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.
- Represents net legal costs incurred with certain patent and
shareholder litigation.
- 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.
- 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.
- 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.
- 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.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20191106005211/en/
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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