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CPI Card Group Inc. Reports Fourth Quarter and Full Year 2022 Results

Fifth Consecutive Year of Strong Sales Growth; Full Year Net Sales Increased 27% to $476 Million; Net Income Increased 129% to $37 Million; Adjusted EBITDA Increased 28% to $98 Million

Fourth Quarter Net Sales Increased 36% to $126 Million; Net Income Increased 1,754% to $12 Million; Adjusted EBITDA Increased 100% to $27 Million

Company Anticipates Continued Share Gains in Expected Slower-Growth Market in 2023; Initial Outlook Projects Mid-Single Digit Net Sales Growth, Mid-to-High Single Digit Adjusted EBITDA Growth, and Strong Improvement in Cash Flow and Net Leverage

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 fourth quarter and full year ended December 31, 2022 and provided its initial financial outlook for 2023.

Full-year net sales increased 27% to $475.7 million, a record level for the Company. Growth was driven by strong customer demand for contactless cards, including eco-focused cards, and Software-as-a-Service-based instant issuance solutions. Net income increased 129% to $36.5 million and Adjusted EBITDA increased 28% to $97.7 million, driven by the strong sales growth.

“Our outstanding fourth quarter performance capped another strong growth year for CPI, and we believe the Company gained substantial market share,” said Scott Scheirman, President and Chief Executive Officer. “There was strong demand for cards in the U.S. market in 2022, and we won new business and share of wallet through our innovative products, end-to-end solutions, market-leading quality, and proactive inventory management while the industry was facing supply-chain challenges.”

For 2023, the Company expects to continue to gain market share overall, but anticipates market growth will not be as strong as 2022. The Company’s initial outlook for 2023 projects mid-single digit net sales growth, with higher growth for the Debit and Credit segment, which represented 82% of 2022 net sales, partially offset by expectations for Prepaid Debit segment sales to be similar to 2022 levels. The Company expects mid-to-high single digit Adjusted EBITDA growth for 2023, Free Cash Flow to more than double, and year-end Net Leverage Ratio improvement to between 2.5x and 3.0x.

The Company also announced today that Chief Financial Officer Amintore Schenkel has informed the Company that he will be resigning from his position in 2023 due to family-related personal reasons. Mr. Schenkel intends to remain in his role while the Company conducts a search for his replacement and assist in the transition of his responsibilities to the new Chief Financial Officer.

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.

For the five years ending December 31, 2022, the Company has delivered a compound annual growth rate (CAGR) of 16% in net sales, while net income has improved from a loss in 2017 to $37 million in 2022 and Adjusted EBITDA has increased at a 33% CAGR. Over the same time period, gross profit margins have increased from 30% to 37% and Net Leverage has decreased from 12x to 3x. 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.

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. market. CPI sales of eco-focused cards increased 70% in 2022 and the Company has sold more than 90 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 more than 14,000 Card@Once® installations across nearly 2,000 financial institutions in the U.S.
  • Reduced the outstanding balance on the Company’s 8.625% Senior Secured Notes by $25 million through a combination of redeeming $20 million of notes in the first quarter of 2022 and repurchasing $5 million of notes in the fourth quarter. The Company also increased the credit limit on its ABL revolving credit facility from $50 million to $75 million in 2022. The Company’s Net Leverage Ratio was 3.0x at December 31, 2022, an improvement from 3.8x at the end of 2021.

Fourth Quarter 2022 Financial Highlights

Net sales increased 36% year-over-year to $126.4 million in the fourth quarter of 2022.

  • Debit and Credit segment net sales increased 35% to $104.9 million. Growth was strong across the Debit and Credit portfolio, including increased sales of higher-priced contactless cards, personalization services, and Card@Once® instant issuance solutions.
  • Prepaid Debit segment net sales increased 39% to $22.1 million, driven both by new customer additions and growth with existing customers.

Fourth quarter gross profit increased 54% to $47.5 million and gross profit margin was 37.6%, which compared to 33.2% in the prior year fourth quarter. The year-over-year increase in gross profit margin was primarily due to operating leverage from higher net sales, including benefits from price increases, partially offset by inflationary impacts on production costs.

Fourth quarter income from operations increased 146% to $22.7 million; net income increased 1,754% to $12.5 million, or $1.06 diluted earnings per share; and Adjusted EBITDA increased 100% to $27.2 million. Profitability growth was primarily driven by higher net sales and the resulting operating leverage. Net income growth also benefited from a lower effective tax rate as the result of certain adjustment items that negatively impacted the prior year and favorably impacted the current year period.

Full Year 2022 Financial Highlights

Net sales increased 27% year-over-year to $475.7 million for the full year.

  • Debit and Credit segment net sales increased 32% to $390.6 million. Growth was primarily driven by increased sales of higher-priced contactless cards, including eco-focused cards, and Card@Once® instant issuance solutions.
  • Prepaid Debit segment net sales increased 9% to $86.1 million, driven by new customer additions and growth with existing customers.

Gross profit increased 24% to $175.8 million and gross profit margin was 36.9%, which compared to 37.7% in the prior year period. The year-over-year decrease in gross profit margin was primarily due to inflationary impacts on production costs, partially offset by increased operating leverage from higher net sales, including the benefits of price increases.

Year-over-year, income from operations increased 33% to $79.1 million; net income increased 129% to $36.5 million, or $3.11 diluted earnings per share; and Adjusted EBITDA increased 28% to $97.7 million.

Profitability benefited from higher net sales and the resulting operating leverage, partially offset by increased production costs and higher SG&A expenses, including increased compensation-related expenses and professional services fees. The increase in net income was also aided by a decrease in other expenses due to the impact of pre-tax debt refinancing costs of $7.6 million incurred in the 2021 first quarter.

Balance Sheet, Liquidity, and Cash Flow

As of December 31, 2022, cash and cash equivalents was $11.0 million. Cash provided from operating activities in 2022 was $31.3 million and capital expenditures were $17.9 million, yielding Free Cash Flow of $13.5 million. This compared to $20.2 million of cash generated from operating activities, $10.1 million of capital expenditures and $10.2 million of Free Cash Flow in 2021, which benefited from $9.8 million in cash tax refunds, primarily related to CARES Act filings. Free Cash Flow in 2022 reflected working capital usage of $28.6 million, driven by a $19.7 million increase in accounts receivables as a result of higher fourth quarter sales and an $10.7 million increase in inventories to support customer demand.

The Company generated $19.6 million of cash flow from operating activities and $16.2 million of Free Cash Flow in the fourth quarter of 2022, including a working capital benefit from a $4 million reduction in inventories compared to the third quarter level.

There were $285 million of 8.625% Senior Secured Notes due 2026 and $5 million of borrowings from the ABL revolving credit facility outstanding at year-end. The Company retired $25 million of notes principal during the year, utilizing cash balances and revolving credit facility proceeds. Subsequent to year-end, the Company repurchased an additional $5 million of its notes in the first quarter of 2023.

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 potentially return funds to stockholders.

“We delivered record results in 2022 and further strengthened our financial position,” said Amintore Schenkel, Chief Financial Officer of CPI. “The Company is well-positioned to execute its strategies in 2023 and beyond to drive continued growth and financial improvement.”

Conference Call and Webcast

CPI Card Group Inc. will hold a conference call on March 8, 2023 at 9:00 a.m. Eastern Time (ET) to review its fourth quarter and full year 2022 results. To participate in the Company's conference call via telephone or online:

U.S. dial-in number (toll-free): 833-927-1758

U.S.: 844-200-6205

U.S. local: 646-904-5544

Canada (toll-free): 833-950-0062

International: 929-526-1599

Conference ID: 093291

Webcast Link: CPI Q4 Webcast or at 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 March 22, 2023 at:

U.S. dial-in number (toll free): 866-813-9403

U.S. local: 929-458-6194

Canada: 226-828-7578

All other locations: 44-204-525-0658

Conference ID: 004602

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 2023

We have provided Adjusted EBITDA expectations for 2023 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 technologies company providing a comprehensive range of credit, debit, and prepaid card solutions, complementary digital solutions, and Software-as-a-Service (SaaS) instant issuance. With a focus on building personal relationships and earning trust, we help our customers navigate the constantly evolving world of payments, while delivering innovative solutions that spark connections and support their brands. We serve clients across industry, size, and scale through our team of experienced, dedicated employees and our network of high-security production and card services facilities—located in the United States. CPI is committed to exceeding our customers’ expectations, transforming our industry, and enhancing the way people pay every day. 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 2023 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: a deterioration in general economic conditions, including rising inflation and resulting in reduced consumer confidence and business spending, and a decline in consumer credit worthiness impacting demand for our products; a disruption or other failure in our supply chain, including as a result of the Russia-Ukraine conflict and with respect to single source suppliers, or the failure or inability of suppliers to comply with our code of conduct or contractual requirements, or political unrest in countries in which our suppliers operate, 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; our failure to retain our existing customers or identify and attract new customers; the unpredictability of our operating results, including an inability to anticipate changes in customer inventory management practices and its impact on our business; our status as 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; our inability to recruit, retain and develop qualified personnel, including key personnel; the potential effects of COVID-19 and responses thereto on our business, including our supply chain, customer demand, workforce, operations; system security risks, data protection breaches and cyber-attacks; interruptions in our operations, including our information technology (“IT”) systems, or in the operations of the third parties that operate computing infrastructure on which we rely; our inability to develop, introduce and commercialize new products; 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; disruptions in production at one or more of our facilities; defects in our software; 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; our limited ability to raise capital; problems in production quality, materials and process; 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 or unclaimed property, 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 restrictions, delays or interruptions in our ability to source raw materials and components used in our products from foreign countries; the effects on the global economy of the ongoing military action by Russia in Ukraine; costs and potential liabilities associated with compliance or 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; the impact of stockholder activism or securities litigation, on the trading price and volatility of our common stock; 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, 2022 filed with the Securities and Exchange Commission (“SEC”) on March 8, 2023, 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. Earnings Release Supplemental Financial Information

Exhibit A

Condensed Consolidated Statements of Operations and Comprehensive Income - Unaudited for the three months and full years ended December 31, 2022 and 2021

 

 

Exhibit B

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

 

 

Exhibit C

Condensed Consolidated Statements of Cash Flows - Unaudited for the full years ended December 31, 2022 and 2021

 

 

Exhibit D

Segment Summary Information – Unaudited for the three months and full years ended December 31, 2022 and 2021

 

 

Exhibit E

Supplemental GAAP to Non-GAAP Reconciliations - Unaudited for the three months and full years ended December 31, 2022 and 2021

 

 

Exhibit F

Supplemental GAAP to Non-GAAP Reconciliations - Unaudited for the full years ended December 31, 2022 and 2017

 

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

 

Year Ended

 

 

December 31,

 

December 31,

 

 

2022

 

2021

 

2022

 

2021

Net sales:

 

 

 

 

 

 

 

 

Products

$

72,323

 

$

53,141

 

$

281,190

 

$

199,586

 

Services

 

54,113

 

 

40,065

 

 

194,555

 

 

175,533

 

Total net sales

 

126,436

 

 

93,206

 

 

475,745

 

 

375,119

 

Cost of sales:

 

 

 

 

 

 

 

 

Products (exclusive of depreciation and amortization shown below)

 

42,166

 

 

34,893

 

 

171,017

 

 

121,601

 

Services (exclusive of depreciation and amortization shown below)

 

34,305

 

 

25,280

 

 

119,930

 

 

103,255

 

Depreciation and amortization

 

2,467

 

 

2,101

 

 

9,031

 

 

8,837

 

Total cost of sales

 

78,938

 

 

62,274

 

 

299,978

 

 

233,693

 

Gross profit

 

47,498

 

 

30,932

 

 

175,767

 

 

141,426

 

Operating expenses:

 

 

 

 

 

 

 

 

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

 

23,447

 

 

20,338

 

 

90,782

 

 

75,701

 

Depreciation and amortization

 

1,401

 

 

1,388

 

 

5,855

 

 

6,261

 

Total operating expenses

 

24,848

 

 

21,726

 

 

96,637

 

 

81,962

 

Income from operations

 

22,650

 

 

9,206

 

 

79,130

 

 

59,464

 

Other expense, net:

 

 

 

 

 

 

 

 

Interest, net

 

(7,282

)

 

(7,412

)

 

(29,616

)

 

(30,608

)

Other (expense) income, net

 

186

 

 

(9

)

 

107

 

 

14

 

Loss on debt extinguishment

 

(79

)

 

 

 

(474

)

 

(5,048

)

Total other expense, net

 

(7,175

)

 

(7,421

)

 

(29,983

)

 

(35,642

)

Income before income taxes

 

15,475

 

 

1,785

 

 

49,147

 

 

23,822

 

Income tax expense

 

(2,998

)

 

(1,112

)

 

(12,607

)

 

(7,881

)

Net income

$

12,477

 

$

673

 

$

36,540

 

$

15,941

 

 

 

 

 

 

 

 

 

 

Basic and diluted earnings per share:

 

 

 

 

 

 

 

 

Basic earnings per share

$

1.10

 

$

0.06

 

$

3.24

 

$

1.42

 

Diluted earnings per share

$

1.06

 

$

0.06

 

$

3.11

 

$

1.36

 

 

 

 

 

 

 

 

 

 

Basic weighted-average shares outstanding

 

11,385,843

 

 

11,254,034

 

 

11,291,202

 

 

11,239,049

 

Diluted weighted-average shares outstanding

 

11,805,520

 

 

11,779,079

 

 

11,749,105

 

 

11,763,963

 

 

 

 

 

 

 

 

 

 

Comprehensive income:

 

 

 

 

 

 

 

 

Net income

$

12,477

 

$

673

 

$

36,540

 

$

15,941

 

Total comprehensive income

$

12,477

 

$

673

 

$

36,540

 

$

15,941

 

 

EXHIBIT B

CPI Card Group Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands, except share and per share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

December 31,

 

 

2022

 

2021

Assets

 

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

$

11,037

 

$

20,683

 

Accounts receivable, net

 

80,583

 

 

60,953

 

Inventories

 

68,399

 

 

58,009

 

Prepaid expenses and other current assets

 

7,379

 

 

5,522

 

Income taxes receivable

 

172

 

 

534

 

Total current assets

 

167,570

 

 

145,701

 

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

 

57,178

 

 

47,251

 

Intangible assets, net

 

17,988

 

 

21,854

 

Goodwill

 

47,150

 

 

47,150

 

Other assets

 

6,780

 

 

6,184

 

Total assets

$

296,666

 

$

268,140

 

 

 

 

 

 

Liabilities and stockholders’ deficit

 

 

 

 

Current liabilities:

 

 

 

 

Accounts payable

$

24,371

 

$

26,443

 

Accrued expenses

 

40,070

 

 

37,150

 

Deferred revenue and customer deposits

 

3,571

 

 

1,182

 

Total current liabilities

 

68,012

 

 

64,775

 

Long-term debt

 

285,522

 

 

303,626

 

Deferred income taxes

 

6,808

 

 

5,253

 

Other long-term liabilities

 

18,401

 

 

15,506

 

Total liabilities

 

378,743

 

 

389,160

 

Commitments and contingencies

 

 

 

 

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

 

 

 

 

Stockholders’ deficit:

 

 

 

 

Common stock; $0.001 par value—100,000,000 shares authorized; 11,390,355 and 11,255,466 shares issued and outstanding at December 31, 2022 and 2021, respectively

 

11

 

 

11

 

Capital deficiency

 

(108,379

)

 

(110,782

)

Accumulated earnings (loss)

 

26,291

 

 

(10,249

)

Total stockholders’ deficit

 

(82,077

)

 

(121,020

)

Total liabilities and stockholders' deficit

$

296,666

 

$

268,140

 

 

EXHIBIT C

CPI Card Group Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

Year Ended

 

 

December 31,

 

 

2022

 

2021

Operating activities

 

 

 

 

Net income

$

36,540

 

$

15,941

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

Depreciation and amortization expense

 

14,886

 

 

15,098

 

Stock-based compensation expense

 

3,479

 

 

1,250

 

Amortization of debt issuance costs and debt discount

 

1,931

 

 

2,367

 

Loss on debt extinguishment

 

474

 

 

5,048

 

Deferred income taxes

 

1,555

 

 

(2,156

)

Other, net

 

1,094

 

 

213

 

Changes in operating assets and liabilities:

 

 

 

 

Accounts receivable

 

(19,745

)

 

(6,361

)

Inventories

 

(10,702

)

 

(33,388

)

Prepaid expenses and other assets

 

(2,700

)

 

(4,062

)

Income taxes, net

 

362

 

 

9,977

 

Accounts payable

 

(453

)

 

6,582

 

Accrued expenses and other liabilities

 

2,226

 

 

10,410

 

Deferred revenue and customer deposits

 

2,389

 

 

(690

)

Cash provided by operating activities

 

31,336

 

 

20,229

 

Investing activities

 

 

 

 

Capital expenditures for plant, equipment and leasehold improvements

 

(17,867

)

 

(10,074

)

Other

 

95

 

 

156

 

Cash used in investing activities

 

(17,772

)

 

(9,918

)

Financing activities

 

 

 

 

Principal payments on First Lien Term Loan

 

 

 

(312,500

)

Principal payments on Senior Credit Facility

 

 

 

(30,000

)

Principal payments on Senior Notes

 

(24,938

)

 

 

Principal payments on ABL Revolver

 

(30,000

)

 

(15,000

)

Proceeds from Senior Notes

 

 

 

310,000

 

Proceeds from ABL Revolver, net of discount

 

35,000

 

 

14,750

 

Debt issuance costs

 

(262

)

 

(9,452

)

Payments on debt extinguishment and other

 

(1,677

)

 

(2,859

)

Proceeds from finance lease financing

 

2,074

 

 

 

Payments on finance lease obligations

 

(3,360

)

 

(2,171

)

Cash used in financing activities

 

(23,163

)

 

(47,232

)

Effect of exchange rates on cash

 

(47

)

 

1

 

Net decrease in cash and cash equivalents

 

(9,646

)

 

(36,920

)

Cash and cash equivalents, beginning of period

 

20,683

 

 

57,603

 

Cash and cash equivalents, end of period

$

11,037

 

$

20,683

 

Supplemental disclosures of cash flow information

 

 

 

 

Cash paid (refunded) during the period for:

 

 

 

 

Interest

$

27,714

 

$

22,268

 

Income taxes paid

$

12,584

 

$

9,792

 

Income taxes (refunded)

$

(451

)

$

(9,846

)

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

 

 

 

 

Operating leases

$

816

 

$

6,932

 

Financing leases

$

9,124

 

$

1,897

 

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

$

462

 

$

2,972

 

 

EXHIBIT D

CPI Card Group Inc. and Subsidiaries

Segment Summary Information

For the Three Months and Year Ended December 31, 2022 and 2021

(dollars in thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

Net Sales

 

 

 

 

 

 

 

 

 

Three Months Ended December 31,

 

2022

 

2021

 

$ Change

 

% Change

Net sales by segment:

 

 

 

 

 

 

 

 

Debit and Credit

$

104,851

 

$

77,406

 

$

27,445

 

35.5

%

Prepaid Debit

 

22,126

 

 

15,874

 

 

6,252

 

39.4

%

Eliminations

 

(541

)

 

(74

)

 

(467

)

*

%

Total

$

126,436

 

$

93,206

 

$

33,230

 

35.7

%

*Calculation not meaningful

 

 

Year Ended December 31,

 

 

2022

 

2021

 

$ Change

 

% Change

Net sales by segment:

 

 

 

 

 

 

 

 

 

 

 

 

Debit and Credit

 

$

390,559

 

 

$

296,204

 

 

$

94,355

 

 

31.9

%

Prepaid Debit

 

 

86,136

 

 

 

79,213

 

 

 

6,923

 

 

8.7

%

Eliminations

 

 

(950

)

 

 

(298

)

 

 

(652

)

 

*

%

Total

 

$

475,745

 

 

$

375,119

 

 

$

100,626

 

 

26.8

%

 

Gross Profit

 

Three Months Ended December 31,

 

2022

 

% of Net

Sales

 

2021

 

% of Net

Sales

 

$ Change

 

% Change

Gross profit by segment:

 

 

 

 

 

 

 

 

 

 

 

 

Debit and Credit

$

39,825

 

38.0

%

$

26,018

 

33.6

%

$

13,807

53.1

%

Prepaid Debit

 

7,673

 

34.7

%

 

4,914

 

31.0

%

 

2,759

 

56.1

%

Total

$

47,498

 

37.6

%

$

30,932

 

33.2

%

$

16,566

 

53.6

%

 

Year Ended December 31,

 

2022

 

% of Net

Sales

 

2021

 

% of Net

Sales

 

$ Change

 

% Change

Gross profit by segment:

 

 

 

 

 

 

 

 

 

 

 

 

Debit and Credit

$

144,214

 

36.9

%

$

110,006

 

37.1

%

$

34,208

31.1

%

Prepaid Debit

 

31,553

 

36.6

%

 

31,420

 

39.7

%

 

133

 

0.4

%

Total

$

175,767

 

36.9

%

$

141,426

 

37.7

%

$

34,341

 

24.3

%

 

Income from Operations

 

Three Months Ended December 31,

 

2022

 

% of Net

Sales

 

2021

 

% of Net

Sales

 

$ Change

 

% Change

Income (loss) from operations by segment:

 

 

 

 

 

 

 

 

 

 

 

 

Debit and Credit

$

31,198

 

29.8

%

$

18,558

 

24.0

%

$

12,640

 

68.1

%

Prepaid Debit

 

5,184

 

23.4

%

 

3,850

 

24.3

%

 

1,334

 

34.6

%

Other

 

(13,732

)

*

%

 

(13,202

)

*

%

 

(530

)

(4.0

)%

Total

$

22,650

 

17.9

%

$

9,206

 

9.9

%

$

13,444

 

146.0

%

 

Year Ended December 31,

 

2022

 

% of Net

Sales

 

2021

 

% of Net

Sales

 

$ Change

 

% Change

Income (loss) from operations by segment:

 

 

 

 

 

 

 

 

 

 

 

 

Debit and Credit

$

110,045

 

28.2

%

$

79,469

 

26.8

%

$

30,576

 

38.5

%

Prepaid Debit

 

25,577

 

29.7

%

 

26,910

 

34.0

%

 

(1,333

)

(5.0

)%

Other

 

(56,492

)

*

%

 

(46,915

)

*

%

 

(9,577

)

(20.4

)%

Total

$

79,130

 

16.6

%

$

59,464

 

15.9

%

$

19,666

 

33.1

%

 

EBITDA

 

Three Months Ended December 31,

 

2022

 

% of Net

Sales

 

2021

 

% of Net

Sales

 

$ Change

 

% Change

EBITDA by segment:

 

 

 

 

 

 

 

 

 

 

 

 

Debit and Credit

$

33,436

 

31.9

%

$

20,421

 

26.4

%

$

13,015

 

63.7

%

Prepaid Debit

 

5,743

 

26.0

%

 

4,437

 

28.0

%

 

1,306

 

29.4

%

Other

 

(12,554

)

*

%

 

(12,172

)

*

%

 

(382

)

(3.1

)%

Total

$

26,625

 

21.1

%

$

12,686

 

13.6

%

$

13,939

 

109.9

%

 

Year Ended December 31,

 

2022

 

% of Net

Sales

 

2021

 

% of Net

Sales

 

$ Change

 

% Change

EBITDA by segment:

 

 

 

 

 

 

 

 

 

 

 

 

Debit and Credit

$

118,478

 

30.3

%

$

87,499

 

29.5

%

$

30,979

 

35.4

%

Prepaid Debit

 

27,844

 

32.3

%

 

29,156

 

36.8

%

 

(1,312

)

(4.5

)%

Other

 

(52,673

)

*

%

 

(47,127

)

*

%

 

(5,546

)

(11.8

)%

Total

$

93,649

 

19.7

%

$

69,528

 

18.5

%

$

24,121

 

34.7

%

 

Reconciliation of Income (Loss) from

Operations by Segment to EBITDA by Segment

 

Three Months Ended December 31, 2022

 

Debit and

Credit

 

Prepaid

Debit

 

Other

 

Total

EBITDA by segment:

 

 

 

 

 

 

 

 

Income (loss) from operations

$

31,198

 

$

5,184

 

$

(13,732

)

$

22,650

 

Depreciation and amortization

 

2,238

 

 

599

 

 

1,031

 

 

3,868

 

Other income (expenses)

 

 

 

(40

)

 

147

 

 

107

 

EBITDA

$

33,436

 

$

5,743

 

$

(12,554

)

$

26,625

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended December 31, 2021

 

Debit and

Credit

 

Prepaid

Debit

 

Other

 

Total

EBITDA by segment:

 

 

 

 

 

 

 

 

Income (loss) from operations

$

18,558

 

$

3,850

 

$

(13,202

)

$

9,206

 

Depreciation and amortization

 

1,871

 

 

587

 

 

1,031

 

 

3,489

 

Other income (expenses)

 

(8

)

 

 

 

(1

)

 

(9

)

EBITDA

$

20,421

 

$

4,437

 

$

(12,172

)

$

12,686

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31, 2022

 

Debit and

Credit

 

Prepaid

Debit

 

Other

 

Total

EBITDA by segment:

 

 

 

 

 

 

 

 

Income (loss) from operations

$

110,045

 

$

25,577

 

$

(56,492

)

$

79,130

 

Depreciation and amortization

 

8,440

 

 

2,310

 

 

4,136

 

 

14,886

 

Other income (expenses)

 

(7

)

 

(43

)

 

(317

)

 

(367

)

EBITDA

$

118,478

 

$

27,844

 

$

(52,673

)

$

93,649

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31, 2021

 

Debit and

Credit

 

Prepaid

Debit

 

Other

 

Total

EBITDA by segment:

 

 

 

 

 

 

 

 

Income (loss) from operations

$

79,469

 

$

26,910

 

$

(46,915

)

$

59,464

 

Depreciation and amortization

 

8,026

 

 

2,234

 

 

4,838

 

 

15,098

 

Other income (expenses)

 

4

 

 

12

 

 

(5,050

)

 

(5,034

)

EBITDA

$

87,499

 

$

29,156

 

$

(47,127

)

$

69,528

 

 

EXHIBIT E

CPI Card Group Inc. and Subsidiaries

Supplemental GAAP to Non-GAAP Reconciliation

(dollars in thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Year Ended

 

 

December 31,

 

December 31,

 

 

2022

 

2021

 

2022

 

2021

EBITDA and Adjusted EBITDA:

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

12,477

 

 

$

673

 

 

$

36,540

 

 

$

15,941

 

Interest, net

 

 

7,282

 

 

 

7,412

 

 

 

29,616

 

 

 

30,608

 

Income tax expense

 

 

2,998

 

 

 

1,112

 

 

 

12,607

 

 

 

7,881

 

Depreciation and amortization

 

 

3,868

 

 

 

3,489

 

 

 

14,886

 

 

 

15,098

 

EBITDA

 

$

26,625

 

 

$

12,686

 

 

$

93,649

 

 

$

69,528

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjustments to EBITDA:

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

551

 

 

 

1,036

 

 

 

3,479

 

 

 

1,250

 

Sales tax expense (benefit) (1)

 

 

(56

)

 

 

(149

)

 

 

18

 

 

 

(614

)

Severance and other charges (2)

 

 

 

 

 

 

 

 

 

 

 

1,250

 

Loss on debt extinguishment (3)

 

 

79

 

 

 

 

 

 

474

 

 

 

5,048

 

Foreign currency loss (gain)

 

 

4

 

 

 

9

 

 

 

83

 

 

 

(15

)

Subtotal of adjustments to EBITDA

 

 

578

 

 

 

896

 

 

 

4,054

 

 

 

6,919

 

Adjusted EBITDA

 

$

27,203

 

 

$

13,582

 

 

$

97,703

 

 

$

76,447

 

Net income margin (% of Net sales)

 

 

9.9

%

 

 

0.7

%

 

 

7.7

%

 

 

4.2

%

Net income growth (% Change 2022 vs. 2021)

 

 

1753.9

%

 

 

 

 

 

129.2

%

 

 

 

Adjusted EBITDA margin (% of Net sales)

 

 

21.5

%

 

 

14.6

%

 

 

20.5

%

 

 

20.4

%

Adjusted EBITDA growth (% Change 2022 vs. 2021)

 

 

100.3

%

 

 

 

 

 

27.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Year Ended

 

 

December 31,

 

December 31,

 

 

2022

 

2021

 

2022

 

2021

Free Cash Flow:

 

 

 

 

 

 

 

 

 

 

 

 

Cash provided by operating activities

 

$

19,623

 

 

$

5,714

 

 

$

31,336

 

 

$

20,229

 

Capital expenditures for plant, equipment and leasehold improvements

 

 

(3,427

)

 

 

(5,247

)

 

 

(17,867

)

 

 

(10,074

)

Free cash flow

 

$

16,196

 

 

$

467

 

 

$

13,469

 

 

$

10,155

 

____________________

(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 8.625% Senior Secured Notes in the first and fourth quarters 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.

 

 

As of

 

December 31,

 

2022

 

2021

Calculation of Net Leverage Ratio:

 

 

 

 

 

Senior Notes

$

285,000

 

 

$

310,000

 

ABL revolver

 

5,000

 

 

 

 

Finance lease obligations

 

10,697

 

 

 

4,925

 

Total debt

 

300,697

 

 

 

314,925

 

Less: Cash and cash equivalents

 

(11,037

)

 

 

(20,683

)

Total net debt (a)

$

289,660

 

 

$

294,242

 

LTM Adjusted EBITDA (b)

$

97,703

 

 

$

76,447

 

Net Leverage Ratio (a)/(b)

 

3.0

 

 

 

3.8

 

 
EXHIBIT F

CPI Card Group Inc. and Subsidiaries

Supplemental GAAP to Non-GAAP Reconciliation

(dollars in thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

Year Ended

 

 

December 31,

 

 

2022

 

2017

EBITDA and Adjusted EBITDA:

 

 

 

 

 

Net income (loss) from continuing operations

$

36,540

 

 

$

(23,085

)

Interest, net

 

29,616

 

 

 

20,850

 

Income tax expense (benefit)

 

12,607

 

 

 

(16,536

)

Depreciation and amortization

 

14,886

 

 

 

16,922

 

EBITDA

$

93,649

 

 

$

(1,849

)

 

 

 

 

 

 

Adjustments to EBITDA:

 

 

 

 

 

Stock-based compensation expense

 

3,479

 

 

 

1,989

 

Sales tax expense (1)

 

18

 

 

 

 

Loss on debt extinguishment (2)

 

474

 

 

 

 

Impairments (3)

 

 

 

 

19,074

 

Litigation and related charges (4)

 

 

 

 

4,514

 

Foreign currency loss (gain)

 

83

 

 

 

(517

)

Subtotal of adjustments to EBITDA

 

4,054

 

 

 

25,060

 

Adjusted EBITDA

$

97,703

 

 

$

23,211

 

Net income (loss) from continuing operations CAGR

 

NM(5)

 

 

 

Adjusted EBITDA CAGR

 

33.3

%

 

 

 

____________________

(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 Company redeemed a portion of the 8.625% Senior Secured Notes in the first and fourth quarters of 2022 and expensed the associated portion of the unamortized deferred financing costs.

(3)

Impairment charges of goodwill and intangibles in 2017 of $19.1 million includes $17.2 million related to Debit and Credit and $1.9 million related to Other.

(4)

Represents net legal costs incurred with certain patent and shareholder litigation.

(5)

Calculation not meaningful as the 2017 full year continuing operations were at a net loss.

 

 

As of

 

December 31,

 

2022

 

2017

Calculation of Net Leverage Ratio:

 

 

 

 

 

Senior Notes

$

285,000

 

 

$

 

ABL revolver

 

5,000

 

 

 

 

First Lien Term Loan

 

 

 

 

312,500

 

Unreimbursed obligations under letters of credit

 

 

 

 

50

 

Finance lease obligations

 

10,697

 

 

 

166

 

Total debt

 

300,697

 

 

 

312,716

 

Less: Cash and cash equivalents

 

(11,037

)

 

 

(23,206

)

Total net debt (a)

$

289,660

 

 

$

289,510

 

LTM Adjusted EBITDA (b)

$

97,703

 

 

$

23,211

 

Net Leverage Ratio (a)/(b)

 

3.0

 

 

 

12.5

 

 

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