Press release

CPI Card Group Inc. Reports Third Quarter and Year-to-Date 2020 Results

0
Sponsored by Businesswire

CPI Card Group Inc. (OTCQX: PMTS; TSX: PMTS) (“CPI” or the “Company”) today reported financial results for the third quarter and nine months ended September 30, 2020.

“As we continue to navigate these unprecedented times, we are pleased with our strong third quarter performance,” said Scott Scheirman, President and Chief Executive Officer of CPI. “Our 15% top-line growth underscores the resilience of the business, our ability to capitalize on the dual interface card demand in the U.S. and the strong market for our innovative and differentiated products, including our eco-focused solutions. Operating margins also expanded significantly in the quarter, driven by operating leverage and ongoing efficiency initiatives. We continue to win new business with our existing customers, add new customers and pursue opportunities.”

Scheirman continued, “We remain steadfast and intensely focused on our strategies of deep customer focus, providing market-leading quality products and customer service, delivering innovative solutions and a market-competitive business model.”

Third Quarter and First Nine Months 2020 Financial Highlights

Net sales increased 15% and 11% year-over-year to $82.7 million and $228.0 million in the third quarter and first nine months of 2020, respectively. Gross profit increased 21% and 15% year-over-year in the third quarter and first nine months of 2020, respectively. Gross profit margins increased to 37.0% in the third quarter of 2020, compared to 35.4% in the prior year period, primarily due to higher net sales and operating leverage in the Debit and Credit segment. Gross profit margins increased to 34.8% from 33.7% in the first nine months of 2020 compared to the prior year.

Income from operations was $13.5 million and $26.0 million in the third quarter and first nine months of 2020, respectively, compared with $7.7 million and $21.1 million in the third quarter and first nine months of 2019, respectively. In the first nine months of 2019, the Company recognized a $6.0 million gain related to the cash settlement of litigation, which was included in income from operations.

Third quarter 2020 net income was $5.8 million, or $0.52 per diluted share, compared to a net loss of $0.7 million, or a $0.06 loss per diluted share, in the third quarter of 2019. For the first nine months, net income was $8.8 million, or $0.79 per diluted share, in 2020 compared to a net loss of $2.7 million, or a $0.24 loss per diluted share, in 2019.

Adjusted EBITDA increased 43% and 39% year-over-year to $17.5 million and $40.0 million in the third quarter and first nine months of 2020, respectively.

Third Quarter and First Nine Months 2020 Segment Information

Debit and Credit:

Net sales increased 22% and 19% year-over-year to $62.7 million and $180.9 million in the third quarter and first nine months of 2020, respectively. Growth for the third quarter and first nine months of 2020 was driven primarily by higher volumes of dual-interface EMV® card sales, including Second WaveTM cards featuring a core made with recovered ocean bound plastic. In addition, net sales increased from CPI On-Demand card personalization due to new customer wins and higher volumes from our existing customers, and from COVID-19 related government disbursement work. This growth was partially offset by COVID-19 impacts, including reduced volumes in card personalization stemming from fewer new accounts and requests for replacement cards. Card@Once® product sales were also impacted by COVID-19 due to reduced hours of operation, lack of access or closure of certain bank branches.

Prepaid Debit:

Net sales were up 1% and down 8% year-over-year to $20.6 million and $48.7 million for the third quarter and first nine months of 2020, respectively. Growth for the third quarter was primarily due to timing of certain customer sales, partially offset by reduced sales volumes primarily associated with COVID-19 impacts, including lower retail store traffic, which also impacted the decline in net sales for the first nine months of 2020.

Balance Sheet, Liquidity, and Cash Flow

As of September 30, 2020, cash and cash equivalents was $50.3 million. Cash used in operating activities was $1.8 million and capital expenditures were $1.7 million in the third quarter of 2020, yielding Adjusted Free Cash Flow use of $3.5 million. For the first nine months of 2020, cash provided by operating activities was $10.2 million and capital expenditures were $3.3 million, yielding Adjusted Free Cash Flow of $6.9 million. This compares with the first nine months of 2019 when cash used in operating activities was $3.0 million, or a $9.0 million cash usage when excluding the $6.0 million cash received from a litigation settlement, and capital expenditures were $3.3 million, resulting in Adjusted Free Cash Flow use of $12.3 million. For the first nine months of 2020, cash provided by operating activities and Adjusted Free Cash Flow increased $13.2 million and $19.2 million year-over-year, respectively.

Total long-term debt principal outstanding, comprised of the Company’s $30 million Senior Credit Facility and its $312.5 million First Lien Term Loan, was $342.5 million at September 30, 2020. Net of debt issuance costs and discount, total long-term debt was $335.8 million as of September 30, 2020. The Company’s Senior Credit Facility matures in May 2022 and the First Lien Term Loan matures in August 2022.

John Lowe, Chief Financial Officer, stated, “Top-line net sales growth and our commitment to operating efficiently resulted in strong year-over-year growth in Net Sales, Net Income, and Adjusted EBITDA. We are sharply focused on continuing to execute on our strategy and capitalizing on market opportunities.”

Additional Investor Commentary

The Company has provided additional written commentary regarding its quarterly performance and other business matters. This earnings press release and additional written commentary are available at investor.cpicardgroup.com.

EMV® is a registered trademark in the U.S. and other countries and an unregistered trademark elsewhere. The EMV trademark is owned by EMVCo, LLC.

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, and Adjusted Free Cash Flow. 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.

EBITDA

EBITDA represents earnings before interest, taxes, depreciation and amortization, all on a continuing operations basis. EBITDA is presented because it is an important supplemental measure of performance, and it is frequently used by analysts, investors and other interested parties in the evaluation of companies in our industry. EBITDA is also presented and compared by analysts and investors in evaluating our ability to meet debt service obligations. Other companies in our industry may calculate EBITDA differently. EBITDA is not a measurement of financial performance under GAAP and should not be considered as an alternative to cash flow from operating activities or as a measure of liquidity or an alternative to net (loss) income or net (loss) income from continuing operations as indicators of operating performance or any other measures of performance derived in accordance with GAAP. Because EBITDA is calculated before recurring cash charges, including interest expense and taxes, and is not adjusted for capital expenditures or other recurring cash requirements of the business, it should not be considered as a measure of discretionary cash available to invest in the growth of the business.

Adjusted EBITDA

Adjusted EBITDA is presented on a continuing operations basis and is defined as EBITDA adjusted for litigation and related charges incurred in connection with certain patent and shareholder litigation; stock-based compensation expense; estimated sales tax expense (benefit); restructuring and other charges; loss on Revolving Credit Facility termination; foreign currency gain or loss; litigation settlement gain; and other items that are unusual in nature, infrequently occurring or not considered part of our core operations, as set forth in the reconciliation on Exhibit E. Adjusted EBITDA is also a defined computation in our First Lien Term Loan and Senior Credit Facility agreements, which generally conforms to the definition above, and impacts certain credit measures and covenants, including a covenant requiring the Company to have at least $25 million Adjusted EBITDA (as defined in our Senior Credit Facility) for the previous four consecutive fiscal quarters in total, at the end of each quarterly period ending on or after March 31, 2020. 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 (loss) 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. Further, although not included in the calculation of Adjusted EBITDA presented in this release, the measure as defined in our credit facilities may at times allow us to add estimated cost savings and operating synergies related to operational changes ranging from acquisitions to dispositions to restructurings and/or exclude one-time transition expenditures that we anticipate we will need to incur to realize cost savings before such savings have occurred. Adjusted EBITDA margin percentage as shown in Exhibit E is computed as Adjusted EBITDA divided by total net sales.

Adjusted Free Cash Flow

We define Adjusted Free Cash Flow as cash flow provided by (used in) operating activities – continuing operations, less capital expenditures from continuing operations, adjusted for cash received from a litigation settlement gain in the second quarter of 2019. 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, nor does it reflect the cash impacts of our discontinued operations. Adjusted Free Cash Flow should not be considered in isolation, or as a substitute for, cash (used in) provided by operating activities – continuing operations or any other measures of liquidity derived in accordance with GAAP.

About CPI Card Group Inc.

CPI Card Group® is a payment technology company and leading provider of credit, debit and prepaid solutions delivered physically, digitally and on-demand. CPI helps our customers foster connections and build their brands through innovative and reliable solutions, including financial payment cards, personalization, and Software-as-a-Service (SaaS) instant issuance. CPI has more than 20 years of experience in the payments market and is a trusted partner to financial institutions and payments services providers. Serving customers from locations throughout the United States, CPI has a large network of high security facilities, each of which is registered as PCI compliant by one or more of the payment brands: Visa, Mastercard®, American Express® and Discover®. Learn more at www.cpicardgroup.com.

Forward-Looking Statements

Certain statements and information in this earnings 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,” “guides,” “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 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: the potential effects of COVID-19 on our business, including our supply-chain, customer demand, workforce, operations and ability to comply with certain covenants in our credit facilities; a decline in U.S. and global market and economic conditions and resulting decreases in consumer and business spending; our lack of eligibility to participate in government relief programs related to COVID-19 or inability to realize material benefits from such programs; our substantial indebtedness, including inability to make debt service payments or refinance such indebtedness; 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, and challenges to our income tax positions; the restrictive terms of our credit facilities and covenants of future agreements governing indebtedness and the resulting restraints on our ability to pursue our business strategies; our limited ability to raise capital in the future; system security risks, data protection breaches and cyber-attacks; failure to comply with regulations, customer contractual requirements and evolving industry standards regarding consumer privacy and data use and security, including with respect to possible exposure to litigation and/or regulatory penalties under applicable data privacy and other laws for failure to so comply; interruptions in our operations, including our IT systems, or in the operations of the third parties that operate the data centers or computing infrastructure on which we rely; disruptions in production at one or more of our facilities; our inability to adequately protect our trade secrets and intellectual property rights from misappropriation or infringement, claims that our technology is infringing on the intellectual property of others, and risks related to open source software; defects in our software; problems in production quality, materials and process; a disruption or other failure in our supply chain; our failure to retain our existing customers or identify and attract new customers; a loss of market share or a decline in profitability resulting from competition; our inability to recruit, retain and develop qualified personnel, including key personnel; our inability to sell, exit, reconfigure or consolidate businesses or facilities that no longer meet with our strategy; our inability to develop, introduce and commercialize new products; the effect of legal and regulatory proceedings; failure to meet the continued listing standards of the Toronto Stock Exchange or the rules of the OTCQX® Best Market; a continued decrease in the value of our common stock combined with our common stock no longer being traded on a United States national securities exchange, which may prevent investors or potential investors from investing or achieving a meaningful degree of liquidity; developing technologies that make our existing technology solutions and products obsolete or less relevant or a failure to introduce new products and services in a timely manner; quarterly variation in our operating results; our inability to realize the full value of our long-lived assets; our failure to operate our business in accordance with the Payment Card Industry (“PCI”) Security Standards Council security standards or other industry standards; costs relating to product defects and any related product liability and/or warranty claims; maintenance and further imposition of tariffs and/or trade restrictions on, or slow-downs or interruptions in our ability to obtain, goods imported into the United States; our dependence on licensing arrangements; risks associated with international operations; non-compliance with, and changes in, laws in the United States and in foreign jurisdictions in which we operate and sell our products; our ability to comply with a wide variety of environmental, health and safety laws and regulations and the exposure to liability for any failure to comply; risks associated with the controlling 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 largest stockholder; and other risks that are described in Part I, Item 1A – Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2019 and filed with the Securities and Exchange Commission (the “SEC”) on March 6, 2020, Part II, Item 1A – Risk Factors of our Quarterly Report on Form 10-Q for the quarter ended September 30, 2020, and filed with the SEC on November 3, 2020, 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 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, free of charge, the reports that the company files or furnishes with the SEC, corporate governance information and press releases. CPI uses its investor relations site (http://investor.cpicardgroup.com) as a means of disclosing material information and for complying with its disclosure obligations under Regulation FD.

CPI Card Group Inc. Earnings Release Supplemental Financial Information

Exhibit A

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) – Unaudited for the three and nine months ended September 30, 2020 and 2019

 

 

Exhibit B

Condensed Consolidated Balance Sheets – Unaudited as of September 30, 2020 and December 31, 2019

 

 

Exhibit C

Condensed Consolidated Statements of Cash Flows – Unaudited for the nine months ended September 30, 2020 and 2019

 

 

Exhibit D

Segment Summary Information – Unaudited for the three and nine months ended September 30, 2020 and 2019

 

 

Exhibit E

Supplemental GAAP to Non-GAAP Reconciliations – Unaudited for the three and nine months ended September 30, 2020 and 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EXHIBIT A

CPI Card Group Inc. and Subsidiaries

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

(Amounts in Thousands, Except Share and Per Share Amounts)

(Unaudited)

 

 

Three Months Ended

September 30,

 

Nine Months Ended

September 30,

 

 

2020

 

2019

 

2020

 

2019

Net sales:

 

 

 

 

 

 

 

 

 

 

 

 

Products

 

$

43,462

 

 

$

33,963

 

 

$

125,040

 

 

$

99,845

 

Services

 

 

39,240

 

 

 

37,718

 

 

 

103,009

 

 

 

105,603

 

Total net sales

 

 

82,702

 

 

 

71,681

 

 

 

228,049

 

 

 

205,448

 

Cost of sales:

 

 

 

 

 

 

 

 

 

 

 

 

Products (exclusive of depreciation and amortization shown below)

 

 

27,490

 

 

 

22,182

 

 

 

79,780

 

 

 

65,769

 

Services (exclusive of depreciation and amortization shown below)

 

 

22,133

 

 

 

21,329

 

 

 

60,986

 

 

 

62,142

 

Depreciation and amortization

 

 

2,472

 

 

 

2,813

 

 

 

7,938

 

 

 

8,403

 

Total cost of sales

 

 

52,095

 

 

 

46,324

 

 

 

148,704

 

 

 

136,314

 

Gross profit

 

 

30,607

 

 

 

25,357

 

 

 

79,345

 

 

 

69,134

 

Operating expenses, net:

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

15,617

 

 

 

16,104

 

 

 

48,893

 

 

 

49,541

 

Depreciation and amortization

 

 

1,508

 

 

 

1,513

 

 

 

4,498

 

 

 

4,539

 

Litigation settlement gain

 

 

 

 

 

 

 

 

 

 

 

(6,000

)

Total operating expenses, net

 

 

17,125

 

 

 

17,617

 

 

 

53,391

 

 

 

48,080

 

Income from operations

 

 

13,482

 

 

 

7,740

 

 

 

25,954

 

 

 

21,054

 

Other expense, net:

 

 

 

 

 

 

 

 

 

 

 

 

Interest, net

 

 

(6,298

)

 

 

(6,085

)

 

 

(19,158

)

 

 

(18,847

)

Foreign currency gain (loss)

 

 

23

 

 

 

(40

)

 

 

(10

)

 

 

(1,320

)

Other income (expense), net

 

 

4

 

 

 

14

 

 

 

(90

)

 

 

25

 

Total other expense, net

 

 

(6,271

)

 

 

(6,111

)

 

 

(19,258

)

 

 

(20,142

)

Income from continuing operations before income taxes

 

 

7,211

 

 

 

1,629

 

 

 

6,696

 

 

 

912

 

Income tax (expense) benefit

 

 

(1,402

)

 

 

(2,258

)

 

 

2,178

 

 

 

(3,618

)

Net income (loss) from continuing operations

 

 

5,809

 

 

 

(629

)

 

 

8,874

 

 

 

(2,706

)

Net (loss) income from discontinued operation, net of tax

 

 

 

 

 

(28

)

 

 

(30

)

 

 

(16

)

Net income (loss)

 

$

5,809

 

 

$

(657

)

 

$

8,844

 

 

$

(2,722

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and Diluted net income (loss) per share from continuing operations:

 

$

0.52

 

 

$

(0.06

)

 

$

0.79

 

 

$

(0.24

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and Diluted net income (loss) per share:

 

$

0.52

 

 

$

(0.06

)

 

$

0.79

 

 

$

(0.24

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic weighted-average shares outstanding:

 

 

11,230,028

 

 

 

11,223,715

 

 

 

11,228,116

 

 

 

11,187,550

 

Diluted weighted-average shares outstanding:

 

 

11,231,821

 

 

 

11,223,715

 

 

 

11,235,098

 

 

 

11,187,550

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

5,809

 

 

$

(657

)

 

$

8,844

 

 

$

(2,722

)

Currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

31

 

Reclassification adjustment to foreign currency loss

 

 

 

 

 

 

 

 

 

 

 

1,329

 

Total comprehensive income (loss)

 

$

5,809

 

 

$

(657

)

 

$

8,844

 

 

$

(1,362

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Note: The Company revised its prior period financial statements to adjust immaterial items, primarily due to estimated sales tax expense relating to 2017 to 2020. Refer to Note 1 of the Form 10-Q for the quarter ended September 30, 2020 for an explanation of the immaterial prior period adjustments.

 

 

 

 

 

 

 

 

 

 

 

 

EXHIBIT B

CPI Card Group Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Amounts in Thousands, Except Share and Per Share Amounts)

(Unaudited)

 

 

September 30,

 

December 31,

 

 

2020

 

2019

 

 

 

 

 

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

50,349

 

 

$

18,682

 

Accounts receivable, net of allowances of $291 and $395, respectively

 

 

59,093

 

 

 

42,832

 

Inventories

 

 

20,166

 

 

 

20,192

 

Prepaid expenses and other current assets

 

 

4,267

 

 

 

6,345

 

Income taxes receivable

 

 

7,795

 

 

 

4,164

 

Total current assets

 

 

141,670

 

 

 

92,215

 

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

 

 

35,473

 

 

 

41,612

 

Intangible assets, net

 

 

27,355

 

 

 

30,802

 

Goodwill

 

 

47,150

 

 

 

47,150

 

Other assets

 

 

2,040

 

 

 

1,232

 

Total assets

 

$

253,688

 

 

$

213,011

 

Liabilities and stockholders’ deficit

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

17,223

 

 

$

16,482

 

Accrued expenses

 

 

29,527

 

 

 

24,735

 

Deferred revenue and customer deposits

 

 

885

 

 

 

468

 

Total current liabilities

 

 

47,635

 

 

 

41,685

 

Long-term debt

 

 

335,759

 

 

 

307,778

 

Deferred income taxes

 

 

6,656

 

 

 

6,366

 

Other long-term liabilities

 

 

9,012

 

 

 

11,478

 

Total liabilities

 

 

399,062

 

 

 

367,307

 

Commitments and contingencies

 

 

 

 

 

 

Series A Preferred Stock; $0.001 par value—100,000 shares authorized; 0 shares issued and outstanding at September 30, 2020 and December 31, 2019

 

 

 

 

 

 

Stockholders’ deficit:

 

 

 

 

 

 

Common stock; $0.001 par value—100,000,000 shares authorized; 11,230,482 and 11,224,191 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively

 

 

11

 

 

 

11

 

Capital deficiency

 

 

(111,910

)

 

 

(111,988

)

Accumulated loss

 

 

(33,475

)

 

 

(42,319

)

Total stockholders’ deficit

 

 

(145,374

)

 

 

(154,296

)

Total liabilities and stockholders’ deficit

 

$

253,688

 

 

$

213,011 

 

 

 

 

 

 

 

EXHIBIT C

CPI Card Group Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Amounts in Thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30,

 

 

2020

 

2019

Operating activities

 

 

 

 

 

 

Net income (loss)

 

$

8,844

 

 

$

(2,722

)

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

 

 

 

 

 

 

Loss from discontinued operations

 

 

30

 

 

 

16

 

Depreciation and amortization expense

 

 

12,436

 

 

 

12,942

 

Stock-based compensation expense

 

 

84

 

 

 

316

 

Amortization of debt issuance costs and debt discount

 

 

2,503

 

 

 

1,469

 

Deferred income taxes

 

 

290

 

 

 

2,531

 

Reclassification adjustment to foreign currency loss

 

 

 

 

 

1,329

 

Other, net

 

 

1,345

 

 

 

(6

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(16,165

)

 

 

(2,605

)

Inventories

 

 

(1,109

)

 

 

(12,279

)

Prepaid expenses and other assets

 

 

49

 

 

 

1,659

 

Income taxes receivable, net

 

 

(3,630

)

 

 

331

 

Accounts payable

 

 

921

 

 

 

(358

)

Accrued expenses

 

 

4,112

 

 

 

(5,167

)

Deferred revenue and customer deposits

 

 

417

 

 

 

(472

)

Other liabilities

 

 

81

 

 

 

17

 

Cash provided by (used in) operating activities – continuing operations

 

 

10,208

 

 

 

(2,999

)

Cash used in operating activities – discontinued operations

 

 

(30

)

 

 

(16

)

Investing activities

 

 

 

 

 

 

Acquisitions of plant, equipment and leasehold improvements

 

 

(3,320

)

 

 

(3,298

)

Cash received for sale of Canadian subsidiary

 

 

 

 

 

1,451

 

Cash used in investing activities – continuing operations

 

 

(3,320

)

 

 

(1,847

)

Financing activities

 

 

 

 

 

 

Proceeds from Senior Credit Facility, net of discount

 

 

29,100

 

 

 

 

Debt issuance costs

 

 

(2,507

)

 

 

 

Proceeds from Revolving Credit Facility

 

 

 

 

 

11,500

 

Payments on Revolving Credit Facility

 

 

 

 

 

(11,500

)

Payments on finance lease obligations

 

 

(1,782

)

 

 

(1,175

)

Cash provided by (used in) financing activities

 

 

24,811

 

 

 

(1,175

)

Effect of exchange rates on cash

 

 

(2

)

 

 

36

 

Net increase (decrease) in cash and cash equivalents

 

 

31,667

 

 

 

(6,001

)

Cash and cash equivalents, beginning of period

 

 

18,682

 

 

 

20,291

 

Cash and cash equivalents, end of period

 

$

50,349

 

 

$

14,290

 

Supplemental disclosures of cash flow information

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

Interest

 

$

17,454

 

 

$

17,315

 

Income taxes

 

$

946

 

 

$

675

 

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

 

 

 

 

 

 

Operating leases

 

$

141

 

 

$

8,533

 

Financing leases

 

$

1,618

 

 

$

5,196

 

Accounts payable, and accrued expenses for acquisitions of plant, equipment and leasehold improvements

 

$

127

 

 

$

159

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EXHIBIT D

CPI Card Group Inc. and Subsidiaries

Segment Summary Information

For the Three and Nine Months Ended September 30, 2020 and 2019

(Dollars in Thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Sales

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

 

2020

 

2019

 

$ Change

 

% Change

Net sales by segment:

 

 

 

 

 

 

 

 

 

 

 

 

Debit and Credit

 

$

62,710

 

 

$

51,502

 

 

$

11,208

 

 

21.8

%

Prepaid Debit

 

 

20,604

 

 

 

20,452

 

 

 

152

 

 

0.7

%

Eliminations

 

 

(612

)

 

 

(273

)

 

 

(339

)

 

*

%

Total

 

$

82,702

 

 

$

71,681

 

 

$

11,021

 

 

15.4

%

* Calculation not meaningful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30,

 

 

2020

 

2019

 

$ Change

 

% Change

Net sales by segment:

 

 

 

 

 

 

 

 

 

 

 

 

Debit and Credit

 

$

180,855

 

 

$

151,517

 

 

$

29,338

 

 

19.4

 

%

Prepaid Debit

 

 

48,680

 

 

 

53,162

 

 

 

(4,482

)

 

(8.4

)

%

Other

 

 

 

 

 

1,679

 

 

 

(1,679

)

 

(100.0

)

%

Eliminations

 

 

(1,486

)

 

 

(910

)

 

 

(576

)

 

*

%

Total

 

$

228,049

 

 

$

205,448

 

 

$

22,601

 

 

11.0

 

%

* Calculation not meaningful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Profit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

 

 

2020

 

 

% of Net

Sales

 

2019

 

% of Net

Sales

 

$ Change

 

% Change

 

Gross profit by segment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debit and Credit

 

$

21,720

 

 

34.6

%

$

16,441

 

31.9

%

$

5,279

 

 

32.1

 

%

Prepaid Debit

 

 

8,887

 

 

43.1

%

 

8,916

 

43.6

%

 

(29

)

 

(0.3

)

%

Total

 

$

30,607

 

 

37.0

%

$

25,357

 

35.4

%

$

5,250

 

 

20.7

 

%

* Calculation not meaningful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

% of Net

Sales

 

2019

 

% of Net

Sales

 

$ Change

 

% Change

 

Gross profit by segment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debit and Credit

 

$

60,681

 

 

33.6

%

$

47,460

 

 

31.3

%

$

13,221

 

 

27.9

 

%

Prepaid Debit

 

 

18,664

 

 

38.3

%

 

21,771

 

 

41.0

%

 

(3,107

)

 

(14.3

)

%

Other

 

 

 

 

%

 

(97

)

 

*

%

 

97

 

 

*

%

Total

 

$

79,345

 

 

34.8

%

$

69,134

 

 

33.7

%

$

10,211

 

 

14.8

 

%

* Calculation not meaningful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

 

 

2020

 

 

% of Net

Sales

 

2019

 

% of Net

Sales

 

 

$ Change

 

% Change

 

Income (loss) from operations by segment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debit and Credit

 

$

14,734

 

 

 

23.5

%

$

8,628

 

 

16.8

%

$

6,106

 

 

70.8

 

%

Prepaid Debit

 

 

7,829

 

 

 

38.0

%

 

7,815

 

 

38.2

%

 

14

 

 

0.2

 

%

Other

 

 

(9,081

)

 

 

*

%

 

(8,703

)

 

*

%

 

(378

)

 

(4.3

)

%

Total

 

$

13,482

 

 

 

16.3

%

$

7,740

 

 

10.8

%

$

5,742

 

 

74.2

 

%

* Calculation not meaningful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

% of Net

Sales

 

2019

 

% of Net

Sales

 

$ Change

 

% Change

 

Income (loss) from operations by segment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debit and Credit

 

$

37,914

 

 

 

21.0

%

$

24,037

 

 

15.9

%

$

13,877

 

 

57.7

 

%

Prepaid Debit

 

 

15,379

 

 

 

31.6

%

 

18,505

 

 

34.8

%

 

(3,126

)

 

(16.9

)

%

Other

 

 

(27,339

)

 

 

*

%

 

(21,488

)

 

*

%

 

(5,851

)

 

(27.2

)

%

Total

 

$

25,954

 

 

 

11.4

%

$

21,054

 

 

10.2

%

$

4,900

 

 

23.3

 

%

* Calculation not meaningful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EBITDA

 

Three Months Ended September 30,

 

 

 

2020

 

 

% of Net

Sales

 

2019

 

% of Net

Sales

 

$ Change

 

% Change

 

EBITDA by segment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debit and Credit

 

$

16,993

 

 

 

27.1

%

$

11,249

 

 

21.8

%

$

5,744

 

 

51.1

 

%

Prepaid Debit

 

 

8,332

 

 

 

40.4

%

 

8,342

 

 

40.8

%

 

(10

)

 

(0.1

)

%

Other

 

 

(7,836

)

 

 

*

%

 

(7,551

)

 

*

%

 

(285

)

 

(3.8

)

%

Total

 

$

17,489

 

 

 

21.1

%

$

12,040

 

 

16.8

%

$

5,449

 

 

45.3

 

%

* Calculation not meaningful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

% of Net

Sales

 

2019

 

% of Net

Sales

 

$ Change

 

% Change

 

EBITDA by segment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debit and Credit

 

$

45,073

 

 

 

24.9

%

$

31,992

 

 

21.1

%

$

13,081

 

 

40.9

 

%

Prepaid Debit

 

 

16,974

 

 

 

34.9

%

 

20,001

 

 

37.6

%

 

(3,027

)

 

(15.1

)

%

Other

 

 

(23,757

)

 

 

*

%

 

(19,292

)

 

*

%

 

(4,465

)

 

(23.1

)

%

Total

 

$

38,290

 

 

 

16.8

%

$

32,701

 

 

15.9

%

$

5,589

 

 

17.1

 

%

* Calculation not meaningful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of Income (loss) from

 

 

 

 

 

 

 

 

 

 

 

 

Operations by Segment to EBITDA by Segment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2020

 

 

Debit and Credit

 

Prepaid Debit

 

Other

 

Total

EBITDA by segment:

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations

 

$

14,734

 

 

$

7,829

 

 

$

(9,081

)

 

$

13,482

 

Depreciation and amortization

 

 

2,261

 

 

 

502

 

 

 

1,217

 

 

 

3,980

 

Other (expenses) income

 

 

(2

)

 

 

1

 

 

 

28

 

 

 

27

 

EBITDA

 

$

16,993

 

 

$

8,332

 

 

$

(7,836

)

 

$

17,489

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2019

 

 

Debit and Credit

 

Prepaid Debit

 

Other

 

Total

EBITDA by segment:

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations

 

$

8,628

 

 

$

7,815

 

 

$

(8,703

)

 

$

7,740

 

Depreciation and amortization

 

 

2,625

 

 

 

527

 

 

 

1,174

 

 

 

4,326

 

Other (expenses) income

 

 

(4

)

 

 

 

 

 

(22

)

 

 

(26

)

EBITDA

 

$

11,249

 

 

$

8,342

 

 

$

(7,551

)

 

$

12,040

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2020

 

 

Debit and Credit

 

Prepaid Debit

 

Other

 

Total

EBITDA by segment:

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations

 

$

37,914

 

 

$

15,379

 

 

$

(27,339

)

 

$

25,954

 

Depreciation and amortization

 

 

7,207

 

 

 

1,599

 

 

 

3,630

 

 

 

12,436

 

Other (expenses) income

 

 

(48

)

 

 

(4

)

 

 

(48

)

 

 

(100

)

EBITDA

 

$

45,073

 

 

$

16,974

 

 

$

(23,757

)

 

$

38,290

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2019

 

 

Debit and Credit

 

Prepaid Debit

 

Other

 

Total

EBITDA by segment:

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations

 

$

24,037

 

 

 

18,505

 

 

 

(21,488

)

 

 

21,054

 

Depreciation and amortization

 

 

7,966

 

 

 

1,515

 

 

 

3,461

 

 

 

12,942

 

Other (expenses) income

 

 

(11

)

 

 

(19

)

 

 

(1,265

)

 

 

(1,295

)

EBITDA

 

$

31,992

 

 

$

20,001

 

 

$

(19,292

)

 

$

32,701

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EXHIBIT E

 

CPI Card Group Inc. and Subsidiaries

 

Supplemental GAAP to Non-GAAP Reconciliations

 

(Dollars in Thousands)

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

 

2020

 

2019

 

2020

 

2019

 

Reconciliation of net income (loss) from continuing operations (GAAP) to EBITDA and Adjusted EBITDA:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) from continuing operations

 

$

5,809

 

 

$

(629

)

 

$

8,874

 

 

$

(2,706

)

 

Interest expense, net

 

 

6,298

 

 

 

6,085

 

 

 

19,158

 

 

 

18,847

 

 

Income tax expense (benefit)

 

 

1,402

 

 

 

2,258

 

 

 

(2,178

)

 

 

3,618

 

 

Depreciation and amortization

 

 

3,980

 

 

 

4,326

 

 

 

12,436

 

 

 

12,942

 

 

EBITDA

 

$

17,489

 

 

$

12,040

 

 

$

38,290

 

 

$

32,701

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjustments to EBITDA:

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

25

 

 

 

9

 

 

 

84

 

 

 

316

 

 

Litigation and related charges (1)

 

 

 

 

 

 

 

 

 

 

 

28

 

 

Sales tax expense (2)

 

 

 

 

 

168

 

 

 

293

 

 

 

396

 

 

Restructuring and other charges (3)

 

 

 

 

 

 

 

 

1,229

 

 

 

 

 

Loss on Revolving Credit Facility termination (4)

 

 

 

 

 

 

 

 

92

 

 

 

 

 

Litigation settlement gain (5)

 

 

 

 

 

 

 

 

 

 

 

(6,000

)

 

Foreign currency (gain) loss (6)

 

 

(23

)

 

 

40

 

 

 

10

 

 

 

1,320

 

 

Subtotal of adjustments to EBITDA

 

 

2

 

 

 

217

 

 

 

1,708

 

 

 

(3,940

)

 

Adjusted EBITDA

 

$

17,491

 

 

$

12,257

 

 

$

39,998

 

 

$

28,761

 

 

Adjusted EBITDA margin (% of net sales)

 

 

21.1

 

%

 

17.1

 

%

 

17.5

 

%

 

14.0

 

%

Adjusted EBITDA growth (% Change 2020 vs. 2019)

 

 

42.7

 

%

 

 

 

 

39.1

 

%

 

 

 

Net income (% Change 2020 vs. 2019)

 

 

984.2

 

%

 

 

 

 

424.9

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

 

2020

 

2019

 

2020

 

2019

 

Reconciliation of cash (used in) provided by operating activities – continuing operations (GAAP) to Adjusted Free Cash Flow:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash (used in) provided by operating activities – continuing operations

 

$

(1,838

)

 

$

(2,042

)

 

$

10,208

 

 

$

(2,999

)

 

Acquisitions of plant, equipment and leasehold improvements

 

 

(1,676

)

 

 

(612

)

 

 

(3,320

)

 

 

(3,298

)

 

Cash received from litigation settlement (5)

 

 

 

 

 

 

 

 

 

 

 

(6,000

)

 

Adjusted free cash flow (use) – continuing operations

 

$

(3,514

)

 

$

(2,654

)

 

$

6,888

 

 

$

(12,297

)

 

Note that tables in this exhibit are presented on a continuing operations basis.

(1)

 

Represents net legal costs incurred with certain patent and shareholder litigation.

(2)

 

The Company revised its prior period financial statements to adjust immaterial items, primarily due to estimated sales tax expense relating to 2017 to 2020.  Refer to Note 1 of the Form 10-Q for the quarter ended September 30, 2020 for an explanation of the immaterial prior period adjustments. 

(3)

 

Represents restructuring severance charges in 2020. 

(4)

 

The Company terminated the Revolving Credit Facility during the first quarter of 2020 and expensed the remaining unamortized deferred financing costs.

(5)

 

During the second quarter of 2019, the Company recognized in operating income a $6.0 million gain related to the cash settlement of litigation.

(6)

 

Foreign currency loss includes the release of the cumulative translation adjustment from the balance sheet to the statement of operations, done in connection with the disposition of the Company’s Canadian subsidiary during the first nine months of 2019.