CPI Card Group Inc. Reports Third Quarter 2016 Results

CPI Card Group Inc. (Nasdaq: PMTS; TSX: PNT) ("CPI Card Group" or the "Company") today reported financial results for the third quarter ended September 30, 2016.

Third Quarter 2016 Summary
  • Net sales were $81.2 million, a decrease of 24.6% compared to the prior year period.
  • Net income from continuing operations was $4.0 million, or $0.07 per share, compared with net income from continuing operations of $14.8 million, or $0.19 per share, in the prior year period. Third quarter 2016 net income from continuing operations reflects the impact of $0.6 million, or $0.01 per share, of litigation and related charges associated with patent and shareholder litigation.
  • Adjusted net income from continuing operations was $6.0 million, or $0.11 per share on a diluted basis, compared with $17.3 million and $0.30 per share on a pro forma basis in the prior year period.
  • Adjusted EBITDA was $17.8 million, or 21.9% of net sales, compared with $32.5 million, or 30.2% of net sales, in the prior year period.
  • Returned $2.5 million to stockholders through dividends in the third quarter of 2016.

"Our third quarter results were below expectations, primarily due to continued softness in demand for EMV ® chip cards and unfavorable foreign currency exchange rates. Partially offsetting the lower EMV demand in the third quarter was a sequential improvement in our EMV card average selling prices resulting from customer mix," said Steve Montross, president and chief executive officer of CPI Card Group. "As we look to the fourth quarter, we do not see EMV card shipments materializing at the improved rates we assumed in our prior guidance and, as a result, we are reducing the 2016 full year guidance range, primarily to reflect this softness."

"The longer-term growth opportunity for CPI remains positive, driven by our broad product offering for the financial card markets, the ongoing conversions of magnetic stripe cards to EMV chip cards and increasing demand for our services offerings," Montross continued. "The business is well positioned in markets that we believe will continue to demonstrate a favorable long-term growth dynamic. We will add to the growth in the business through our new, innovative product offerings for the financial payment card market, including Print on Demand and Card@Once ® instant issuance. Lastly, we continue to transform the business through our ongoing efforts to make improvements to our quality and service levels, our ongoing cost saving programs and recent additions to our senior leadership team."

Financial Outlook

Based on the continuing softness in EMV card shipments in the fourth quarter at order rates that are below what was expected in our previous guidance, combined with a delayed operational start-up of our Print on Demand offering for the Prepaid Debit segment and unfavorable foreign currency exchange rates, the Company's 2016 financial outlook is as follows:
  • Net sales between $300 million and $305 million
  • Adjusted EBITDA between $53 million and $55 million
  • Adjusted diluted earnings per share of $0.24 to $0.26

For 2017, we expect the U.S. debit and credit card production market to stabilize, with a slower than previously anticipated overall rate of market conversion from magnetic stripe cards to EMV cards, and limited market adoption of dual interface cards. We expect our services business to grow at above market rates in 2017, benefiting from our personalization and fulfillment offering, the recently launched Print on Demand capabilities in the U.S. Prepaid Debit segment and continued adoption of our proprietary Card@Once ® instant issuance offering. We are in the process of preparing our 2017 annual operating plans, and the preliminary view results in an expected range of growth of 10-15% in net sales from 2016.

Third Quarter 2016 Segment Information

U.S. Debit and Credit:

Net sales decreased 32.5% to $49.2 million in the third quarter of 2016 from $72.8 million in the prior year period. Gross profit decreased to $17.1 million from $28.2 million in the prior year period, and gross profit margin was 34.8% compared with 38.7% in the prior year period. Income from operations decreased to $10.8 million from $21.6 million in the third quarter of 2015, and operating margins were 21.9% compared with 29.6% in the prior year period. EBITDA decreased 44.7% to $12.9 million, or 26.3% of net sales, from $23.4 million, or 32.1% of net sales, in the third quarter of 2015. The decline in net sales in the U.S. Debit and Credit segment was driven primarily by a reduction in the number of EMV ® chip cards sold in the third quarter, decreasing by 45.1% compared with the third quarter of 2015, partially offset by higher EMV ® card average selling prices due to customer mix, and strong year-over-year growth of card personalization and fulfillment services of $4.3 million in the quarter.

U.S. Prepaid Debit:

Net sales for the third quarter of 2016 decreased 2.4% to $23.1 million from $23.7 million in the third quarter of 2015. Gross profit was $9.2 million compared with $11.0 million in the prior year period, and gross profit margin was 39.7% compared with 46.4% in the prior year period. Income from operations in the third quarter of 2016 was $8.0 million compared with $9.5 million in the prior year period, while operating margins were 34.7% compared with 40.0% in the prior year period. EBITDA was $8.6 million, or 37.2% of net sales, compared with $10.0 million, or 42.2% of net sales, in the third quarter of 2015. The year-over-year decline of U.S. Prepaid Debit segment net sales primarily reflects lower prices, largely offset by increased volume from sales activity.

U.K. Limited:

Net sales were $7.7 million in the third quarter of 2016, representing a decrease of 20.6% from $9.7 million in the prior year period, and were negatively impacted by approximately $1.4 million due to unfavorable foreign currency exchange rate fluctuations. On a constant currency basis, U.K. Limited net sales decreased 6.4% compared with the third quarter of 2015 due to softening volumes within our retail gift card customer base. Gross profit of $2.2 million decreased $0.6 million, or 20.7%, from the prior year period, and gross profit margin was 28.3% in both the current and the prior year period. Income from operations was $0.8 million in the third quarter of 2016, representing a decrease of 14.6% from $1.0 million in the prior year period. EBITDA was $0.9 million in the third quarter of 2016 compared to $1.2 million in the third quarter of 2015, or 12.3% of net sales in the third quarter of 2016 compared to 12.8% of net sales in the prior year period.

Other:

Interest expense, net, increased to $5.0 million from $4.6 million in the third quarter of 2015, reflecting higher average debt balances. The effective tax rate was 38.7% for the quarter ended September 30, 2016 compared to 30.7% in the prior year period. The increase in the effective tax rate was due to the impact of state and foreign income taxes.

Earnings per Share

Diluted earnings per share was $0.07 for the third quarter of 2016, compared with $0.19 in the prior year period. Third quarter 2016 net income reflects the impact of $0.6 million, or $0.01 per share, of patent and shareholder litigation and related charges. Included in EPS during the three months ended September 30, 2015 were preferred stock dividends of $7.1 million. Adjusted diluted earnings per share from continuing operations was $0.11 for the quarter ended September 30, 2016, compared with $0.30 in the third quarter of 2015 after giving effect to the 15,000,000 common share issuance from the Company's IPO in October 2015. Adjusted diluted earnings per share from continuing operations, calculated using actual weighted-average diluted shares outstanding, was $0.11 for the third quarter of 2016 compared with $0.41 for the third quarter of 2015.

Balance Sheet, Cash Flow and Liquidity

Total debt principal outstanding was $312.5 million at September 30, 2016 compared with $321.5 million December 31, 2015. Net of deferred debt issuance costs and discount of $11.1 million, recorded debt was $301.4 million at September 30, 2016, compared with $309.0 million at December 31, 2015.

Net cash provided by operations for the nine months ended September 30, 2016 was $39.8 million compared to $44.4 million for the nine months ended September 30, 2015. Capital expenditures totaled $12.4 million for the nine months ended September 30, 2016, resulting in free cash flow of $27.4 million, compared with free cash flow of $30.6 million in the prior year period.

During the quarter, the Company paid the $9.0 million promissory note made in connection with its acquisition of EFT Source in September 2014.

At September 30, 2016, the Company had $21.3 million of cash and cash equivalents and $40.0 million of unused borrowing capacity under its revolving credit facility.

The Company had no common stock repurchases during the quarter. During the nine months ended September 30, 2016, the Company repurchased approximately 1.4 million shares of common stock for $6.0 million under the previously announced share repurchase program, which equates to an average repurchase price of $4.17 per share.

Quarterly Dividend Announcement

CPI Card Group announces today that its Board of Directors has declared a quarterly dividend of $0.045 per share, payable on January 12, 2017 to stockholders of record at the close of business on December 16, 2016. The declaration and payment of any future dividends will be subject to the discretion of the CPI Card Group Board of Directors, who will evaluate the Company's dividend program from time to time based on factors that it deems relevant.

EMV® is a registered trademark or trademark of EMVCo LLC in the United States and other countries.

All rights reserved. Card@Once ® is a registered trademark of CPI Card Group, Inc. US Patent No.: 8429075.

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: Adjusted Net Income from Continuing Operations, Adjusted Diluted Earnings per Share from Continuing Operations, EBITDA, Adjusted EBITDA, Pro Forma Adjusted Diluted Earnings per Share from Continuing Operations, Free Cash Flow and Constant Currency. These non-GAAP financial measures are utilized by management in comparing our operating performance on a consistent basis. 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 D to this press release, and a reconciliation of non-GAAP measures contained in our 2016 guidance in Exhibit F to this press release.

Adjusted Net Income from Continuing Operations and Adjusted Diluted Earnings per Share from Continuing Operations

Adjusted Net Income from Continuing Operations and Adjusted Diluted Earnings per Share from Continuing Operations exclude the impact of legal costs incurred in connection with certain patent and shareholder litigation, stock-based compensation expense, amortization of intangible assets, performance bonuses in connection with the EFT Source acquisition, and other non-operational, non-cash or non-recurring items, net of their income tax impact, and exclude the impact of preferred stock dividends. The tax rates used to calculate Adjusted Net Income and Adjusted Diluted Earnings per Share are based on the Company's long-term expected effective tax rate estimate for each period presented. We believe that Adjusted Net Income from Continuing Operations and Adjusted Diluted Earnings per Share from Continuing Operations are useful in assessing our financial performance by excluding items that are not indicative of our core operating performance or that may obscure trends useful in evaluating our continuing results of operations. For comparability purposes, we also present Adjusted Diluted Earnings per Share on a pro forma basis to give effect to our issuance of 15,000,000 shares of common stock in our IPO as if these shares were outstanding at the beginning of all periods presented.

EBITDA

EBITDA represents earnings before interest, taxes, depreciation and amortization. EBITDA is presented because it is an important supplemental measure of performance and it is frequently used by analysts, investors and other interested parties in the evaluation of companies in our industry. EBITDA is also presented and compared by analysts and investors in evaluating our ability to meet debt service obligations. Other companies in our industry may calculate EBITDA differently. EBITDA is not a measurement of financial performance under GAAP and should not be considered as an alternative to cash flow from operating activities or as a measure of liquidity or an alternative to net income as indicators of operating performance or any other measures of performance derived in accordance with GAAP. Because EBITDA is calculated before recurring cash charges, including interest expense and taxes, and is not adjusted for capital expenditures or other recurring cash requirements of the business, it should not be considered as a measure of discretionary cash available to invest in the growth of the business.

Adjusted EBITDA

Adjusted EBITDA is defined as EBITDA adjusted for stock-based compensation expense, legal costs incurred in connection with certain patent and shareholder litigation, performance bonuses in connection with the EFT Source acquisition, foreign currency gain or loss, and other items that are unusual in nature or infrequently occurring, as set forth in the reconciliation on Exhibit D. Adjusted EBITDA is also a defined term in our existing credit agreement, which generally conforms to the definition above, and impacts certain credit measures and compliance targets within the credit agreement. Adjusted EBITDA is intended to show our unleveraged, pre-tax operating results and therefore reflects our financial performance based on operational factors, excluding non-operational, non-cash or non-recurring losses or gains. Adjusted EBITDA has important limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for, analysis of our results as reported under GAAP. For example, Adjusted EBITDA does not reflect: (a) our capital expenditures, future requirements for capital expenditures or contractual commitments; (b) changes in, or cash requirements for, our working capital needs; (c) the significant interest expenses, or the cash requirements necessary to service interest or principal payments on our debt; (d) tax payments that represent a reduction in cash available to us; (e) any cash requirements for the assets being depreciated and amortized that may have to be replaced in the future; or (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. In particular, our definition of Adjusted EBITDA allows us to add back certain non-cash, non-operating or non-recurring charges that are deducted in calculating net income, even though these are expenses that may recur, vary greatly and are difficult to predict and can represent the effect of long-term strategies as opposed to short-term results.

In addition, certain of these expenses can represent the reduction of cash that could be used for other corporate purposes. Further, although not included in the calculation of Adjusted EBITDA, the measure may at times allow us to add estimated cost savings and operating synergies related to operational changes ranging from acquisitions to dispositions to restructurings and/or exclude one-time transition expenditures that we anticipate we will need to incur to realize cost savings before such savings have occurred. Further, management and various investors use the ratio of total debt less cash to Adjusted EBITDA, or "net debt leverage", as a measure of our financial strength and ability to incur incremental indebtedness when making key investment decisions and evaluating us against peers.

Free Cash Flow

We define Free Cash Flow as cash flow from operations less capital expenditures, and we use this metric in analyzing our ability to service and repay our debt and to forecast future periods. 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.

Constant Currency

Constant currency results show our current period operating results as if foreign currency exchange rates had remained the same as those in effect in the prior year period. We present certain constant currency results to facilitate comparisons to our historical operating results.

About CPI Card Group Inc.

CPI Card Group is a leading provider in payment card production and related services, offering a single source for credit, debit and prepaid debit cards including EMV chip, personalization, instant issuance, fulfillment and mobile payment services. With more than 20 years of experience in the payments market and as a trusted partner to financial institutions, CPI's solid reputation of product consistency, quality and outstanding customer service supports our position as a leader in the market. Serving our customers from ten locations throughout the United States, Canada and the United Kingdom, we have the largest network of high security facilities in North America, each of which is certified by one or more of the payment brands: Visa, MasterCard, American Express, Discover and Interac in Canada. Learn more at www.cpicardgroup.com.

Conference Call and Webcast

CPI Card Group Inc. will host a conference call on November 9, 2016 at 5:00 p.m. ET to discuss its third quarter 2016 results. To participate in the Company's live conference call via telephone or online:

Participant Toll-Free Dial-In Number: (844) 392-3771Participant International Dial-In Number: (541) 397-0893Conference ID: 96809638Webcast Link: http://edge.media-server.com/m/p/n54djv27

Participants are advised to login for the live webcast 10 minutes prior to the scheduled start time. A webcast replay and transcript of the conference call will be available on CPI Card Group Inc.'s Investor Relations web site: http://investor.cpicardgroup.com/

Following the completion of the conference call, a replay of the conference call will be available from 8:30 p.m. ET on November 9, 2016 until 11:59 p.m. ET on November 16, 2016. To access the replay, please dial (855) 859-2056 or (404) 537-3406; Conference ID: 96809638.

Forward-Looking Statements

Statements in this press release that are not statements of historical fact are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward looking statements may be identified by terms such as statements about our plans, objectives, expectations, assumptions or future events. The words "may," "will," "should," "could," "expect," "anticipate," "believe," "estimate," "intend," "continue" and other similar expressions are intended to identify forward-looking statements. These statements involve risks and uncertainties that could cause actual results to differ materially from those described in such statements. These risks and uncertainties include, among others: material breaches in the security of our systems; market acceptance of developing technologies that make Financial Payment Cards less relevant; a slower or less widespread adoption of EMV and Dual-Interface EMV technology than we anticipate; failure to identify, attract and retain new customers or a failure to maintain our relationships with our major customers; competition and/or erosion in the payment card industry; unpredictability in the ordering patterns of our customers and the resulting impact on production volumes; extension of card expiration cycles; our failure to operate our business in accordance with the PCI security standards or other industry standards such as Payment Card Brand certification standards; infringement on our intellectual property rights, or claims that our technology is infringing on third-party intellectual property; difficulties in our production processes; defects in our software; a decline in U.S. and global market and economic conditions; our substantial indebtedness; failure to meet our customers' demands in a timely manner; economic and regulatory changes resulting from Brexit, including volatility in foreign currency exchange rates; costs relating to product defects and product liability and warranty claims; our dependence on licensing arrangements; inability to renew leases for our facilities; interruptions in our IT systems or production capabilities; the restrictive terms of our credit facility and covenants of future agreements governing indebtedness; non-compliance with, and changes in, laws in foreign jurisdictions in which we operate and sell our products; challenges related to our acquisition strategy; our dependence on specialized equipment from third party suppliers; and other risk factors or uncertainties identified from time to time in our filings with the SEC. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Reference is made to a more complete discussion of forward-looking statements and applicable risks contained under the captions "Forward-Looking Statements" and "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2015 filed with the SEC on March 24, 2016, and Quarterly Report on Form 10-Q for the quarter ended June 30, 2016 filed with the SEC on August 11, 2016. CPI Card Group Inc. undertakes no obligation to update or revise any of its forward-looking statements, whether as a result of new information, future events or otherwise.

CPI Card Group Inc.

Earnings Release Supplemental Financial Information

November 9, 2016
 
Exhibit A

Condensed Consolidated Statements of Operations and Comprehensive Income - Unaudited for the three and nine months ended September 30, 2016 and 2015
 
Exhibit B

Condensed Consolidated Balance Sheets - as of September 30, 2016 (Unaudited) and December 31, 2015
 
Exhibit C

Condensed Consolidated Statements of Cash Flows - Unaudited for the nine months ended September 30, 2016 and 2015
 
Exhibit D

Supplemental GAAP to Non-GAAP Reconciliation - Unaudited for the three and nine months ended September 30, 2016 and 2015
 
Exhibit E

Summary Segment Information - Unaudited for the three and nine months ended September 30, 2016 and 2015
 
Exhibit F 2016 Guidance: Non-GAAP Reconciliation
       
EXHIBIT A
CPI Card Group Inc. and Subsidiaries
Condensed Consolidated Statements of Operations and Comprehensive Income
(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
 
Three Months Ended September 30, Nine Months Ended September 30,
2016 2015 2016 2015
Net sales:
Products $ 37,482 $ 65,567 $ 132,535 $ 178,338
Services   43,720     42,130     108,785     102,205  
Total net sales   81,202     107,697     241,320     280,543  
Cost of sales:
Products (exclusive of depreciation and amortization
shown below) 23,583 39,870 87,248 111,017
Services (exclusive of depreciation and amortization
shown below) 25,855 22,463 64,682 58,047
Depreciation and amortization   2,701     2,315     7,928     7,087  
Total cost of sales   52,139     64,648     159,858     176,151  
Gross profit 29,063 43,049 81,462 104,392
Operating expenses:
Selling, general and administrative (exclusive of
depreciation and amortization shown below) 15,838 14,485 46,969 41,175
Depreciation and amortization 1,529 1,503 4,602 4,771
Restructuring charges       681         681  
Total operating expenses   17,367     16,669     51,571     46,627  
Income from operations 11,696 26,380 29,891 57,765
Other expense, net:
Interest, net (5,008 ) (4,624 ) (15,109 ) (8,129 )
Foreign currency (loss) gain (124 ) (34 ) (192 ) 115
Loss on debt modification and early extinguishment (703 ) (703 )
Other income, net   3     295     17     356  
Total other expense, net   (5,129 )   (5,066 )   (15,284 )   (8,361 )
 
Income before income taxes 6,567 21,314 14,607 49,404
Income tax expense   (2,541 )   (6,554 )   (5,194 )   (16,528 )
Net income from continuing operations 4,026 14,760 9,413 32,876
Discontinued operations:
Loss from a discontinued operation, net of taxes (606 )
Gain on sale of a discontinued operation, net of taxes               887  
Net income $ 4,026 $ 14,760 $ 9,413 $ 33,157
Preferred stock dividends       (7,096 )       (32,454 )
Income attributable to common stockholders $ 4,026   $ 7,664   $ 9,413   $ 703  
 
Basic and diluted earnings per share:
Continuing operations $ 0.07 $ 0.19 $ 0.17 $ 0.01
Discontinued operation               0.01  
$ 0.07   $ 0.19   $ 0.17   $ 0.02  
 
Dividends declared per common share $ 0.045   $   $ 0.135   $  
 
Comprehensive Income
Net income $ 4,026 $ 14,760 $ 9,413 $ 33,157
Currency translation adjustment   (465 )   (878 )   (1,414 )   (1,224 )
Total comprehensive income $ 3,561   $ 13,882   $ 7,999   $ 31,933  
   
EXHIBIT B
CPI Card Group Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Dollars in Thousands, Except Share and Per Share Amounts)
 
 
 
September 30, December 31,
2016 2015
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 21,270 $ 13,606
Accounts receivable, net of allowances of $269 and $212, respectively 42,663 52,538
Inventories 23,384 25,640
Prepaid expenses and other current assets 4,203 4,260
Income taxes receivable   1,234     4,975  
Total current assets 92,754 101,019
Plant, equipment and leasehold improvements, net 55,098 52,113
Intangible assets, net 50,355 53,988
Goodwill 72,339 73,123
Other assets   166     110  
Total assets $ 270,712   $ 280,353  
 
Liabilities and stockholders' deficit
Current liabilities:
Accounts payable $ 13,408 $ 17,832
Accrued expenses 15,598 11,315
Deferred revenue and customer deposits 5,082 3,874
Current maturities of long-term debt       9,000  
Total current liabilities 34,088 42,021
Long-term debt, net of current maturities 301,437 300,000
Deferred income taxes 23,112 24,073
Other long-term liabilities   1,030     869  
Total liabilities 359,667 366,963
 
Commitments and contingencies
 
Series A Preferred Stock; $0.001 par value—100,000 shares authorized; no shares issued and
outstanding
Stockholders' deficit:
Common Stock; $0.001 par value—100,000,000 shares authorized; 55,293,251 and
56,542,116 shares issued and outstanding as of September 30, 2016 and December 31, 2015,
respectively 55 56
Capital deficiency (115,778 ) (119,028 )
Accumulated earnings 32,481 36,661
Accumulated other comprehensive loss   (5,713 )   (4,299 )
Total stockholders' deficit   (88,955 )   (86,610 )
Total liabilities and stockholders' deficit $ 270,712   $ 280,353  
   
EXHIBIT C
CPI Card Group Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Dollars in Thousands)
(Unaudited)
 
Nine Months Ended September 30,
2016 2015
Operating activities
Net income $ 9,413 $ 33,157
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 12,530 11,858
Stock-based compensation expense 2,785 2,137
Amortization of debt issuance costs and debt discount 1,437 594
Loss on debt modification and extinguishment 703
Loss on sale of a discontinued operation 1,039
Excess tax benefits from stock-based compensation (526 )
Deferred income taxes (445 ) 11,304
Other, net 220 1,162
Changes in operating assets and liabilities:
Accounts receivable 9,053 (13,045 )
Inventories 1,978 (5,719 )
Prepaid expenses and other assets (32 ) (1,130 )
Income taxes 4,522 (6,264 )
Accounts payable (4,352 ) 1,893
Accrued expenses 1,699 4,057
Deferred revenue and customer deposits 1,307 3,207
Other liabilities   183     (523 )
Cash provided by operating activities 39,772 44,430
Investing activities
Acquisitions of plant, equipment and leasehold improvements (12,369 ) (13,866 )
Proceeds from sale of a discontinued operation       5,000  
Cash used in investing activities (12,369 ) (8,866 )
Financing activities
Payment of long-term debt (170,929 )
Payments on Sellers Note (9,000 )
Proceeds from First Lien Term Loan 435,000
Loan issuance costs (17,773 )
Dividend distribution on Series A Preferred Stock (220,742 )
Redemption of preferred and common stock (55,992 )
Common stock repurchased (6,008 )
Dividends paid on common stock (5,031 )
Proceeds from employee note receivable 108
Excess tax benefits from stock-based compensation 526
Payment of deferred IPO cost       (2,138 )
Cash used in financing activities (19,513 ) (32,466 )
Effect of exchange rates on cash   (226 )   (181 )
Net increase in cash and cash equivalents: 7,664 2,917
Cash and cash equivalents, beginning of period   13,606     12,941  
Cash and cash equivalents, end of period $ 21,270   $ 15,858  
       
EXHIBIT D
CPI Card Group Inc. and Subsidiaries
Supplemental GAAP to Non-GAAP Reconciliation
(Dollars in Thousands, Except Shares and Per Share Amounts)
(Unaudited)
 
 
 
Three Months Ended September 30, Nine Months Ended September 30,
2016 2015 2016 2015
 
EBITDA AND ADJUSTED EBITDA
Net income from continuing operations $ 4,026 $ 14,760 $ 9,413 $ 32,876
Interest expense, net 5,008 4,624 15,109 8,129
Income tax expense 2,541 6,554 5,194 16,528
Depreciation and amortization   4,230     3,818     12,530     11,858  
EBITDA $ 15,805 $ 29,756 $ 42,246 $ 69,391
 
Adjustments to EBITDA
Stock-based compensation expense 934 634 2,785 2,137
Litigation and related charges (1) 645 2,587
Restructuring and other charges 1,131 1,131
EFT Source acquisition performance bonuses 250 250 750 750
Loss on debt modification and early extinguishment 703 703
Professional fees 409
Foreign currency loss (gain)   124     34     192     (115 )
Subtotal of adjustments to EBITDA   1,953     2,752     6,314     5,015  
Adjusted EBITDA $ 17,758   $ 32,508   $ 48,560   $ 74,406  
 
 
 
Three Months Ended September 30, Nine Months Ended September 30,
2016 2015 2016 2015
 
Adjusted net income from continuing
operations and earnings per share
Net income from continuing operations $ 4,026 $ 14,760 $ 9,413 $ 32,876
Litigation and related charges (1) 645 2,587
Restructuring and other costs associated with
the closure of the Petersfield U.K. facility 1,131 1,131
Stock-based compensation expense 934 634 2,785 2,137
Amortization of intangible assets 1,132 1,145 3,406 3,433
EFT Source acquisition performance payments 250 250 750 1,159
Loss on debt modification and early extinguishment 703 703
Tax effect of above items   (977 )   (1,352 )   (3,144 )   (2,997 )
Adjusted net income from continuing operations $ 6,010   $ 17,271   $ 15,797   $ 38,442  
 

(1) Represents legal costs incurred in connection with patent and shareholder litigation.
 
Three Months Ended September 30, Nine Months Ended September 30,
2016 2015 2016 2015
Weighted-average number of shares outstanding (GAAP)
Basic 55,255,239 41,476,116 55,999,722 41,374,188
Effect of dilutive equity awards   253,445     343,306   232,473     343,306  
Weighted-average diluted shares outstanding   55,508,684     41,819,422   56,232,195     41,717,494  
 
Common shares issued by the Company on October 9, 2015       15,000,000       15,000,000  
Pro forma weighted-average number of diluted shares outstanding   55,508,684     56,819,422   56,232,195     56,717,494  
 
 
Three Months Ended September 30, Nine Months Ended September 30,
2016 2015 2016 2015
Reconciliation of diluted earnings (loss) per share
from continuing operations (GAAP) to adjusted
diluted earnings per share from continuing
operations:
Diluted (loss) earnings per share from continuing
operations (GAAP) $ 0.07 $ 0.19 $ 0.17 $ 0.01
Impact of net income adjustments 0.04 0.06 0.11 0.13
Impact of preferred stock dividends -   0.17   -   0.78  
Adjusted diluted earnings (loss) per share from
continuing operations $ 0.11   $ 0.42   $ 0.28   $ 0.92  
 
Pro forma adjusted diluted earnings per share
from continuing operations $ 0.11   $ 0.30   $ 0.28   $ 0.68  
 
 
Three Months Ended September 30,
2016 2015
Constant Currency
U.K. Limited net sales, as reported (GAAP) $ 7,675 $ 9,668
Foreign currency translation impact 1,378   -  
U.K. Limited net sales, constant currency adjusted $ 9,053   $ 9,668  
Net sales change, as reported (GAAP) (20.6

)%

 
Net sales change, constant currency adjusted (6.4

)%

 
 
Three Months Ended September 30, Nine Months Ended September 30,
Reconciliation of cash provided by operating
activities (GAAP) to free cash flow 2016 2015 2016 2015
Cash provided by operating activities $ 6,605 $ 25,521 $ 39,772 $ 44,430
Acquisitions of plant, equipment and leasehold
improvements (5,360 ) (3,340 ) (12,369 ) (13,866 )
Free cash flow $ 1,245   $ 22,181   $ 27,403   $ 30,564  
   
EXHIBIT E
CPI Card Group Inc. and Subsidiaries
Segment Summary Information
For the Three Months and Nine Months Ended September 30, 2016 and 2015
(Dollars in Thousands, Except Shares and Per Share Amounts)
(Unaudited)
 
Net Sales
Three Months Ended September 30,
2016 2015 $ Change % Change
(dollars in thousands)
Net sales by segment:
U.S Debit and Credit $ 49,156 $ 72,785 $ (23,629 ) (32.5 ) %
U.S. Prepaid Debit 23,087 23,659 (572 ) (2.4 ) %
U.K. Limited 7,675 9,668 (1,993 ) (20.6 ) %
Other 2,710 3,995 (1,285 ) (32.2 ) %
Eliminations   (1,426 )   (2,410 )   984   * %
Total $ 81,202   $ 107,697   $ (26,495 ) (24.6 ) %
 
 
Nine Months Ended September 30,
2016 2015 $ Change % Change
(dollars in thousands)
Net sales by segment:

U.S. Debit and Credit
$ 165,055 $ 196,190 $ (31,135 ) (15.9 ) %
U.S. Prepaid Debit 47,419 53,482 (6,063 ) (11.3 ) %
U.K. Limited 21,896 23,586 (1,690 ) (7.2 ) %
Other 9,530 13,917 (4,387 ) (31.5 ) %
Eliminations   (2,580 )   (6,632 )   4,052   * %
Total $ 241,320   $ 280,543   $ (39,223 ) (14.0 ) %
 
Gross Profit
Three Months Ended September 30,
2016 % of Net

Sales
2015 % of Net

Sales
$ Change % Change
(dollars in thousands)
Gross profit by segment:
U.S Debit and Credit $ 17,093 34.8 % $ 28,185 38.7 % $ (11,092 ) (39.4 ) %
U.S. Prepaid Debit 9,168 39.7 % 10,979 46.4 % (1,811 ) (16.5 ) %
U.K. Limited 2,169 28.3 % 2,734 28.3 % (565 ) (20.7 ) %
Other   633   23.4 %   1,151   28.8 %   (518 ) (45.0 ) %
Total $ 29,063   35.8 % $ 43,049   40.0 % $ (13,986 ) (32.5 ) %
 
 
Nine Months Ended September 30,
2016 % of Net

Sales
2015 % of Net

Sales
$ Change % Change
(dollars in thousands)
Gross profit by segment:
U.S Debit and Credit $ 55,964 33.9 % $ 73,492 37.5 % $ (17,528 ) (23.9 ) %
U.S. Prepaid Debit 17,401 36.7 % 22,276 41.7 % (4,875 ) (21.9 ) %
U.K. Limited 5,817 26.6 % 6,102 25.9 % (285 ) (4.7 ) %
Other   2,280   23.9 %   2,522   18.1 %   (242 ) (9.6 ) %
Total $ 81,462   33.8 % $ 104,392   37.2 % $ (22,930 ) (22.0 ) %
 
 
 
 
Income from Operations
Three Months Ended September 30,
2016 % of Net

Sales
2015 % of Net

Sales
$ Change % Change
(dollars in thousands)
Income from Operations by segment:
U.S Debit and Credit $ 10,769 21.9 % $ 21,577 29.6 % $ (10,808 ) (50.1 ) %
U.S. Prepaid Debit 8,014 34.7 % 9,465 40.0 % (1,451 ) (15.3 ) %
U.K. Limited 841 11.0 % 985 10.2 % (144 ) (14.6 ) %
Other   (7,928 ) *   (5,647 ) *   (2,281 ) *
Total $ 11,696   14.4 % $ 26,380   24.5 % $ (14,684 ) (55.7 ) %
 
 
Nine Months Ended September 30,
2016 % of Net

Sales
2015 % of Net

Sales
$ Change % Change
(dollars in thousands)
Income from Operations by segment:
U.S Debit and Credit $ 37,007 22.4 % $ 54,693 27.9 % $ (17,686 ) (32.3 ) %
U.S. Prepaid Debit 13,682 28.9 % 17,988 33.6 % (4,306 ) (23.9 ) %
U.K. Limited 1,496 6.8 % 1,421 6.0 % 75 5.3 %
Other   (22,294 ) *   (16,337 ) *   (5,957 ) *
Total $ 29,891   12.4 % $ 57,765   20.6 % $ (27,874 ) (48.3 ) %
 
 
 
 
EBITDA
Three Months Ended September 30,
2016 % of Net

Sales
2015 % of Net

Sales
$ Change % Change
(dollars in thousands)
EBITDA by segment (1)
U.S Debit and Credit $ 12,917 26.3 % $ 23,368 32.1 % $ (10,451 ) (44.7 ) %
U.S. Prepaid Debit 8,593 37.2 % 9,973 42.2 % (1,380 ) (13.8 ) %
U.K. Limited 942 12.3 % 1,235 12.8 % (293 ) (23.7 ) %
Corporate and Other   (6,647 ) *   (4,820 ) *   (1,827 ) *
Total $ 15,805   19.5 % $ 29,756   27.6 % $ (13,951 ) (46.9 ) %
 
* Calculation not meaningful
 

(1) EBITDA is the primary measure used by management to evaluate segment operating performance. The principal difference
between Income from Operations and EBITDA is that EBITDA is adjusted to exclude Depreciation and Amortization expense of
$2,199 and $1,770 in U.S. Debit and Credit, $579 and $538 in U.S. Prepaid Debit, $186 and $205 in U.K. Limited and $1,266 and
$1,305 in Corporate and Other for the three months ended September 30, 2016 and 2015, respectively.
 
Nine Months Ended September 30,
2016 % of Net

Sales
2015 % of Net

Sales
$ Change % Change
(dollars in thousands)
EBITDA by segment (1)
U.S Debit and Credit $ 43,242 26.2 % $ 59,961 30.6 % $ (16,719 ) (27.9 ) %
U.S. Prepaid Debit 15,417 32.5 % 19,733 36.9 % (4,316 ) (21.9 ) %
U.K. Limited 1,841 8.4 % 2,076 8.8 % (235 ) (11.3 ) %
Corporate and Other   (18,254 ) *   (12,379 ) *   (5,875 ) *
Total $ 42,246   17.5 % $ 69,391   24.7 % $ (27,145 ) (39.1 ) %
 
* Calculation not meaningful
 

(1) EBITDA is the primary measure used by management to evaluate segment operating performance. The principal difference
between Income from Operations and EBITDA is that EBITDA is adjusted to exclude Depreciation and Amortization expense of
$6,376 and $5,268 in U.S. Debit and Credit, $1,736 and $1,745 in U.S. Prepaid Debit, $520 and $661 in U.K. Limited and $3,898 and
$4,184 in Corporate and Other for the nine months ended September 30, 2016 and 2015, respectively.
   
EXHIBIT F
 
CPI Card Group Inc. and Subsidiaries
2016 guidance: Non-GAAP Reconciliation
(in Millions, except per share amounts)
(Unaudited)
 
Range
Low High
Net income (GAAP) $ 5.4 $ 6.7
 
Amortization 4.6 4.6
Non-cash compensation 3.7 3.7
EFT Source bonus 1.0 1.0
Litigation and related charges (1) 2.6 2.6
Foreign exchange loss 0.2 0.2
Tax effect   (4.0 )   (4.0 )
 
Adjusted net income $ 13.5   $ 14.8  
 
Weighted-average diluted shares outstanding (2)   56.8     56.8  
 
Pro forma adjusted diluted earnings per share $ 0.24 $ 0.26
Diluted earnings per share (GAAP) $ 0.10 $ 0.12
 
Net income (GAAP) $ 5.4 $ 6.7
 
Depreciation 12.4 12.4
Amortization 4.6 4.6
Interest expense 20.1 20.1
Taxes   3.0     3.7  
EBITDA $ 45.5 $ 47.5
 
Non-cash compensation 3.7 3.7
EFT Source bonus 1.0 1.0
Litigation and related charges (1) 2.6 2.6
Foreign exchange loss   0.2     0.2  
 
Adjusted EBITDA $ 53.0   $ 55.0  

(1) Represents legal costs incurred in connection with patent and shareholder litigation.

(2) Does not give effect to the impact of the share repurchase program announced on May 11, 2016.

View source version on businesswire.com: http://www.businesswire.com/news/home/20161109006300/en/

Copyright Business Wire 2010

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