Net Sales of $71.4 Million, Up 7% and 9%
Year-over-Year in Second Quarter and First Half
Net Income of $0.1 Million, Down 93% Second
Quarter Year-over-Year, and Up 265% in First Half
Adjusted EBITDA of $10.1 Million, Up 19% and
36% Year-over-Year in Second Quarter and First Half
Cash of $54 Million at Quarter End
CPI Card Group Inc. (OTCQX: PMTS; TSX: PMTS) (“CPI” or the
“Company”) today reported financial results for the second quarter
and the first half ended June 30, 2020.
“Our hearts go out to those impacted by the COVID-19 pandemic,”
said Scott Scheirman, President and Chief Executive Officer of CPI.
“Amid a highly challenging environment, I’m proud of the way our
organization has demonstrated an unwavering commitment to the
health and safety of our employees and the community. All of CPI’s
facilities have been operating and continue to provide essential
products and services to the financial services industry, including
the production, personalization and fulfillment of debit, credit,
and prepaid cards.”
Scheirman added, “Our results reflect the significant progress
we have made executing against our strategic priorities, resulting
in top-line growth of 7% year-over-year through unprecedented
times. In the second quarter, we delivered strong net sales growth
due to our differentiated products and solutions, such as our dual
interface EMV® Second Wave™ product, our card made with recovered
ocean-bound plastic. We continue to develop and launch innovative
solutions. We announced with Visa the introduction of our
Earthwise™ High Content Card, a more sustainable payment card made
with up to 98 percent upcycled plastic. Additionally, we recently
launched Spectrum by Card@Once®, expanding our
Software-as-a-Service instant issuance solution to enable financial
institutions to instantly issue debit and credit cards with
vibrant, high-definition image quality.”
Scheirman continued, “We remain focused on being the partner of
choice by providing market-leading quality products and customer
service with a market-competitive business model.”
Second Quarter and First Half 2020 Financial
Highlights
Net sales increased 7% and 9% year-over-year to $71.4 million
and $145.3 million in the second quarter and first half,
respectively. Second quarter and first half 2020 gross profit
increased 3% and 11% year-over-year, respectively. Gross profit
margins decreased to 32.4% in the second quarter of 2020, compared
to 33.5% in the prior year period, primarily due to lower Prepaid
Debit segment net sales and unfavorable cost absorption partially
offset by increased gross profit margins in the Debit and Credit
segment. Gross profit margins increased to 33.6% from 32.8% in the
first half driven primarily by margin expansion in the Debit and
Credit segment.
Second quarter and first half 2020 income from operations was
$2.5 million and $10.2 million, respectively, compared with $10.1
million and $13.7 million in the second quarter and first half of
2019, respectively. During the second quarter of 2020, the Company
recorded an estimated sales tax expense of $2.7 million and during
the second quarter of 2019, the Company recognized a $6.0 million
gain related to the cash settlement of litigation.
Second quarter 2020 net income was $0.1 million, or $0.01 per
diluted share, a decline of 93% from net income of $1.5 million, or
$0.14 per diluted share in the second quarter of 2019. For the
year-to-date periods, net income was $2.5 million, or $0.22 per
diluted share, in 2020 compared to a net loss of $1.5 million, or
$0.14 loss per diluted share, in 2019, an increase of 265%.
Adjusted EBITDA increased 19% and 36% year-over-year to $10.1
million and $22.5 million in the second quarter and first half,
respectively.
Second Quarter and First Half 2020 Segment
Information
Debit and Credit:
Net sales increased 14% and 18% year-over-year to $58.3 million
and $118.1 million in the second quarter and first half,
respectively. Growth for the second quarter was driven primarily by
continued strong demand for dual interface EMV® cards, including
Second Wave™, increased CPI On-Demand™ sales and COVID-19 related
wins of government disbursement work. This growth was partially
offset by COVID-19 impacts including reduced volumes in card
personalization stemming from fewer new accounts and replacement
cards. Card@Once product sales were also impacted by the closure of
certain bank branches or reduced hours of operation, due to
governmental stay-at-home orders.
Prepaid Debit:
Net sales were down 15% and 14% year-over-year to $13.5 million
and $28.1 million for the second quarter and first half,
respectively. Second quarter results were impacted primarily by
reduced sales volumes from COVID-19, due to lower retail store
traffic resulting from governmental stay-at-home orders. For the
first half, year-over-year comparisons were impacted by COVID-19 in
the second quarter of 2020 and from first quarter 2019 benefits as
we supported stronger demand due to industry regulatory
changes.
Balance Sheet, Liquidity, and Cash Flow
As of June 30, 2020, cash and cash equivalents was $54.4
million. Cash provided by operating activities was $8.8 million and
capital expenditures were $0.7 million in the second quarter of
2020, yielding Adjusted Free Cash Flow of $8.1 million. This
compares with the second quarter of 2019, when cash provided by
operating activities was $9.2 million inclusive of $6 million cash
received from a litigation settlement, and capital expenditures of
$0.5 million resulting in Adjusted Free Cash Flow of $2.7 million.
In the second quarter of 2020, Adjusted Free Cash Flow increased
$5.4 million year-over-year. For the first half, cash provided by
operating activities was $12.0 million, capital expenditures were
$1.6 million and Adjusted Free Cash Flow was $10.4 million.
Total long-term debt principal outstanding, comprised of the
Company’s $30 million Senior Credit Facility and its $312.5 million
First Lien Term Loan, was $342.5 million at June 30, 2020. Net of
debt issuance costs and discount, total long-term debt was $334.8
million as of June 30, 2020. The Company’s Senior Credit Facility
matures in May 2022 and the First Lien Term Loan matures in August
2022.
John Lowe, Chief Financial Officer of CPI, said, “Despite the
ongoing COVID-19 pandemic and economic uncertainty, solid execution
led to 7% year-over-year top-line growth and another quarter of
positive Adjusted Free Cash Flow. As we continue to navigate
economic uncertainty, we remain committed to our customer-centric
approach and executing our strategic plan.”
Additional Investor Commentary
The Company has provided additional written commentary regarding
its quarterly performance and other business matters. This earnings
press release and additional written commentary are available at
investor.cpicardgroup.com.
EMV® is a registered trademark in the U.S. and other countries
and an unregistered trademark elsewhere. The EMV trademark is owned
by EMVCo, LLC
Non-GAAP Financial Measures
In addition to financial results reported in accordance with
U.S. generally accepted accounting principles (“GAAP”), we have
provided the following non-GAAP financial measures in this release,
all reported on a continuing operations basis: EBITDA, Adjusted
EBITDA, Adjusted EBITDA margin, and Adjusted Free Cash Flow. These
non-GAAP financial measures are utilized by management in comparing
our operating performance on a consistent basis between fiscal
periods. We believe that these financial measures are appropriate
to enhance an overall understanding of our underlying operating
performance trends compared to historical and prospective periods
and our peers. Management also believes that these measures are
useful to investors in their analysis of our results of operations
and provide improved comparability between fiscal periods. Non-GAAP
financial measures should not be considered in isolation from, or
as a substitute for, financial information calculated in accordance
with GAAP. Our non-GAAP measures may be different from similarly
titled measures of other companies. Investors are encouraged to
review the reconciliation of these historical non-GAAP measures to
their most directly comparable GAAP financial measures included in
Exhibit E to this press release.
EBITDA
EBITDA represents earnings before interest, taxes, depreciation
and amortization, all on a continuing operations basis. EBITDA is
presented because it is an important supplemental measure of
performance, and it is frequently used by analysts, investors and
other interested parties in the evaluation of companies in our
industry. EBITDA is also presented and compared by analysts and
investors in evaluating our ability to meet debt service
obligations. Other companies in our industry may calculate EBITDA
differently. EBITDA is not a measurement of financial performance
under GAAP and should not be considered as an alternative to cash
flow from operating activities or as a measure of liquidity or an
alternative to net (loss) income or net (loss) income from
continuing operations as indicators of operating performance or any
other measures of performance derived in accordance with GAAP.
Because EBITDA is calculated before recurring cash charges,
including interest expense and taxes, and is not adjusted for
capital expenditures or other recurring cash requirements of the
business, it should not be considered as a measure of discretionary
cash available to invest in the growth of the business.
Adjusted EBITDA
Adjusted EBITDA is presented on a continuing operations basis
and is defined as EBITDA adjusted for litigation and related
charges incurred in connection with certain patent and shareholder
litigation; stock-based compensation expense; sales tax liability;
restructuring and other charges; loss on Revolving Credit Facility
termination; foreign currency gain or loss; litigation settlement
gain; and other items that are unusual in nature, infrequently
occurring or not considered part of our core operations, as set
forth in the reconciliation on Exhibit E. Adjusted EBITDA is also a
defined computation in our First Lien Term Loan and Senior Credit
Facility agreements, which generally conforms to the definition
above, and impacts certain credit measures and covenants, including
a covenant requiring the Company to have at least $25 million
Adjusted EBITDA (as defined in our Senior Credit Facility) for the
previous four consecutive fiscal quarters in total, at the end of
each quarterly period ending on or after March 31, 2020. Adjusted
EBITDA is intended to show our unleveraged, pre-tax operating
results and therefore reflects our financial performance based on
operational factors, excluding non-operational, unusual or
non-recurring losses or gains. Adjusted EBITDA has important
limitations as an analytical tool, and you should not consider it
in isolation, or as a substitute for, analysis of our results as
reported under GAAP. For example, Adjusted EBITDA does not reflect:
(a) our capital expenditures, future requirements for capital
expenditures or contractual commitments; (b) changes in, or cash
requirements for, our working capital needs; (c) the significant
interest expenses or the cash requirements necessary to service
interest or principal payments on our debt; (d) tax payments that
represent a reduction in cash available to us; (e) any cash
requirements for the assets being depreciated and amortized that
may have to be replaced in the future; (f) the impact of earnings
or charges resulting from matters that we and the lenders under our
credit agreement may not consider indicative of our ongoing
operations; or (g) the impact of any discontinued operations. In
particular, our definition of Adjusted EBITDA allows us to add back
certain non-operating, unusual or non-recurring charges that are
deducted in calculating net (loss) income, even though these are
expenses that may recur, vary greatly and are difficult to predict
and can represent the effect of long-term strategies as opposed to
short-term results.
In addition, certain of these expenses represent the reduction
of cash that could be used for other purposes. Further, although
not included in the calculation of Adjusted EBITDA presented in
this release, the measure as defined in our credit facilities may
at times allow us to add estimated cost savings and operating
synergies related to operational changes ranging from acquisitions
to dispositions to restructurings and/or exclude one-time
transition expenditures that we anticipate we will need to incur to
realize cost savings before such savings have occurred. Adjusted
EBITDA margin percentage as shown in Exhibit E is computed as
Adjusted EBITDA divided by total net sales.
Adjusted Free Cash Flow
We define Adjusted Free Cash Flow as cash flow 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.
About CPI Card Group Inc.
CPI Card Group® is a payment technology company and leading
provider of credit, debit and prepaid solutions delivered
physically, digitally and on-demand. CPI helps our customers foster
connections and build their brands through innovative and reliable
solutions, including financial payment cards, personalization, and
Software-as-a-Service (SaaS) instant issuance. CPI has more than 20
years of experience in the payments market and is a trusted partner
to financial institutions and payments services providers. Serving
customers from locations throughout the United States, CPI has a
large network of high security facilities, each of which is
registered as PCI compliant by one or more of the payment brands:
Visa, Mastercard®, American Express® and Discover®. Learn more at
www.cpicardgroup.com.
Forward-Looking Statements
Certain statements and information in this earnings release (as
well as information included in other written or oral statements we
make from time to time) may contain or constitute “forward-looking
statements” within the meaning of the Private Securities Litigation
Reform Act of 1995, Section 27A of the Securities Act of 1933, as
amended and Section 21E of the Securities Exchange Act of 1934, as
amended. The words “believe,” “estimate,” “project,” “expect,”
“anticipate,” “plan,” “intend,” “foresee,” “should,” “would,”
“could,” “guides,” “provides guidance,” “provides outlook,” or
other similar expressions are intended to identify forward-looking
statements, which are not historical in nature. These
forward-looking statements are based on our current expectations
and beliefs concerning future developments and their potential
effect on us, and other information currently available. Such
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 or
other events may vary materially from those described herein. Such
forward-looking statements, because they relate to future events,
are by their very nature subject to many important risks and
uncertainties that could cause actual results or other events to
differ materially from those contemplated.
These risks and uncertainties include, but are not limited to:
the potential effects of COVID-19 on our business, including our
supply-chain, customer demand, workforce, operations and ability to
comply with certain covenants in our credit facilities; a decline
in U.S. and global market and economic conditions and resulting
decreases in consumer and business spending; our lack of
eligibility to participate in government relief programs related to
COVID-19 or inability to realize material benefits from such
programs; our substantial indebtedness, including inability to make
debt service payments or refinance such indebtedness; costs and
impacts to our financial results relating to the obligatory
collection of sales tax and claims for uncollected sales tax in
states that impose sales tax collection requirements on
out-of-state retailers, and challenges to our income tax positions;
the restrictive terms of our credit facilities and covenants of
future agreements governing indebtedness and the resulting
restraints on our ability to pursue our business strategies; our
limited ability to raise capital in the future; system security
risks, data protection breaches and cyber-attacks; failure to
comply with regulations, customer contractual requirements and
evolving industry standards regarding consumer privacy and data use
and security, including with respect to possible exposure to
litigation and/or regulatory penalties under applicable data
privacy and other laws for failure to so comply; interruptions in
our operations, including our IT systems, or in the operations of
the third parties that operate the data centers or computing
infrastructure on which we rely; disruptions in production at one
or more of our facilities; our inability to adequately protect our
trade secrets and intellectual property rights from
misappropriation or infringement, claims that our technology is
infringing on the intellectual property of others, and risks
related to open source software; defects in our software; problems
in production quality, materials and process; a disruption or other
failure in our supply chain; our failure to retain our existing
customers or identify and attract new customers; a loss of market
share or a decline in profitability resulting from competition; our
inability to recruit, retain and develop qualified personnel,
including key personnel; our inability to sell, exit, reconfigure
or consolidate businesses or facilities that no longer meet with
our strategy; our inability to develop, introduce and commercialize
new products; the effect of legal and regulatory proceedings;
failure to meet the continued listing standards of the Toronto
Stock Exchange or the rules of the OTCQX® Best Market; a continued
decrease in the value of our common stock combined with our common
stock no longer being traded on a United States national securities
exchange, which may prevent investors or potential investors from
investing or achieving a meaningful degree of liquidity; developing
technologies that make our existing technology solutions and
products obsolete or less relevant or a failure to introduce new
products and services in a timely manner; quarterly variation in
our operating results; our inability to realize the full value of
our long-lived assets; our failure to operate our business in
accordance with the Payment Card Industry (“PCI”) Security
Standards Council security standards or other industry standards;
costs relating to product defects and any related product liability
and/or warranty claims; maintenance and further imposition of
tariffs and/or trade restrictions on, or slow-downs or
interruptions in our ability to obtain, goods imported into the
United States; our dependence on licensing arrangements; risks
associated with international operations; non-compliance with, and
changes in, laws in the United States and in foreign jurisdictions
in which we operate and sell our products; our ability to comply
with a wide variety of environmental, health and safety laws and
regulations and the exposure to liability for any failure to
comply; risks associated with the controlling stockholders’
ownership of our stock; potential conflicts of interest that may
arise due to our board of directors being comprised in part of
directors who are principals of our largest stockholder; and other
risks that are described in Part I, Item 1A – Risk Factors of our
Annual Report on Form 10-K for the year ended December 31, 2019 and
filed with the Securities and Exchange Commission (the “SEC”) on
March 6, 2020, Part II, Item 1A – Risk Factors of our Quarterly
Report on Form 10-Q for the quarter ended June 30, 2020, and filed
with the SEC on August 5, 2020, and our other reports filed from
time to time with the SEC.
We caution and advise readers not to place undue reliance on
forward-looking statements, which speak only as of the date hereof.
These statements are based on assumptions that may not be realized
and involve risks and uncertainties that could cause actual results
to differ materially from the expectations and beliefs contained
herein. We undertake no obligation to publicly update or revise any
forward-looking statements after the date they are made, whether as
a result of new information, future events or otherwise.
For more information:
CPI encourages investors to use its investor relations website
as a way of easily finding information about the company. CPI
promptly makes available on this website, free of charge, the
reports that the company files or furnishes with the SEC, corporate
governance information and press releases. CPI uses its investor
relations site (http://investor.cpicardgroup.com) as a means of
disclosing material information and for complying with its
disclosure obligations under Regulation FD.
CPI Card Group Inc. Earnings Release Supplemental
Financial Information
Exhibit A
Condensed Consolidated Statements of
Operations and Comprehensive Income (Loss) - Unaudited for the
three and six months ended June 30, 2020 and 2019
Exhibit B
Condensed Consolidated Balance Sheets –
Unaudited as of June 30, 2020 and December 31, 2019
Exhibit C
Condensed Consolidated Statements of Cash
Flows - Unaudited for the six months ended June 30, 2020 and
2019
Exhibit D
Segment Summary Information – Unaudited
for the three and six months ended June 30, 2020 and 2019
Exhibit E
Supplemental GAAP to Non-GAAP
Reconciliations - Unaudited for the three and six months ended June
30, 2020 and 2019
EXHIBIT A
CPI Card Group Inc. and
Subsidiaries
Condensed Consolidated
Statements of Operations and Comprehensive Income (Loss)
(Amounts in Thousands, Except
Share and Per Share Amounts)
(Unaudited)
Three Months Ended June
30,
Six Months Ended June
30,
2020
2019
2020
2019
Net sales:
Products
$
39,077
$
33,125
$
81,578
$
65,882
Services
32,301
33,776
63,769
67,885
Total net sales
71,378
66,901
145,347
133,767
Cost of sales:
Products (exclusive of depreciation and
amortization shown below)
25,911
22,098
52,290
43,587
Services (exclusive of depreciation and
amortization shown below)
19,666
19,647
38,853
40,813
Depreciation and amortization
2,649
2,775
5,342
5,465
Total cost of sales
48,226
44,520
96,485
89,865
Gross profit
23,152
22,381
48,862
43,902
Operating expenses, net:
Selling, general and administrative
(exclusive of depreciation and amortization shown below) (1)
19,141
16,792
35,683
33,210
Depreciation and amortization
1,505
1,493
2,990
3,026
Litigation settlement gain
—
(6,000
)
—
(6,000
)
Total operating expenses, net
20,646
12,285
38,673
30,236
Income from operations
2,506
10,096
10,189
13,666
Other expense, net:
Interest, net
(6,772
)
(6,438
)
(12,860
)
(12,762
)
Foreign currency (loss)
(25
)
(1,321
)
(33
)
(1,280
)
Other (expense) income, net
(7
)
(8
)
(94
)
11
Total other expense, net
(6,804
)
(7,767
)
(12,987
)
(14,031
)
(Loss) income from continuing operations
before income taxes
(4,298
)
2,329
(2,798
)
(365
)
Income tax benefit (expense)
4,414
(777
)
5,357
(1,180
)
Net income (loss) from continuing
operations
116
1,552
2,559
(1,545
)
Net (loss) income from discontinued
operation, net of tax
(4
)
(30
)
(30
)
12
Net income (loss)
$
112
$
1,522
$
2,529
$
(1,533
)
Basic net income (loss) per share from
continuing operations:
$
0.01
$
0.14
$
0.23
$
(0.14
)
Diluted net income (loss) per share from
continuing operations:
0.01
0.14
0.23
(0.14
)
Basic net income (loss) per share:
$
0.01
$
0.14
$
0.23
$
(0.14
)
Diluted net income (loss) per share:
0.01
0.14
0.22
(0.14
)
Basic weighted-average shares
outstanding:
11,229,819
11,178,462
11,227,160
11,169,468
Diluted weighted-average shares
outstanding:
11,233,852
11,242,225
11,242,272
11,169,468
Comprehensive income (loss):
Net income (loss)
$
112
$
1,522
$
2,529
$
(1,533
)
Currency translation adjustment
—
—
—
31
Reclassification adjustment to foreign
currency loss
—
1,329
—
1,329
Total comprehensive income (loss)
$
112
$
2,851
$
2,529
$
(173
)
(1) Includes an estimated sales tax
expense of $2.7 million recorded during the second quarter of
2020.
EXHIBIT B
CPI Card Group Inc. and
Subsidiaries
Condensed Consolidated Balance
Sheets
(Amounts in Thousands, Except
Share and Per Share Amounts)
(Unaudited)
June 30,
December 31,
2020
2019
Assets
Current assets:
Cash and cash equivalents
$
54,445
$
18,682
Accounts receivable, net of allowances of
$281 and $395, respectively
45,317
42,832
Inventories
18,895
20,192
Prepaid expenses and other current
assets
4,172
6,345
Income taxes receivable
9,404
4,164
Total current assets
132,233
92,215
Plant, equipment, leasehold improvements
and operating lease right-of-use assets, net
37,558
42,088
Intangible assets, net
28,504
30,802
Goodwill
47,150
47,150
Other assets
1,059
1,232
Total assets
$
246,504
$
213,487
Liabilities and stockholders’
deficit
Current liabilities:
Accounts payable
$
15,042
$
16,482
Accrued expenses
28,718
22,820
Deferred revenue and customer deposits
1,097
468
Total current liabilities
44,857
39,770
Long-term debt
334,819
307,778
Deferred income taxes
6,924
6,896
Other long-term liabilities
9,757
11,478
Total liabilities
396,357
365,922
Commitments and contingencies
Series A Preferred Stock; $0.001 par
value—100,000 shares authorized; 0 shares issued and outstanding at
June 30, 2020 and December 31, 2019
-
-
Stockholders’ deficit:
Common stock; $0.001 par value—100,000,000
shares authorized; 11,229,819 and 11,224,191 shares issued and
outstanding at June 30, 2020 and December 31, 2019,
respectively
11
11
Capital deficiency
(111,935
)
(111,988
)
Accumulated loss
(37,929
)
(40,458
)
Total stockholders’ deficit
(149,853
)
(152,435
)
Total liabilities and stockholders’
deficit
$
246,504
$
213,487
EXHIBIT C
CPI Card Group Inc. and
Subsidiaries
Condensed Consolidated
Statements of Cash Flows
(Amounts in Thousands)
(Unaudited)
Six Months Ended June
30,
2020
2019
Operating activities
Net income (loss)
$
2,529
$
(1,533
)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:
Loss (income) from discontinued
operation
30
(12
)
Depreciation and amortization expense
8,332
8,491
Stock-based compensation expense
59
308
Amortization of debt issuance costs and
debt discount
1,565
979
Deferred income taxes
28
593
Reclassification adjustment to foreign
currency loss
—
1,329
Other, net
1,289
(190
)
Changes in operating assets and
liabilities:
Accounts receivable
(2,381
)
66
Inventories
259
(5,028
)
Prepaid expenses and other assets
1,136
1,593
Income taxes receivable, net
(5,239
)
228
Accounts payable
(1,660
)
(1,042
)
Accrued expenses
5,686
(6,249
)
Deferred revenue and customer deposits
629
(564
)
Other liabilities
(216
)
74
Cash provided by (used in) operating
activities - continuing operations
12,046
(957
)
Cash provided by (used in) operating
activities - discontinued operation
(30
)
12
Investing activities
Acquisitions of plant, equipment and
leasehold improvements
(1,644
)
(2,686
)
Cash received for sale of Canadian
subsidiary
—
1,451
Cash used in investing activities -
continuing operations
(1,644
)
(1,235
)
Financing activities
Proceeds from Senior Credit Facility, net
of discount
29,100
—
Debt issuance costs
(2,507
)
—
Proceeds from Revolving Credit
Facility
—
11,500
Payments on Revolving Credit Facility
—
(11,500
)
Payments on finance lease obligations
(1,181
)
(663
)
Cash provided by (used in) financing
activities
25,412
(663
)
Effect of exchange rates on cash
(21
)
36
Net increase (decrease) in cash and cash
equivalents
35,763
(2,807
)
Cash and cash equivalents, beginning of
period
18,682
20,291
Cash and cash equivalents, end of
period
$
54,445
$
17,484
Supplemental disclosures of cash flow
information
Cash paid during the period for:
Interest
$
11,519
$
11,660
Income taxes
$
16
$
340
Right-to-use assets obtained in exchange
for lease obligations:
Operating leases
$
141
$
8,533
Financing leases
$
763
$
3,366
Accounts payable, and accrued expenses for
acquisitions of plant, equipment and leasehold improvements
$
528
$
841
EXHIBIT D
CPI Card Group Inc. and
Subsidiaries
Segment Summary
Information
For the Three and Six Months
Ended June 30, 2020 and June 30, 2019
(Dollars in Thousands)
(Unaudited)
Net Sales
Three Months Ended June
30,
2020
2019
$ Change
% Change
Net sales by segment:
Debit and Credit
$
58,306
$
51,086
$
7,220
14.1
%
Prepaid Debit
13,536
15,966
(2,430
)
(15.2
)
%
Other
—
—
—
—
%
Eliminations
(464
)
(151
)
(313
)
*
%
Total
$
71,378
$
66,901
$
4,477
6.7
%
* Calculation not meaningful
Six Months Ended June
30,
2020
2019
$ Change
% Change
Net sales by segment:
Debit and Credit
$
118,145
$
100,015
$
18,130
18.1
%
Prepaid Debit
28,076
32,710
(4,634
)
(14.2
)
%
Other
—
1,679
(1,679
)
(100.0
)
%
Eliminations
(874
)
(637
)
(237
)
*
%
Total
$
145,347
$
133,767
$
11,580
8.7
%
* Calculation not meaningful
Gross Profit
Three Months Ended June
30,
2020
% of Net Sales
2019
% of Net Sales
$ Change
% Change
Gross profit by segment:
Debit and Credit
$
18,615
31.9
%
$
15,872
31.1
%
$
2,743
17.3
%
Prepaid Debit
4,537
33.5
%
6,509
40.8
%
(1,972
)
(30.3
)
%
Other
—
—
%
—
—
%
—
*
%
Total
$
23,152
32.4
%
$
22,381
33.5
%
$
771
3.4
%
* Calculation not meaningful
Six Months Ended June
30,
2020
% of Net Sales
2019
% of Net Sales
$ Change
% Change
Gross profit by segment:
Debit and Credit
$
39,085
33.1
%
$
31,144
31.1
%
$
7,941
25.5
%
Prepaid Debit
9,777
34.8
%
12,855
39.3
%
(3,078
)
(23.9
)
%
Other
—
—
%
(97
)
*
%
97
*
%
Total
$
48,862
33.6
%
$
43,902
32.8
%
$
4,960
11.3
%
* Calculation not meaningful
Income from Operations
Three Months Ended June
30,
2020
% of Net Sales
2019
% of Net Sales
$ Change
% Change
Income (loss) from operations by
segment:
Debit and Credit
$
8,238
14.1
%
$
7,985
15.6
%
$
253
3.2
%
Prepaid Debit
3,434
25.4
%
5,374
33.7
%
(1,940
)
(36.1
)
%
Other
(9,166
)
*
%
(3,263
)
*
%
(5,903
)
(180.9
)
%
Total
$
2,506
3.5
%
$
10,096
15.1
%
$
(7,590
)
(75.2
)
%
* Calculation not meaningful
Six Months Ended June
30,
2020
% of Net Sales
2019
% of Net Sales
$ Change
% Change
Income (loss) from operations by
segment:
Debit and Credit
$
20,897
17.7
%
$
15,761
15.8
%
$
5,136
32.6
%
Prepaid Debit
7,550
26.9
%
10,690
32.7
%
(3,140
)
(29.4
)
%
Other
(18,258
)
*
%
(12,785
)
*
%
(5,473
)
(42.8
)
%
Total
$
10,189
7.0
%
$
13,666
10.2
%
$
(3,477
)
(25.4
)
%
* Calculation not meaningful
EBITDA
Three Months Ended June
30,
2020
% of Net Sales
2019
% of Net Sales
$ Change
% Change
EBITDA by segment:
Debit and Credit
$
10,593
18.2
%
$
10,590
20.7
%
$
3
0.0
%
Prepaid Debit
3,982
29.4
%
5,880
36.8
%
(1,898
)
(32.3
)
%
Other
(7,947
)
*
%
(3,435
)
*
%
(4,512
)
(131.4
)
%
Total
$
6,628
9.3
%
$
13,035
19.5
%
$
(6,407
)
(49.2
)
%
* Calculation not meaningful
Six Months Ended June
30,
2020
% of Net Sales
2019
% of Net Sales
$ Change
% Change
EBITDA by segment:
Debit and Credit
$
25,673
21.7
%
$
20,970
21.0
%
$
4,703
22.4
%
Prepaid Debit
8,642
30.8
%
11,659
35.6
%
(3,017
)
(25.9
)
%
Other
(15,921
)
*
%
(11,741
)
*
%
(4,180
)
(35.6
)
%
Total
$
18,394
12.7
%
$
20,888
15.6
%
$
(2,494
)
(11.9
)
%
* Calculation not meaningful
Reconciliation of Income (loss)
from
Operations by Segment to EBITDA by
Segment
Three Months Ended June 30,
2020
Debit and Credit
Prepaid Debit
Other
Total
EBITDA by segment:
Income (loss) from operations
$
8,238
$
3,434
$
(9,166
)
$
2,506
Depreciation and amortization
2,391
549
1,214
4,154
Other (expenses) income
(36
)
(1
)
5
(32
)
EBITDA
$
10,593
$
3,982
$
(7,947
)
$
6,628
Three Months Ended June 30,
2019
Debit and Credit
Prepaid Debit
Other
Total
EBITDA by segment:
Income (loss) from operations
$
7,985
$
5,374
$
(3,263
)
$
10,096
Depreciation and amortization
2,613
525
1,130
4,268
Other (expenses) income
(8
)
(19
)
(1,302
)
(1,329
)
EBITDA
$
10,590
$
5,880
$
(3,435
)
$
13,035
Six Months Ended June 30,
2020
Debit and Credit
Prepaid Debit
Other
Total
EBITDA by segment:
Income (loss) from operations
$
20,897
$
7,550
$
(18,258
)
$
10,189
Depreciation and amortization
4,822
1,097
2,413
8,332
Other (expenses) income
(46
)
(5
)
(76
)
(127
)
EBITDA
$
25,673
$
8,642
$
(15,921
)
$
18,394
Six Months Ended June 30,
2019
Debit and Credit
Prepaid Debit
Other
Total
EBITDA by segment:
Income (loss) from operations
$
15,761
$
10,690
$
(12,785
)
$
13,666
Depreciation and amortization
5,217
988
2,286
8,491
Other (expenses) income
(8
)
(19
)
(1,242
)
(1,269
)
EBITDA
$
20,970
$
11,659
$
(11,741
)
$
20,888
EXHIBIT E
CPI Card Group Inc. and
Subsidiaries
Supplemental GAAP to Non-GAAP
Reconciliation
(Dollars in Thousands)
(Unaudited)
Three Months Ended June
30,
Six Months Ended June
30,
2020
2019
2020
2019
Reconciliation of net income (loss)
from continuing operations (GAAP) to EBITDA and Adjusted
EBITDA:
Net income (loss) from continuing
operations
$
116
$
1,552
$
2,559
$
(1,545
)
Interest expense, net
6,772
6,438
12,860
12,762
Income tax expense (benefit)
(4,414
)
777
(5,357
)
1,180
Depreciation and amortization
4,154
4,268
8,332
8,491
EBITDA
$
6,628
$
13,035
$
18,394
$
20,888
Adjustments to EBITDA:
Stock-based compensation expense
18
161
59
308
Litigation and related charges (1)
—
8
—
28
Sales tax liability (2)
2,700
—
2,700
—
Restructuring and other charges (3)
762
—
1,229
—
Loss on Revolving Credit Facility
termination (4)
—
—
92
—
Litigation settlement gain (5)
—
(6,000
)
—
(6,000
)
Foreign currency loss (6)
25
1,321
33
1,280
Subtotal of adjustments to EBITDA
3,505
(4,510
)
4,113
(4,384
)
Adjusted EBITDA
$
10,133
$
8,525
$
22,507
$
16,504
Adjusted EBITDA margin (% of net
sales)
14.2
%
12.7
%
15.5
%
12.3
%
Adjusted EBITDA growth (% Change 2020 vs.
2019)
18.9
%
36.4
%
Net income (loss) (% Change 2020 vs.
2019)
(92.6
)
%
265.0
%
Three Months Ended June
30,
Six Months Ended June
30,
2020
2019
2020
2019
Reconciliation of cash provided by
(used in) operating activities - continuing operations (GAAP) to
Adjusted Free Cash Flow:
Cash provided by (used in) operating
activities - continuing operations
$
8,842
$
9,239
$
12,046
$
(957
)
Acquisitions of plant, equipment and
leasehold improvements
(706
)
(540
)
(1,644
)
(2,686
)
Cash received from litigation settlement
(5)
—
(6,000
)
—
(6,000
)
Adjusted free cash flow - continuing
operations
$
8,136
$
2,699
$
10,402
$
(9,643
)
Note that tables in this exhibit are
presented on a continuing operations basis.
(1)
Represents net legal costs incurred with certain patent and
shareholder litigation.
(2)
The Company is in the process of evaluating and finalizing a state
sales tax liability analysis for states in which it has economic
nexus, and collecting exemption documentation from its customers.
It is probable that the Company will be subject to sales tax
liabilities plus interest in certain states and therefore estimated
a sales tax liability of $2.7 million that was expensed in the
second quarter of 2020.
(3)
Represents restructuring severance charges in 2020.
(4)
The Company terminated the Revolving Credit Facility during the
first quarter of 2020 and expensed the remaining unamortized
deferred financing costs.
(5)
During the second quarter of 2019, the Company recognized in
operating income a $6.0 million gain related to the cash settlement
of litigation.
(6)
Foreign currency loss includes the release of the cumulative
translation adjustment from the balance sheet to the statement of
operations, done in connection with the disposition of the
Company’s Canadian subsidiary during the second quarter 2019.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200805005154/en/
CPI Card Group Inc. Investor Relations: (877) 369-9016
InvestorRelations@cpicardgroup.com
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