Third Quarter Net Sales of $68.0 million
GAAP loss per diluted share of $(0.01);
Adjusted diluted EPS of $0.02
Adjusted EBITDA of $9.6 million
Third Quarter Cash Provided by Operating
Activities of $1.3 million
Cash of $14.8 million, Undrawn Revolver of
$20.0 million, Available Liquidity of $34.8 million
New Leadership Initiated Robust Review of
Business Strategies and Market Opportunities; Discontinued
Providing Guidance as Review Underway and Initiatives are Executed
to Drive Shareholder Value
Confident in Long-Term Opportunities and will
Provide an Update on Plans and Initiatives during Fourth Quarter
2017 Earnings Call
Call scheduled for Tuesday, November 7, 2017 at
5:00 p.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, 2017.
Scott Scheirman, President and Chief Executive Officer of CPI
Card Group, stated, “We believe CPI has strong long-term
opportunities. We expect cards in circulation will continue to grow
in the U.S. over the long-term, which bodes well for card
replacement driven demand, and the migration to EMV continues to
progress. Furthermore, we are excited about the momentum that is
building in our newer products and solutions including Card@Once,
CPI on Demand (formerly “Print on Demand”) and premium metal cards.
In addition, we continue to view the potential migration of the
U.S. market to dual-interface cards as an attractive long-term
opportunity. We believe our dedicated and passionate employees,
strong market position and diverse suite of products and
differentiated solutions position us very well. However, we also
need to enhance our strategies and sharpen our execution to better
serve our customers and drive growth in order to deliver
shareholder value. I’m personally looking forward to working with
our employees, customers and partners to achieve these
objectives.”
Business Review & 2017 Financial Outlook
CPI believes that it has the products and innovative solutions
in place to navigate the challenging U.S. card manufacturing market
and capitalize on the significant long-term growth opportunities
within the broader payments space. With this solid foundation
established, CPI believes that customers and stockholders will
benefit from the Company conducting a thorough review of its
business strategies and market opportunities. As a result, CPI has
initiated a review of its business with an objective to better
serve the needs of customers and deliver shareholder value. The
Company has discontinued providing guidance so that it can enhance
its strategies and execute initiatives to achieve these objectives.
CPI plans to provide an update with key indicators of performance
during the fourth quarter earnings call.
Mr. Scheirman stated, “While we remain confident in our
long-term success, we believe that it is prudent to take the time
to review and assess the business, enhance our strategies and
execute our key initiatives. We plan to provide an update on our
plans, initiatives, and guidance policies when we report fourth
quarter 2017 results.”
Third Quarter 2017 Segment Information
U.S. Debit and Credit:
Net sales were $39.3 million in the third quarter of 2017,
representing a decrease of 20.0% from the third quarter of 2016.
The decrease in U.S. Debit and Credit segment net sales was driven
predominantly by a decline in the number of EMV® chip cards sold in
the third quarter compared with the third quarter of 2016 and lower
EMV® card average selling prices, as well as a $3.6 million
decrease in card personalization and fulfillment services
revenue.
U.S. Prepaid Debit:
Net sales were $19.9 million in the third quarter of 2017,
representing a decrease of 13.7% from the third quarter of 2016.
The year-over-year decline in U.S. Prepaid Debit segment net sales
was driven primarily by lower volumes, partially offset by higher
net sales related to CPI on Demand (formerly “Print on Demand”)
services.
U.K. Limited:
Net sales were $7.0 million in the third quarter of 2017,
representing a decrease of 8.2% from the third quarter of 2016. The
lower net sales resulted from a prior year loyalty card project
which did not recur during the third quarter of 2017, partially
offset by higher retail gift card net sales.
Balance Sheet, Cash Flow, Liquidity & Other Select
Financial Information
At September 30, 2017, the Company had $14.8 million of cash and
cash equivalents and an undrawn $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, 2017,
unchanged from December 31, 2016. Net of debt issuance costs and
discount, recorded debt was $303.4 million as of September 30,
2017. The Company’s First Lien Term Loan matures on August 17, 2022
and includes no financial leverage covenants.
Cash provided by operating activities for the three months ended
September 30, 2017 was $1.3 million, a decrease from $6.6 million
in the prior year period, but an increase of $4.6 million from a
use of $(3.3) million in the second quarter of 2017. Capital
expenditures totaled $2.0 million for the three months ended
September 30, 2017 compared with $5.4 million in the prior year
period. Free cash flow for the three months ended September 30,
2017 was $(0.7) million, compared with $1.2 million in the prior
year period.
Interest expense, net, was $5.3 million in the third quarter of
2017, up modestly from $5.0 million in the third quarter of 2016
due primarily to higher average interest rates on the Company’s
outstanding debt balance.
Lillian Etzkorn, Chief Financial Officer, stated, “I am pleased
with the improvement in our operating cash flow trend in the third
quarter, and we remain intensely focused on returning to consistent
positive cash flow generation. We expect positive cash flow from
operations for the balance of 2017. Our primary objective is to
deliver long-term shareholder value by making the investments
necessary to better position CPI to capitalize on the growth
opportunities in our industry, and we plan to aggressively improve
our cost structure and operating efficiencies, while also improving
our net leverage position.”
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 (Loss), Adjusted Diluted Earnings (Loss) per
Share, EBITDA, Adjusted EBITDA, 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 E to this press release.
Adjusted Net Income (Loss) and Adjusted Diluted Earnings (Loss)
per Share
Adjusted Net Income (Loss) and Adjusted Diluted Earnings (Loss)
per Share exclude the impact of amortization of intangible assets,
stock-based compensation expense, litigation and related charges
incurred in connection with certain patent and shareholder
litigation, 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. A 35% tax rate is used to
calculate Adjusted Net Income (Loss) and Adjusted Diluted Earnings
(Loss) per Share. We believe that Adjusted Net Income (Loss) and
Adjusted Diluted Earnings (Loss) per Share 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. 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 is defined as EBITDA adjusted for stock-based
compensation expense, litigation and related charges 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, 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 as cash flow from 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.
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 the United States and Canada, 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 7,
2017 at 5:00 p.m. ET to discuss its third quarter 2017 results. To
participate in the Company's live conference call via telephone or
online:
Participant Toll-Free Dial-In Number: (844) 392-3771 Participant
International Dial-In Number: (541) 397-0893 Conference ID: 1066727
Webcast Link:
https://edge.media-server.com/m6/p/b8ucdud3
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 7,
2017 until 11:59 p.m. ET on November 14, 2017. To access the
replay, please dial (855) 859-2056 or (404) 537-3406; Conference
ID: 1066727.
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 statements
involve risks and uncertainties that could cause actual results to
differ materially from those described in such statements. These
risks and uncertainties include, but are not limited to: system
security risks, data protection breaches and
cyber-attacks; market acceptance of developing technologies
that make our existing technology solutions and products less
relevant; a slower or less widespread continued adoption of
contact 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 price erosion in the payment card
industry; failure to accurately predict demand for our products and
services; 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 production quality and
process; 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;
potential imposition of tariffs and/or trade restrictions on goods
imported into the United States; economic conditions and
regulatory changes leading up to and following the United Kingdom’s
likely exit from the European Union; costs relating to product
defects; 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; a competitive disadvantage resulting from chip
operating systems developed by our competitors; continued viability
of the Payment Card Brands; quarterly variation in our operating
results; and other risks 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 “Cautionary
Statement Regarding Forward-Looking Information” and “Risk Factors”
in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2016 filed with the SEC on March 2, 2017. 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) Income - Unaudited for the
three and nine months ended September 30, 2017 and 2016
Exhibit B Condensed Consolidated Balance Sheets – Unaudited as of
September 30, 2017 and December 31, 2016 Exhibit C Condensed
Consolidated Statements of Cash Flows - Unaudited for the nine
months ended September 30, 2017 and 2016 Exhibit D Segment
Summary Information – Unaudited for the three and nine months ended
September 30, 2017 and 2016 Exhibit E Supplemental GAAP to
Non-GAAP Reconciliations - Unaudited for the three and nine months
ended September 30, 2017 and 2016
EXHIBIT A
CPI Card Group Inc. and Subsidiaries Condensed
Consolidated Statements of Operations and Comprehensive (Loss)
Income (Dollars in Thousands, Except Per Share Amounts)
(Unaudited) Three Months Ended September 30,
Nine Months Ended September 30, 2017 2016
2017 2016 Net sales: Products $ 31,417 $ 37,482 $
95,005 $ 132,535 Services 36,627 43,720
94,893 108,785 Total net sales
68,044 81,202 189,898
241,320 Cost of sales: Products (exclusive of depreciation
and amortization shown below) 22,366 23,583 66,161 87,248 Services
(exclusive of depreciation and amortization shown below) 21,916
25,855 58,969 64,682 Depreciation and amortization 2,786
2,701 8,412 7,928
Total cost of sales 47,068 52,139
133,542 159,858 Gross profit 20,976
29,063 56,356 81,462 Operating expenses: Selling, general and
administrative (exclusive of depreciation and amortization shown
below) 15,806 15,838 47,519 46,969 Depreciation and amortization
1,674 1,529
5,183
4,602 Total operating expenses 17,480
17,367 52,702 51,571
Income from operations 3,496 11,696 3,654 29,891 Other
expense, net: Interest, net (5,305 ) (5,008 ) (15,530 ) (15,109 )
Foreign currency gain (loss) 314 (124 ) 568 (192 ) Other income,
net 5 3 12 17
Total other expense, net (4,986 ) (5,129 )
(14,950 ) (15,284 ) (Loss) Income before
income taxes (1,490 ) 6,567 (11,296 ) 14,607 Income tax benefit
(expense) 755 (2,541 ) 3,893
(5,194 ) Net (loss) income $ (735 ) $ 4,026 $ (7,403
) $ 9,413 Basic and diluted (loss) earnings
per share: $ (0.01 ) $ 0.07 $ (0.13 ) $ 0.17 Weighted-average
shares outstanding: Basic 55,639,551 55,255,239 55,558,825
55,999,722 Diluted 55,639,551 55,508,684 55,558,825 56,232,195
Dividends declared per common share $ — $ 0.045 $ 0.09 $
0.135 Comprehensive (loss) income Net (loss) income $ (735 )
$ 4,026 $ (7,403 ) $ 9,413 Currency translation adjustment
434 (465 ) 1,221 (1,414 ) Total
comprehensive (loss) income $ (301 ) $ 3,561 $ (6,182 ) $
7,999 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,
2017 2016 (Unaudited) Assets Current
assets: Cash and cash equivalents $ 14,815 $ 36,955 Accounts
receivable, net of allowances of $53 and $126, respectively 42,712
31,492 Inventories 18,637 19,369 Prepaid expenses and other current
assets 3,891 4,601 Income taxes receivable 4,415
— Total current assets 84,470 92,417 Plant, equipment
and leasehold improvements, net 51,320 53,419 Intangible assets,
net 42,800 46,348 Goodwill 72,638 71,996 Other assets 280
240 Total assets $ 251,508 $ 264,420
Liabilities and stockholders’ deficit Current
liabilities: Accounts payable $ 13,482 $ 10,996 Accrued expenses
12,856 17,487 Income taxes payable — 64 Deferred revenue and
customer deposits 5,194 6,729
Total current liabilities
31,532 35,276 Long-term debt 303,383 301,922 Deferred income taxes
20,512 21,261 Other long-term liabilities 1,666
1,234 Total liabilities 357,093 359,693
Commitments and contingencies Stockholders’ deficit: Common
Stock; $0.001 par value—100,000,000 shares authorized; 55,661,337
and 55,359,251 shares issued and outstanding as of September 30,
2017 and December 31, 2016, respectively 56 55 Capital deficiency
(113,689 ) (114,881 ) Accumulated earnings 13,242 25,968
Accumulated other comprehensive loss (5,194 ) (6,415
) Total stockholders’ deficit (105,585 ) (95,273 )
Total liabilities and stockholders’ deficit $ 251,508 $
264,420 EXHIBIT C
CPI Card
Group Inc. and Subsidiaries Condensed Consolidated
Statements of Cash Flows (Dollars in Thousands)
(Unaudited) Nine Months Ended September 30,
2017 2016 Operating activities Net (loss)
income $ (7,403 ) $ 9,413 Adjustments to reconcile net (loss)
income to net cash (used in) provided by operating activities:
Depreciation and amortization expense 13,595 12,530 Stock-based
compensation expense 1,367 2,785 Amortization of debt issuance
costs and debt discount 1,461 1,437 Excess tax benefits from
stock-based compensation — (526 ) Deferred income taxes (863 ) (445
) Other, net (209 ) 220 Changes in operating assets and
liabilities: Accounts receivable (10,681 ) 9,053 Inventories 1,186
1,978 Prepaid expenses and other assets 709 (32 ) Income taxes
(4,470 ) 4,522 Accounts payable 2,319 (4,352 ) Accrued expenses
(2,384 ) 1,699 Deferred revenue and customer deposits (1,957 )
1,307 Other liabilities 402 183 Cash
(used in) provided by operating activities (6,928 ) 39,772
Investing activities Acquisitions of plant, equipment and
leasehold improvements (7,808 ) (12,369 ) Cash used
in investing activities (7,808 ) (12,369 )
Financing
activities Payment of Sellers Note — (9,000 ) Dividends paid on
common stock (7,537 ) (5,031 ) Taxes withheld and paid on
stock-based compensation awards (341 ) — Common stock repurchased —
(6,008 ) Excess tax benefits from stock-based compensation —
526 Cash used in financing activities (7,878 )
(19,513 ) Effect of exchange rates on cash 474
(226 ) Net (decrease) increase in cash and cash equivalents (22,140
) 7,664 Cash and cash equivalents, beginning of period
36,955 13,606 Cash and cash equivalents, end
of period $ 14,815 $ 21,270 EXHIBIT D
CPI
Card Group Inc. and Subsidiaries Segment Summary
Information For the Three and Nine Months Ended September
30, 2017 and 2016 (Dollars in Thousands, Except Shares and
Per Share Amounts) (Unaudited)
Net Sales Three Months Ended September 30,
2017 2016
$ Change
% Change (dollars in thousands) Net sales by segment:
U.S Debit and Credit $ 39,304 $ 49,156 $ (9,852 ) (20.0 ) % U.S.
Prepaid Debit 19,935 23,087 (3,152 ) (13.7 ) % U.K. Limited 7,047
7,675 (628 ) (8.2 ) % Other 2,661 2,710 (49 ) (1.8 ) % Eliminations
(903 ) (1,426 ) 523 * Total $ 68,044
$ 81,202 $ (13,158 ) (16.2 ) %
Nine
Months Ended September 30, 2017 2016
$ Change
% Change (dollars in thousands) Net sales by
segment: U.S Debit and Credit $ 121,017 $ 165,055 $ (44,038 ) (26.7
) % U.S. Prepaid Debit 42,146 47,419 (5,273 ) (11.1 ) % U.K.
Limited 23,644 21,896 1,748 8.0 % Other 8,390 9,530 (1,140 ) (12.0
) % Eliminations (5,299 ) (2,580 ) (2,719 ) *
Total
$ 189,898 $ 241,320 $ (51,422 ) (21.3 ) %
Gross Profit
Three Months Ended September 30, 2017 % of
NetSales 2016 % of NetSales
$ Change
% Change (dollars in thousands) Gross profit by
segment: U.S Debit and Credit $ 10,739 27.3 % $ 17,093 34.8 % $
(6,354) (37.2) % U.S. Prepaid Debit 7,707 38.7 % 9,168 39.7 %
(1,461) (15.9) % U.K. Limited 1,534 21.8 % 2,169 28.3 % (635)
(29.3) % Other 996 * 633 * 363 * Total $
20,976 30.8 % $ 29,063 35.8 % $ (8,087) (27.8) %
Nine Months Ended September 30, 2017
% of NetSales 2016 % of
NetSales
$ Change
% Change (dollars in thousands) Gross profit
by segment: U.S Debit and Credit $ 35,131 29.0 % $ 55,964 33.9 % $
(20,833 ) (37.2 ) % U.S. Prepaid Debit 13,470 32.0 % 17,401 36.7 %
(3,931 ) (22.6 ) % U.K. Limited 5,602 23.7 % 5,817 26.6 % (215 )
(3.7 ) % Other 2,153 * 2,280 * (127 ) * Total
$ 56,356 29.7 % $ 81,462 33.8 % $ (25,106 ) (30.8 ) %
Income from Operations
Three Months Ended September 30, 2017 % of
NetSales 2016 % of NetSales
$ Change
% Change (dollars in thousands) Income from
Operations by segment: U.S Debit and Credit $ 4,332 11.0 % $ 10,769
21.9 % $ (6,437 ) (59.8 ) % U.S. Prepaid Debit 6,910 34.7 % 8,014
34.7 % (1,104 ) (13.8 ) % U.K. Limited 201 2.9 % 841 11.0 % (640 )
(76.1 ) % Other (7,947 ) * (7,928 ) * (19 ) *
Total $ 3,496 5.1 % $ 11,696 14.4 % $ (8,200 ) (70.1
) %
Nine
Months Ended September 30, 2017 % of
NetSales 2016 % of NetSales $
Change % Change (dollars in thousands) Income
from Operations by segment: U.S Debit and Credit $ 15,798 13.1 % $
37,007 22.4 % $ (21,209 ) (57.3 ) % U.S. Prepaid Debit 10,511 24.9
% 13,682 28.9 % (3,171 ) (23.2 ) % U.K. Limited 1,630 6.9 % 1,496
6.8 % 134 9.0 % Other (24,285 ) * (22,294 ) *
(1,991 ) * Total $ 3,654 1.9 % $ 29,891 12.4 % $
(26,237 ) (87.8 ) %
EBITDA
Three Months Ended September
30, 2017 % of NetSales 2016 % of
NetSales $ Change % Change (dollars in
thousands) EBITDA by segment (1) U.S Debit and Credit $ 6,476
16.5 % $ 12,917 26.3 % $ (6,441 ) (49.9 ) % U.S. Prepaid Debit
7,606 38.2 % 8,593 37.2 % (987 ) (11.5 ) % U.K. Limited 403 5.7 %
942 12.3 % (539 ) (57.2 ) % Corporate and Other (6,210 ) *
(6,647 ) * 437 * Total $ 8,275 12.2 % $
15,805 19.5 % $ (7,530 ) (47.6 ) % * 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 $2,144 and $2,199
in U.S. Debit and Credit, $696 and $579 in U.S. Prepaid Debit, $237
and $186 in U.K. Limited and $1,383 and $1,266 in Corporate and
Other for the three months ended September 30, 2017 and 2016,
respectively.
Nine Months Ended September 30, 2017
% of NetSales 2016 %
of NetSales
$ Change
% Change (dollars in thousands) EBITDA by
segment (1) U.S Debit and Credit $ 22,379 18.5 % $ 43,242 26.2 % $
(20,863 ) (48.2 ) % U.S. Prepaid Debit 12,698 30.1 % 15,417 32.5 %
(2,719 ) (17.6 ) % U.K. Limited 2,295 9.7 % 1,841 8.4 % 454 24.7 %
Corporate and Other (19,543 ) * (18,254 ) *
(1,289 ) * Total $ 17,829 9.4 % $ 42,246 17.5 % $
(24,417 ) (57.8 ) % * 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 $6,581 and $6,376
in U.S. Debit and Credit, $2,188 and $1,736 in U.S. Prepaid Debit,
$617 and $520 in U.K. Limited and $4,209 and $3,898 in Corporate
and Other for the nine months ended September 30, 2017 and 2016,
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,
2017 2016 2017 2016 EBITDA and
Adjusted EBITDA: Net (loss) income $ (735 ) $ 4,026 $ (7,403 )
$ 9,413 Interest expense, net 5,305 5,008 15,530 15,109 Income tax
(benefit) expense (755 ) 2,541 (3,893 ) 5,194 Depreciation and
amortization 4,460 4,230 13,595
12,530
EBITDA $ 8,275 $ 15,805 $ 17,829
$ 42,246
Adjustments to EBITDA Stock-based
compensation expense 507 934 1,367 2,785 Litigation and related
charges (1) 1,113 645 3,499 2,587 EFT Source acquisition
performance bonuses — 250 — 750 Foreign currency (gain) loss
(314 ) 124 (568 ) 192 Subtotal
of adjustments to EBITDA 1,306 1,953
4,298 6,314
Adjusted EBITDA $
9,581 $ 17,758 $ 22,127 $ 48,560
Three Months Ended September 30, Nine Months Ended
September 30, 2017 2016 2017 2016
Adjusted net income (loss) and earnings (loss) per share:
Net (loss) income $ (735 ) $ 4,026 $ (7,403 ) $ 9,413 Amortization
of intangible assets 1,227 1,132 3,678 3,406 Stock-based
compensation expense 507 934 1,367 2,785 Litigation and related
charges (1) 1,113 645 3,499 2,587 EFT Source acquisition
performance bonuses — 250 — 750 Tax effect of above items
(996 ) (977 ) (2,990 ) (3,144 ) Discrete tax items —
— — —
Adjusted net
income (loss) $ 1,116 $ 6,010 $ (1,849 ) $ 15,797
(1) Represents legal costs incurred
in connection with certain patent and shareholder litigation.
Three Months Ended September 30, Nine Months Ended
September 30, 2017 2016 2017 2016
Weighted-average number of shares outstanding: Basic
55,639,551 55,255,239 55,558,825 55,999,722 Effect of dilutive
equity awards 107,058 253,445 —
232,473 Weighted-average diluted shares outstanding
55,746,609 55,508,684 55,558,825
56,232,195
Three Months Ended
September 30, Nine Months Ended September 30,
2017 2016 2017 2016 Reconciliation
of diluted (loss) earnings per share (GAAP) to adjusted diluted
earnings (loss) per share: Diluted (loss) earnings per share
(GAAP) $ (0.01 ) $ 0.07 $ (0.13 ) $ 0.17 Impact of net income
adjustments 0.03 0.04 0.10
0.11
Adjusted diluted earnings (loss) per
share $ 0.02 $ 0.11 $ (0.03 ) $ 0.28
Three Months Ended September 30, Nine
Months Ended September 30, 2017 2016 2017
2016 Constant Currency: U.K. Limited net sales, as
reported (GAAP) $ 7,047 $ 7,675 $ 23,644 $ 21,896 Foreign currency
translation impact 14 — 2,227
— U.K. Limited net sales, constant currency
adjusted $ 7,061 $ 7,675 $ 25,871 $ 21,896
Net sales change, as reported (GAAP) (8.2 ) % 8.0 % Net
sales change, constant currency adjusted (8.0 ) % 18.2 %
Three Months Ended September 30, Nine Months Ended
September 30, 2017 2016 2017 2016
Reconciliation of cash (used in) provided by operating
activities (GAAP) to free cash flow: Cash provided by (used in)
operating activities $ 1,334 $ 6,605 $ (6,928 ) $ 39,772
Acquisitions of plant, equipment and leasehold improvements
(2,025 ) (5,360 ) (7,808 ) (12,369 ) Free cash
flow $ (691 ) $ 1,245 $ (14,736 ) $ 27,403
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CPI Card Group Inc.Investor Relations:William Maina,
877-369-9016InvestorRelations@cpicardgroup.comorMedia
Relations:Media@cpicardgroup.com