CPI Card Group Inc. Reports Third Quarter and Year-to-Date 2019 Results

Date : 11/06/2019 @ 1:15PM
Source : Business Wire
Stock : CPI Card Group Inc (PMTS)
Quote : 0.799  0.0 (0.00%) @ 12:00AM
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CPI Card Group Inc. Reports Third Quarter and Year-to-Date 2019 Results

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3 Months : From Oct 2019 to Jan 2020

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Third Quarter Net Sales Up 1% Year Over Year, 3% Excluding Canada

Net Sales Up 10% Through First Nine Months, 13% Excluding Canada

Continuing Operations - GAAP Net Loss of $0.7 Million in Third Quarter and Net Loss of $2.2 Million through First Nine Months, an Improvement of 40% and 71% Year Over Year, Respectively

Adjusted EBITDA of $12.3 Million and $28.8 Million in Third Quarter and First Nine Months, Up 34% and 31% Year Over Year, Respectively

Cash of $14.3 Million, Available Revolver of $20.0 million, Available Liquidity of $34.3 Million at Quarter End

Call scheduled for Wednesday, November 6, 2019 at 9:00 a.m. Eastern Time

CPI Card Group Inc. (Nasdaq: PMTS; TSX: PMTS.TO) (“CPI Card Group” or the “Company”) today reported financial results for the third quarter and nine months ended September 30, 2019.

“We delivered solid results once again this quarter as we continue to execute on our customer-centric strategy,” said Scott Scheirman, President and Chief Executive Officer of CPI. “During the third quarter, our U.S. Debit and Credit segment performed well, delivering 7% net sales growth, expanding operating margins and securing a meaningful new business win with the launch of Second Wave™ financial payment cards made with recovered ocean-bound plastic. This solid performance, along with our strong U.S. Prepaid segment results, further propelled our business to improve our bottom-line results and significantly increase Adjusted EBITDA in the quarter and year to date. Through commitment to our key strategies, we continue to execute towards achieving our vision of being the partner of choice for our customers by providing market-leading quality products and customer service with a market-competitive business model.”

Financial results for the comparative 2018 periods, including non-GAAP measures, discussed in this press release reflect continuing operations unless otherwise noted. The sale of CPI U.K., which occurred in August 2018 and had historically been reported as the U.K. Limited segment, was accounted for as discontinued operations and comparative financial information has been restated in accordance with U.S. GAAP (“GAAP”) requirements.

Third Quarter and First Nine Months 2019 Consolidated Financial Highlights from Continuing Operations

Net sales increased 1.0% to $71.7 million in the third quarter of 2019, bringing year-to-date net sales to $205.4 million, a year-over-year increase of 9.7%. Excluding Canada, net sales were up 3.3% and 12.9% for the third quarter and year to date, respectively. Third quarter income from operations was $8.0 million, up 70.0% year over year. For the year-to-date period, income from operations increased $16.7 million year over year to $21.6 million, which includes a previously disclosed $6.0 million cash litigation settlement gain received in the second quarter of 2019.

Third quarter 2019 net loss from continuing operations was $0.7 million, or $0.06 per share, compared to a net loss of $1.1 million, or $0.10 per share in the third quarter of 2018. For the year-to-date periods, net loss from continuing operations was $2.2 million, or $0.20 per share, in 2019 compared to a net loss of $7.6 million, or $0.68 per share, in the first nine months of 2018.

Adjusted EBITDA was $12.3 million for the third quarter of 2019. For the year-to-date period, Adjusted EBITDA, which excludes the $6 million cash litigation settlement gain recorded in the second quarter, was $28.8 million. Year over year, Adjusted EBITDA increased 34.4% and 30.7% in the third quarter and first nine months of 2019, respectively.

Third Quarter and First Nine Months Segment Information from Continuing Operations

U.S. Debit and Credit:

Third quarter net sales of $51.5 million represented an increase of 7.3% year over year. This contributed to a year-over-year net sales increase of 17.5% in the year-to-date period, to $151.5 million. These increases were driven by continued strong performance in personalization and fulfillment services, a shift towards higher-priced dual-interface EMV cards, and strong net sales from Card@Once.

U.S. Prepaid Debit:

Net sales were $20.5 million in the third quarter of 2019, representing a decline of 3.5% compared with the third quarter of 2018. For the first nine months of 2019, net sales were $53.2 million, an increase of 2.0% compared with the year-ago period, which benefited from strong 2018 net sales including portfolio wins that, as expected, did not recur in the 2019 periods.

Balance Sheet, Liquidity, and Cash Flow from Continuing Operations

During the third quarter of 2019, cash used in operating activities was $2.0 million and included continued investments in inventory to support the growth of the business. Third quarter capital expenditures were $0.6 million. This resulted in negative adjusted free cash flow during the third quarter of $2.7 million. Year to date, cash used in operating activities was $3.0 million, inclusive of the $6.0 million cash litigation settlement gain recorded in the second quarter. Year to date, and consistent with seasonal patterns, adjusted free cash flow was negative $12.3 million, and was impacted by year-to-date inventory investments of $12.3 million.

As of September 30, 2019, cash and cash equivalents was $14.3 million and no borrowings were outstanding on the Company’s revolving credit facility. The revolving credit facility had available borrowings of $20.0 million and matures August 17, 2020.

Total debt principal outstanding, comprised of the Company’s First Lien Term Loan, was $312.5 million at September 30, 2019, unchanged from December 31, 2018. Net of debt issuance costs and discount, total debt was $307.3 million as of September 30, 2019. The Company’s First Lien Term Loan matures in August 2022.

John Lowe, Chief Financial Officer, stated, “We are encouraged by the progress we have made driving top-line and profit growth by executing on our key strategies, which enhanced our operating leverage as we continue to focus on the long-term growth of the business. As we continue to build upon this success, we believe we have adequate cash and operating cash flows to support our business plan.”

EMV® is a registered trademark or trademark of EMVCo LLC in the United States and other countries.

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, Adjusted Free Cash Flow, and Total Net Sales Growth Excluding Canada. 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; a litigation settlement gain in the second quarter of 2019; stock-based compensation expense; restructuring and other charges; 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 on Exhibit E. Adjusted EBITDA is also a defined term in our existing credit agreement, which generally conforms to the definition above, and impacts certain credit measures and compliance targets within the credit agreement. 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, non-cash 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-cash, non-operating 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 can represent the reduction of cash that could be used for other purposes. Further, although not included in the calculation of Adjusted EBITDA, the measure 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. Further, management and various investors use the ratio of total debt less cash to Adjusted EBITDA, or "net debt leverage", as a measure of our financial strength and ability to incur incremental indebtedness when making key investment decisions and evaluating us against peers. The metric “total debt less cash” includes borrowed long term debt, letters of credit, and capital lease obligations, less cash. 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 from 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.

Total Net Sales Growth Excluding Canada

Total Net Sales Growth Excluding Canada, is a computation of the change in the Company’s Net Sales over the prior year period, excluding the net sales attributable to the Canadian operations. Canada sales were included in the Other segment during 2018 and the first quarter of 2019. The Canadian subsidiary was sold April 1, 2019, and the sale agreement excluded the portion of the business relating to Financial Payment Cards. That business migrated to the Company’s operations in the U.S. or to other service providers in 2019. The Canada-related sales in the second and third quarter of 2019 represents the Financial Payment Card business sales that migrated to the Company’s operations in the U.S. We computed the Total Net Sales excluding Canada, and the resulting year over year Total Net Sales Growth percentage excluding Canada, in Exhibit E. We believe that this financial measure is useful to investors in their analysis of our results of operations and provides improved comparability between fiscal periods.

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 fulfillment, 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.

Conference Call and Webcast

CPI Card Group Inc. will hold a conference call on November 6, 2019 at 9:00 a.m. ET to review its third quarter and year-to-date 2019 results. To participate in the Company's conference call via telephone or online:

Participant Toll-Free Dial-In Number: (800) 860-2442 Participant International Dial-In Number: (412) 858-4600 Webcast Link: https://services.choruscall.com/links/pmts191106.html

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

A replay of the conference call and webcast will be available until November 20, 2019 at:

Replay: (877) 344-7529 or (412) 317-0088; Conference ID: 10135256 Webcast replay: http://investor.cpicardgroup.com

Forward-Looking Statements

Certain statements and information in this earnings release may 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 (the “1933 Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “1934 Act”). The words “believe,” “estimate,” “project,” “expect,” “anticipate,” “plan,” “intend,” “foresee,” “should,” “would,” “could” or other similar expressions are intended to identify forward-looking statements, which are generally 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 available. Such statements reflect our current views with respect to future events and are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated, expected or intended. We are making investors aware that such forward-looking statements, because they relate to future events, are by their very nature subject to many important factors that could cause actual results to differ materially from those contemplated. These risks and uncertainties include, but are not limited to: our substantial indebtedness, including inability to make debt service payments or refinance such indebtedness; the restrictive terms of our credit facility 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 and possible exposure to litigation and/or regulatory penalties under applicable data privacy and other laws for failure to prevent such incidents; 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; our failure to maintain our listing on the NASDAQ Capital Market; 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 and process; 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; developing technologies that make our existing technology solutions and products 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 PCI Security Standards Council (“PCI”) security standards or other industry standards such as Payment Card Brand certification standards; costs 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 retailers; disruption or delays in our manufacturing operations or supply chain; 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; maintenance and further imposition of tariffs and/or trade restrictions on goods imported into the United States; our dependence on licensing arrangements; non-compliance with, and changes in, laws in the United States and in foreign jurisdictions in which we operate and sell our products; risks associated with the controlling stockholders’ ownership of our stock; 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, 2018 filed with the SEC on March 6, 2019 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 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, 2019 and 2018

 

 

Exhibit B

Condensed Consolidated Balance Sheets – Unaudited as of September 30, 2019 and December 31, 2018

 

 

Exhibit C

Condensed Consolidated Statements of Cash Flows - Unaudited for the nine months ended September 30, 2019 and 2018

 

 

Exhibit D

Segment Summary Information – Unaudited for the three and nine months ended September 30, 2019 and 2018

 

 

Exhibit E

Supplemental GAAP to Non-GAAP Reconciliations - Unaudited for the three and nine months ended September 30, 2019 and 2018

 

 

 

 

 

 

 

 

 

 

 

 

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,

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net sales:

 

 

 

 

 

 

 

 

 

 

 

 

Products

 

$

33,963

 

 

$

34,673

 

 

$

99,845

 

 

$

90,911

 

Services

 

 

37,718

 

 

 

36,314

 

 

 

105,603

 

 

 

96,387

 

Total net sales

 

 

71,681

 

 

 

70,987

 

 

 

205,448

 

 

 

187,298

 

Cost of sales:

 

 

 

 

 

 

 

 

 

 

 

 

Products (exclusive of depreciation and amortization shown below)

 

 

22,182

 

 

 

23,796

 

 

 

65,769

 

 

 

59,076

 

Services (exclusive of depreciation and amortization shown below)

 

 

21,329

 

 

 

21,214

 

 

 

62,142

 

 

 

60,991

 

Depreciation and amortization

 

 

2,751

 

 

 

2,669

 

 

 

8,216

 

 

 

9,620

 

Total cost of sales

 

 

46,262

 

 

 

47,679

 

 

 

136,127

 

 

 

129,687

 

Gross profit

 

 

25,419

 

 

 

23,308

 

 

 

69,321

 

 

 

57,611

 

Operating expenses, net:

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

15,936

 

 

 

17,033

 

 

 

49,146

 

 

 

48,119

 

Depreciation and amortization

 

 

1,513

 

 

 

1,588

 

 

 

4,539

 

 

 

4,513

 

Litigation settlement gain (1)

 

 

 

 

 

 

(6,000

)

 

 

Total operating expenses, net

 

 

17,449

 

 

 

18,621

 

 

 

47,685

 

 

 

52,632

 

Income from operations

 

 

7,970

 

 

 

4,687

 

 

 

21,636

 

 

 

4,979

 

Other expense, net:

 

 

 

 

 

 

 

 

 

 

 

 

Interest, net

 

 

(6,085

)

 

 

(6,151

)

 

 

(18,847

)

 

 

(17,243

)

Foreign currency (loss) gain

 

 

(40

)

 

 

16

 

 

 

(1,320

)

 

 

(248

)

Other income, net

 

 

14

 

 

 

8

 

 

 

25

 

 

 

15

 

Total other expense, net

 

 

(6,111

)

 

 

(6,127

)

 

 

(20,142

)

 

 

(17,476

)

Income (loss) from continuing operations before income taxes

 

 

1,859

 

 

 

(1,440

)

 

 

1,494

 

 

 

(12,497

)

Income tax (expense) benefit

 

 

(2,515

)

 

 

355

 

 

 

(3,695

)

 

 

4,933

 

Net loss from continuing operations

 

 

(656

)

 

 

(1,085

)

 

 

(2,201

)

 

 

(7,564

)

Net loss from discontinued operation, net of tax

 

 

(28

)

 

 

(5,030

)

 

 

(16

)

 

 

(22,551

)

Net loss

 

$

(684

)

 

$

(6,115

)

 

$

(2,217

)

 

$

(30,115

)

Basic and diluted loss per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted-Continuing operations

 

$

(0.06

)

 

$

(0.10

)

 

$

(0.20

)

 

$

(0.68

)

Basic and diluted-Discontinued operation

 

 

 

 

(0.45

)

 

 

 

 

(2.02

)

Net loss per share

 

$

(0.06

)

 

$

(0.55

)

 

$

(0.20

)

 

$

(2.70

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common share outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

 

11,223,715

 

 

 

11,159,984

 

 

 

11,187,550

 

 

 

11,145,946

 

Comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(684

)

 

$

(6,115

)

 

$

(2,217

)

 

$

(30,115

)

Currency translation adjustment

 

 

 

 

98

 

 

 

31

 

 

 

(87

)

Other comprehensive loss from discontinued operations

 

 

 

 

3,983

 

 

 

 

 

3,983

 

Reclassification adjustment to foreign currency loss

 

 

 

 

 

 

1,329

 

 

 

Total comprehensive loss

 

$

(684

)

 

$

(2,034

)

 

$

(857

)

 

$

(26,219

)

(1) During the nine months ended September 30, 2019, the Company recognized in operating income a $6.0 million gain related to the cash settlement of litigation. The litigation has been disclosed in the Company's filings since the Company brought the complaint in 2017, and details of the settlement have been disclosed in the Company's second quarter Form 10-Q.

 

 

 

 

 

 

 

 

 

 

 

EXHIBIT B

CPI Card Group Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

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

 

 

 

September 30,

 

December 31,

 

 

2019

 

 

2018

 

 

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

14,290

 

 

$

20,291

 

Accounts receivable, net of allowances of $370 and $211, respectively

 

 

44,806

 

 

 

43,794

 

Inventories

 

 

22,105

 

 

 

9,827

 

Prepaid expenses and other current assets

 

 

3,974

 

 

 

4,997

 

Income taxes receivable

 

 

5,202

 

 

 

5,564

 

Total current assets

 

 

90,377

 

 

 

84,473

 

Plant, equipment and leasehold improvements, net

 

 

43,655

 

 

 

39,110

 

Intangible assets, net

 

 

31,951

 

 

 

35,437

 

Goodwill

 

 

47,150

 

 

 

47,150

 

Other assets

 

 

616

 

 

 

1,034

 

Total assets

 

$

213,749

 

 

$

207,204

 

 

 

 

 

 

 

 

Liabilities and stockholders’ deficit

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

14,844

 

 

$

16,511

 

Accrued expenses

 

 

21,571

 

 

 

23,853

 

Deferred revenue and customer deposits

 

 

442

 

 

 

912

 

Total current liabilities

 

 

36,857

 

 

 

41,276

 

Long-term debt

 

 

307,287

 

 

 

305,818

 

Deferred income taxes

 

 

8,357

 

 

 

5,749

 

Other long-term liabilities

 

 

11,388

 

 

 

3,937

 

Total liabilities

 

 

363,889

 

 

 

356,780

 

Commitments and contingencies

 

 

 

 

 

 

Stockholders’ deficit:

 

 

 

 

 

 

Common stock; $0.001 par value—100,000,000 shares authorized; 11,224,191 and 11,160,377 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively

 

 

11

 

 

 

11

 

Capital deficiency

 

 

(111,930

)

 

 

(112,223

)

Accumulated loss

 

 

(38,221

)

 

 

(36,004

)

Accumulated other comprehensive loss

 

 

 

 

(1,360

)

Total stockholders’ deficit

 

 

(150,140

)

 

 

(149,576

)

Total liabilities and stockholders’ deficit

 

$

213,749

 

 

$

207,204

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EXHIBIT C

CPI Card Group Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Amounts in Thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30,

 

 

2019

 

 

2018

 

Operating activities

 

 

 

 

 

 

Net loss

 

$

(2,217

)

 

$

(30,115

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

Loss from discontinued operation

 

 

16

 

 

 

22,551

 

Depreciation and amortization expense

 

 

12,755

 

 

 

14,133

 

Stock-based compensation expense

 

 

316

 

 

 

741

 

Amortization of debt issuance costs and debt discount

 

 

1,469

 

 

 

1,461

 

Deferred income taxes

 

 

2,608

 

 

 

(6,169

)

Reclassification adjustment to foreign currency loss

 

 

1,329

 

 

 

Other, net

 

 

6

 

 

 

165

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(2,605

)

 

 

(13,016

)

Inventories

 

 

(12,279

)

 

 

(2,628

)

Prepaid expenses and other assets

 

 

1,659

 

 

 

711

 

Income taxes

 

 

331

 

 

 

2,207

 

Accounts payable

 

 

(358

)

 

 

2,108

 

Accrued expenses

 

 

(5,574

)

 

 

4,725

 

Deferred revenue and customer deposits

 

 

(472

)

 

 

230

 

Other liabilities

 

 

17

 

 

 

1,052

 

Cash used in operating activities - continuing operations

 

 

(2,999

)

 

 

(1,844

)

Cash used in operating activities - discontinued operation

 

 

(16

)

 

 

(2,914

)

Investing activities

 

 

 

 

 

 

Acquisitions of plant, equipment and leasehold improvements

 

 

(3,298

)

 

 

(5,028

)

Cash received for sale of Canadian subsidiary

 

 

1,451

 

 

 

Cash used in investing activities - continuing operations

 

 

(1,847

)

 

 

(5,028

)

Cash used in investing activities - discontinued operation

 

 

 

 

(220

)

Financing activities

 

 

 

 

 

 

Proceeds from revolving credit facility

 

 

11,500

 

 

 

Payments on revolving credit facility

 

 

(11,500

)

 

 

Payments on financing leases

 

 

(1,175

)

 

 

(388

)

Cash used in financing activities

 

 

(1,175

)

 

 

(388

)

Effect of exchange rates on cash

 

 

36

 

 

 

7

 

Net decrease in cash and cash equivalents

 

 

(6,001

)

 

 

(10,387

)

Cash and cash equivalents, beginning of period

 

 

20,291

 

 

 

23,205

 

Cash and cash equivalents, end of period

 

$

14,290

 

 

$

12,818

 

Supplemental disclosures of cash flow information

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

Interest

 

$

17,315

 

 

$

14,703

 

Income taxes, net payments (refunds)

 

$

675

 

 

$

(1,299

)

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

 

 

 

 

 

 

Operating leases

 

$

8,533

 

 

$

Financing leases

 

$

5,196

 

 

$

821

 

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

 

$

159

 

 

$

171

 

 

 

 

 

 

 

 

 

 

 

EXHIBIT D

CPI Card Group Inc. and Subsidiaries

Segment Summary Information

For the Three and Nine Months Ended September 30, 2019 and September 30, 2018

(Dollars in Thousands)

(Unaudited)

Net Sales

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

 

2019

 

 

2018

 

 

$ Change

 

% Change

Net sales by segment:

 

 

 

 

 

 

 

 

 

 

 

U.S. Debit and Credit

 

$

51,502

 

 

$

48,002

 

 

$

3,500

 

 

7.3

%

U.S. Prepaid Debit

 

 

20,452

 

 

 

21,190

 

 

 

(738

)

 

(3.5

)%

Other

 

 

 

 

1,920

 

 

 

(1,920

)

 

(100.0

)%

Eliminations

 

 

(273

)

 

 

(125

)

 

 

(148

)

 

*

%

Total

 

$

71,681

 

 

$

70,987

 

 

$

694

 

 

1.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30,

 

 

2019

 

2018

 

$ Change

 

% Change

Net sales by segment:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Debit and Credit

 

$

151,517

 

$

128,992

 

$

22,525

 

17.5

%

U.S. Prepaid Debit

 

 

53,162

 

 

52,128

 

 

1,034

 

2.0

%

Other

 

 

1,679

 

 

7,599

 

 

(5,920)

 

(77.9)

%

Eliminations

 

 

(910)

 

 

(1,421)

 

 

511

 

*

%

Total

 

$

205,448

 

$

187,298

 

$

18,150

 

9.7

%

* Calculation not meaningful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Profit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

 

 

2019

 

 

% of Net Sales

 

2018

 

% of Net Sales

 

$ Change

 

% Change

Gross profit by segment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Debit and Credit

 

$

16,503

 

 

32.0

%

$

13,551

 

28.2

%

$

2,952

 

21.8

%

U.S. Prepaid Debit

 

 

8,916

 

 

43.6

%

 

9,439

 

44.5

%

 

(523)

 

(5.5)

%

Other

 

 

 

 

*

%

 

318

 

16.6

%

 

(318)

 

*

%

Total

 

$

25,419

 

 

35.5

%

$

23,308

 

32.8

%

$

2,111

 

9.1

%

* Calculation not meaningful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30,

 

 

 

2019

 

 

% of Net Sales

 

2018

 

% of Net Sales

 

$ Change

 

% Change

Gross profit by segment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Debit and Credit

 

$

47,647

 

 

31.4

%

$

35,891

 

27.8

%

$

11,756

 

32.8

%

U.S. Prepaid Debit

 

 

21,771

 

 

41.0

%

 

20,111

 

38.6

%

 

1,660

 

8.3

%

Other

 

 

(97)

 

 

(5.8)

%

 

1,609

 

21.2

%

 

(1,706)

 

*

%

Total

 

$

69,321

 

 

33.7

%

$

57,611

 

30.8

%

$

11,710

 

20.3

%

* Calculation not meaningful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

 

 

 

2019

 

 

% of Net Sales

 

 

2018

 

% of Net Sales

 

 

$ Change

 

% Change

Income from operations by segment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Debit and Credit

 

$

8,858

 

 

17.2

%

$

6,491

 

13.5

%

$

2,367

 

36.5

%

U.S. Prepaid Debit

 

 

7,815

 

 

38.2

%

 

8,389

 

39.6

%

 

(574)

 

(6.8)

%

Other

 

 

(8,703)

 

 

*

%

 

(10,193)

 

*

%

 

1,490

 

14.6

%

Total

 

$

7,970

 

 

11.1

%

$

4,687

 

6.6

%

$

3,283

 

70.0

%

* Calculation not meaningful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30,

 

 

 

 

2019

 

 

% of Net Sales

 

 

2018

 

% of Net Sales

 

 

$ Change

 

% Change

Income from operations by segment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Debit and Credit

 

$

24,619

 

 

16.2

%

$

15,650

 

12.1

%

$

8,969

 

57.3

%

U.S. Prepaid Debit

 

 

18,505

 

 

34.8

%

 

16,932

 

32.5

%

 

1,573

 

9.3

%

Other

 

 

(21,488)

 

 

*

%

 

(27,603)

 

*

%

 

6,115

 

22.2

%

Total

 

$

21,636

 

 

10.5

%

$

4,979

 

2.7

%

$

16,657

 

334.5

%

* Calculation not meaningful

EBITDA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

 

 

2019

 

 

% of Net Sales

 

2018

 

% of Net Sales

 

$ Change

 

% Change

EBITDA by segment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Debit and Credit

 

$

11,417

 

 

22.2

%

$

9,136

 

19.0

%

$

2,281

 

25.0

%

U.S. Prepaid Debit

 

 

8,342

 

 

40.8

%

 

8,831

 

41.7

%

 

(489)

 

(5.5)

%

Other

 

 

(7,551)

 

 

*

%

 

(8,999)

 

*

%

 

1,448

 

16.1

%

Total

 

$

12,208

 

 

17.0

%

$

8,968

 

12.6

%

$

3,240

 

36.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30,

 

 

 

2019

 

 

% of Net Sales

 

2018

 

% of Net Sales

 

$ Change

 

% Change

 

EBITDA by segment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Debit and Credit

 

$

32,387

 

 

21.4

%

$

24,788

 

19.2

%

$

7,599

 

30.7

%

U.S. Prepaid Debit

 

 

20,001

 

 

37.6

%

 

18,337

 

35.2

%

 

1,664

 

9.1

%

Other

 

 

(19,292)

 

 

*

%

 

(24,246)

 

*

%

 

4,954

 

20.4

%

Total

 

$

33,096

 

 

16.1

%

$

18,879

 

10.1

%

$

14,217

 

75.3

%

* Calculation not meaningful

 

 

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of Income (loss) from

 

 

 

 

 

 

 

 

 

 

 

 

Operations by Segment to EBITDA by Segment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2019

 

 

U.S. Debit and Credit

 

U.S. Prepaid Debit

 

Other

 

Total

EBITDA by segment:

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations

 

$

8,858

 

$

7,815

 

$

(8,703)

 

$

7,970

Depreciation and amortization

 

 

2,563

 

 

527

 

 

1,174

 

 

4,264

Foreign currency and Other income (loss), net

 

 

(4)

 

 

 

 

(22)

 

 

(26)

EBITDA

 

$

11,417

 

$

8,342

 

$

(7,551)

 

$

12,208

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2018

 

 

U.S. Debit and Credit

 

U.S. Prepaid Debit

 

Other

 

Total

EBITDA by segment:

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations

 

$

6,491

 

 

8,389

 

 

(10,193)

 

 

4,687

Depreciation and amortization

 

 

2,645

 

 

443

 

 

1,169

 

 

4,257

Foreign currency and Other income (loss), net

 

 

 

 

(1)

 

 

25

 

 

24

EBITDA

 

$

9,136

 

$

8,831

 

$

(8,999)

 

$

8,968

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2019

 

 

U.S. Debit and Credit

 

U.S. Prepaid Debit

 

Other

 

Total

EBITDA by segment:

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations

 

$

24,619

 

 

18,505

 

 

(21,488)

 

 

21,636

Depreciation and amortization

 

 

7,779

 

 

1,515

 

 

3,461

 

 

12,755

Foreign currency and Other income (loss), net

 

 

(11)

 

 

(19)

 

 

(1,265)

 

 

(1,295)

EBITDA

 

$

32,387

 

$

20,001

 

$

(19,292)

 

$

33,096

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2018

 

 

U.S. Debit and Credit

 

U.S. Prepaid Debit

 

Other

 

Total

EBITDA by segment:

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations

 

$

15,650

 

 

16,932

 

 

(27,603)

 

 

4,979

Depreciation and amortization

 

 

9,143

 

 

1,405

 

 

3,585

 

 

14,133

Foreign currency and Other income (loss), net

 

 

(5)

 

 

 

 

(228)

 

 

(233)

EBITDA

 

$

24,788

 

$

18,337

 

$

(24,246)

 

$

18,879

* Calculation not meaningful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EXHIBIT E

 

CPI Card Group Inc. and Subsidiaries

 

Supplemental GAAP to Non-GAAP Reconciliation

 

(Dollars in Thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

 

2019

 

2018

 

2019

 

2018

 

EBITDA and Adjusted EBITDA:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss from continuing operations

 

$

(656)

 

$

(1,085)

 

$

(2,201)

 

$

(7,564)

 

Interest expense, net

 

 

6,085

 

 

6,151

 

 

18,847

 

 

17,243

 

Income tax expense (benefit)

 

 

2,515

 

 

(355)

 

 

3,695

 

 

(4,933)

 

Depreciation and amortization

 

 

4,264

 

 

4,257

 

 

12,755

 

 

14,133

 

EBITDA

 

$

12,208

 

$

8,968

 

$

33,096

 

$

18,879

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjustments to EBITDA:

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

9

 

 

(42)

 

 

317

 

 

741

 

Litigation and related charges (1)

 

 

 

 

207

 

 

28

 

 

1,039

 

Restructuring and other charges (2)

 

 

 

 

1

 

 

 

 

1,096

 

Litigation settlement gain (3)

 

 

 

 

 

 

(6,000)

 

 

 

Foreign currency (gain) loss (4)

 

 

40

 

 

(16)

 

 

1,320

 

 

248

 

Subtotal of adjustments to EBITDA

 

 

49

 

 

150

 

 

(4,335)

 

 

3,124

 

Adjusted EBITDA

 

$

12,257

 

$

9,118

 

$

28,761

 

$

22,003

 

Adjusted EBITDA margin (% of net sales)

 

 

17.1

%

 

12.8

%

 

14.0

%

 

11.7

%

Adjusted EBITDA growth (% Change 2019 vs. 2018)

 

 

34.4

%

 

 

 

 

30.7

%

 

 

 

Net loss from continuing operations (% Change 2019 vs. 2018)

 

 

39.5

%

 

 

 

 

70.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

 

2019

 

2018

 

 

2019

 

2018

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash used in operating activities - continuing operations

 

$

(2,042)

 

$

(491)

 

$

(2,999)

 

$

(1,844)

 

Acquisitions of plant, equipment and leasehold improvements

 

 

(612)

 

 

(2,919)

 

 

(3,298)

 

 

(5,028)

 

Cash received from litigation settlement (3)

 

 

 

 

 

 

(6,000)

 

 

 

Adjusted free cash flow - continuing operations

 

$

(2,654)

 

$

(3,410)

 

$

(12,297)

 

$

(6,872)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

 

2019

 

2018

 

2019

 

2018

 

Total Net Sales Growth Rate, Excluding Canada

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Net Sales

 

$

71,681

 

$

70,987

 

$

205,448

 

$

187,298

 

Canada Sales (5)

 

 

(320)

 

 

(1,920)

 

 

(2,532)

 

 

(7,599)

 

Total Net Sales, Excluding Canada

 

$

71,361

 

$

69,067

 

$

202,916

 

$

179,699

 

Total Net Sales growth excluding Canada (% Change 2019 vs. 2018)

 

 

3.3

%

 

 

 

 

12.9

%

 

 

 

 _____________________________________________________

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. Represents primarily employee and lease termination costs incurred in connection with the decision to consolidate three personalization operations in the United States to two facilities.
  3. During the nine months ended September 30, 2019, the Company recognized in operating income a $6.0 million gain related to the cash settlement of litigation. The litigation has been disclosed in the Company’s SEC filings since the Company brought the complaint in 2017, and details of the settlement are disclosed in the Company’s second quarter Form 10-Q.
  4. 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 second quarter 2019.
  5. Canada sales were included in the Other segment during 2018 and the first quarter of 2019. The Canadian subsidiary was sold April 1, 2019. The sale agreement excluded the portion of the business relating to Financial Payment Cards, which migrated to the Company’s U.S. operations or to other service providers in 2019. The Canada-related sales shown represent the net sales in the second and third quarter of 2019 for the Financial Payment Card business that migrated to the Company’s operations in the U.S.

 

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

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