UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

☒Quarterly Report Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934

For the Quarterly Period Ended June 30, 2016.

or

☐Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Transition Period from                            to

Commission File Number 001-37584

CPI Card Group Inc.

(Exact name of the registrant as specified in its charter)

(303) 973-9311

(Registrant’s telephone number, including area code) 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes☒     No☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes☒     No☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes☐     No☒

Number of shares of Common Stock, $0.001 par value, outstanding as of August 1, 2016: 55,238,251

Table of Contents

Item 1. Financial Statements

CPI Card Group Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

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

See accompanying notes to condensed consolidated financial statements

CPI Card Group Inc. and Subsidiaries

Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income

(Dollars in Thousands, Except Per Share Amounts)

(Unaudited)

See accompanying notes to condensed consolidated financial statements

CPI Card Group Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Dollars in Thousands)

(Unaudited)

See accompanying notes to condensed consolidated financial statements

CPI Card Group Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Dollars in Thousands, Except Share and Per Share Amounts or as Otherwise Indicated)

(Unaudited)

1. Business Overview and Summary of Significant Accounting Policies

Business Overview

CPI Card Group Inc. (which, together with its subsidiaries, is referred to herein as “CPI” or the “Company”) is a leading provider of comprehensive Financial Payment Card solutions in North America. The Company defines Financial Payment Cards as credit, debit and prepaid debit cards issued on the networks of the Payment Card Brands (Visa, MasterCard, American Express and Discover) and Interac (in Canada). The Company serves its customers through a network of ten production and card services facilities, including eight high-security facilities in North America that are each certified by one or more of the Payment Card Brands and Interac (in Canada) and, where required by the Company’s customers, certified to be in compliance with the standards of the Payment Card Industry (“PCI”) Security Standards Council. In addition to its eight North American facilities, the Company has two facilities in the United Kingdom that produce retail cards, such as gift and loyalty cards that are not issued on the networks of the Payment Card Brands, and personalization services.

Basis of Presentation

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, these financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary for the fair statement of the results of the interim periods presented. The Condensed Consolidated Balance Sheet as of December 31, 2015 is derived from the audited financial statements as of that date.  The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.

The Company sold its non-secure operation located in Nevada on January 12, 2015 (the “Nevada Sale”) pursuant to an asset purchase agreement for $5,000 in cash. The Nevada operations primarily produced retail gift cards that are not issued on the networks of the Payment Card Brands.  See Note 2, “Discontinued Operation and Disposition.”

Use of Estimates

Management uses estimates and assumptions relating to the reporting of assets and liabilities in its preparation of the condensed consolidated financial statements. Significant items subject to such estimates and assumptions include the carrying amount of property and equipment, goodwill and intangible assets; valuation allowances for inventories and deferred tax assets; debt; and stock-based compensation expense. Actual results could differ from those estimates.

Recently Issued Accounting Pronouncements

The Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, in May 2014, as amended by ASU 2016-12 Narrow-scope Improvements and Practical Expedients, in May 2016. ASU 2014-09, as amended, requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. An entity should also disclose sufficient quantitative and qualitative information to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. In July 2015, the FASB deferred the effective date to annual reporting periods beginning after December 15, 2017, and interim reporting periods within those periods. The Company plans to implement the provisions of ASU 2014-09, as amended, as of January 1, 2018. Upon adoption, the Company must elect to adopt either retrospectively to each prior reporting period presented or using the cumulative effect transition method with the cumulative effect of initial adoption recognized at the date of initial application.  The Company has not determined what transition method it will use.  The Company is currently assessing the impact that the future adoption of ASU 2014-09, as amended, may have on its Condensed Consolidated Financial Statements by

analyzing its current portfolio of customer contracts, including a review of historical accounting policies and practices to identify potential differences in applying the new guidance. 

The FASB issued ASU 2015-11, Inventory—Simplifying the Measurement of Inventory, in July 2015.  ASU 2015-11 requires that inventory be measured at the lower of cost or net realizable value.  Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.  The new standard is effective for public entities’ annual reporting periods beginning after December 15, 2016.  The Company plans to implement the provisions of ASU 2015-11 as of January 1, 2017. The Company is in the process of assessing the impact of ASU 2015-11 on its results of operations, financial position and consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases, which provides guidance for accounting for leases. The new guidance requires companies to recognize the assets and liabilities for the rights and obligations created by leased assets.  ASU 2016-02 is effective for annual and interim periods beginning after December 15, 2018 (the Company’s fiscal year 2019) with early adoption permitted. The new standard is required to be adopted using a modified retrospective approach. The Company is in the process of assessing the impact of ASU 2016-02 on its results of operations, financial position and consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, Compensation–Stock Compensation: Improvements to Employee Share-Based Payment Accounting, which simplifies several aspects of the accounting for employee share based payment transactions, including the accounting for forfeitures, statutory withholding requirements, and classification in the statement of cash flows.  In addition, excess tax benefits recorded to equity under existing accounting guidance will be recognized in income tax expense under the new standard. ASU 2016-09 is effective for annual and interim periods beginning after December 15, 2016 (the Company’s fiscal year 2017), with early adoption permitted. The Company is in the process of assessing the impact of ASU 2016-09 on its results of operations, financial position and consolidated financial statements.

2. Discontinued Operation and Disposition

On January 12, 2015, the Company sold its Nevada non-secure operations pursuant to an asset purchase agreement for $5,000 in cash. The net carrying values of the assets sold as part of the discontinued operation included inventory and plant, equipment and leasehold improvements of $3,129 and $2,910, respectively. During the six months ended June 30, 2015, the Company recognized a gain on the sale of a discontinued operation of $887, which is included in the gain from a discontinued operation, net of an income tax benefit of $1,926 in the Company’s Condensed Consolidated Statement of Operations.

The Nevada operations recognized a loss of $0 and $606 for the three and six months ended June 30, 2015, respectively, net of an income tax benefit of $0 and $404, respectively.

After the Nevada sale, CPI retained no significant continuing involvement in the Nevada operations other than a 180 day transition of services agreement, which expired on July 11, 2015. The Nevada operations had $32,128 of tax deductible goodwill and intangible assets, of which $4,190 of the tax deductible goodwill resulted in the recognition of an income tax benefit of $0 and $1,510 during the three and six months ended June 30, 2015, respectively.

3. Inventories

Inventories are summarized below:

4. Plant, Equipment and Leasehold Improvements

Plant, equipment and leasehold improvements consist of the following:

For the Company’s continuing operations, amounts recorded for the depreciation of plant, equipment and leasehold improvements was $3,053 and $2,834 for the three months ended June 30, 2016 and 2015, respectively, and $6,026 and $5,751 for the six months ended June 30, 2016 and 2015, respectively.

5. Goodwill and Other Intangible Assets

Goodwill relates to the Company’s U.S. Debit and Credit, U.K. Limited and Canada reporting segments. The change in goodwill from December 31, 2015 to June 30, 2016 was a result of currency translation adjustments.

Intangible assets consist of customer relationships, technology and software, non-compete agreements, favorable leases and trademarks. Total intangible assets are being amortized over a weighted-average useful life of 16 years. The changes in the cost basis of the intangibles from December 31, 2015 to June 30, 2016 are related to foreign currency translations. Intangible amortization expense was $1,134 and $1,145 for the three months ended June 30, 2016 and 2015, respectively.  Intangible amortization expense was $2,274 and $2,289 for the six months ended June 30, 2016 and 2015, respectively

As of June 30, 2016 and December 31, 2015, intangible assets, excluding goodwill, were comprised of the following:

The estimated future aggregate amortization expense for the identified amortizable intangibles noted above as of June 30, 2016 is as follows:

6. Fair Value of Financial Instruments

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). In determining fair value, the Company utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:

The Company’s financial assets and liabilities subject to fair value measurements and the necessary disclosures are as follows:

7. Long-Term Debt and Credit Facility

As of June 30, 2016 and December 31, 2015, long-term debt and credit facilities consist of the following:

First Lien Credit Facility

On August 17, 2015, the Company entered into a first lien credit agreement (the “First Lien Credit Facility”) with a syndicate of lenders providing for a $435,000 first lien term loan facility (the “First Lien Term Loan”) and a $40,000 revolving credit facility (the “Revolving Credit Facility”). The First Lien Term Loan and the Revolving Credit Facility have maturity dates of August 17, 2022 and August 17, 2020, respectively.

The First Lien Credit Facility is secured by a first-priority security interest in substantially all of the Company’s assets constituting equipment, inventory, receivables, cash and other tangible and intangible property.

Interest rates under the First Lien Credit Facility are based, at the Company’s election, on a Eurodollar rate, subject to an interest rate floor of 1.0%, plus a margin of 4.50%, or a base rate plus a margin of 3.50%. Letters of credit are subject to a 0.125% fronting fee payable to the issuing bank and a fee payable to the revolving lenders equal to the margin applicable to Eurodollar revolving loans. In addition, the Company is required to pay an unused commitment fee ranging from 0.375% per annum to 0.50% per annum of the average unused portion of the revolving commitments. The unused commitment fee is determined on the basis of a grid that results in a lower unused commitment fee as the Company’s total net leverage ratio declines.

The First Lien Credit Facility contains customary nonfinancial covenants, including among other things, restrictions on indebtedness, issuance of liens, investments, dividends, redemptions and other distributions to equity holders, asset sales, certain mergers or consolidations, sales, transfers, leases or dispositions of substantially all of the Company’s assets and affiliate transactions.  As of June 30, 2016, the Company was in compliance with all covenants under the First Lien Credit Facility.

The First Lien Credit Facility also requires prepayment in advance of the maturity date upon the occurrence of certain customary events, including based on an excess cash flow calculation, pursuant to the terms of the agreement, beginning as of the year ended December 31, 2016.   

The First Lien Credit Facility also contains a requirement that, as of the last day of any fiscal quarter, if the amount the Company has drawn under the Revolving Credit Facility is greater than 50% of the aggregate principal amount of all commitments of the lenders thereunder, the Company maintain a first lien net leverage ratio not in excess of 7.0 times EBITDA.

As of June 30, 2016, the Company did not have any outstanding borrowings under the Revolving Credit Facility. The Company has two outstanding letters of credit for the security deposits on two real property lease agreements. These letters of credit total $100, reducing availability under the Revolving Credit Facility to $39,900. The Company pays a fee on the outstanding letters of credit at the applicable margin, which was 4.50% as of June 30, 2016, in addition to a fronting fee of 0.125% per annum.

Sellers Note

The Company entered into a subordinated, unsecured promissory note for $9,000 (“Sellers Note”) with certain sellers of EFT Source, Inc. (“EFT Source”) in connection with its acquisition of EFT Source on September 2, 2014. Interest on the Sellers Note accrues at 5.0% per annum and is paid quarterly. All principal and unpaid interest under the Sellers Note is due to the sellers at the earlier of September 2, 2016 or with the occurrence of certain specific events as outlined in the Sellers Note.

Deferred Financing Costs

Certain costs incurred with borrowings or the establishment or modification of credit facilities are reflected as a reduction to the long-term debt balance.  These costs are amortized as an adjustment to interest expense over the life of the borrowing using the effective-interest rate method.

8. Income Taxes

During the three months ended June 30, 2016, the Company recognized an income tax benefit of $161 on pre-tax loss of $489, representing an effective income tax rate of 32.9%, compared to an income tax expense from continuing operations of $6,016 on pre-tax income of $18,171, representing an effective tax rate of 33.1% during the three months ended June 30, 2015.

During the six months ended June 30, 2016, the Company recognized an income tax expense of $2,653 on pre-tax income of $8,039, representing an effective income tax rate of 33.0%, compared to an income tax expense from continuing operations of $9,974 on pre-tax income of $28,089, representing an effective tax rate of 35.5% during the six months ended June 30, 2015.  The decrease in the effective tax rate for the six months ended June 30, 2016 as compared to the same period in the prior year is due to the impact of foreign and state taxes.

The effective tax rates for all periods presented also differ from the federal U.S. statutory rate primarily due to a benefit from permanent deductions related to credits for domestic production activities and the impact of state and foreign income taxes.

9. Series A Preferred Stock

There were no outstanding shares of Series A Preferred Stock as of June 30, 2016 or December 31, 2015.  The Company redeemed 93 shares of Series A Preferred Stock for $370, at prices ranging from $3,950.33 to $4,017.43 per share, and accrued dividends of $12,747 and $25,359 during the three and six months ended June 30, 2015, respectively.

10. Stockholders’ Equity

Common Stock

On May 11, 2016, the Board of Directors approved a stock repurchase program that authorizes repurchases of up to $20,000 of the Company’s common stock, limited to a maximum of 2,827,105 common shares prior to May 11, 2017.  Repurchases may be executed using open market purchases, privately negotiated transactions, accelerated share repurchase programs or other transactions.  During the three months ended June 30, 2016, there were 1,439,422 common shares repurchased for $6,008, at an average cost of $4.17 per share.  The repurchase has been accounted for as a share retirement. At June 30, 2016, $13,992 remained available under the share repurchase authorization, up to a maximum of 1,387,683 shares.   

During the three and six months ended June 30, 2016, there were 124,666 shares of common stock issued in connection with stock option exercises (Note 13, “Stock-Based Compensation”).  During the six months ended June 30, 2015, the Company issued no common stock and redeemed 86,768 shares of common stock at values of $0.32 and $0.91 per share.  During the three months ended June 30, 2015, there was no common stock issued or redeemed.  The redeemed common stock share values were calculated in accordance with the terms of the applicable award agreements.

During the second quarter of 2016, the Company paid a dividend of $0.045 per share, or $2,544.  Additionally, on May 11, 2016, the Board of Directors approved a dividend of $0.045 per share, payable on July 7, 2016 to stockholders of record as of the close of business on June 16, 2016. The accrued dividend of $2,486 is reflected in “Accrued expenses” in the Condensed Consolidated Balance Sheet as of June 30, 2016.  For the six months ended June 30, 2016, the Company has declared dividends of $0.09 per share.

On September 3, 2015, the Company’s Board of Directors approved a 22-for-1 stock split of its common stock. Upon the effective date of the stock split, each outstanding share of common stock and restricted common stock was divided into 22 shares of common stock or restricted common stock, as applicable. Shares of common stock available for issuance under the 2007 Stock Option Plan were increased accordingly. All of the share numbers, share prices and exercise prices have been retroactively adjusted to reflect the stock split in this Quarterly Report on Form 10-Q, including the accompanying condensed consolidated financial statements and these notes.

11. Earnings per Share

Basic and diluted earnings (loss) per share (“EPS”) is computed by dividing net income (loss) by the weighted-average number of common shares outstanding during the period.

The following table sets forth the computation of basic and diluted EPS attributable to continuing and discontinued operations:

The Company reported a net loss for the three months ended June 30, 2016.  Accordingly, the potentially dilutive effect of 1,742,474 stock options and 267,022 restricted stock units have been excluded from the computation of diluted earnings per share as their inclusion would be anti-dilutive. The Company reported a net loss from continuing operations available to common stockholders for the three and six months ended June 30, 2015.  Accordingly, the potentially dilutive effect of 627,000 outstanding stock options as of June 30, 2015 has been excluded from the computation of diluted earnings per share, as their inclusion would be anti-dilutive.

12. Commitments and Contingencies

Commitments

The Company incurred rent expense under non-cancellable operating leases of $819 and $886 for the three months ended June 30, 2016 and 2015, respectively, and $1,634 and $1,819 for the six months ended June 30, 2016 and 2015, respectively.

Contingencies 

  On July 11, 2016, the United States District Court for the District of Colorado granted the Company’s motion to stay the litigation in the matter captioned Gemalto S.A. v. CPI Card Group Inc. pending the U.S. Patent Trial and Appeal Board’s consideration of the Company’s challenge to the patentability of asserted claims that was filed on May 31, 2016 which are the subject of the litigation. 

The suit was initially filed by Gemalto S.A. (“Gemalto”) against the Company in the United States District Court for the Western District of Texas in October 2015. The now-stayed complaint alleges that the Company infringes a Gemalto patent by incorporating into the Company’s products microchips that allegedly practice the EMV standard. Gemalto’s patent will expire in 2017. The Company successfully moved to transfer the lawsuit to the United States District Court for the District of Colorado where it is currently stayed.  On January 28, 2016, the Company answered the complaint and filed counterclaims that the asserted patent is invalid and unenforceable, and that Gemalto’s lawsuit is a “sham” intended to interfere with the Company’s initial public offering (“IPO”) and business relationships. Gemalto answered the Company’s counterclaims on February 5, 2016. On March 8, 2016, Gemalto provided specific infringement contentions, which—contrary to the complaint’s claim that all EMV-compliant products infringed upon Gemalto’s patent—only named CPI products that incorporate microchips supplied by two specific vendors. 

On May 3, 2016, Gemalto filed a second patent infringement action against CPI in the United States District Court for the District of Colorado.  On May 25, 2016, CPI moved to dismiss Gemalto's case because the patent's claims are not patentable under 35 U.S.C. 101.  A motion to stay that litigation has also been filed but not yet decided.

The Company believes Gemalto’s claims are without merit and that the Company has strong legal and equitable defenses, plus meritorious counterclaims and indemnity rights. The Company intends to defend these suits vigorously. While a risk of loss is reasonably possible, given the current stage of the matter, as well as the aforementioned defenses, counterclaims and indemnity rights, the range of potential loss is not estimable and no accrual has been recognized as of June 30, 2016 and December 31, 2015.

13. Stock-Based Compensation

CPI Card Group Inc. Omnibus Plan

 In conjunction with the completion of the Company’s IPO, the Company adopted the CPI Card Group Inc. Omnibus Plan (the “Omnibus Plan”) pursuant to which cash and equity based incentives may be granted to participating employees, advisors and directors. The Company has reserved 4,000,000 shares of common stock for issuance under the Omnibus Plan.  Shares available for grant under the Omnibus Plan were 2,327,838 as of June 30, 2016.

During the three months ended June 30, 2016, the Company granted awards of non-qualified stock options under the Omnibus Plan for 252,690 shares of common stock.  The stock option awards have an exercise price of $4.20 per share, a 10 year term, and vest 33.4% on June 1, 2018, 33.3% on June 1, 2019 and 33.3% on June 1, 2020.  The fair value of the stock option awards was determined using a Black-Scholes option-pricing model with the following assumptions: volatility of 35.3%, risk-free interest rate of 1.5%, dividend yield of 4.3% and an expected term of 6 years.

Outstanding and exercisable stock options under the Omnibus Plan are as follows:

Unvested options as of June 30, 2016 will vest as follows:

During the three months ended June 30, 2016, the Company granted awards of restricted stock units for 37,898 shares of common stock. The restricted stock unit awards contain conditions associated with continued employment or service.  On the vesting date, which is one year from the date of grant, shares of common stock will be issued to the award recipients.     

The following table summarizes the changes in the number of outstanding restricted stock units for the six month period ended June 30, 2016:

Compensation expense for the Omnibus Plan for the three and six months ended June 30, 2016 was $783 and $1,205, respectively.  As of June 30, 2016, the total unrecognized compensation expense related to unvested options and restricted stock units under the Omnibus Plan was $4,009, which the Company expects to recognize over an estimated weighted average period of 2.0 years.

CPI Holdings I, Inc. Amended and Restated 2007 Stock Option Plan

In 2007, the Company’s Board of Directors adopted the CPI Holdings I, Inc. Amended and Restated 2007 Stock Option Plan (the “Option Plan”). Under the provisions of the Option Plan, stock options may be granted to employees, directors, and consultants at an exercise price greater than or equal to (and not less than) the fair market value of a share on the date the option is granted.

As a result of the Company’s adoption of its Omnibus Plan in conjunction with the IPO, as further described above, no further awards will be made under the Option Plan.  The outstanding stock options have a 10-year life and vest as noted in each respective grant letter.  All stock options are non-qualified.  No stock options were granted during the three and six month period ended June 30, 2015.

The following table summarizes the changes in the number of outstanding stock options for the six month period ended June 30, 2016:

Unvested options as of June 30, 2016 will vest as follows:

Compensation expense for the three and six months ended June 30, 2016 and unrecorded compensation expense at June 30, 2016, related to options previously granted under the Option Plan, were de minimis.  The aggregate intrinsic value of stock option awards outstanding and exercisable under the Option Plan as of June 30, 2016 was $1,690 and $1,653, respectively.

Other Stock-Based Compensation Awards

During June 2015, the Company issued 191,664 restricted shares of common stock to executives of the Company with a weighted-average grant date fair value of $9.48 per share.  The awards contain conditions associated with continued employment or service.  The terms of the unvested restricted shares of common stock provide voting and regular dividend rights to the holders, and accordingly are included in weighted-average shares outstanding in the Company’s basic earnings per share calculation.  See Note 11 “Earnings per Share”.  As of June 30, 2016, 94,864 restricted shares of common stock were outstanding, which vest over a three year period from the grant date.

Total compensation expense related to these unvested restricted shares of common stock awards was $323 and $646 for the three and six month periods ended June 30, 2016, respectively.  Compensation expense for the three and six month periods ended June 30, 2015 was immaterial.  As of June 30, 2016, there was $525 of total remaining unrecognized compensation expense related to these unvested restricted shares of common stock that will be recognized over a weighted average period of 0.74 years.

Phantom Stock Plan

The Company recognized $897 and $1,503 of compensation expense during the three and six month periods ended June 30, 2015, respectively, related to the phantom stock plan. The phantom stock plan was terminated, and all outstanding obligations thereunder were settled, during October 2015 in conjunction with the Company’s IPO. 

14. Segment Reporting

The Company has identified reportable segments as those consolidated subsidiaries that represent 10% or more of its revenue, EBITDA (as defined below), or total assets, or when the Company believes information about the segment would be useful to the readers of the financial statements. The Company’s chief operating decision maker is its Chief Executive Officer who is charged with management of the Company and is responsible for the evaluation of operating performance and decision making about the allocation of resources to operating segments based on measures such as revenue and EBITDA.

EBITDA is the primary measure used by the Company’s chief operating decision maker to evaluate segment operating performance. As the Company uses the term, EBITDA is defined as income from continuing operations before

interest expense, income taxes, depreciation and amortization. The Company’s chief operating decision maker believes EBITDA is a meaningful measure and is superior to available GAAP measures as it represents a transparent view of the Company’s operating performance that is unaffected by fluctuations in property, equipment and leasehold improvement additions. The Company’s chief operating decision maker uses EBITDA to perform periodic reviews and comparison of operating trends and identify strategies to improve the allocation of resources amongst segments.

As of June 30, 2016, the Company’s reportable segments are as follows:

The “Other” category includes the Company’s corporate headquarters and less significant operating segments that derive their revenue from the production of Financial Payment Cards and retail gift cards in Canada (CPI—Canada) and the U.K. (CPI—Petersfield). In August 2015, the Company completed the shut down and closure of the Petersfield, U.K. facility.

Performance Measures of Reportable Segments

Revenue and EBITDA of the Company’s reportable segments for the three and six months ended June 30, 2016 and 2015 were as follows: