity of offerings and support. Successfully assimilating acquisitions remains a crucial priority for the success of the Company. The recent acquisition of PostCredit represents an especially critical component of this strategy, and may require significant time investment and capital expenditure to fully implement. We cannot assure you that we will be able to successfully assimilate new and future acquisitions.
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Summary of Results
In 2025, we processed $8.4 billion for all payment types, which was up 19% from the prior year volume of $7.1 billion total dollars processed due to strong growth in our ACH and complimentary services business unit and PINless debit product line, 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 30% in 2025 to 60.8 million.
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ACH or electronic check transactions processed for 2025 increased by 29.3% compared to 2024. Returned check transactions increased by 31.2% in 2025 compared to 2024.
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Credit card dollars processed in 2025 increased by 12.7% compared to 2024 and credit card transactions processed for 2025 increased by 66.3% compared to 2024.
All of these metrics for dollars and transactions processed represent all-time records for the Company.
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Prepaid card load volume decreased by 40.6% and transaction volume decreased by 26.5%. These declines were driven primarily by the loss of a downstream customer from one of our key clients in 2025, which had contributed significant load and transaction processing volume in the prior year period. While there has been success in new client onboarding, replacement of this customer has been delayed as many of our more meaningful new programs have anticipated start dates in mid to late 2026.
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Material Trends and Uncertainties
On August 16, 2022, former 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 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, 2025, the Company had repurchased approximately $1.1 million of stock as part of its buyback program for which the Company may be required to pay approximately $11,000 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 2026, and future years.
The broader implications of the macroeconomic environment, including uncertainty around recent international conflicts including the Russia and Ukraine conflict and the military actions in Iran by the U.S. and Israel, 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. In April 2025, developments relating to tariffs intensified concerns over the global macroeconomic environment. Volatility across financial markets rose and the prospect of a U.S. recession increased further. Uncertainty around the path forward and concerns over the potentially escalating effects of a trade war have created risks for the U.S. and global economies. A deterioration in macroeconomic conditions as well as ongoing uncertainty regarding tariffs or trade disputes 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 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 $1.9 million in interest earnings in 2025. Of this interest, $1.5 million was recognized as revenue in the respective business lines for which the cash balances are held, and $0.4 million as interest income. In 2024, the Federal Reserve lowered the federal funds rate four times by a cumulative 1%, and by 0.25% twice in 2025 during September and October 2025, 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.
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.
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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, or GAAP. 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 did not incur any significant processing losses in 2025, but has experienced substantial losses in the past. For example, in the first quarter of 2023, we incurred $833,485 in merchant processing losses as a result of fraudulent activity and identify fraud from multiple merchants, of which $755,494 was deducted from our reserve for processing losses. 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, 2025 and 2024, the Company’s reserve for processing losses was $784,937 and $897,116, respectively, included as an accrued expense on the consolidated balance sheets.
Accounts Receivable/Allowance for Estimated Credit Losses
Accounts receivable are reported as outstanding principal net of an allowance for expected credit losses of $404,132 and $324,000 at December 31, 2025 and 2024, respectively.
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 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 franchise 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. Output Solutions, 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.
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Key Business Metrics - Non-GAAP Financial Measures
This Annual Report on Form 10-K includes the following non-GAAP financial measures as defined in Regulation G adopted by the SEC: 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 loss of ($0.2) million for the quarter ended December 31, 2025, as compared to an adjusted EBITDA of $0.5 million for the same period in the prior year. The decrease in adjusted EBITDA in the 2025 quarter was attributable to increases in SG&A and reduced gross profit as a result of declines in interest revenue.
We reported adjusted EBITDA of $1.3 million for the twelve months ended December 31, 2025, as compared to an adjusted EBITDA of $2.9 million for the same period in the prior year. The decrease in adjusted EBITDA in 2025 was attributable to increases in SG&A.
The following table is a reconciliation of Net Loss to EBITDA for the three and twelve months ended December 31, 2025 and 2024.
Twelve Months Ended
December 31, 2025
December 31, 2024
Reconciliation from Operating Income/(Loss) to Adjusted EBITDA:
Operating income (loss)
$
(2,359,605
)
$
(1,470,345
)
Depreciation and amortization
1,946,224
2,263,302
EBITDA
(413,381
)
792,957
Non-cash stock-based compensation expense, net
1,743,893
2,093,406
Adjusted EBITDA
$
1,330,512
$
2,886,363
Calculation of Adjusted EBITDA margins:
Revenues
$
85,393,626
$
82,931,840
Adjusted EBITDA
1,330,512
2,886,363
Adjusted EBITDA margins
1.6
%
3.5
%
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 ACH network and 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 ACH and complementary services, prepaid card services, and Output Solutions business lines.
Year Ended December 31,
2025
2024
$ Change
% Change
ACH and complementary service revenue
$
22,199,050
$
16,678,324
$
5,520,726
33
%
Credit card revenue
30,012,875
29,267,546
745,329
3
%
Prepaid card services revenue
11,004,704
14,080,650
(3,075,946
)
(22
)%
Output Solutions revenue
20,645,353
20,618,996
26,357
0
%
Interest - ACH and complementary services
745,252
789,717
(44,465
)
(6
)%
Interest - Prepaid card services
615,442
1,345,679
(730,237
)
(54
)%
Interest - Output Solutions
170,950
150,928
20,022
13
%
Total Revenues
$
85,393,626
$
82,931,840
$
2,461,786
3
%
Total revenues for 2025 increased by 3% to $85.4 million from $82.9 million in 2024. This increase came primarily from our ACH and complementary services business line, which increased by 33%, due to successful sales efforts to grow our organic customer base, alongside net new client implementations. Growth in our credit card line of business was also up 3% as a result of our Payfac credit card segment outpacing both attrition in our legacy base, and the loss of a key customer in the first quarter of 2025, who contributed meaningful revenue throughout 2024. Total revenue growth, however, was reduced due to prepaid card services revenue declining 22% as a result of the loss of a downstream customer from one of our key clients due to it being acquired at the start of 2025. This downstream customer contributed significant revenues in 2024 that were not present in 2025. While there have been successful efforts to onboard new clients with the capability of replacing this revenue and continuing growth in our prepaid business line, much of the material new business is not anticipated to begin until the second half of 2026. Interest revenues were also down 33% on the year across all sectors as a result of lower interest rates and reduced cash balances held throughout 2025. Revenues from Output Solutions were flat, reflecting challenges in growing at a rate that exceeds attrition in an increasingly competitive market landscape for print and mail services. The acquisition of a new folder and inserter piece of equipment in late 2023, alongside the purchase of a new printer at the end of 2025, which is expected to be operational in early 2026, are expected to help increase capacity and the speed at which we can complete jobs. We anticipate this helping ensure we can sustain existing operations, enhance our competitiveness, and increase our capability of generating new business, while also lowering our costs to process print and mail services at scale. Results have already been realized, as the quantity of mail we printed and delivered in the first two months of 2026 was higher than in any other two-month period in the history of the Company.
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 $65.7 million and $63.3 million for 2025 and 2024, respectively. Cost of services expenses increased by $2.4 million, or 4%, in 2025 as compared to 2024 primarily due to increased revenues. Increases in our cost of services outpaced revenue growth due to the shift in revenue-generating business lines. This was primarily related to declines in higher margin prepaid card services revenues and increases in lower margin revenues from complementary services in our ACH and complementary service business line, such as PINless debit.
Gross Profit
Gross profit is the net profit after deducting the cost of services. Gross profit was $19.7 million and $19.6 million for 2025 and 2024, respectively. Gross profit increased nominally by $0.1 million, or 0.4%, in 2025 as compared to 2024. Gross profit margins were down slightly from 23.7% in 2024 to 23.1% in 2025, reflective of both a decline in our 100% margin interest revenues, alongside a shift in our business mix, as higher margin prepaid revenues made up a smaller portion of overall revenues.
Stock-based Compensation
Stock-based compensation expense decreased to $1.7 million in 2025 from $2.1 million in 2024. Our stock-based compensation expenses for 2025 and 2024 represented the amortization of deferred compensation expenses related to incentive stock grants to employees, officers and directors. The decrease in stock-based compensation was primarily attributable to various three year RSUs and 10 year grants fully vesting during 2025. This vesting offset the increase in stock-based compensation expense related to our June 21, 2024 and August 21, 2025 stock grants. Please refer to Notes 9 and 11 to our Consolidated Financial Statements included elsewhere in this Annual Report for incremental information regarding these stock grants.
Selling, General and Administrative Expenses
Selling, general and administrative expenses, or SG&A, increased to $18.4 million in 2025 from $16.7 million in 2024. The increase of $1.6 million, or 10%, 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 decreased to $1.9 million in 2025 as compared to $2.3 million in 2024. The decrease of $0.3 million, or 14%, was primarily attributable to the completed depreciation of fixed and intangible assets related to internal use software.
Other Income, net
Interest income decreased to $0.4 million in 2025 from $0.5 million in 2024 due to both lower interest rates, and interest-bearing cash balances. Other income, net was $0.4 million for 2025, as compared to income of $2.1 million for 2024 due to the employee retention tax credit recorded under the CARES Act, and extended by the ARPA, received in 2024, and recorded as other income in our consolidated statement of operations.
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Income Taxes
State income tax expense was $458,599 in 2025 and $449,227 in 2024. The state income tax expense represents amounts incurred under the Texas franchise tax.
Income tax reported was an expense of $0.5 million in 2025 and a benefit of $2.6 million in 2024, with the difference due to the decrease in our valuation allowance of approximately $3.6 million, and an increase in our deferred tax asset to approximately $4.5 million, resulting in a federal income tax benefit to the Company of $3.1 million in 2024. Please refer to Note 11 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 a loss of $2.0 million in 2025 and income of $0.7 million in 2024, with the decline from 2024 to 2025 due primarily to increased SG&A expenses in 2025 versus 2024 alongside the presence of $1.7 million recorded in 2024 as part of the one time employee retention tax credit issued under the CARES which was not present in 2025, to offset the higher operating loss.
We reported a net loss of $2.5 million and net income of $3.3 million for the years ended December 31, 2025 and December 31, 2024, respectively. The decrease in net income (loss) was due to the 2024 federal income tax benefit of $3.0 million, combined with the receipt of the employee retention tax credit in 2024, which did not occur in 2025. Please refer to Note 11 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, 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, 2025, we had $7.4 million of cash and cash equivalents, as compared to $8.1 million of cash and cash equivalents at December 31, 2024. The decrease was primarily a result of the increased SG&A and lower interest revenues/income. For the year ended December 31, 2025, net cash provided by operating activities was $1.5 million, and for the year ended December 31, 2024, cash provided by operations was $2.9 million with the decrease due primarily to the absence of the employee retention tax credit that was received in 2024, combined with increased SG&A expense. 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 working capital of $9.4 million and $10.2 million at December 31, 2025 and 2024, respectively. This decrease was a result of declines in cash and cash equivalents, alongside lower accounts receivable.
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 was for a period of 36 months with a maturity date of March 20, 2024. The repayment schedule was for 36 months at $4,902 per month. Annual payments were $58,821. The financing was at an annual interest rate of 3.95%. This equipment loan was paid off in its entirety in 2024 with total payments of $14,536 during 2024.
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 an annual interest rate of 6.75%. Monthly principal and interest payments are required in the amount of $16,017. Total interest and principal payments on this folder and inserter equipment loan were $191,812 for the twelve months ended December 31, 2025 and $146,074 for the twelve months ended December 31, 2024.
On September 19, 2025, the Company entered into a debt arrangement to finance $1,017,954 for the purchase of an Output Solutions printer. The loan is for a period of 66 months with a maturity date of March 19, 2031 and an annual interest rate of 6.75%. Monthly principal and interest payments are required in the amount of $20,088, with monthly interest only payments in the amount of $5,758 required for the first six months of the loan term beginning in October 2025. As of December 31, 2025, only $791,742 in proceeds have been drawn from the loan and presented on the Company's balance sheet with the remaining commitment of $226,212 still available. Total payments on the printer loan in 2025 were $6,574.
As of December 31, 2025, 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, which was settled in February 2026.
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, 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 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.
As a result of the KDHM lawsuit settlement, the Company will not renew the line of credit or letter of credit upon their maturity. There are no ongoing costs associated with the maintenance of either of these credit facilities.
These credit facilities were arranged to comply with legal requirements related to the Company’s appeal and to 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 $1.5 million for 2025 as compared to net cash provided by operating activities of $2.9 million in 2024. The decrease in cash provided by operating activities was due primarily to the absence of the employee retention tax credit that was received in 2024, combined with increased SG&A expense.
Net cash used by investing activities was $1.5 million for 2025 and $0.9 million in 2024. The increase in investing activities was due to increased expenditures related to capitalized labor for internal use software.
Net cash provided by financing activities for 2025 was $28.7 million compared to net cash used by financing activities of $5.1 million for 2024. The increase in cash provided by financing activities was primarily attributable to changes in the balance of our assets held for customers related to their payment processing, proceeds from the equipment loan related to our new printer, and a decrease of treasury stock repurchases in 2025 by approximately $0.3 million over 2024.
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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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