Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

FORWARD-LOOKING STATEMENTS DISCLAIMER

This Quarterly Report on Form 10-Q (this "quarterly report" or this "report") 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 the 2024 Annual Report and other reports we file with the 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 unaudited interim condensed consolidated financial statements and the notes thereto included in this report, and the 2024 Annual Report, including the audited consolidated financial statements and the notes contained therein.

Overview

As a cloud-based, Fintech payment processor, we serve multiple industry verticals with technology that facilitates payment acceptance and funds disbursement in a single, full-stack ecosystem. We provide payment acceptance through multiple payment methods including: payment facilitation, prepaid card and electronic billing products and services to businesses, merchants and consumers. We seek to grow our business both organically through the continued development and enhancement of our products and services and through acquisitions of new products and services. We will continue to look for opportunities (both internally and externally) to enhance our offerings to meet customer demands as they arise.

Since 1998, through our merchant services business lines, which now consist of ACH and complementary services, credit card processing and prepaid cards, Usio has entered a number of market verticals within the payments industry in order to satisfy the growing payment needs of consumers and merchants across the United States. Beginning with our Electronic Bill Presentment and Payment, or EBPP, product that launched the Company, we entered into the electronic funds transfer space through the ACH network, developing ancillary and complementary products such as PINless debit in 2016, and Remotely Created Checks, or RCC, account validation, and account inquiry in 2019. These supplementary product options offer customers access to faster and more convenient payment options and tools to improve operating efficiencies. Further, our credit card payment offering was expanded in 2017 with the development of Payment Facilitation, or PayFac, which utilizes our unique technology that allows for instant enrollment of merchants and combines our suite of payment options into an integrated platform for merchants and customers.

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 to complement our merchant services offerings. 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. 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.

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 for our merchant services business line.

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, to supplement and complement our merchant services offerings.

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.

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.

Payment Acceptance. We provide integrated electronic payment processing services to merchants and businesses, including credit and debit card-based processing services and electronic funds transfer via the ACH network. The ACH network is a nationwide electronic funds transfer system that is regulated by the Federal Reserve and the National Automatic Clearing House Association, or NACHA, the electronic payments association, and provides for the clearing of electronic payments between participating financial institutions. Our ACH processing services enable merchants or businesses to both disburse and collect funds electronically using e-checks instead of traditional paper checks. An e-check is an electronic debit to a bank checking account that is initiated at the point-of-sale, on the Internet, over the telephone, or via a bill payment sent through the mail via a physical check. E-checks are processed using the ACH network. We are one of nine companies that hold the prestigious NACHA certification for Third-Party Senders and were the second company to receive the certification and are the most tenured to hold the certification.

Our payment acceptance services are delivered in a variety of forms and situations. For example, our capabilities allow merchants to convert a paper check to an e-check or receive card authorization at the point-of-sale, allow our merchants' respective customer service representatives to take e-check or card payments from their consumers by telephone, and enable their consumers to make e-check or card payments directly through the use of a website or by calling an interactive voice response telephone system. Similarly, our PINless debit product allows merchants to debit and credit accounts in real-time utilizing the debit card networks.

Card-Based Services. Our card-based processing services enable merchants to process both traditional card-present, tap-and-pay, or "swipe" transactions, as well as card-not-present transactions. A traditional card-present transaction occurs whenever a card holder physically presents a credit or debit card to a merchant at the point-of-sale. A card-not-present transaction occurs whenever the customer does not physically present a payment card at the point-of-sale and may occur over the Internet, mail, or telephone. A tap-and-pay transaction occurs whenever a consumer taps their phone on a physical terminal utilizing third party wallet services like Apple Pay®, Samsung Pay™ and Google Pay™.

Payment Facilitation. Following the completion of the Singular Payments acquisition in 2017, we launched our payment facilitation, or 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 real-time merchant enrollment, 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, or API.

Prepaid and Incentive Card Services. 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., 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. These cardholder web and mobile applications have been fully integrated into FiCentive's prepaid card core processor, and now support all program types and brands offered by FiCentive and its clients.

As part of our Prepaid card-based processing services, we develop and manage a variety of Mastercard-branded prepaid card program types, including consumer reloadable, consumer gift, incentive, promotional, general and government disbursement and corporate expense cards. 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™.

In our over 20+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, TransPecos and others.

Electronic Billing. 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, 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. Output Solutions offers a unique, and complementary payment related solution to our merchant services products of ACH, credit card, and prepaid card processing, with an opportunity for enhanced cross-selling efforts. The success of this new business line depends on our ability to realize the anticipated growth opportunities, although we cannot provide any assurance that we will be able to realize these opportunities.

Summary of Results

We believe that our success will continue to depend in large part on our ability to (a) grow revenues, (b) manage our selling, general, and administrative expenses, (c) add quality customers to our client base, (d) meet evolving customer requirements, (e) adapt to technological changes in an emerging market, and (f) assimilate current and future acquisitions of companies and customer portfolios. We will continue to invest in our sales force and technology platforms to drive revenue growth. 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. 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 the third quarter of 2025, our revenues declined 1% to $21.2 million, as compared to $21.3 million in the same quarter of 2024, due primarily to declines in our prepaid card services and our Output Solutions line of business. The decrease in our prepaid card services revenues was due to declines from one our key prepaid card programs, as its 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 certain one-time revenues that occurred in the third quarter of 2024, being absent in the third quarter of 2025. 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, alongside nominal growth in our credit card line of business as they have already replaced the loss of a meaningful customer in the second quarter of 2025. Both of these business lines grew due to organic growth from existing customers and net new client implementations and onboarding.

In the nine months ended September 30, 2025, our revenues increased 1% to $63.2 million, as compared to $62.4 million for the nine months ended September 30, 2024, due primarily to growth in our ACH and complementary services line of business. This growth, however, was partially offset by the aforementioned declines in revenue that occurred during 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 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 quarter, at $4.5 million as compared to $4.1 million in the prior year quarter. 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.

Adding Quality Customers and Meeting Their Evolving Requirements. 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. Our focus on addressing customer needs has allowed us to maintain a consistent presence and build a strong reputation in niche markets such as the lending, legal, government, and healthcare fields amongst others.

Adapt to Technological Changes. 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, especially in the digital marketplace, to match the need for diversified payment options in an increasingly ecommerce driven world.

Assimilating Current and Future Acquisitions. 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 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 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 third quarter of 2025, the number of credit card transactions processed by us increased by 75% versus the third quarter of 2024. The volume of credit card dollars processed during the third quarter of 2025 increased by 12% 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 were 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 third quarter of 2025 increased by 26% compared to the third quarter of 2024. Returned check transactions processed during the third quarter of 2025 increased by 35% compared to the third quarter of 2024. Electronic check dollars processed during the third quarter of 2025 increased by 8% compared to the third 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 third quarter of 2025 decreased by 46% compared to the third quarter of 2024. Prepaid card transaction counts processed during the third quarter of 2025 decreased by 33% compared to the third quarter of 2024. Prepaid card purchase volume during the third quarter of 2025 decreased by 21% compared to the third quarter of 2024. These declines were primarily due to processing reductions from one of our key clients, who lost its own downstream customers during the second quarter of 2025. 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.

Output Solutions total mail pieces processed and delivered exceeded 5.4 million for the third quarter of 2025 but was down 6% compared to the third quarter of 2024, and electronic only documents delivered exceeded 19.9 million in the third 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 third quarter of 2025 were $2.18 billion compared to $2.02 billion processed in the third quarter of 2024, up 8% 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."

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. On May 13, 2022, and again on March 24, 2025, our Board of Directors authorized a renewal of the Company's stock buyback program (the "buyback program"), with a repurchase limit equal to $4 million of the Company's common stock and a three-year duration. As of December 31, 2024, the Company had repurchased approximately $1.4 million of stock as part of the buyback program for which the Company may be required to pay approximately $14,000 in excise tax. 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 nine months ended September 30, 2025, the Company repurchased $765,887 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 $1.5 million in interest earnings in the nine months ended September 30, 2025. Of this interest, $1.1 million was recognized as revenue in the respective business lines for which the cash balances are held, and $314,368 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.

During the first nine 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. While the economy in the U.S. remained resilient, concerns about the prospect of a recession in the future increased. 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 nine months of the year.

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 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.

Changes in these factors are difficult to predict, and a change in one factor could affect other factors, which could result in adverse effects to our business, results of operations, financial condition, and cash flows.

Critical Accounting Policies and Estimates

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 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 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 and Estimates, please refer to the Notes to Interim Condensed Consolidated Financial Statements, Note 1, Basis of Presentation.

Reserve for Processing Losses

If, due to insolvency or bankruptcy of any of the Company's merchant customers, or for any other reason, the Company is not able to collect amounts from its credit card, ACH or 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 risks. In addition, the Company utilizes multiple 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 the Company's loss experience, 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's relationship with the Company's prepaid card holders. This reserve amount is subject to the risk that actual losses may be greater than the Company's estimates. Estimates for processing losses are variable based on the volume of transactions processed and could increase or decrease accordingly. At September 30, 2025 and December 31, 2024, the Company's reserve for processing losses was $751,937 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 estimated credit losses, which was $324,000 at September 30, 2025 and December 31, 2024.

The Company maintains an allowance for estimated credit losses representing estimated losses expected to result 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 estimates. 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 upon 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 ACH and complementary services, prepaid card services, and Output Solutions business lines.

Key Business Metrics - Non-GAAP Financial Measures

This report includes the following non-GAAP financial measures as defined in Regulation G adopted by the Commission: EBITDA, Adjusted EBITDA, and Adjusted EBITDA margins. The Company reports its financial results in compliance with GAAP but believes that also discussing non-GAAP financial measures is useful to investors because it provides them 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 and certain non-recurring items, such as costs related to acquisitions.
•	The Company defines Adjusted EBITDA margins as Adjusted EBITDA, as defined above, divided by total revenues.

Management believes that EBITDA, Adjusted EBITDA, and Adjusted EBITDA margins are helpful to investors in evaluating the Company's operating performance because non-cash costs and other items that management believes are not indicative of its results of operations are excluded.

We reported Adjusted EBITDA of $0.4 million for the quarter ended September 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 1.7% in the quarter ended September 30, 2025, as compared to Adjusted EBITDA margins of 3.6% 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 $1.5 million for the nine months ended September 30, 2025, as compared to Adjusted EBITDA of $2.4 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 2.4% in the nine months ended September 30, 2025, 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 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 and nine months ended September 30, 2025 and 2024.

		Three Months Ended September 30,								Nine Months Ended September 30,
		2025				2024				2025				2024
Reconciliation from Operating loss to Adjusted EBITDA:
Operating loss		$	(464,171	)		$	(376,650	)		$	(1,100,725	)		$	(867,547	)
Depreciation and amortization			432,846				583,718				1,393,215				1,707,721
EBITDA			(31,325	)			207,068				292,490				840,174
Non-cash stock-based compensation expense, net			399,582				569,772				1,243,899				1,529,105
Adjusted EBITDA		$	368,257			$	776,840			$	1,536,389			$	2,369,279
Calculation of Adjusted EBITDA margins:
Revenues		$	21,180,333			$	21,321,478			$	63,150,373			$	62,371,752
Adjusted EBITDA		$	368,257			$	776,840			$	1,536,389			$	2,369,279
Adjusted EBITDA margins			1.7	%			3.6	%			2.4	%			3.8	%

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, net income (loss), or cash provided by (used in) operating activities, 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.

Results of Operations

Revenues

Our revenue is 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 program management and processing of prepaid debit cards. In addition, through Output Solutions, we provide 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 revenue from interest and fees earned on certain assets underlying the associated customer balances. 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 September 30,
		2025				2024				$ Change				% Change
ACH and complementary services		$	5,844,267			$	4,302,510			$	1,541,757				36	%
Credit card			7,351,400				7,197,362				154,038				2	%
Prepaid card services			2,796,782				4,017,153				(1,220,371	)			(30	)%
Output Solutions			4,844,496				5,253,388				(408,892	)			(8	)%
Interest - ACH and complementary services			160,296				201,545				(41,249	)			(20	)%
Interest - Prepaid card services			137,841				309,131				(171,290	)			(55	)%
Interest - Output Solutions			45,251				40,389				4,862				12	%
Total Revenue		$	21,180,333			$	21,321,478			$	(141,145	)			(1	)%

		Nine Months Ended September 30,
		2025				2024				$ Change				% Change
ACH and complementary services		$	16,081,008			$	12,078,574			$	4,002,434				33	%
Credit card			22,275,124				22,019,364				255,760				1	%
Prepaid card services			8,430,643				11,031,795				(2,601,152	)			(24	)%
Output Solutions			15,220,264				15,478,180				(257,916	)			(2	)%
Interest - ACH and complementary services			560,943				603,418				(42,475	)			(7	)%
Interest - Prepaid card services			455,325				1,046,496				(591,171	)			(56	)%
Interest - Output Solutions			127,066				113,925				13,141				12	%
Total Revenue		$	63,150,373			$	62,371,752			$	778,621				1	%

Consolidated revenues for the quarter ended September 30, 2025 was down 1%, at $21.2 million, as compared to $21.3 million for the quarter ended September 30, 2024, due primarily to the 30% decline in our prepaid card services business line. This decrease in prepaid card services revenues was attributable to one of our key clients losing a portion of its downstream customer base during the second quarter of 2025, which contributed significant revenues in the prior year period. Output Solutions revenue was also down 8% for the quarter ended September 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. Much of this decline, however, was almost entirely offset by the 36% growth in our ACH and complementary services business line. ACH and complementary services revenue growth was primarily attributable to an increase in ACH check dollar volume of 8%, an increase in transactions of 26%, and an increase in returned check transactions of 35%, in each case, for the quarter ended September 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 at the end of 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. Nominal increases in revenue were attributable to the 2% increase in our credit card business unit, which benefited from the implementation and onboarding of net new clients, including a new enterprise customer that we believe has the potential to consistently generate $100 million in annual processing volume. This growth helped offset the loss of a key customer during the second quarter of 2025, alongside attrition in our legacy credit card portfolios. For more information, see "- Summary of Results."

Consolidated revenues for the nine months ended September 30, 2025 increased by 1% to $63.2 million, as compared to $62.4 million for the nine months ended September 30, 2024, due primarily to the 33% growth in our ACH and complementary 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 nine months of 2025. Our ACH business also benefited from an increase in revenue from ancillary product offerings, such as RCC and PINless debit. Further growth was attributable to the 1% revenue increase in our credit card business unit for the nine months ended September 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. Revenue growth was offset by a 24% decline in our prepaid card services business line for the nine months ended September 30, 2025 compared to the same period of 2024. This decrease in prepaid revenues was attributable to one of our key clients losing a portion of its downstream customer base during the second quarter of 2025, which contributed significant revenues in 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. Output Solutions revenue was also down 2% for the nine months ended September 30, 2025 compared to the same period of 2024 as the business unit continues to work towards replacing some one-time revenues generated in the prior year period by attracting new customers through use of its enhanced capacity and efficiency related to the purchase and integration of new equipment in 2024. For more information, see "- Summary of Results."

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

Cost of services decreased by $0.1 million, or 1%, to $16.3 million for the quarter ended September 30, 2025, as compared to $16.4 million for the same period in the prior year, due to 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 $0.5 million, or 1%, to $48.3 million for the nine months ended September 30, 2025, as compared to $47.8 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

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

Gross profit decreased by 1% to $4.87 million for the quarter ended September 30, 2025, as compared to $4.90 million for the same period in the prior year. Gross profit percentage of revenue was 23.0% for the quarter ended September 30, 2025, flat versus 23.0% in the prior year period. The decrease in gross profit in the quarter ended September 30, 2025, as compared to the same period during the prior year, was primarily attributable to nominally lower revenue.

Gross profit increased by 2% to $14.8 million for the nine months ended September 30, 2025, as compared to $14.5 million for the same period in the prior year. Gross profit percentage of revenue was 23.5% for the nine months ended September 30, 2025, up from 23.3% in the prior year period, an increase of approximately 0.2%. The increase in gross profit in the nine months ended September 30, 2025, as compared to the same period during the prior year, was primarily attributable to higher total revenue with an increase in gross profit percentage of revenue, both of which were related to 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 September 30, 2025 as compared to $0.6 million for the quarter ended September 30, 2024, with the decrease from the prior year quarter due to completed amortization of previously issued stock based awards.

Stock-based compensation expenses were $1.2 million for the nine months ended September 30, 2025 as compared to $1.5 million for the nine months ended September 30, 2024, with the decrease from the prior year period due to completed amortization of previously issued stock based awards.

Selling, General and Administrative Expenses

SG&A expenses were $4.5 million for the quarter ended September 30, 2025 as compared to $4.1 million in the prior year quarter. The increase in SG&A for the quarter ended September 30, 2025 was driven primarily by increases in salary alongside increases in network infrastructure, travel expenditures, professional fees, and other various general expenses. We anticipate SG&A expenses will remain relatively flat sequentially in the near term future, though increased versus prior year periods.

SG&A expenses were $13.3 million for the nine months ended September 30, 2025 as compared to $12.2 million in the prior year period. The increase in SG&A for the nine months ended September 30, 2025 was driven primarily due to increases in salary alongside increases in network infrastructure, travel expenditures, professional fees, and other various general expenses. We anticipate SG&A expenses will remain relatively flat sequentially in the near term future, though increased versus 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 acquisitions, or developed as internal use software.

Depreciation and amortization expense totaled $0.4 million and $0.6 in the quarter ended September 30, 2025 and 2024, respectively. The decrease in depreciation and amortization expense for the quarter ended September 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 $1.4 million and $1.7 million for the nine months ended September 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

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

Other income, net was $0.3 million for the nine months ended September 30, 2025 compared to $0.6 million for the nine months ended September 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.

Income Taxes

State income tax expense in the three months ended September 30, 2025 and 2024 was $69,036 and $70,000, respectively, remaining relatively flat.

State income tax expense in the nine months ended September 30, 2025 and 2024 was $200,447 and $210,000, respectively, remaining relatively flat.

Net Income (Loss)

We reported a net loss of ($0.4) million for the quarter ended September 30, 2025, as compared to net income of $2.9 million for the same period in the prior year. The decrease from net income to a net loss was driven primarily by the recognition of a federal income tax benefit in the prior year period and receipt of an employee retention tax credit issued under the CARES Act in the prior year period, alongside increases in SG&A in the quarter ended September 30, 2025.

We reported a net loss of ($1.0) million for the nine months ended September 30, 2025, as compared to a net income of $2.7 million for the same period in the prior year. The decrease from net income to a net loss was driven primarily by the recognition of a federal income tax benefit in the prior year period and receipt of an employee retention tax credit issued under the CARES Act in the prior year period, alongside increases in SG&A in the nine months ended September 30, 2025.

We may incur future operating losses. To maintain, grow and achieve profitability, we must, among other things, continue to incrementally grow and maintain our customer base, sell our ACH, credit card, prepaid product and Output Solutions offerings to existing and new customers, implement successful marketing strategies, maintain and upgrade our technology and transaction-processing systems, provide superior customer service, respond to competitive developments, attract, retain and motivate personnel, and respond to unforeseen industry developments among other factors.

Liquidity and Capital Resources

Our primary sources of liquidity are available cash and cash equivalents and cash flows provided by operations. As of September 30, 2025, we had cash and cash equivalents of $7.7 million. For the nine months ended September 30, 2025, cash provided by operations was $1.4 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. 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 intangible assets, 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.

We reported a net loss of ($1.0) million for the nine months ended September 30, 2025 compared to net income of $2.7 million for the nine months ended September 30, 2024. We had an accumulated deficit of $69.0 million and $68.0 million at September 30, 2025 and December 31, 2024, respectively. Additionally, we had working capital of $10.0 million and $10.2 million at September 30, 2025 and December 31, 2024, respectively.

From time to time we have sold shares of our common stock in order to provide liquidity. For example, on November 19, 2021, Voyager Digital purchased 142,857 unregistered shares of common stock at a price of $7.00 per share in a private offering. The gross proceeds from the private offering were $1,000,000. On May 9, 2023, Voyager Digital returned 142,857 shares of common stock, valued at a price of $1.09 per share, in a non-cash transaction to satisfy payment obligations related to the wind down of their payment disbursement needs following its bankruptcy. This transaction was recognized as revenue for services rendered and as shares returned to treasury stock in the quarter ended June 30, 2023. 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 we will be able to sell shares of our equity securities on terms acceptable to us or at all in the future.

On occasion, we have entered into debt arrangements in order to fund capital expenditures. For example, 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 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 September 30, 2025, no amounts had been drawn under this line of credit since its origination. This line of credit was obtained 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.

These credit facilities were arranged to comply with legal requirements related to the Company's KDHM lawsuit appeal and provide additional liquidity resources if needed. Management continues to monitor the Company's financial position and believes that existing cash balances, along with these credit facilities, are sufficient to meet operational needs and legal obligations.

Cash Flows

Net cash provided by operating activities for the nine months ended September 30, 2025 was $1.4 million, as compared to net cash provided by operating activities of $1.9 million for the nine months ended September 30, 2024. The decrease in net cash provided by operating activities was due primarily to a net loss as compared to net income in the prior year period, combined with higher levels of prepaid expenses in the nine months ended September 30, 2025. 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 $1.1 million for the nine months ended September 30, 2025 as compared to net cash used in investing activities of $0.7 million for the nine months ended September 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 net 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 used in financing activities for the nine months ended September 30, 2025 was $6.5 million and net cash provided by financing activities for the nine months ended September 30, 2024 was $4.7 million. The decrease in cash provided by financing activities was primarily attributable to the decrease 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

We currently 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.