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8-K - 8-K - CPI Card Group Inc.a16-5115_18k.htm
EX-99.2 - EX-99.2 - CPI Card Group Inc.a16-5115_1ex99d2.htm

Exhibit 99.1

 

CPI Card Group Inc. Reports Fourth Quarter and Full Year 2015 Results

 

Fourth Quarter Net Sales of $93.6 million and Pro Forma Adjusted Diluted EPS of $0.16

 

Initiates Quarterly Dividend

 

Announces 2016 Financial Outlook

 

Call scheduled for Wednesday, February 24, 2016 at 5:00 p.m. Eastern Time

 

Littleton, Colo. February 24, 2016 — CPI Card Group Inc. (Nasdaq: PMTS; TSX: PNT) (“CPI Card Group” or the “Company”) today reported financial results for the fourth quarter and full fiscal year ended December 31, 2015.

 

Fourth Quarter 2015 Highlights

 

·                  Net sales were $93.6 million, an increase of 6.5% over the prior year period.

 

·                  Adjusted EBITDA was $21.8 million, or 23.3% of net sales, up 20.8% over the prior year period.

 

·                  Net loss from continuing operations was $(1.6) million, or $(0.03) per share, compared with net income from continuing operations of $5.6 million in the prior year period. Fourth quarter 2015 net loss from continuing operations reflects the impact of a $4.7 million, or $(0.06) per share, accelerated amortization charge of debt issuance cost and discount primarily related to the early repayment of $112.5 million of debt using the proceeds from the Company’s initial public offering (“IPO”), and a charge of $6.9 million, or $(0.08) per share, related to the settlement of the Company’s Phantom Stock Plan in conjunction with the IPO.

 

·                  Adjusted net income from continuing operations was $8.8 million, or $0.16 per share on a pro forma diluted basis, an increase of 7.6% over the prior year period.

 

Full Year 2015 Highlights

 

·                  Net sales were $374.1 million, an increase of 43.3% over the prior year.

 

·                  Adjusted EBITDA was $96.2 million, or 25.7% of net sales, up 77.5% over the prior year.

 

·                  Net income from continuing operations was $31.3 million, an increase of 95.7% over the prior year.

 

·                  Adjusted net income from continuing operations was $47.3 million, or $0.83 per share on a pro forma basis, an increase of 107.6% over the prior year.

 

·                  On October 15, 2015, CPI Card Group Inc. completed its initial public offering (“IPO”), issuing 15,000,000 shares of common stock at $10.00 per share.

 

“Our fourth-quarter results cap a strong 2015 for CPI Card Group. Our performance is a testament to the strength of our business model and leading position in the North American payment cards solutions market. Looking ahead, we will remain focused on executing our strategic growth initiatives in 2016, which include expanding with our existing client base, penetrating new market verticals, introducing additional products and services, and selectively pursuing strategic acquisitions. I am optimistic about the breadth of growth opportunities available to us, and believe we are well positioned to continue capitalizing on the on-going EMV card

 



 

conversion within the U.S. financial card market, as well as increasing demand for card personalization and other value-added services,” said Steve Montross, president and chief executive officer of CPI Card Group.

 

Mr. Montross added, “The quarterly dividend program announced today is a reflection of our strong cash flow and our confidence in our long-term growth prospects, as well as our commitment to enhancing total value for our shareholders.”

 

Fourth Quarter and Full Year 2015 Segment Information

 

U.S. Debit and Credit:

 

Net sales increased 11.2% to $67.5 million in the fourth quarter of 2015 from $60.7 million in prior year period. Gross profit increased 13.8% to $23.6 million from $20.8 million in the prior year period, and gross profit margin expanded to 35.0% from 34.2% in the prior year period. Income from operations increased to $16.9 million from $14.7 million in the fourth quarter of 2014, while operating margins expanded to 25.0% from 24.2% in the prior year period.  EBITDA grew 23.7% to $19.0 million, or 28.2% of net sales, from $15.4 million, or 25.3% of net sales, in the fourth quarter of 2014.  The growth in the U.S. Debit and Credit segment was driven by the continued conversion of financial payment cards from magnetic stripe to EMV, with the number of EMV chip cards sold increasing by 21.3% as compared with the fourth quarter of 2014.  For the year ended December 31, 2015, the U.S. Debit and Credit segment net sales increased 72.3% compared with the prior year.

 

U.S. Prepaid Debit:

 

Net sales for the fourth quarter grew 1.4% to $12.4 million from $12.2 million in the fourth quarter of 2014. Gross profit increased 4.0% to $4.1 million from $3.9 million in the prior year, and gross profit margin expanded to 33.1% from 32.3% in the prior year. Income from operations increased 4.3% to $2.7 million from $2.6 million in the fourth quarter of 2014, while operating margins increased to 21.9% from 21.3% in the prior year period.  EBITDA was $3.3 million, or 26.3% of net sales, compared with $3.3 million, or 27.3% of net sales, in the fourth quarter of 2014. The growth of U.S. Prepaid Debit segment revenues in the fourth quarter of 2015 reflects solid retail prepaid sales across the customer base, partially offset by the timing of product refreshes and program launches and strong replenishments by certain prepaid program managers in the prior year period.  For the year ended December 31, 2015, U.S. Prepaid Debit segment net sales increased 11.1% compared with the prior year.

 

U.K. Limited:

 

Net sales decreased 2.3% to $10.8 million from $11.0 million in the fourth quarter of 2014. U.K. Limited net sales in the fourth quarter of 2015 were negatively impacted by approximately $(0.5) million due to unfavorable foreign currency exchange rate fluctuations. On a constant currency basis, U.K. Limited net sales increased 1.9% compared with the fourth quarter of 2014. Gross profit increased 3.8% to $3.0 million from $2.9 million in the prior year, and gross profit margin expanded to 28.1% from 26.4% in the prior year. Income from operations increased 2.0% year-over-year to $1.3 million, while operating margins expanded to 12.0% from 11.5% in the prior year period.  Income from operations benefitted from lower depreciation expense in the fourth quarter of 2015 compared to 2014.  EBITDA was $1.5 million, or 13.9% of net sales, the same as the fourth quarter of 2014.  For the year ended December 31, 2015, U.K. Limited segment net sales declined 2.3% compared with the prior year.  On a constant currency basis, U.K. Limited segment net sales for the year ended December 31, 2015 increased 4.9% compared with the prior year.

 



 

Other:

 

Interest expense, net, increased to $10.2 million from $2.1 million in the fourth quarter of 2014, reflecting higher debt levels as a result of the new $435.0 million Term Loan B facility that the Company put in place during August 2015.  Interest expense in the fourth quarter of 2015 includes accelerated amortization of debt issuance costs and discount of $4.7 million related primarily to the early repayment of $112.5 million of debt using proceeds from the Company’s IPO in October 2015 and higher average debt balances compared with the fourth quarter of 2014. The effective tax rate was 36.3% for the fiscal year ended December 31, 2015.

 

Earnings per Share

 

Giving effect to the 15,000,000 common share issuance from the Company’s IPO in October 2015, pro forma adjusted diluted earnings per share from continuing operations was $0.16 and $0.14 for the three months ended December 31, 2015 and 2014, respectively, while adjusted diluted earnings per share from continuing operations, using actual weighted-average diluted shares outstanding, was $0.16 and $0.20, respectively.  Pro forma adjusted diluted earnings per share from continuing operations for the years ended December 31, 2015 and 2014 was $0.83 and $0.40, respectively, and adjusted diluted earnings per share from continuing operations was $1.05 and $0.55, respectively.  On a GAAP basis, diluted loss per share was $(0.04) for both the fourth quarter and full year 2015, compared with $(0.18) and $(0.76) for the fourth quarter and full year in 2014, respectively.

 

Balance Sheet, Cash Flow and Liquidity

 

Total debt outstanding was $309.0 million at December 31, 2015 net of deferred debt issuance costs and discount of $12.5 million, compared with $426.5 million at September 30, 2015 and $178.8 million at December 31, 2014.  The decline in debt during 2015 reflects the use of $112.5 million of cash proceeds from the Company’s IPO to repay debt and an additional repayment in the fourth quarter of $10.0 million with available cash on hand.

 

Net cash provided by operations for the fiscal year ended December 31, 2015 was $43.9 million compared to $26.6 million in 2014. Cash provided by operating activities in fiscal 2015 included a payment of $13.9 million related to the settlement of the Company’s Phantom Stock Plan in conjunction with the IPO. Capital expenditures totaled $18.7 million for the year ended December 31, 2015, resulting in free cash flow of $25.3 million for fiscal year 2015. Excluding the payment of $13.9 million related to the settlement of the Company’s Phantom Stock Plan, free cash flow was $39.1 million in fiscal 2015, compared with $9.7 million in fiscal 2014.

 

At December 31, 2015, the Company had $13.6 million of cash and cash equivalents and $39.9 million of unused borrowing capacity under the Company’s revolving credit facility.

 

Quarterly Dividend Program

 

CPI Card Group announced today in a separate release that its Board of Directors initiated a quarterly dividend program. The first quarterly dividend of $0.045 per share is payable on April 7, 2016 to stockholders of record at the close of business on March 17, 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.

 

Full Year 2016 Financial Outlook

 

The Company’s financial outlook for 2016 is as follows:

 

·                                   Net sales between $431 million and $445 million representing growth of 15.2% to 18.9%

 

·                                   Adjusted EBITDA between $111 million and $116 million representing growth of 15.4% to 20.6%

 

·                                   Pro forma adjusted diluted earnings per share of $0.92 to $0.97 representing growth of 10.8% to 16.9%

 

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, Free Cash Flow, excluding Phantom Stock Plan settlement, 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 non-GAAP measures to their most directly comparable GAAP financial measures included in Exhibit D 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 Earnings per Share from Continuing Operations (calculated on a diluted basis) exclude restructuring and other similar costs, gains or losses on extinguishment of debt, the impact of stock-based compensation expense, amortization of intangible assets, and other non-operational, non-cash or non-recurring losses, net of their income tax impact. The tax rates used to calculate Adjusted Net Income and Adjusted 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 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. 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 restructuring costs, stock-based compensation expense, gains or losses on extinguishment of debt 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 below, 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 (which includes a full pro-forma last-twelve-month impact of acquisitions), 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 financial 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 nine 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 February 24, 2016 at 5:00 p.m. EST to discuss its fourth quarter and full year 2015 results.  To participate in the Company’s live conference call via telephone or online:

 

Participant Toll-Free Dial-In Number: (877) 881-8051
Participant International Dial-In Number: (440) 996-5681
Conference ID: 28140856
Webcast Link: http://edge.media-server.com/m/p/9uuvowax

 

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://www.cpicardgroup.com/investor-relations/

 

Following the completion of the conference call, a replay of the conference call will be available from 8:30 p.m. ET on February 24, 2016 until 11:59 p.m. ET on March 2, 2016. To access the replay, please dial (855) 859-2056 or (404) 537-3406; Conference ID: 28140856.

 

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; difficulties in our production processes; defects in our software; our failure to operate our business in accordance with the PCI security standards or other industry standards such as Payment Card Brand certification standards; extension of card expiration cycles; a decline in U.S. and global market and economic conditions; failure to identify, attract and retain new customers or a failure to maintain our relationships with our major customers; our substantial indebtedness; infringement on our intellectual property rights, or claims that our technology is infringing on third-party intellectual property; failure to meet our customers’ demands in a timely manner; competition and/or price erosion in the payment card industry; 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 Securities and Exchange Commission (“SEC”). Although CPI Card Group Inc. 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 CPI Card Group Inc. Prospectus filed with the SEC on October 9, 2015 pursuant to Rule 424(b) under the Securities Act of 1933, as amended. 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 Card Group Inc. Investor Relations:

CPI Card Group Inc. Media Relations:

William Maina

Media@cpicardgroup.com

(877) 369-9016

 

InvestorRelations@cpicardgroup.com

 

 

CPI Card Group Inc.

Earnings Release Supplemental Financial Information

February 24, 2016

 

Exhibit A

 

Consolidated Statements of Operations and Comprehensive (Loss) Income - Unaudited for the three months and years ended December 31, 2015 and 2014

 

 

 

Exhibit B

 

Consolidated Balance Sheets - Unaudited as of December 31, 2015 and 2014

 

 

 

Exhibit C

 

Consolidated Statements of Cash Flows - Unaudited for the years ended December 31, 2015 and 2014

 

 

 

Exhibit D

 

Supplemental GAAP to Non-GAAP Reconciliation - Unaudited for the three months and years ended December 31, 2015 and 2014

 

 

 

Exhibit E

 

Summary Segment Information — Unaudited for the three months and years ended December 31, 2015 and 2014

 

 

 

Exhibit F

 

2016 Guidance: Adjusted Net Income and Earnings per Share

 



 

EXHIBIT A

 

CPI Card Group Inc. and Subsidiaries

Consolidated Statements of Operations and Comprehensive (Loss) Income

(Dollars in Thousands, Except Per Share Amounts)

(Unaudited)

 

 

 

Three Months Ended December 31,

 

Year Ended December 31,

 

 

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

Net sales:

 

 

 

 

 

 

 

 

 

Products

 

$

63,271

 

$

57,048

 

$

241,609

 

$

159,220

 

Services

 

30,296

 

30,817

 

132,501

 

101,786

 

Total net sales

 

93,567

 

87,865

 

374,110

 

261,006

 

 

 

 

 

 

 

 

 

 

 

Cost of sales:

 

 

 

 

 

 

 

 

 

Products (exclusive of depreciation and amortization shown below)

 

38,892

 

34,793

 

147,214

 

109,463

 

Services (exclusive of depreciation and amortization shown below)

 

20,671

 

21,291

 

81,413

 

61,169

 

Depreciation and amortization

 

2,575

 

2,515

 

9,662

 

8,647

 

Total cost of sales

 

62,138

 

58,599

 

238,289

 

179,279

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

31,429

 

29,266

 

135,821

 

81,727

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

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

 

19,942

 

16,135

 

61,116

 

42,650

 

Depreciation and amortization

 

1,532

 

1,908

 

6,304

 

4,605

 

Restructuring charges

 

 

 

681

 

 

Total operating expenses

 

21,474

 

18,043

 

68,101

 

47,255

 

 

 

 

 

 

 

 

 

 

 

Income from operations

 

9,955

 

11,223

 

67,720

 

34,472

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

Interest, net

 

(10,199

)

(2,117

)

(18,328

)

(7,508

)

Foreign currency (loss) gain

 

(56

)

(148

)

59

 

(124

)

Loss on debt modification and extinguishment

 

 

 

(703

)

(476

)

Other income (expense), net

 

3

 

(114

)

359

 

(101

)

Total other expense, net

 

(10,252

)

(2,379

)

(18,613

)

(8,209

)

 

 

 

 

 

 

 

 

 

 

(Loss) income before income taxes

 

(297

)

8,844

 

49,107

 

26,263

 

Income tax provision

 

(1,318

)

(3,207

)

(17,846

)

(10,291

)

Net (loss) income from continuing operations

 

(1,615

)

5,637

 

31,261

 

15,972

 

 

 

 

 

 

 

 

 

 

 

Discontinued operation:

 

 

 

 

 

 

 

 

 

Loss from a discontinued operation, net of taxes

 

 

(606

)

(606

)

(2,670

)

(Loss) gain on sale of a discontinued operation, net of taxes

 

(679

)

 

208

 

 

Net (loss) income

 

$

(2,294

)

$

5,031

 

$

30,863

 

$

13,302

 

Preferred stock dividends

 

(94

)

(12,805

)

(32,548

)

(44,477

)

Loss from continuing operations attributable to common stockholders

 

$

(2,388

)

$

(7,774

)

$

(1,685

)

$

(31,175

)

 

 

 

 

 

 

 

 

 

 

Loss per share

 

 

 

 

 

 

 

 

 

Basic and diluted loss per share:

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

(0.03

)

$

(0.17

)

$

(0.03

)

$

(0.69

)

Discontinued operation

 

(0.01

)

(0.01

)

$

(0.01

)

$

(0.06

)

 

 

$

(0.04

)

$

(0.18

)

$

(0.04

)

$

(0.76

)

Other comprehensive (loss) income

 

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(2,294

)

$

5,031

 

$

30,863

 

$

13,302

 

Currency translation adjustment

 

(492

)

(690

)

(1,715

)

(1,064

)

Total comprehensive (loss) income

 

$

(2,786

)

$

4,341

 

$

29,148

 

$

12,238

 

 



 

EXHIBIT B

 

CPI Card Group Inc. and Subsidiaries

Consolidated Balance Sheets

(Dollars in Thousands, Except Share and Per Share Amounts)

(Unaudited)

 

 

 

December 31,

 

 

 

2015

 

2014

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

13,606

 

$

12,941

 

Accounts receivable, net of allowances of $212 and $272, respectively

 

52,538

 

43,548

 

Inventories

 

25,640

 

21,605

 

Prepaid expenses and other current assets

 

4,260

 

4,129

 

Income taxes refundable

 

4,975

 

 

Deferred income taxes

 

 

634

 

Current assets of a discontinued operation

 

 

5,862

 

Total current assets

 

101,019

 

88,719

 

Plant, equipment and leasehold improvements, net

 

52,113

 

44,772

 

Intangible assets, net

 

53,988

 

58,703

 

Goodwill

 

73,123

 

73,801

 

Other assets

 

110

 

15

 

Total assets

 

$

280,353

 

$

266,010

 

Liabilities and stockholders’ deficit

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

17,832

 

$

16,276

 

Accrued expenses

 

11,315

 

10,591

 

Deferred revenue and customer deposits

 

3,874

 

3,382

 

Current maturities of long-term debt

 

9,000

 

6,326

 

Income taxes payable

 

 

13

 

Total current liabilities

 

42,021

 

36,588

 

Long-term debt, net of current maturities

 

300,000

 

163,484

 

Sellers Note

 

 

9,000

 

Deferred income taxes

 

24,073

 

13,810

 

Other long-term liabilities

 

869

 

6,572

 

Total liabilities

 

366,963

 

229,454

 

Commitments and contingencies

 

 

 

 

 

Series A Preferred Stock; $0.001 par value—100,000 shares authorized; 86,407 shares issued and no shares outstanding and 86,407 shares issued and 64,809 shares outstanding; liquidation preference of $0 and $256,017 at December 31, 2015 and 2014, respectively

 

 

58,250

 

Stockholders’ deficit:

 

 

 

 

 

Common Stock; $0.001 par value—100,000,000 shares authorized; 56,542,116 shares issued and outstanding and 44,840,576 shares issued and 41,371,220 shares outstanding at December 31, 2015 and 2014, respectively

 

56

 

41

 

Capital deficiency

 

(119,028

)

(24,841

)

Accumulated earnings

 

36,661

 

5,798

 

Accumulated other comprehensive loss

 

(4,299

)

(2,584

)

Employee notes receivable

 

 

(108

)

Total stockholders’ deficit

 

(86,610

)

(21,694

)

Total liabilities and stockholders’ deficit

 

$

280,353

 

$

266,010

 

 



 

EXHIBIT C

 

CPI Card Group Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Dollars in Thousands)

(Unaudited)

 

 

 

Year Ended December 31,

 

 

 

2015

 

2014

 

Operating activities

 

 

 

 

 

Net income

 

$

30,863

 

$

13,302

 

Adjustments to reconcile net income to net cash provided by operating activities, net of effects of acquisitions:

 

 

 

 

 

Depreciation, amortization and accretion expense

 

15,995

 

14,198

 

Non-cash accretion of defined stock compensation plan

 

9,633

 

4,534

 

Amortization of debt issuance costs and debt discount

 

5,648

 

591

 

Loss on debt modification and extinguishment

 

703

 

476

 

Loss on sale of a discontinued operation

 

1,039

 

 

Deferred income tax

 

10,914

 

(1,433

)

Other, net

 

(45

)

(124

)

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

(9,556

)

(7,003

)

Inventories

 

(4,416

)

(5,763

)

Prepaid expenses and other current assets

 

(714

)

(8,473

)

Income taxes

 

(4,975

)

3,061

 

Accounts payable

 

1,663

 

1,466

 

Accrued expenses

 

915

 

8,131

 

Deferred revenue and customer deposits

 

699

 

(772

)

Other liabilities

 

(14,444

)

4,436

 

Cash provided by operating activities

 

43,922

 

26,627

 

Investing activities

 

 

 

 

 

Proceeds from sale of a discontinued operation

 

5,000

 

 

Acquisition of EFT Source, Inc.

 

 

(54,859

)

Acquisitions of plant, equipment and leasehold improvements

 

(18,670

)

(16,956

)

Cash used in investing activities

 

(13,670

)

(71,815

)

Financing activities

 

 

 

 

 

Net proceeds from an initial public offering of common stock

 

135,304

 

 

Proceeds from Senior Term Loan dated September 2, 2014

 

 

60,000

 

Payment on Senior Term Loan dated September 2, 2014

 

(170,929

)

(11,045

)

Proceeds from First Lien Term Loan

 

435,000

 

 

Payments on First Lien Term Loan

 

(122,500

)

 

Proceeds from line of credit

 

 

19,300

 

Payment on line of credit

 

 

(19,300

)

Loan issuance costs

 

(17,773

)

(440

)

Proceeds from employee note receivable

 

108

 

19

 

Dividend distribution on Series A Preferred Stock

 

(230,361

)

 

Redemption of preferred and common stock

 

(58,250

)

 

Cash (used in) provided by financing activities

 

(29,401

)

48,534

 

Effect of exchange rates on cash

 

(186

)

(107

)

Net increase in cash and cash equivalents:

 

665

 

3,239

 

Cash and cash equivalents, beginning of period

 

12,941

 

9,702

 

Cash and cash equivalents, end of period

 

$

13,606

 

$

12,941

 

Supplemental disclosures of cash flow information

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

Interest

 

$

11,986

 

$

6,793

 

Income taxes

 

$

10,136

 

$

3,219

 

 



 

EXHIBIT D

 

CPI Card Group Inc. and Subsidiaries

Supplemental GAAP to Non-GAAP Reconciliation

(Dollars in Thousands, Except Share and Per Share Amounts)

(Unaudited)

 

 

 

Three Months Ended December 31,

 

Year Ended December 31,

 

 

 

2015

 

2014

 

2015

 

2014

 

Adjusted net (loss) income from continuing operations and earnings per share

 

 

 

 

 

 

 

 

 

Net (loss) income from continuing operations

 

$

(1,615

)

$

5,637

 

$

31,261

 

$

15,972

 

Restructuring and other costs associated with the closure of the Petersfield U.K. facility

 

 

 

1,131

 

 

Loss on debt modification and early extinguishment

 

 

 

703

 

476

 

Stock-based compensation expense

 

7,495

 

2,521

 

9,633

 

4,534

 

Amortization of intangible assets

 

1,144

 

1,404

 

4,577

 

3,434

 

Accelerated amortization of debt issuance costs in connection with term loan principle payments

 

4,687

 

 

4,687

 

 

EFT Source acquisition performance payments

 

250

 

 

1,000

 

 

Professional fees

 

 

 

409

 

2,062

 

Tax effect of above items

 

(4,616

)

(1,374

)

(7,528

)

(3,677

)

Discrete tax items

 

1,468

 

 

1,468

 

 

Adjusted net income from continuing operations

 

$

8,813

 

$

8,188

 

$

47,341

 

$

22,801

 

 

 

 

 

 

 

 

 

 

 

Weighted-average number of shares outstanding

 

 

 

 

 

 

 

 

 

Basic

 

54,190,182

 

41,371,220

 

44,816,263

 

41,199,246

 

Effect of dilutive equity awards

 

300,392

 

 

300,392

 

 

Diluted

 

54,490,574

 

41,371,220

 

45,116,655

 

41,199,246

 

 

 

 

 

 

 

 

 

 

 

Adjusted diluted earnings per share from continuing operations

 

$

0.16

 

$

0.20

 

$

1.05

 

$

0.55

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of diluted loss per share from continuing operations (GAAP) to adjusted diluted earnings per share from continuing operations:

 

 

 

 

 

 

 

 

 

Income (loss) per share from continuing operations (GAAP) - Diluted

 

$

(0.03

)

$

(0.17

)

$

(0.03

)

$

(0.69

)

Impact of net income adjustments

 

0.19

 

0.06

 

0.36

 

0.17

 

Impact of Preferred Stock Dividend

 

 

0.31

 

0.72

 

1.08

 

Adjusted diluted earnings per share from continuing operations

 

$

0.16

 

$

0.20

 

$

1.05

 

$

0.55

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of pro forma adjusted diluted earnings per share from continuing operations:

 

 

 

 

 

 

 

 

 

Number of diluted shares outstanding on December 31, 2015, excluding IPO shares

 

41,842,508

 

41,842,508

 

41,842,508

 

41,842,508

 

Common shares issued by the Company on October 9, 2015

 

15,000,000

 

15,000,000

 

15,000,000

 

15,000,000

 

Pro forma weighted-average number of diluted shares outstanding

 

56,842,508

 

56,842,508

 

56,842,508

 

56,842,508

 

 

 

 

 

 

 

 

 

 

 

Pro forma adjusted diluted earnings per share from continuing operations

 

$

0.16

 

$

0.14

 

$

0.83

 

$

0.40

 

 



 

CPI Card Group Inc. and Subsidiaries

Supplemental GAAP to Non-GAAP Reconciliation

(Dollars in Thousands, Except Share and Per Share Amounts)

(Unaudited)

 

 

 

Three Months Ended December 31,

 

Year Ended December 31,

 

 

 

2015

 

2014

 

2015

 

2014

 

EBITDA AND ADJUSTED EBITDA

 

 

 

 

 

 

 

 

 

Net income from continuing operations

 

$

(1,615

)

$

5,637

 

$

31,261

 

$

15,972

 

Interest expense, net

 

10,199

 

2,117

 

18,328

 

7,508

 

Income tax provision

 

1,318

 

3,207

 

17,846

 

10,291

 

Depreciation and amortization

 

4,108

 

4,423

 

15,966

 

13,252

 

EBITDA

 

$

14,010

 

$

15,384

 

$

83,401

 

$

47,023

 

 

 

 

 

 

 

 

 

 

 

Adjustments to EBITDA

 

 

 

 

 

 

 

 

 

Restructuring and other charges

 

$

 

$

 

$

1,131

 

$

 

Stock-based compensation expense

 

7,495

 

2,521

 

9,633

 

4,534

 

Loss on debt modification and early extinguishment

 

 

 

703

 

476

 

EFT Source acquisition performance bonuses

 

250

 

 

1,000

 

 

Professional fees

 

 

 

409

 

2,062

 

Foreign currency loss (gain)

 

56

 

148

 

(59

)

124

 

Subtotal of adjustments to EBITDA

 

7,801

 

2,669

 

12,817

 

7,196

 

Adjusted EBITDA

 

$

21,811

 

$

18,053

 

$

96,218

 

$

54,219

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA margin

 

23.3

%

20.5

%

25.7

%

20.8

%

 

 

 

 

 

 

 

 

 

 

Constant Currency

 

 

 

 

 

 

 

 

 

UK Limited net sales, as reported (GAAP)

 

$

10,775

 

$

11,025

 

$

34,361

 

$

35,163

 

Foreign currency translation impact

 

460

 

 

2,532

 

 

UK Limited net sales, constant currency adjusted

 

$

11,235

 

$

11,025

 

$

36,893

 

$

35,163

 

Net sales change, as reported (GAAP)

 

(2.3

)%

 

 

(2.3

)%

 

 

Net sales change, constant currency adjusted

 

1.9

%

 

 

4.9

%

 

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of cash provided by operating activities to free cash flow

 

 

 

 

 

 

 

 

 

Cash provided by operating activities

 

 

 

 

 

$

43,922

 

$

26,627

 

Acquisitions of plant, equipment and leasehold improvements

 

 

 

 

 

(18,670

)

(16,956

)

Free cash flow

 

 

 

 

 

$

25,252

 

$

9,671

 

Cash payment related to the settlement of the Phantom Stock Plan in conjunction with the IPO

 

 

 

 

 

13,891

 

 

Free cash flow, excluding phantom stock plan settlement

 

 

 

 

 

$

39,143

 

$

9,671

 

 



 

EXHIBIT E

 

CPI Card Group Inc. and Subsidiaries

Summary Segment Information

For the Three Months and Year Ended December 31, 2015 and 2014

(Dollars in Thousands)

(Unaudited)

 

Net Sales

 

 

 

Three Months Ended December 31,

 

 

 

2015

 

2014

 

$ Change

 

% Change

 

Net sales by segment:

 

 

 

 

 

 

 

 

 

U.S Debit and Credit segment

 

$

67,478

 

$

60,676

 

$

6,802

 

11.2

%

U.S. Prepaid Debit segment

 

12,396

 

12,221

 

175

 

1.4

%

U.K. Limited segment

 

10,775

 

11,025

 

(250

)

(2.3

)%

Other

 

3,503

 

6,415

 

(2,912

)

(45.4

)%

Eliminations

 

(585

)

(2,472

)

1,887

 

(76.3

)%

Total

 

$

93,567

 

$

87,865

 

$

5,702

 

6.5

%

 

 

 

Year Ended December 31,

 

 

 

2015

 

2014

 

$ Change

 

% Change

 

Net sales by segment:

 

 

 

 

 

 

 

 

 

U.S Debit and Credit segment

 

$

263,668

 

$

153,015

 

$

110,653

 

72.3

%

U.S. Prepaid Debit segment

 

65,878

 

59,271

 

6,607

 

11.1

%

U.K. Limited segment

 

34,361

 

35,163

 

(802

)

(2.3

)%

Other

 

17,420

 

23,908

 

(6,488

)

(27.1

)%

Eliminations

 

(7,217

)

(10,351

)

3,134

 

(30.3

)%

Total

 

$

374,110

 

$

261,006

 

$

113,104

 

43.3

%

 

Gross Profit

 

 

 

Three Months Ended December 31,

 

 

 

2015

 

% of net
sales

 

2014

 

% of net
sales

 

$ Change

 

% Change

 

Gross profit by segment:

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S Debit and Credit segment

 

$

23,625

 

35.0

%

$

20,758

 

34.2

%

$

2,867

 

13.8

%

U.S. Prepaid Debit segment

 

4,104

 

33.1

%

3,945

 

32.3

%

159

 

4.0

%

U.K. Limited segment

 

3,025

 

28.1

%

2,915

 

26.4

%

110

 

3.8

%

Other

 

675

 

19.3

%

1,648

 

25.7

%

(973

)

(59.0

)%

Total

 

$

31,429

 

33.6

%

$

29,266

 

33.3

%

$

2,163

 

7.4

%

 

 

 

Year Ended December 31,

 

 

 

2015

 

% of net
sales

 

2014

 

% of net
sales

 

$ Change

 

% Change

 

Gross profit by segment:

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S Debit and Credit segment

 

$

97,117

 

36.8

%

$

49,460

 

32.3

%

$

47,657

 

96.4

%

U.S. Prepaid Debit segment

 

26,380

 

40.0

%

21,022

 

35.5

%

5,358

 

25.5

%

U.K. Limited segment

 

9,127

 

26.6

%

8,171

 

23.2

%

956

 

11.7

%

Other

 

3,197

 

18.4

%

3,074

 

12.9

%

123

 

4.0

%

Total

 

$

135,821

 

36.3

%

$

81,727

 

31.3

%

$

54,094

 

66.2

%

 

Income from operations

 

 

 

Three Months Ended December 31,

 

 

 

2015

 

% of net
sales

 

2014

 

% of net
sales

 

$ Change

 

% Change

 

Income from operations by segment:

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S Debit and Credit segment

 

$

16,862

 

25.0

%

$

14,675

 

24.2

%

$

2,187

 

14.9

%

U.S. Prepaid Debit segment

 

2,713

 

21.9

%

2,601

 

21.3

%

112

 

4.3

%

U.K. Limited segment

 

1,289

 

12.0

%

1,264

 

11.5

%

25

 

2.0

%

Other

 

(10,909

)

 

*

(7,317

)

 

*

(3,592

)

49.1

%

Total

 

$

9,955

 

10.6

%

$

11,223

 

12.8

%

$

(1,268

)

(11.3

)%

 

 

 

Year Ended December 31,

 

 

 

2015

 

% of net
sales

 

2014

 

% of net
sales

 

$ Change

 

% Change

 

Income from operations by segment:

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S Debit and Credit segment

 

$

71,555

 

27.1

%

$

34,407

 

22.5

%

$

37,148

 

108.0

%

U.S. Prepaid Debit segment

 

20,701

 

31.4

%

15,756

 

26.6

%

4,945

 

31.4

%

U.K. Limited segment

 

2,710

 

7.9

%

1,775

 

5.0

%

935

 

52.7

%

Other

 

(27,246

)

 

*

(17,466

)

 

*

(9,780

)

56.0

%

Total

 

$

67,720

 

18.1

%

$

34,472

 

13.2

%

$

33,248

 

96.4

%

 



 

EBITDA

 

 

 

Three Months Ended December 31,

 

 

 

2015

 

% of net
sales

 

2014

 

% of net
sales

 

$ Change

 

% Change

 

EBITDA by segment:

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S Debit and Credit segment

 

$

19,020

 

28.2

%

$

15,377

 

25.3

%

$

3,643

 

23.7

%

U.S. Prepaid Debit segment

 

3,260

 

26.3

%

3,340

 

27.3

%

(80

)

(2.4

)%

U.K. Limited segment

 

1,496

 

13.9

%

1,533

 

13.9

%

(37

)

(2.4

)%

Corporate and Other

 

(9,766

)

 

*

(4,866

)

 

*

(4,900

)

100.7

%

Total

 

$

14,010

 

15.0

%

$

15,384

 

17.5

%

$

(1,374

)

(8.9

)%

 

 

 

Year Ended December 31,

 

 

 

2015

 

% of net
sales

 

2014

 

% of net
sales

 

$ Change

 

% Change

 

EBITDA by segment:

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S Debit and Credit segment

 

$

78,981

 

30.0

%

$

37,547

 

24.5

%

$

41,434

 

110.4

%

U.S. Prepaid Debit segment

 

22,993

 

34.9

%

18,654

 

31.5

%

4,339

 

23.3

%

U.K. Limited segment

 

3,572

 

10.4

%

2,943

 

8.4

%

629

 

21.4

%

Corporate and Other

 

(22,145

)

 

*

(12,121

)

 

*

(10,024

)

82.7

%

Total

 

$

83,401

 

22.3

%

$

47,023

 

18.0

%

$

36,378

 

77.4

%

 


* Calculation not meaningful

 



 

EXHIBIT F

 

CPI Card Group Inc. and Subsidiaries

2016 Guidance:  Adjusted Net Income and EPS

(in Millions, except per share amounts)

(Unaudited)

 

 

 

Range

 

 

 

Low

 

High

 

Net income (GAAP)

 

$

46.8

 

$

50.1

 

 

 

 

 

 

 

Amortization

 

4.6

 

4.6

 

Non-cash compensation

 

1.8

 

1.8

 

Accelerated amortization of debt issuance costs and discount

 

1.0

 

1.0

 

EFT Source bonus

 

0.5

 

0.5

 

Tax effect

 

(2.7

)

(2.7

)

 

 

 

 

 

 

Adjusted net income

 

$

52.0

 

$

55.3

 

 

 

 

 

 

 

Weighted-average diluted shares outstanding

 

56.8

 

56.8

 

 

 

 

 

 

 

Pro forma adjusted diluted earnings per share

 

$

0.92

 

$

0.97

 

Diluted earnings per share (GAAP)

 

$

0.82

 

$

0.88

 

 

 

 

 

 

 

Net income (GAAP)

 

$

46.8

 

$

50.1

 

 

 

 

 

 

 

Depreciation

 

13.2

 

13.2

 

Amortization

 

4.6

 

4.6

 

Interest expense

 

20.0

 

20.0

 

Taxes

 

24.1

 

25.8

 

EBITDA

 

$

108.7

 

$

113.7

 

 

 

 

 

 

 

Non-cash compensation

 

1.8

 

1.8

 

EFT Source bonus

 

0.5

 

0.5

 

 

 

 

 

 

 

Adjusted EBITDA

 

$

111.0

 

$

116.0