CPI Card Group Inc 10-Q for FY2021 Q3

CPI Card Group Inc. (PMTS)

10-Q 2021-11-05 For: 2021-09-30

Added on April 10, 2026

About this 10-Q

CPI Card Group Inc filed this 10-Q on November 5, 2021, covering the quarter ended September 30, 2021 (FY2021 Q3).

Headline figures

Quarter ended September 30, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $99.6M; up 20.4% from $82.7M a year earlier
Net income: $6.63M; up 14.1% from net income of $5.81M a year earlier
Diluted EPS: $0.56; up 7.7% from $0.52 a year earlier

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Delaware		26-0344657
(State or other jurisdiction of incorporation or organization)		(I.R.S. employer identification no.)

10368 W. Centennial Road
Littleton, CO		80127
(Address of principal executive offices)		(Zip Code)


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.001 par value	PMTS	Nasdaq Global Market



Large accelerated filer	☐	Accelerated filer	☐

Non-accelerated filer	☒	Smaller reporting company	☒

		Emerging growth company	☐


		Page
Part I — Financial Information

Item 1 — Financial Statements (Unaudited)		3

Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations		23

Item 3 — Quantitative and Qualitative Disclosures About Market Risk		35

Item 4 — Controls and Procedures		35


Part II — Other Information

Item 1 — Legal Proceedings		36

Item 1A — Risk Factors		36

Item 6 — Exhibits		38

Signatures		39


	September 30,		December 31,
	2021		2020

Assets
Current assets:
Cash and cash equivalents	$	20,853	$	57,603
Accounts receivable, net of allowances of $226 and $289, respectively		65,450		54,592
Inventories		46,442		24,796
Prepaid expenses and other current assets		5,097		5,032
Income taxes receivable		116		10,511
Total current assets		137,958		152,534
Plant, equipment, leasehold improvements and operating lease right-of-use assets, net		38,347		39,403
Intangible assets, net		22,821		26,207
Goodwill		47,150		47,150
Other assets		5,999		857
Total assets	$	252,275	$	266,151
Liabilities and stockholders’ deficit
Current liabilities:
Accounts payable	$	18,795	$	18,883
Accrued expenses		32,097		28,149
Current portion of long-term debt		—		8,027
Deferred revenue and customer deposits		1,029		1,868
Total current liabilities		51,921		56,927
Long-term debt		303,251		328,681
Deferred income taxes		6,657		7,409
Other long-term liabilities		12,979		11,171
Total liabilities		374,808		404,188
Commitments and contingencies (Note 14)
Series A Preferred Stock; $0.001 par value—100,000 shares authorized; 0 shares issued and outstanding at September 30, 2021 and December 31, 2020		-		-
Stockholders’ deficit:
Common stock; $0.001 par value—100,000,000 shares authorized; 11,238,994 and 11,230,482 shares issued and outstanding at September 30, 2021 and December 31, 2020		11		11
Capital deficiency		(111,622)		(111,858)
Accumulated loss		(10,922)		(26,190)
Total stockholders’ deficit		(122,533)		(138,037)
Total liabilities and stockholders’ deficit	$	252,275	$	266,151


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Net sales:
Products	$	52,276	$	43,462	$	146,445	$	125,040
Services		47,326		39,240		135,468		103,009
Total net sales		99,602		82,702		281,913		228,049
Cost of sales:
Products (exclusive of depreciation and amortization shown below)		31,493		27,490		86,708		79,780
Services (exclusive of depreciation and amortization shown below)		28,368		22,133		77,975		60,986
Depreciation and amortization		2,056		2,472		6,736		7,938
Total cost of sales		61,917		52,095		171,419		148,704
Gross profit		37,685		30,607		110,494		79,345
Operating expenses:
Selling, general and administrative (exclusive of depreciation and amortization shown below)		19,469		15,617		55,363		48,893
Depreciation and amortization		1,514		1,508		4,873		4,498
Total operating expenses		20,983		17,125		60,236		53,391
Income from operations		16,702		13,482		50,258		25,954
Other expense, net:
Interest, net		(7,183)		(6,298)		(23,196)		(19,158)
Other income (expense), net		(6)		27		23		(8)
Loss on debt extinguishment		—		—		(5,048)		(92)
Total other expense, net		(7,189)		(6,271)		(28,221)		(19,258)
Income from continuing operations before income taxes		9,513		7,211		22,037		6,696
Income tax (expense) benefit		(2,887)		(1,402)		(6,769)		2,178
Net income from continuing operations		6,626		5,809		15,268		8,874
Net loss from discontinued operations, net of tax (Note 1)		—		—		—		(30)
Net income	$	6,626	$	5,809	$	15,268	$	8,844

Basic and diluted earnings per share:
Basic earnings per share from continuing operations:	$	0.59	$	0.52	$	1.36	$	0.79
Diluted earnings per share from continuing operations:	$	0.56	$	0.52	$	1.30	$	0.79

Basic earnings per share:	$	0.59	$	0.52	$	1.36	$	0.79
Diluted earnings per share:	$	0.56	$	0.52	$	1.30	$	0.79

Basic weighted-average shares outstanding:		11,238,678		11,230,028		11,234,054		11,228,116
Diluted weighted-average shares outstanding:		11,799,321		11,231,821		11,755,381		11,235,098

Comprehensive income:
Net income	$	6,626	$	5,809	$	15,268	$	8,844
Total comprehensive income	$	6,626	$	5,809	$	15,268	$	8,844


	Common Stock			Capital		Accumulated
	Shares	Amount		deficiency		earnings (loss)		Total
June 30, 2021	11,237,056		11		(111,726)		(17,548)	$	(129,263)
Stock-based compensation			—		116		—		116
Stock option exercises	1,938		—		(12)		—		(12)
Components of comprehensive income:
Net income					—		6,626		6,626
September 30, 2021	11,238,994	$	11	$	(111,622)	$	(10,922)	$	(122,533)

	Common Stock			Capital		Accumulated
	Shares	Amount		deficiency		earnings (loss)		Total
December 31, 2020	11,230,482		11		(111,858)		(26,190)	$	(138,037)
Stock-based compensation			—		214		—		214
Stock option exercises	8,512		—		22		—		22
Components of comprehensive income:
Net income			—		—		15,268		15,268
September 30, 2021	11,238,994	$	11	$	(111,622)	$	(10,922)	$	(122,533)

	Common Stock			Capital		Accumulated
	Shares	Amount		deficiency		earnings (loss)		Total
June 30, 2020	11,229,819		11		(111,935)		(39,284)	$	(151,208)
Shares issued under stock-based compensation plans	663		—		—		—		—
Stock-based compensation			—		25		—		25
Components of comprehensive income:
Net income			—		—		5,809		5,809
September 30, 2020	11,230,482	$	11	$	(111,910)	$	(33,475)	$	(145,374)

	Common Stock			Capital		Accumulated
	Shares	Amount		deficiency		earnings (loss)		Total
December 31, 2019	11,224,191		11		(111,988)		(42,319)	$	(154,296)
Shares issued under stock-based compensation plans	6,291		—		—		—		—
Stock-based compensation			—		78		—		78
Components of comprehensive income:
Net income			—		—		8,844		8,844
September 30, 2020	11,230,482	$	11	$	(111,910)	$	(33,475)	$	(145,374)


	Three Months Ended September 30, 2021
	Products		Services		Total
Debit and Credit	$	52,292	$	23,829	$	76,121
Prepaid Debit		—		23,498		23,498
Intersegment eliminations		(16)		(1)		(17)
Total	$	52,276	$	47,326	$	99,602

		Nine Months Ended September 30, 2021
		Products		Services		Total
Debit and Credit		146,651		72,147		218,798
Prepaid Debit		—		63,339		63,339
Intersegment eliminations		(206)		(18)		(224)
Total	$	146,445	$	135,468	$	281,913

	Three Months Ended September 30, 2020
	Products		Services		Total
Debit and Credit	$	44,056	$	18,654	$	62,710
Prepaid Debit		—		20,604		20,604
Intersegment eliminations		(594)		(18)		(612)
Total	$	43,462	$	39,240	$	82,702

	Nine Months Ended September 30, 2020
	Products		Services		Total
Debit and Credit	$	126,507	$	54,348	$	180,855
Prepaid Debit		—		48,680		48,680
Intersegment eliminations		(1,467)		(19)		(1,486)
Total	$	125,040	$	103,009	$	228,049


	September 30, 2021		December 31, 2020

Trade accounts receivable	$	53,668	$	44,305
Unbilled accounts receivable		12,008		10,576
		65,676		54,881
Less allowance for doubtful accounts		(226)		(289)
	$	65,450	$	54,592


	September 30, 2021		December 31, 2020

Raw materials	$	43,734	$	23,009
Finished goods		5,741		4,635
Inventory reserve		(3,033)		(2,848)
	$	46,442	$	24,796


	September 30, 2021		December 31, 2020

Machinery and equipment	$	60,450	$	55,459
Machinery and equipment under financing leases		7,676		9,974
Furniture, fixtures and computer equipment		4,583		4,410
Leasehold improvements		13,967		15,083
Construction in progress		2,264		2,386
		88,940		87,312
Less accumulated depreciation and amortization		(59,853)		(55,092)
Operating lease right-of-use assets, net of accumulated amortization		9,260		7,183
	$	38,347	$	39,403


		September 30, 2021						December 31, 2020
	Weighted Average			Accumulated		Net Book				Accumulated		Net Book
	Life (Years)	Cost		Amortization		Value		Cost		Amortization		Value

Customer relationships	17.2	$	55,454	$	(34,600)	$	20,854	$	55,454		(32,141)	$	23,313
Technology and software	8		7,101		(6,517)		584		7,101		(5,881)		1,220
Trademarks	8.7		3,330		(1,947)		1,383		3,330		(1,656)		1,674
Intangible assets subject to amortization		$	65,885	$	(43,064)	$	22,821	$	65,885	$	(39,678)	$	26,207


2021 (excluding the nine months ended September 30, 2021)	$	966
2022		3,867
2023		3,867
2024		3,630
2025		3,440
Thereafter		7,051
	$	22,821


	Carrying		Estimated
	Value as of		Fair Value as of		Fair Value Measurement at September 30, 2021
	September 30,		September 30,		(Using Fair Value Hierarchy)
	2021		2021		Level 1		Level 2		Level 3
Liabilities:
Senior Notes	$	310,000	$	337,993	$	—	$	337,993	$	—


	September 30, 2021		December 31, 2020

Accrued payroll and related employee expenses	$	8,018	$	4,938
Accrued employee performance bonus		7,194		4,873
Employer payroll tax, including social security deferral		3,171		3,034
Accrued rebates		1,510		1,178
Sales tax liability		1,228		1,696
Accrued interest		1,197		4,145
Operating and financing lease liability (current portion)		3,549		4,407
Income taxes payable		2,015		-
Other		4,215		3,878
Total accrued expenses	$	32,097	$	28,149



	Three Months Ended		Three Months Ended
	September 30, 2021		September 30, 2020
Operating lease costs	$	538	$	664
Variable lease costs		181		175
Short-term operating lease costs		122		-
Total expense from operating leases	$	841	$	839

Finance lease cost:
Right-of-use amortization expense		256		326
Interest on lease liabilities		92		110
Total financing lease costs	$	348	$	436


	Nine Months Ended		Nine Months Ended
	September 30, 2021		September 30, 2020
Operating lease costs	$	1,580	$	2,006
Variable lease costs		509		524
Short-term operating lease costs		416		-
Total expense from operating leases	$	2,505	$	2,530

Finance lease cost:
Right-of-use amortization expense		751		982
Interest on lease liabilities		297		356
Total financing lease costs	$	1,048	$	1,338


		Operating		Financing
		Lease		Leases

2021 (excluding the nine months ended September 30, 2021)		747		518
2022		2,377		2,136
2023		2,250		1,188
2024		2,049		390
2025		1,477		132
Thereafter		3,706		55
Total lease payments		12,606		4,419
Less imputed interest		(2,791)		(468)
Total	$	9,815	$	3,951


	September 30,
	2021		2020
Tax at federal statutory rate	21.0	%	21.0	%
State taxes, net	6.2		7.4
Valuation allowance	0.0		(18.1)
Permanent items	2.8		7.2
Tax benefit CARES Act	0.0		(54.7)
Other	0.7		4.7
Effective income tax rate	30.7	%	(32.5)	%


				Weighted-
		Weighted-		Average
		Average		Remaining
		Exercise		Contractual Term
	Options	Price		(in Years)
Outstanding as of December 31, 2020	706,372	$	15.20	6.44
Granted	115,659		29.62	6.98
Exercised	(10,513)		5.25
Forfeited	(19,381)		23.03
Outstanding as of September 30, 2021	792,137	$	17.35	5.65
Options vested and exercisable as of September 30, 2021	676,478	$	15.25	5.42
Options vested and expected to vest as of September 30, 2021	792,137	$	17.35	5.65



	September 30, 2021		December 31, 2020
Operating leases
Operating lease right-of-use assets, net of amortization	$	9,260	$	7,183

Operating lease liability (current)	$	1,781	$	2,267
Long-term operating liability		8,034		5,491
Total operating lease liabilities	$	9,815	$	7,758

Financing leases
Property, equipment and leasehold improvements	$	7,676	$	9,974
Accumulated depreciation		(2,188)		(2,422)
Total property, equipment and leasehold improvements, net	$	5,488	$	7,552

Financing lease liability (current)	$	1,768	$	2,140
Long-term financing liability		2,183		3,052
Total financing lease liabilities	$	3,951	$	5,192


	Interest		September 30,		December 31,
	Rate ⁽¹⁾		2021		2020
Senior Notes	8.625	%	$	310,000	$	—
ABL Revolver	—	%		—		—
First Lien Term Loan	5.500	%		—		312,500
Senior Credit Facility	9.500	%		—		30,000
Unamortized deferred financing costs				(6,749)		(3,804)
Unamortized discount				—		(1,988)
Total long-term debt			$	303,251	$	336,708
Less current maturities				—		(8,027)
Long-term debt, net of current maturities			$	303,251	$	328,681


		Weighted-Average
	Options	Grant-Date Fair Value

Unvested as of December 31, 2020	45,319	$	1.10
Granted	115,659		17.43
Vested	(45,319)		1.10
Unvested as of September 30, 2021	115,659	$	17.43


	Nine Months
	Ended
	September 30
	2021
Expected term in years ⁽¹⁾	4.3
Volatility ⁽²⁾	78.6	%
Risk-free interest rate ⁽³⁾	0.7	%
Dividend yield ⁽⁴⁾	—	%


	Net Sales
	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Debit and Credit	$	76,121	$	62,710	$	218,798	$	180,855
Prepaid Debit		23,498		20,604		63,339		48,680
Intersegment eliminations		(17)		(612)		(224)		(1,486)
Total	$	99,602	$	82,702	$	281,913	$	228,049


	EBITDA
	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Debit and Credit	$	22,356	$	16,993	$	67,078	$	45,073
Prepaid Debit		9,040		8,332		24,719		16,974
Other		(11,130)		(7,836)		(34,955)		(23,757)
Total	$	20,266	$	17,489	$	56,842	$	38,290


	Three Months Ended September 30,
			% of 2021				% of 2020
	2021		Net Sales		2020		Net Sales		$ Change		% Change

	(dollars in thousands)
Gross profit by segment:
Debit and Credit	$	28,176	37.0	%	$	21,720	34.6	%	$	6,456	29.7	%
Prepaid Debit		9,509	40.5	%		8,887	43.1	%		622	7.0	%
Total	$	37,685	37.8	%	$	30,607	37.0	%	$	7,078	23.1	%

Exhibit Number		Exhibit Description
3.1		Certificate of Amendment of the Third Amended and Restated Certificate of Incorporation of CPI Card Group Inc. (incorporated by reference to the Company’s Registration Statement on Form S-3 (File No. 333-259511)).
10.1		Form of Executive Nonqualified Stock Option Agreement under the CPI Card Group Inc. Omnibus Incentive Plan.
10.2		Form of Executive Restricted Stock Unit Agreement under the CPI Card Group Inc. Omnibus Incentive Plan.
10.3		Form of Director Restricted Stock Unit Agreement under the CPI Card Group Inc. Omnibus Incentive Plan.
10.4		Offer Letter, dated October 1, 2021 by and between CPI Card Group Inc. and Amintore Schenkel.
10.5		Offer Letter, dated October 1, 2021 by and between CPI Card Group Inc. and John Lowe.
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH		Inline XBRL Taxonomy Extension Schema Document.
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document.
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document.
104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).


	CPI CARD GROUP INC.


November 5, 2021	/s/ Amintore Schenkel
	Amintore Schenkel
	Chief Financial Officer
	(Principal Financial Officer)