Strong Net Sales Growth, Significantly Improved
Bottom-Line Performance
Fourth Quarter Net Sales Up 6% Year Over Year,
9% Excluding Canada
Full Year Net Sales Up 9%, 12% Excluding
Canada
Continuing Operations - GAAP Net Loss Improves
to $2.1 Million and $4.3 Million in the Fourth Quarter and Full
Year, Improving 71% for Both Periods
Adjusted EBITDA Up 74% and 39% in the Fourth
Quarter and Full Year, Respectively
Cash of $18.7 Million at Year End, New $30
Million Credit Facility to Support Strategic Plan
Call scheduled for Monday, March 9, 2020 at
9:00 a.m. Eastern Time
CPI Card Group Inc. (OTCQX: PMTS; TSX: PMTS) (“CPI Card Group”
or the “Company”) today reported financial results for the fourth
quarter and full year ended December 31, 2019.
“Fourth quarter results were strong, rounding out another year
of crisp execution of our customer-centric strategy,” said Scott
Scheirman, President and Chief Executive Officer of CPI. “We
believe we gained market share across all of our business units
during 2019 by leveraging our robust products and solutions. We
delivered our eighth consecutive quarter of year-over-year net
sales growth, highlighted by a 24% increase in net sales from our
U.S. Debit and Credit segment driven by increased demand for our
dual interface EMV® products, including our Second Wave™ card
featuring a core made with recovered ocean-bound plastic. We
generated strong top-line results and continued to leverage our
business model, which delivered significantly improved bottom-line
performance.”
Scheirman continued, “We believe we are well-positioned to
capitalize on market opportunities, including continued strong
growth of dual interface card conversions in the U.S. and strong
market demand for innovative and differentiated products, such as
our Second Wave™ card and Card@Once® instant issuance solution. We
remain committed to our customer-centric strategy by continuing to
deliver innovative and diversified products and solutions.”
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.
Fourth Quarter and Full Year 2019 Financial Highlights from
Continuing Operations
Net sales increased 6% to $72.6 million in the fourth quarter of
2019, bringing full year net sales to $278.1 million, a
year-over-year increase of 9%. Excluding Canada, net sales were up
9% and 12% for the fourth quarter and full year, respectively.
Fourth quarter income from operations was $3.9 million, up from a
loss from operations of $0.4 million in the fourth quarter of 2018.
For the full year, income from operations increased $21.0 million
year over year to $25.5 million, which includes a previously
disclosed $6.0 million cash litigation settlement gain received in
the second quarter of 2019.
Fourth quarter 2019 net loss from continuing operations was $2.1
million, or $0.19 per share, an improvement of 71% from the net
loss of $7.2 million, or $0.65 per share in the fourth quarter of
2018. Full year 2019 net loss from continuing operations improved
to $4.3 million, or $0.39 per share, from the net loss of $14.8
million, or $1.33 per share, in 2018.
Fourth quarter and full year Adjusted EBITDA improved 74% and
39%, respectively, compared with the year-ago periods to $8.8
million and $37.6 million, respectively.
Fourth Quarter and Full Year Segment Information from
Continuing Operations
U.S. Debit and Credit:
Net sales increased 24% year over year to $61.6 million in the
fourth quarter. For the full year 2019, net sales were $213.1
million, a year-over-year increase of 19%. This full year 2019
increase was driven by a continued shift towards higher-priced dual
interface EMV® cards, including Second Wave™, and strong
performance in personalization, including Card@Once®.
U.S. Prepaid Debit:
As expected, 2019 net sales declined year over year when
compared with the record net sales year in 2018 for the U.S.
Prepaid Debit segment, which benefited from portfolio wins that did
not recur in 2019. Net sales for the fourth quarter and full year
2019 were $11.2 million and $64.3 million, respectively, down 35%
and 7%, respectively, compared with the same periods in 2018.
Balance Sheet, Liquidity, and Cash Flow from Continuing
Operations
As of December 31, 2019, cash and cash equivalents was $18.7
million. Total long-term debt principal outstanding, comprised of
the Company’s First Lien Term Loan, was $312.5 million at December
31, 2019, unchanged from December 31, 2018. Net of debt issuance
costs and discount, total debt was $307.8 million as of December
31, 2019. The Company’s First Lien Term Loan matures in August
2022.
During 2019, the Company invested more than $10 million in
additional inventory to support the growth of the business, which
led to a reduction in cash flows provided by operating activities
compared to the prior year. Cash provided by operating activities
was $3.0 million for the full year, inclusive of a $6.0 million
cash litigation settlement gain recorded in the second quarter.
Cash outflows for capital expenditures for the year were $4.2
million and adjusted free cash flow was negative $7.2 million.
Fourth quarter 2019 adjusted free cash flow was a positive $5.1
million.
New $30 Million Credit Facility
On March 6, 2020, the Company entered into a new $30 million
floating rate credit facility with two of its First Lien Term Loan
lenders. The new facility provides the Company with approximately
$27 million, net of issuance costs, in additional cash at closing,
which it plans to use towards execution of its strategic plan and
to further capitalize on market opportunities, such as the dual
interface conversion and strong market demand for differentiated
and innovative products and solutions.
The Company’s revolving credit facility, which was set to expire
in August of 2020 and had no outstanding borrowings as of December
31, 2019 or on the closing date of the new facility, was terminated
concurrently with the closing of the new credit facility. The new
facility, which is senior in priority to the Company’s First Lien
Term Loan, matures on May 17, 2022 and is collateralized by
substantially all of the Company’s assets.
John Lowe, Chief Financial Officer, said, “The success we’ve had
in driving top-line growth and margin expansion underscores the
operating leverage in our business model and our continued success
in winning new business and market share. We are pleased to see the
confidence demonstrated by our lending partners, who have provided
us a new $30 million credit facility. This facility provides us
greater resources to build upon our success and continue to execute
on our strategic plan.”
2020 Strategy and Market Outlook
The Company’s vision is to be the partner of choice by providing
market-leading quality products and customer service with a
market-competitive business model. The Company will continue to
execute on its four key strategies:
- Deep customer focus,
- Market-leading quality products and customer service,
- Continuous innovation, and
- Market-competitive business model.
The Company believes it is well-positioned to meet customer and
market demands through its strong portfolio of differentiated
products and solutions. In addition, due to the operating leverage
in the Company’s business model, the Company believes it can drive
incremental profitability as the top line grows.
Our expectations for the U.S. market in 2020 with respect to the
Company’s portfolio of products and solutions are:
U.S. Debit and Credit Segment
Secure Card
The Company expects steady card manufacturing volume growth. In
addition, the Company expects the migration to dual interface cards
will continue its strong growth and will become a larger part of
the overall card market. With over 20 years of card manufacturing
experience and a growing portfolio of innovative and highly
differentiated products within its Secure Card business, the
Company believes it is well-positioned to continue to win in the
market, inclusive of the market conversion to dual interface and
contactless cards. In addition, with Second Wave™ payment cards,
featuring a core made with recovered ocean-bound plastic, the
Company offers a solution to support the sustainability initiatives
of its customers, which bolsters the Company’s position in the
marketplace.
Card@Once®
The Company expects strong growth in the number of small and
medium sized financial institution locations offering instant
issuance, the Company’s primary market for Card@Once® today. With
nearly 11,000 printers in the field across over 1,600 financial
institutions, the Company’s Card@Once® instant issuance offering is
the leading Software-as-a-Service solution in the market. The
Company believes it will continue to win new business and expand
its addressable market.
Personalization
The Company expects low but steady market volume growth in the
small and medium sized financial institution personalization
market, driven by continued reissuances and the broader dual
interface market conversion. The Company has invested in broadening
its product and solution capabilities, including CPI On-Demand™.
The Company believes its enhanced capabilities and high level of
customer service will enable it to win incremental business from
its current customers and expand its customer base.
U.S. Prepaid Segment
The Company expects the open loop prepaid card market to be
directionally flat. With its market-leading quality and innovative
solutions, including the use of differentiated card materials and
secure and sustainable packaging capabilities, the Company believes
it will continue to win in the space.
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, 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 computation in our 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 finance 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, third, and fourth
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
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 March 9, 2020
at 9:00 a.m. ET to review its fourth quarter and full year 2019
results. To participate in the Company's conference call via
telephone or online:
Participant Toll-Free Dial-In Number: (844)
735-3761 Participant International Dial-In Number: (412) 317-5709
Webcast Link:
https://services.choruscall.com/links/pmts200227.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 March 23, 2020 at:
Replay: (877) 344-7529 or (412) 317-0088;
Conference ID: 10138875 Webcast replay:
http://investor.cpicardgroup.com
Forward-Looking Statements
Certain statements and information in this earnings release (as
well as information included in our accompanying written or oral
statements) 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 (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,” “guides,” “provides guidance,”
“provides outlook,” 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 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 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 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
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 PCI Security Standards Council security
standards or other industry standards; a decline in U.S. and global
market and economic conditions and resulting decreases in consumer
and business spending; costs relating to product defects and any
related product liability and/or warranty claims; 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; 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; 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 of directors who are principals of our largest
stockholder; and other risks that are described in Part I, Item 1A
– Risk Factors of our Form 10-K 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 Loss - Unaudited for the three months
and full years ended December 31, 2019 and 2018
Exhibit B
Condensed Consolidated Balance Sheets –
Unaudited as of December 31, 2019 and December 31, 2018
Exhibit C
Condensed Consolidated Statements of Cash
Flows - Unaudited for the years ended December 31, 2019 and
2018
Exhibit D
Segment Summary Information – Unaudited
for the three months and full years ended December 31, 2019 and
2018
Exhibit E
Supplemental GAAP to Non-GAAP
Reconciliations - Unaudited for the three months and full years
ended December 31, 2019 and 2018
EXHIBIT A
CPI Card Group Inc. and
Subsidiaries
Condensed Consolidated
Statements of Operations and Comprehensive Loss
(Dollars in Thousands, Except
Per Share Amounts)
(Unaudited)
Three Months Ended December
31,
Year Ended December
31,
2019
2018
2019
2018
Net sales:
Products
$
44,096
$
34,158
$
143,941
$
125,069
Services
28,529
34,358
134,132
130,745
Total net sales
72,625
68,516
278,073
255,814
Cost of sales:
Products (exclusive of depreciation and
amortization shown below)
29,120
23,034
94,889
82,110
Services (exclusive of depreciation and
amortization shown below)
18,752
21,706
80,894
82,697
Depreciation and amortization
2,755
2,797
10,971
12,417
Total cost of sales
50,627
47,537
186,754
177,224
Gross profit
21,998
20,979
91,319
78,590
Operating expenses:
Selling, general and administrative
(exclusive of depreciation and amortization shown below)
16,598
19,895
65,744
68,014
Depreciation and amortization
1,492
1,475
6,031
5,988
Litigation settlement gain
—
—
(6,000
)
—
Total operating expenses, net
18,090
21,370
65,775
74,002
Income (loss) from operations
3,908
(391
)
25,544
4,588
Other expense, net:
Interest, net
(6,044
)
(6,188
)
(24,891
)
(23,431
)
Foreign currency loss
(7
)
(63
)
(1,327
)
(311
)
Other income (expense), net
(29
)
1
(4
)
16
Total other expense, net
(6,080
)
(6,250
)
(26,222
)
(23,726
)
Loss before income taxes
(2,172
)
(6,641
)
(678
)
(19,138
)
Income tax (expense) benefit
43
(594
)
(3,652
)
4,339
Net loss from continuing operations
(2,129
)
(7,235
)
(4,330
)
(14,799
)
Discontinued operations:
Net loss from discontinued operation, net
of taxes
(108
)
(112
)
(124
)
(22,663
)
Net loss
$
(2,237
)
$
(7,347
)
$
(4,454
)
$
(37,462
)
Basic and diluted Loss per Share:
Continuing operations
$
(0.19
)
$
(0.65
)
$
(0.39
)
$
(1.33
)
Discontinued operations
(0.01
)
(0.01
)
(0.01
)
(2.03
)
$
(0.20
)
(0.66
)
$
(0.40
)
$
(3.36
)
Weighted-average shares outstanding:
Basic and diluted
11,224,191
11,160,377
11,196,710
11,149,554
Comprehensive loss
Net loss
$
(2,237
)
$
(7,347
)
$
(4,454
)
$
(37,462
)
Reclassification adjustment to foreign
currency loss
—
—
1,329
—
Other comprehensive loss from discontinued
operations
—
—
—
3,983
Currency translation adjustment
—
(118
)
31
(205
)
Total comprehensive loss
$
(2,237
)
$
(7,465
)
$
(3,094
)
$
(33,684
)
EXHIBIT B
CPI Card Group Inc. and
Subsidiaries
Condensed Consolidated Balance
Sheets
(Dollars in Thousands, Except
Share and Per Share Amounts)
(Unaudited)
December 31,
December 31,
2019
2018
Assets
Current assets:
Cash and cash equivalents
$
18,682
$
20,291
Accounts receivable, net of allowances of
$395 and $211, respectively
42,832
43,794
Inventories
20,192
9,827
Prepaid expenses and other current
assets
6,345
4,997
Income taxes receivable
4,164
5,564
Total current assets
92,215
84,473
Plant, equipment, leasehold improvements
and operating leases Right-of-use assets, net
42,088
39,110
Intangible assets, net
30,802
35,437
Goodwill
47,150
47,150
Other assets
1,232
1,034
Total assets
$
213,487
$
207,204
Liabilities and stockholders’
deficit
Current liabilities:
Accounts payable
$
16,482
$
16,511
Accrued expenses
22,820
23,853
Deferred revenue and customer deposits
468
912
Total current liabilities
39,770
41,276
Long-term debt
307,778
305,818
Deferred income taxes
6,896
5,749
Other long-term liabilities
11,478
3,937
Total liabilities
365,922
356,780
Commitments and contingencies
Series A Preferred Stock; $0.001 par
value—100,000 shares authorized; 0 shares issued and
outstanding
—
—
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 December 31, 2019 and December 31, 2018,
respectively
11
11
Capital deficiency
(111,988
)
(112,223
)
Accumulated loss
(40,458
)
(36,004
)
Accumulated other comprehensive loss
—
(1,360
)
Total stockholders’ deficit
(152,435
)
(149,576
)
Total liabilities and stockholders'
deficit
$
213,487
$
207,204
EXHIBIT C
CPI Card Group Inc. and
Subsidiaries
Condensed Consolidated
Statements of Cash Flows
(Dollars in Thousands)
(Unaudited)
Year Ended December
31,
2019
2018
Operating activities
Net loss
$
(4,454
)
$
(37,462
)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Loss from discontinued operations
124
22,663
Depreciation and amortization expense
17,002
18,405
Stock-based compensation expense
250
961
Amortization of debt issuance costs and
debt discount
1,960
1,949
Deferred income taxes
1,147
(6,897
)
Reclassification adjustment to foreign
currency loss
1,329
—
Other, net
146
302
Changes in operating assets and
liabilities:
Accounts receivable
(688
)
(5,523
)
Inventories
(10,410
)
(1,998
)
Prepaid expenses and other assets
(1,328
)
(2,108
)
Income taxes
1,369
2,644
Accounts payable
1,127
2,411
Accrued expenses
(4,395
)
10,436
Deferred revenue and customer deposits
(446
)
632
Other liabilities
232
655
Cash provided by operating activities -
continuing operations
2,965
7,070
Cash used in operating activities -
discontinued operations
(124
)
(3,550
)
Investing activities
Acquisitions of plant, equipment and
leasehold improvements
(4,175
)
(5,634
)
Cash received from sale of Canadian
subsidiary
1,451
—
Other
150
—
Cash used in investing activities -
continuing operations
(2,574
)
(5,634
)
Cash used in investing activities -
discontinued operations
—
(220
)
Financing activities
Proceeds from revolving credit
facility
11,500
—
Principal payment on revolving credit
facility
(11,500
)
—
Payments on financing leases
(1,926
)
(519
)
Cash used in financing activities
(1,926
)
(519
)
Effect of exchange rates on cash
50
(61
)
Net decrease in cash and cash
equivalents
(1,609
)
(2,914
)
Cash and cash equivalents, beginning of
period
20,291
23,205
Cash and cash equivalents, end of
period
$
18,682
$
20,291
Supplemental disclosures of cash flow
information
Cash paid (refunded) during the period
for:
Interest
$
23,036
$
20,703
Income tax (refunds) payments, net
$
780
$
(657
)
Right-of-use assets obtained in exchange
for lease obligations:
Operating leases
$
8,533
$
—
Financing leases
$
6,438
$
1,812
Accounts payable and accrued expenses for
acquisitions of plant, equipment and leasehold improvements
$
308
$
1,339
EXHIBIT D
CPI Card Group Inc. and
Subsidiaries
Segment Summary
Information
For the Three Months and Year
Ended December 31, 2019 and 2018
(Dollars in Thousands)
(Unaudited)
Net Sales
Three Months Ended December
31,
2019
2018
$ Change
% Change
Net sales by segment: U.S Debit and Credit
$
61,624
$
49,605
$
12,019
24.2
%
U.S. Prepaid Debit
11,168
17,071
(5,903
)
(34.6
)%
Other
—
2,292
(2,292
)
(100.0
)%
Eliminations
(167
)
(452
)
285
*
%
Total
$
72,625
$
68,516
$
4,109
6.0
%
Year Ended December
31,
2019
2018
$ Change
% Change
Net sales by segment: U.S Debit and Credit
$
213,141
$
178,597
$
34,544
19.3
%
U.S. Prepaid Debit
64,330
69,199
(4,869
)
(7.0
)%
Other
1,679
9,891
(8,212
)
(83.0
)%
Eliminations
(1,077
)
(1,873
)
796
*
%
Total
$
278,073
$
255,814
$
22,259
8.7
%
* Calculation not meaningful
Gross Profit
Three Months Ended December
31,
2019
% of Net Sales
2018
% of Net Sales
$ Change
% Change
Gross profit by segment: U.S Debit and Credit
$
18,955
30.8
%
$
14,145
28.5
%
$
4,810
34.0
%
U.S. Prepaid Debit
3,043
27.2
%
6,311
37.0
%
(3,268
)
(51.8
)%
Other
—
*
%
523
22.8
%
(523
)
(100.0
)%
Total
$
21,998
30.3
%
$
20,979
30.6
%
$
1,019
4.9
%
* Calculation not meaningful
Year Ended December
31,
2019
% of Net Sales
2018
% of Net Sales
$ Change
% Change
Gross profit by segment: U.S Debit and Credit
$
66,602
31.2
%
$
50,036
28.0
%
$
16,566
33.1
%
U.S. Prepaid Debit
24,814
38.6
%
26,422
38.2
%
(1,608
)
(6.1
)%
Other
(97
)
*
%
2,132
21.6
%
(2,229
)
(104.5
)%
Total
$
91,319
32.8
%
$
78,590
30.7
%
$
12,729
16.2
%
* Calculation not meaningful
Income
(loss) from Operations
Three Months Ended December
31,
2019
% of Net Sales
2018
% of Net Sales
$ Change
% Change
Income (loss) from Operations by segment: U.S Debit and
Credit
$
11,363
18.4
%
$
6,764
13.6
%
$
4,599
68.0
%
U.S. Prepaid Debit
1,878
16.8
%
4,996
29.3
%
(3,118
)
(62.4
)%
Other
(9,333
)
*
%
(12,151
)
*
%
2,818
23.2
%
Total
$
3,908
5.4
%
$
(391
)
(0.6
)%
$
4,299
*
%
* Calculation not meaningful
Year Ended December
31,
2019
% of Net Sales
2018
% of Net Sales
$ Change
% Change
Income (loss) from Operations by segment: U.S Debit and
Credit
$
35,982
16.9
%
$
22,414
12.6
%
$
13,568
60.5
%
U.S. Prepaid Debit
20,383
31.7
%
21,928
31.7
%
(1,545
)
(7.0
)%
Other
(30,821
)
*
%
(39,754
)
*
%
8,933
22.5
%
Total
$
25,544
9.2
%
$
4,588
1.8
%
$
20,956
456.8
%
* Calculation not meaningful
EBITDA
Three Months Ended December
31,
2019
% of Net Sales
2018
% of Net Sales
$ Change
% Change
EBITDA by segment U.S Debit and Credit
$
13,840
22.5
%
$
9,425
19.0
%
$
4,415
46.8
%
U.S. Prepaid Debit
2,455
22.0
%
5,445
31.9
%
(2,990
)
(54.9
)%
Other
(8,176
)
*
%
(11,051
)
*
%
2,875
26.0
%
Total
$
8,119
11.2
%
$
3,819
5.6
%
$
4,300
(112.6
)%
* Calculation not meaningful
Year Ended December
31,
2019
% of Net Sales
2018
% of Net Sales
$ Change
% Change
EBITDA by segment U.S Debit and Credit
$
46,227
21.7
%
$
34,213
19.2
%
$
12,014
35.1
%
U.S. Prepaid Debit
22,456
34.9
%
23,782
34.4
%
(1,326
)
(5.6
)%
Other
(27,468
)
*
%
(35,297
)
*
%
7,829
22.2
%
Total
$
41,215
14.8
%
$
22,698
8.9
%
$
18,517
81.6
%
* Calculation not meaningful
Reconciliation of Income (loss)
from
Operations by Segment to EBITDA by Segment
Three Months Ended December
31, 2019
U.S. Debit and Credit
U.S. Prepaid Debit
Other
Total
EBITDA by segment: Income (loss) from operations
$
11,363
$
1,878
$
(9,333
)
$
3,908
Depreciation and amortization
2,492
578
1,177
4,247
Foreign currency and Other income (loss), net
(15
)
(1
)
(20
)
(36
)
EBITDA
$
13,840
$
2,455
$
(8,176
)
$
8,119
Three Months Ended December
31, 2018
U.S. Debit and Credit
U.S. Prepaid Debit
Other
Total
EBITDA by segment: Income (loss) from operations
$
6,764
4,996
(12,151
)
(391
)
Depreciation and amortization
2,658
454
1,160
4,272
Foreign currency and Other income (loss), net
3
(5
)
(60
)
(62
)
EBITDA
$
9,425
$
5,445
$
(11,051
)
$
3,819
Year Ended December 31,
2019
U.S. Debit and Credit
U.S. Prepaid Debit
Other
Total
EBITDA by segment: Income (loss) from operations
$
35,982
20,383
(30,821
)
25,544
Depreciation and amortization
10,272
2,094
4,636
17,002
Foreign currency and Other income (loss), net
(27
)
(21
)
(1,283
)
(1,331
)
EBITDA
$
46,227
$
22,456
$
(27,468
)
$
41,215
Year Ended December 31,
2018
U.S. Debit and Credit
U.S. Prepaid Debit
Other
Total
EBITDA by segment: Income (loss) from operations
$
22,414
21,928
(39,754
)
4,588
Depreciation and amortization
11,801
1,859
4,745
18,405
Foreign currency and Other income (loss), net
(2
)
(5
)
(288
)
(295
)
EBITDA
$
34,213
$
23,782
$
(35,297
)
$
22,698
EXHIBIT E
CPI Card Group Inc. and
Subsidiaries
Supplemental GAAP to Non-GAAP
Reconciliation
(Dollars in Thousands)
(Unaudited)
Three Months Ended December
31,
Year Ended December
31,
2019
2018
2019
2018
EBITDA and Adjusted EBITDA:
Net loss from continuing operations
$
(2,129
)
$
(7,235
)
$
(4,330
)
$
(14,799
)
Interest expense, net
6,044
6,188
24,891
23,431
Income tax (benefit) expense
(43
)
594
3,652
(4,339
)
Depreciation and amortization
4,247
4,272
17,002
18,405
EBITDA
$
8,119
$
3,819
$
41,215
$
22,698
Adjustments to EBITDA
Litigation and related charges (1)
18
3
46
1,042
Stock-based compensation expense
(66
)
219
250
961
Restructuring and other charges (2)
720
955
720
2,051
Litigation settlement gain (3)
—
—
(6,000
)
—
Foreign currency loss (4)
7
63
1,327
311
Subtotal of adjustments to EBITDA
679
1,240
(3,657
)
4,365
Adjusted EBITDA
$
8,798
$
5,059
$
37,558
$
27,063
Adjusted EBITDA Margin (% of Net
Sales)
12.1
%
7.4
%
13.5
%
10.6
%
Adjusted EBITDA growth (% change 2019 vs.
2018)
73.9
%
38.8
%
Net loss from continuing operations (%
Change 2019 vs. 2018)
70.6
%
70.7
%
Three Months Ended December
31,
Year Ended December
31,
2019
2018
2019
2018
Reconciliation of cash provided by
operating activities - continuing operations (GAAP) to adjusted
free cash flow:
Cash provided by operating activities -
continuing operations
$
5,964
$
8,914
$
2,965
$
7,070
Acquisitions of plant, equipment and
leasehold improvements
(877
)
(606
)
(4,175
)
(5,634
)
Cash received from litigation settlement
(3)
—
—
(6,000
)
Adjusted free cash flow - continuing
operations
$
5,087
$
8,308
$
(7,210
)
$
1,436
Three Months Ended December
31,
Year Ended December
31,
2019
2018
2019
2018
Total Net Sales Growth Rate, Excluding
Canada
Total Net Sales
$
72,625
$
68,516
$
278,073
$
255,814
Canada Sales (5)
(620
)
(2,292
)
(3,152
)
(9,891
)
Total Net Sales, Excluding Canada
$
72,005
$
66,224
$
274,921
$
245,923
Total Net Sales growth excluding Canada (%
Change 2019 vs. 2018)
8.7
%
11.8
%
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 executive severance
charges in 2019. Represents employee and lease termination costs
incurred in 2018 in connection with the decision to consolidate
three personalization operations in the United States to two
facilities, and employee termination costs incurred in the fourth
quarter of 2018 in connection with the sale of our Canadian
operations.
(3)
During the second quarter 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 Form 10-K.
(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 in the
second, third, and fourth quarters of 2019 represent the net sales
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/20200309005243/en/
CPI Card Group Inc. Investor Relations, (877)
369-9016 InvestorRelations@cpicardgroup.com CPI
Card Group Inc. Media Relations
Media@cpicardgroup.com
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