LITTLETON, Colo.--(BUSINESS WIRE)--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 |
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Exhibit B |
Condensed Consolidated Balance Sheets – Unaudited as of September 30, 2021 and December 31, 2020 |
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Exhibit C |
Condensed Consolidated Statements of Cash Flows - Unaudited for the nine months ended September 30, 2021 and 2020 |
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Exhibit D |
Segment Summary Information – Unaudited for the three and nine months ended September 30, 2021 and 2020 |
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Exhibit E |
Supplemental GAAP to Non-GAAP Reconciliations - Unaudited for the three and nine months ended September 30, 2021 and 2020 |
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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) |
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||||
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Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
|
|
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 |
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||||
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: |
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|
|
|
|
|
|
|
||||||||
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 |
|
||||
|
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|
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|
|
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||||||||
Basic and diluted earnings per share: |
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||||||||
Basic earnings per share from continuing operations: |
$ |
0.59 |
|
$ |
0.52 |
|
$ |
1.36 |
|
$ |
0.79 |
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||||
Diluted earnings per share from continuing operations: |
$ |
0.56 |
|
$ |
0.52 |
|
$ |
1.30 |
|
$ |
0.79 |
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||||
|
|
|
|
|
|
|
|
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||||||||
Basic earnings per share: |
$ |
0.59 |
|
$ |
0.52 |
|
$ |
1.36 |
|
$ |
0.79 |
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||||
Diluted earnings per share: |
$ |
0.56 |
|
$ |
0.52 |
|
$ |
1.30 |
|
$ |
0.79 |
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|
|
|
|
|
|
|
|
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||||||||
Basic weighted-average shares outstanding: |
|
11,238,678 |
|
|
11,230,028 |
|
|
11,234,054 |
|
|
11,228,116 |
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||||
Diluted weighted-average shares outstanding: |
|
11,799,321 |
|
|
11,231,821 |
|
|
11,755,381 |
|
|
11,235,098 |
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|
|
|
|
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Comprehensive income: |
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|
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|
|
|
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||||||||
Net income |
$ |
6,626 |
|
$ |
5,809 |
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$ |
15,268 |
|
$ |
8,844 |
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||||
Total comprehensive income |
$ |
6,626 |
|
$ |
5,809 |
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$ |
15,268 |
|
$ |
8,844 |
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EXHIBIT B
CPI Card Group Inc. and Subsidiaries |
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Condensed Consolidated Balance Sheets |
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(Amounts in Thousands, Except Share and Per Share Amounts) |
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(Unaudited) |
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September 30, |
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December 31, |
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2021 |
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2020 |
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Assets |
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||||
Current assets: |
|
|
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|
||||
Cash and cash equivalents |
$ |
20,853 |
|
$ |
57,603 |
|
||
Accounts receivable, net of allowances of $226 and $289, respectively |
|
65,450 |
|
|
54,592 |
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||
Inventories |
|
46,442 |
|
|
24,796 |
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||
Prepaid expenses and other current assets |
|
5,097 |
|
|
5,032 |
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||
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 |
|
||
|
|
|
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|
||||
Liabilities and stockholders’ deficit |
|
|
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|
||||
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
|
|
2020 |
|
% of Net
|
|
$ 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
|
|
2020 |
|
% of Net
|
|
$ 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
|
|
2020 |
|
% of Net
|
|
$ 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
|
|
2020 |
|
% of Net
|
|
$ 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
|
|
2020 |
|
% of Net
|
|
$ 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
|
|
2020 |
|
% of Net
|
|
$ 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 |
|
|
