Net Sales of $71 million, up 16%
year-over-year
Continuing operations - GAAP Net Loss of $1.1
million; Break-even on an Adjusted Basis
Adjusted EBITDA of $9.1 million
Q3 Ending Cash of $12.8 million, Available
Revolver of $20.0 million, Available Liquidity of $32.8 million
Call scheduled for Wednesday, November 7, 2018
at 9:00 a.m. Eastern Time
CPI Card Group Inc. (Nasdaq: PMTS; TSX: PMTS) (“CPI Card Group”
or the “Company”) today reported financial results for the third
quarter ended September 30, 2018.
Scott Scheirman, President and Chief Executive Officer of CPI,
stated, “We are pleased with our third quarter results, and we are
performing well relative to our objectives for the first nine
months of 2018. Our third quarter financial and operating
performance is highlighted by 16% year-over-year net sales growth
driven by double-digit net sales growth across both our U.S. Debit
and Credit and Prepaid segments, growth of EMV card volumes, and
continued momentum in our emerging products and solutions. The
execution of our strategic priorities of deep customer focus,
providing market-leading quality products and customer service, a
market competitive business model and continuous innovation, is
enabling us to strengthen our customer relationships and win new
business.”
Third Quarter 2018 – Continuing Operations Consolidated
Financial Highlights
Financial results included in this press release for all periods
reflect continuing operations. The sale of CPI U.K., which had
historically been reported as the U.K. Limited segment, has been
accounted for as a discontinued operation, and comparative
financial information has been restated in accordance with U.S.
GAAP (“GAAP”) requirements.
Net sales were $71.0 million in the third quarter of 2018,
representing an increase of 16.4% from the third quarter of 2017.
Income from operations was $4.7 million in the third quarter of
2018, up from $3.4 million in the third quarter of 2017. GAAP net
loss from continuing operations in the third quarter of 2018 was
$1.1 million, or a loss from continuing operations of $0.10 per
diluted share, compared to a net loss from continuing operations of
$0.8 million, or a loss from continuing operations of $0.07 per
diluted share, in the third quarter of 2017.
Adjusted EBITDA for the third quarter of 2018 was $9.1 million,
compared with $9.2 million in the prior year period, primarily
reflecting net sales growth, offset by $1.9 million of incremental
employee performance incentive compensation due to the Company’s
improved performance in 2018. Adjusted Net loss from continuing
operations in the third quarter of 2018 was approximately
break-even, compared with Adjusted Net Income from continuing
operations of $1.0 million in the third quarter of 2017.
All earnings per share amounts reflect the one-for-five reverse
stock split, which occurred in December 2017.
Third Quarter 2018 – Continuing Operations Segment
Information
U.S. Debit and Credit:
Net sales were $48.0 million in the third quarter of 2018,
representing an increase of 19.8% from the third quarter of 2017.
The increase in U.S. Debit and Credit segment net sales was driven
primarily by an increase in net sales from our emerging products
and solutions, including dual interface EMV® card net sales, metal
cards, and Card@Once®. Sales volumes of EMV cards increased in the
third quarter of 2018 compared to second quarter of 2018 and the
third quarter of 2017, while EMV card average selling prices
declined on a year-over-year basis.
U.S. Prepaid Debit:
Net sales were $21.2 million in the third quarter of 2018,
representing an increase of 10.7% from the third quarter of 2017.
The year-over-year increase in U.S. Prepaid Debit segment net sales
was driven by additional sales volumes from our existing customer
base.
Balance Sheet, Cash Flow, Liquidity
Cash used in operating activities for the nine months ended
September 30, 2018 was $1.9 million, and capital expenditures
totaled $5.0 million. Free cash flow for the nine months ended
September 30, 2018 was a use of $6.9 million, on a continuing
operations basis.
At September 30, 2018, the Company had $12.8 million of cash and
cash equivalents and a $40.0 million revolving credit facility, of
which $20.0 million was available for borrowing.
Total debt principal outstanding, comprised of the Company’s
First Lien Term Loan, was $312.5 million at September 30, 2018,
unchanged from December 31, 2017. Net of debt issuance costs and
discount, recorded debt was $305.3 million as of September 30,
2018. The Company’s First Lien Term Loan matures on August 17, 2022
and includes no financial covenants.
John Lowe, Chief Financial Officer, stated, “We delivered solid
third quarter results highlighted by 16% year-over-year net sales
growth. We are also pleased with our gross profit margin
performance in the third quarter, which is up both sequentially and
compared to third quarter of 2017, reflecting our net sales growth,
focus on higher margin products and solutions, and our productivity
and efficiency initiatives. Third quarter adjusted EBITDA reflects
our top-line growth, partially offset by increased employee
performance incentive compensation. We continue to believe we have
adequate cash and liquidity to support our business plan moving
forward.”
EMV® is a registered trademark or trademark of EMVCo LLC in the
United States and other countries.
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: Adjusted Net Income
(Loss), Adjusted Diluted Earnings (Loss) per Share, EBITDA,
Adjusted EBITDA and Free Cash Flow. 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 Net Income (Loss) and Adjusted Diluted Earnings (Loss)
per Share – Continuing Operations
Adjusted Net Income (Loss) and Adjusted Diluted Earnings (Loss)
per Share – Continuing Operations exclude the impact of
amortization of intangible assets; litigation and related charges
incurred in connection with certain patent and shareholder
litigation; stock-based compensation expense; restructuring and
other charges; and other non-operational, non-cash or non-recurring
items, net of their income tax impact. Beginning in the first
quarter of 2018, a 21% tax rate is used to calculate Adjusted Net
Income (Loss) and Adjusted Diluted Earnings (Loss) per Share -
Continuing Operations. We believe that Adjusted Net Income (Loss)
and Adjusted Diluted Earnings (Loss) per Share - 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
results of operations.
EBITDA
EBITDA represents earnings before interest, taxes, depreciation
and amortization, on a continuing operations basis. EBITDA is
presented because it is an important supplemental measure of
performance, and it is frequently used by analysts, investors and
other interested parties in the evaluation of companies in our
industry. EBITDA is also presented and compared by analysts and
investors in evaluating our ability to meet debt service
obligations. Other companies in our industry may calculate EBITDA
differently. EBITDA is not a measurement of financial performance
under GAAP and should not be considered as an alternative to cash
flow from operating activities or as a measure of liquidity or an
alternative to net (loss) income 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, on a continuing operations basis, is defined as
EBITDA adjusted for litigation and related charges incurred in
connection with certain patent and shareholder litigation;
stock-based compensation expense; restructuring and other charges;
foreign currency gain or loss; and other items that are unusual in
nature, infrequently occurring or not considered part of our core
operations, as set forth in the reconciliation on Exhibit E.
Adjusted EBITDA is also a defined 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 (loss) income, even though these are expenses
that may recur, vary greatly and are difficult to predict and can
represent the effect of long-term strategies as opposed to
short-term results.
In addition, certain of these expenses can represent the
reduction of cash that could be used for other 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 - Continuing Operations as cash flow
from continuing operations less capital expenditures, and 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.
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 and dual interface,
personalization, instant issuance, fulfillment and digital 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 locations throughout the United States
and Canada, 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 hold a conference call on November 7,
2018 at 9:00 a.m. ET to review its third quarter 2018 results. To
participate in the Company's conference call via telephone or
online:
Participant Toll-Free Dial-In Number: (800) 860-2442Participant
International Dial-In Number: (412) 858-4600Conference ID: CPI
CallWebcast Link:
https://services.choruscall.com/links/pmts181107.html
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 7:00 p.m. ET on November 7,
2018 until 8.00 p.m. ET on November 14, 2018. To access the replay,
please dial (877) 344-7529 or (412) 317-0088; Conference ID:
10125243.
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. Words such as “may,” “will,” “should,” “could,”
“expect,” “anticipate,” “believe,” “estimate,” “intend,”
“continue,” “project,” “plan,” “foresee,” and other similar
expressions are intended to identify forward-looking statements,
which are generally not historical in nature. These forward-looking
statements are based on our current expectations and beliefs
concerning future developments and their potential effect on us,
and other information currently available. Such statements reflect
our current views with respect to future events and are subject to
certain risks, uncertainties and assumptions. Should one or more of
these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially
from those described herein as anticipated, believed, estimated,
expected or intended. We are making investors aware that such
forward-looking statements, because they relate to future events,
are by their very nature subject to many important factors that
could cause actual results to differ materially from those
contemplated. These risks and uncertainties include, but are not
limited to: our substantial indebtedness, including inability to
make debt service payments or refinance such indebtedness; the
restrictive terms of our credit facility and covenants of future
agreements governing indebtedness; our limited ability to
raise capital in the future; system security risks, data protection
breaches and cyber-attacks; interruptions in our operations,
including our IT systems; defects in our software; failure to
identify and attract new customers or to retain our existing
customers; problems in production quality and process; failure
to meet our customers’ demands in a timely manner; a loss of
market share or a decline in profitability resulting from
competition; developing technologies that make our existing
technology solutions and products less relevant or a failure to
introduce new products and services in a timely
manner; disruptions relating to the development and execution
of our strategy, or a failure to realize the anticipated benefits
of such strategy; our inability to sell, exit, reconfigure or
consolidate businesses or facilities that no longer meet with our
strategy; our inability to develop, introduce and commercialize new
products; our inability to adequately protect our trade secrets and
intellectual property rights from misappropriation or infringement;
our dependence on the timely supply of materials, products and
specialized equipment from third-party suppliers; a competitive
disadvantage resulting from chip operating systems developed by our
competitors; price erosion in the financial payment card industry;
failure to accurately predict demand for our products and services;
quarterly variation in our operating results; the effect of legal
and regulatory proceedings; infringement of our intellectual
property rights, or claims that our technology is infringing on
third-party intellectual property; our inability to realize the
full value of our long-lived assets; the impact of U.S. tax reform
legislation; our failure to operate our business in accordance with
data privacy laws, the PCI Security Standards Council (“PCI”)
security standards or other industry standards, such as Payment
Card Brand certification standards; costs relating to product
defects; a decline in U.S. and global market and economic
conditions; potential imposition of tariffs and/or trade
restrictions on goods imported into the United States; our
dependence on licensing arrangements; inability to renew leases for
our facilities or renew leases at existing terms; dependence
on our senior leadership team; inability to recruit, retain and
develop qualified personnel; the continued viability of the Payment
Card Brands; non-compliance with, and changes in, laws in the
United States and in foreign jurisdictions in which we operate and
sell our products; failure to maintain our listing on the NASDAQ or
TSX and other risks and other risk factors or uncertainties
identified from time to time in our filings with the Securities and
Exchange Commission. Although we believe that the expectations
reflected in such forward-looking statements are reasonable, we 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 “Cautionary Statement Regarding Forward-Looking
Information” and “Risk Factors” in our Annual Report on Form 10-K
for the year ended December 31, 2017 filed with the SEC on March
13, 2018. 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.
For more information:
CPI encourages investors to use its investor relations website
as a way of easily finding information about the company. CPI
promptly makes available on this website, free of charge, the
reports that the company files or furnishes with the SEC, corporate
governance information and press releases. CPI uses its investor
relations site (http://investor.cpicardgroup.com) as a means of
disclosing material information and for complying with its
disclosure obligations under Regulation FD.
CPI Card Group Inc.
Earnings Release Supplemental Financial Information
Exhibit A Condensed Consolidated Statements of Operations and
Comprehensive Loss - Unaudited for the three and nine months ended
September 30, 2018 and 2017 Exhibit B Condensed Consolidated
Balance Sheets – Unaudited as of September 30, 2018 and December
31, 2017 Exhibit C Condensed Consolidated Statements of Cash
Flows - Unaudited for the nine months ended September 30, 2018 and
2017 Exhibit D Segment Summary Information – Unaudited for
the three and nine months ended September 30, 2018 and 2017
Exhibit E Supplemental GAAP to Non-GAAP Reconciliations - Unaudited
for the three and nine months ended September 30, 2018 and 2017
EXHIBIT A
CPI Card Group Inc. and
Subsidiaries Condensed Consolidated Statements of Operations
and Comprehensive Loss (Dollars in Thousands, Except Per
Share Amounts) (Unaudited) Three Months Ended
September 30, Nine Months Ended September 30,
2018 2017 2018
2017 Net sales: Products $ 34,673 $ 26,777 $ 90,911 $
79,644 Services 36,314 34,220
96,387 86,611 Total net sales 70,987
60,997 187,298 166,255
Cost of sales: Products (exclusive of depreciation and
amortization shown below) 23,796 18,617 59,076 53,724 Services
(exclusive of depreciation and amortization shown below) 21,214
20,297 60,991 53,710 Depreciation and amortization 2,669
2,639 9,620 8,063
Total cost of sales 47,679 41,553
129,687 115,497 Gross profit 23,308
19,444 57,611 50,758 Operating expenses: Selling, general and
administrative (exclusive of depreciation and amortization shown
below) 17,033 14,541 48,119 43,801 Depreciation and amortization
1,588 1,533 4,513
4,779 Total operating expenses 18,621
16,074 52,632 48,580 Income from
operations 4,687 3,370 4,979 2,178 Other expense, net: Interest,
net (6,151 ) (5,304 ) (17,243 ) (15,532 ) Foreign currency (loss)
gain 16 348 (248 ) 520 Other income, net 8 5
15 11 Total other expense, net
(6,127 ) (4,951 ) (17,476 ) (15,001 )
Loss from continuing operations before income taxes (1,440 ) (1,581
) (12,497 ) (12,823 ) Income tax benefit 355
783 4,933 4,154 Net loss from
continuing operations (1,085 ) (798 ) (7,564 ) (8,669 ) Net (loss)
income from discontinued operation, net of tax (5,030 )
63 (22,551 ) 1,266 Net loss $
(6,115 ) $ (735 ) $ (30,115 ) $ (7,403 ) Basic and diluted loss per
share: Continuing operations $ (0.10 ) $ (0.07 ) $ (0.68 ) $ (0.78
) Discontinued operation (0.45 ) 0.01
(2.02 ) 0.11 Net loss per share $ (0.55 ) $ (0.06 ) $
(2.70 ) $ (0.67 ) Weighted-average shares outstanding: Basic and
diluted 11,159,984 11,127,873 11,145,946 11,111,728 Dividends
declared per common share $ — $ — $ — $ 0.45 Comprehensive loss:
Net loss $ (6,115 ) $ (735 ) $ (30,115 ) $ (7,403 ) Other
comprehensive loss from discontinued operations 3,983 — 3,983 —
Currency translation adjustment 98 434
(87 ) 1,221 Total comprehensive loss $ (2,034
) $ (301 ) $ (26,219 ) $ (6,182 ) 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,
2018 2017 (Unaudited)
Assets Current assets: Cash and cash equivalents $ 12,818 $
23,205 Accounts receivable, net 51,373 32,531 Inventories 10,481
13,799 Prepaid expenses and other current assets 2,922 3,681 Income
taxes receivable 6,736 8,208 Assets of discontinued operation
— 20,651 Total current assets 84,330
102,075 Plant, equipment and leasehold improvements, net 38,773
44,436 Intangible assets, net 36,601 40,093 Goodwill 47,150 47,150
Other assets 294 251 Total assets $
207,148 $ 234,005
Liabilities and
stockholders’ deficit Current liabilities: Accounts payable $
15,328 $ 13,239 Accrued expenses 17,933 12,789 Income taxes payable
678 — Deferred revenue and customer deposits 515 3,342 Liabilities
of discontinued operation — 5,669 Total
current liabilities 34,454 35,039 Long-term debt 305,330 303,869
Deferred income taxes 6,540 12,168 Other long-term liabilities
3,163 2,503 Total liabilities
349,487 353,579 Commitments and contingencies
Stockholders’ deficit:
Common stock; $0.001 par value—100,000,000
shares authorized; 11,160,377 and 11,134,714shares issued and
outstanding as of September 30, 2018 and December 31, 2017,
respectively
11 11 Capital deficiency (112,422 ) (113,081 ) Accumulated loss
(28,686 ) (1,366 ) Accumulated other comprehensive loss
(1,242 ) (5,138 ) Total stockholders’ deficit
(142,339 ) (119,574 ) Total liabilities and stockholders’
deficit $ 207,148 $ 234,005 EXHIBIT C
CPI Card Group Inc. and Subsidiaries Condensed
Consolidated Statements of Cash Flows (Dollars in
Thousands) (Unaudited) Nine Months Ended
September 30, 2018 2017
Operating activities Net loss $ (30,115 ) $ (7,403 )
Adjustments to reconcile net loss to net cash used in operating
activities: Loss (income) from discontinued operation 22,551 (1,266
) Depreciation and amortization expense 14,133 12,842 Stock-based
compensation expense 741 1,367 Amortization of debt issuance costs
and debt discount 1,461 1,461 Deferred income taxes (6,169 ) (863 )
Other, net 165 (209 ) Changes in operating assets and liabilities:
Accounts receivable (13,016 ) (10,309 ) Inventories (2,628 ) 1,498
Prepaid expenses and other assets 711 746 Income taxes 2,207 (4,470
) Accounts payable 2,108 2,460 Accrued expenses 4,725 (1,574 )
Deferred revenue and customer deposits 230 1,188 Other liabilities
1,052 438 Cash used in operating
activities - continuing operations (1,844 ) (4,094 )
Cash used in operating activities - discontinued operation
(2,914 ) (2,834 )
Investing activities Acquisitions
of plant, equipment and leasehold improvements (5,028 )
(6,289 ) Cash used in investing activities - continuing
operations (5,028 ) (6,289 ) Cash used in investing
activities - discontinued operation (220 ) (1,519 )
Financing activities Payments on capital lease obligations
(388 ) — Dividends paid on common stock — (7,537 ) Taxes withheld
and paid on stock-based compensation awards —
(341 ) Cash used in financing activities (388 ) (7,878 ) Effect of
exchange rates on cash 7 474 Net
decrease in cash and cash equivalents (10,387 ) (22,140 ) Cash and
cash equivalents, beginning of period 23,205
36,955 Cash and cash equivalents, end of period $ 12,818
$ 14,815
Supplemental disclosures of cash flow
information Cash paid during the period for: Interest $ 14,703
$ 13,719 Income taxes, net (refunds) payments $
(1,299 ) $ 1,437 Capital lease obligations incurred for
certain machinery and equipment leases $ 821 $ —
Accounts payable for acquisitions of plant, equipment and leasehold
improvements $ 171 $ 385
EXHIBIT D
CPI Card Group Inc. and Subsidiaries Segment
Summary Information For the Three and Nine Months Ended
September 30, 2018 and 2017 (Dollars in Thousands)
(Unaudited) Net Sales (1) and (2)
Three Months Ended September 30, 2018
2017 $ Change % Change
Net sales by segment:
U.S. Debit and Credit
$ 48,002 $ 40,055 $ 7,947 19.8 % U.S. Prepaid Debit 21,190 19,144
2,046 10.7 % Other 1,920 2,661 (741 ) (27.8 ) % Eliminations
(125 ) (863 ) 738 * % Total $ 70,987 $
60,997 $ 9,990 16.4 %
* Calculation not meaningful
Nine Months Ended September 30, 2018
2017 $ Change %
Change Net sales by segment:
U.S. Debit and Credit
$ 128,992 $ 122,174 $ 6,818 5.6 % U.S. Prepaid Debit 52,128 40,901
11,227 27.4 % Other 7,599 8,391 (792 ) (9.4 ) % Eliminations
(1,421 ) (5,211 ) 3,790 * % Total $ 187,298
$ 166,255 $ 21,043 12.7 %
* Calculation not meaningful
Gross
Profit (1) and (2) Three Months Ended September
30, 2018 % of NetSales 2017 % of
NetSales $ Change % Change Gross
profit by segment:
U.S. Debit and Credit
$ 13,551 28.2 % $ 10,637 26.6 % $ 2,914 27.4 % U.S. Prepaid Debit
9,439 44.5 % 7,862 41.1 % 1,577 20.1 % Other 318 16.6 %
945 35.5 % (627 ) * % Total $ 23,308 32.8 % $ 19,444
31.9 % $ 3,864 19.9 %
* Calculation not meaningful
Nine Months Ended September 30, 2018
% of NetSales 2017 %
of NetSales $ Change %
Change Gross profit by segment:
U.S. Debit and Credit
$ 35,891 27.8 % $ 34,235 28.0 % $ 1,656 4.8 % U.S. Prepaid Debit
20,111 38.6 % 14,417 35.2 % 5,694 39.5 % Other 1,609 21.2 %
2,106 25.1 % (497 ) * % Total $ 57,611 30.8 % $
50,758 30.5 % $ 6,853 13.5 %
* Calculation not meaningful
Income from
Operations (1) and (2) Three Months Ended September
30, 2018 % of NetSales 2017
% of NetSales $ Change
% Change Income (loss) from operations by segment:
U.S. Debit and Credit
$ 6,491 13.5 % $ 4,192 10.5 % $ 2,299 54.8 % U.S. Prepaid Debit
8,389 39.6 % 7,103 37.1 % 1,286 18.1 % Other (10,193 ) * %
(7,925 ) * % (2,268 ) 28.6 % Total $ 4,687
6.6 % $ 3,370 5.5 % $ 1,317 39.1 %
* Calculation not meaningful
Nine Months Ended September 30, 2018
% of NetSales 2017
% of NetSales $
Change % Change Income (loss) from operations
by segment:
U.S. Debit and Credit
$ 15,650 12.1 % $ 14,766 12.1 % $ 884 6.0 % U.S. Prepaid Debit
16,932 32.5 % 11,595 28.3 % 5,337 46.0 % Other (27,603 ) * %
(24,183 ) * % (3,420 ) 14.1 % Total $ 4,979
2.7 % $ 2,178 1.3 % $ 2,801 128.6 %
* Calculation not meaningful
EBITDA (1), (2) and (3)
Three Months Ended September 30, 2018 % of
NetSales 2017 % of NetSales
$ Change % Change EBITDA by segment:
U.S. Debit and Credit
$ 9,136 19.0 % $ 6,528 16.3 % $ 2,608 40.0 % U.S. Prepaid Debit
8,831 41.7 % 7,607 39.7 % 1,224 16.1 % Other (8,999 ) * %
(6,240 ) * % (2,759 ) 44.2 % Total $ 8,968
12.6 % $ 7,895 12.9 % $ 1,073 13.6 %
* Calculation not meaningful
Nine Months Ended September 30, 2018
% of NetSales 2017
% of NetSales $ Change
% Change EBITDA by segment:
U.S. Debit and Credit
$ 24,788 19.2 % $ 21,873 17.9 % $ 2,915 13.3 % U.S. Prepaid Debit
18,337 35.2 % 13,255 32.4 % 5,082 38.3 % Other (24,246 ) * %
(19,577 ) * % (4,669 ) 23.8 % Total $ 18,879
10.1 % $ 15,551 9.4 % $ 3,328 21.4 %
* Calculation not meaningful
(1) On August 3, 2018, we completed the sale of the U.K. Limited
segment. During the second quarter of 2018, we met the criteria to
report the U.K. Limited segment as a discontinued operation. The
financial position, results of operations and cash flows have been
restated for all periods to conform with discontinued operations
presentation.
(2) During the first quarter of 2018, we reorganized our United
States business operations and realigned our United States
reporting segments to correspond with the manner with which our
chief decision maker evaluates operating performance and makes
decisions as to the allocation of resources. As a result of this
realignment, our CPI on Demand business operations were moved from
U.S. Prepaid Debit into the U.S. Debit and Credit reporting
segment, consistent with the other related personalization
operations. Segment information for previous periods has been
restated to conform with this realignment and current period
presentation. The restatement of 2017 segment information was not
material.
(3) 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 $2,645
and $2,336 in U.S. Debit and Credit; $422 and $504 in U.S. Prepaid
Debit and $1,190 and $1,332 in Other for the three months ended
September 30, 2018 and 2017, respectively, and $9,143 and $7,108 in
U.S. Debit and Credit; $1,405 and $1,661 in U.S. Prepaid Debit and
$3,585 and $4,073 in Other for the nine months ended September 30,
2018 and 2017, respectively.
EXHIBIT E
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,
2018 2017 2018
2017 EBITDA and Adjusted EBITDA: Net loss from
continuing operations $ (1,085 ) $ (798 ) $ (7,564 ) $ (8,669 )
Interest expense, net 6,151 5,304 17,243 15,532 Income tax benefit
(355 ) (783 ) (4,933 ) (4,154 ) Depreciation and amortization
4,257 4,172 14,133
12,842
EBITDA $ 8,968 $ 7,895 $ 18,879 $ 15,551
Adjustments to EBITDA: Stock-based compensation
expense (42 ) 507 741 1,367 Litigation and related charges (1) 207
1,113 1,039 3,499 Restructuring (2) 1 — 1,096 — Foreign currency
loss (gain) (16 ) (348 ) 248
(520 ) Subtotal of adjustments to EBITDA 150
1,272 3,124 4,346
Adjusted
EBITDA $ 9,118 $ 9,167 $ 22,003 $ 19,897
Adjusted EBITDA margin (% of Net Sales) 12.8 % 15.0 % 11.7 %
12.0 %
Three Months Ended September 30,
Nine Months Ended September 30, 2018
2017 2018 2017
Adjusted net income (loss) from continuing operations and loss
per share - continuing operations: Net loss from continuing
operations $ (1,085 ) $ (798 ) $ (7,564 ) $ (8,669 ) Amortization
of intangible assets 1,164 1,172 3,492 3,515 Stock-based
compensation expense (42 ) 507 741 1,367 Litigation and related
charges (1) 207 1,113 1,039 3,499 Restructuring (2) 1 — 1,096 — Tax
effect of above items (279 ) (977 ) (1,338 )
(2,933 )
Adjusted net income (loss) from continuing
operations $ (34 ) $ 1,017 $ (2,534 ) $ (3,221 )
Three Months Ended September 30, Nine Months Ended
September 30, 2018 2017 2018
2017 Weighted-average number of shares
outstanding: Basic 11,159,984 11,127,873 11,145,946 11,111,728
Effect of dilutive equity awards — 21,411
— — Weighted-average diluted shares
outstanding 11,159,984 11,149,284
11,145,946 11,111,728
Three Months
Ended September 30, Nine Months Ended September 30,
2018 2017 2018
2017 Reconciliation of diluted loss per share -
continuing operations (GAAP) to adjusted diluted earnings (loss)
per share - continuing operations: Diluted loss per share -
continuing operations (GAAP) $ (0.10 ) $ (0.07 ) $ (0.68 ) $ (0.78
) Impact of net income adjustments - continuing operations
0.10 0.16 0.45 0.49
Adjusted diluted earnings (loss) per share - continuing
operations $ 0.00 $ 0.09 $ (0.23 ) $ (0.29 )
Three Months Ended September 30, Nine Months Ended
September 30, 2018 2017 2018
2017 Reconciliation of cash provided by
(used in) operating activities - continuing operations (GAAP) to
free cash flow: Cash provided by (used in) operating activities
- continuing operations $ (491 ) $ 3,327 $ (1,844 ) $ (4,094 )
Acquisitions of plant, equipment and leasehold improvements
(2,919 ) (1,946 ) (5,028 ) (6,289 ) Free cash
flow - continuing operations $ (3,410 ) $ 1,381 $ (6,872 ) $
(10,383 )
Note that tables in this exhibit are presented on a continuing
operations basis.
(1) Represents legal costs incurred in connection with certain
patent and shareholder litigation.
(2) Represents primarily employee and lease termination costs
incurred in connection with the decision to consolidate three
personalization operations in the United States into two
facilities.
(3) Share and per share amounts reflect the one-for-five reverse
stock split for all periods presented.
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CPI Card Group Inc. Investor Relations:William Maina, (877)
369-9016InvestorRelations@cpicardgroup.comorCPI
Card Group Inc. Media Relations:Media@cpicardgroup.com