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Cpi Card Group Inc. (PMTS) SEC Filing 8-K Material Event for the period ending Monday, August 8, 2022

Cpi Card Group Inc.

CIK: 1641614 Ticker: PMTS

Exhibit 99.1

CPI Card Group Inc. Reports Second Quarter 2022 Results

Date: August 8, 2022

Net Sales Increased 22% to $113 Million; Net Income Decreased 1% to $6 Million; Adjusted EBITDA Increased 2% to $20 Million

Strong Demand for Eco-focused Cards and SaaS-based Instant Issuance Solutions Drove Second Quarter Sales Growth

Company Increases 2022 Outlook for Net Sales and Adjusted EBITDA

Littleton, CO.

August 8, 2022 -- CPI Card Group Inc. (Nasdaq: PMTS) (“CPI” or the “Company”), a payment technology company and leading provider of credit, debit, and prepaid solutions, today reported financial results for the second quarter ended June 30, 2022 and updated its financial outlook for 2022.

Second quarter net sales increased 22% to $113.3 million, another record sales quarter for the Company. Growth was led by the Debit and Credit segment, which benefited from strong customer demand for contactless cards and instant issuance solutions. Net income decreased 1% to $6.2 million and Adjusted EBITDA increased 2% to $19.7 million, driven by the strong sales growth and operating leverage, offset by inflationary impacts on costs and higher compensation-related expenses.

“Strong customer demand for our portfolio of high-quality payment offerings drove outstanding sales growth in the second quarter” said Scott Scheirman, President and Chief Executive Officer of CPI. “We continue to win with our innovative products and services and end-to-end solutions, and we are pleased to be able to increase our full-year financial outlook.”

The Company now expects high teens net sales growth and low double-digit Adjusted EBITDA growth for the full year, an increase from the previous outlook of low double-digit growth for net sales and mid-to-high single-digit growth for Adjusted EBITDA. The full-year Adjusted EBITDA margin is still expected to be slightly below 20%. The Company expects strong sales growth in its Debit and Credit segment for the year and Prepaid Debit segment sales near the record level in 2021.

CPI is a top payment solutions provider in the U.S. serving thousands of banks, credit unions and FinTechs. The Company is a leader in the U.S. markets for eco-focused payment cards, personalization and Software-as-a-Service-based instant issuance solutions for small and medium U.S. financial institutions and retail prepaid debit card solutions, and maintains longstanding customer relationships.

The Company expects long-term market growth to be aided by the gradual transition to higher-priced contactless cards, including eco-focused cards, as well as continued financial payment card growth. Visa and Mastercard® U.S. credit, debit and prepaid cards in circulation have increased at a compound annual growth rate of 9% over the three-year period ended March 31, 2022, based on figures released by the networks.


Year-to-date 2022 Business Highlights

Generated incremental net sales from customer demand for higher-priced contactless cards, as the U.S. payment card market continues its gradual transition to contactless solutions.
Continued to be a leading provider of eco-focused payment card solutions in the U.S. Through the end of the second quarter of 2022, the Company has sold nearly 80 million eco-focused cards since launch in late 2019.
Experienced ongoing high demand for Card@Once® Software-as-a-Service-based instant issuance solutions. The Company has nearly 14,000 Card@Once® installations across approximately 1,900 financial institutions in the U.S.
Reduced the outstanding balance on the Company’s 8.625% senior secured notes by redeeming $20 million of notes and increased its ABL revolving credit facility from $50 million to $75 million in the first quarter. The Company’s Net Leverage Ratio was 4x at June 30, 2022.

Second Quarter 2022 Financial Highlights

Net sales increased 22% year-over-year to $113.3 million in the second quarter of 2022.

Debit and Credit segment net sales increased 29% to $94.2 million. Growth was primarily driven by increased sales of higher-priced contactless cards, including eco-focused cards and the related personalization, and Card@Once® instant issuance solutions.
Prepaid Debit segment net sales declined 6% to $19.2 million. Prior year sales benefited from the onboarding of new customer portfolios and retail inventory replenishment.

Second quarter gross profit increased 9% to $40.6 million and gross profit margin was 35.8%, which compared to 39.8% in the prior year second quarter. The year-over-year decrease in gross profit margin was primarily due to inflationary impacts on costs, partially offset by operating leverage from higher net sales.

Year-over-year, income from operations decreased 5% to $15.1 million; net income decreased 1% to $6.2 million, or $0.52 diluted earnings per share; and Adjusted EBITDA increased 2% to $19.7 million.

Profitability benefited from higher net sales and the resulting operating leverage, with offsets from increased materials costs and higher SG&A expenses, including higher compensation-related expenses. Net income also benefited from a lower effective tax rate in the quarter.

First Half 2022 Financial Highlights

Net sales increased 23% year-over-year to $224.7 million in the first half of 2022.

Debit and Credit segment net sales increased 31% to $186.2 million. Growth was primarily driven by increased sales of higher-priced contactless cards, including eco-focused cards;

Card@Once® instant issuance solutions; and personalization services related to contactless cards.
Prepaid Debit segment net sales declined 3% to $38.7 million. Prior year sales benefited from the onboarding of new customer portfolios and retail inventory replenishment.

First half gross profit increased 10% to $79.8 million and gross profit margin was 35.5%, which compared to 39.9% in the prior year first half. The year-over-year decrease in gross profit margin was primarily due to inflationary impacts on costs, partially offset by increased operating leverage from higher net sales.

Year-over-year, income from operations declined 2% to $33.0 million; net income increased 41% to $12.2 million, or $1.04 diluted earnings per share; and Adjusted EBITDA increased 2% to $42.2 million.

Profitability benefited from higher net sales and the resulting operating leverage, partially offset by increased materials and labor costs and higher SG&A expenses, including increased compensation-related expenses and compliance costs related to Sarbanes-Oxley. The increase in net income was aided by the comparison to significant debt refinancing costs incurred in the 2021 first quarter.

Balance Sheet, Liquidity, and Cash Flow

As of June 30, 2022, cash and cash equivalents was $9.1 million. Cash from operating activities in the first half of 2022 was a usage of $8.1 million and capital expenditures were $8.2 million, yielding Free Cash Flow usage of $16.3 million. This compared to $22.7 million of cash from operating activities and $19.0 million of Free Cash Flow generated in the first half of 2021, which included $6.0 million in cash tax refunds, primarily related to CARES Act filings. The working capital usage in the 2022 first half was primarily driven by a $18 million increase in inventories to support customer demand and a $12 million increase in accounts receivable as a result of higher sales. The Company expects improved Free Cash Flow in the second half of the year.

The Company had $290 million of 8.625% senior secured notes due 2026 and $25 million of borrowings from its ABL revolving credit facility outstanding at quarter-end. The revolving credit facility proceeds were utilized to fund the $20 million notes redemption in the first quarter, at a redemption price equal to 103% of par value plus accrued and unpaid interest, and working capital needs.

The Company’s capital structure and allocation priorities are to maintain ample liquidity; invest in the business, including strategic acquisitions; deleverage the balance sheet; and return funds to stockholders.

“We delivered sound profitability despite persistent inflationary pressures on costs,” said Amintore Schenkel, Chief Financial Officer of CPI. “For the second half of the year, we expect margin improvement relative to the second quarter and strong cash flow generation.”

Conference Call and Webcast


CPI Card Group Inc. will hold a conference call on August 8, 2022 at 9:00 a.m. Eastern Time (ET) to review its second quarter 2022 results. To participate in the Company's conference call via telephone or online:

Toll-Free Dial-In Number, U.S. Participants: (833) 927-1758

U.S.: (844) 200-6205

U.S. local: (646) 904-5544

International: (929) 526-1599

Conference ID: 182167

Webcast Link: Q2 2022 Webcast

(https://investor.cpicardgroup.com)

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

A replay of the conference call will be available until August 22, 2022 at:

US dial-in number (toll free): (866) 813-9403

Canada: (226) 828-7578

All other locations: 44-204-525-0658

Conference ID: 038358

A webcast replay of the conference call will also be available on CPI Card Group Inc.’s Investor Relations web site: https://investor.cpicardgroup.com

Non-GAAP Financial Measures

In addition to financial results reported in accordance with U.S. generally accepted accounting principles (“GAAP”), we have provided the following non-GAAP financial measures in this release, all reported on a continuing operations basis: EBITDA, Adjusted EBITDA, Adjusted EBITDA margin, Free Cash Flow, LTM Adjusted EBITDA and Net Leverage Ratio. These non-GAAP financial measures are utilized by management in comparing our operating performance on a consistent basis between fiscal periods. We believe that these financial measures are appropriate to enhance an overall understanding of our underlying operating performance trends compared to historical and prospective periods and our peers. Management also believes that these measures are useful to investors in their analysis of our results of operations and provide improved comparability between fiscal periods. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information calculated in accordance with GAAP. Our non-GAAP measures may be different from similarly titled measures of other companies. Investors are encouraged to review the reconciliation of these historical non-GAAP measures to their most directly comparable GAAP financial measures included in Exhibit E to this press release.

Adjusted EBITDA

Adjusted EBITDA is presented on a continuing operations basis and is defined as EBITDA (which represents earnings before interest, taxes, depreciation and amortization) adjusted for litigation; stock-based compensation expense; estimated sales tax expense, restructuring and other charges; loss on debt extinguishment; 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 in Exhibit E. Adjusted EBITDA is intended to show our unleveraged, pre-tax operating results and therefore reflects our financial performance based on


operational factors, excluding non-operational, unusual or non-recurring losses or gains. Adjusted EBITDA has important limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for, analysis of our results as reported under GAAP. For example, Adjusted EBITDA does not reflect: (a) our capital expenditures, future requirements for capital expenditures or contractual commitments; (b) changes in, or cash requirements for, our working capital needs; (c) the significant interest expenses or the cash requirements necessary to service interest or principal payments on our debt; (d) tax payments that represent a reduction in cash available to us; (e) any cash requirements for the assets being depreciated and amortized that may have to be replaced in the future; (f) the impact of earnings or charges resulting from matters that we and the lenders under our credit agreement may not consider indicative of our ongoing operations; or (g) the impact of any discontinued operations. In particular, our definition of Adjusted EBITDA allows us to add back certain non-operating, unusual or non-recurring charges that are deducted in calculating net income, even though these are expenses that may recur, vary greatly and are difficult to predict and can represent the effect of long-term strategies as opposed to short-term results. In addition, certain of these expenses represent the reduction of cash that could be used for other purposes. Adjusted EBITDA margin percentage as shown in Exhibit E is computed as Adjusted EBITDA divided by total net sales.

We define LTM Adjusted EBITDA as Adjusted EBITDA (defined previously) for the last twelve months. LTM Adjusted EBITDA is used in the computation of Net Leverage Ratio, and is reconciled in Exhibit E.

Free Cash Flow

We define Free Cash Flow as cash flow provided by (used in) operating activities (continuing operations) less capital expenditures. We use this metric in analyzing our ability to service and repay our debt. However, this measure does not represent funds available for investment or other discretionary uses since it does not deduct cash used to service our debt, nor does it reflect the cash impacts of our discontinued operations. Free Cash Flow should not be considered in isolation, or as a substitute for, cash (used in) provided by operating activities or any other measures of liquidity derived in accordance with GAAP.

Financial Expectations for 2022

We have provided Adjusted EBITDA and Adjusted EBITDA Margin expectations for 2022 on a non-GAAP basis because certain reconciling items are dependent on future events that either cannot be controlled or cannot be reliably predicted because they are not part of the Company’s routine activities, any of which could be significant.

Net Leverage Ratio

Management and various investors use the ratio of debt principal outstanding, plus finance lease obligations, less cash, divided by LTM Adjusted EBITDA, or “Net Leverage Ratio”, as a measure of our financial strength when making key investment decisions and evaluating us against peers.

About CPI Card Group Inc.

CPI Card Group® is a payment technology company and leading provider of credit, debit and prepaid solutions delivered physically, digitally and on-demand. CPI helps our customers foster connections and build their brands through innovative and reliable solutions, including financial payment cards, personalization and Software-as-a-Service (SaaS) instant issuance. CPI has more than 20 years of experience in the payments market and is a trusted partner to financial institutions


and payments services providers. Serving customers from locations throughout the United States, CPI has a large network of high security facilities, each of which is registered as PCI compliant by one or more of the payment brands: Visa, Mastercard®, American Express® and Discover®. Learn more at www.cpicardgroup.com.

Forward-Looking Statements

Certain statements and information in this release (as well as information included in other written or oral statements we make from time to time) may contain or constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The words “believe,” “estimate,” “project,” “expect,” “anticipate,” “plan,” “intend,” “foresee,” “should,” “would,” “could,” “continue,” “committed,” “attempt,” “target,” “objective,” “guides,” “seek,” “focus,” “provides guidance,” “provides outlook” or other similar expressions are intended to identify forward-looking statements, which are not historical in nature. These forward-looking statements, including statements about our strategic initiatives and market opportunities and our guidance for full-year 2022 results, are based on our current expectations and beliefs concerning future developments and their potential effect on us and other information currently available. Such forward-looking statements, because they relate to future events, are by their very nature subject to many important risks and uncertainties that could cause actual results or other events to differ materially from those contemplated.

These risks and uncertainties include, but are not limited to: the potential effects of COVID-19 and responses thereto on our business, including our supply chain, customer demand, workforce, operations and ability to comply with certain covenants related to our indebtedness; our transition to being an accelerated filer and complying with Section 404 of the Sarbanes-Oxley Act of 2002 and the costs associated with such compliance and implementation of procedures thereunder; our failure to maintain effective internal control over financial reporting or remediate material weaknesses; our inability to recruit, retain and develop qualified personnel, including key personnel; a disruption or other failure in our supply chain, including as a result of the Russia-Ukraine conflict, or labor pool resulting in increased costs and inability to pass those costs on to our customers and extended production lead times and difficulty meeting customers’ delivery expectations; a decline in U.S. and global market and economic conditions and resulting decreases in consumer and business spending and ongoing or accelerating inflationary pressure; our failure to retain our existing customers or identify and attract new customers; system security risks, data protection breaches and cyber-attacks, including as retaliation for U.S. sanctions in connection with the Russia-Ukraine conflict; our substantial indebtedness, including inability to make debt service payments or refinance such indebtedness; the restrictive terms of our indebtedness and covenants of future agreements governing indebtedness and the resulting restraints on our ability to pursue our business strategies; interruptions in our operations, including our information technology (“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; environmental, social and governance preferences and demands of various stakeholders and our ability to conform to such preferences and demands and to comply with any related regulatory requirements; the effects of climate change, negative perceptions of our products due to the impact of our products and production processes on the environment and other ESG-related risks; disruptions in production due to weather conditions, climate change, political instability or social unrest; our inability to adequately protect our trade secrets and intellectual property rights from misappropriation, infringement claims brought against us and risks related to open source software; defects in our software; our limited ability to raise capital in the future; problems in production quality, materials and process; our inability to develop, introduce and commercialize new products;


costs and impacts to our financial results relating to the obligatory collection of sales tax and claims for uncollected sales tax in states that impose sales tax collection requirements on out-of-state businesses, as well as potential new U.S. tax legislation increasing the corporate income tax rate and challenges to our income tax positions; our inability to successfully execute on our divestitures or acquisitions; our inability to realize the full value of our long-lived assets; costs relating to product defects and any related product liability and/or warranty claims; our inability to renew licenses with key technology licensors; the highly competitive, saturated and consolidated nature of our marketplace; the effects of delays or interruptions in our ability to source raw materials and components used in our products from foreign countries; failure to comply with regulations, customer contractual requirements and evolving industry standards regarding consumer privacy and data use and security; new and developing technologies that make our existing technology solutions and products obsolete or less relevant or our failure to introduce new products and services in a timely manner; quarterly variation in our operating results; our failure to operate our business in accordance with the Payment Card Industry Security Standards Council security standards or other industry standards; our failure to comply with environmental, health and safety laws and regulations that apply to our products and the raw materials we use in our production processes; risks associated with the majority 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 majority stockholders; the influence of securities analysts over the trading market for and price of our common stock; failure to meet the continued listing standards of the Nasdaq Global Market; certain provisions of our organizational documents and other contractual provisions that may delay or prevent a change in control and make it difficult for stockholders other than our majority stockholders to change the composition of our board of directors; our ability to comply with a wide variety of complex laws and regulations and the exposure to liability for any failure to comply; the effect of legal and regulatory proceedings; 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, 2021 filed with the Securities and Exchange Commission (“SEC”) on March 8, 2022, in Part II, Item 1A – Risk Factors in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2022 filed with the SEC on August 8, 2022, 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 or other events to differ materially from the expectations and beliefs contained herein. We undertake no obligation to publicly update or revise any forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise.

####

For more information:

CPI encourages investors to use its investor relations website as a way of easily finding information about the Company. CPI promptly makes available on this website the reports that the Company files or furnishes with the SEC, corporate governance information and press releases.

CPI Card Group Inc. Investor Relations:

(877) 369-9016


InvestorRelations@cpicardgroup.com

CPI Card Group Inc. Media Relations:

Media@cpicardgroup.com

CPI Card Group Inc. Earnings Release Supplemental Financial Information

Exhibit A

Condensed Consolidated Statements of Operations and Comprehensive Income - Unaudited for the three and six months ended June 30, 2022 and 2021

Exhibit B

Condensed Consolidated Balance Sheets – Unaudited as of June 30, 2022 and December 31, 2021

Exhibit C

Condensed Consolidated Statements of Cash Flows - Unaudited for the six months ended June 30, 2022 and 2021

Exhibit D

Segment Summary Information – Unaudited for the three and six months ended June 30, 2022 and 2021

Exhibit E

Supplemental GAAP to Non-GAAP Reconciliations - Unaudited for the three and six months ended June 30, 2022 and 2021


Graphic

EXHIBIT A

CPI Card Group Inc. and Subsidiaries

Condensed Consolidated Statements of Operations and Comprehensive Income

(in thousands, except share and per share amounts)

(Unaudited)

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2022

    

2021

2022

    

2021

Net sales:

Products

$

68,945

$

47,156

$

137,261

$

94,169

Services

44,363

46,063

87,471

88,142

Total net sales

113,308

93,219

224,732

182,311

Cost of sales:

Products (exclusive of depreciation and amortization shown below)

43,055

27,928

86,149

55,215

Services (exclusive of depreciation and amortization shown below)

27,578

25,939

54,435

49,607

Depreciation and amortization

2,124

2,264

4,319

4,680

Total cost of sales

72,757

56,131

144,903

109,502

Gross profit

40,551

37,088

79,829

72,809

Operating expenses:

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

24,050

19,748

43,932

35,894

Depreciation and amortization

1,447

1,553

2,862

3,359

Total operating expenses

25,497

21,301

46,794

39,253

Income from operations

15,054

15,787

33,035

33,556

Other expense, net:

Interest, net

(7,146)

(7,037)

(15,011)

(16,013)

Other (expense) income, net

(15)

4

(16)

29

Loss on debt extinguishment

(395)

(5,048)

Total other expense, net

(7,161)

(7,033)

(15,422)

(21,032)

Income before income taxes

7,893

8,754

17,613

12,524

Income tax expense

(1,742)

(2,522)

(5,460)

(3,882)

Net income

$

6,151

$

6,232

$

12,153

$

8,642

Basic and diluted earnings per share:

Basic earnings per share

$

0.55

$

0.55

$

1.08

$

0.77

Diluted earnings per share

$

0.52

$

0.53

$

1.04

$

0.74

Basic weighted-average shares outstanding

11,257,733

11,233,002

11,256,600

11,231,742

Diluted weighted-average shares outstanding

11,721,744

11,762,481

11,718,836

11,720,148

Comprehensive income:

Net income

$

6,151

$

6,232

$

12,153

$

8,642

Total comprehensive income

$

6,151

$

6,232

$

12,153

$

8,642


EXHIBIT B

CPI Card Group Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands, except share and per share amounts)

(Unaudited)

June 30, 

December 31, 

    

2022

    

2021

Assets

Current assets:

Cash and cash equivalents

 

$

9,051

$

20,683

Accounts receivable, net of allowances of $162 and $86, respectively

73,157

 

60,953

Inventories

75,797

 

58,009

Prepaid expenses and other current assets

5,070

 

5,522

Income taxes receivable

278

 

534

Total current assets

163,353

 

145,701

Plant, equipment, leasehold improvements and operating lease right-of-use assets, net

52,203

 

47,251

Intangible assets, net

19,921

 

21,854

Goodwill

47,150

 

47,150

Other assets

7,057

 

6,184

Total assets

 

$

289,684

$

268,140

Liabilities and stockholders’ deficit

Current liabilities:

Accounts payable

 

$

28,815

$

26,443

Accrued expenses

34,288

 

37,150

Deferred revenue and customer deposits

834

 

1,182

Total current liabilities

63,937

64,775

Long-term debt

309,739

 

303,626

Deferred income taxes

5,558

 

5,253

Other long-term liabilities

17,415

 

15,506

Total liabilities

396,649

 

389,160

Commitments and contingencies

Series A Preferred Stock; $0.001 par value—100,000 shares authorized; 0 shares issued and outstanding at June 30, 2022 and December 31, 2021

Stockholders’ deficit:

Common stock; $0.001 par value—100,000,000 shares authorized; 11,262,688 and 11,255,466 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively

11

 

11

Capital deficiency

(108,880)

 

(110,782)

Accumulated earnings (loss)

1,904

 

(10,249)

Total stockholders’ deficit

(106,965)

 

(121,020)

Total liabilities and stockholders’ deficit

 

$

289,684

$

268,140


EXHIBIT C

CPI Card Group Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

Six Months Ended June 30, 

    

2022

    

2021

Operating activities

Net income

 

$

12,153

$

8,642

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

Depreciation and amortization expense

7,181

 

8,039

Stock-based compensation expense

1,962

 

98

Amortization of debt issuance costs and debt discount

967

1,393

Loss on debt extinguishment

395

5,048

Deferred income taxes

305

 

38

Other, net

788

 

142

Changes in operating assets and liabilities:

Accounts receivable

(12,280)

 

(1,384)

Inventories

(17,853)

 

(15,600)

Prepaid expenses and other assets

(409)

 

(752)

Income taxes, net

256

 

7,989

Accounts payable

1,690

 

2,548

Accrued expenses and other liabilities

(2,955)

7,260

Deferred revenue and customer deposits

(348)

 

(715)

Cash (used in) provided by operating activities

(8,148)

22,746

Investing activities

Capital expenditures for plant, equipment and leasehold improvements

(8,179)

 

(3,703)

Other

15

156

Cash used in investing activities

(8,164)

 

(3,547)

Financing activities

Principal payments on First Lien Term loan

(312,500)

Principal payments on Senior Credit Facility

(30,000)

Principal payments on Senior Notes

(20,000)

Principal payments on ABL Revolver

(10,000)

(15,000)

Proceeds from Senior Notes

310,000

Proceeds from ABL Revolver, net of discount

35,000

14,750

Proceeds from exercises of stock options

34

Debt issuance costs

(262)

(9,452)

Payments on debt extinguishment and other

(660)

(2,685)

Proceeds from finance lease financing

2,074

Payments on finance lease obligations

(1,435)

(1,287)

Cash provided by (used in) financing activities

4,717

 

(46,140)

Effect of exchange rates on cash

(37)

5

Net decrease in cash and cash equivalents

(11,632)

(26,936)

Cash and cash equivalents, beginning of period

20,683

 

57,603

Cash and cash equivalents, end of period

 

$

9,051

$

30,667

Supplemental disclosures of cash flow information

Cash paid during the period for:

 

Interest

 

$

13,985

$

8,604

Income taxes paid

$

5,746

$

2,284

Income taxes (refunded)

$

(449)

$

(6,003)

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

Operating leases

$

816

$

3,363

Financing leases

$

3,077

$

484

Accounts payable and accrued expenses for capital expenditures for plant, equipment and leasehold improvements

$

3,110

$

399


EXHIBIT D

CPI Card Group Inc. and Subsidiaries

Segment Summary Information

For the Three and Six Months Ended June 30, 2022 and June 30, 2021

(dollars in thousands)

(Unaudited)

Net Sales

Three Months Ended June 30, 

    

2022

    

2021

    

$ Change

    

% Change

Net sales by segment:

Debit and Credit

$

94,181

$

72,860

$

21,321

29.3

%

Prepaid Debit

19,214

20,383

(1,169)

(5.7)

%

Eliminations

(87)

(24)

(63)

*

%

Total

$

113,308

$

93,219

$

20,089

21.6

%

* Calculation not meaningful

Six Months Ended June 30, 

    

2022

    

2021

    

$ Change

    

% Change

Net sales by segment:

Debit and Credit

$

186,196

$

142,677

$

43,519

30.5

%

Prepaid Debit

38,675

39,841

(1,166)

(2.9)

%

Eliminations

(139)

(207)

68

*

%

Total

$

224,732

$

182,311

$

42,421

23.3

%

Gross Profit

Three Months Ended June 30, 

    

2022

    

% of Net
Sales

    

2021

    

% of Net
Sales

    

$ Change

    

% Change

Gross profit by segment:

Debit and Credit

$

34,088

36.2

%   

$

28,263

38.8

%   

$

5,825

20.6

%

Prepaid Debit

6,463

33.6

%   

8,825

43.3

%   

(2,362)

(26.8)

%

Total

$

40,551

35.8

%   

$

37,088

39.8

%   

$

3,463

9.3

%

Six Months Ended June 30, 

    

2022

    

% of Net
Sales

    

2021

    

% of Net
Sales

    

$ Change

    

% Change

Gross profit by segment:

Debit and Credit

$

66,318

35.6

%   

$

55,812

39.1

%   

$

10,506

18.8

%

Prepaid Debit

13,511

34.9

%   

16,997

42.7

%   

(3,486)

(20.5)

%

Total

$

79,829

35.5

%   

$

72,809

39.9

%   

$

7,020

9.6

%


Income from Operations

Three Months Ended June 30, 

    

2022

    

% of Net
Sales

    

2021

    

% of Net
Sales

    

$ Change

    

% Change

Income (loss) from operations by segment:

Debit and Credit

$

25,319

26.9

%   

$

20,258

27.8

%   

$

5,061

25.0

%

Prepaid Debit

5,316

27.7

%   

7,550

37.0

%   

(2,234)

(29.6)

%

Other

(15,581)

*

%   

(12,021)

*

%   

(3,560)

29.6

%

Total

$

15,054

13.3

%   

$

15,787

16.9

%   

$

(733)

(4.6)

%

Six Months Ended June 30, 

    

2022

    

% of Net
Sales

    

2021

    

% of Net
Sales

    

$ Change

    

% Change

Income (loss) from operations by segment:

Debit and Credit

$

49,429

26.5

%   

$

40,412

28.3

%   

$

9,017

22.3

%

Prepaid Debit

11,284

29.2

%   

14,568

36.6

%   

(3,284)

(22.5)

%

Other

(27,678)

*

%   

(21,424)

*

%   

(6,254)

29.2

%

Total

$

33,035

14.7

%   

$

33,556

18.4

%   

$

(521)

(1.6)

%

EBITDA

Three Months Ended June 30, 

    

2022

    

% of Net
Sales

    

2021

    

% of Net
Sales

    

$ Change

    

% Change

EBITDA by segment:

Debit and Credit

$

27,273

29.0

%   

$

22,322

30.6

%   

$

4,951

22.2

%

Prepaid Debit

5,899

30.7

%   

8,106

39.8

%   

(2,207)

(27.2)

%

Other

(14,562)

*

%   

(10,820)

*

%   

(3,742)

34.6

%   

Total

$

18,610

16.4

%   

$

19,608

21.0

%   

$

(998)

(5.1)

%

Six Months Ended June 30, 

    

2022

    

% of Net
Sales

    

2021

    

% of Net
Sales

    

$ Change

    

% Change

EBITDA by segment:

Debit and Credit

$

53,367

28.7

%   

$

44,722

31.3

%   

$

8,645

19.3

%

Prepaid Debit

12,463

32.2

%   

15,679

39.4

%   

(3,216)

(20.5)

%

Other

(26,025)

*

%   

(23,825)

*

%   

(2,200)

9.2

%   

Total

$

39,805

17.7

%   

$

36,576

20.1

%   

$

3,229

8.8

%


Reconciliation of Income (loss) from

Operations by Segment to EBITDA by Segment

Three Months Ended June 30, 2022

Debit and Credit

Prepaid Debit

Other

Total

EBITDA by segment:

Income (loss) from operations

$

25,319

$

5,316

$

(15,581)

$

15,054

Depreciation and amortization

1,950

584

1,037

3,571

Other income (expenses)

4

(1)

(18)

(15)

EBITDA

$

27,273

$

5,899

$

(14,562)

$

18,610

Three Months Ended June 30, 2021

Debit and Credit

Prepaid Debit

Other

Total

EBITDA by segment:

Income (loss) from operations

$

20,258

$

7,550

$

(12,021)

$

15,787

Depreciation and amortization

2,060

558

1,199

3,817

Other income (expenses)

4

(2)

2

4

EBITDA

$

22,322

$

8,106

$

(10,820)

$

19,608

Six Months Ended June 30, 2022

Debit and Credit

Prepaid Debit

Other

Total

EBITDA by segment:

Income (loss) from operations

$

49,429

$

11,284

$

(27,678)

$

33,035

Depreciation and amortization

3,931

1,182

2,068

7,181

Other income (expenses)

7

(3)

(415)

(411)

EBITDA

$

53,367

$

12,463

$

(26,025)

$

39,805

Six Months Ended June 30, 2021

Debit and Credit

Prepaid Debit

Other

Total

EBITDA by segment:

Income (loss) from operations

$

40,412

$

14,568

$

(21,424)

$

33,556

Depreciation and amortization

4,297

1,097

2,645

8,039

Other income (expenses)

13

14

(5,046)

(5,019)

EBITDA

$

44,722

$

15,679

$

(23,825)

$

36,576


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, 

    

2022

    

2021

 

2022

    

2021

EBITDA and Adjusted EBITDA:

Net income

$

6,151

$

6,232

$

12,153

$

8,642

Interest, net

7,146

7,037

15,011

16,013

Income tax expense

1,742

2,522

5,460

3,882

Depreciation and amortization

3,571

3,817

7,181

8,039

EBITDA

$

18,610

$

19,608

$

39,805

$

36,576

Adjustments to EBITDA:

Stock-based compensation expense

1,001

47

1,962

98

Sales tax expense (benefit) (1)

64

(385)

52

(465)

Severance and other charges (2)

40

161

Loss on debt extinguishment (3)

395

5,048

Foreign currency loss (gain)

15

(4)

15

(29)

Subtotal of adjustments to EBITDA

1,080

(302)

2,424

4,813

Adjusted EBITDA

$

19,690

$

19,306

$

42,229

$

41,389

Net income margin (% of Net Sales)

5.4%

6.7%

5.4%

4.7%

Net income growth (% Change 2022 vs. 2021)

(1.3)%

40.6%

Adjusted EBITDA margin (% of Net Sales)

17.4%

20.7%

18.8%

22.7%

Adjusted EBITDA growth (% Change 2022 vs. 2021)

2.0%

2.0%

Three Months Ended June 30, 

Six Months Ended June 30, 

2022

2021

2022

2021

Free Cash Flow:

Cash (used in) provided by operating activities

$

7,813

$

22,602

$

(8,148)

$

22,746

Capital expenditures for plant, equipment and leasehold improvements

(5,025)

(1,179)

(8,179)

(3,703)

Free Cash Flow

$

2,788

$

21,423

$

(16,327)

$

19,043


(1)Represents estimated sales tax benefit relating to a contingent liability due to historical activity in certain states where it is probable that the Company will be subject to sales tax plus interest and penalties.
(2)The 2021 amount primarily relates to executive severance charges.
(3)The company redeemed a portion of the Senior Notes in the second quarter of 2022 and expensed the associated portion of the unamortized deferred financing costs. Additionally, the Company terminated and repaid its Senior Credit Facility and First Lien Term Loan during the first quarter of 2021 and expensed the unamortized deferred financing costs and debt discount.


Last Twelve Months Ended

June 30, 

December 31, 

2022

2021

Reconciliation of net income to LTM EBITDA and Adjusted EBITDA

Net income

$

19,452

$

15,941

Interest, net

29,606

30,608

Income tax expense

9,459

7,881

Depreciation and amortization

14,240

15,098

EBITDA

$

72,757

$

69,528

Adjustments to EBITDA:

Stock-based compensation expense

3,114

1,250

Sales tax benefit (1)

(97)

(614)

Severance and other charges (2)

1,089

1,250

Loss on debt extinguishment (3)

395

5,048

Foreign currency loss (gain)

29

(15)

Subtotal of adjustments to EBITDA

$

4,530

$

6,919

LTM Adjusted EBITDA

$

77,287

$

76,447

As of

June 30, 

December 31, 

2022