Yahoo Finance CPI Card Group Inc. Reports Third Quarter 2023 Results
Third Quarter Net Sales Decreased 15% to $106 Million; Net Income Decreased 68% to $4 Million; Adjusted EBITDA Decreased 25% to $21 Million
First Nine Months Net Sales Decreased 2%; Net Income Decreased 12%; Adjusted EBITDA Decreased 1%
Company Updates 2023 Outlook; Announces $20 Million Share Repurchase Authorization
LITTLETON, Colo., November 07, 2023--(BUSINESS WIRE)--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 third quarter ended September 30, 2023 and updated its financial outlook for 2023.
As anticipated, third quarter sales and earnings declined compared to prior year levels, with net sales decreasing 15% to $105.9 million, net income decreasing 68% to $3.9 million and Adjusted EBITDA decreasing 25% to $21.2 million. Sales declines reflect cautious spending and inventory rationalization by certain customers and were also impacted by comparisons with the 2022 third quarter, when the Company posted net sales growth of 25%.
"We believe the card production market has been affected by cautious customer spending due to a variety of factors, including a focus on managing inventory levels following robust purchases in a challenging supply-chain environment last year," said Scott Scheirman, President and Chief Executive Officer. "Although the production side of the market has been relatively softer, card issuance to end users has continued to grow and we believe the long-term growth trends for the industry remain intact."
The Company expects fourth quarter sales and Adjusted EBITDA to be similar to the third quarter levels as customer demand remains lower than anticipated and new sales initiatives are not expected to significantly impact the current year. As a result, the Company’s updated full year outlook for 2023 projects mid-single digit declines for both net sales and Adjusted EBITDA, with Free Cash Flow projected to be approximately double the 2022 level.
The Company believes long-term growth trends for the U.S. card market remain strong, led by consumer card growth, widespread adoption of eco-focused cards and the ongoing conversion to contactless cards. Based on figures released by the networks, Visa and Mastercard® U.S. debit and credit cards in circulation increased at a compound annual growth rate of 10% for the three-year period ending June 30, 2023.
The Company also announced that its Board of Directors approved a $20 million share repurchase authorization, expiring December 31, 2024.
Scheirman added, "We believe repurchasing our shares is a great investment for our shareholders, as the Company is well-positioned for the future with innovative, high-quality products and services and strong customer focus."
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.
2023 Business Highlights
A leading provider of eco-focused payment card solutions in the U.S. market, with more than 100 million eco-focused cards sold since launch in late 2019.
A leading provider of Software-as-a-Service-based instant issuance solutions in the U.S., with more than 15,000 Card@Once® installations across more than 2,000 financial institutions.
Financial position improvement, with the outstanding balance on the Company’s 8.625% Senior Secured Notes reduced by $17 million in the first nine months of the year through open market repurchases and a Net Leverage Ratio of 2.9x at September 30, 2023.
Third Quarter 2023 Financial Highlights
Net sales decreased 15% year-over-year to $105.9 million in the third quarter of 2023.
Debit and Credit segment net sales decreased 16% to $83.8 million, primarily due to volume declines in eco-focused and other contactless cards and contact cards. Services sales increased due to growth in Card@Once® instant issuance solutions processing fees.
Prepaid Debit segment net sales decreased 12% to $22.3 million, primarily due to timing of sales between quarters.
Third quarter gross profit decreased 25% to $36.2 million and gross profit margin was 34.1%, which compared to 38.9% in the prior year third quarter.
Third quarter income from operations decreased 45% to $13 million; net income decreased 68% to $3.9 million, or $0.33 diluted earnings per share; and Adjusted EBITDA decreased 25% to $21.2 million. Income from operations, net income and Adjusted EBITDA declines were driven by the sales decrease, partially offset by lower operating expenses. The net income decrease was also impacted by a higher effective tax rate compared to prior year, partially offset by lower interest expense. Income from operations and net income were negatively impacted by approximately $3 million of pre-tax operating expenses related to executive retention, which are not included in Adjusted EBITDA.
Year-to-date 2023 Financial Highlights
Net sales decreased 2% year-over-year to $341.7 million in the first nine months of 2023.
Debit and Credit segment net sales decreased 2% to $279 million, primarily due to volume declines in eco-focused contactless cards compared to strong orders in 2022 and lower contact card sales, partially offset by increases in sales of other contactless cards and services related to card personalization and Card@Once® instant issuance solutions.
Prepaid Debit segment net sales decreased 1% to $63.3 million.
Year-to-date gross profit decreased 6% to $120.1 million and gross profit margin was 35.1%, which compared to 36.7% in the prior year.
Year-to-date income from operations decreased 10% to $51.1 million; net income decreased 12% to $21.3 million, or $1.79 diluted earnings per share; and Adjusted EBITDA decreased 1% to $69.6 million. Income from operations, net income and Adjusted EBITDA declines were driven by lower net sales, partially offset by lower operating expenses, while the net income decline also reflects a higher effective tax rate, partially offset by lower interest expense. Income from operations and net income were negatively impacted by approximately $4 million of pre-tax operating expenses related to executive retention, which are not included in Adjusted EBITDA.
Balance Sheet, Liquidity and Cash Flow
The Company generated cash flow from operating activities of $22.3 million in the first nine months of the year, which compared to $11.7 million in the prior year period, and Free Cash Flow of $16.2 million, which compared to a usage of $2.7 million in the first nine months of 2022. The increase in cash generation compared to the prior year was driven by working capital improvement.
As of September 30, 2023, cash and cash equivalents was $10.5 million. There were $268 million of 8.625% Senior Secured Notes due 2026 and $8 million of borrowings from the ABL revolving credit facility outstanding at quarter-end. The Company retired $17 million of notes during the first nine months of 2023, utilizing cash balances and revolving credit facility proceeds.
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 are managing operating expenses tightly as we deal with the softer customer demand in 2023," said Jeff Hochstadt, Chief Financial Officer of CPI. "We are also keenly focused on optimizing working capital to generate strong free cash flow improvement in 2023."
Outlook
The Company projects the following full-year outlook for 2023:
Net sales to decline mid-single digits (previous outlook: flat to low single-digit growth)
Adjusted EBITDA to decline mid-single digits (previous outlook: mid-to-high single-digit growth)
Free Cash Flow to be approximately double the 2022 level (previous outlook: more than double the 2022 level)
Net Leverage Ratio of approximately 3x (previous outlook: 2.5x to 3x)
Conference Call and Webcast
CPI Card Group Inc. will hold a conference call on November 7, 2023 at 9:00 a.m. Eastern Time (ET) to review its third quarter results. To participate in the Company's conference call via telephone or online:
U.S. dial-in number (toll-free): 888-330-3573
International: 646-960-0677
Conference ID: 8062733
Webcast Link: CPI Q3 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 November 21, 2023 at:
U.S. dial-in number (toll free): 800-770-2030
International: 647-362-9199
Conference ID: 8062733
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, including severance and executive retention; loss on debt extinguishment; 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 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 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. 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 technology 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, 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 inflationary conditions and resulting in reduced consumer confidence and business spending, and a decline in consumer credit worthiness impacting demand for our products; the unpredictability of our operating results, including an inability to anticipate changes in customer inventory management practices and its impact on our business; adverse conditions in the banking system and financial markets, including the failure of banks and financial institutions; a disruption or other failure in our supply chain, including as a result of the Russia-Ukraine or other foreign conflicts 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; 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 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 and other foreign conflicts; 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 SEC on March 8, 2023, in Part II, Item 1A – Risk Factors of this Quarterly Report on Form 10-Q 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 and nine months ended September 30, 2023 and 2022 | |
Exhibit B | Condensed Consolidated Balance Sheets – Unaudited as of September 30, 2023 and December 31, 2022 | |
Exhibit C | Condensed Consolidated Statements of Cash Flows - Unaudited for the nine months ended September 30, 2023 and 2022 | |
Exhibit D | Segment Summary Information – Unaudited for the three and nine months ended September 30, 2023 and 2022 | |
Exhibit E | Supplemental GAAP to Non-GAAP Reconciliations - Unaudited for the three and nine months ended September 30, 2023 and 2022 | |
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 September 30, | Nine Months Ended September 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Net sales: | ||||||||||||||||
Products | $ | 55,689 | $ | 71,606 | $ | 195,425 | $ | 208,867 | ||||||||
Services | 50,174 | 52,971 | 146,250 | 140,442 | ||||||||||||
Total net sales | 105,863 | 124,577 | 341,675 | 349,309 | ||||||||||||
Cost of sales: | ||||||||||||||||
Products (exclusive of depreciation and amortization shown below) | 37,540 | 42,702 | 124,828 | 128,851 | ||||||||||||
Services (exclusive of depreciation and amortization shown below) | 29,574 | 31,190 | 89,192 | 85,625 | ||||||||||||
Depreciation and amortization | 2,597 | 2,245 | 7,584 | 6,564 | ||||||||||||
Total cost of sales | 69,711 | 76,137 | 221,604 | 221,040 | ||||||||||||
Gross profit | 36,152 | 48,440 | 120,071 | 128,269 | ||||||||||||
Operating expenses: | ||||||||||||||||
Selling, general and administrative (exclusive of depreciation and amortization shown below) | 21,783 | 23,403 | 64,734 | 67,335 | ||||||||||||
Depreciation and amortization | 1,408 | 1,592 | 4,286 | 4,454 | ||||||||||||
Total operating expenses | 23,191 | 24,995 | 69,020 | 71,789 | ||||||||||||
Income from operations | 12,961 | 23,445 | 51,051 | 56,480 | ||||||||||||
Other expense, net: | ||||||||||||||||
Interest, net | (6,714 | ) | (7,323 | ) | (20,235 | ) | (22,334 | ) | ||||||||
Other expense, net | (53 | ) | (63 | ) | (245 | ) | (474 | ) | ||||||||
Total other expense, net | (6,767 | ) | (7,386 | ) | (20,480 | ) | (22,808 | ) | ||||||||
Income before income taxes | 6,194 | 16,059 | 30,571 | 33,672 | ||||||||||||
Income tax expense | (2,337 | ) | (4,149 | ) | (9,318 | ) | (9,609 | ) | ||||||||
Net income | $ | 3,857 | $ | 11,910 | $ | 21,253 | $ | 24,063 | ||||||||
Basic and diluted earnings per share: | ||||||||||||||||
Basic earnings per share | $ | 0.34 | $ | 1.06 | $ | 1.86 | $ | 2.14 | ||||||||
Diluted earnings per share | $ | 0.33 | $ | 1.01 | $ | 1.79 | $ | 2.05 | ||||||||
Basic weighted-average shares outstanding | 11,432,794 | 11,265,767 | 11,418,372 | 11,259,655 | ||||||||||||
Diluted weighted-average shares outstanding | 11,827,816 | 11,788,921 | 11,861,868 | 11,730,668 | ||||||||||||
Comprehensive income: | ||||||||||||||||
Net income | $ | 3,857 | $ | 11,910 | $ | 21,253 | $ | 24,063 | ||||||||
Total comprehensive income | $ | 3,857 | $ | 11,910 | $ | 21,253 | $ | 24,063 | ||||||||
EXHIBIT B | ||||||||
CPI Card Group Inc. and Subsidiaries | ||||||||
Condensed Consolidated Balance Sheets | ||||||||
(in thousands, except share and per share amounts) | ||||||||
(Unaudited) | ||||||||
September 30, | December 31, | |||||||
2023 | 2022 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 10,473 | $ | 11,037 | ||||
Accounts receivable, net | 67,546 | 80,583 | ||||||
Inventories, net | 74,080 | 68,399 | ||||||
Prepaid expenses and other current assets | 8,747 | 7,551 | ||||||
Total current assets | 160,846 | 167,570 | ||||||
Plant, equipment, leasehold improvements and operating lease right-of-use assets, net | 62,643 | 57,178 | ||||||
Intangible assets, net | 15,088 | 17,988 | ||||||
Goodwill | 47,150 | 47,150 | ||||||
Other assets | 6,388 | 6,780 | ||||||
Total assets | $ | 292,115 | $ | 296,666 | ||||
Liabilities and stockholders’ deficit | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 16,876 | $ | 24,371 | ||||
Accrued expenses | 27,967 | 40,070 | ||||||
Deferred revenue and customer deposits | 787 | 3,571 | ||||||
Total current liabilities | 45,630 | 68,012 | ||||||
Long-term debt | 272,669 | 285,522 | ||||||
Deferred income taxes | 7,920 | 6,808 | ||||||
Other long-term liabilities | 22,616 | 18,401 | ||||||
Total liabilities | 348,835 | 378,743 | ||||||
Commitments and contingencies | ||||||||
Series A Preferred Stock; $0.001 par value—100,000 shares authorized; 0 shares issued and outstanding at September 30, 2023 and December 31, 2022 | — | — | ||||||
Stockholders’ deficit: | ||||||||
Common stock; $0.001 par value—100,000,000 shares authorized; 11,453,549 and 11,390,355 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively | 11 | 11 | ||||||
Capital deficiency | (104,275 | ) | (108,379 | ) | ||||
Accumulated earnings | 47,544 | 26,291 | ||||||
Total stockholders’ deficit | (56,720 | ) | (82,077 | ) | ||||
Total liabilities and stockholders’ deficit | $ | 292,115 | $ | 296,666 | ||||
EXHIBIT C | ||||||||
CPI Card Group Inc. and Subsidiaries | ||||||||
Condensed Consolidated Statements of Cash Flows | ||||||||
(in thousands) | ||||||||
(Unaudited) | ||||||||
Nine Months Ended September 30, | ||||||||
2023 | 2022 | |||||||
Operating activities | ||||||||
Net income | $ | 21,253 | $ | 24,063 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation expense | 8,970 | 8,118 | ||||||
Amortization expense | 2,900 | 2,900 | ||||||
Stock-based compensation expense | 4,431 | 2,928 | ||||||
Amortization of debt issuance costs and debt discount | 1,397 | 1,449 | ||||||
Loss on debt extinguishment | 243 | 395 | ||||||
Deferred income taxes | 1,112 | 1,192 | ||||||
Other, net | (156 | ) | 437 | |||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | 12,988 | (14,862 | ) | |||||
Inventories | (5,806 | ) | (13,916 | ) | ||||
Prepaid expenses and other assets | 422 | 1,501 | ||||||
Income taxes, net | (1,616 | ) | (1,577 | ) | ||||
Accounts payable | (7,805 | ) | (440 | ) | ||||
Accrued expenses and other liabilities | (13,283 | ) | (3,208 | ) | ||||
Deferred revenue and customer deposits | (2,784 | ) | 2,733 | |||||
Cash provided by operating activities | 22,266 | 11,713 | ||||||
Investing activities | ||||||||
Capital expenditures for plant, equipment and leasehold improvements, net | (6,076 | ) | (14,440 | ) | ||||
Other | 183 | 95 | ||||||
Cash used in investing activities | (5,893 | ) | (14,345 | ) | ||||
Financing activities | ||||||||
Principal payments on Senior Notes | (16,954 | ) | (20,000 | ) | ||||
Principal payments on ABL Revolver | (10,000 | ) | (10,000 | ) | ||||
Proceeds from ABL Revolver | 13,000 | 35,000 | ||||||
Payments on debt extinguishment and other | (327 | ) | (1,093 | ) | ||||
Proceeds from finance lease financing | — | 2,074 | ||||||
Payments on finance lease obligations | (2,655 | ) | (2,457 | ) | ||||
Cash (used in) provided by financing activities | (16,936 | ) | 3,524 | |||||
Effect of exchange rates on cash | (1 | ) | (68 | ) | ||||
Net (decrease) increase in cash and cash equivalents | (564 | ) | 824 | |||||
Cash and cash equivalents, beginning of period | 11,037 | 20,683 | ||||||
Cash and cash equivalents, end of period | $ | 10,473 | $ | 21,507 | ||||
Supplemental disclosures of cash flow information | ||||||||
Cash paid (refunded) during the period for: | ||||||||
Interest | $ | 25,307 | $ | 27,026 | ||||
Income taxes paid | $ | 9,994 | $ | 10,859 | ||||
Income taxes refunded | $ | (25 | ) | $ | (449 | ) | ||
Right-of-use assets obtained in exchange for lease obligations: | ||||||||
Operating leases | $ | 2,641 | $ | 816 | ||||
Financing leases | $ | 6,989 | $ | 7,783 | ||||
Accounts payable and accrued expenses for capital expenditures for plant, equipment and leasehold improvements | $ | 977 | $ | 1,781 | ||||
EXHIBIT D | ||||||||||||||||
CPI Card Group Inc. and Subsidiaries | ||||||||||||||||
Segment Summary Information | ||||||||||||||||
For the Three Months Ended September 30, 2023 and 2022 | ||||||||||||||||
(dollars in thousands) | ||||||||||||||||
(Unaudited) | ||||||||||||||||
Net Sales | ||||||||||||||||
Three Months Ended September 30, | ||||||||||||||||
2023 | 2022 | $ Change | % Change | |||||||||||||
Net sales by segment: | ||||||||||||||||
Debit and Credit | $ | 83,780 | $ | 99,512 | $ | (15,732 | ) | (15.8 | )% | |||||||
Prepaid Debit | 22,335 | 25,335 | (3,000 | ) | (11.8 | )% | ||||||||||
Eliminations | (252 | ) | (270 | ) | 18 | * | % | |||||||||
Total | $ | 105,863 | $ | 124,577 | $ | (18,714 | ) | (15.0 | )% | |||||||
* Calculation not meaningful | ||||||||||||||||
Nine Months Ended September 30, | ||||||||||||||||
2023 | 2022 | $ Change | % Change | |||||||||||||
Net sales by segment: | ||||||||||||||||
Debit and Credit | $ | 278,959 | $ | 285,708 | $ | (6,749 | ) | (2.4 | )% | |||||||
Prepaid Debit | 63,286 | 64,010 | (724 | ) | (1.1 | )% | ||||||||||
Eliminations | (570 | ) | (409 | ) | (161 | ) | * | % | ||||||||
Total | $ | 341,675 | $ | 349,309 | $ | (7,634 | ) | (2.2 | )% | |||||||
Gross Profit | |||||||||||||||||||||
Three Months Ended September 30, | |||||||||||||||||||||
2023 | % of Net | 2022 | % of Net | $ Change | % Change | ||||||||||||||||
Gross profit by segment: | |||||||||||||||||||||
Debit and Credit | $ | 28,381 | 33.9 | % | $ | 38,071 | 38.3 | % | $ | (9,690 | ) | (25.5 | )% | ||||||||
Prepaid Debit | 7,771 | 34.8 | % | 10,369 | 40.9 | % | (2,598 | ) | (25.1 | )% | |||||||||||
Total | $ | 36,152 | 34.1 | % | $ | 48,440 | 38.9 | % | $ | (12,288 | ) | (25.4 | )% | ||||||||
Nine Months Ended September 30, | |||||||||||||||||||||
2023 | % of Net | 2022 | % of Net | $ Change | % Change | ||||||||||||||||
Gross profit by segment: | |||||||||||||||||||||
Debit and Credit | $ | 99,603 | 35.7 | % | $ | 104,389 | 36.5 | % | $ | (4,786 | ) | (4.6 | )% | ||||||||
Prepaid Debit | 20,468 | 32.3 | % | 23,880 | 37.3 | % | (3,412 | ) | (14.3 | )% | |||||||||||
Total | $ | 120,071 | 35.1 | % | $ | 128,269 | 36.7 | % | $ | (8,198 | ) | (6.4 | )% | ||||||||
Income from Operations | |||||||||||||||||||||||
Three Months Ended September 30, | |||||||||||||||||||||||
2023 | % of Net | 2022 | % of Net | $ Change | % Change | ||||||||||||||||||
Income (loss) from operations by segment: | |||||||||||||||||||||||
Debit and Credit | $ | 20,791 | 24.8 | % | $ | 29,418 | 29.6 | % | $ | (8,627 | ) | (29.3 | )% | ||||||||||
Prepaid Debit | 6,631 | 29.7 | % | 9,109 | 36.0 | % | (2,478 | ) | (27.2 | )% | |||||||||||||
Other | (14,461 | ) | * | % | (15,082 | ) | * | % | 621 | (4.1 | )% | ||||||||||||
Total | $ | 12,961 | 12.2 | % | $ | 23,445 | 18.8 | % | $ | (10,484 | ) | (44.7 | )% | ||||||||||
Nine Months Ended September 30, | |||||||||||||||||||||||
2023 | % of Net | 2022 | % of Net | $ Change | % Change | ||||||||||||||||||
Income (loss) from operations by segment: | |||||||||||||||||||||||
Debit and Credit | $ | 75,898 | 27.2 | % | $ | 78,847 | 27.6 | % | $ | (2,949 | ) | (3.7 | )% | ||||||||||
Prepaid Debit | 17,936 | 28.3 | % | 20,393 | 31.9 | % | (2,457 | ) | (12.0 | )% | |||||||||||||
Other | (42,783 | ) | * | % | (42,760 | ) | * | % | (23 | ) | 0.1 | % | |||||||||||
Total | $ | 51,051 | 14.9 | % | $ | 56,480 | 16.2 | % | $ | (5,429 | ) | (9.6 | )% | ||||||||||
EBITDA | |||||||||||||||||||||||
Three Months Ended September 30, | |||||||||||||||||||||||
2023 | % of Net | 2022 | % of Net | $ Change | % Change | ||||||||||||||||||
EBITDA by segment: | |||||||||||||||||||||||
Debit and Credit | $ | 23,086 | 27.6 | % | $ | 31,675 | 31.8 | % | $ | (8,589 | ) | (27.1 | )% | ||||||||||
Prepaid Debit | 7,304 | 32.7 | % | 9,638 | 38.0 | % | (2,334 | ) | (24.2 | )% | |||||||||||||
Other | (13,477 | ) | * | % | (14,094 | ) | * | % | 617 | (4.4 | )% | ||||||||||||
Total | $ | 16,913 | 16.0 | % | $ | 27,219 | 21.8 | % | $ | (10,306 | ) | (37.9 | )% | ||||||||||
Nine Months Ended September 30, | |||||||||||||||||||||||
2023 | % of Net | 2022 | % of Net | $ Change | % Change | ||||||||||||||||||
EBITDA by segment: | |||||||||||||||||||||||
Debit and Credit | $ | 82,733 | 29.7 | % | $ | 85,042 | 29.8 | % | $ | (2,309 | ) | (2.7 | )% | ||||||||||
Prepaid Debit | 19,938 | 31.5 | % | 22,101 | 34.5 | % | (2,163 | ) | (9.8 | )% | |||||||||||||
Other | (39,995 | ) | * | % | (40,119 | ) | * | % | 124 | (0.3 | )% | ||||||||||||
Total | $ | 62,676 | 18.3 | % | $ | 67,024 | 19.2 | % | $ | (4,348 | ) | (6.5 | )% | ||||||||||
Reconciliation of Income (loss) from | ||||||||||||||||
Operations by Segment to EBITDA by Segment | ||||||||||||||||
Three Months Ended September 30, 2023 | ||||||||||||||||
Debit and Credit | Prepaid Debit | Other | Total | |||||||||||||
EBITDA by segment: | ||||||||||||||||
Income (loss) from operations | $ | 20,791 | $ | 6,631 | $ | (14,461 | ) | $ | 12,961 | |||||||
Depreciation and amortization | 2,322 | 675 | 1,008 | 4,005 | ||||||||||||
Other expenses | (27 | ) | (2 | ) | (24 | ) | (53 | ) | ||||||||
EBITDA | $ | 23,086 | $ | 7,304 | $ | (13,477 | ) | $ | 16,913 | |||||||
Three Months Ended September 30, 2022 | ||||||||||||||||
Debit and Credit | Prepaid Debit | Other | Total | |||||||||||||
EBITDA by segment: | ||||||||||||||||
Income (loss) from operations | $ | 29,418 | $ | 9,109 | $ | (15,082 | ) | $ | 23,445 | |||||||
Depreciation and amortization | 2,271 | 529 | 1,037 | 3,837 | ||||||||||||
Other expenses | (14 | ) | — | (49 | ) | (63 | ) | |||||||||
EBITDA | $ | 31,675 | $ | 9,638 | $ | (14,094 | ) | $ | 27,219 | |||||||
Nine Months Ended September 30, 2023 | ||||||||||||||||
Debit and Credit | Prepaid Debit | Other | Total | |||||||||||||
EBITDA by segment: | ||||||||||||||||
Income (loss) from operations | $ | 75,898 | $ | 17,936 | $ | (42,783 | ) | $ | 51,051 | |||||||
Depreciation and amortization | 6,836 | 2,003 | 3,031 | 11,870 | ||||||||||||
Other expenses | (1 | ) | (1 | ) | (243 | ) | (245 | ) | ||||||||
EBITDA | $ | 82,733 | $ | 19,938 | $ | (39,995 | ) | $ | 62,676 | |||||||
Nine Months Ended September 30, 2022 | ||||||||||||||||
Debit and Credit | Prepaid Debit | Other | Total | |||||||||||||
EBITDA by segment: | ||||||||||||||||
Income (loss) from operations | $ | 78,847 | $ | 20,393 | $ | (42,760 | ) | $ | 56,480 | |||||||
Depreciation and amortization | 6,202 | 1,711 | 3,105 | 11,018 | ||||||||||||
Other expenses | (7 | ) | (3 | ) | (464 | ) | (474 | ) | ||||||||
EBITDA | $ | 85,042 | $ | 22,101 | $ | (40,119 | ) | $ | 67,024 | |||||||
EXHIBIT E | ||||||||||||||||
CPI Card Group Inc. and Subsidiaries | ||||||||||||||||
Supplemental GAAP to Non-GAAP Reconciliation | ||||||||||||||||
(dollars in thousands) | ||||||||||||||||
(Unaudited) | ||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
EBITDA and Adjusted EBITDA: | ||||||||||||||||
Net income | $ | 3,857 | $ | 11,910 | $ | 21,253 | $ | 24,063 | ||||||||
Interest, net | 6,714 | 7,323 | 20,235 | 22,334 | ||||||||||||
Income tax expense | 2,337 | 4,149 | 9,318 | 9,609 | ||||||||||||
Depreciation and amortization | 4,005 | 3,837 | 11,870 | 11,018 | ||||||||||||
EBITDA | $ | 16,913 | $ | 27,219 | $ | 62,676 | $ | 67,024 | ||||||||
Adjustments to EBITDA: | ||||||||||||||||
Stock-based compensation expense | $ | 2,600 | $ | 966 | $ | 4,431 | $ | 2,928 | ||||||||
Sales tax expense (1) | — | 22 | 35 | 74 | ||||||||||||
Restructuring and other charges (2) | 1,672 | — | 2,229 | — | ||||||||||||
Loss on debt extinguishment (3) | 25 | — | 243 | 395 | ||||||||||||
Foreign currency loss | 28 | 64 | 2 | 79 | ||||||||||||
Subtotal of adjustments to EBITDA | $ | 4,325 | $ | 1,052 | $ | 6,940 | $ | 3,476 | ||||||||
Adjusted EBITDA | $ | 21,238 | $ | 28,271 | $ | 69,616 | $ | 70,500 | ||||||||
Net income margin (% of Net sales) | 3.6 | % | 9.6 | % | 6.2 | % | 6.9 | % | ||||||||
Net income growth (% Change 2023 vs. 2022) | (67.6 | )% | (11.7 | )% | ||||||||||||
Adjusted EBITDA margin (% of Net sales) | 20.1 | % | 22.7 | % | 20.4 | % | 20.2 | % | ||||||||
Adjusted EBITDA growth (% Change 2023 vs. 2022) | (24.9 | )% | (1.3 | )% | ||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Free Cash Flow: | ||||||||||||||||
Cash provided by operating activities | $ | 11,944 | $ | 19,861 | $ | 22,266 | $ | 11,713 | ||||||||
Capital expenditures for plant, equipment and leasehold improvements | 518 | (6,261 | ) | (6,076 | ) | (14,440 | ) | |||||||||
Free Cash Flow | $ | 12,462 | $ | 13,600 | $ | 16,190 | $ | (2,727 | ) | |||||||
_____________ | ||
(1) | Represents estimated sales tax (benefit) expense 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 2023 amount represents accrued executive retention to be paid in 2024. | |
(3) | The Company redeemed a portion of the 8.625% Senior Secured Notes through the third quarters of 2023 and 2022 and expensed the associated portion of the unamortized deferred financing costs. | |
Last Twelve Months Ended | |||||||
September 30, | December 31, | ||||||
2023 | 2022 | ||||||
Reconciliation of net income to LTM EBITDA and Adjusted EBITDA: | |||||||
Net income | $ | 33,730 | $ | 36,540 | |||
Interest, net | 27,517 | 29,616 | |||||
Income tax expense | 12,316 | 12,607 | |||||
Depreciation and amortization | 15,738 | 14,886 | |||||
EBITDA | $ | 89,301 | $ | 93,649 | |||
Adjustments to EBITDA: | |||||||
Stock-based compensation expense | $ | 4,982 | $ | 3,479 | |||
Sales tax (benefit) expense(1) | (21 | ) | 18 | ||||
Restructuring and other charges (2) | 2,229 | — | |||||
Loss on debt extinguishment (3) | 322 | 474 | |||||
Foreign currency loss | 6 | 83 | |||||
Subtotal of adjustments to EBITDA | $ | 7,518 | $ | 4,054 | |||
LTM Adjusted EBITDA | $ | 96,819 | $ | 97,703 | |||
As of | ||||||||
September 30, | December 31, | |||||||
2023 | 2022 | |||||||
Calculation of Net Leverage Ratio: | ||||||||
Senior Notes | $ | 267,897 | $ | 285,000 | ||||
ABL revolver | 8,000 | 5,000 | ||||||
Finance lease obligations | 15,027 | 10,697 | ||||||
Total debt | 290,924 | 300,697 | ||||||
Less: Cash and cash equivalents | (10,473 | ) | (11,037 | ) | ||||
Total net debt (a) | $ | 280,451 | $ | 289,660 | ||||
LTM Adjusted EBITDA (b) | $ | 96,819 | $ | 97,703 | ||||
Net Leverage Ratio (a)/(b) | 2.9 | 3.0 | ||||||
View source version on businesswire.com: https://www.businesswire.com/news/home/20231107645127/en/
Contacts
CPI Card Group Inc. Investor Relations:
(877) 369-9016
InvestorRelations@cpicardgroup.com
CPI Card Group Inc. Media Relations:
Media@cpicardgroup.com
