Usio CEO provides letter to shareholders

The letter said, "Usio is a company that serves various industries with diverse payment channels so our customers can collect and issue payments. This has served us well during both good and poor economic conditions. In 2020, unlike other companies in the payment space, we grew revenue as compared to 2019 because of this diversity. As one payment channel or industry was negatively impacted by the Covid shutdown, another payment channel or industry was positively impacted. The economy continues to be volatile in many areas and as we navigate these changes, we are experiencing a positive trend with certain client segments and more uncertain trends that we are watching closely, both of which I want to comment on. First, our non-bank lending segment has increased the volume of ACH transactions due to the growth in consumers loans, which naturally leads to more ACH repayments. The growth in consumer loans is also leading to an increase in returned check transactions. Returned checks are the highest margin sub-business of our ACH offering, with gross margins exceeding 80%. In the month of June, we processed more returned check transactions than we have in any month over the last eleven years. We expect to report both sequential and year over year growth in ACH returned check processing for the second quarter of 2022. Additionally, we expect to report sequential growth in total ACH transactions processed. However, as previously communicated, in the second quarter of 2022 we expect to report a year-over-year decline in the number of ACH transactions processed because this quarter will be compared to the record volume of the year ago quarter that was caused by the explosion in crypto enthusiasm. We were pleased to report that we expect the decline to be mild and the resulting revenues for ACH similar to Q2 of 2021. Second, on July 1, 2022, we became aware that one of our partners, Voyager Digital, publicly announced their intent to, "...temporarily suspending trading, deposits, withdrawals, and loyalty rewards effective at 2:00 p.m. Eastern Daylight Time today [July 1, 2022]." Usio has provided, and continues to provide, payment processing services for Voyager, and both our ACH and prepaid services for Voyager are fully available to them. We expect to continue processing transactions as requested by Voyager. However, as a result of Voyager's announcement, we believe the ACH volume of transactions we process for Voyager, and consequently our revenues, will be adversely impacted unless Voyager resumes full operations. Voyager is independent from Usio and we can't predict when, or if, Voyager will resume operations in any capacity. Voyager represented 8% of Usio's total revenue for full year 2021 and 8% of Usio's revenues from January 1, 2022 through May 31, 2022. Of the 8% of revenue generated from Voyager in 2022, 2% represented revenue derived from blank card orders for Voyager's prepaid card program, on which Usio earned no margin because we sold those cards to Voyager at cost in anticipation of future transactional revenue from card holder usage. Usio's fiscal 2022 guidance assumed only $1 million in revenue derived from Voyager's prepaid card program services for 2022. Through May 31, 2022, revenues from the prepaid card services were approximately $670,000. Thus, we expect the impact of a slowdown or end to this prepaid card program on our bottom line to be minimal. Voyager's accounts receivable balances with Usio are minimal as of July 5, 2022. Because of the strength of our new sales pipeline, potential spoilage on cards and the trends we are seeing in our non-bank lenders, we believe we will be able to replace any potential revenue shortfall from the suspended Voyager processing anticipated in our guidance. Consequently, Usio is reiterating its fiscal 2022 revenue guidance, but widening the range to 16-20% revenue growth for 2022 over 2021. As always, the revenue guidance is conditioned on favorable economic conditions. We expect the revenue replacement to be comprised of new PayFac relationships that will carry a lower margin than the margins we expected to earn on ACH transaction processing. We also have over $15 million in potential card spoilage revenue that we expect to start to recognize in September of this year and continue to recognize for the following 12-18 months. Spoilage carries significant margins that can be up to 50-80%. We believe Voyager's announcement is a temporary distraction from our rapid growth, and we expect to manage these challenges and achieve our objectives for the year consistent with our recent track record. We have initiated our share buyback plan which was previously announced and have already purchased over $400,000 of Usio stock in the open market. Finally, Usio is well positioned to capitalize on further growth opportunities leveraging our strong balance sheet with a sufficient cash balance ($7.6 Million as of March 30, 2022) and less than $115,000 in debt. I look forward to ending the year with strong growth from our PayFac and prepaid segments, and Output Solutions outperforming our expectations."