Net Sales Increased 20% to $99.6 Million

Net Income Increased 14% to $6.6 Million; Adjusted EBITDA Increased 23% to $21.5 Million

Strong Growth Across Portfolio

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 and nine months ended September 30, 2021.

“We continued to deliver strong performance in the third quarter, as we maintain our focus on providing high quality products and services that meet the needs of our diverse and growing customer base,” said Scott Scheirman, President and Chief Executive Officer of CPI. “Our business has proved resilient throughout the pandemic, and this quarter’s results reflect the dedicated execution of our strategies by our entire organization as we navigate ongoing supply-chain and labor shortage challenges.”

Scheirman continued, “We remain committed to our vision of being the partner of choice in payment solutions by providing market-leading quality products and customer service, while operating a market-competitive business model.”

2021 Business Highlights

  • Our comprehensive end-to-end solutions contributed to earning new FinTech and traditional financial services customers.
  • Our innovative tamper-evident packaging solutions contributed to strong growth in our Prepaid Debit segment and further enhanced our leadership in the U.S. open loop retail prepaid market.
  • We generated incremental net sales from customer demand for higher-priced contactless cards, as the U.S. payment card market continues its ongoing transition to contactless solutions.
  • We continued to lead the eco-focused payment card market in the U.S., as evidenced by selling over 40 million eco-focused cards since launch in 2019.
  • Our innovative personalization services contributed to net sales growth, including from our Card@Once® Software-as-a-Service instant issuance solutions and CPI On-Demand®.
  • We refinanced our debt in the first quarter of 2021, extending maturities and enhancing liquidity. We have reduced outstanding debt by more than $30 million since December 31, 2020 and our net leverage ratio was less than 4x at September 30, 2021.

Third Quarter 2021 Financial Highlights

Net sales increased 20% year-over-year to $99.6 million in the third quarter of 2021.

  • Debit and Credit segment net sales increased 21% to $76.1 million. Net sales growth was primarily driven by the ongoing transition to higher-priced contactless cards and related card personalization and new customer growth, and included strong contributions from Card@Once® and CPI On-Demand®.
  • Prepaid Debit segment net sales increased 14% to $23.5 million, primarily due to higher volumes from existing customers, including the acquisition of new portfolios and the replenishment of inventory by those customers.

Net sales in the prior year were impacted by lower customer demand than expected in both segments, which we believe was primarily attributable to the COVID-19 pandemic.

Gross profit increased 23% to $37.7 million and gross profit margin was 37.8%, which compared to 37.0% in the prior year. The increase in gross profit margin was primarily due to operating leverage from higher net sales, partially offset by increased labor costs as a percentage of sales.

Income from operations increased 24% year-over-year to $16.7 million, compared to $13.5 million in the prior year.

Third quarter 2021 net income was $6.6 million, or $0.56 earnings per diluted share, an increase of 14% year-over-year from net income of $5.8 million, or $0.52 earnings per diluted share, in the third quarter of 2020.

Adjusted EBITDA increased 23% year-over-year to $21.5 million as a result of net sales growth and operating leverage, partially offset by increased labor costs and other compensation-related expenses.

Year-to-date 2021 Financial Highlights

Net sales increased 24% year-over-year to $281.9 million in the first nine months of 2021.

  • Debit and Credit segment net sales increased 21% to $218.8 million. Net sales growth was primarily driven by new customer growth and the ongoing transition to contactless cards and related card personalization, and included strong contributions from Card@Once® and CPI On-Demand®.
  • Prepaid Debit segment net sales increased 30% to $63.3 million primarily due to higher volumes from existing customers, including the acquisition of new portfolios and the replenishment of inventory by those customers.

Net sales in the prior year were impacted by lower customer demand than expected in both segments, which we believe was primarily attributable to the COVID-19 pandemic.

Gross profit for the first nine months increased 39% year-over-year to $110.5 million and gross profit margin increased to 39.2% from 34.8% in the prior year.

Income from operations increased 94% year-over-year to $50.3 million, compared to $26.0 million in the prior year.

For the year-to-date period, net income was $15.3 million, or $1.30 earnings per diluted share, in 2021 compared to net income of $8.8 million, or $0.79 earnings per diluted share, in 2020, an increase of 73% year-over-year. Year-to-date net income and diluted earnings per share were adversely impacted by $5.0 million of debt extinguishment costs and $2.6 million of make-whole interest expense incurred during the first quarter of 2021 when the Company refinanced its debt.

Adjusted EBITDA for the first nine months increased 57% year-over-year to $62.9 million.

Balance Sheet, Liquidity, and Cash Flow

As of September 30, 2021, cash and cash equivalents was $20.9 million. Cash provided by operating activities in the first nine months of 2021 was $14.5 million, which is net of $21.8 million in inventory investments to support the business and includes $9.8 million in cash tax refunds related to the CARES Act. Capital expenditures were $4.8 million in the first nine months of 2021, yielding Free Cash Flow of $9.7 million, a $2.8 million increase compared to the first nine months of 2020.

Total long-term debt principal outstanding as of September 30, 2021 was comprised of the Company’s $310 million Senior Notes due 2026. The Company had no borrowings outstanding under its $50 million ABL Revolver as of September 30, 2021, consistent with the Company’s capital structure strategy to maintain ample liquidity, invest in the business and deleverage the balance sheet.

“Our customer-focused sales efforts and operating leverage have contributed to strong profit and cash flow growth in the first nine months of the year,” said Amintore Schenkel, Chief Financial Officer. “As we look to the remainder of the year, we are facing increasing impacts from labor shortages, supply-chain constraints, and additional costs. We are continuing to implement initiatives and investments to respond to the changing environment.”

Full-Year 2021

CPI has delivered substantial growth in the first three quarters of 2021 with year-to-date increases in net sales of 24%, net income of 73%, and adjusted EBITDA of 57%. Customer demand for CPI’s products and services remains strong. The financial results for the fourth quarter are expected to be influenced by several factors that may cause trends to vary from the first nine months:

  • Net sales growth in the first nine months benefitted from significant new customer onboarding and prepaid debit card retail inventory replenishment
  • The Company expects increased labor, materials, and certain other costs to begin to be more impactful in the fourth quarter

The Company is responding to the strong customer demand by hiring additional labor and investing in state-of-the-art equipment to increase future capacity and add new capabilities. The Company is also implementing selective price increases, while continuing to carefully manage our supply chain and inventory.

Benefits of price increases and equipment investments are expected to have limited impact in the 2021 fourth quarter. The Company expects fourth quarter sales growth and profit margins will not be as strong as the first nine months, but still expects to deliver strong growth in net sales, profit margins, and overall profitability for the full year ending December 31, 2021.

Conference Call and Webcast

CPI Card Group Inc. will hold a conference call on November 5, 2021 at 9:00 a.m. Eastern Time (ET) to review its third quarter and first nine-months 2021 results. To participate in the Company's conference call via telephone or online:

Toll-Free Dial-In Number, U.S. Participants: (844) 200-6205 International Dial-In Number: (929) 526-1599 Conference ID: 009984 Webcast Link: 3Q21 Earnings Webcast

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

A replay of the conference call and webcast will be available until November 19, 2021 at: Toll-Free Dial-In Number, U.S. Participants: (866) 813-9403 International Dial-In Number: (929) 458-6194 Conference ID: 487043

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 stock-based compensation expense; estimated sales tax expense (benefit); restructuring and other charges; 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, nor does it reflect the cash impacts of discontinued operations. 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.

Net Leverage Ratio

Management and various investors use the ratio of total debt, 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 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 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,” “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, 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: the potential effects of COVID-19 and responses thereto on our business, including our supply chain, customer demand, workforce, operations and ability to comply with certain covenants related to our indebtedness; a disruption or other failure in our supply chain or labor pool resulting in increased costs and inability to pass those costs on to our customers; our inability to recruit, retain and develop qualified personnel, including key personnel; our transition to being 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 or remediate material weaknesses; 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; 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; our limited ability to raise capital in the future; the effects of current or additional U.S. government tariffs as well as economic downturns or disruptions, including delays or interruptions in our ability to source raw materials and components used in our products; 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 the data centers or computing infrastructure on which we rely; failure to comply with regulations, customer contractual requirements and evolving industry standards regarding consumer privacy and data use and security; disruptions in production at one or more of our facilities; our failure to retain our existing customers or identify and attract new customers; 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; defects in our software; problems in production quality, materials and process; a loss of market share or a decline in profitability resulting from competition; our inability to develop, introduce and commercialize new products; 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; 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, as well as potential new U.S. tax legislation increasing the corporate income tax rate and challenges to our income tax positions; failure to meet the continued listing standards of the Nasdaq Global Market; 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 Security Standards Council security standards or other industry standards; a decline in U.S. and global market and economic conditions and resulting decreases in consumer and business spending; costs relating to product defects and any related product liability and/or warranty claims; 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 and services; the effect of legal and regulatory proceedings; 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 majority stockholders’ ownership of our stock; the influence of securities analysts over the trading market for and price of our common stock; our inability to sell, exit, reconfigure or consolidate businesses or facilities that no longer meet with our strategy; 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; 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; 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, 2020, in Part II, Item 1A – Risk Factors in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2021 and our other reports filed from time to time with the Securities and Exchange Commission (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, free of charge, 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, 2021 and 2020

 

 

Exhibit B

Condensed Consolidated Balance Sheets – Unaudited as of September 30, 2021 and December 31, 2020

 

 

Exhibit C

Condensed Consolidated Statements of Cash Flows - Unaudited for the nine months ended September 30, 2021 and 2020

 

 

Exhibit D

Segment Summary Information – Unaudited for the three and nine months ended September 30, 2021 and 2020

 

 

Exhibit E

Supplemental GAAP to Non-GAAP Reconciliations - Unaudited for the three and nine months ended September 30, 2021 and 2020

 

EXHIBIT A

CPI Card Group Inc. and Subsidiaries

Condensed Consolidated Statements of Operations and Comprehensive Income

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

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

2021

 

2020

 

2021

 

2020

Net sales:

 

 

 

 

 

 

 

 

Products

$

52,276

 

$

43,462

 

$

146,445

 

$

125,040

 

Services

 

47,326

 

 

39,240

 

 

135,468

 

 

103,009

 

Total net sales

 

99,602

 

 

82,702

 

 

281,913

 

 

228,049

 

Cost of sales:

 

 

 

 

 

 

 

 

Products (exclusive of depreciation and amortization shown below)

 

31,493

 

 

27,490

 

 

86,708

 

 

79,780

 

Services (exclusive of depreciation and amortization shown below)

 

28,368

 

 

22,133

 

 

77,975

 

 

60,986

 

Depreciation and amortization

 

2,056

 

 

2,472

 

 

6,736

 

 

7,938

 

Total cost of sales

 

61,917

 

 

52,095

 

 

171,419

 

 

148,704

 

Gross profit

 

37,685

 

 

30,607

 

 

110,494

 

 

79,345

 

Operating expenses:

 

 

 

 

 

 

 

 

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

 

19,469

 

 

15,617

 

 

55,363

 

 

48,893

 

Depreciation and amortization

 

1,514

 

 

1,508

 

 

4,873

 

 

4,498

 

Total operating expenses

 

20,983

 

 

17,125

 

 

60,236

 

 

53,391

 

Income from operations

 

16,702

 

 

13,482

 

 

50,258

 

 

25,954

 

Other expense, net:

 

 

 

 

 

 

 

 

Interest, net

 

(7,183

)

 

(6,298

)

 

(23,196

)

 

(19,158

)

Other income (expense), net

 

(6

)

 

27

 

 

23

 

 

(8

)

Loss on debt extinguishment

 

 

 

 

 

(5,048

)

 

(92

)

Total other expense, net

 

(7,189

)

 

(6,271

)

 

(28,221

)

 

(19,258

)

Income from continuing operations before income taxes

 

9,513

 

 

7,211

 

 

22,037

 

 

6,696

 

Income tax (expense) benefit

 

(2,887

)

 

(1,402

)

 

(6,769

)

 

2,178

 

Net income from continuing operations

 

6,626

 

 

5,809

 

 

15,268

 

 

8,874

 

Net loss from discontinued operations, net of tax

 

 

 

 

 

 

 

(30

)

Net income

$

6,626

 

$

5,809

 

$

15,268

 

$

8,844

 

 

 

 

 

 

 

 

 

 

Basic and diluted earnings per share:

 

 

 

 

 

 

 

 

Basic earnings per share from continuing operations:

$

0.59

 

$

0.52

 

$

1.36

 

$

0.79

 

Diluted earnings per share from continuing operations:

$

0.56

 

$

0.52

 

$

1.30

 

$

0.79

 

 

 

 

 

 

 

 

 

 

Basic earnings per share:

$

0.59

 

$

0.52

 

$

1.36

 

$

0.79

 

Diluted earnings per share:

$

0.56

 

$

0.52

 

$

1.30

 

$

0.79

 

 

 

 

 

 

 

 

 

 

Basic weighted-average shares outstanding:

 

11,238,678

 

 

11,230,028

 

 

11,234,054

 

 

11,228,116

 

Diluted weighted-average shares outstanding:

 

11,799,321

 

 

11,231,821

 

 

11,755,381

 

 

11,235,098

 

 

 

 

 

 

 

 

 

 

Comprehensive income:

 

 

 

 

 

 

 

 

Net income

$

6,626

 

$

5,809

 

$

15,268

 

$

8,844

 

Total comprehensive income

$

6,626

 

$

5,809

 

$

15,268

 

$

8,844

 

 

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,

 

 

2021

 

2020

 

 

 

 

 

Assets

 

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

$

20,853

 

$

57,603

 

Accounts receivable, net of allowances of $226 and $289, respectively

 

65,450

 

 

54,592

 

Inventories

 

46,442

 

 

24,796

 

Prepaid expenses and other current assets

 

5,097

 

 

5,032

 

Income taxes receivable

 

116

 

 

10,511

 

Total current assets

 

137,958

 

 

152,534

 

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

 

38,347

 

 

39,403

 

Intangible assets, net

 

22,821

 

 

26,207

 

Goodwill

 

47,150

 

 

47,150

 

Other assets

 

5,999

 

 

857

 

Total assets

$

252,275

 

$

266,151

 

 

 

 

 

 

Liabilities and stockholders’ deficit

 

 

 

 

Current liabilities:

 

 

 

 

Accounts payable

$

18,795

 

$

18,883

 

Accrued expenses

 

32,097

 

 

28,149

 

Current portion of long-term debt

 

 

 

8,027

 

Deferred revenue and customer deposits

 

1,029

 

 

1,868

 

Total current liabilities

 

51,921

 

 

56,927

 

Long-term debt

 

303,251

 

 

328,681

 

Deferred income taxes

 

6,657

 

 

7,409

 

Other long-term liabilities

 

12,979

 

 

11,171

 

Total liabilities

 

374,808

 

 

404,188

 

Commitments and contingencies

 

 

 

 

Series A Preferred Stock; $0.001 par value—100,000 shares authorized; 0 shares issued and outstanding at September 30, 2021 and December 31, 2020

 

 

 

 

Stockholders’ deficit:

 

 

 

 

Common stock; $0.001 par value—100,000,000 shares authorized; 11,238,994 and 11,230,482 shares issued and outstanding at September 30, 2021 and December 31, 2020

 

11

 

 

11

 

Capital deficiency

 

(111,622

)

 

(111,858

)

Accumulated loss

 

(10,922

)

 

(26,190

)

Total stockholders’ deficit

 

(122,533

)

 

(138,037

)

Total liabilities and stockholders’ deficit

$

252,275

 

$

266,151

 

 

EXHIBIT C

CPI Card Group Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Amounts in Thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30,

 

 

2021

 

2020

Operating activities

 

 

 

 

Net income

$

15,268

 

$

8,844

 

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

 

 

 

 

Loss from discontinued operations

 

 

 

30

 

Depreciation and amortization expense

 

11,609

 

 

12,436

 

Stock-based compensation expense

 

214

 

 

84

 

Amortization of debt issuance costs and debt discount

 

1,880

 

 

2,503

 

Loss on debt extinguishment

 

5,048

 

 

92

 

Deferred income taxes

 

(752

)

 

290

 

Other, net

 

210

 

 

1,253

 

Changes in operating assets and liabilities:

 

 

 

 

Accounts receivable

 

(10,846

)

 

(16,165

)

Inventories

 

(21,831

)

 

(1,109

)

Prepaid expenses and other assets

 

(3,340

)

 

49

 

Income taxes receivable, net

 

10,603

 

 

(3,630

)

Accounts payable

 

83

 

 

921

 

Accrued expenses

 

6,419

 

 

4,112

 

Deferred revenue and customer deposits

 

(843

)

 

417

 

Other liabilities

 

793

 

 

81

 

Cash provided by operating activities - continuing operations

 

14,515

 

 

10,208

 

Cash used in operating activities - discontinued operations

 

 

 

(30

)

Investing activities

 

 

 

 

Capital expenditures for plant, equipment and leasehold improvements

 

(4,827

)

 

(3,320

)

Other

 

156

 

 

 

Cash used in investing activities

 

(4,671

)

 

(3,320

)

Financing activities

 

 

 

 

Principal payments on First Lien Term loan

 

(312,500

)

 

-

 

Principal payments on Senior Credit Facility

 

(30,000

)

 

-

 

Principal payments on ABL Revolver

 

(15,000

)

 

-

 

Proceeds from Senior Notes

 

310,000

 

 

-

 

Proceeds from ABL Revolver, net of discount

 

14,750

 

 

-

 

Proceeds from Senior Credit Facility, net of discount

 

-

 

 

29,100

 

Proceeds from exercises of stock options

 

34

 

 

-

 

Taxes withheld and paid on stock compensation

 

(12

)

 

-

 

Debt issuance costs

 

(9,452

)

 

(2,507

)

Payments on debt extinguishment

 

(2,685

)

 

-

 

Payments on finance lease obligations

 

(1,725

)

 

(1,782

)

Cash (used in) provided by financing activities

 

(46,590

)

 

24,811

 

Effect of exchange rates on cash

 

(4

)

 

(2

)

Net (decrease) increase in cash and cash equivalents

 

(36,750

)

 

31,667

 

Cash and cash equivalents, beginning of period

 

57,603

 

 

18,682

 

Cash and cash equivalents, end of period

$

20,853

 

$

50,349

 

Supplemental disclosures of cash flow information

 

 

 

 

Cash paid (refunded) during the period for:

 

 

 

 

Interest, net

$

22,107

 

$

17,454

 

Income taxes paid

$

4,708

 

$

1,205

 

Income taxes (refunded)

$

(9,846

)

$

(259

)

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

 

 

 

 

Operating leases

$

3,666

 

$

141

 

Financing leases

$

484

 

$

1,618

 

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

$

1,005

 

$

127

 

 

EXHIBIT D

CPI Card Group Inc. and Subsidiaries Segment Summary Information For the Three and Nine Months Ended September 30, 2021 and September 30, 2020 (Dollars in Thousands) (Unaudited)

 

Net Sales

 

 

Three Months Ended September 30,

 

2021

 

2020

 

$ Change

 

% Change

Net sales by segment:

 

 

 

 

 

 

 

 

Debit and Credit

$

76,121

 

$

62,710

 

$

13,411

21.4

%

Prepaid Debit

 

23,498

 

 

20,604

 

 

2,894

 

14.0

%

Eliminations

 

(17

)

 

(612

)

 

595

 

*

%

Total

$

99,602

 

$

82,702

 

$

16,900

 

20.4

%

________________ * Calculation not meaningful

 

Nine Months Ended September 30,

 

2021

 

2020

 

$ Change

 

% Change

Net sales by segment:

 

 

 

 

 

 

 

 

Debit and Credit

$

218,798

 

$

180,855

 

$

37,943

21.0

%

Prepaid Debit

 

63,339

 

 

48,680

 

 

14,659

 

30.1

%

Eliminations

 

(224

)

 

(1,486

)

 

1,262

 

*

%

Total

$

281,913

 

$

228,049

 

$

53,864

 

23.6

%

 

Gross Profit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

2021

 

% of Net Sales

 

2020

 

% of Net Sales

 

$ Change

 

% Change

Gross profit by segment:

 

 

 

 

 

 

 

 

 

 

 

 

Debit and Credit

$

28,176

37.0

%

$

21,720

34.6

%

$

6,456

29.7

%

Prepaid Debit

 

9,509

 

40.5

%

 

8,887

 

43.1

%

 

622

 

7.0

%

Total

$

37,685

 

37.8

%

$

30,607

 

37.0

%

$

7,078

 

23.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30,

 

2021

 

% of Net Sales

 

2020

 

% of Net Sales

 

$ Change

 

% Change

Gross profit by segment:

 

 

 

 

 

 

 

 

 

 

 

 

Debit and Credit

$

83,988

38.4

%

$

60,681

33.6

%

$

23,307

38.4

%

Prepaid Debit

 

26,506

 

41.8

%

 

18,664

 

38.3

%

 

7,842

 

42.0

%

Total

$

110,494

 

39.2

%

$

79,345

 

34.8

%

$

31,149

 

39.3

%

Income from Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

2021

 

% of Net Sales

 

2020

 

% of Net Sales

 

$ Change

 

% Change

Income (loss) from operations by segment:

 

 

 

 

 

 

 

 

 

 

 

 

Debit and Credit

$

20,499

 

26.9

%

$

14,734

 

23.5

%

$

5,765

 

39.1

%

Prepaid Debit

 

8,492

 

36.1

%

 

7,829

 

38.0

%

 

663

 

8.5

%

Other

 

(12,289

)

*

%

 

(9,081

)

*

%

 

(3,208

)

35.3

%

Total

$

16,702

 

16.8

%

$

13,482

 

16.3

%

$

3,220

 

23.9

%

 

Nine Months Ended September 30,

 

2021

 

% of Net Sales

 

2020

 

% of Net Sales

 

$ Change

 

% Change

Income (loss) from operations by segment:

 

 

 

 

 

 

 

 

 

 

 

 

Debit and Credit

$

60,911

 

27.8

%

$

37,914

 

21.0

%

$

22,997

 

60.7

%

Prepaid Debit

 

23,060

 

36.4

%

 

15,379

 

31.6

%

 

7,681

 

49.9

%

Other

 

(33,713

)

*

%

 

(27,339

)

*

%

 

(6,374

)

23.3

%

Total

$

50,258

 

17.8

%

$

25,954

 

11.4

%

$

24,304

 

93.6

%

 

EBITDA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

2021

 

% of Net Sales

 

2020

 

% of Net Sales

 

$ Change

 

% Change

EBITDA by segment:

 

 

 

 

 

 

 

 

 

 

 

 

Debit and Credit

$

22,356

 

29.4

%

$

16,993

 

27.1

%

$

5,363

 

31.6

%

Prepaid Debit

 

9,040

 

38.5

%

 

8,332

 

40.4

%

 

708

 

8.5

%

Other

 

(11,130

)

*

%

 

(7,836

)

*

%

 

(3,294

)

42.0

%

Total

$

20,266

 

20.3

%

$

17,489

 

21.1

%

$

2,777

 

15.9

%

 

Nine Months Ended September 30,

 

2021

 

% of Net Sales

 

2020

 

% of Net Sales

 

$ Change

 

% Change

EBITDA by segment:

 

 

 

 

 

 

 

 

 

 

 

 

Debit and Credit

$

67,078

 

30.7

%

$

45,073

 

24.9

%

$

22,005

 

48.8

%

Prepaid Debit

 

24,719

 

39.0

%

 

16,974

 

34.9

%

 

7,745

 

45.6

%

Other

 

(34,955

)

*

%

 

(23,757

)

*

%

 

(11,198

)

47.1

%

Total

$

56,842

 

20.2

%

$

38,290

 

16.8

%

$

18,552

 

48.5

%

 

Reconciliation of Income (loss) from Operations by Segment to EBITDA by Segment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2021

 

 

Debit and Credit

 

Prepaid Debit

 

Other

 

Total

EBITDA by segment:

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations

 

$

20,499

 

 

$

8,492

 

 

$

(12,289

)

 

$

16,702

 

Depreciation and amortization

 

 

1,858

 

 

 

550

 

 

 

1,162

 

 

 

3,570

 

Other income (expenses)

 

 

(1

)

 

 

(2

)

 

 

(3

)

 

 

(6

)

EBITDA

 

$

22,356

 

 

$

9,040

 

 

$

(11,130

)

 

$

20,266

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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)

 

 

(2

)

 

 

1

 

 

 

28

 

 

 

27

 

EBITDA

 

$

16,993

 

 

$

8,332

 

 

$

(7,836

)

 

$

17,489

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2021

 

 

Debit and Credit

 

Prepaid Debit

 

Other

 

Total

EBITDA by segment:

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations

 

$

60,911

 

 

$

23,060

 

 

$

(33,713

)

 

$

50,258

 

Depreciation and amortization

 

 

6,155

 

 

 

1,647

 

 

 

3,807

 

 

 

11,609

 

Other income (expenses)

 

 

12

 

 

 

12

 

 

 

(5,049

)

 

 

(5,025

)

EBITDA

 

$

67,078

 

 

$

24,719

 

 

$

(34,955

)

 

$

56,842

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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)

 

 

(48

)

 

 

(4

)

 

 

(48

)

 

 

(100

)

EBITDA

 

$

45,073

 

 

$

16,974

 

 

$

(23,757

)

 

$

38,290

 

 

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,

 

 

2021

 

2020

 

2021

 

2020

EBITDA and Adjusted EBITDA:

 

 

 

 

 

 

 

 

Net income

$

6,626

 

$

5,809

 

$

15,268

 

$

8,844

 

Net loss from discontinued operations

 

 

 

 

 

 

 

30

 

Interest expense, net

 

7,183

 

 

6,298

 

 

23,196

 

 

19,158

 

Income tax expense (benefit)

 

2,887

 

 

1,402

 

 

6,769

 

 

(2,178

)

Depreciation and amortization

 

3,570

 

 

3,980

 

 

11,609

 

 

12,436

 

EBITDA

$

20,266

 

$

17,489

 

$

56,842

 

$

38,290

 

 

 

 

 

 

 

 

 

 

Adjustments to EBITDA:

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

116

 

 

25

 

 

214

 

 

84

 

Sales tax (benefit) expense (1)

 

 

 

 

 

(465

)

 

293

 

Severance and other charges (2)

 

1,089

 

 

 

 

1,250

 

 

1,229

 

Loss on debt extinguishment (3)

 

 

 

 

 

5,048

 

 

92

 

Foreign currency (gain) loss

 

5

 

 

(23

)

 

(24

)

 

10

 

Subtotal of adjustments to EBITDA

 

1,210

 

 

2

 

 

6,023

 

 

1,708

 

Adjusted EBITDA

$

21,476

 

$

17,491

 

$

62,865

 

$

39,998

 

Net income margin (% of Net Sales)

 

6.7

%

 

7.0

%

 

5.4

%

 

3.9

%

Net income growth (% Change 2021 vs. 2020)

 

14.1

%

 

 

 

72.6

%

 

 

Adjusted EBITDA margin (% of Net Sales)

 

21.6

%

 

21.1

%

 

22.3

%

 

17.5

%

Adjusted EBITDA growth (% Change 2021 vs. 2020)

 

22.8

%

 

 

 

57.2

%

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

2021

 

2020

 

2021

 

2020

Free Cash Flow:

 

 

 

 

 

 

 

 

Cash provided by operating activities

$

(8,231

)

$

(1,838

)

$

14,515

 

$

10,208

 

Capital expenditures for plant, equipment and leasehold improvements

 

(1,124

)

 

(1,676

)

 

(4,827

)

 

(3,320

)

Free Cash Flow

$

(9,355

)

$

(3,514

)

$

9,688

 

$

6,888

 

________________

(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. During the year ended December 31, 2020, the Company revised its prior period financial statements to adjust immaterial items, primarily due to estimated sales tax expense relating to 2017 through the second quarter of 2020. Refer to Note 1 of the Form 10-Q for the quarter ended September 30, 2021 and Note 2 of the Form 10-K for the year ended December 31, 2020 for an explanation of the immaterial prior period adjustments.

(2)

The 2021 amount primarily relates to executive severance charges, and the prior year amounts relate to restructuring severance charges.

(3)

The Company terminated and repaid its Senior Credit Facility and First Lien Term Loan during the first quarter of 2021 and expensed the unamortized deferred financing costs and debt discount. Additionally, the Company terminated its previous Revolving Credit Facility during the first quarter of 2020 and expensed the remaining unamortized deferred financing costs.

 

 

Last Twelve Months Ended

 

September 30,

 

December 31,

 

2021

 

2020

Reconciliation of net income to LTM EBITDA and Adjusted EBITDA

 

 

 

 

Net income

$

22,553

 

$

16,129

 

Net loss from discontinued operations

 

31

 

 

61

 

Interest expense, net

 

29,435

 

 

25,397

 

Income tax expense (benefit)

 

5,642

 

 

(3,305

)

Depreciation and amortization

 

16,000

 

 

16,827

 

EBITDA

$

73,661

 

$

55,109

 

 

 

 

 

 

Adjustments to EBITDA:

 

 

 

 

Stock-based compensation expense

 

266

 

 

136

 

Sales tax expense (1)

 

168

 

 

926

 

Severance and other charges (2)

 

1,290

 

 

1,269

 

Loss on debt extinguishment (3)

 

5,048

 

 

92

 

Foreign currency (gain) loss

 

(27

)

 

7

 

Subtotal of adjustments to EBITDA

$

6,745

 

$

2,430

 

LTM Adjusted EBITDA

$

80,406

 

$

57,539

 

________________

(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. During the year ended December 31, 2020, the Company revised its prior period financial statements to adjust immaterial items, primarily due to estimated sales tax expense relating to 2017 through the second quarter of 2020. Refer to Note 1 of the Form 10-Q for the quarter ended September 30, 2021 and Note 2 of the Form 10-K for the year ended December 31, 2020 for an explanation of the immaterial prior period adjustments.

(2)

The 2021 amount primarily relates to executive severance charges, and the prior year amounts relate to restructuring severance charges.

(3)

The Company terminated and repaid its Senior Credit Facility and First Lien Term Loan during the first quarter of 2021 and expensed the unamortized deferred financing costs and debt discount. Additionally, the Company terminated its previous Revolving Credit Facility during the first quarter of 2020 and expensed the remaining unamortized deferred financing costs.

 

 

As of

 

September 30,

 

December 31,

 

2021

 

2020

Calculation of Net Leverage Ratio:

 

 

 

 

 

Debt principal outstanding

$

310,000

 

 

$

342,500

 

Finance lease obligations

 

3,951

 

 

 

5,192

 

Total Debt

 

313,951

 

 

 

347,692

 

Less: Cash and cash equivalents

 

(20,853

)

 

 

(57,603

)

Total Net Debt (a)

$

293,098

 

 

$

290,089

 

LTM Adjusted EBITDA (b)

$

80,406

 

 

$

57,539

 

Net Leverage Ratio (a)/(b)

 

3.6

 

 

 

5.0

 

 

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

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