Press Release Details

CPI Card Group Inc. Reports Third Quarter 2023 Results

11/07/2023

Third Quarter Net Sales Decreased 15% to $106 Million; Net Income Decreased 68% to $4 Million; Adjusted EBITDA Decreased 25% to $21 Million

First Nine Months Net Sales Decreased 2%; Net Income Decreased 12%; Adjusted EBITDA Decreased 1%

Company Updates 2023 Outlook; Announces $20 Million Share Repurchase Authorization

CPI Card Group Inc. (Nasdaq: PMTS) (“CPI” or the “Company”), a payment technology company and leading provider of credit, debit, and prepaid solutions, today reported financial results for the third quarter ended September 30, 2023 and updated its financial outlook for 2023.

As anticipated, third quarter sales and earnings declined compared to prior year levels, with net sales decreasing 15% to $105.9 million, net income decreasing 68% to $3.9 million and Adjusted EBITDA decreasing 25% to $21.2 million. Sales declines reflect cautious spending and inventory rationalization by certain customers and were also impacted by comparisons with the 2022 third quarter, when the Company posted net sales growth of 25%.

“We believe the card production market has been affected by cautious customer spending due to a variety of factors, including a focus on managing inventory levels following robust purchases in a challenging supply-chain environment last year,” said Scott Scheirman, President and Chief Executive Officer. “Although the production side of the market has been relatively softer, card issuance to end users has continued to grow and we believe the long-term growth trends for the industry remain intact.”

The Company expects fourth quarter sales and Adjusted EBITDA to be similar to the third quarter levels as customer demand remains lower than anticipated and new sales initiatives are not expected to significantly impact the current year. As a result, the Company’s updated full year outlook for 2023 projects mid-single digit declines for both net sales and Adjusted EBITDA, with Free Cash Flow projected to be approximately double the 2022 level.

The Company believes long-term growth trends for the U.S. card market remain strong, led by consumer card growth, widespread adoption of eco-focused cards and the ongoing conversion to contactless cards. Based on figures released by the networks, Visa and Mastercard® U.S. debit and credit cards in circulation increased at a compound annual growth rate of 10% for the three-year period ending June 30, 2023.

The Company also announced that its Board of Directors approved a $20 million share repurchase authorization, expiring December 31, 2024.

Scheirman added, “We believe repurchasing our shares is a great investment for our shareholders, as the Company is well-positioned for the future with innovative, high-quality products and services and strong customer focus.”

CPI is a top payment solutions provider in the U.S. serving thousands of banks, credit unions and fintechs. The Company is a leader in the U.S. markets for eco-focused payment cards, personalization and Software-as-a-Service-based instant issuance solutions for small and medium U.S. financial institutions and retail prepaid debit card solutions, and maintains longstanding customer relationships.

2023 Business Highlights

  • A leading provider of eco-focused payment card solutions in the U.S. market, with more than 100 million eco-focused cards sold since launch in late 2019.
  • A leading provider of Software-as-a-Service-based instant issuance solutions in the U.S., with more than 15,000 Card@Once® installations across more than 2,000 financial institutions.
  • Financial position improvement, with the outstanding balance on the Company’s 8.625% Senior Secured Notes reduced by $17 million in the first nine months of the year through open market repurchases and a Net Leverage Ratio of 2.9x at September 30, 2023.

Third Quarter 2023 Financial Highlights

Net sales decreased 15% year-over-year to $105.9 million in the third quarter of 2023.

  • Debit and Credit segment net sales decreased 16% to $83.8 million, primarily due to volume declines in eco-focused and other contactless cards and contact cards. Services sales increased due to growth in Card@Once® instant issuance solutions processing fees.
  • Prepaid Debit segment net sales decreased 12% to $22.3 million, primarily due to timing of sales between quarters.

Third quarter gross profit decreased 25% to $36.2 million and gross profit margin was 34.1%, which compared to 38.9% in the prior year third quarter.

Third quarter income from operations decreased 45% to $13 million; net income decreased 68% to $3.9 million, or $0.33 diluted earnings per share; and Adjusted EBITDA decreased 25% to $21.2 million. Income from operations, net income and Adjusted EBITDA declines were driven by the sales decrease, partially offset by lower operating expenses. The net income decrease was also impacted by a higher effective tax rate compared to prior year, partially offset by lower interest expense. Income from operations and net income were negatively impacted by approximately $3 million of pre-tax operating expenses related to executive retention, which are not included in Adjusted EBITDA.

Year-to-date 2023 Financial Highlights

Net sales decreased 2% year-over-year to $341.7 million in the first nine months of 2023.

  • Debit and Credit segment net sales decreased 2% to $279 million, primarily due to volume declines in eco-focused contactless cards compared to strong orders in 2022 and lower contact card sales, partially offset by increases in sales of other contactless cards and services related to card personalization and Card@Once® instant issuance solutions.
  • Prepaid Debit segment net sales decreased 1% to $63.3 million.

Year-to-date gross profit decreased 6% to $120.1 million and gross profit margin was 35.1%, which compared to 36.7% in the prior year.

Year-to-date income from operations decreased 10% to $51.1 million; net income decreased 12% to $21.3 million, or $1.79 diluted earnings per share; and Adjusted EBITDA decreased 1% to $69.6 million. Income from operations, net income and Adjusted EBITDA declines were driven by lower net sales, partially offset by lower operating expenses, while the net income decline also reflects a higher effective tax rate, partially offset by lower interest expense. Income from operations and net income were negatively impacted by approximately $4 million of pre-tax operating expenses related to executive retention, which are not included in Adjusted EBITDA.

Balance Sheet, Liquidity and Cash Flow

The Company generated cash flow from operating activities of $22.3 million in the first nine months of the year, which compared to $11.7 million in the prior year period, and Free Cash Flow of $16.2 million, which compared to a usage of $2.7 million in the first nine months of 2022. The increase in cash generation compared to the prior year was driven by working capital improvement.

As of September 30, 2023, cash and cash equivalents was $10.5 million. There were $268 million of 8.625% Senior Secured Notes due 2026 and $8 million of borrowings from the ABL revolving credit facility outstanding at quarter-end. The Company retired $17 million of notes during the first nine months of 2023, utilizing cash balances and revolving credit facility proceeds.

The Company’s capital structure and allocation priorities are to maintain ample liquidity; invest in the business, including strategic acquisitions; deleverage the balance sheet; and return funds to stockholders.

“We are managing operating expenses tightly as we deal with the softer customer demand in 2023,” said Jeff Hochstadt, Chief Financial Officer of CPI. “We are also keenly focused on optimizing working capital to generate strong free cash flow improvement in 2023.”

Outlook

The Company projects the following full-year outlook for 2023:

  • Net sales to decline mid-single digits (previous outlook: flat to low single-digit growth)
  • Adjusted EBITDA to decline mid-single digits (previous outlook: mid-to-high single-digit growth)
  • Free Cash Flow to be approximately double the 2022 level (previous outlook: more than double the 2022 level)
  • Net Leverage Ratio of approximately 3x (previous outlook: 2.5x to 3x)

Conference Call and Webcast

CPI Card Group Inc. will hold a conference call on November 7, 2023 at 9:00 a.m. Eastern Time (ET) to review its third quarter results. To participate in the Company's conference call via telephone or online:

U.S. dial-in number (toll-free): 888-330-3573
International: 646-960-0677
Conference ID: 8062733
Webcast Link: CPI Q3 Webcast or at https://investor.cpicardgroup.com

Participants are advised to login for the webcast 10 minutes prior to the scheduled start time.

A replay of the conference call will be available until November 21, 2023 at:
U.S. dial-in number (toll free): 800-770-2030
International: 647-362-9199
Conference ID: 8062733

A webcast replay of the conference call will also be available on CPI Card Group Inc.’s Investor Relations web site: https://investor.cpicardgroup.com

Non-GAAP Financial Measures

In addition to financial results reported in accordance with U.S. generally accepted accounting principles (“GAAP”), we have provided the following non-GAAP financial measures in this release, all reported on a continuing operations basis: EBITDA, Adjusted EBITDA, Adjusted EBITDA margin, Free Cash Flow, LTM Adjusted EBITDA and Net Leverage Ratio. These non-GAAP financial measures are utilized by management in comparing our operating performance on a consistent basis between fiscal periods. We believe that these financial measures are appropriate to enhance an overall understanding of our underlying operating performance trends compared to historical and prospective periods and our peers. Management also believes that these measures are useful to investors in their analysis of our results of operations and provide improved comparability between fiscal periods. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information calculated in accordance with GAAP. Our non-GAAP measures may be different from similarly titled measures of other companies. Investors are encouraged to review the reconciliation of these historical non-GAAP measures to their most directly comparable GAAP financial measures included in Exhibit E to this press release.

Adjusted EBITDA

Adjusted EBITDA is presented on a continuing operations basis and is defined as EBITDA (which represents earnings before interest, taxes, depreciation and amortization) adjusted for litigation; stock-based compensation expense; estimated sales tax expense; restructuring and other charges, including severance and executive retention; loss on debt extinguishment; foreign currency gain or loss; and other items that are unusual in nature, infrequently occurring or not considered part of our core operations, as set forth in the reconciliation in Exhibit E. Adjusted EBITDA is intended to show our unleveraged, pre-tax operating results and therefore reflects our financial performance based on operational factors, excluding non-operational, unusual or non-recurring losses or gains. Adjusted EBITDA has important limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for, analysis of our results as reported under GAAP. For example, Adjusted EBITDA does not reflect: (a) our capital expenditures, future requirements for capital expenditures or contractual commitments; (b) changes in, or cash requirements for, our working capital needs; (c) the significant interest expenses or the cash requirements necessary to service interest or principal payments on our debt; (d) tax payments that represent a reduction in cash available to us; (e) any cash requirements for the assets being depreciated and amortized that may have to be replaced in the future; (f) the impact of earnings or charges resulting from matters that we and the lenders under our credit agreement may not consider indicative of our ongoing operations; or (g) the impact of any discontinued operations. In particular, our definition of Adjusted EBITDA allows us to add back certain non-operating, unusual or non-recurring charges that are deducted in calculating net income, even though these are expenses that may recur, vary greatly and are difficult to predict and can represent the effect of long-term strategies as opposed to short-term results. In addition, certain of these expenses represent the reduction of cash that could be used for other purposes. Adjusted EBITDA margin percentage as shown in Exhibit E is computed as Adjusted EBITDA divided by total net sales.

We define LTM Adjusted EBITDA as Adjusted EBITDA (defined previously) for the last twelve months. LTM Adjusted EBITDA is used in the computation of Net Leverage Ratio, and is reconciled in Exhibit E.

Free Cash Flow

We define Free Cash Flow as cash flow provided by (used in) operating activities less capital expenditures. We use this metric in analyzing our ability to service and repay our debt. However, this measure does not represent funds available for investment or other discretionary uses since it does not deduct cash used to service our debt. Free Cash Flow should not be considered in isolation, or as a substitute for, cash (used in) provided by operating activities or any other measures of liquidity derived in accordance with GAAP.

Financial Expectations for 2023

We have provided Adjusted EBITDA expectations for 2023 on a non-GAAP basis because certain reconciling items are dependent on future events that either cannot be controlled or cannot be reliably predicted because they are not part of the Company’s routine activities, any of which could be significant.

Net Leverage Ratio

Management and various investors use the ratio of debt principal outstanding, plus finance lease obligations, less cash, divided by LTM Adjusted EBITDA, or “Net Leverage Ratio”, as a measure of our financial strength when making key investment decisions and evaluating us against peers.

About CPI Card Group Inc.

CPI Card Group is a payment technology company providing a comprehensive range of credit, debit, and prepaid card solutions, complementary digital solutions, and Software-as-a-Service (SaaS) instant issuance. With a focus on building personal relationships and earning trust, we help our customers navigate the constantly evolving world of payments, while delivering innovative solutions that spark connections and support their brands. We serve clients across industry, size, and scale through our team of experienced, dedicated employees and our network of high-security production and card services facilities located in the United States. CPI is committed to exceeding our customers’ expectations, transforming our industry, and enhancing the way people pay every day. Learn more at www.CPIcardgroup.com.

Forward-Looking Statements

Certain statements and information in this release (as well as information included in other written or oral statements we make from time to time) may contain or constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The words “believe,” “estimate,” “project,” “expect,” “anticipate,” “plan,” “intend,” “foresee,” “should,” “would,” “could,” “continue,” “committed,” “attempt,” “target,” “objective,” “guides,” “seek,” “focus,” “provides guidance,” “provides outlook” or other similar expressions are intended to identify forward-looking statements, which are not historical in nature. These forward-looking statements, including statements about our strategic initiatives and market opportunities, are based on our current expectations and beliefs concerning future developments and their potential effect on us and other information currently available. Such forward-looking statements, because they relate to future events, are by their very nature subject to many important risks and uncertainties that could cause actual results or other events to differ materially from those contemplated.

These risks and uncertainties include, but are not limited to: a deterioration in general economic conditions, including inflationary conditions and resulting in reduced consumer confidence and business spending, and a decline in consumer credit worthiness impacting demand for our products; the unpredictability of our operating results, including an inability to anticipate changes in customer inventory management practices and its impact on our business; adverse conditions in the banking system and financial markets, including the failure of banks and financial institutions; a disruption or other failure in our supply chain, including as a result of the Russia-Ukraine or other foreign conflicts and with respect to single source suppliers, or the failure or inability of suppliers to comply with our code of conduct or contractual requirements, or political unrest in countries in which our suppliers operate, resulting in increased costs and inability to pass those costs on to our customers and extended production lead times and difficulty meeting customers’ delivery expectations; our failure to retain our existing customers or identify and attract new customers; our status as an accelerated filer and complying with Section 404 of the Sarbanes-Oxley Act of 2002 and the costs associated with such compliance and implementation of procedures thereunder; our failure to maintain effective internal control over financial reporting; our inability to recruit, retain and develop qualified personnel, including key personnel; the potential effects of COVID-19 and responses thereto on our business, including our supply chain, customer demand, workforce, operations; system security risks, data protection breaches and cyber-attacks; interruptions in our operations, including our information technology systems, or in the operations of the third parties that operate computing infrastructure on which we rely; our inability to develop, introduce and commercialize new products; our substantial indebtedness, including inability to make debt service payments or refinance such indebtedness; the restrictive terms of our indebtedness and covenants of future agreements governing indebtedness and the resulting restraints on our ability to pursue our business strategies; disruptions in production at one or more of our facilities; defects in our software; environmental, social and governance preferences and demands of various stakeholders and our ability to conform to such preferences and demands and to comply with any related regulatory requirements; the effects of climate change, negative perceptions of our products due to the impact of our products and production processes on the environment and other ESG-related risks; disruptions in production due to weather conditions, climate change, political instability or social unrest; our inability to adequately protect our trade secrets and intellectual property rights from misappropriation, infringement claims brought against us and risks related to open source software; our limited ability to raise capital; problems in production quality, materials and process; costs and impacts to our financial results relating to the obligatory collection of sales tax and claims for uncollected sales tax in states that impose sales tax collection requirements on out-of-state businesses or unclaimed property, as well as potential new U.S. tax legislation increasing the corporate income tax rate and challenges to our income tax positions; our inability to successfully execute on our divestitures or acquisitions; our inability to realize the full value of our long-lived assets; costs relating to product defects and any related product liability and/or warranty claims; our inability to renew licenses with key technology licensors; the highly competitive, saturated and consolidated nature of our marketplace; the effects of restrictions, delays or interruptions in our ability to source raw materials and components used in our products from foreign countries; the effects on the global economy of the ongoing military action by Russia in Ukraine and other foreign conflicts; costs and potential liabilities associated with compliance or failure to comply with regulations, customer contractual requirements and evolving industry standards regarding consumer privacy and data use and security; new and developing technologies that make our existing technology solutions and products obsolete or less relevant or our failure to introduce new products and services in a timely manner; quarterly variation in our operating results; our failure to operate our business in accordance with the Payment Card Industry Security Standards Council security standards or other industry standards; our failure to comply with environmental, health and safety laws and regulations that apply to our products and the raw materials we use in our production processes; risks associated with the majority stockholders’ ownership of our stock; potential conflicts of interest that may arise due to our board of directors being comprised in part of directors who are principals of our majority stockholders; the influence of securities analysts over the trading market for and price of our common stock; failure to meet the continued listing standards of the Nasdaq Global Market; the impact of stockholder activism or securities litigation on the trading price and volatility of our common stock; certain provisions of our organizational documents and other contractual provisions that may delay or prevent a change in control and make it difficult for stockholders other than our majority stockholders to change the composition of our board of directors; our ability to comply with a wide variety of complex laws and regulations and the exposure to liability for any failure to comply; the effect of legal and regulatory proceedings; and other risks that are described in Part I, Item 1A – Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 8, 2023, in Part II, Item 1A – Risk Factors of this Quarterly Report on Form 10-Q and our other reports filed from time to time with the SEC.

We caution and advise readers not to place undue reliance on forward-looking statements, which speak only as of the date hereof. These statements are based on assumptions that may not be realized and involve risks and uncertainties that could cause actual results or other events to differ materially from the expectations and beliefs contained herein. We undertake no obligation to publicly update or revise any forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise.

For more information:

CPI encourages investors to use its investor relations website as a way of easily finding information about the Company. CPI promptly makes available on this website the reports that the Company files or furnishes with the SEC, corporate governance information and press releases.

CPI Card Group Inc. Earnings Release Supplemental Financial Information

 

Exhibit A

Condensed Consolidated Statements of Operations and Comprehensive Income - Unaudited for the three and nine months ended September 30, 2023 and 2022

 

 

Exhibit B

Condensed Consolidated Balance Sheets – Unaudited as of September 30, 2023 and December 31, 2022

 

 

Exhibit C

Condensed Consolidated Statements of Cash Flows - Unaudited for the nine months ended September 30, 2023 and 2022

 

 

Exhibit D

Segment Summary Information – Unaudited for the three and nine months ended September 30, 2023 and 2022

 

 

Exhibit E

Supplemental GAAP to Non-GAAP Reconciliations - Unaudited for the three and nine months ended September 30, 2023 and 2022

 

EXHIBIT A

CPI Card Group Inc. and Subsidiaries

Condensed Consolidated Statements of Operations and Comprehensive Income

(in thousands, except share and per share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

2023

 

2022

 

2023

 

2022

Net sales:

 

 

 

 

 

 

 

 

 

 

 

 

Products

 

$

55,689

 

 

$

71,606

 

 

$

195,425

 

 

$

208,867

 

Services

 

 

50,174

 

 

 

52,971

 

 

 

146,250

 

 

 

140,442

 

Total net sales

 

 

105,863

 

 

 

124,577

 

 

 

341,675

 

 

 

349,309

 

Cost of sales:

 

 

 

 

 

 

 

 

 

 

 

 

Products (exclusive of depreciation and amortization shown below)

 

 

37,540

 

 

 

42,702

 

 

 

124,828

 

 

 

128,851

 

Services (exclusive of depreciation and amortization shown below)

 

 

29,574

 

 

 

31,190

 

 

 

89,192

 

 

 

85,625

 

Depreciation and amortization

 

 

2,597

 

 

 

2,245

 

 

 

7,584

 

 

 

6,564

 

Total cost of sales

 

 

69,711

 

 

 

76,137

 

 

 

221,604

 

 

 

221,040

 

Gross profit

 

 

36,152

 

 

 

48,440

 

 

 

120,071

 

 

 

128,269

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative (exclusive of depreciation and amortization shown below)

 

 

21,783

 

 

 

23,403

 

 

 

64,734

 

 

 

67,335

 

Depreciation and amortization

 

 

1,408

 

 

 

1,592

 

 

 

4,286

 

 

 

4,454

 

Total operating expenses

 

 

23,191

 

 

 

24,995

 

 

 

69,020

 

 

 

71,789

 

Income from operations

 

 

12,961

 

 

 

23,445

 

 

 

51,051

 

 

 

56,480

 

Other expense, net:

 

 

 

 

 

 

 

 

 

 

 

 

Interest, net

 

 

(6,714

)

 

 

(7,323

)

 

 

(20,235

)

 

 

(22,334

)

Other expense, net

 

 

(53

)

 

 

(63

)

 

 

(245

)

 

 

(474

)

Total other expense, net

 

 

(6,767

)

 

 

(7,386

)

 

 

(20,480

)

 

 

(22,808

)

Income before income taxes

 

 

6,194

 

 

 

16,059

 

 

 

30,571

 

 

 

33,672

 

Income tax expense

 

 

(2,337

)

 

 

(4,149

)

 

 

(9,318

)

 

 

(9,609

)

Net income

 

$

3,857

 

 

$

11,910

 

 

$

21,253

 

 

$

24,063

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

0.34

 

 

$

1.06

 

 

$

1.86

 

 

$

2.14

 

Diluted earnings per share

 

$

0.33

 

 

$

1.01

 

 

$

1.79

 

 

$

2.05

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic weighted-average shares outstanding

 

 

11,432,794

 

 

 

11,265,767

 

 

 

11,418,372

 

 

 

11,259,655

 

Diluted weighted-average shares outstanding

 

 

11,827,816

 

 

 

11,788,921

 

 

 

11,861,868

 

 

 

11,730,668

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

3,857

 

 

$

11,910

 

 

$

21,253

 

 

$

24,063

 

Total comprehensive income

 

$

3,857

 

 

$

11,910

 

 

$

21,253

 

 

$

24,063

 

 

 

 

 

EXHIBIT B

CPI Card Group Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands, except share and per share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

 

2023

 

2022

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

10,473

 

 

$

11,037

 

Accounts receivable, net

 

 

67,546

 

 

 

80,583

 

Inventories, net

 

 

74,080

 

 

 

68,399

 

Prepaid expenses and other current assets

 

 

8,747

 

 

 

7,551

 

Total current assets

 

 

160,846

 

 

 

167,570

 

Plant, equipment, leasehold improvements and operating lease right-of-use assets, net

 

 

62,643

 

 

 

57,178

 

Intangible assets, net

 

 

15,088

 

 

 

17,988

 

Goodwill

 

 

47,150

 

 

 

47,150

 

Other assets

 

 

6,388

 

 

 

6,780

 

Total assets

 

$

292,115

 

 

$

296,666

 

Liabilities and stockholders’ deficit

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

16,876

 

 

$

24,371

 

Accrued expenses

 

 

27,967

 

 

 

40,070

 

Deferred revenue and customer deposits

 

 

787

 

 

 

3,571

 

Total current liabilities

 

 

45,630

 

 

 

68,012

 

Long-term debt

 

 

272,669

 

 

 

285,522

 

Deferred income taxes

 

 

7,920

 

 

 

6,808

 

Other long-term liabilities

 

 

22,616

 

 

 

18,401

 

Total liabilities

 

 

348,835

 

 

 

378,743

 

Commitments and contingencies

 

 

 

 

 

 

Series A Preferred Stock; $0.001 par value—100,000 shares authorized; 0 shares issued and outstanding at September 30, 2023 and December 31, 2022

 

 

 

 

 

 

Stockholders’ deficit:

 

 

 

 

 

 

Common stock; $0.001 par value—100,000,000 shares authorized; 11,453,549 and 11,390,355 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively

 

 

11

 

 

 

11

 

Capital deficiency

 

 

(104,275

)

 

 

(108,379

)

Accumulated earnings

 

 

47,544

 

 

 

26,291

 

Total stockholders’ deficit

 

 

(56,720

)

 

 

(82,077

)

Total liabilities and stockholders’ deficit

 

$

292,115

 

 

$

296,666

 

 

 

 

 

 

 

EXHIBIT C

CPI Card Group Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30,

 

 

2023

 

2022

Operating activities

 

 

 

 

 

 

Net income

 

$

21,253

 

 

$

24,063

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation expense

 

 

8,970

 

 

 

8,118

 

Amortization expense

 

 

2,900

 

 

 

2,900

 

Stock-based compensation expense

 

 

4,431

 

 

 

2,928

 

Amortization of debt issuance costs and debt discount

 

 

1,397

 

 

 

1,449

 

Loss on debt extinguishment

 

 

243

 

 

 

395

 

Deferred income taxes

 

 

1,112

 

 

 

1,192

 

Other, net

 

 

(156

)

 

 

437

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

12,988

 

 

 

(14,862

)

Inventories

 

 

(5,806

)

 

 

(13,916

)

Prepaid expenses and other assets

 

 

422

 

 

 

1,501

 

Income taxes, net

 

 

(1,616

)

 

 

(1,577

)

Accounts payable

 

 

(7,805

)

 

 

(440

)

Accrued expenses and other liabilities

 

 

(13,283

)

 

 

(3,208

)

Deferred revenue and customer deposits

 

 

(2,784

)

 

 

2,733

 

Cash provided by operating activities

 

 

22,266

 

 

 

11,713

 

Investing activities

 

 

 

 

 

 

Capital expenditures for plant, equipment and leasehold improvements, net

 

 

(6,076

)

 

 

(14,440

)

Other

 

 

183

 

 

 

95

 

Cash used in investing activities

 

 

(5,893

)

 

 

(14,345

)

Financing activities

 

 

 

 

 

 

Principal payments on Senior Notes

 

 

(16,954

)

 

 

(20,000

)

Principal payments on ABL Revolver

 

 

(10,000

)

 

 

(10,000

)

Proceeds from ABL Revolver

 

 

13,000

 

 

 

35,000

 

Payments on debt extinguishment and other

 

 

(327

)

 

 

(1,093

)

Proceeds from finance lease financing

 

 

 

 

 

2,074

 

Payments on finance lease obligations

 

 

(2,655

)

 

 

(2,457

)

Cash (used in) provided by financing activities

 

 

(16,936

)

 

 

3,524

 

Effect of exchange rates on cash

 

 

(1

)

 

 

(68

)

Net (decrease) increase in cash and cash equivalents

 

 

(564

)

 

 

824

 

Cash and cash equivalents, beginning of period

 

 

11,037

 

 

 

20,683

 

Cash and cash equivalents, end of period

 

$

10,473

 

 

$

21,507

 

Supplemental disclosures of cash flow information

 

 

 

 

 

 

Cash paid (refunded) during the period for:

 

 

 

 

 

 

Interest

 

$

25,307

 

 

$

27,026

 

Income taxes paid

 

$

9,994

 

 

$

10,859

 

Income taxes refunded

 

$

(25

)

 

$

(449

)

Right-of-use assets obtained in exchange for lease obligations:

 

 

 

 

 

 

Operating leases

 

$

2,641

 

 

$

816

 

Financing leases

 

$

6,989

 

 

$

7,783

 

Accounts payable and accrued expenses for capital expenditures for plant, equipment and leasehold improvements

 

$

977

 

 

$

1,781

 

EXHIBIT D

CPI Card Group Inc. and Subsidiaries

Segment Summary Information

For the Three Months Ended September 30, 2023 and 2022

(dollars in thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Sales

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

 

2023

 

2022

 

$ Change

 

% Change

Net sales by segment:

 

 

 

 

 

 

 

 

 

 

 

Debit and Credit

 

$

83,780

 

 

$

99,512

 

 

$

(15,732

)

 

(15.8

)%

Prepaid Debit

 

 

22,335

 

 

 

25,335

 

 

 

(3,000

)

 

(11.8

)%

Eliminations

 

 

(252

)

 

 

(270

)

 

 

18

 

 

*

%

Total

 

$

105,863

 

 

$

124,577

 

 

$

(18,714

)

 

(15.0

)%

* Calculation not meaningful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30,

 

 

2023

 

2022

 

$ Change

 

% Change

Net sales by segment:

 

 

 

 

 

 

 

 

 

 

 

 

Debit and Credit

 

$

278,959

 

 

$

285,708

 

 

$

(6,749

)

 

(2.4

)%

Prepaid Debit

 

 

63,286

 

 

 

64,010

 

 

 

(724

)

 

(1.1

)%

Eliminations

 

 

(570

)

 

 

(409

)

 

 

(161

)

 

*

%

Total

 

$

341,675

 

 

$

349,309

 

 

$

(7,634

)

 

(2.2

)%

Gross Profit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

 

 

2023

 

% of Net
Sales

 

2022

 

% of Net
Sales

 

$ Change

 

% Change

Gross profit by segment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debit and Credit

 

$

28,381

 

 

33.9

%

 

$

38,071

 

38.3

%

 

$

(9,690

)

 

(25.5

)%

Prepaid Debit

 

 

7,771

 

 

34.8

%

 

 

10,369

 

40.9

%

 

 

(2,598

)

 

(25.1

)%

Total

 

$

36,152

 

 

34.1

%

 

$

48,440

 

38.9

%

 

$

(12,288

)

 

(25.4

)%

 

 

Nine Months Ended September 30,

 

 

 

2023

 

% of Net
Sales

 

2022

 

% of Net
Sales

 

$ Change

 

% Change

Gross profit by segment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debit and Credit

 

$

99,603

 

 

35.7

%

 

$

104,389

 

36.5

%

 

$

(4,786

)

 

(4.6

)%

Prepaid Debit

 

 

20,468

 

 

32.3

%

 

 

23,880

 

37.3

%

 

 

(3,412

)

 

(14.3

)%

Total

 

$

120,071

 

 

35.1

%

 

$

128,269

 

36.7

%

 

$

(8,198

)

 

(6.4

)%

Income from Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

 

 

2023

 

% of Net
Sales

 

2022

 

% of Net
Sales

 

$ Change

 

% Change

Income (loss) from operations by segment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debit and Credit

 

$

20,791

 

 

 

24.8

%

 

$

29,418

 

 

29.6

%

 

$

(8,627

)

 

(29.3

)%

Prepaid Debit

 

 

6,631

 

 

 

29.7

%

 

 

9,109

 

 

36.0

%

 

 

(2,478

)

 

(27.2

)%

Other

 

 

(14,461

)

 

 

*

%

 

 

(15,082

)

 

*

%

 

 

621

 

 

(4.1

)%

Total

 

$

12,961

 

 

 

12.2

%

 

$

23,445

 

 

18.8

%

 

$

(10,484

)

 

(44.7

)%

 

 

 

Nine Months Ended September 30,

 

 

 

2023

 

% of Net
Sales

 

2022

 

% of Net
Sales

 

$ Change

 

% Change

Income (loss) from operations by segment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debit and Credit

 

$

75,898

 

 

 

27.2

%

 

$

78,847

 

 

27.6

%

 

$

(2,949

)

 

(3.7

)%

Prepaid Debit

 

 

17,936

 

 

 

28.3

%

 

 

20,393

 

 

31.9

%

 

 

(2,457

)

 

(12.0

)%

Other

 

 

(42,783

)

 

 

*

%

 

 

(42,760

)

 

*

%

 

 

(23

)

 

0.1

%

Total

 

$

51,051

 

 

 

14.9

%

 

$

56,480

 

 

16.2

%

 

$

(5,429

)

 

(9.6

)%

EBITDA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

 

 

2023

 

% of Net
Sales

 

2022

 

% of Net
Sales

 

$ Change

 

% Change

EBITDA by segment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debit and Credit

 

$

23,086

 

 

 

27.6

%

 

$

31,675

 

 

31.8

%

 

$

(8,589

)

 

(27.1

)%

Prepaid Debit

 

 

7,304

 

 

 

32.7

%

 

 

9,638

 

 

38.0

%

 

 

(2,334

)

 

(24.2

)%

Other

 

 

(13,477

)

 

 

*

%

 

 

(14,094

)

 

*

%

 

 

617

 

 

(4.4

)%

Total

 

$

16,913

 

 

 

16.0

%

 

$

27,219

 

 

21.8

%

 

$

(10,306

)

 

(37.9

)%

 

 

Nine Months Ended September 30,

 

 

 

2023

 

% of Net
Sales

 

2022

 

% of Net
Sales

 

$ Change

 

% Change

EBITDA by segment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debit and Credit

 

$

82,733

 

 

 

29.7

%

 

$

85,042

 

 

29.8

%

 

$

(2,309

)

 

(2.7

)%

Prepaid Debit

 

 

19,938

 

 

 

31.5

%

 

 

22,101

 

 

34.5

%

 

 

(2,163

)

 

(9.8

)%

Other

 

 

(39,995

)

 

 

*

%

 

 

(40,119

)

 

*

%

 

 

124

 

 

(0.3

)%

Total

 

$

62,676

 

 

 

18.3

%

 

$

67,024

 

 

19.2

%

 

$

(4,348

)

 

(6.5

)%

Reconciliation of Income (loss) from

 

 

 

 

 

 

 

 

 

 

 

 

Operations by Segment to EBITDA by Segment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2023

 

 

Debit and Credit

 

Prepaid Debit

 

Other

 

Total

EBITDA by segment:

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations

 

$

20,791

 

 

$

6,631

 

 

$

(14,461

)

 

$

12,961

 

Depreciation and amortization

 

 

2,322

 

 

 

675

 

 

 

1,008

 

 

 

4,005

 

Other expenses

 

 

(27

)

 

 

(2

)

 

 

(24

)

 

 

(53

)

EBITDA

 

$

23,086

 

 

$

7,304

 

 

$

(13,477

)

 

$

16,913

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2022

 

 

Debit and Credit

 

Prepaid Debit

 

Other

 

Total

EBITDA by segment:

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations

 

$

29,418

 

 

$

9,109

 

 

$

(15,082

)

 

$

23,445

 

Depreciation and amortization

 

 

2,271

 

 

 

529

 

 

 

1,037

 

 

 

3,837

 

Other expenses

 

 

(14

)

 

 

 

 

 

(49

)

 

 

(63

)

EBITDA

 

$

31,675

 

 

$

9,638

 

 

$

(14,094

)

 

$

27,219

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2023

 

 

Debit and Credit

 

Prepaid Debit

 

Other

 

Total

EBITDA by segment:

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations

 

$

75,898

 

 

$

17,936

 

 

$

(42,783

)

 

$

51,051

 

Depreciation and amortization

 

 

6,836

 

 

 

2,003

 

 

 

3,031

 

 

 

11,870

 

Other expenses

 

 

(1

)

 

 

(1

)

 

 

(243

)

 

 

(245

)

EBITDA

 

$

82,733

 

 

$

19,938

 

 

$

(39,995

)

 

$

62,676

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2022

 

 

Debit and Credit

 

Prepaid Debit

 

Other

 

Total

EBITDA by segment:

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations

 

$

78,847

 

 

$

20,393

 

 

$

(42,760

)

 

$

56,480

 

Depreciation and amortization

 

 

6,202

 

 

 

1,711

 

 

 

3,105

 

 

 

11,018

 

Other expenses

 

 

(7

)

 

 

(3

)

 

 

(464

)

 

 

(474

)

EBITDA

 

$

85,042

 

 

$

22,101

 

 

$

(40,119

)

 

$

67,024

 

 

 

 

 

 

 

 

 

 

 

 

 

EXHIBIT E

CPI Card Group Inc. and Subsidiaries

Supplemental GAAP to Non-GAAP Reconciliation

(dollars in thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

2023

 

2022

 

2023

 

2022

EBITDA and Adjusted EBITDA:

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

3,857

 

 

$

11,910

 

 

$

21,253

 

 

$

24,063

 

Interest, net

 

 

6,714

 

 

 

7,323

 

 

 

20,235

 

 

 

22,334

 

Income tax expense

 

 

2,337

 

 

 

4,149

 

 

 

9,318

 

 

 

9,609

 

Depreciation and amortization

 

 

4,005

 

 

 

3,837

 

 

 

11,870

 

 

 

11,018

 

EBITDA

 

$

16,913

 

 

$

27,219

 

 

$

62,676

 

 

$

67,024

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjustments to EBITDA:

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

$

2,600

 

 

$

966

 

 

$

4,431

 

 

$

2,928

 

Sales tax expense (1)

 

 

 

 

 

22

 

 

 

35

 

 

 

74

 

Restructuring and other charges (2)

 

 

1,672

 

 

 

 

 

 

2,229

 

 

 

 

Loss on debt extinguishment (3)

 

 

25

 

 

 

 

 

 

243

 

 

 

395

 

Foreign currency loss

 

 

28

 

 

 

64

 

 

 

2

 

 

 

79

 

Subtotal of adjustments to EBITDA

 

$

4,325

 

 

$

1,052

 

 

$

6,940

 

 

$

3,476

 

Adjusted EBITDA

 

$

21,238

 

 

$

28,271

 

 

$

69,616

 

 

$

70,500

 

Net income margin (% of Net sales)

 

 

3.6

%

 

 

9.6

%

 

 

6.2

%

 

 

6.9

%

Net income growth (% Change 2023 vs. 2022)

 

 

(67.6

)%

 

 

 

 

 

(11.7

)%

 

 

 

Adjusted EBITDA margin (% of Net sales)

 

 

20.1

%

 

 

22.7

%

 

 

20.4

%

 

 

20.2

%

Adjusted EBITDA growth (% Change 2023 vs. 2022)

 

 

(24.9

)%

 

 

 

 

 

(1.3

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

2023

 

2022

 

2023

 

2022

Free Cash Flow:

 

 

 

 

 

 

 

 

 

 

 

 

Cash provided by operating activities

 

$

11,944

 

 

$

19,861

 

 

$

22,266

 

 

$

11,713

 

Capital expenditures for plant, equipment and leasehold improvements

 

 

518

 

 

 

(6,261

)

 

 

(6,076

)

 

 

(14,440

)

Free Cash Flow

 

$

12,462

 

 

$

13,600

 

 

$

16,190

 

 

$

(2,727

)

_____________

(1)

 

Represents estimated sales tax (benefit) expense relating to a contingent liability due to historical activity in certain states where it is probable that the Company will be subject to sales tax plus interest and penalties.

(2)

 

The 2023 amount represents accrued executive retention to be paid in 2024.

(3)

 

The Company redeemed a portion of the 8.625% Senior Secured Notes through the third quarters of 2023 and 2022 and expensed the associated portion of the unamortized deferred financing costs.

   

Last Twelve Months Ended

 

 

September 30,

 

December 31,

 

 

2023

 

2022

Reconciliation of net income to LTM EBITDA and Adjusted EBITDA:

 

 

 

 

 

 

Net income

 

$

33,730

 

 

$

36,540

Interest, net

 

 

27,517

 

 

 

29,616

Income tax expense

 

 

12,316

 

 

 

12,607

Depreciation and amortization

 

 

15,738

 

 

 

14,886

EBITDA

 

$

89,301

 

 

$

93,649

 

 

 

 

 

 

 

Adjustments to EBITDA:

 

 

 

 

 

 

Stock-based compensation expense

 

$

4,982

 

 

$

3,479

Sales tax (benefit) expense(1)

 

 

(21

)

 

 

18

Restructuring and other charges (2)

 

 

2,229

 

 

 

Loss on debt extinguishment (3)

 

 

322

 

 

 

474

Foreign currency loss

 

 

6

 

 

 

83

Subtotal of adjustments to EBITDA

 

$

7,518

 

 

$

4,054

LTM Adjusted EBITDA

 

$

96,819

 

 

$

97,703

 

 

As of

 

 

September 30,

 

December 31,

 

 

2023

 

2022

Calculation of Net Leverage Ratio:

 

 

 

 

 

 

Senior Notes

 

$

267,897

 

 

$

285,000

 

ABL revolver

 

 

8,000

 

 

 

5,000

 

Finance lease obligations

 

 

15,027

 

 

 

10,697

 

Total debt

 

 

290,924

 

 

 

300,697

 

Less: Cash and cash equivalents

 

 

(10,473

)

 

 

(11,037

)

Total net debt (a)

 

$

280,451

 

 

$

289,660

 

LTM Adjusted EBITDA (b)

 

$

96,819

 

 

$

97,703

 

Net Leverage Ratio (a)/(b)

 

 

2.9

 

 

 

3.0

 

 

CPI Card Group Inc. Investor Relations:
(877) 369-9016
InvestorRelations@cpicardgroup.com

CPI Card Group Inc. Media Relations:
Media@cpicardgroup.com

Source: CPI Card Group